9
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-13082
KENNETH COLE PRODUCTIONS, INC.
(Exact name of registrant as specified in its charter)
New York 13-3131650
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
152 West 57th Street, New York, NY 10019
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 265-1500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes (X)
No ( )
Indicate the number of shares of each of the issuer's classes of common
stock, as of the latest practicable date:
Class November 10, 1998
Class A Common Stock ( $.01 par value) 7,259,563
Class B Common Stock ( $.01 par value) 5,785,398
<PAGE>
Kenneth Cole Productions, Inc.
Index to 10-Q
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 1998 and
December 31, 1997 .................................................... 3
Consolidated Statements of Income for the three month and nine month
periods ended September 30, 1998 and 1997 ............................ 5
Consolidated Statement of Changes in Shareholders' Equity for the nine
month period ended September 30, 1998 ................................ 6
Consolidated Statements of Cash Flows for the nine month periods
ended September 30, 1998 and 1997 .................................... 7
Notes to Consolidated Financial Statements ........................... 8
Item 2. Management's Discussion and Analysis of Results of Operations
Financial Condition and Results of Operations......................... 10
Item 3. Quantitative and Qualitative Disclosure About Market Risk ......... 15
Part II. OTHER INFORMATION
Item 1. Legal Proceedings ................................................. 16
Item 2. Changes in Securities and Use of Proceeds ......................... 16
Item 3. Defaults Upon Senior Securities ................................... 16
Item 4. Submission of Matters to a Vote of Security Holders ............... 16
Item 5. Other Information ................................................. 16
Item 6. Exhibits and Reports on Form 8-K .................................. 16
Signatures ................................................................ 17
Index of Exhibits......................................................... 18
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1.
<TABLE>
Kenneth Cole Productions, Inc. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash $ 1,314,000 $ 8,803,000
Due from factors 29,502,000 23,292,000
Accounts receivable, net 4,975,000 3,864,000
Inventories 36,399,000 23,365,000
Prepaid expenses and other current assets 999,000 1,420,000
Deferred taxes 1,135,000 1,135,000
------------ ------------
Total current assets 74,324,000 61,879,000
Property and equipment
Furniture and fixtures 7,137,000 5,513,000
Machinery and equipment 4,519,000 3,862,000
Leasehold improvements 10,098,000 8,217,000
------------ ------------
21,754,000 17,592,000
Less accumulated depreciation and amortization 7,552,000 5,381,000
------------ ------------
Net property and equipment 14,202,000 12,211,000
Other Assets:
Deposits and deferred income taxes 1,734,000 1,876,000
Deferred compensation 3,011,000 1,949,000
------------ ------------
Total other assets 4,745,000 3,825,000
------------ ------------
Total assets $ 93,271,000 $ 77,915,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
Kenneth Cole Productions, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 12,183,000 $ 9,837,000
Accrued expenses and other current liabilities 2,806,000 3,147,000
Advances due under revolving credit facility 998,000
Income taxes payable 2,493,000 1,694,000
Deferred license income 623,000 252,000
------------ ------------
Total current liabilities 19,103,000 14,930,000
Deferred rent payable 1,093,000 909,000
Deferred income tax 387,000 387,000
Deferred compensation 3,011,000 1,949,000
Commitments and Contingencies
Shareholders' equity:
Preferred stock, par value $1.00, 1,000,000
shares authorized, none outstanding
Class A common stock, par value $.01,
20,000,000 shares authorized, 7,609,029
issued and 7,259,029 outstanding in 1998 and
7,410,160 outstanding in 1997 76,000 74,000
Class B common stock, par value $.01,
6,000,000 shares authorized,
5,785,398 outstanding 58,000 58,000
Additional paid-in capital 22,276,000 19,684,000
Accumulated other comprehensive income 76,000 90,000
Retained earnings 52,159,000 39,834,000
------------ ------------
74,645,000 59,740,000
Cost of treasury stock (4,968,000)
------------ ------------
Total shareholders' equity 69,677,000 59,740,000
------------ ------------
Total liabilities and shareholders' equity $ 93,271,000 $ 77,915,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
Kenneth Cole Productions, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales $ 62,010,000 $ 50,287,000 $162,370,000 $135,549,000
Cost of goods sold 36,512,000 29,178,000 95,569,000 82,847,000
------------ ------------ ------------ ------------
Gross profit 25,498,000 21,109,000 66,801,000 52,702,000
Licensing and other
income 2,294,000 1,726,000 5,741,000 3,994,000
