<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, 1999
( ) 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 10, 1999
Class A Common Stock ( $.01 par value) 7,314,236
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, 1999 and December 31, 1998..3
Consolidated Statements of Income for the three months ended
March 31, 1999 and 1998.................................................5
Consolidated Statement of Changes in Shareholders' Equity for the three
months ended March 31, 1999.............................................6
Consolidated Statements of Cash Flows for the three months ended
March 31, 1999 and 1998.................................................7
Notes to Consolidated Financial Statements..............................8
Item 2. Management's Discussion and Analysis of 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...................................................15
Item 2. Changes in Securities and Use of Proceeds...........................15
Item 3. Defaults Upon Senior Securities.....................................15
Item 4. Submission of Matters to a Vote of Security Holders.................15
Item 5. Other Information...................................................15
Item 6. Exhibits and Reports on Form 8-K....................................15
Signatures.............................................................16
<PAGE>
Item 1. Financial Statements
<TABLE>
Kenneth Cole Productions, Inc. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
March 31, December 31,
1999 1998
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash $ 5,773,000 $ 13,824,000
Due from factors 32,838,000 19,552,000
Accounts receivable, net 3,735,000 4,874,000
Inventories 34,171,000 32,957,000
Prepaid expenses and other current assets 1,053,000 1,735,000
Deferred taxes 718,000 718,000
------------ ------------
Total current assets 78,288,000 73,660,000
Property and equipment - at cost, less 15,804,000 16,171,000
accumulated depreciation
Other assets:
Deposits and deferred taxes 2,716,000 3,106,000
Deferred compensation plans assets 5,328,000 3,743,000
------------ ------------
Total other assets 8,044,000 6,849,000
------------ ------------
Total assets $102,136,000 $ 96,680,000
============ ============
</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,
1999 1998
(Unaudited)
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 9,480,000 $ 10,644,000
Accrued expenses and other current liabilities 2,923,000 4,634,000
Income taxes payable 2,968,000 1,738,000
------------ ------------
Total current liabilities 15,371,000 17,016,000
Deferred compensation 5,328,000 3,743,000
Other 2,534,000 2,232,000
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, 7,637,568 and
7,609,697 issued in 1999 and 1998 76,000 76,000
Class B common stock, par value $.01,
6,000,000 shares authorized, 5,785,398
outstanding in 1999 and 1998 58,000 58,000
Additional paid-in capital 22,703,000 22,284,000
Accumulated other comprehensive income 139,000 74,000
Retained earnings 60,895,000 56,165,000
------------ ------------
83,871,000 78,657,000
Class A Common Stock in treasury, at cost,
350,000 shares (4,968,000) (4,968,000)
------------ ------------
Total shareholders' equity 78,903,000 73,689,000
------------ ------------
Total liabilities and shareholders'equity $102,136,000 $ 96,680,000
============ ============
</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,
1999 1998
<S> <C> <C>
Net sales $ 63,533,000 $ 52,029,000
Licensing revenue 2,510,000 1,656,000
------------ ------------
Net revenue 66,043,000 53,685,000
Cost of goods sold 36,596,000 30,100,000
------------ ------------
Gross profit 29,447,000 23,585,000
Selling, general and administrative expenses 21,596,000 16,926,000
------------ ------------
Operating income 7,851,000 6,659,000
Interest income, net 99,000 106,000
------------ ------------
Income before provision for income taxes 7,950,000 6,765,000
Provision for income taxes 3,220,000 2,672,000
------------ ------------
Net income $ 4,730,000 $ 4,093,000
============ ============
Earnings per share:
Basic $ .36 $ .31
Diluted $ .35 $ .30
Shares used to compute earnings per share:
Basic 13,061,000 13,229,000
Diluted 13,518,000 13,696,000
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<TABLE>
Kenneth Cole Productions, Inc. and Subsidiaries
