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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission File No. 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)
(212) 265-1500
Registrant's telephone number
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Class A common stock, par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act:
None
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 is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part lll of this Form 10-K or any
amendment to this Form 10-K. ( X )
Aggregate market value of the voting stock held by nonaffiliates of the
registrant as of the close of business on March 24, 1997: $ 138,039,544
Number of shares of Class A Common Stock, $.01 par value, outstanding as of
the close of business on March 24, 1997: 7,363,946
Number of shares of Class B Common Stock, $.01 par value, outstanding as of
the close of business on March 24, 1997: 5,785,398
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of Form 10-K is incorporated herein by
reference to the Registrant's definitive proxy statement to be mailed to the
stockholders of the Registrant by April 29, 1997
Kenneth Cole Productions, Inc.
TABLE OF CONTENTS
PART 1
Item Page
- - ---------------------------------------------------------------------------------------------
Item 1 Business 3
Item 2 Properties 12
Item 3 Legal Proceedings 12
Item 4 Submission of Matters to a Vote of Security Holders 12
PART ll
Item 5 Market for Registrant's Common Equity and Related Stockholder
Matters 13
Item 6 Selected Financial Data 14
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations 16
Item 8 Financial Statements and Supplementary Data 18
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 18
PART lll
Item 10 Directors and Executive Officers of the Registrant 19
Item 11 Executive Compensation 19
Item 12 Security Ownership of Certain Beneficial Owners and Management 19
Item 13 Certain Relationships and Related Transactions 19
PART lV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 20
Important Factors Relating to Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in such statements. In connection with
certain forward-looking statements contained in this Annual Report on Form 10-K
("Annual Report") and those that may be made in the future by or on behalf of
the Company which are identified as forward-looking, the Company notes that
there are various factors that could cause actual results to differ materially
from those set forth in any such forward-looking statements. The forward-looking
statements contained in this Annual Report 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 Annual Report will be realized or that actual
results will not be significantly higher or lower. The statements have not been
audited by, examined by, compiled by or subject to agreed-upon procedures by
independent accountants, and no third party has independently verified or
reviewed such statements. Readers of this Annual Report should consider these
facts in evaluating the information contained herein. In addition, the business
and operations of the Company are subject to substantial risks which increase
the uncertainty inherent in the forward-looking statements contained in this
Annual Report. The inclusion of the forward-looking statements contained in this
Annual Report should not be regarded as a representation by the Company or any
other person that the forward-looking statements contained in this Annual Report
will be achieved. In light of the foregoing, readers of this Annual Report are
cautioned not to place undue reliance on the forward-looking statements
contained herein.
Item 1. Business
General
Kenneth Cole Productions, Inc. (the "Company") designs, sources and markets
a broad range of quality footwear, handbags and accessories primarily under its
Kenneth Cole, Unlisted and Kenneth Cole Reaction brand names. In addition, a
variety of apparel and accessory products utilizing its Kenneth Cole, Unlisted
and Kenneth Cole Reaction brand names are produced and sold pursuant to certain
license arrangements made with third parties. Licensed products for men include:
neckwear, briefcases, portfolios, fabric outerwear, jewelry, belts, scarves,
leather outerwear, sunglasses, eyewear, watches and luggage. Licensed products
for women include: hosiery, small leather goods, belts, scarves and wraps,
leather outerwear, sunglasses, eyewear, watches and luggage. Kenneth D. Cole is
the Company's President and Chief Executive Officer and provides leadership and
direction for all aspects of the design process. The Company's branded products
are designed to appeal to fashion conscious consumers in the bridge-designer,
better and junior market segments. These products include core basics, which
generally remain in demand from season to season, and fashion products which are
designed to establish or capitalize on market trends. The Company was
incorporated in September 1982 under the name "Kenneth Cole, Inc." and changed
its name to "Kenneth Cole Productions, Inc." in August 1983.
