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, 2000
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)
9601 WILSHIRE BOULEVARD, SUITE 220,
BEVERLY HILLS, CALIFORNIA 90210
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (310) 887-6400
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. [ ]
As of March 26, 2001, there were outstanding 8,693,640 shares of the
Registrant's Common Stock. The aggregate market value of the Registrant's Common
Stock held by non-affiliates on March 26, 2001 was approximately $21 million
based on the closing price of $3.81 per share.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the Registrant's proxy
statement for its 2001 Annual Meeting of Stockholders, to be held at a future
date, are incorporated by reference into Part III of this report.
================================================================================
2
KENNEDY-WILSON, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
---------
CAPTION Page
------- ----
PART I
ITEM 1. Business............................................................................................... 3
ITEM 2. Properties............................................................................................. 8
ITEM 3. Legal Proceedings...................................................................................... 8
ITEM 4. Submission of Matters to a Vote of Security Holders.................................................... 8
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.................................. 9
ITEM 6. Selected Financial Data................................................................................ 10
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 11
ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk.............................................. 17
ITEM 8. Financial Statements and Supplementary Data............................................................ 18
PART III
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................... 44
ITEM 10. Directors and Executive Officers of the Registrant..................................................... 44
ITEM 11. Executive Compensation................................................................................. 44
ITEM 12. Security Ownership of Certain Beneficial Owners and Management......................................... 44
ITEM 13. Certain Relationships and Related Transactions......................................................... 44
PART IV
ITEM 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K........................................ 45
2
3
ITEM 1. BUSINESS
OVERVIEW
We are an integrated, international real estate services and investment
company. Founded in 1977, we were later incorporated in Delaware and became a
public company in 1992. We deliver a complementary array of real estate
services. Headquartered in Beverly Hills, we have approximately 790 full and 30
part time employees in offices throughout the U.S. and in Japan. We initially
gained recognition in the U.S. real estate market through our real estate
auction services. Over time, we diversified our business so that we now provide:
- - Fund management of real estate and note pool investments;
- - Commercial and residential property management and leasing; and
- - Commercial and residential brokerage, including auction marketing.
In addition to these real estate related services, we invest through
joint venture funds in:
- - Commercial and residential real estate; and
- - Pools of secured and unsecured distressed notes
Our clients include large U.S. and Japanese financial institutions, major
corporations, pension funds, real estate developers, insurance companies and
governmental entities.
We have had a presence in Japan for ten years through which we have
developed significant relationships with Japanese companies and financial
institutions. In 1995, we opened our Tokyo office. It is primarily staffed with
Japanese employees with knowledge of the local culture and real estate market.
We believe that success in the Japanese real estate market is determined
primarily by a company's reputation and its business relationships, not solely
by its access to capital. We have entered into joint venture funds with
companies and partnerships affiliated with Colony Capital, Inc. and Cargill,
Incorporated to invest in Japanese real estate and distressed notes. We believe
that these joint venture parties were attracted to us, in large part, by our
strong Japanese presence.
OUR BUSINESS OPERATIONS
FUND MANAGEMENT
During 2000, we created the KWI Fund Management Group, a vertically
integrated real estate services and fund management firm. This group organizes
and manages closed-end commingled real estate investment funds that invest in
high-quality office, industrial, retail and multifamily income property located
in selected markets in the U.S. We serve as the general partner of the funds and
co-invest with our pension fund clients as limited partners. We earn fees for
services provided to the fund including fees for acquisition, asset management,
property management, leasing, and disposition services.
Our initial fund, formed in August 2000, is a $250 million fund comprised
of $100 million in equity and $150 million in debt. Through the end of year 2000
we have acquired 7 office properties totaling approximately 854,000 square feet.
The properties are located in Los Angeles, Austin, and Atlanta. Future funds are
expected to also be in the $100 million equity range with $250 million in
assets. The funds have the following principal investment objectives:
- - Achieve total long-term risk adjusted returns on equity that exceed market
averages;
- - Invest in high-quality office, industrial, retail and multifamily income
property located in selected markets;
- - Purchase existing income properties, including those that need additional
renovation and capital improvements, in major growth markets that are
expected to maintain above-average employment and rent growth rates over
the
3
4
next 10-20 years;
- - Acquire properties at substantial discounts to replacements cost, make
selective capital improvements to those properties that are expected to
increase income and create significant value in excess of the cost of the
improvements;
- - Acquire properties generally in the $5 to $20 million per property
price range.
PROPERTY MANAGEMENT AND LEASING
We are a nationwide commercial and residential property management and
leasing company. We provide a full range of services relating to property
management, including:
- - Commercial and residential building management;
- - Leasing;
- - Construction management;
- - Engineering services;
- - Technical services; and
- - Environmental management.
We have managers in ten regional offices -- Beverly Hills, New York,
Dallas, Austin, Houston, San Francisco, Seattle, Walnut Creek, Minneapolis and
Chicago -- supervising approximately 710 employees who assist in managing more
than 460 office and industrial buildings, and multi-unit residential complexes
in 24 different states. We have approximately 70 million gross square feet of
real estate under management.
As part of our strategy for providing our property management clients with
the best services possible, we apply the same approach in managing our clients'
properties as we do in managing our own, where our primary objective is to
maximize the return on investment. To this end, we work with each client to
ascertain its goals and expectations and to design strategic plans for leasing
and improving each property in a way that increases the client's returns. We
also strive to maximize our clients' returns by reducing property operating
expenses through the discounts and lower prices that we generally obtain for
vendor services and supplies.
REAL ESTATE BROKERAGE
Through our offices in Beverly Hills, New York and Tokyo, we provide
specialized brokerage services for both commercial and residential real estate.
We market and sell on behalf of our clients and ourselves:
- - Office and retail buildings;
- - Multi- and single-family residences;
- - Industrial sites;
- - Hotels and resorts; and
- - Undeveloped land.
We specialize in marketing institutional properties through privately
negotiated and sealed bid sales. We develop and implement cost-effective
marketing campaigns ranging from local to worldwide in scope. Each
4
5
marketing campaign is tailored to the client's objectives and the property's
characteristics, including time parameters, sensitivity to publicity and cash
flow needs. We also investigate and analyze, among other things, the physical
condition of the property, its cash flow and tenant characteristics, market
rents and market dynamics within submarkets and comparable transactions.
We also market properties directly to various investors with whom we
maintain ongoing business relationships. We believe that through these efforts,
we create a sales environment intended to enable our clients to obtain the
highest possible prices for their properties. We obtain our commercial brokerage
engagements primarily through our existing relationships with over 100
institutional and corporate owners of real estate primarily located in the U.S.
and Japan.
We also design marketing programs to sell single-family home developments
and condominium projects using conventional sales and auction-marketing
programs. We also design and implement sealed bid marketing programs for
exclusive estates and land for residential development. Most of the residential
properties that we have brokered are located in California. Our clients include
builders, developers, private sellers and financial institutions.
On a national and international basis, we provide our clients with auction
marketing services to sell both commercial and residential real estate. Auctions
provide a seller an opportunity to concentrate the marketing efforts and sell
its holdings on one established date. By doing so, the seller can increase
liquidity and avoid long-term carrying costs and the risk of a drop in market
value. For these reasons, we believe that the net proceeds to the seller
following an auction sale of multiple units often exceeds what the net proceeds
would have been had the units been sold individually through conventional
brokerage arrangements.
REAL ESTATE INVESTMENTS
We invest in commercial and residential real estate, both in the U.S. and
Japan. We invest primarily through funds with institutional joint venture
partners, who typically contribute the majority of the capital. The investment
funds typically target specific property types. For example, we have a $200
million apartment fund with Hanover Capital, a division of Marcus & Millichap.
In Japan we have joint venture funds with $400 million for investments in real
estate and distressed notes with partners such as Cargill and Colony Capital.
These funds enable us to leverage our capital and diversify the risks associated
with owning properties. In addition, we earn fees for services provided to the
joint venture, including due diligence, acquisition, asset management, and
disposition services.
We purchase properties that are subperforming in a manner which we believe
can be rectified with our expertise or financial resources. For example, a
developer of a residential real estate project may find it difficult or
impossible to finish the project because it cannot properly market the finished
product or has insufficient cash flow. In such a situation, we can purchase the
project at a discounted price then apply our marketing expertise and draw on our
financial resources to finish the project and sell it as a whole or to
individual buyers for a profit. With regard to commercial properties, we acquire
subperforming buildings, make the improvements necessary to attract tenants,
lease to new tenants and then sell the buildings.
One of our strengths is our ability to quickly identify and acquire
desirable real estate assets in privately negotiated transactions. We do so by
capitalizing on the institutional knowledge we have developed through our
brokerage, property management, and investment business and by conducting quick
and thorough investigations and analyses of the properties, their financial
condition and what we believe to be their financial potential. We have extensive
experience in identifying and analyzing the factors that impact property values
in the regions in which we do business, such as new construction, the
marketability of certain neighborhoods, leasing trends and the types of
businesses seeking various types of commercial space. Our due diligence is
conducted by our experienced in house team.
Most of the real estate in which we have invested is located in California,
Texas, and Japan. While the current cycle of the U.S. real estate market
presents value-added investment potential, Japan continues to offer significant
opportunistic investments due to the recent Asian economic downturn. Our
brokerage and property
5
6
management operations are the source of many of our real estate acquisitions.
These operations provide us with unique investment opportunities in the form of
close relationships with our institutional clients that have substantial real
estate investments. For example, a financial institution client that has
acquired a property through a foreclosure may desire to sell it in less time
than it would take for a conventional brokerage sale. Similarly, a client in
Japan may have the need to sell a real estate holding in a rapid manner with
little publicity. We are often able to meet the needs of these types of clients
by purchasing their properties quickly and discretely for one of our joint
ventures.
DISTRESSED NOTE POOL INVESTMENTS
Since 1994, we have been purchasing and managing pools of distressed notes.
Generally, distressed notes are those where the borrower has stopped making
payments or is late in making payments. Our note pools contain notes that are
secured and unsecured. The secured notes are collateralized by real estate or
personal property. We typically purchase notes from financial institutions.
In 1998 we expanded our operations to include the acquisition of pools of
distressed Japanese notes. The notes are typically secured by real estate and
personal property. In addition, the pools also include commercial and
residential properties. The investment strategy is to acquire the notes on a
privately negotiated basis from Japanese financial institutions. Our investments
in Japan are typically acquired in joint venture funds with institutional
investors who contribute the majority of the capital. In addition to our
investment interest, we earn fees for services provided to the joint venture,
including due diligence, acquisition, asset management, and disposition
services.
MEZZANINE LENDING
The Company makes mezzanine loans to real estate developers for new
single-family, residential developments. Total project costs for these
developments typically range from $5 to $25 million, and our mezzanine loans
typically range from approximately $500,000 to $8 million. We expect to hold
these loans for less than two years. Typically, the borrowers pay interest at
10% per annum, and we are entitled to a participation in any profits from the
development. We also generally collect at the closing of each loan a 1% fee.
EQUITY INVESTMENTS IN OTHER COMPANIES
Asset One. We own a 40% equity interest in Asset One, a Japanese
corporation with an office in Tokyo. Asset One is a loan servicing company
whose business includes servicing the loans in our distressed Japanese
loan pools.
Jutaku Ryutsu. We own a 30% equity interest in Jutaku Ryutsu, a Japanese
corporation with offices in Tokyo, Osaka and Fukuoka, Japan. Jutaku Ryutsu is a
brokerage company that specializes in selling real estate assets between
$500,000 and $10 million in value. Jutaku Ryutsu assists us with our acquisition
due diligence on our Japanese loan pools and real estate and the disposition of
those assets.
GOVERNMENT REGULATIONS
Our brokerage and property management operations are subject to various
federal, state and local regulations in the U.S. and in Japan. We must have an
officer licensed as a real estate broker or we must associate with a broker
licensed by each state within the U.S. in which we provide brokerage or property
management services. Each of our employees that performs certain brokerage
functions in any particular state must be a licensed real estate salesperson in
that state and he or she must work under the supervision of a broker licensed by
that state. We are in compliance with all material licensing requirements and
regulations in states and countries in which licenses are required and in which
we are engaged in brokerage and property management activities.
6
7
In various states, governmental entities license individual auctioneers
and/or administers various regulations governing their activities and may
require that auctioneers post bonds. We are in compliance with all material
licensing and bonding requirements in all states in which auctioning licenses
and bonds are required and in which we are engaged in material auction
activities.
COMPETITION
Because of our unique combination of businesses, we compete with brokerage
and property management companies as well as companies that invest in real
estate and distressed notes. The brokerage and property management industries
are both highly fragmented and competitive. We compete with real estate
brokerage companies on the basis of our relationship with property owners,
quality of service, and commissions charged. We compete with property management
and leasing firms also on the basis of our relationship with clients, the range
and quality of services provided, and fees and commissions charged. Our
investment operations compete to varying degrees with real estate investment
partnerships and other investment companies. We compete with these other
investors on the basis of our relationship with the sellers and the amounts that
we pay for the investments acquired.
EMPLOYEES
We have approximately 790 full-time and 30 part-time employees in the U.S.
and in Japan. Our compensation policies are designed to attract, retain and
motivate employees that are an integral part of our profitability. Our employees
typically receive a base salary and performance based incentives including
bonuses based on the profitably of their operation units. As a result, employees
are encouraged to meet individual goals as well as to contribute their expertise
and efforts on behalf of their group. In addition to promoting the generation of
revenues, our compensation structure also encourages our employees to control
costs.
7
8
ITEM 2. PROPERTIES
Our executive and administrative offices are located at 9601 Wilshire
Boulevard, Suite 220, Beverly Hills, California, and consist of approximately
26,000 square feet in an office building managed by us. We also lease space for
our regional and branch offices and sublease space to third parties. These
facilities, including our Beverly Hills headquarters, comprise a total of
approximately 125,000 square feet of leased space, with an annual aggregate base
rental of approximately $3.2 million. Each of these leases is scheduled to
expire within the next five years. We believe that we will be able to renew any
expiring lease or obtain suitable office space to replace such leased facility,
as necessary, without any material increase in our rental costs.