Consolidated Statement of Changes in Shareholders' Equity
(Unaudited)
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, 1999 7,609,697 $76,000 5,785,398 $58,000 $22,284,000
Net income
Foreign currency
translation adjustments
Comprehensive income
Exercise of stock options,
including tax benefit 27,871 419,000
-----------------------------------------------------
Shareholders' equity
March 31, 1999 7,637,568 $76,000 5,785,398 $58,000 $22,703,000
=====================================================
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Treasury Stock
Comprehensive Retained Number of
Income Earnings Shares Amount Total
<S> <C> <C> <C> <C> <C>
Shareholders' equity
January 1, 1999 $ 74,000 $56,165,000 (350,000) $(4,968,000) $78,689,000
Net income 4,730,000 4,730,000
Foreign currency
translation adjustments 65,000 65,000
-----------
Comprehensive income 4,795,000
Exercise of stock options,
including tax benefit 419,000
---------------------------------------------------------
Shareholders' equity
March 31, 1999 $139,000 $60,895,000 (350,000) $(4,968,000) $78,903,000
=========================================================
</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,
1999 1998
<S> <C> <C>
Cash flows from operating activities
Net income $ 4,730,000 $ 4,093,000
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 803,000 677,000
Unrealized gain on deferred compensation (766,000) (246,000)
Provision for bad debts 320,000 15,000
Changes in assets and liabilities:
Increase in due from factors (13,286,000) (5,099,000)
Decrease in accounts receivable 819,000 393,000
Increase in inventories (1,214,000) (4,566,000)
Decrease (increase) in prepaid expenses &
other current assets 682,000 (342,000)
Increase in other assets (429,000) (330,000)
(Decrease) increase in accounts payable (1,164,000) 2,483,000
Increase in income taxes payable 1,373,000 1,635,000
Decrease in accrued expenses and
other current liabilities (1,714,000) (519,000)
Increase in other non-current liabilities 1,931,000 423,000
------------ ------------
Net cash used in operating activities (7,915,000) (1,383,000)
Cash flows from investing activities
Acquisition of property and equipment, net (436,000) (1,273,000)
------------ ------------
Net cash used in investing activities (436,000) (1,273,000)
Cash flows from financing activities
Proceeds from exercise of stock options 276,000 896,000
Principal payments on capital lease obligations (41,000)
------------ ------------
Net cash provided by financing activities 235,000 896,000
Effect of exchange rate changes on cash 65,000 12,000
------------ ------------
Net decrease in cash (8,051,000) (1,748,000)
Cash, beginning of period 13,824,000 8,803,000
------------ ------------
Cash, end of period $ 5,773,000 $ 7,055,000
============ ============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 46,000 $ 4,000
Income taxes $ 1,847,000 $ 1,037,000
</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
have been prepared by Kenneth Cole Productions, Inc. (the "Company")
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. Certain
items contained in these financial statements are based on estimates.
In the opinion of management, the accompanying unaudited financial
statements reflect all adjustments, consisting of only normal and
recurring adjustments, necessary for a fair presentation of the
financial position and results of operations and cash flows for the
periods presented. All significant intercompany transactions have
been eliminated.
Operating results for the three months ended March 31, 1999 are
not necessarily indicative of the results that may be expected for
the year ended December 31, 1999. These unaudited financial
statements should be read in conjunction with the financial
statements and footnotes included in the Company's annual report on
Form 10-K for the year ended December 31, 1998.
The consolidated balance sheet at December 31, 1998, as
presented, was derived from the audited financial statements as of
December 31, 1998 included in the Company's Form 10-K.
2. 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.
The Company has chosen to disclose other comprehensive income in the
Statement of Changes in Shareholder's Equity. Comprehensive income
amounted to $4,795,000 and $4,105,000 for the three months ended
March 31, 1999 and 1998, respectively.