Selling, general and
administrative and
shipping and
warehousing 18,415,000 14,677,000 52,498,000 41,596,000
------------ ------------ ------------ ------------
Operating income 9,377,000 8,158,000 20,044,000 15,100,000
Interest (income)
expense, net (96,000) 39,000 (328,000) 238,000
------------ ------------ ------------ ------------
Income before provision
for income taxes 9,473,000 8,119,000 20,372,000 14,862,000
Provision for income
taxes 3,742,000 3,248,000 8,047,000 5,945,000
------------ ------------ ------------ ------------
Net income $ 5,731,000 $ 4,871,000 $ 12,325,000 $ 8,917,000
============ ============ ============ ============
Earnings per share:
Basic $ .43 $ .37 $ .93 $ .68
Diluted $ .42 $ .36 $ .90 $ .66
Shares used to compute
earnings per share:
Basic 13,268,000 13,166,000 13,281,000 13,152,000
Diluted 13,633,000 13,544,000 13,742,000 13,600,000
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
Kenneth Cole Productions, Inc. and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
(Unaudited)
<CAPTION>
Class A Class B
Common Stock Common Stock Additional
Number Number Paid-in
of shares Amount of shares Amount Capital
<S> <C> <C> <C> <C> <C>
Shareholders' equity
January 1, 1998 7,410,160 $ 74,000 5,785,398 $ 58,000 $19,684,000
Net Income
Foreign Currency
translation adjustment
Comprehensive income
Exercise of stock options
including tax benefit 198,869 2,000 2,592,000
Stock repurchase
-------------------------------------------------------
Shareholders' equity
September 30, 1998 7,609,029 $ 76,000 5,785,398 $ 58,000 $22,276,000
=======================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Accumulated Treasury Stock
Other
Comprehensive Retained Number
Income Earnings of Shares Amount Total
<S> <C> <C> <C> <C> <C>
Shareholders' equity
January 1, 1998 $ 90,000 $39,834,000 $59,740,000
Net Income 12,325,000 12,325,000
Foreign Currency
translation adjustment (14,000) (14,000)
-----------
Comprehensive income 12,311,000
Exercise of stock options
including tax benefit 2,594,000
Stock repurchase (350,000) $(4,968,000) (4,968,000)
--------------------------------------------------------
Shareholders' equity
September 30, 1998 $ 76,000 $52,159,000 (350,000) $(4,968,000) $69,677,000
========================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
Kenneth Cole Productions, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
<CAPTION>
Nine Months Ended
September 30
1998 1997
<S> <C> <C>
Cash flows from operating activities
Net income $ 12,325,000 $ 8,917,000
Adjustments to reconcile net income to net cash
(Used in) provided by operating activities:
Depreciation and amortization 2,171,000 1,414,000
Amortization of deferred compensation 69,000
Provision for doubtful accounts 100,000 32,000
Changes in assets and liabilities:
Increase in due from factors (6,210,000) (9,903,000)
Increase in accounts receivable (1,211,000) (483,000)
(Increase) decrease in inventories (13,034,000) 1,640,000
Decrease in prepaid expenses and other
current assets 421,000 81,000
Increase in deposits (920,000) (804,000)
Increase (decrease) in accounts payable 2,346,000 (2,946,000)
Increase in income taxes payable 1,893,000 1,806,000
Increase in accrued expenses and other
current liabilities 30,000 1,904,000
Increase in other non-current liabilities 1,246,000 785,000
------------ ------------
Net cash (used in) provided by operating activities (843,000) 2,512,000
Cash flows from investing activities
Acquisition of property and equipment, net (4,162,000) (2,774,000)
------------ ------------
Net cash used in investing activities (4,162,000) (2,774,000)
Cash flows from financing activities
Proceeds from revolving line of credit, net 998,000 810,000
Proceeds from exercise of stock options 1,500,000 263,000
Repayment of long-term debt (44,000)
Treasury shares acquired (4,968,000)
------------ ------------
Net cash (used in) provided by financing activities (2,470,000) 1,029,000
Effect of exchange rate changes on cash (14,000) 59,000
------------ ------------
Net (decrease) increase in cash (7,489,000) 826,000
Cash, beginning of period 8,803,000 1,626,000
------------ ------------
Cash, end of period $ 1,314,000 $ 2,452,000
============ ============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 23,000 $ 79,000
Income taxes $ 6,154,000 $ 4,138,000
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Kenneth Cole Productions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of Kenneth
Cole Productions, Inc. ("the Company") have been prepared in accordance
with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. The data contained in these financial
statements are unaudited and are subject to year end adjustment;
however, in the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three and nine month
periods ended September 30, 1998 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1998. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K
for the year ended December 31, 1997.