As described above, we also buy and sell real estate in the ordinary course
of our business.
ITEM 3. LEGAL PROCEEDINGS
We are involved in various legal proceedings generally incidental to our
business. These matters are generally covered by insurance. While the ultimate
disposition of these proceedings is not known, based upon current available
information, we believe that the outcomes will not have a material adverse
effect on our financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of our stockholders during the
fourth quarter of 2000.
8
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Company's Common Stock trades on The NASDAQ National Market under the
symbol: KWIC. The following table sets forth the high and low closing sale
prices per share of our Common Stock as reported in the NASDAQ National
Market.
High Low
------- -------
1999-
First Quarter $13.375 $ 7.250
Second Quarter $10.500 $ 8.563
Third Quarter $10.688 $ 7.813
Fourth Quarter $10.125 $ 7.500
2000-
First Quarter $10.313 $ 5.125
Second Quarter $ 5.750 $ 4.563
Third Quarter $ 6.875 $ 5.125
Fourth Quarter $ 5.500 $ 4.000
As of March 26, 2001, there were approximately 1,200 holders of our Common
Stock.
9
10
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data as of and for each of the
five fiscal years ended December 31, 2000. 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 1997 1998 1999 2000
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA:
Total revenues ........................................... $31,967 $26,999 $50,872 $91,359 $97,051
Total expenses ........................................... 28,376 22,768 44,710 82,921 88,811
Income from operations ................................... 3,591 4,231 6,162 8,438 8,240
Net income ............................................... 3,531 4,030 5,325 5,609 4,726
Basic income before extraordinary items per share......... $ 0.50 $ 0.65 $ 0.85 $ 0.68 $ 0.52
Basic extraordinary item per share ....................... N/A 0.01 N/A N/A N/A
Basic net income per share ............................... $ 0.50 $ 0.66 $ 0.85 $ 0.68 $ 0.52
Basic weighted average shares ............................ 7,087 6,104 6,254 8,219 9,018
Diluted income before extraordinary items per share ...... $ 0.50 $ 0.64 $ 0.78 $ 0.58 $ 0.50
Diluted extraordinary item per share ..................... N/A $ 0.01 N/A N/A N/A
Diluted net income per share ............................. $ 0.50 $ 0.65 $ 0.78 $ 0.58 $ 0.50
Diluted weighted average shares .......................... 7,094 6,187 6,801 10,015 10,128
As of December 31,
----------------------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS)
BALANCE SHEET DATA:
Total assets ................ $ 51,114 $ 45,718 $204,816 $135,150 $133,104
Long term debt .............. 20,516 15,102 136,130 27,901 55,653
Total liabilities ........... 40,732 34,124 182,036 88,464 83,340
Total stockholders' equity... 10,382 11,594 22,780 46,686 49,764
10
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We are an integrated, international real estate services and investment
company with offices throughout the United States and in Japan. Through our
subsidiaries, we provide a complementary array of real estate services,
including fund management, property management and leasing, real estate
brokerage services including auction marketing, and asset management.
Additionally, on our own account and through joint venture funds we invest in
real estate and note pool investments both in the U.S. and Japan. Our revenues
in 1998, 1999 and 2000 were $50.9 million, $91.4 million, and $97.1 million,
respectively. Earning before taxes were $8.2 million in 2000, compared to $8.4
million in 1999, and $6.2 million in 1998. Our net income for the same periods
was $5.3 million, $5.6 million, and $4.7 million, respectively.
COMPARISON OF YEARS ENDED DECEMBER 31, 2000 AND 1999
Total revenues for 2000 were $97.1 million, which represents a 6.2%
increase over $91.4 million in 1999. Earnings before taxes for 2000 were $8.2
million, compared to $8.4 million in 1999. The decline in 2000 resulted from
significant non-recurring expenses related to the acquisition and integration of
five property management companies during 1999. Net income for 2000 was $4.7
million compared to $5.6 million in 1999. The decline resulted from the
non-recurring expenses, and the increased provision for the income taxes that
amounted to 43% of pre-tax income in year 2000 compared to 34% in 1999.
TOTAL REVENUES
Property Management. In 2000 our property management and leasing operations
generated $41.1 million of revenues, representing 42.3% of our total revenue and
a 39.0% increase over property management revenue of approximately $29.5 million
in 1999. 2000 was the first full year of ownership of the five property
management companies that were acquired during 1999. The acquisitions expanded
our geographic presence to include regional offices in San Francisco, Seattle,
Austin, Dallas and Houston. The acquisitions also added retail management,
tenant representation leasing, and fee development to the services we offer
clients.
Brokerage. Brokerage commission revenues in 2000 were $14.8 million,
representing 15.3% of total revenues and an 11.4% increase over brokerage
commission revenues in 1999 of $13.3 million. Residential brokerage sales
accounted for $469,000 and $576,000 in 2000 and 1999, respectively. Our
brokerage services include sales and leasing for commercial, industrial, retail
and apartment properties.
Investments. Sales of residential real estate were $30.2 million in 2000,
representing 31.1% of total revenues, compared to $25.7 million in 1999. The
sales completed during the year included the bulk sale of 53 condominium units
in a 136-unit building located in Los Angeles, 48 homes in a 109-home
development in the Palm Springs area and two single family homes in Los Angeles.
In 1999, the revenue was generated from the sales of a 95-unit apartment
building located in Los Angeles, 17 units in a 109-unit single family
development in the Palm Springs area, 16 units of a 23-unit single family
development in Palm Desert, and a single family home located in Los Angeles. The
sales of residential real estate for both years reflect our strategy to sell
upon completion of planned improvements, rather than holding for speculation.
Equity in income of investments in joint ventures and gain on sale of joint
ventures totaled $4.3 million in 2000, or 4.5% of total revenue compared to $4.5
million realized in 1999. There was no gain on the sale of joint ventures in
2000 as compared to a gain of $2.4 million in 1999 from the sale of our interest
in a joint venture that owned a commercial office building. Revenue from joint
venture investment funds in Japan included continued settlement of the
non-performing note pools and incentive fees earned on both the note pools and
real estate assets acquired through the joint ventures. Equity in income of
investment in joint venture funds also included revenue related to the sale of
investments in apartment buildings and commercial office buildings.
11
12
There was no gain on sale of commercial real estate in 2000 compared to
$7.1 million in 1999. During 1999 we sold an office building and a parking
garage, both located in Los Angeles, and a parcel of land in Hawaii.
Gains on restructured notes totaled $3.6 million in 2000, or 3.7% of total
revenues, a 25.3% increase over $2.9 million in 1999. The gain reflects our
continued progress in liquidating our portfolios of distressed notes, both in
the U.S. and in Japan, that were purchased at substantial discounts to face
value. Our strategy to collect the note balances consists of either
restructuring the note to performing status, negotiating a payoff, or
foreclosing and selling the related collateral.
There was no net rental income in 2000 compared to $6.4 million in 1999, as
a result of our sale and transfer of all income producing properties in 1999.
TOTAL OPERATING EXPENSES
Operating expenses in 2000 were $88.8 million, compared to $82.9 million in
1999. Part of the increase represents the higher cost of goods sold associated
with the sales of residential real estate discussed above. The balance of the
increase in operating expense was associated with the five property management
acquisitions, offset by a reduction in interest expense relating to the
commercial buildings that were deconsolidated in 1999.
Brokerage commissions and marketing expenses increased to $7.9 million in
2000 from $3 million in 1999, due to the commissions paid related to commissions
revenue, and due to reclassifications of commission revenue and expense, which
had been shown net in prior years.
Cost of residential real estate sold was $26.6 million in 2000, a 9.5%
increase from $24.3 million in 1999. This increase correlates with the increased
revenues from the sales of real estate discussed above.
Compensation and related expenses were $30.4 million in 2000, up 7.7% from
$28.3 million in 1999. The increase in compensation reflects a full year of
compensation relating to the five property management companies acquired in
1999.
General and administrative expenses were $16.1 million in 2000,
representing a 29.0% increase over 1999 expenses of $12.4 million. The increase
is related to the acquisition of the five property management companies and
included non-recurring expenses related to the acquisition and integration of
these businesses.
Depreciation and amortization expense increased to $4.4 million in 2000, a
24.3% increase over $3.5 million in 1999. The increase was due to the
amortization of the goodwill and other assets associated with the acquisition of
the property management companies acquired in 1999.
Interest expense was $3.5 million in 2000, compared to $11.4 million in
1999. While the interest on the additional $15 million of senior debt resulted
in approximately $1 million of additional interest expense for the six month
period, it is offset by the decrease in interest expense resulting from the
commercial buildings that were deconsolidated in 1999 and the capitalization of
interest expense related to certain real estate investments.
The provision for income taxes was $3.5 million in 2000, a 24.2% increase
from $2.8 million in 1999. The income tax provision increased primarily because
the success of Kennedy-Wilson Japan has caused a greater proportion of our
income to be taxed at the higher Japan rate.
We have investments in several real estate related technology companies,
including Property First, eProperty, Struxicon and Corcoran. All of these
investments are accounted for on the cost method except for eProperty, which is
accounted for on the equity method. Expenses and operating losses related to
these investments were $1,431,000 in 2000, including significant non-recurring
costs, compared to $162,000 in 1999.
12
13
COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998
Total revenues for 1999 were $91.4 million, which represents a 79.6%
increase over $50.9 million in 1998. Earnings before taxes for 1999 were $8.4
million, which represents a 36.9% increase over 1998 of $6.2 million. Net income
for 1999 was $5.6 million, which represents a 5.3% increase over $5.3 million in
1998.
TOTAL REVENUES
Property Management. In 1999 our property management and leasing operations
generated $29.5 million of revenues, representing 32.3% of our total revenue and
a 108.2% increase over property management revenue of approximately $14.2
million in 1998. In July 1998, we acquired Heitman Properties, Ltd., from
Heitman Financial, Inc., and renamed it Kennedy-Wilson Properties, Ltd. During
1999, we acquired five additional property management companies and consolidated
them under Kennedy-Wilson Properties, Ltd.'s, umbrella.
Brokerage. Brokerage commission revenues in 1999 were $13.3 million,
representing 14.6% of total revenues and a 171% increase over brokerage
commission revenues in 1998 of $4.9 million. Residential brokerage sales
accounted for $576,000 and $745,000 in 1999 and 1998, respectively. This
reflects a continued trend toward increased brokerage commissions from
commercial sales and decreased brokerage commissions from residential sales.
Investments. Sales of residential real estate were $25.7 million in 1999,
representing 28.2% of total revenues, compared to $13.8 million in 1998. Total
revenue from residential real estate sales increased 86.1%. This increase is due
to sales from four projects in 1999, including a the sales of a 95-unit
apartment in Los Angeles, 17 units in a 109 unit single family development in
the Palm Springs area, 16 units of a 23-unit single family development in Palm
Desert, and a single family home in Los Angeles. This compares to revenues in
1998 from the bulk sales of a 24-unit condominium project in Los Angeles, a
10-unit single family home development in Los Angeles, and seven units of the 23
unit single family development in Palm Desert.
Equity in income of investments in joint ventures and gain on sale of joint
ventures totaled $4.5 million in 1999, or 4.9% of total revenue compared to $4.7
million realized in 1998. In 1999, gain on sale of joint ventures was $2.4
million from the sale of our interest in a joint venture that owned a commercial
office building. In 1998, we sold our interest in a joint venture that owned two
commercial office buildings in Los Angeles. Revenue from joint venture
investments also included increased settlement of the non-performing note pools
acquired through the joint venture funds in Japan.
Gain on sale of commercial real estate was $7.1 million in 1999 or 7.7% of
total revenues compared to $2.7 million in 1998. During 1999, we sold an office
building and a parking garage, both located in Los Angeles, and a parcel of land
in Hawaii. During 1998, we sold two commercial properties, a building in Santa
Monica and one in Los Angeles.
Gains on restructured notes totaled $2.9 million in 1999, or 3.2% of total
revenues, a 26.4% decrease from $3.9 million in 1998. The gain in both years
reflects our continued progress in liquidating our portfolios of distressed
notes that were purchased at substantial discounts to face value.
Net rental income was $6.4 million in 1999, or 7.0% of total revenues,
representing a 38.6% increase from $4.6 million in 1998. The increase reflects a
full year of income on properties purchased during the last six months of 1998,
as well as income resulting from our aggressive leasing program.
TOTAL OPERATING EXPENSES
Operating expenses in 1999 were $82.9 million, compared to $44.7 million in
1998. Part of the increase represents the higher cost of goods sold associated
with the sales of residential real estate discussed above. The
13
14
balance of the increase in operating expense was primarily associated with the
five property management acquisitions, as well as a full year of expense
relating to the July 1998 acquisition of Heitman Properties, Ltd. Additionally,
a full year of interest expense associated with the commercial properties
acquired in the third and fourth quarters in 1998, contributed to the overall
increase in expenses.
Brokerage commissions and marketing expenses increased to $3 million in
1999 from $532,000 in 1998, as a result of the property management acquisitions
and due to reclassifications in commission revenue and expenses, which had been
shown net in prior years.
Cost of residential real estate sold was $24.3 million in 1999, compared to
$12.2 million in 1998. The increase correlates with the increased revenues from
the sales of residential real estate discussed above.
Compensation and related expenses was $28.3 million in 1999, compared to
$14.6 million in 1998. The increase reflects a full year of compensation expense
relating to the acquisition of Heitman Properties, Ltd. in July of 1998 and
increases relating to the acquisition of five additional property management
companies in 1999.
