<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 March 31, 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 May 5, 1998
Class A Common Stock ( $.01 par value) 7,519,907
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 March 31, 1998 and December 31, 1997....3
Consolidated Statements of Income for the three month ended March 31, 1998
and 1997...............................................................5
Consolidated Statement of Changes in Shareholders' Equity for the three
months ended March 31, 1998............................................6
Consolidated Statements of Cash Flows for the three months ended
March 31, 1998 and 1997...............................................7
Notes to Consolidated Financial Statements..............................8
Item 2.Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................10
Part II. OTHER INFORMATION
Item 1.Legal Proceedings....................................................12
Item 2.Changes in Securities and Use of Proceeds............................12
Item 3.Defaults Upon Senior Securities......................................12
Item 4.Submission of Matters to a Vote of Security Holders..................12
Item 5.Other Information....................................................12
Item 6.Exhibits and Reports on Form 8-K.....................................12
Signatures..................................................................13
<PAGE>
<TABLE>
Kenneth Cole Productions, Inc. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
March 31, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash $ 7,055,000 $ 8,803,000
Due from factors 28,391,000 23,292,000
Accounts receivable, net 3,456,000 3,864,000
Inventories 27,931,000 23,365,000
Prepaid expenses and other current assets 1,762,000 1,420,000
Deferred taxes 1,135,000 1,135,000
Total current assets 69,730,000 61,879,000
Property and equipment
Furniture and fixtures 6,188,000 5,513,000
Machinery and equipment 4,183,000 3,862,000
Leasehold improvements 8,759,000 8,217,000
19,130,000 17,592,000
Less accumulated depreciation and amortization 6,058,000 5,381,000
Net property and equipment 13,072,000 12,211,000
Deposits, deferred income taxes and other assets 4,136,000 3,825,000
Total assets $ 86,938,000 $ 77,915,000
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
Kenneth Cole Productions, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
<CAPTION>
March 31, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 12,320,000 $ 9,837,000
Accrued expenses and other current liabilities 2,526,000 3,147,000
Income taxes payable 2,812,000 1,694,000
Deferred license income 354,000 252,000
Total current liabilities 18,012,000 14,930,000
Deferred rent payable 946,000 909,000
Deferred income taxes 387,000 387,000
Other non-current liabilities 2,335,000 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, 7,519,470, and
7,410,160 outstanding in 1998 and 1997 75,000 74,000
Class B common stock, par value $.01,
6,000,000 shares authorized, 5,785,398
outstanding in 1998 and 1997 58,000 58,000
Additional paid-in capital 21,096,000 19,684,000
Accumulated other comprehensive income 102,000 90,000
Retained earnings 43,927,000 39,834,000
Total shareholders' equity 65,258,000 59,740,000
Total liabilities and shareholders'equity $ 86,938,000 $ 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
March 31
1998 1997
<S> <C> <C>
Net sales $ 52,029,000 $ 44,910,000
Cost of goods sold 30,100,000 27,294,000
Gross profit 21,929,000 17,616,000
Licensing and other 1,656,000 1,056,000
Selling, general and administrative
and shipping and warehousing 16,926,000 13,140,000
Operating income 6,659,000 5,532,000
Interest (income) expense, net (106,000) 112,000
Income before provision for income taxes 6,765,000 5,420,000
Provision for income taxes 2,672,000 2,168,000
Net income $ 4,093,000 $ 3,252,000
Earnings per share:
Basic .31 .25
Diluted .30 .24
Shares used to compute earnings per share:
Basic 13,229,000 13,141,000
Diluted 13,696,000 13,638,000
</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 Total Additional
Number Number Common Paid-in
of shares Amount of Shares Amount Stock Capital
<S> <C> <C> <C> <C> <C> <C>
Shareholders'equity
January 1, 1998 7,410,160 $74,000 5,785,398 $58,000 $132,000 $19,684,000
Net income
Foreign currency
translation adjustments
Comprehensive income
Exercise of stock options,
including tax
benefit 109,310 1,000 1,000 1,412,000
Shareholders'equity
March 31, 1998 7,519,470 $75,000 5,785,398 $58,000 $133,000 $21,096,000
</TABLE>
<PAGE>
<TABLE>
Accumulated
Other
Comprehensive Retained
Income Earnings Total
<S> <C> <C> <C>
Shareholders'equity
January 1, 1998 $ 90,000 $39,834,000 $59,740,000
Net income 4,093,000 4,093,000
Foreign currency
translation adjustments 12,000 12,000
Comprehensive income 4,105,000
Exercise of stock options,
including tax
benefit 1,413,000
Shareholders'equity
March 31, 1998 $102,000 $43,927,000 $65,258,000
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
Kenneth Cole Productions, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
Cash flows from operating activities
Net income $ 4,093,000 $ 3,252,000