The consolidated balance sheet at December 31, 1997 was derived from
the audited financial statements.
2. Stock Repurchase
On August 13, 1998, the Board of Directors of the Company authorized
management to repurchase up to 500,000 shares of the Company's Class A
Common Stock. As of September 30, 1998, 350,000 shares were
repurchased, in the open market, at an aggregate price of $4,968,000.
3. Earnings Per Share
The Company adopted Statement of Financial Accounting Standards No. 128
"Earnings Per Share" ("SFAS 128"), effective December 31, 1997, which
superseded Accounting Principles Board Opinion 15, "Earnings Per Share"
("APB 15"). SFAS 128 requires the Company to report: (i) basic
earnings per common share, which is computed by dividing net income by
weighted average number of shares of common stock outstanding during
the periods presented, and (ii) diluted earnings per common share,
which is determined on the assumption that options issued to employees
are exercised and repurchased at the average price for the periods
presented. The difference between the number of shares used to
compute basic and diluted earnings per share relates to outstanding
stock options for all periods presented. The Company has restated
prior period calculations in accordance with SFAS 128. The impact of
adopting SFAS 128 did not result in material adjustments to previously
reported amounts.
<PAGE>
4. Segment Reporting
In September 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"), which
is effective for 1998. The Company is required to report the segment
information required by SFAS 131 when it issues its 1998 annual report.
SFAS 131 establishes new standards for reporting information about
operating segments using a "management approach". The Company has not
completed its review of SFAS 131, and has not yet determined the impact
the new requirements will have on reportable segments.
5. Comprehensive Income
In 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130").
Comprehensive income is generally defined as all changes in
shareholder's equity exclusive of transactions with owners. SFAS 130
requires the disclosure of comprehensive income and its components.
<TABLE>
Comprehensive income is comprised of:
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net income $ 5,731,000 $ 4,871,000 $12,325,000 $ 8,917,000
Currency translation
adjustment 12,000 (12,000) (14,000) 59,000
----------- ----------- ----------- -----------
Comprehensive income $ 5,743,000 $ 4,859,000 $12,311,000 $ 8,976,000
=========== =========== =========== ===========
</TABLE>
6. Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and for Hedging Activities" ("SFAS 133") which
is required to be adopted in years beginning after June 15, 1999. The
new Statement requires all derivatives to be recorded on the balance
sheet at fair value and establishes special accounting for three
different types of hedges. The Company, based on its current hedging
activities, does not expect the adoption of SFAS 133 to have a material
effect on the earnings and financial position of the Company.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth the Company's consolidated statements of
income and as a percentage of net sales for the three and nine month
periods ended September 30, 1998 and September 30, 1997.
<TABLE>
<CAPTION>
Three Months Ended
(in thousands) September 30, 1998 September 30, 1997
<S> <C> <C> <C> <C>
Net Sales $ 62,010 100.0% $ 50,287 100.0%
Gross Profit 25,498 41.1 21,109 42.0
Licensing Income 2,294 3.7 1,726 3.4
Selling, general and
administrative expenses 18,415 29.7 14,677 29.2
Operating income 9,377 15.1 8,158 16.2
Interest (income) expense, net (96) (.2) 39 0.0
Income before income taxes 9,473 15.3 8,119 16.2
Income tax expense 3,742 6.0 3,248 6.5
Net Income 5,731 9.3 4,871 9.7
Nine Months Ended
(in thousands)
September 30, 1998 September 30, 1997
Net Sales $162,370 100.0% $135,549 100.0%
Gross Profit 66,801 41.1 52,702 38.9
Licensing Income 5,741 3.5 3,994 2.9
Selling, general and
administrative expenses 52,498 32.3 41,596 30.7
Operating income 20,044 12.3 15,100 11.1
Interest (income) expense, net (328) (.2) 238 .2
Income before income taxes 20,372 12.5 14,862 10.9
Income tax expense 8,047 5.0 5,945 4.4
Net Income 12,325 7.5 8,917 6.5
</TABLE>
<PAGE>
Three Months Ended September 30, 1998 Compared to Three Months Ended
September 30, 1997
Net sales increased $11.7 million, or 23.3%, to $62.0 million for the
three months ended September 30, 1998 compared with net sales of $50.3
million for the three months ended September 30, 1997. The increase
was primarily attributable to increased net sales of handbags, men's
footwear, and increased sales by the Company's retail and outlet
stores, partially offset by lower net sales of women's footwear. Net
sales of the Company's wholesale operations, excluding sales to its
retail division, increased $8.3 million, or 20.9%, to $47.8 million for
the three months ended September 30, 1998 from $39.6 million for the
three months ended September 30, 1997. Net sales by the Company's
retail and outlet stores increased $3.5 million, or 32.2%, to $14.2
million for the three months ended September 30, 1998 compared to the
three months ended September 30, 1997. This increase reflects a 12.8%
or $1.3 million comparable store sales increase generated from forty-
two stores ( including one expanded store), sales of $1.5 million
generated from five stores open for the entire third quarter of 1998
which were not open in the third quarter of 1997, and the sales of two
new stores opened during the third quarter.