General and administrative expenses were $12.4 million in 1999, compared to
1998 expenses of $6.9 million. The increase is due primarily to the additional
expenses associated with our property management operations and the expansion of
our operations in Japan.
Depreciation and amortization expense increased to $3.5 million in 1999,
compared to $2.1 million in 1998. The increase was due, in part, to the
amortization of the goodwill and property management contracts associated with
the acquisition of the property management companies in 1998 and 1999, as
discussed above. In addition, due to improved occupancy in the Company owned
buildings, the amortization of tenant improvements and leasing commissions
associated with new leases amounted to approximately $900,000.
Interest expense was $11.4 million in 1999, compared to $8.4 million in
1998. The increase results from the full year of interest relating to the
commercial buildings purchased in the third and fourth quarters of 1998.
The provision for income taxes was $2.8 million in 1999, compared to
$837,000 in 1998. The tax expense in previous years has been significantly less
than the statutory rate due to a net operating loss carryforward which has been
utilized in reducing the Company's federal tax liabilities. In 1998, the Company
had substantially used up the net operating loss carryforward, which resulted in
a significantly higher tax liability in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity and capital resources requirements include expenditures for
real estate held for sale, distressed notes pools, joint venture fund
investments and working capital needs. Historically, we have not required
significant capital resources to support our brokerage and property management
operations. We finance our operations with internally generated funds and
borrowings under our revolving lines of credit. Our investments in real estate
are typically financed by mortgage loans secured primarily by that real estate.
These mortgage loans are generally nonrecourse in that, in the event of default,
recourse will be limited to the mortgaged property serving as collateral.
Cash used in operating activities was about $7.4 million in 2000, compared
to $6.5 million in cash used in operating activities in 1999. The change
resulted from increases in equity in income of investments in joint ventures and
accounts receivable, and a reduction in accrued expenses. The cash provided by
operating activities was about $3.6 million in 1998. The change from 1999 to
1998 primarily resulted from an increase in accounts receivable and a decrease
in accounts payable.
Cash provided by investing activities was about $5.1 million in 2000,
compared to $1.9 million in 1999. The change resulted primarily from an increase
in distributions received from
14
15
our joint venture investments and a decrease in note acquisitions. The cash used
in investing activities was about $145.1 million in 1998. The change in 1999
from 1998 resulted from a reduction in purchases of real estate held for sale.
Cash provided by financing activities was about $2.3 million in 2000,
compared to cash used in financing activities of approximately $31,000 in 1999.
The change resulted from the net repayment of notes payable and other
borrowings. The cash provided by financing activities was about $140.9 million
in 1998. The change in 1999 from 1998 resulted from the $18.5 million raised in
the public offering completed in 1999 and borrowings under various credit
facilities offset by the repayment of mortgage loans on the sale of commercial
and residential properties, and the partial repayment of subordinated debt.
To the extent that we engage in additional strategic investments, including
real estate, note portfolio, or acquisitions of other property management
companies, we may need to obtain third party financing which could include bank
financing or the public sale or private placement of debt or equity securities.
We believe that existing cash, plus capital generated from property management
and leasing, brokerage, sales of real estate owned, collections from notes
receivable, as well as our current lines of credit with East-West Bank and Tokai
Bank of California, will provide us with sufficient capital requirements for the
foreseeable future.
Our need, if any, to raise additional funds to meet our working capital and
capital requirements will depend on many factors, including the success and pace
of the implementation of our strategy for growth. We regularly monitor capital
raising alternatives to be able to take advantage of other available avenues to
support our working capital and investment needs, including strategic
partnerships and other alliances, bank borrowings, and the sale of equity or
debt securities. We intend to retain earnings to finance our growth and,
therefore, do not anticipate paying dividends.
INFLATION
Our long-term leases contain provisions designed to mitigate the adverse
impact of inflation on its results from operations. Such provisions include
escalation clauses, which generally increase rental rates during the terms of
the respective agreements. Such escalation clauses are often related to
increases in the Consumer Price Index or similar inflation indices. In addition,
many of our leases and management agreements are for terms of less than ten
years, which permits us to seek to increase rents and fees at market rates if
they are below then existing market rates. Many of our leases require the
tenants to pay a pro rata share of operating expenses, including common area
maintenance, real estate taxes, insurance and utilities, thereby reducing our
exposure to increases in costs and operating expenses resulting from inflation.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Investments
and Hedging Activities ("SFAS 133"). SFAS 133 is effective, as amended, for
fiscal years beginning after June 15, 2000 and requires all derivatives to be
recorded on the balance sheet at fair value as either assets or liabilities
depending on the rights or obligations under the contract. SFAS 133 also
established new accounting methodologies for the following three classifications
of hedges: fair value, cash flow and net investment in foreign operations. The
Company's adoption of SFAS 133 on January 1, 2001 did not have a material impact
on the Company's financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements. SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. The Company
was required to adopt SAB 101 in the fourth quarter of 2000. The Company's
adoption of SAB 101 did not have a material impact on the Company's financial
position or results of operations.
15
16
FORWARD-LOOKING STATEMENTS
Certain statements contained in this document may constitute
"forward-looking statements" within the meaning of the federal securities laws.
Forward-looking statements are statements containing a projection of revenues,
income, earnings, capital expenditures, dividends, capital structure or other
financial terms or our plans and objectives for future operations.
The forward-looking statements in this document are based on our
management's beliefs, assumptions, and expectations of our future economic
performance, taking into account the information currently available to them.
These statements are not statements of historical fact. Forward-looking
statements involve risks and uncertainties that may cause our actual results,
performance or financial condition to be materially different from the
expectations of future results, performance or financial condition we express or
imply in any forward-looking statements. Some of the important factors that
could cause our actual results, performance or financial condition to differ
materially from our expectations are:
- - general volatility of the capital markets;
- - changes in the real estate market, interest rates or the general economy of
the markets in which we operate;
- - our ability to identify and complete acquisitions and successfully
integrate businesses we acquire;
- - our ability to employ and retain qualified employees;
- - changes in government regulations that are applicable to our regulated
brokerage and property management businesses;
- - changes in the demand for our services; and
- - degree and nature of our competition.
When used in our documents or oral presentations, the words "plan,"
"believe," "anticipate," "estimate," "expect," "objective," "projection,"
"forecast," "goal," or similar words are intended to identify forward-looking
statements. We qualify any and all such forward-looking statements entirely by
these cautionary factors.
16
17
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The table below represents contractual balances of our financial instruments at
the expected maturity dates as well as the fair value at December 31, 2000 and
1999. The expected maturity categories take into consideration actual
amortization of principal and do not take into consideration reinvestment of
cash. The weighted average interest rate for the various assets and liabilities
presented are actual as of December 31, 2000 and 1999. (See Consolidated
Financial Statements -- Note 2, Fair Value of Financial Instruments) The Company
decreased its borrowings with variable interest rates to $39.6 million in 2000
from $42.9 million in 1999. Management does not perceive a long-term risk
associated with the loans relating to its commercial and residential real
estate, since typically properties are sold within a one to three year period
and in most cases, the debt is non-recourse to the Company. Additionally,
management closely monitors the fluctuation in interest rates, and if rates were
to increase significantly, the Company believes that it would be able either to
hedge the change in the interest rate or to refinance the loans with fixed
interest rate debt. All instruments included in this analysis are non-trading.
Principal Maturing In: Fair Value
---------------------------------------------------------------- December 31,
2001 2002 2003 2004 2005 Thereafter Total 2000
------------ ------------ ---------- ---- ---- ------------ ------------ -----------
Interest rate sensitive assets
Cash and cash equivalents $21,000 $21,000 $21,000
Average interest rate 5.28% 5.28%
----------- ----------- --------- ---- ---- ----------- ----------- -----------
$21,000 $21,000 $21,000
=========== =========== ========= ==== ==== =========== =========== ===========
Interest rate sensitive liabilities
Variable rate borrowings $ 7,252,000 $31,754,000 $ 612,000 $39,618,000 $39,618,000
Average interest rate 10.00% 9.35% 2.50% 9.36%
Fixed rate borrowings 1,333,000 1,047,000 $22,042,000 24,422,000 24,422,000
Average interest rate 8.50% 8.50% 9.96% 9.82%
----------- ----------- --------- ---- ---- ----------- ----------- -----------
$ 8,585,000 $32,801,000 $ 612,000 - - $22,042,000 $64,040,000 $64,040,000
=========== =========== ========= ==== ==== =========== =========== ===========
Weighted average
Interest rate 9.77% 9.32% 2.50% 0.00% 0.00% 9.96% 9.54%
=========== =========== ========= ==== ==== =========== ===========
Principal Maturing In: Fair Value
--------------------------------------------------------------- December 31,
2000 2001 2002 2003 2004 Thereafter Total 1999
----------- ------------ ----------- ---- ---- ----------- ------------ -----------
Interest rate sensitive assets
Cash and cash equivalents $ 351,000 $ 351,000 $ 351,000
Average interest rate 4.00% 4.00%
----------- ------------ ----------- ---- ---- ----------- ------------ ------------
$ 351,000 $ 351,000 $ 351,000
=========== ============ =========== ==== ==== =========== ============ ============
Interest rate sensitive liabilities
Variable rate borrowings $26,321,000 $ 16,533,000 $ 42,854,000 $ 42,854,000
Average interest rate 8.96% 8.74% 8.88%
Fixed rate borrowings 10,633,000 2,354,000 $ 1,306,000 $ 7,500,000 21,793,000 21,793,000
Average interest rate 11.22% 7.18% 6.57% 6.00% 8.71%
----------- ------------ ----------- ---- ---- ----------- ------------ ------------
$36,954,000 $ 18,887,000 $ 1,306,000 - - $ 7,500,000 $ 64,647,000 $ 64,647,000
=========== ============ =========== ==== ==== =========== ============ ============
Weighted average
Interest rate 9.61% 8.55% 6.57% 0.00% 0.00% 6.00% 8.82%
=========== ============ =========== ==== ==== =========== ============
17
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
KENNEDY-WILSON, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report.................................................................................. 19
Consolidated Balance Sheets as of December 31, 2000, and 1999................................................. 20
Consolidated Statements of Income for the Three Years Ended December 31, 2000................................. 21
Consolidated Statements of Stockholders' Equity for the Three Years Ended December 31, 2000................... 22
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2000............................. 23
Notes to Consolidated Financial Statements.................................................................... 25
Schedule III -- Real Estate and Accumulated Depreciation...................................................... 51
18
19
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Kennedy-Wilson, Inc.
Beverly Hills, California
We have audited the accompanying consolidated balance sheets of Kennedy-Wilson,
Inc. and subsidiaries (the "Company"), as of December 31, 2000 and 1999, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 2000. Our audits
also included the financial statement schedule listed in the Index at Item 14.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 consolidated financial statements present fairly, in all
material respects, the financial position of Kennedy-Wilson, Inc. and
subsidiaries at December 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2000 in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Los Angeles, California
March 28, 2001
19
20
KENNEDY-WILSON, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
---------------------------------
1999 2000
------------- -------------
ASSETS
Cash and cash equivalents $ 5,243,000 $ 5,228,000
Cash -- restricted 2,101,000 696,000
Accounts receivable 8,534,000 12,399,000
Notes receivable 21,812,000 11,320,000
Real estate held for sale 34,564,000 19,248,000
Investments in joint ventures 23,484,000 43,167,000
Contracts, furniture, fixtures, equipment and other assets 16,237,000 16,599,000
Goodwill, net 23,175,000 24,447,000
------------- -------------
TOTAL ASSETS $ 135,150,000 $ 133,104,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable $ 2,403,000 $ 2,283,000
Accrued expenses and other liabilities 10,267,000 6,404,000
Accrued salaries and benefits 9,728,000 6,138,000
Accrued income taxes payable 1,419,000 4,475,000
Notes payable 9,213,000 8,423,000
Borrowings under lines of credit 27,533,000 28,938,000
Mortgage loans payable 11,401,000 4,637,000
Senior unsecured notes -- 14,542,000
Subordinated debt 16,500,000 7,500,000
------------- -------------
Total liabilities 88,464,000 83,340,000
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value: 5,000,000 shares authorized;
none issued as of December 31, 1999 and 2000 -- --
Common stock, $0.01 par value: 50,000,000 shares authorized;
9,066,662 and 8,648,640 shares issued and outstanding as of
December 31, 1999 and 2000, respectively 91,000 87,000
Additional paid-in capital 47,156,000 45,458,000
(Accumulated deficit) Retained earnings (361,000) 4,365,000
Notes receivable from stockholders (200,000) (146,000)
------------- -------------
Total stockholders' equity 46,686,000 49,764,000
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 135,150,000 $ 133,104,000
============= =============
See notes to consolidated financial statements.
20
21
KENNEDY-WILSON, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
--------------------------------------------
1998 1999 2000
----------- ----------- -----------
REVENUES
Property management and leasing fees $14,194,000 $29,547,000 $41,063,000
Commissions 3,716,000 13,316,000 14,838,000
Commissions -- related parties 1,201,000 -- --
Sales of residential real estate 13,828,000 25,731,000 30,166,000
Equity in income of investments in joint
ventures 612,000 2,049,000 4,314,000
Gain on sale of joint venture 4,077,000 2,406,000 --
Gain on sale of commercial real estate 2,654,000 7,069,000 --
Gain on restructured notes receivable 3,911,000 2,877,000 3,606,000
Rental income, net 4,583,000 6,352,000 --
Interest and other income 2,096,000 2,012,000 3,064,000
----------- ----------- -----------
TOTAL REVENUE 50,872,000 91,359,000 97,051,000
----------- ----------- -----------
OPERATING EXPENSES
Commissions and marketing expenses 532,000 3,002,000 7,869,000
Cost of residential real estate sold 12,249,000 24,254,000 26,563,000
Compensation and related expenses 14,582,000 28,274,000 30,440,000
General and administrative 6,890,000 12,444,000 16,052,000
Depreciation and amortization 2,059,000 3,506,000 4,359,000
Interest expense 8,398,000 11,441,000 3,528,000
----------- ----------- -----------
Total operating expenses 44,710,000 82,921,000 88,811,000
----------- ----------- -----------
Income before provision for income taxes 6,162,000 8,438,000 8,240,000
Provision for income taxes 837,000 2,829,000 3,514,000
----------- ----------- -----------
NET INCOME $ 5,325,000 $ 5,609,000 $ 4,726,000
=========== =========== ===========
Share Data:
Basic net income per share $ 0.85 $ 0.68 $ 0.52
Basic weighted average shares 6,254,470 8,218,983 9,018,250
Diluted net income per share $ 0.78 $ 0.58 $ 0.50
Diluted weighted average shares 6,801,356 10,014,601 10,127,807
See notes to consolidated financial statements.