The Company markets its products to more than 2,500 department and
specialty store locations, and through its expanding base of retail and outlet
stores and its own consumer catalog. The Company plans to grow by broadening its
range of product offerings and by increasing its penetration and expanding its
channels of distribution. Through the expansion of product offerings, the
Company believes it will serve a wider variety of customer needs. The Company
believes the range of its product offerings distinguishes the Company from its
competitors in terms of product categories (men's and women's footwear, handbags
and accessories), prices (from "better" to "moderate") and styling. The
diversity of the Company's product mix provides balance to its overall product
sales and business planning and increases sales opportunities to wholesale
customers which do not carry the Company's full range of products.
During the past year, the Company entered into several new product license
agreements including, men's tailored clothing, men's jewelry, men's and women's
watches and, most recently, men's sportswear. In addition to expanding its
licensing operations, the Company continues to pursue strategies to expand its
distribution within the retailing arena. As of December 31, 1996 the Company
operated 35 specialty retail and outlet stores, as compared with 24 as of
December 31, 1995, and plans to open approximately 10 new stores and one
flagship store during 1997. A flagship store would be larger in size than the
Company's existing stores and would departmentalize its entire product offerings
including all licensed products. The Company believes that the sales of footwear
and accessories through its specialty retail and outlet stores increase consumer
awareness of the Company's brands.
3
Products
The Company markets its products principally under its Kenneth Cole,
Unlisted and Kenneth Cole Reaction brand names. The Company's products are
targeted to appeal to a different market segment within each brand.
Kenneth Cole
Kenneth Cole brand products are generally designed for the urban-minded,
fashion conscious consumer and targets professional men and women. The Company
believes the Kenneth Cole brand has become a core resource for department stores
and shows significant brand growth potential. The product offering has evolved
from a very trendy line to one with broader appeal, including both fashion
forward styling and core basics. The Company is now leveraging the strength of
the name through brand extensions (e.g., Kenneth Cole Reaction), in-store shops
and the licensing of many new product categories.
The characteristics of the products sold by the Company under its Kenneth Cole
brand name are summarized in the following table:
Footwear Leathergoods
------------------------------- ---------------------------------
Kenneth Cole Kenneth Cole
------------------------------- ---------------------------------
Women's Men's Handbags Accessories
--------------- --------------- --------------- ---------------
Market: Bridge-Designer Bridge-Designer Bridge-Designer Bridge-Designer
Retail Price Range: Better Better Better Better
$90-$160 $130-$170 $90-$150 $40-$75
Kenneth Cole brand women's footwear includes dress, casual and special
occasion (e.g., bridal) footwear. Women's footwear manufactured under the
Kenneth Cole label is generally constructed with leather soles and linings, and
leather, fabric, satin or silk uppers. Women's footwear is manufactured
primarily in Spain, because the capabilities of the manufacturers are consistent
with the quality requirements and image of Kenneth Cole brand footwear products.
The Company also sources a portion of its Kenneth Cole brand women's footwear
from manufacturers in Brazil due to the ability of those manufacturers to meet
the Company's quality specifications on a cost effective basis. The Company
sells approximately 110 styles of Kenneth Cole brand women's footwear each
season.
Kenneth Cole brand men's footwear is designed as comfortable, practical
shoes intended to be worn with dress or casual clothes. Kenneth Cole men's
footwear, consistent with men's footwear in general, is less style-driven than
women's footwear and is built around core basics with a fashion component. As a
result, the Company offers fewer styles and makes fewer style changes from
season to season. The men's line is sold through open stock repenishment
programs. Kenneth Cole men's footwear is manufactured primarily in Italy. The
Company sells approximately 50 styles of Kenneth Cole brand men's footwear each
season.
Kenneth Cole brand handbags are designed to be practical and versatile with
a contemporary and unstructured look. These products are generally manufactured
with soft, high quality leather. Kenneth Cole brand handbags are manufactured
primarily in India because of low production costs and the presence of
established quality leathergoods manufacturers with skilled labor forces. These
operations benefit from their close proximity to tanneries for processing
quality leather and the availability of other raw materials and components. The
Company believes its strong factory relationships in India have given the
Company the ability to achieve excellent value, producing comparable-quality
merchandise priced below its competitors. The Company sells approximately 100
styles of Kenneth Cole handbags each season.