Gross profit was $25.5 million for the three months ended September 30,
1998, an increase of approximately $4.4 million, or 20.8%, from $21.1
million for the three months ended September 30, 1997. As a percentage
of net sales, gross profit was 41.1% for the three months ended
September 30, 1998 compared to 42% for the three months ended September
30, 1997. The decrease in gross profit as a percentage of net sales
was due to the weakness in the women's footwear market which resulted
in increased promotional pricing and markdowns, partially offset by
increased sales from the Company's retail and outlet store, which
produce greater gross profit margins than the Company's wholesale
operations.
Selling, general and administrative expenses, including shipping and
warehousing costs, were $18.4 million (29.7% of net sales) for the
three months ended September 30, 1998 compared to $14.7 million (29.2%
of net sales) for the three months ended September 30, 1997. The
increase in selling, general and administrative expenses as a
percentage of net sales is primarily due to the additional retail
stores (which carry a higher expense level than the wholesale division)
partially offset by a decrease in SG&A, as a percentage of net sales,
in the wholesale division due to leverage achieved through sales
growth.
Licensing income increased 32.9% to $2.3 million for the three months
ended September 30, 1998 compared to $1.7 million for the comparable
period in 1997. This increase reflects primarily the incremental
revenues from sales increases from the Company's existing licensees.
Interest income was $96,000 for the three months ended September 30,
1998, compared to interest expense of $39,000 for the three months
ended September 30, 1997.
As result of the foregoing, operating income increased 14.9% to $9.4
million (15.1% of net sales) from $8.2 million (16.2% of net sales) for
the three months ended September 30, 1998 and 1997, respectively.
<PAGE>
Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997
Net sales were $162.4 million in the first nine months of 1998 compared
to $135.6 million in the prior year's period, an increase of $26.8
million or 19.8 %. The increase was primarily attributable to
increased net sales of men's and children's footwear, handbags and new
retail and outlet stores, partially off-set by lower net sales of
women's footwear. Net sales of the Company's wholesale operations,
excluding sales to its retail division, increased $16.9 million or
16.1% to $121.6 million in the nine months ended September 30, 1998
from $104.7 million in the comparable period last year. This increase
was primarily due to increased consumer awareness of the Kenneth Cole
life style brand due to increased brand exposure generated from the
Company's growing consumer direct business and from licensing ventures,
such as men's apparel. Net sales by the Company's retail and outlet
stores increased $9.9 million or 32.2% to $40.8 million for the nine
months ended September 30, 1998 as compared with the same period last
year. This increase reflects an 8.9% or $2.8 million comparable store
sales increase, sales of $4.0 million for four stores open for the
entire nine months ended September 30, 1998, which were not open in the
same period of 1997 and the sales of three stores opened during the
first nine months of 1998.
Gross profit was $66.8 million in the nine month period ended September
30, 1998, an increase of $14.1 million, or 26.8%, from $52.7 million
in the comparable period last year. As a percentage of net sales,
gross profit was 41.1% compared to 38.9% for the nine months ended
September 30, 1997. The increase in gross profit percentage was
primarily attributable to higher sell-throughs generating fewer off
price sales as compared to the prior period which experienced lower
than expected sell-throughs resulting in excess wholesale inventories
disposed of at significant discounts.
Selling, general and administrative expenses, including shipping and
warehousing costs, were $52.5 million (32.3% of net sales) for the nine
month period ended September 30, 1998 and $41.6 million (30.7% of net
sales) for the comparable period last year. The increase in selling,
general and administrative expenses as a percentage of net sales is
primarily due to additional retail stores (which carry a higher expense
level than the wholesale division) and additional wholesale payroll
costs to support certain of the Company's recent initiatives, including
launching children's footwear.