3. Derivative Instruments and Hedging Activities
In June 1988, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and for Hedging Activities" ("SFAS 133") which
the Company expects to adopt January 1, 2000. The new Statement
requires all derivatives to be recorded in 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>
Kenneth Cole Productions, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
4. Segment Information
<TABLE>
Financial information of the Company's reportable segments is as
follows (in thousands):
<CAPTION>
Three Months Ended
March 31, 1999
Consumer
Wholesale Direct Licensing Totals
<S> <C> <C> <C> <C>
Revenues from external
customers $ 43,403 $ 20,134 $ 2,506 $ 66,043
Intersegment revenues 5,974 5,974
Segment income before
provision for income taxes 6,353 2,686 2,021 11,060
Segment assets 73,473 29,624 820 103,917
Three Months Ended
March 31, 1998
Consumer
Wholesale Direct Licensing Totals
<S> <C> <C> <C> <C>
Revenues from external
customers $ 39,216 $ 12,813 $ 1,656 $ 53,685
Intersegment revenues 5,392 5,392
Segment income before
provision for income taxes 6,675 1,198 1,229 9,102
Segment assets 63,280 23,428 1,441 88,149
</TABLE>
<TABLE>
<PAGE>
The reconciliation of the Company's reportable segment revenues,
profit and loss, and assets are as follows (in thousands):
<CAPTION>
Three Months Ended
March 31, 1999 March 31, 1998
<S> <C> <C>
Revenues
Revenues for external customers $ 66,043 $ 53,685
Intersegment revenues 5,974 5,392
Elimination of intersegment revenues (5,974) (5,392)
-------- --------
Total consolidated revenues $ 66,043 $ 53,685
======== ========
Income
Total profit for reportable segments $ 11,060 $ 9,102
Elimination of intersegment profit (2,101) (1,373)
Unallocated corporate overhead (1,009) (964)
-------- ---------
Total income before income taxes $ 7,950 $ 6,765
======== =========
Assets
Total assets for reportable segments $103,917 $ 88,149
Elimination of inventory profit
in consolidation (1,781) (1,211)
-------- ---------
Total consolidated assets $102,136 $ 86,938
======== =========
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2. 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, 1999 and
March 31, 1998.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
<S> <C> <C> <C> <C>
Net sales 63,533 96.2% 52,029 96.9%
Licensing revenue 2,510 3.8 1,656 3.1
Net revenue 66,043 100.0 53,685 100.0
Gross profit 29,447 44.6 23,585 43.9
Selling, general and
administrative expenses 21,596 32.7 16,926 31.5
Operating income 7,851 11.9 6,659 12.4
Interest income, net 99 .1 106 .2
Income before income taxes 7,950 12.0 6,765 12.6
Income tax expense 3,220 4.8 2,672 5.0
Net income 4,730 7.2 4,093 7.6
</TABLE>
Three Months Ended March 31,1999 Compared to Three Months Ended March
31,1998
Consolidated net revenues increased 23.0% to $66.0 million for
the three months ended March 31, 1999 compared to $53.7 million for
the three months ended March 31, 1998. This increase is primarily
due to volume increases in the Company's Consumer Direct and
Licensing business segments.
Wholesale net sales (including sales to its Consumer Direct
business segment) increased $4.8 million or 10.7% for the three
months ended March 31, 1999 to $49.4 million from $44.6 million for
the three months ended March 31, 1998. This increase is primarily
attributable to an increase in sales of mens footwear and Kenneth
Cole Reaction women's footwear, which increased approximately 70%,
partially offset by a reduction in sales of the Company's other
women's footwear product lines. The overall increase is due to
increased sales to new and existing customers due to continued
growing consumer acceptance of Kenneth Cole New York as a premier
lifestyle brand.
Net sales in the Company's Consumer Direct segment increased
$7.3 million or 57.1% to $20.1 million for the three months ended
March 31, 1999 compared to $12.8 million for the three months ended
March 31, 1998. The improvement in net sales is due to the increase
in number of stores as well as a comparable stores sales increase of
17.3%. Retail stores opened since March 31, 1998 contributed $5.1
million of net sales during the three month period ended March 31,
1999. The Company believes that its retail stores convey the image
of the Company and seamlessly showcase both Company and licensee
products and that this comprehensive presentation reinforces the
Kenneth Cole lifestyle brand, thereby increasing consumer demand and
awareness.
Licensing revenue increased 51.6% to $2.5 million for the three
months ended March 31, 1999 from $1.7 million for the three months
ended March 31, 1998. This increase primarily reflects the
incremental revenues in sales of existing licensees.