21
22
KENNEDY-WILSON, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 2000
(Accumulated
Common Stock Deficit)/
------------------------------- Additional Retained
Shares Amount Paid-in-Capital Earnings
------------ ------------ --------------- ------------
Balance, January 1, 1998 1,316,344 $ 13,000 $ 23,814,000 $(10,913,000)
Issuance of common stock 808,878 8,000 5,645,000
Repurchase of common stock (135,351) (1,000) (907,000)
Stock dividend 4,607,204 46,000 336,000 (382,000)
Repayment on notes receivable from stockholders
Net income 5,325,000
------------ ------------ ------------ ------------
Balance, December 31, 1998 6,597,075 66,000 28,888,000 (5,970,000)
Issuance of common stock 2,469,587 25,000 18,452,000
Repurchase of common stock (184,000)
Repayment on notes receivable from stockholders
Net income 5,609,000
------------ ------------ ------------ ------------
Balance, December 31, 1999 9,066,662 91,000 47,156,000 (361,000)
Issuance of common stock 78,500 1,000 264,000
Repurchase of common stock (496,522) (5,000) (2,462,000)
Issuance of warrants 500,000
Repayment on notes receivable from stockholders
Net income 4,726,000
------------ ------------ ------------ ------------
Balance, December 31, 2000 8,648,640 $ 87,000 $ 45,458,000 $ 4,365,000
============ ============ ============ ============
Notes
Receivable
From
Stockholders Total
------------ ------------
Balance, January 1, 1998 $ (1,320,000) $ 11,594,000
Issuance of common stock 5,653,000
Repurchase of common stock (908,000)
Stock dividend --
Repayment on notes receivable from stockholders 1,116,000 1,116,000
Net income 5,325,000
------------ ------------
Balance, December 31, 1998 (204,000) 22,780,000
Issuance of common stock 18,477,000
Repurchase of common stock (184,000)
Repayment on notes receivable from stockholders 4,000 4,000
Net income 5,609,000
------------ ------------
Balance, December 31, 1999 (200,000) 46,686,000
Issuance of common stock 265,000
Repurchase of common stock (2,467,000)
Issuance of warrants 500,000
Repayment on notes receivable from stockholders 54,000 54,000
Net income 4,726,000
------------ ------------
Balance, December 31, 2000 $ (146,000) $ 49,764,000
============ ============
See notes to consolidated financial statements.
22
23
KENNEDY-WILSON, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------------------------------
1998 1999 2000
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,325,000 $ 5,609,000 $ 4,726,000
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 2,059,000 3,506,000 4,359,000
Equity in income of investments in joint ventures (612,000) (2,049,000) (4,314,000)
Gain on sale of joint venture (4,077,000) (2,406,000) --
Gains on sales of real estate (4,233,000) (8,546,000) --
Gains on restructured notes receivable -- non-cash (627,000) (1,791,000) (744,000)
Change in assets and liabilities:
Accounts receivable (5,656,000) (1,860,000) (3,865,000)
Other assets (870,000) (1,680,000) (3,146,000)
Accounts payable 1,086,000 651,000 (95,000
Accrued expenses and other liabilities and accrued taxes payable 11,168,000 2,072,000 (4,345,000)
------------- ------------- -------------
Net cash provided by (used in) operating activities 3,563,000 (6,494,000) (7,424,000)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of contracts, furniture, fixtures and equipment (7,280,000) (4,806,000) (637,000)
Dispositions of contracts, furniture, fixtures and equipment 18,000 3,000 --
Purchase and additions to real estate held for sale (129,767,000) (28,037,000) (26,984,000)
Proceeds from sales of real estate held for sale 21,743,000 45,684,000 25,759,000
Proceeds from sale of joint venture 5,348,000 6,550,000 --
Additions to notes receivable (19,139,000) (14,984,000) (843,000)
Collections of notes receivable 13,293,000 10,982,000 12,079,000
Acquisition of property management companies (16,412,000) (7,549,000) (2,094,000)
Distributions from joint ventures 2,271,000 2,495,000 17,794,000
Contributions to joint ventures (7,240,000) (14,475,000) (21,350,000)
Cash -- restricted (increase) decrease (7,994,000) 6,067,000 1,405,000
------------- ------------- -------------
Net cash (used in) provided by investing activities (145,159,000) 1,930,000 5,129,000
------------- ------------- -------------
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of mortgage loans payable 114,679,000 34,055,000 7,727,000
Repayment of mortgage loans payable (14,651,000) (56,937,000) (8,851,000)
Borrowings under lines of credit 40,348,000 27,374,000 32,542,000
Repayment of lines of credit (35,873,000) (13,355,000) (31,137,000)
Borrowings under notes payable 19,740,000 15,708,000 9,265,000
Repayment of notes payable (10,213,000) (20,786,000) (10,055,000)
Issuance of senior unsecured notes -- -- 14,542,000
Cost of obtaining financing 95,000 113,000 (1,105,000)
Issuance of subordinated debt 21,000,000 7,500,000 --
Repayment of subordinated debt (12,000,000) (9,000,000)
Issuance of common stock 5,653,000 18,477,000 265,000
Repurchase of common stock (908,000) (184,000) (2,467,000)
Issuance of warrants -- -- 500,000
Loan repayments from stockholders 1,116,000 4,000 54,000
------------- ------------- -------------
Net cash provided by (used in) financing activities 140,986,000 (31,000) 2,280,000
------------- ------------- -------------
Net decrease in cash and cash equivalents (610,000) (4,595,000) (15,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 10,448,000 9,838,000 5,243,000
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 9,838,000 $ 5,243,000 $ 5,228,000
============= ============= =============
(Continued)
23
24
KENNEDY-WILSON, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental Disclosures of Cash Flow Information:
Year Ended December 31,
---------------------------------------------
1998 1999 2000
----------- ----------- -----------
Cash Paid During the Year For:
Interest $ 7,754,000 $13,039,000 $ 5,804,000
Interest capitalized $ 640,000 $ 998,000 $ 2,496,000
Income taxes $ 633,000 $ 1,367,000 $ 300,000
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
During 1999 the Company acquired a preferred stock interest in five single
purpose entities with the following consideration, reduction of real estate held
for sale and other assets of $85.3 million and reduction of mortgage notes
payable and other liabilities of $80.6 million, offset against an investment in
joint ventures, cost method of $4.7 million (See Note 12 -- Related Party
Transactions).
Also during 1999, the Company's other assets increased approximately $2.8
million and accrued liabilities increased approximately $2.8 million due to the
acquisition of computer and telephone equipment under capital leases.
During 2000 the Company acquired a preferred stock interest in a single purpose
entity with the following consideration, reduction of real estate held for sale
of $16.4 million and reduction of mortgage notes payable and
other liabilities of $5.6 million, offset against an investment in joint
ventures, cost method of $10.8 million (See Note 12 -- Related Party
Transactions).
During 2000 the Company acquired a preferred stock interest in a single purpose
entity with the following consideration, reduction of prepaid expenses of $1.2
million and reduction of accounts payable of $80,000, offset against an
investment in joint ventures, cost method of $1.12 million (See Note 12 --
Related Party Transactions).
See notes to consolidated financial statements.
24
25
KENNEDY-WILSON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 2000
NOTE 1 -- ORGANIZATION
Kennedy-Wilson, Inc., a Delaware corporation, and its wholly owned subsidiaries
(the "Company"), provides real estate property management, brokerage and
marketing services throughout the U.S. and in Japan, primarily to institutional
investors, financial institutions, developers and government agencies. The
Company also acquires, renovates and resells commercial and residential real
estate; invests in non-performing note receivable portfolios; invests in
technology-related real estate companies and invests in real estate and
distressed note joint venture funds with institutional investor clients. In
1998, the Company acquired from Heitman Financial Ltd., a wholly owned
subsidiary of United Asset Management Corporation, all of the outstanding shares
of Heitman Properties, Ltd., a property management company. During 1999, the
Company acquired Coastal Commercial Real Estate Services, Inc., a Los
Angeles-based property management and leasing company; Jones Lang Wooton
California, Inc., a regional property management firm; TRF Management Corp., a
commercial property management and brokerage firm primarily in the pacific
northwest; Fults & Associates, Inc, a property management firm with a portfolio
primarily in the south and southwest markets and SynerMark Companies, a property
management company based primarily in Texas. These transactions were accounted
for using the purchase method of accounting. Accordingly, the results of
operations of these acquisitions are included in the consolidated financial
statements from the date of acquisition.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries and joint ventures 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 inter-company transactions have been eliminated.
REVENUE RECOGNITION - Property management fees are recognized over time as
earned based upon the terms of the management agreement. Brokerage commissions
are generally recognized when all services to be provided by the Company have
been performed. Residential real estate sales revenue and gains on sale of
commercial property are recognized at the close of escrow when title to the real
property passes to the buyer. The Company follows the requirements for profit
recognition as set forth by Statement of Financial Accounting Standards (SFAS)
No. 66 Accounting for Sales of Real Estate. The Company presents sales of
commercial real estate on a net gain on sale basis due to the fact that these
properties are typically held for two to three years and generate rental income
and operating expenses during the holding period. Residential real estate is
accounted for as inventory because these properties are generally held for less
than one year and do not generate income during the holding period. Accordingly,
gross revenue and cost of sales are presented separately on the statements of
income. Revenues on notes receivable are recognized based on the following
criteria. Payments on performing notes are applied to principal and interest
based on their terms. Cash payments on defaulted notes are applied to the cost
basis until fully recovered before any revenue is recognized. When notes
purchased are subsequently structured into performing collateralized notes, with
a market rate of interest and an initial cash payment of 15% has been collected,
the difference between the cost basis of the asset and the fair value of the
note is recorded as revenue.
INVESTMENTS IN JOINT VENTURES - The Company has a number of partnership and
joint venture interests ranging from 2% to 50% that were formed to acquire,
manage, develop and/or sell real estate. These investments are accounted for
under the equity method. Investments in joint ventures also include mezzanine
loans to real estate developers for new single-family residential developments.
These investments are accounted for under the cost method.
ACCOUNTING ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally
25
26
accepted in the Unites States of America 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.
GOODWILL - The Company's 1998 purchase of Heitman Properties Ltd., and the five
property management companies purchased in 1999 resulted in goodwill totaling
approximately $24 million. Goodwill results from the difference between the
purchase price and the fair value of assets acquired based upon the purchase
method of accounting for business combinations under Accounting Principals Board
Opinion Number 16. The allocated amount, as determined by Company management, is
being amortized over 30 years using the straight-line method. Goodwill is
reviewed for impairment on a regular basis by Company management by comparison
to future expected cash flows. During 2000, additions to goodwill, including
earnouts, amounted to approximately $2,094,000. We anticipate additional payouts
in future years. Amortization of goodwill totaled approximately $244,000,
$612,000 and $742,000 in 1998, 1999 and 2000, respectively. Accumulated
amortization was $854,000 and $1,596,000 at December 31, 1999 and 2000,
respectively.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents consists of cash and all
highly liquid investments purchased with maturities of three months or less.
RESTRICTED CASH - Restricted cash consists of non-refundable deposits on
acquisitions of real estate and marketing funds advanced by clients.
LONG-LIVED ASSETS - The Company reviews long-lived assets for impairment
whenever events or changes in circumstances indicate that an asset's carrying
value may exceed the undiscounted expected future cash flows to be derived from
that asset. Whenever undiscounted expected future cash flows are less than the
carrying value, the asset will be reduced to an amount equal to the net present
value of the expected future cash flows and an impairment loss will be
recognized.
NOTES RECEIVABLE - The Company accounts for impaired loans in accordance with
SFAS 114, Accounting by Creditors for Impairment of a Loan. Accordingly,
impaired loans are measured based upon the present value of expected future cash
flows, discounted at the loans' effective interest rate or, if readily
determinable, the loans' observable market price or the fair value of the
collateral if the loan is collateral dependant.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The estimated fair value of the Company's
financial instruments is determined using available market information and
appropriate valuation methodologies. Considerable judgement, however, is
necessary to interpret market data and develop the related estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that could be realized upon disposition of the
financial instruments. The use of different market assumptions or estimation
methodologies may have a material impact on the estimated fair value amounts.
The carrying amount of cash and cash equivalents, accounts receivable and
accounts payable approximate fair market value due to their short-term
maturities. Notes receivable approximate market value as they are negotiated
based upon market values of loans with similar characteristics. Bank lines of
credit, and short and long-term debt approximate fair market value as the
interest rates are comparable to the rates currently being offered to the
Company.
CONCENTRATION OF CREDIT RISK - Financial instruments that subject the Company to
credit risks 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 throughout the U.S. and in Japan. The Company performs ongoing credit
evaluations of its customers and debtors. Cash and cash equivalents are invested
in institutions insured by government agencies. Certain accounts contain
balances in excess of the insured limits.