Licensing income increased 43.7% to $5.7 million for the nine months
ended September 30, 1998 compared to $4.0 million for the comparable
period in 1997. This increase in licensing income primarily reflects
the incremental revenues from higher sales by the Company's existing
licensees.
Interest income was $328,000 in the nine months ended September 30,
1998, compared to interest expense of $238,000 for the nine months
ended September 30, 1997. The change to interest income from interest
expense was primarily due to higher average cash balances generated
from cash flows from operations.
As a result of the above, operating income increased 32.7% for the nine
month period of 1998 to $20.0 million (12.3% of net sales) from $15.1
million (11.1% of net sales) for the same period last year.
<PAGE>
Liquidity and Capital Resources
The Company relies on cash flow from operating activities and
borrowings under its revolving credit agreement as the primary sources
of financing for its operations and expansion. This includes the
purchase of inventory in anticipation of increased sales as well as
capital expenditures related to implementing information systems
technology and additional retail and outlet stores. Cash requirements
vary from time to time as a result of seasonal requirements, the timing
of the receipt of merchandise from suppliers and the Company's "open
stock" inventory program which requires an increase investment in
inventories. Cash used in operating activities was $0.8 million for
the nine months ended September 30, 1998, compared to $2.5 million
provided by operations for the nine months ended September 30, 1997.
The decrease in cash provided by operating activities is primarily
attributable to the increase in men's core product to support the
Company's open stock program as well as additional inventory for new
retail stores. At September 30, 1998 and December 31, 1997, working
capital was $55.2 million and $46.9 million, respectively.
The Company currently has a line of credit, which allows for
borrowings, letters of credit and bankers acceptances up to a maximum
of $25.0 million to finance working capital requirements, of which
$23.9 million was available at September 30, 1998.
Capital expenditures totaled $4.2 million and $2.8 in the nine months
ended September 30, 1998 and 1997, respectively. For 1998, the Company
expects capital expenditures to exceed $6.0 million. Capital
expenditures primarily relate to the Company's retail and outlet store
expansion and to the development and enhancement of the Company's
management information systems. The actual amount of expenditures
depends, in part, on the number of new retail locations opened and the
number of retail locations expanded or remodeled.
In August 1998, the management authorized the repurchase of up to
500,000 shares of its Class A Common Stock. As of September 30, 1998,
350,000 shares were repurchased for approximately $5.0 million. The
Company believes that it will repurchase the remaining 150,000 shares
of its Class A Common Stock, depending on the market value of the
Company's stock, from cash flows from operations.
The Company believes that cash flows from operations and borrowings
under its existing credit facility will be sufficient to satisfy the
Company's working capital requirements and expansion plans for the next
twelve months. However, the Company continues to evaluate potential
acquisitions of businesses that complement its existing operations.
Depending on various factors, including the cash consideration required
in any potential acquisition, the Company may determine to utilize its
existing financing resources or pursue other financing alternatives.
<PAGE>
Year 2000
The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year.
Certain information technology systems and their associated software
may recognize a date using "00" as a year other than the year 2000,
which could cause a system failure or other computer errors, leading to
a disruption in the operation of such systems. The Company has in
place a project team to coordinate Year 2000 activities and address
remaining Year 2000 issues.
The Company believes that by replacing, rather than reprogramming, its
wholesale distribution and financial systems with newer technologically
advanced systems that offer greater functionality and enhanced
reporting, the Year 2000 Issue can be mitigated. However, if such
replacements are not made, or are not completed timely, the Year 2000
Issue could have a material impact on the operations of the Company
The Company has adopted a five-phase Year 2000 program consisting of
the following: Phase I - identification of the components of the
Company's systems, equipment and suppliers that may be vulnerable to
Year 2000 problems; Phase II - assessment of items identified in Phase
I; Phase III - remediation or replacement of non-compliant suppliers;
Phase IV - testing of systems and components following replacement; and
Phase V - developing contingency plans to address the most reasonably
likely worst case Year 2000 scenarios. The Company has completed Phase
I and Phase II, and has made substantial progress on Phase III and is
beginning Phase IV and V.
Information systems Software and Hardware. The Company has completed
Phase II and is in process of implementing new wholesale distribution
and financial systems. The Company currently expects to complete the
testing and implementation of its new information systems by early
1999. The Company will continue periodic testing during 1999 for new
installations, versions or changes.