Consolidated gross profit as a percentage of net revenue
increased to 44.6% for the three months ended March 31, 1999 from
43.9% for the comparable period last year. The Company's wholesale
gross profit (including gross profit on sales to the Consumer Direct
segment) increased 10.0% to $17.0 million (34.4% of net wholesale
sales) for the three months ended March 31, 1999 from $15.4 million
(34.6% of net wholesale sales) for the three months ended March 31,
1998. Wholesale gross profit as a percentage of net wholesale
revenues decreased nominally as a result of lower gross margins on
sales of womens' footwear due to a very challenging women's retail
enviroment.
The Consumer Direct segment's gross profit percentage was 51.8%
for the three months ended March 31, 1999 compared with 50.3% for the
comparable period last year. The increase in Consumer Direct gross
profit percentage was attributable to higher initial mark-ups and
lower markdowns as a percentage of sales. Since the Consumer Direct
gross profit percentage is significantly higher than the Company's
Wholesale gross profit percentage, as sales of the Consumer Direct
segment represent a larger percentage of consolidated net revenues,
the consolidated gross profit percentage increases. Net sales from
the Consumer Direct segment were 30.5% of net consolidated revenue
for the three months ended March 31, 1999 compared to 23.9% for the
three months ended March 31, 1998.
Licensing revenue, which has no associated cost of goods sold,
increased as a percentage of net revenues to 3.8% for the three
months ended March 31, 1999 compared to 3.0% for the three months
ended March 31, 1998.
Selling, general and administrative expenses, including shipping
and warehousing, increased 27.6% to $21.6 million (or 32.7% of net
revenues) for the three months ended March 31, 1999 from $16.9
million (or 31.5% of net revenues) for the three months ended March
31, 1998. The increase was primarily attributable to the Company's
marketing and public relations expenditures to build the Company's
brands and promote the Kenneth Cole lifestyle image and the expansion
of the Company's Consumer Direct segment. The increase as a
percentage of net revenues is due to the growth in the number of the
Company's retail and outlet stores, which operate at a higher cost
structure than its Wholesale segment.
The Company's provision for income taxes has increased to 40.5%
of income before taxes for the three month period ended March 31,
1999 from 39.5% in the corresponding period last year. The increase
is due to the relative level of earnings in the various taxing
jurisdictions to which the Company's earnings are subject.
As a result of the foregoing, operating income increased 17.9%
for the three months ended March 31, 1999 to $7.9 million (11.9% of
net revenue) from $6.7 million (12.4% of net revenue) for the three
months ended March 31, 1998.
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, and the level of accounts receivable and due from factors
balances. Cash used by operating activities was $7.9 million for the
three months ended March 31, 1999, compared to $1.4 million used in
operating activities for the three months ended March 31, 1998. The
increase in cash flow used in operations is primarily attributable to
the timing of customer receipts and the payment of trade accounts
payable. At March 31, 1999 and December 31, 1998 working capital was
$62.9 million and $56.6 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. Open letters of credit in the
amount of $.5 million reduced the amount available under the line of
credit from $25.0 million to $24.5 million at March 31, 1999.
Capital expenditures totaled approximately $.4 million and $1.3
million for the three months ended March 31, 1999 and 1998,
respectively. Expenditures on furniture, fixtures and leasehold
improvements for new retail store openings and expansions were
approximately $.3 million and $1.0 million for the three months ended
March 31, 1999 and March 31, 1998, respectively. The remaining
expenditures were primarily for leasehold improvements, information
systems, and equipment for the Company's offices and warehouse.
The Company entered into a 15-year lease, which over the next
five year period, will provide the Company with approximately 120,000
square feet of office space, enabling it to relocate its corporate
headquarters within New York City. The Company is currently
evaluating the capital expenditure requirements associated with this
move.
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>
Year 2000
The Year 2000 problem 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 the year 1900
rather than the year 2000, which could result in miscalculations,
system failures or other computer errors. In addition, like every
other business, the Company is at risk from Year 2000 failures on the
part of its major business suppliers, distributors, licensees as well
as potential failures from public and private infrastructure service
providers. System failures resulting from the Year 2000 problem
could adversely effect operations and financial results in all of the
Company's business segments. Failures may cause 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 and retailing operations.
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 problem will be
mitigated. However, if such replacements are not made, or are not
completed timely, the Year 2000 problem 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 systems; Phase IV - testing of systems and components
following replacement; and Phase V - developing contingency plans.