26
27
INFLATION - The Company's long-term leases contain provisions designed to
mitigate the adverse impact of inflation on its results of operations. Such
provisions include escalation clauses, which generally increase rental rates
during the terms of the respective agreements. Such escalation clauses are often
related to increases in the Consumer Price Index or similar inflation indices.
In addition, many of the Company's leases and management agreements are for
terms of less than ten years, which permits the Company to seek to increase
rents and fees at market rates if they are below the existing market rates. Many
of the Company's leases require the tenants to pay a pro rata share of operating
expenses, including common area maintenance, real estate taxes, insurance and
utilities, thereby reducing the Company's exposure to increases in costs and
operating expenses resulting from inflation.
EARNINGS PER SHARE - Basic income per share for any period is computed by
dividing net income by the weighted average number of shares of common stock
outstanding during such period. Diluted net income per share for any period is
computed by dividing net income by the weighted average number of shares of
common stock and common stock equivalents outstanding during such period.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS - In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Investments and Hedging Activities ("SFAS
133"). SFAS 133 is effective, as amended, for fiscal years beginning after June
15, 2000 and requires all derivatives to be recorded on the balance sheet at
fair value as either assets or liabilities depending on the rights or
obligations under the contracts. SFAS 133 also established new accounting
methodologies for the following three classifications of hedges: fair value,
cash flow and net investment in foreign operations. The Company's adoption of
SFAS 133 on January 1, 2001 did not have a material impact on the Company's
financial position or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial Statements. SAB
101 provides guidance on applying generally accepted accounting principles to
revenue recognition issues in financial statements. The Company was required to
adopt SAB 101 in the fourth quarter of 2000. The Company's adoption of SAB 101
did not have a material impact on the Company's financial position or results of
operations.
RECLASSIFICATION - Certain reclassifications have been made to the 1998 and 1999
balances to conform to the 2000 presentation.
NOTE 3 - NOTES RECEIVABLE
Notes receivable consists primarily of non-performing notes and related assets
acquired from financial institutions. A majority of these notes are typically
collateralized by real estate, personal property or guarantees.
27
28
NOTE 4 - REAL ESTATE HELD FOR SALE
Real estate held for sale is comprised of commercial and residential properties
and land and it is accounted for at the lower of carrying amount or fair value
less cost to sell. Both commercial and residential real estate are classified as
held for sale as the Company's intent is to acquire and dispose of properties as
part of its normal course of business. Residential real estate, which is
typically not held for more than one-year, is accounted for as inventory and is
not depreciated. Commercial real estate is generally held for a period of one to
three years and is depreciated unless it is subject to a plan of disposition.
Except for the land in Hawaii and San Diego, all properties are encumbered by
mortgage loans that are non-recourse subject to standard real estate industry
exceptions (See Note 9 -- Mortgage Loans Payable). The Hawaii land is undergoing
the entitlement process for development. During 1999, the Company transferred
certain commercial properties in related party transactions (See Note 12 --
Related Party Transactions). During 2000, the Company transferred the 612 S.
Flower Street property in a similar related party transaction (See Note 12 --
Related Party Transactions). Prior to the transfers, the commercial buildings
and improvements were 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
Real estate held for sale includes the following:
December 31,
----------------------------
1999 2000
----------- -----------
Commercial properties and land:
Santa Monica, California - 4 lots $ 2,440,000 $ 2,890,000
612 S. Flower, Los Angeles, California - office building 16,500,000 --
Hawaii - 542 acres of land 8,831,000 10,073,000
----------- -----------
27,771,000 12,963,000
----------- -----------
Residential properties and land:
Cathedral City, California - 112 housing lots 4,398,000 6,002,000
Vulcan Mtn., San Diego, California - 155 acres of land 283,000 283,000
Pacific Palisades, California - 2 residential homes 2,112,000 --
----------- -----------
6,793,000 6,285,000
----------- -----------
$34,564,000 $19,248,000
=========== ===========
Depreciation and amortization expense totaled $999,000, $912,000 and $130,000 at
December 31, 1998, 1999 and 2000 respectively.
28
29
NOTE 5 - INVESTMENTS IN JOINT VENTURES
The Company has a number of partnership and joint venture interests ranging from
2% to 50% that were formed to acquire, manage, develop and/or sell real estate.
These investments are accounted for under the equity method. Investments in
joint ventures also include mezzanine loans to real estate developers for new
single-family residential developments. These investments are accounted for
under the cost method. Summarized financial data of the ventures are as follows:
December 31, 1999 December 31, 2000
----------------- -----------------
BALANCE SHEET
Assets
Cash and cash equivalents $ 38,343,000 $ 21,361,000
Receivables 18,580,000 36,457,000
Real estate 303,592,000 279,477,000
------------ ------------
Total assets $360,515,000 $337,295,000
============ ============
Liabilities
Accounts payable and accrued expense $ 19,684,000 $ 41,236,000
Mortgages payable 267,272,000 244,011,000
------------ ------------
Total liabilities 286,956,000 285,247,000
------------ ------------
Partners' capital
Kennedy-Wilson 19,267,000 24,864,000
Other partners 54,292,000 27,184,000
------------ ------------
Total partners' capital 73,559,000 52,048,000
------------ ------------
Total liabilities and partners' capital $360,515,000 $337,295,000
============ ============
Total investments comprise the following:
December 31, 1999 December 31, 2000
----------------- -----------------
Investments, equity method - affiliates $ 4,390,000 $11,635,000
Investments, equity method - non-affiliates 14,877,000 13,229,000
----------- -----------
19,267,000 24,864,000
----------- -----------
Investments, cost method - affiliates -- 2,471,000
Investments, cost method - non-affiliates 4,217,000 15,832,000
----------- -----------
4,217,000 18,303,000
----------- -----------
$23,484,000 $43,167,000
=========== ===========
December 31, 1998 December 31, 1999 December 31, 2000
----------------- ----------------- -----------------
STATEMENT OF INCOME
Revenues $ 49,049,000 $ 63,921,000 $ 81,538,000
Expenses 45,070,000 55,962,000 81,325,000
------------ ------------ ------------
Net income $ 3,979,000 $ 7,959,000 $ 213,000
============ ============ ============
Net income allocation:
Kennedy-Wilson $ 612,000 $ 2,049,000 $ 4,314,000
Other partners 3,367,000 5,910,000 (4,101,000)
------------ ------------ ------------
Net income $ 3,979,000 $ 7,959,000 $ 213,000
============ ============ ============
In 1998, the Company sold it 25% interest in the joint venture known as Downtown
Properties LLC for approximately $5.5 million.
In 1999, the Company sold its 15% interest in the joint venture known as
Downtown Properties NY LLC for approximately $6.5 million.
29
30
NOTE 6 -- CONTRACTS, FURNITURE, FIXTURES AND EQUIPMENT AND OTHER ASSETS
In 1998, the Company allocated approximately $7.3 million to the property
management contracts acquired as part of the acquisition of Heitman Properties,
Ltd. In 1999, the Company allocated approximately $2.4 million to the property
management contracts acquired as part of five acquisitions. The Company is
amortizing these contracts over a 7-year period.
Contracts, furniture fixtures, equipment and other assets consist of the
following:
December 31,
-------------------------------
1999 2000
------------ ------------
Contracts $ 9,662,000 $ 9,448,000
Office furniture and equipment 1,947,000 3,337,000
Leasehold improvements 904,000 1,065,000
Computer equipment under capital leases 2,809,000 1,746,000
------------ ------------
15,322,000 15,596,000
Less accumulated depreciation and amortization (2,154,000) (4,601,000)
------------ ------------
13,168,000 10,995,000
Prepaid insurance, taxes and commissions 1,957,000 1,894,000
Loan fees 17,000 1,122,000
Deposits and prepaid rents 280,000 126,000
Other 815,000 2,462,000
------------ ------------
$ 16,237,000 $ 16,599,000
============ ============
Depreciation and amortization expense was $61,000, $1,448,000 and $2,439,000 for
1998, 1999 and 2000, respectively.
NOTE 7 - BORROWINGS UNDER LINES OF CREDIT
In July 1999, the Company entered into a loan agreement with East West Bank that
provided the Company with a $24 million revolving credit facility (the
"facility") for use in acquisitions and working capital purposes. During 2000,
the facility was renewed in the amount of $19 million. The loans under the
facility bear interest at the three-month LIBOR plus 3%, payable monthly. At
December 31, 1999 and 2000, the facility had an interest rate of 8.11% and
9.736%, respectively. The facility expires in June 2002. The principal amount of
outstanding loans was $18,849,000 and $18,109,000 at December 31, 1999 and
2000, respectively.
In July 1999, the Company entered into an unsecured revolving loan agreement
with Tokai Bank of California for $15 million. During 2000, the loan was
extended in the amount of $13 million. The loan bears interest at the lesser of
LIBOR plus three hundred basis points or Prime Rate, payable monthly. At
December 31, 1999 and 2000, the loan had an interest rate of 8.5% and 9.5%,
respectively. The loan expires June 30, 2002. The principal amount of
outstanding loans was $8,525,000 and $10,232,000 at December 31, 1999 and 2000,
respectively.
The Company's Japanese subsidiary has unsecured yen-denominated lines of credit
pursuant to which it can borrow up to $1 million. At December 31, 1999 and 2000,
yen borrowings in the principal amount of $159,000 and $597,000, respectively
were outstanding under these lines of credit. These borrowings bear interest
rates from 1.5% to 2.375% per annum and become due on various dates between May
20, 2001 and November 15, 2002.
The Company's ability to borrow under these facilities is subject to compliance
with certain financial covenants. As of December 31, 1999 and 2000, the Company
was in compliance with the covenants.
30
31
NOTE 8 - NOTES PAYABLE
Notes payable were incurred primarily in connection with the acquisition of
notes receivable (See Note 3) and property management companies, and included
the following:
December 31,
--------------------------
1999 2000
---------- ----------
Notepayable, fixed rate of 9.75% for first year, then variable based on
weekly average yield on United States Treasury securities adjusted to
the constant maturity of one year plus 3.75%, 9.84% at December 31,
2000, interest payable monthly, due May 17, 2002
$2,277,000
Notepayable, variable interest based on prime rate plus 1.5%, interest
payable monthly, 10% and 11% at December 31, 1999 and 2000,
respectively, due July 1, 2001 $1,748,000 1,738,000
Note payable, fixed rate of 7%, interest payable quarterly, due June 1, 2000 2,195,000 --
Note payable, fixed rate of 8.5%, interest accrued monthly, principal payment of $300,000
due January 2000, three additional principal and interest payments of
$666,667, due on each anniversary date, due October 20, 2002 2,019,000 1,186,000
Note payable, fixed rate of 8.5%, interest accrued monthly, three principal
and interest payments of $666,667 due on each anniversary date, due
November 5, 2002 1,725,000 1,195,000
Notepayable, fixed interest rate of 9.23% for first year, then variable
based on weekly average yield on United States Treasury securities
adjusted to the constant maturity of one year plus 4%, 10.17% at
December 31, 2000, payable monthly, due September 29, 2001 1,021,000 279,000
Note payable, fixed interest rate of 9.24%, interest payable monthly, due October 8, 2002 505,000 --
Yen-denominated note payable, variable interest based on TIBOR + 0.725%,
interest payable monthly, 0.865% at December 31, 2000, due February 25, 2002 -- 874,000
Yen-denominated note payable, variable interest based on long term prime +
0.5%, interest payable monthly, 2.5% at December 31, 2000, due March 25, 2003 -- 612,000
Yen-denominated note payable, variable interest based on short term prime +
1.125%, interest payable monthly, 2.5% at December 31, 2000, due May 20, 2001 -- 262,000
---------- ----------
$9,213,000 $8,423,000
========== ==========
31
32
NOTE 9 -- MORTGAGE LOANS PAYABLE
December 31,
----------------------------
1999 2000
----------- -----------
Commercial Properties:
Mortgage note payable, variable interest based on LIBOR plus 1.85%, 8.34% at December 31,
1999, interest payable quarterly, principal payable monthly based on a 25 year
amortization, due March 23, 2001, collateralized by 612 S. Flower St., Los Angeles,
California $ 5,759,000
Mortgage note payable, variable interest based on prime rate plus 1.5%, 11% at
December 31, 2000, interest payable monthly, due January 3, 2001,
collateralized by four lots on 15th Street in Santa Monica, California 1,000,000 $ 1,000,000
----------- -----------
6,759,000 1,000,000
----------- -----------
Residential Properties:
Mortgage note payable, variable interest based on prime rate plus 1.5%, 10% at
December 31, 1999, interest payable monthly, due March 19, 2000,
collateralized by two single family homes located in Pacific Palisades,
California 1,384,000 --
Mortgage note payable, variable interest based on prime rate plus 1%, 9.5% at
December 31, 1999, interest payable monthly, due between March and July,
2001, collateralized by 109 housing lots in Cathedral City, California 3,258,000 3,637,000
----------- -----------
4,642,000 3,637,000
----------- -----------
Total Mortgage Loans Payable $11,401,000 $ 4,637,000
=========== ===========
All of the mortgage loans payable are secured by deeds of trust on the
respective real estate properties (see Note 4). Aggregate maturities of notes
and mortgage notes payable are as follows:
2001 $7,790,000
2002 4,658,000
Thereafter 612,000
------------
$13,060,000
============
NOTE 10 -- SENIOR UNSECURED NOTES
In June 2000, the Company issued $15 million of 12% Senior Notes (the "notes")
due June 22, 2006 with interest payable quarterly commencing June 30, 2000.
Provisions of the notes include restrictions of investments, liens, dividends,
assets sales and other restricted payments. The Company may, at its option,
prepay the notes in full at 104% of their principal amount beginning June 22,
2002, and thereafter at prices declining annually to 100% on and after June 22,
2005. The notes are not subject to any sinking fund requirements.
In connection with the issuance of the notes, the Company issued warrants to the
purchasers of the notes for the purchase of 597,888 shares of the common stock
of the Company at an exercise price of $6.25 per share. The warrants expire June
22, 2008. The fair value of the warrants was estimated on the date of issuance
using the Black-Scholes option-pricing model with the following weighted average
assumptions: (a) no dividend yield, (b) expected volatility of the Company's
stock of 60%, (c) risk free interest rate of 6%, (d) expected option life of
eight years. The estimated value of the warrants was calculated to be $500,000.