Unlisted
Unlisted brand footwear and leathergoods are designed and targeted to the
trendy, 15 to 30 year old junior segment of the women's market. The Unlisted
brand was developed to expand the Company's sales into more moderately priced
products and includes approximately 45 styles of casual and dress shoes per
season and approximately 60 styles of handbags per season. Unlisted footwear and
handbags are generally retailed in the moderate price range with footwear at $20
to $50 per pair, and handbags at $30 to $50 each. Unlisted brand footwear and
handbags are manufactured primarily in China. The production facilities located
in China are generally larger than facilities in other countries and enable
manufactures to produce significant quantities of moderately priced quality
footwear and handbags.
4
Kenneth Cole Reaction
Kenneth Cole Reaction brand women's footwear, introduced in 1994, is more
casual in nature and includes footwear styles that are constructed with rubber
soles. Kenneth Cole Reaction branded women's footwear is designed for the
workplace as well as outside the office, with an emphasis on comfort,
contemporary styling and perceived value. The targeted consumer is
sophisticated, influenced by brand recognition and demands a certain quality
level that an established designer label ensures. Kenneth Cole Reaction footwear
is targeted to compete in the largest single category of women's footwear sold
in department stores, "women's better casual" footwear.Kenneth Cole Reaction is
priced to sell below the price points of the Kenneth Cole line. The majority of
the line retails in the $60-80 price range and, each season, includes
approximately 25 styles.
Kenneth Cole Reaction branded men's footwear combines an outdoor look with
more fashionable styling. The line retails in the $90-130 price range and
includes approximately 15 styles.
Kenneth Cole Reaction branded handbags are designed to be multi functional
with a contemporary look and are primarily made of non-leather trend
fabrications, such as nylon, microfiber and straw. Kenneth Cole Reaction brand
handbags are one of the fastest growing products of the Company, generally
retail in the $40-$70 price range and include approximately 35 styles each
season.
Divisions
The Company distributes its products through wholesale distribution
channels and its own Kenneth Cole retail and outlet stores. During the periods
presented below, the percentage of net sales contributed by the Company's
wholesale (including catalog) and retail divisions were as follows:
Year Ended
December 31
------------------------------------
1996 1995 1994
---- ---- ----
Wholesale 78% 84% 90%
Retail 22 16 10
Total 100% 100% 100%
=== === ===
Wholesale Operations
The Company's wholesale strategy is to provide affordable fashion
accessories as well as marketing and management support to its wholesale
customers. The Company provides this support by producing strong image
advertising campaigns, offering creative, quality products and maintaining
adequate inventory levels of new products as well as products included in the
Company's open its products stock program. The Company employs 16 independent
wholesale agents to sell its products and to manage its relationships with its
wholesale customers, including analyzing and monitoring their selling
information.
The Company's products are distributed to more than 800 wholesale accounts
for sale in more than 2,500 store locations in the United States. The Company
markets its branded products to major department stores and chains, such as the
department store divisions of Dayton Hudson Corporation, Dillard Department
Stores, Inc., Federated Department Stores (including Macy's, Bloomingdales, and
Burdines), The May Department Stores Company (including Lord & Taylor and
Foley's) and Nordstrom, Inc., and upscale specialty retailers, such as Neiman
Marcus and Saks Fifth Avenue. In addition, the Company sells out-of-season
branded products and overruns principally to The Marmaxx Group (formerly T.J.
Maxx and Marshalls) and through the Company's outlet stores. In addition, the
Company sells its products, directly or through distributors, to wholesale
customers in Australia, Canada, Hong Kong, Japan, Thailand, the Philippines and
Singapore.
The Company markets its product lines and introduces new styles at separate
industry-wide footwear and leathergoods shows which occur several times annually
in New York and Las Vegas and at regional shows throughout the year. These shows
also afford the Company the opportunity to assess preliminary demand for its
products. After each show, the Company's wholesale agents and corporate account
specialists visit customers to review the Company's product lines and to secure
purchase commitments. The Company's products are also displayed at separate
leathergoods and footwear showrooms in New York.