The Company has completed Phase I and Phase II.
Phase III - Remediation or replacement of non-compliant systems.
This phase involves creating plans, providing necessary resources and
executing remedial strategies. The Company's critical systems are
being replaced with newer advanced systems that are already Year 2000
compliant. The Company's financial systems were implemented
effective January 1, 1999. The wholesale selling and distribution
system is warranteed as Year 2000 compliant and is scheduled to be
tested during the second quarter of 1999, and implemented at the
close of the quarter.
Phase IV - Testing of systems and components following
replacement. This phase includes testing functionality and system
compliance. Of the Company's information systems, the financial,
warehousing and EDI systems currently in-place have been tested and
are Year 2000 compliant. The Company's retail systems, which are run
by a third party provider, have been warranteed as Year 2000
compliant and the Company's point-of-sale and credit card processing
have been successfully tested. The Company is working with its
wholesale and distribution systems software provider to program
enhanced functionality designed specifically for fashion footwear
businesses. However, the existing standard base system is Year 2000
compliant and is capable of running the Company's business. The
updated system is planned to be implemented at the close of the
second quarter of 1999.
Phase V - Contingency planning. This phase addresses any
remaining open issues expected in 1999 and thereafter. Based upon
its efforts to date, the Company believes that all of its critical
information technology and non-information technology will remain up
and running beyond January 1, 2000. Accordingly, the Company does
not currently anticipate that internal systems failures will result
in any material adverse effect to its operations or financial
condition. As a contingency plan for its wholesale and distribution
systems that are not yet implemented, the Company plans on
implementing the existing standard base system, which is certified
Year 2000 compliant and has already been installed and tested by the
Company.
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. 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. Various
fallback plans are being considered, including the use of electronic
spreadsheets and manual work-arounds (e.g., written purchase orders
and bulk distributions). In addition, the Company believes that the
geographically disbursed nature of its business and its large
supplier and vendor base mitigates such potential adverse effects.
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
problem is estimated at $2.0 million, of which approximately $675,000
has been expensed to date and $1.0 million spent on new software and
hardware. 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. The costs of
the Year 2000 project are being funded through both leasing
arrangements and operating cash flows.
The Company believes that it will be able to satisfy its cash
requirements for 1999, including requirements for its retail
expansion, new corporate office space and information systems
improvements, primarily with cash flow from operations, supplemented
by borrowings under its line of credit.
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, market risks and Year 2000
issues. 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.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company does not believe it has a material exposure to
market risk. The Company is primarily exposed to currency exchange-
rate risks with respect to its inventory transactions denominated in
Italian Lira and Spanish Pesetas, both of which have been converted
to the Euro effective January 1, 1999. Business activities in
various currencies expose the Company to the risk that the eventual
net dollar cash flows from transactions with foreign suppliers
denominated in foreign currencies may be adversely affected by
changes in currency rates. The Company manages these risks by
utilizing foreign exchange contracts. The Company does not enter
into foreign currency transactions for speculative purposes. The
Company's earnings may also be affected by changes in short-term
interest rates as a result of borrowings under its line of credit
facility. A two percent increase in interest rates affecting the
Company's credit facility would not have a material effect on the
Company's projected 1999 and 1998 net income.
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, 1999.
<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 10, 1999 /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 18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 5,773
<SECURITIES> 0
<RECEIVABLES> 36,970
<ALLOWANCES> (397)
<INVENTORY> 34,171
<CURRENT-ASSETS> 78,288
<PP&E> 24,779
<DEPRECIATION> 8,975
<TOTAL-ASSETS> 102,136
<CURRENT-LIABILITIES> 15,371
<BONDS> 0
0
0
<COMMON> 134
<OTHER-SE> 78,769
<TOTAL-LIABILITY-AND-EQUITY> 102,136
<SALES> 63,533
<TOTAL-REVENUES> 66,043
<CGS> 36,596
<TOTAL-COSTS> 36,596
<OTHER-EXPENSES> 21,596
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (99)
<INCOME-PRETAX> 7,950
<INCOME-TAX> 3,220
<INCOME-CONTINUING> 4,730
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,730
<EPS-PRIMARY> .36
<EPS-DILUTED> .35
</TABLE>