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 677,000 421,000
Amortization of deferred compensation 56,000
Provision for bad debts 15,000
Changes in assets and liabilities:
Increase in due from factors (5,099,000) (8,695,000)
Decrease in accounts receivable 393,000 976,000
Increase in inventories (4,566,000) (2,600,000)
Increase in prepaid expenses and other
current assets (342,000) (568,000)
Increase in deposits (576,000) (67,000)
Increase (decrease) in accounts payable 2,483,000 (4,781,000)
Increase in income taxes payable 1,635,000 1,284,000
Decrease (increase) in accrued expenses and
other current liabilities (519,000) 6,000
Increase in other non-current liabilities 423,000 220,000
Net cash used in operating activities (1,383,000) (10,496,000)
Cash flows from investing activities
Acquisition of property and equipment, net (1,273,000) (517,000)
Net cash used in investing activities (1,273,000) (517,000)
Cash flows from financing activities
Proceeds from revolving line of credit, net 10,030,000
Proceeds from exercise of stock options 896,000 86,000
Repayment of long-term debt (9,000)
Net cash provided by financing activities 896,000 10,107,000
Effect of exchange rate changes on cash 12,000 45,000
Net decrease in cash (1,748,000) (861,000)
Cash, beginning of period 8,803,000 1,626,000
Cash, end of period $ 7,055,000 $ 765,000
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 4,000 $ 134,000
Income taxes $ 1,037,000 $ 883,000
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Kenneth Cole Productions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
General
The accompanying unaudited consolidated financial statements 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 months ended March
31, 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.
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 the 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.
Segment Reporting
In June 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 through 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.
<PAGE>
Comprehensive Income
As of January 1, 1998 the Company adopted Statement of Financial
Accounting Standard No. 130 "Reporting Comprehensive Income" ("SFAS
130"). SFAS 130 establishes new rules for the reporting and display
of comprehensive income and its components; however, the adoption of
this Statement had no impact on the Company's net income or
shareholders' equity. SFAS 130 requires foreign currency
translation adjustments, which prior to adoption were reported
separately in shareholders' equity, to be included in other
comprehensive income. The Company has chosen to disclose other
comprehensive income in the Statement of Changes in Shareholders'
Equity. Comprehensive income amounted to $4,105,000 and $3,297,000
for the three months ended March 31, 1998 and 1997, respectively.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth the Company's condensed consolidated
statements of income in thousands of dollars and as a percentage of
net sales for the quarter ended March 31, 1998 and March 31, 1997.
<TABLE>
Three Months Ended
March 31,
<S> <C> <C> <C> <C>
1998 1997
Net Sales 52,029 100.0% 44,910 100.0%
Gross Profit 21,929 42.2 17,616 39.2
Licensing Income 1,656 3.1 1,056 2.4
Selling, general and administrative expenses 16,926 32.5 13,140 29.3
Operating income 6,659 12.8 5,532 12.3
Interest (income) expense, net (106) (.2) 112 .2
Income before income taxes 6,765 13.0 5,420 12.1
Income tax expense 2,672 5.1 2,168 4.8
Net Income 4,093 7.9 3,252 7.3
</TABLE>
Three Months Ended March 31, 1998 Compared to Three Months Ended
March 31, 1997
Net sales increased $7.1 million, or 15.8%, to $52.0 million for the
three months ended March 31, 1998 compared with net sales of $44.9
million for the three months ended March 31, 1997. Net sales of the
Company's wholesale operations, excluding sales to its retail
division, increased $4.0 million, or 11.1%, to $40.1 million from
$36.1 million. This increase was primarily due to increased brand
exposure generated through the Company's licensing ventures. Sales
through the Company's retail and outlet stores increased $3.1
million, or 35.2%, to $11.9 million for the three months ended March
31, 1998 compared to $8.8 million for the three months ended March
31, 1997. This increase reflects the sales of 36 stores which
generated a 4.2% comparable store sales increase or $0.4 million and
the sales of $2.7 million generated from eleven retail stores open
for the entire first quarter of 1998 which were not open in the first
quarter of 1997.
Gross profit was $21.9 million for the three months ended March 31,
1998, an increase of $4.3 million, or 24.4%, from $17.6 million
for the three months ended March 31, 1997. Gross profit was 42.2%
compared to 39.2% for the three months ended March 31, 1998 and 1997,
respectively. The increase in gross profit was attributable to a
greater percentage of sales of current inventories generating fewer
off price sales, and the increased sales at the Company's retail
stores that maintain higher gross margins as a percentage of sales
than wholesale sales.