This amount was deducted from the loan proceeds and is being amortized on a
straight-line basis over six years.
32
33
NOTE 11 -- SUBORDINATED DEBT
In 1998, the Company borrowed $21 million in subordinated debt from Colony, Fund
III, an affiliate of Colony Capital, Inc. to finance its purchase of Heitman
Properties, Ltd. The debt had a fixed interest rate of 14%, payable monthly and
a maturity date of July 16, 2000. The outstanding balance as of December 31,
1999 was $9 million and was repaid in full in 2000.
In 1999, the Company issued and sold convertible subordinated debentures in the
aggregate principal amount of $7.5 million. The debentures have a term of seven
years and an interest rate of 6%, payable monthly. The debentures are presently
convertible into 750,000 shares of Company's common stock at any time by the
holders at a conversion price of $10 per share, subject to adjustment.
NOTE 12 - RELATED PARTY TRANSACTIONS
In 1998, the Company acquired a 15% interest in a joint venture, Downtown
Properties, NY. LLC, with entities affiliated with one of the Company's
directors. The joint venture owned a commercial office building in New York. In
1999, the Company sold its interest in the joint venture.
In 1998, the Company acquired a 40% interest in a joint venture, Beverly
Cresent, LLC, with entities affiliated with the director mentioned above. The
joint venture purchased a note collateralized by a hotel in Beverly Hills. The
company sold its interest in the joint venture in 1998.
In 1998, the director mentioned above resigned from his position as a member of
the Company's board of directors. Subsequent to his resignation, the Company
purchased 135,000 shares of common stock (as adjusted for the 50% stock
dividend) from the former director for $6.717 per share, or a total of $906,750.
The closing price for the shares on the NASDAQ National Market on the date of
the purchase was $7.281 per share. All 135,000 shares were subsequently retired.
In 1998, the Company received $179,000 in commissions from the sale of
properties owned by a partnership which includes the Company's chief executive
officer and one of its directors, as principals.
In 1999, the Company transferred to Camden Investment Property Group Inc.,
("Camden"), an entity controlled by executives of the Company, all of the common
stock of the single purpose entities which were formed to acquire the commercial
properties known as 1055 Wilshire Blvd., 6380 Wilshire Blvd., 5900 Sepulveda
Blvd., and 7080 Hollywood Blvd. in exchange for cash of $200,000 and 4,000
shares of preferred stock in these entities. The Company's cost basis in the
preferred stock is equivalent to its net book value in the transferred
properties less the cash advance by Camden. These properties were sold in 2000.
The Company also transferred 40% of its membership interest in 301 South Fair
Oaks, LLC, the owner of 301 S. Fair Oaks, to Camden in exchange for $50,000.
In 2000, the firm of Kulik, Gottesman & Mouton Ltd. was paid $324,000 for legal
services provided by the firm and director's fees for Kent Mouton, a partner in
the firm and a member of the Company's Board of Directors. For 1998 and 1999,
the amounts were $523,500 and $408,500, respectively.
In 2000, the Company transferred to Maple Investment Property Group Inc.,
("Maple"), an entity controlled by executives of the Company, all of the common
stock of a single purpose entity which was formed to acquire the property known
as 612 S. Flower Street, in exchange for cash of $300,000 and 1,000 shares of
preferred stock in Maple. The Company's cost basis in the preferred stock is
equivalent to its net book value in the transferred property less the cash
payment by Maple.
In 2000, the Company transferred to Rexford Investment Property Group Inc.,
("Rexford"), an entity controlled by executives of the Company, all of the
common stock of a single purpose entity which was formed to develop an
33
34
Internet-based real estate auction brokerage and related services business, in
exchange for cash of $50,000 and 1,000 shares of preferred stock in Rexford. The
Company's cost basis in the preferred stock is equivalent to its net book value
in the transferred business less the cash payment by Rexford.
During 1998, 1999 and 2000, the Company received brokerage and leasing
commissions from affiliates in the amounts of $1,201,000, $2,290,000 and
$4,455,000, respectively.
NOTE 13 - INCOME TAXES
The Company's income before income taxes consists of the following:
Year Ended December 31,
------------------------------------------
1998 1999 2000
---------- ---------- ----------
Income before income taxes:
United States $5,822,000 $6,537,000 $3,796,000
Foreign 340,000 1,901,000 4,444,000
---------- ---------- ----------
Total $6,162,000 $8,438,000 $8,240,000
========== ========== ==========
The provision for income taxes consists of the following:
Year Ended December 31,
---------------------------------------------
1998 1999 2000
----------- ----------- -----------
Current
Federal $ 104,000 $ 1,795,000 $ 2,395,000
State 105,000 263,000 332,000
Foreign 587,000 900,000
----------- ----------- -----------
209,000 2,645,000 3,627,000
Deferred 628,000 184,000 (113,000)
----------- ----------- -----------
Total $ 837,000 $ 2,829,000 $ 3,514,000
=========== =========== ===========
A reconciliation of the statutory federal income tax rate with the Company's
effective income tax rate is as follows:
Year Ended December 31,
-----------------------------------------------
1998 1999 2000
----------- ----------- -----------
Tax computed at statutory rate $ 2,156,000 $ 2,953,000 $ 2,884,000
State income net of federal benefit 145,000 175,000 214,000
Foreign income (119,000) (226,000) 109,000
Usage of net operating loss carryforward (1,361,000) -- --
Other 16,000 (73,000) 307,000
----------- ----------- -----------
Provision for income taxes $ 837,000 $ 2,829,000 $ 3,514,000
=========== =========== ===========
34
35
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 carryforwards which give rise to deferred tax assets and
liabilities are as follows:
December 31, 1999 December 31, 2000
----------------------------- ----------------------------
Assets Liabilities Assets Liabilities
----------- ----------- ----------- -----------
Prepaid expenses $ (183,000) $ (134,000)
Accrued reserves $ 34,000 $ 35,000
Deferred auction marketing expenses 27,000 8,000
Foreign subsidiary 530,000
Deferred compensation plan 1,167,000
Asset basis and depreciation differences (1,220,000) (1,791,000)
----------- ----------- ----------- -----------
Total $ 591,000 $(1,403,000) $ 1,210,000 $(1,925,000)
=========== =========== =========== ===========
NOTE 14 - COMMITMENTS AND CONTINGENCIES
Lease Commitments -- Future minimum rental commitments, net of sublease income,
as of December 31, 2000 under non-cancelable operating leases are as follows:
Year Ending December 31,
2001 $3,168,000
2002 2,104,000
2003 1,568,000
2004 261,000
2005 16,000
----------
Future minimum lease payments $7,117,000
==========
Approximately $1,450,000 is due the Company in years 2001 through 2003 under
sublease agreements.
Net rental expense amounted to $931,000, $1,953,000, and $2,731,000 for the
years ended December 31, 1998, 1999 and 2000, respectively.
Future minimum capitalized lease obligations as of December 31, 2000 are as
follows:
Year Ending December 31,
2001 $851,000
2002 613,000
2003 319,000
2004 303,000
2005 301,000
Thereafter 83,000
-----------
Total minimum lease payments 2,470,000
Less amount representing interest 400,000
-----------
Present value of net minimum lease payments $2,070,000
===========
Employment Agreements - The Company has entered into employment agreements with
all of its principal officers which provide for annual base compensation in the
aggregate amount of $1,625,000 and expire at various dates
35
36
through December 2003, with one expiring in December 2009. 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 $4,420,000 in total, expiring at various dates through
March 2003.
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 the 1992 Incentive and Non-statutory Stock Option
Plan, which includes a Plan A and a Plan B and the 1992 Non-Employee Director
Stock Option Plan ("Plan C"). An aggregate of 1,700,000 shares of common stock
are reserved for issuance under Plan A and B. The Company has 81,000 shares of
common stock reserved for issuance under Plan C. Plan A permits the granting of
Incentive Stock Options to employees, including employee-directors. Plan B
permits the granting of nonstatutory stock options to employees, including
employee-directors and consultants. Plan C permits the granting of options to
non-employee-directors. Options granted under Plan A and B have an option price
of 100% of the fair market value of the common stock on the date of grant. Under
Plan C each director, upon being elected to the Board of Directors, is
automatically granted an option to purchase 13,500 shares at the fair market
value at the date of grant. Additionally, each director is granted an option to
purchase an additional 540 shares at the fair market value on the date of grant
when re-elected. The vesting schedule for options granted under Plan A and Plan
B is determined by the Compensation Committee of the Board of Directors. Options
granted under Plan A may be exercised for a period of up to five years from the
grant date; options granted under Plan B may be exercised for a period of up to
10 years from the grant date. Options granted under Plan C become exercisable on
the first anniversary of the date of the initial grant provided that the
optionee continues to serve as a director for at least one year from the date of
such initial grant. Under Plan C, options expire on the earlier of the tenth
anniversary of the date of grant and 90 days after the individual ceases to be a
director of the Company.
Details of activity under the plans for the years ended December 31, 1998, 1999
and 2000 are as follows:
Outstanding Exercise Price Weighted Average
Stock Options Options Per Share Exercise Price
----------- --------------- ----------------
Balance January 1, 1998 832,320 $ 2.17 - $13.50 $ 2.72
Granted 420,900 $ 3.67 - $ 8.33 $ 6.74
Exercised (120,450) $ 0.95 - $ 3.73 $ 1.63
Forfeited (16,200) $ 3.01 - $ 7.41 $ 3.74
---------
Balance, December 31, 1998 1,116,570 $ 0.95 - $13.50 $ 4.11
Granted 402,180 $ 7.09 - $10.43 $ 8.09
Exercised (110,550) $ 0.95 - $ 3.72 $ 2.66
Forfeited (54,540) $ 1.57 - $12.96 $ 7.22
---------
Balance, December 31, 1999 1,353,660 $ 0.95 - $13.50 $ 5.28
Granted 74,000 $ 5.25 - $ 8.00 $ 5.94
Exercised (78,500) $ 1.07 - $ 8.33 $ 2.46
Forfeited (84,600) $ 7.38 - $10.43 $ 8.36
---------
Balance, December 31, 2000 1,264,560 $ 0.95 - $13.50 $ 5.32
=========
36
37
Options Outstanding Options Exercisable
--------------------------------------------------------------- --------------------------------
Number Weighted Average Weighted Number Weighted
Range of Outstanding Remaining Contractual Average Exercisable Average
Exercise Prices 12/31/00 Life Exercise Price 12/31/00 Exercise Price
--------------- ----------- --------------------- -------------- ----------- ---------------
$ 1.00 $ 1.81 171,000 0.65 $1.50 171,000 $1.50
$ 2.13 $ 3.72 411,750 1.66 $2.97 378,000 $2.91
$ 5.25 $ 6.13 60,000 4.46 $5.46 - -
$ 7.00 $ 8.33 464,150 2.84 $7.60 222,096 $7.65
$ 8.56 $10.43 115,000 3.29 $8.77 38,332 $8.77
$ 0.93 $13.50 42,660 4.96 $8.92 42,660 $8.92
--------- ---------
1,264,560 852,088
========= =========
The Company has adopted the disclosure-only provision of SFAS No. 123,
Accounting for Stock-Based Compensation and will continue to use the intrinsic
value based method of accounting prescribed by APB Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations. Accordingly, no
compensation cost has been recognized for the options granted under the stock
options plans. Had compensation cost for the Company's stock options plans been
determined based on the fair value at the grant date consistent with the
provisions of SFAS No. 123, the Company's net income on a pro forma basis for
the years ended December 31, 1998, 1999 and 2000 would have been $4,114,000,
$4,819,000 and $4,312,000, respectively. In addition, on a pro forma basis, the
Company's basic and diluted net income per share at December 31, 2000, would
have been $0.46 and $0.41, respectively. For December 31, 1998, the Company's
basic and diluted net income per share, on a pro forma basis, would have been
$0.66 and $0.60, respectively. For December 31, 1999, the Company's basic and
diluted net income per share, on a pro forma basis, would have been $0.59 and
$0.48, respectively. The fair value of each option granted is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions: (a) no dividend yield, (b) expected volatility of
the Company's stock of 60%, (c) risk free interest rate of 6%, (d) expected
option life of three years.
NOTE 16 -- CAPITAL STOCK TRANSACTIONS
Capital Stock and Warrants
In 1998, as part of the loan obtained from FBR Asset Investment Corporation, the
Company issued warrants of 131,096 shares which represent 2% of the outstanding
shares on a fully diluted basis on June 3, 1998. The warrants have an exercise
price of $7.56 per share, which reflects the average of the closing price for a
share of common stock on NASDAQ for the twenty business days proceeding December
4, 1998. The warrants have an expiration date of June 3, 2003.
In 1998, Colony Investors III, L.P. acquired a 10% equity position in the
Company. The purchase involved a private placement sale of 660,128 shares of the
Company's common stock and warrants exercisable for seven years to purchase
198,039 shares of the Company's common stock at $10.00 a share.
In 1998, the Company purchased 135,000 shares of the common stock of the Company
from a former director for $6.717 per share, or a total of $906,750. All 135,000
shares were subsequently retired.
In 1999, the Company purchased at fair value, 21,000 shares of the Company's
common stock from one of the holders of the debentures.
In 1999, the Company completed a public offering of 2,300,000 shares of its
common stock, resulting in net proceeds of approximately $18 million. The
proceeds of the offering were used to pay down existing debt.
37
38
In 2000, the Company announced a stock buy back program for up to one million
shares. Through December 31, 2000, the Company had acquired approximately
497,000 shares.