Third-Party Relationships. In addition to addressing the Company's
internal systems and equipment, the Company is communicating with
significant suppliers, vendors and other third parties with whom the
Company has a significant business relationship with, to determine
their state of readiness with respect to Year 2000. Assessment of
significant third party Year 2000 readiness is expected to be
substantially completed by early 1999. To date, the Company is not
aware of any third-party with a Year 2000 issue that would materially
impact the Company's results of operations. However, failure of
significant suppliers, vendors or other third parties to timely address
and remedy Year 2000 problems or to develop and effect appropriate
contingency plans could have a material adverse effect on the Company's
operations. The Company believes that the geographically disbursed
nature of its business and its large supplier and vendor base mitigates
such potential adverse effects.
Risks and Contingency Plans. Based on the assessment efforts to date,
the Company does not believe that the Year 2000 issue will have a
material adverse effect on its financial condition or results of
operations. However, the Year 2000 problem is unique and the Company's
Year 2000 compliance program is based on various assumptions and
expectations that cannot be assured. Potential risks include loss of
electric power or certain communication links, disruptions to business
operations including delayed deliveries from suppliers, disruptions to
the channels of distribution as well as disruptions to the Company's
own distribution center. The Company is in the process of developing a
contingency plan, which is expected to be completed by early 1999 and
will be based on its continuing assessment of potential risks.
The Company does not expect the costs associated with its Year 2000
efforts to be material to the Company's financial condition or results
of operations. The total cost of purchasing and implementing the new
information systems, including addressing the Year 2000 Issue is
estimated at $2.0 million, of which approximately $400,000 has been
expensed to date. The Company's cost estimates do not include costs
associated with addressing and resolving issues as a result of the
failure of third parties to become Year 2000 compliant.
Important Factors Relating to Forward Looking Statements
This report contains certain forward-looking statements within the
meaning of The Private Securities Litigation Reform Act of 1995. The
forward-looking statements are made a number of times throughout the
document and may be identified by forward-looking terminology, such as
"expect," believe," "may," "will," "intend" or similar statements or
variations of such terms. Such forward-looking statements involve
certain material risks and uncertainties including, but not limited to,
economic, competitive, governmental and technological factors affecting
the Company's operations, markets and products. Should one or more of
these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated or projected. Accordingly, there can be
no assurance that the forward-looking statements contained in this Form
10-Q will be realized or that actual results will not be significantly
higher or lower.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Pursuant to the General Instructions to Rule 305 of Regulation S-K, the
quantitative and qualitative disclosures called by Rule 305 of
Regulation S-K is not applicable to the Registrant at this time.
<PAGE>
Part II - OTHER INFORMATION
Item 1. Legal Proceedings. There have been no updates since the
Company's report on Form 10-K for the year ended December 31, 1997.
Item 2. Changes in Securities and Use of Proceeds. None
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders. None
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27 Financial Data Schedule.
(b) Reports on Form 8-K: The Company filed a report on Form 8-K
dated August 18, 1998 reporting the issuance of a press release
announcing that the Company's Board of Directors had authorized
management to repurchase up to 500,000 shares of the Company's Class A
Common Stock.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Kenneth Cole Productions, Inc.
Registrant
November 12, 1998 /s/ STANLEY A. MAYER
Executive Vice President and
Chief Financial Officer
<PAGE>
INDEX OF EXHIBITS
Sequential
Exhibit Number: Description Page No.
27 Financial Data Schedule. 19
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,314
<SECURITIES> 0
<RECEIVABLES> 34,557
<ALLOWANCES> (80)
<INVENTORY> 36,399
<CURRENT-ASSETS> 74,324
<PP&E> 21,754
<DEPRECIATION> 7,552
<TOTAL-ASSETS> 93,271
<CURRENT-LIABILITIES> 19,103
<BONDS> 0
0
0
<COMMON> 134
<OTHER-SE> 69,543
<TOTAL-LIABILITY-AND-EQUITY> 93,271
<SALES> 162,370
<TOTAL-REVENUES> 168,111
<CGS> 95,569
<TOTAL-COSTS> 95,569
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (328)
<INCOME-PRETAX> 20,372
<INCOME-TAX> 8,047
<INCOME-CONTINUING> 12,325
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,325
<EPS-PRIMARY> .93
<EPS-DILUTED> .90
</TABLE>