<PAGE>
Selling, general and administrative expenses, including shipping and
warehousing costs, were $16.9 million (32.5% of net sales) for the
three months ended March 31, 1998 compared to $13.1 million
(29.3% of net sales) for the three months ended March 31, 1997.
Approximately one-third of the increase in selling, general and
administrative expenses was attributable to the hiring of additional
personnel to support the Company's wholesale growth, with the
remaining increase due to additional retail and outlet stores, which
carry a higher expense level as a percentage of sales than the
wholesale division. Sales from retail operations were 22.9% of
consolidated sales for the three months ended March 31,1998 compared
to 19.6% in the same period last year.
Licensing income increased 54.5% to $1.7 million for the three months
ended March 31, 1998 compared to $1.1 million for the comparable
period in 1997. This increase reflects the incremental revenues from
the introduction of new product licenses and an increase in sales
from existing licenses.
As a result of the foregoing, operating income increased 21.8% to
$6.7 million (12.8% of net sales) from $5.5 million (12.3% of net
sales) for the three months ended March 31, 1998 and 1997,
respectively.
Liquidity and Capital Resources
The Company uses cash from operations and borrowings under its line
of credit as the primary sources of financing for its expansion and
seasonal requirements. Cash requirements vary from time to time as
a result of the timing of the receipt of merchandise from suppliers,
the delivery by the Company of merchandise to its customers, the
level of accounts receivable and due from factors balances and the
Company's inventory levels. Cash used by operating activities was
$1.4 million for the three months ended March 31, 1998, compared to
$10.5 million used in operating activities for the three months ended
March 31, 1997. The reduction in cash flow used in operations is
attributable, in part, to the timing of the payment of trade
accounts payable and increased net income for the period. At March
31, 1998 and December 31, 1997 working capital was $51.7 million and
$46.9 million, respectively.
The Company currently has a line of credit which allows for
borrowings and letter of credits up to a maximum of $25.0 million to
finance working capital requirements, of which $23.7 million was
available at March 31, 1998.
Capital expenditures totaled $1.3 million and $0.5 million for the
three months ended March 31, 1998 and 1997, respectively. Capital
expenditures relate primarily to the Company's retail and outlet
store expansion and to the further development and enhancement of the
Company's management information systems.
The Company believes that cash flows from operations and borrowings
under its existing credit facilities will be sufficient to satisfy
the Company's working capital requirements for the next twelve
months.
<PAGE>
Important Factors Relating to Forward Looking Statements
This report contains certain forward looking statements, as defined
in The Private Securities Litigation Reform Act of 1994, with respect
to cash flows from operation. The forward-looking statements
contained in the Form 10-Q were prepared by management and are
qualified by, and subject to, significant business, economic,
competitive, regulatory and other uncertainties and contingencies,
all of which are difficult or impossible to predict and many of which
are beyond the control of the Company. 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.
Quantitative and Qualitative Disclosures About Market Risk
Pursuant to the General Instructions to Rule 305 of Regulation S-K,
the qualitative and qualitative disclosures called by Rule 305 of
Regulation S-K is inapplicable to the Registrant at this time.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings. None
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:
27.01 Financial Data Schedule.
(b) Reports on Form 8-K: The Company did not file any reports on
Form 8-K during the three months ended March 31, 1998.
<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
May 5, 1998 /s/ STANLEY A. MAYER
Stanley A. Mayer
Executive Vice President and
Chief Financial Officer
<PAGE>
INDEX OF EXHIBITS
Sequential
Exhibit Number Description Page No.
27.01 Financial Data Schedule 15
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 7,055
<SECURITIES> 0
<RECEIVABLES> 31,927
<ALLOWANCES> (80)
<INVENTORY> 27,931
<CURRENT-ASSETS> 69,730
<PP&E> 19,130
<DEPRECIATION> 6,058
<TOTAL-ASSETS> 86,938
<CURRENT-LIABILITIES> 18,012
<BONDS> 0
0
0
<COMMON> 133
<OTHER-SE> 65,125
<TOTAL-LIABILITY-AND-EQUITY> 86,938
<SALES> 52,029
<TOTAL-REVENUES> 53,685
<CGS> 30,100
<TOTAL-COSTS> 30,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (106)
<INCOME-PRETAX> 6,765
<INCOME-TAX> 2,672
<INCOME-CONTINUING> 4,093
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,093
<EPS-PRIMARY> .31
<EPS-DILUTED> .30
</TABLE>