In 2000, in connection with the issuance of the 12% Senior unsecured notes (see
Note 10), the Company issued warrants to the purchasers of the notes for the
purchase of 597,888 shares of the common stock of the Company at an exercise
price of $6.25 per share. The warrants expire June 22, 2008.
Stock Dividend
In December 1998, the Company declared a 3 for 2 stock split in the form of a
50% dividend. In March 1998, the Company declared a 3 for 1 stock split in the
form of a 200% stock dividend. All historical share and per share amounts have
been retroactively restated to reflect the dividend.
NOTE 17 -- EMPLOYEE BENEFIT ARRANGEMENTS
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, 1998, 1999 and 2000.
In addition, the Company has a qualified plan under the provisions of Section
401(k) of the Internal Revenue Code. Under this plan, participants are able to
make salary deferral contributions of up to 15% 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 1998, 1999 and
2000 the Company made matching contributions of $27,000, $39,000 and $226,000,
respectively to this plan.
Deferred Compensation Plan
The Company has a non-qualified deferred compensation plan to provide specified
benefits to a select group of management and key employees and directors who
contribute materially to the continued growth, development and future business
success of the Company. Under this plan, participants are able to make salary
deferral contributions of up to 100% of their total compensation. The plan also
includes provisions, which authorize the Company to make discretionary
contributions. During 1998, 1999 and 2000, the Company made matching
contributions of $1,078,000, $1,000,000 and $0, respectively.
Notes Receivable from Stockholders
In 1997, a group of key employees, including its principal executive officers,
purchased 329,913 shares of the Company's outstanding stock for cash in a
private transaction with an institutional investor. The Company provided
recourse loans for the employees to purchase the stock totaling approximately
$1.3 million. The balance outstanding as of December 31, 2000 was $146,000. The
terms of the notes receivable are prime plus 1%, interest payable semi-annually,
maturing at termination of employment or upon the sale of the stock by the
employee.
NOTE 18 -- SEGMENT INFORMATION
The Company's business activities currently consist of property management,
commercial and residential brokerage, and various type of real estate
investments. The Company's segment disclosure with respect to the determination
of segment profit or loss and segment assets is based on these services and its
various investments:
Property Management - As a result of recent acquisitions, the Company has
become a nationwide
38
39
commercial and residential property management and leasing company,
providing a full range of services relating to property management. The
Company also provides asset management services for some of our joint
ventures.
Brokerage - Through its various offices, the Company provides specialized
brokerage services for both commercial and residential real estate and
provides other real estate services such as property valuations,
development and implementation of marketing plans, arranging financing,
sealed bid auctions and open bid auctions.
Investments - With joint venture partners and on its own, the Company
invests in commercial and residential real estate and purchases and manages
pools of distressed notes. The Company's current real estate portfolio
focuses on commercial buildings and multiple and single-family residences.
The Company has entered into joint ventures with large international
investors to invest in Japanese real estate and note pools. The Company
also makes mezzanine loans to real estate developers for new single-family,
residential developments.
The Company did not generate material intersegment revenues for the periods
ended December 31, 1998, 1999 and 2000. The Company does not disclose based on
geographic segments due to immateriality. The Company does not include capital
expenditures by segment as part of the decision making process. The amounts
representing investments with related parties and non-affiliates are included in
the investment segment.
The following tables reconcile the Company's income and expense activity for the
year ended December 31, 1998 and balance sheet data as of December 31, 1998.
1998 Reconciliation of Reportable Segment Information
Property
Management Brokerage Investments Corporate Consolidated
----------- --------- ------------ ------------- -------------
Property management and leasing fees $12,725,000 $ 735,000 $734,000 $14,194,000
Commissions 4,890,000 27,000 4,917,000
Sales of residential real estate 13,828,000 13,828,000
Equity in income of investments in
joint ventures 350,000 262,000 612,000
Gain on sale of joint venture 4,077,000 4,077,000
Gain on sale of commercial real estate 2,654,000 2,654,000
Gain on restructured notes receivable 3,911,000 3,911,000
Rental income, net 4,583,000 4,583,000
Interest and other income 52,000 1,889,000 $ 155,000 2,096,000
----------- --------- ------------ ------------- -------------
Total revenue 12,725,000 6,027,000 31,965,000 155,000 50,872,000
----------- --------- ------------ ------------- -------------
Depreciation and amortization 1,125,000 934,000 2,059,000
Interest expense 6,375,000 2,023,000 8,398,000
Other expenses 8,470,000 3,329,000 14,133,000 8,321,000 34,253,000
----------- --------- ------------ ------------- -------------
Total operating expenses 8,470,000 3,329,000 21,633,000 11,278,000 44,710,000
----------- --------- ------------ ------------- -------------
Income before provision for income taxes 4,255,000 2,698,000 10,332,000 (11,123,000) 6,162,000
Provision for income taxes 837,000 837,000
----------- --------- ------------ ------------- -------------
Net income $4,255,000 $2,698,000 $10,332,000 $(11,960,000) $5,325,000
========== ========== ============ =========== ============
Total assets $7,780,000 $3,275,000 $162,499,000 $31,262,000 $204,816,000
========== ========== ============ =========== ============
Total liabilities $2,525,000 $1,535,000 $138,592,000 $39,384,000 $182,036,000
Stockholders' equity 5,255,000 1,740,000 23,907,000 (8,122,000) 22,780,000
---------- ---------- ----------- ----------- ------------
Total liabilities and stockholders' equity $7,780,000 $3,275,000 $162,499,000 $31,262,000 $204,816,000
========== ========== ============ =========== ============
39
40
The following tables reconcile the Company's income and expense activity for the
year ended December 31, 1999 and balance sheet data as of December 31, 1999.
1999 Reconciliation of Reportable Segment Information
Property
Management Brokerage Investments Corporate Consolidated
----------- ----------- ----------- ----------- ------------
Property management and leasing fees $26,622,000 $2,925,000 $29,547,000
Commissions $2,749,000 9,489,000 $1,078,000 13,316,000
Sales of residential real estate 25,731,000 25,731,000
Equity in income of investments in
joint ventures 736,000 1,313,000 2,049,000
Gain on sale of joint venture 2,406,000 2,406,000
Gain on sale of commercial real estate 1,129,000 5,940,000 7,069,000
Gain on restructured notes receivable 2,877,000 2,877,000
Rental income, net 6,352,000 6,352,000
Interest and other income 274,000 1,258,000 $ 480,000 2,012,000
----------- ----------- ----------- ----------- ------------
Total revenue 29,371,000 16,959,000 44,549,000 480,000 91,359,000
----------- ----------- ----------- ----------- ------------
Depreciation and amortization 912,000 2,594,000 3,506,000
Interest expense 9,299,000 2,142,000 11,441,000
Other expenses 22,157,000 5,409,000 26,868,000 13,540,000 67,974,000
----------- ----------- ----------- ----------- ------------
Total operating expenses 22,157,000 5,409,000 37,079,000 18,276,000 82,921,000
----------- ----------- ----------- ----------- ------------
Income before provision for income taxes 7,214,000 11,550,000 7,470,000 (17,796,000) 8,438,000
Provision for income taxes 2,829,000 2,829,000
----------- ----------- ----------- ----------- ------------
Net income $7,214,000 $11,550,000 $7,470,000 $(20,625,000) $5,609,000
=========== =========== =========== =========== ============
Total assets $15,021,000 $16,670,000 $54,104,000 $49,355,000 $135,150,000
=========== =========== =========== =========== ============
Total liabilities $3,066,000 $3,380,000 $22,726,000 $59,292,000 $88,464,000
Stockholders' equity 11,955,000 13,290,000 31,378,000 (9,937,000) 46,686,000
----------- ----------- ----------- ----------- ------------
Total liabilities and stockholders' equity $15,021,000 $16,670,000 $54,104,000 $49,355,000 $135,150,000
=========== =========== =========== =========== ============
40
41
The following tables reconcile the Company's income and expense activity for the
year ended December 31, 2000 and balance sheet data as of December 31, 2000.
2000 Reconciliation of Reportable Segment Information
Property
Management Brokerage Investments Corporate Consolidated
----------- ----------- ----------- ----------- ------------
Property management and leasing fees $37,458,000 $ 1,491,000 $2,114,000 $41,063,000
Commissions 2,349,000 8,177,000 4,312,000 14,838,000
Sales of residential real estate 30,166,000 30,166,000
Equity in income of investments in
joint ventures 1,913,000 2,401,000 4,314,000
Gain on sale of joint venture
Gain on sale of commercial real estate
Gain on restructured notes receivable 1,531,000 2,075,000 3,606,000
Rental income, net
Interest and other income 479,000 1,125,000 $ 1,460,000 3,064,000
----------- ----------- ----------- ----------- ------------
Total revenue 39,807,000 13,591,000 42,193,000 1,460,000 97,051,000
----------- ----------- ----------- ----------- ------------
Depreciation and amortization 133,000 4,226,000 4,359,000
Interest expense 607,000 2,921,000 3,528,000
Other expenses 37,114,000 8,078,000 31,248,000 4,484,000 80,924,000
----------- ----------- ----------- ----------- ------------
Total operating expenses 37,114,000 8,078,000 31,988,000 11,631,000 88,811,000
----------- ----------- ----------- ----------- ------------
Income before provision for income taxes 2,693,000 5,513,000 10,205,000 (10,171,000) 8,240,000
Provision for income taxes 3,514,000 3,514,000
----------- ----------- ----------- ----------- ------------
Net income $2,693,000 $5,513,000 $10,205,000 $(13,685,000) $4,726,000
=========== =========== =========== =========== ============
Total assets $18,287,000 $22,649,000 $51,231,000 $40,937,000 $133,104,000
=========== =========== =========== =========== ============
Total liabilities $3,639,000 $3,846,000 $9,648,000 $66,207,000 $83,340,000
Stockholders' equity 14,648,000 18,803,000 41,583,000 (25,270,000) 49,764,000
----------- ----------- ----------- ----------- ------------
Total liabilities and stockholders' equity $18,287,000 $22,649,000 $51,231,000 $40,937,000 $133,104,000
=========== =========== =========== =========== ============
41
42
NOTE 19 -- EARNINGS PER SHARE
The following table reconciles the calculation for earnings per share for the
periods ending December 31, 1998, 1999 and 2000:
Year Ended December 31,
---------------------------------------------
1998 1999 2000
----------- ----------- -----------
Basic earnings per share:
Net income available to stockholders $ 5,325,000 $ 5,609,000 $ 4,726,000
=========== =========== ===========
Weighted average shares 6,254,470 8,218,983 9,018,250
Basic per share amount $ 0.85 $ 0.68 $ 0.52
=========== =========== ===========
Diluted earnings per share:
Net income $ 5,325,000 $ 5,609,000 $ 4,726,000
Income effect of dilutive securities, tax effected 204,000 297,000
----------- ----------- -----------
Net income available to stockholders $ 5,325,000 $ 5,813,000 $ 5,023,000
=========== =========== ===========
Weighted average shares 6,254,470 8,218,983 9,018,250
Weighted average shares, convertible debentures 461,538 534,246 750,000
Options and warrants 85,348 1,261,372 359,557
----------- ----------- -----------
Total diluted shares 6,801,356 10,014,601 10,127,807
=========== =========== ===========
Diluted per share amount $ 0.78 $ 0.58 $ 0.50
=========== =========== ===========
The anti-dilutive options and warrants excluded from the calculations of diluted
net income per share, were 207,150, 1,132,870, and 2,330,922 for the years ended
December 31, 1998, 1999 and 2000, respectively.
NOTE 20 - UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
The following unaudited pro forma consolidated statements of income give effect
to the acquisition of Heitman Financial, Ltd. and five management companies
acquired during 1998 and 1999, respectively. The pro forma adjustments are based
upon available information and certain assumptions that the Company believes are
reasonable. This unaudited pro forma condensed information does not purport to
represent what the actual results of operations of the Company would have been
assuming the acquisitions had been completed as set forth above, nor do they
purport to predict the results of operations for future periods.
1998 1999
Pro Forma Pro Forma
------------ ------------
Total revenue $ 75,522,000 $105,590,000
Total operating expenses 67,961,000 95,352,000
------------ ------------
Income before income taxes 7,561,000 10,238,000
Provision for income taxes 1,327,000 3,414,000
------------ ------------
Net income $ 6,234,000 $ 6,824,000
============ ============
Pro forma basic net income per share $ 1.00 $ 0.83
Pro forma basic weighted average shares 6,254,470 8,218,983
Pro forma diluted net income per share $ 0.92 $ 0.70
Pro forma diluted weighted average shares 6,801,356 10,014,601
42
43
NOTE 21 - UNAUDITED CONSOLIDATED QUARTERLY INFORMATION
1999
--------------------------------------------------------------
Three Months Ended
--------------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
----------- ----------- ----------- -----------
Total revenue $16,857,000 $12,878,000 $32,535,000 $29,089,000
Total operating expenses 15,084,000 11,448,000 28,956,000 27,433,000
----------- ----------- ----------- -----------
Income before income taxes 1,773,000 1,430,000 3,579,000 1,656,000
Provision for income taxes 603,000 500,000 1,078,000 648,000
----------- ----------- ----------- -----------
Net income $ 1,170,000 $ 930,000 $ 2,501,000 $ 1,008,000
=========== =========== =========== ===========
Basic net income per share $ 0.17 $ 0.12 $ 0.28 $ 0.11
Basic weighted average shares 6,707,284 8,000,080 9,066,662 9,066,662
Diluted net income per share $ 0.16 $ 0.11 $ 0.25 $ 0.10
Diluted weighted average shares 7,329,809 9,247.329 10,393,787 10,351,925
2000
--------------------------------------------------------------
Three Months Ended
--------------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
----------- ----------- ----------- -----------
Total revenue $39,422,000 $20,960,000 $15,522,000 $21,147,000
Total operating expenses 37,174,000 19,163,000 14,086,000 18,388,000
----------- ----------- ----------- -----------
Income before income taxes 2,248,000 1,797,000 1,436,000 2,759,000
Provision for income taxes 564,000 617,000 488,000 1,845,000
----------- ----------- ----------- -----------
Net income $ 1,684,000 $ 1,180,000 $ 948,000 $ 914,000
=========== =========== =========== ===========
Basic net income per share $ 0.19 $ 0.13 $ 0.11 $ 0.10
Basic weighted average shares 9,080,887 9,100,162 9,010,536 8,882,774
Diluted net income per share $ 0.17 $ 0.12 $ 0.10 $ 0.10
Diluted weighted average shares 10,264,576 10,187,462 10,154,688 9,904,638
NOTE 22 - SUBSEQUENT EVENT
Effective January 1, 2001 the Company granted 700,000 shares under a restricted
stock agreement with the Company's chairman pursuant to the terms of his
employment agreement.
43
44
PART III
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
N/A
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, 2000, 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, 2000 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, 2000, 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, 2000, and such information is incorporated herein by
reference.
44
45
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 the Company, as amended to
date.
3.2 Bylaws of the Company (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 Employee Profit Sharing Plan and Trust, as amended to date.
(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).
10.2 Deferred Compensation Plan dated September 1, 1997.
10.3 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).
10.4 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).
10.4.1 1993 Amendment to 1992 Incentive and Nonstatutory Stock
Option Plan.
10.5 Employment Agreement dated August 14, 1992 between the
Company 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).
10.5.1 Fifth Amendment to Employment Agreement dated as of May 19,
1997 between the Company and William J. McMorrow.
10.5.2 Sixth Amendment to Employment Agreement dated as of August
20, 1998 between the Company and William J. McMorrow.
10.5.3 Seventh Amendment to Employment Agreement dated as of August
9, 1999 between the Company and William J. McMorrow.
45
46
Exhibit Number Description
- -------------- -----------
Eighth Amendment to Employment Agreement dated as of
December 13, 1999 between the Company and William J.
McMorrow. 10.5.4
10.6 Limited Liability Company Operating Agreement of KW-A, LLC
dated as of July 17, 1998.
10.7 Employment Agreement dated as of July 17, 1998 between KW-A,
LLC and Barry Schlesinger.
10.8 Executive Services Agreement dated as of July 17, 1998
between the Company and KW-A, LLC.
10.9 Employment Agreement dated as of January 1, 1997 between the
Company and Richard Mandel. (Filed as Exhibit 10.9 to the
Company's 1996 Annual Report on Form 10-K and incorporated
herein by this reference).
10.9.1 First Amendment to Employment Agreement dated as of May 19,
1997 between the Company and Richard Mandel.
10.9.2 Second Amendment to Employment Agreement dated as of January
1, 1998 between the Company and Richard Mandel.
10.9.3 Third Amendment to Employment Agreement dated as of January
1, 1999 between the Company and Richard Mandel.
10.9.4 Four Amendment to Employment Agreement dated as of January
1, 1999 between the Company and Richard Mandel
10.10 Employment Agreement dated January 1, 1996 between the
Company and Lewis Halpert.
10.10.1 First Amendment to Employment Agreement dated January 1,
1997 between the Company and Lewis Halpert. (Filed as
Exhibit 10.12 to the Company's 1997 Annual Report on Form
10-K and incorporated herein by this reference).
10.10.2 Second Amendment to Employment Agreement dated as of January
1, 1998 between the Company and Lewis Halpert.
10.10.3 Third Amendment to Employment Agreement dated as of January
1, 1999 between the Company and Lewis Halpert.
10.11 Employment Agreement dated April 1, 1996 between the Company
and Freeman Lyle. (Filed as Exhibit 10.13 to the Company's
1997 Annual Report on form 10-K and incorporated herein by
this reference).
10.11.1 Second Amendment to Employment Agreement dated April 1, 1998
between the Company and Freeman Lyle.
10.11.2 Third Amendment to Employment Agreement dated as of April 1,
1998 between the Company and Freeman Lyle.
10.11.3 Fourth Amendment to Employment Agreement dated as of April
1, 1999 between the Company and Freeman Lyle.
10.12 Unsecured Promissory Note dated December 22, 1997 by Freeman
Lyle in favor of the Company.
10.13 Office Lease dated as of September 1, 1998 between the
Company and Wilshire-Camden Associates.
46
47
Exhibit Number Description
- -------------- -----------
10.14 Indemnification Agreement dated August 13, 1992 among the
Company, Kennedy-Wilson International, Inc., 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).
10.15 Form of Stock Option Agreement under the Company'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).
10.16 Form of Stock Option Agreement under the Company'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).
10.17 Amended and Restated Revolving Credit Agreement dated as of
September 10, 1998 between the Company and East-West Bank.
10.18 Loan Agreement dated as of July 28, 1998 between
Kennedy-Wilson Properties, Ltd. and East-West Bank.
10.19 Guaranty dated as of July 28, 1998 by the Company in favor
of East-West Bank.
10.20 Loan Commitment Letter dated July 2, 1998 between KW-KAU,
LLC, Kennedy-Wilson International, Inc. and Old Standard
Life Insurance Company.
10.21 Loan and Warrant Agreement dated June 3, 1998 between the
Company and FBR Asset Investment Corporation. (Filed as
Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q/A dated August 14, 1998 and incorporated herein by this
reference).
10.21.1 Loan Modification Agreement dated November 30, 1998 between
the Company and FBR Asset Investment Corporation.
10.22 Common Stock Registration Rights Agreement dated as of June
3, 1998 between the Company and FBR Asset Investment
Incorporation. (Filed as Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q/A dated August 14, 1998 and
incorporated herein by this reference).
10.23 Form of Warrant to be issued by the Company to FBR Asset
Investment Corporation. (Filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q/A and incorporated
herein by this reference).
10.24 Bridge Loan Agreement dated as of July 16, 1998 among the
Company, Kennedy-Wilson International, Inc., K-W Properties,
Kennedy-Wilson Properties, Ltd. And Colony K-W LLC. (Filed
as Exhibit 10.1 to the Company's Current Report on Form
8-K/A dated September 30, 1998 and incorporated herein by
this reference).
10.25 Investor's Agreement dated July 16, 1998 between the Company
and Colony Investors III, L.P.
10.26 Registration Rights Agreement dated as of July 16, 1998
between the Company and Colony Investors III, L.P. (Filed as
Exhibit 10.4 to the Company's Current Report on Form 8-K/A
dated September 30, 1998 and incorporated herein by this
reference).
10.27 Warrant Agreement dated as of July 16, 1998 between the
Company and Colony Investors III, L.P. (Filed as Exhibit
10.4 to the Company's Current Report on Form 8-K/A dated
September 30, 1998 and incorporated herein by this
reference).
47
48
Exhibit Number Description
- -------------- -----------
10.28 Form of Warrant issued July 16, 1998 by the Company to
Colony Investors III, L.P. (Filed as Exhibit 10.4 to the
Company's 1998 Current Report on Form 8-K dated September
30, 1998 and incorporated herein by this reference).
10.29 Agreement of Limited Partnership of Colony-KW Partners, L.P.
10.30 Purchase and Sale of Stock Between K-W Properties and Camden
Investment Property Group Inc
10.31 Purchase and Sale of Membership Interest in Del Mar
Pasadena, LLC between K-W Del Mar Group, Inc. and Camden
Investment Properties Group Inc. Note Purchase Agreement,
dated as of June 22, 2000, by and between Kennedy-Wilson,
Inc. and
10.32 GATX Capital Corp. Note Purchase Agreement, dated as of June
22, 2000, by and between Kennedy-Wilson, Inc. and
10.33 Combined Insurance Company of America. Note Purchase
Agreement, dated as of June 22, 2000, by and between
Kennedy-Wilson, Inc. and
10.34 Virginia Surety Company, Inc. Note Purchase Agreement date
as of June 22, 2000, by and between Kennedy-Wilson, Inc. and
10.35 Resource Life Insurance Company. 12% Senior Note due June
22, 2006, dated June 22, 2000, made payable to GATX Capital
Corp.,
10.36 duly executed by Kennedy-Wilson, Inc. in the amount of
$10,000,000. 12% Senior Note due June 22, 2006, dated June
22, 2000, made payable to Combine Insurance
10.37 Company of America, duly executed by Kennedy-Wilson, Inc. in
the amount of $2,000,000. 12% Senior Note due June 22, 2006,
dated June 22, 2000, made payable to Virginia Surety
10.38 Company, duly executed by Kennedy-Wilson, Inc. in the amount
of $2,000,000. 12% Senior Note due June 22, 2006, dated June
22, 2000, made payable to Resource Life
10.39 Insurance Company, duly executed by Kennedy-Wilson, Inc. in
the amount of $1,000,000. Warrants to Purchase Shares of
Common Stock, dated June 22, 2000, duly executed by
10.40 Kennedy-Wilson, Inc. in favor of GATX Capital Corp. Warrants
to Purchase Shares of Common Stock, dated June 22, 2000,
duly executed by
10.41 Kennedy-Wilson, Inc. in favor of Combined Insurance Company
of America. Warrants to Purchase Shares of Common Stock,
dated June 22, 2000, duly executed by
10.42 Kennedy-Wilson, Inc. in favor of Virginia Surety Company,
Inc. Warrants to Purchase Shares of Common Stock, dated June
22, 2000, duly executed by
10.43 Kennedy-Wilson, Inc. in favor of Resource Life Insurance
Company First Amendment to Loan Agreement dated as of June
6, 2000 between Kennedy-Wilson
10.44 International, Kennedy-Wilson Properties, Ltd. and K-W
Properties Inc., and East-West Bank. Second Amendment to
Loan Agreement dated as of June 6, 2000 between
Kennedy-Wilson
10.45 International and Kennedy-Wilson Properties, Ltd., K-W
Properties Inc., and East-West Bank. Third Modification
Agreement to Loan Agreement dated as of June 20, 2000
between
10.46 Kennedy-Wilson International and Kennedy-Wilson Properties,
Ltd., K-W Properties Inc., and Tokai Bank of California.
10.47 Fourth Modification Agreement to Loan Agreement dated as of
July 7, 2000 between Kennedy-Wilson International and
Kennedy-Wilson Properties, Ltd., K-W Properties Inc., and
Tokai Bank of California.
21* List of Subsidiaries of the Company.
48
49
Exhibit Number Description
- -------------- -----------
* Filed herewith.
(b) CURRENT REPORTS ON FORM 8-K
None.
49
50
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 30, 2001
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 30, 2001
-------------------------------- Executive Officer)
William J. McMorrow
/s/ FREEMAN A. LYLE Executive Vice President, Chief Financial Officer and March 30, 2001
-------------------------------- Secretary (Principal Financial and Accounting Officer)
Freeman A. Lyle
/s/ LEWIS A. HALPERT Executive Managing Director and Director March 30, 2001
--------------------------------
Lewis A. Halpert
/s/ RICHARD A. MANDEL Managing Director and Director March 30, 2001
--------------------------------
Richard A. Mandel
/s/ BARRY SCHLESSINGER Chairman, KWI Fund Management Group and Director March 30, 2001
--------------------------------
Barry S. Schlessinger
/s/ THOMAS BARRACK Director March 30, 2001
--------------------------------
Thomas Barrack
/s/ KENT MOUTON Director March 30, 2001
--------------------------------
Kent Mouton
/s/ DONALD PRELL Director March 30, 2001
--------------------------------
Donald Prell
50
51
KENNEDY-WILSON, INC.
Schedule III - Real Estate Owned
For the year ended December 31, 2000
Costs Capitalized
Initial Cost Subsequent to Acquisition
------------------------------ ------------------------------
Building and Carrying
Encumbrance Land Improvements Improvements Costs
------------ ------------ ------------ ------------ ------------
Commercial properties:
4 vacant lots,
Santa Monica, California $ 1,000,000 $ 2,402,000 $ 488,000
542 acres of land, Hawaii 8,831,000 $ 1,242,000
------------ ------------ ------------ ------------ ------------
1,000,000 11,233,000 488,000 1,242,000
------------ ------------ ------------ ------------ ------------
Residential properties:
109 housing lots,
Cathedral City, California 3,637,000 1,800,000 4,071,000 131,000
155 acres of land,
San Diego, California 283,000
------------ ------------ ------------ ------------ ------------
3,637,000 2,083,000 4,071,000 131,000
------------ ------------ ------------ ------------ ------------
$ 4,637,000 $ 13,316,000 $ 4,559,000 $ 1,373,000
============ ============ ============ ============ ============
Balance at beginning of year $ 34,564,000
Additions during year:
Acquisitions $ 15,691,000
Improvements 9,928,000
Capitalized carrying costs 1,365,000 26,984,000
------------
Deductions during year:
Disposition of real estate (25,800,000)
Transfer of real estate (16,500,000) (42,300,000)
------------ ------------
Balance at end of year $ 19,248,000
============
The aggregate cost of real estate owned for Federal income tax purposes is
$17,635,000.
Gross Amount
Carried at End of Period
------------------------------
Building and
Land Improvements Total
------------ ------------ ------------
Commercial properties:
4 vacant lots,
Santa Monica, California $ 2,402,000 $ 488,000 $ 2,890,000
542 acres of land, Hawaii 10,073,000 10,073,000
------------ ------------ ------------
12,475,000 488,000 12,963,000
------------ ------------ ------------
Residential properties:
109 housing lots,
Cathedral City, California 1,800,000 4,202,000 6,002,000
155 acres of land,
San Diego, California 283,000 283,000
------------ ------------ ------------
2,083,000 4,202,000 6,285,000
------------ ------------ ------------
$ 14,558,000 $ 4,690,000 $ 19,248,000
============ ============ ============
51