5
Private Label
In response to the growing demand among retailers for private label
products, the Company designs, develops and sources private label footwear and
leathergoods for selected retailers. These private label customers include,
among others, major retailers that do not purchase the Company's brands, such as
Sears, Roebuck and Co., J.C. Penney, and Mervyns. Private label footwear sales
commenced in 1992 and private label handbag sales commenced in January 1994.
The retail industry has experienced significant changes and difficulties
over the past several years, including consolidation of ownership, increased
centralization of buying decisions, restructurings, bankruptcies and
liquidations. Although to date these developments have not had a material
adverse effect on the Company, the Company cannot predict what effect, if any,
continued changes within the retail industry will have on the Company's results
from operations.
Retail Operations
The Company continues to pursue several strategies to enhance and expand
its retail operations. At December 31, 1996 the Company operated 24 specialty
retail stores and 10 outlet stores under the Kenneth Cole name and one outlet
store under the Unlisted name.
The Company's retail stores are primarily operated to develop consumer
recognition of its brand names and to provide a showcase for Kenneth Cole
branded products marketed by the Company and its licensees. The Company believes
that these stores compliment its wholesale business by building brand awareness.
In addition, Kenneth Cole retail stores enable the company to reach consumers
who prefer the environment of a specialty store. Approximately 20% to 25% of the
Company's retail store products are sourced exclusively for such stores which
differentiates the product mix of its stores from that of its wholesale
customers. The Company opened seven retail stores in 1996 and plans to open 5-6
new stores in 1997.
At December 31, 1996, the Company operated eleven outlet stores. The
Company establishes its outlet stores to enable it to sell a portion of its
excess wholesale inventory and to dispose of excess inventory from its retail
stores and catalog distribution in a manner which it believes does not have an
adverse impact on its wholesale customers and the Company's retail operations.
The Company generally does not make a style available in its outlet stores or to
off-price retailers until wholesale customers have taken their first markdown on
that style. The Company anticipates that as higher levels of sales are achieved
and additional retail stores are opened, it will require additional outlet
stores. The Company opened four outlet stores in 1996 and plans to open 4-5 new
stores in 1997.
The Company believes that the Kenneth Cole brand name has developed into
the upper echelon of American designers and seeks to propel the brand into
global recognition. As such, the company is planning to open a flagship store
that will serve as a showcase for all of its products and further enhance the
strength of the Kenneth Cole brand name.
The success of its stores, and the opening and success of any stores to be
opened this year and in future years, will depend on various factors, including
general economic and business conditions affecting consumer spending, the
acceptance by consumers of the Company's retail concept, the ability of the
Company to manage such expansion and hire and train personnel, the availability
of desirable locations, the negotiation of acceptable lease terms for new
locations and the expansion of the Company's management information systems to
support the growth of its retail operations. The Company believes that its
retail stores further enhance the Company's image and represent an opportunity
for revenue and earnings growth.
Licensing
The Company views entering into licensing agreements as a vehicle to
further extend its product offerings and enhance consumer awareness of its
brands. The Company considers entering into licensing, joint venture and
distribution agreements with respect to certain products if such arrangements
provide more effective sourcing, marketing and distribution of such products
than could be achieved internally. The Company continues to pursue opportunities
in new product categories which are believed to be complimentary to its existing
product lines.
Licensees range from small to medium size manufacturers to companies which
are among the industry leaders in their respective product categories. The
Company selects licensees that it believes can produce and service
6
quality fashion products consistent with the Kenneth Cole, Unlisted and Kenneth
Cole Reaction brand images. The Company's licensing department communicates the
Company's design ideas to and coordinates all marketing efforts with its
licensees. The Company generally grants licenses for three to five years with
renewal options, limits licensees to certain territorial rights, and retains the
right to terminate the license if certain specified sales levels are not
attained. Each license provides that the Company has the right to review,
inspect and/or approve all designs, the quality of the products and any use of
its trademarks.
The following table summarizes the Company's licensed product categories:
Product Category Kenneth Cole Reaction Unlisted
- - ---------------- ------------ -------- --------
Men's Neckwear X
Men's Scarves X
Men's Tailored Clothing X
Men's Jewelry X
Men's and Women's Optical Frames X
Women's Hosiery X
Women's Scarves & Wraps X
Men's Sportswear X X
Men's Leather & Fabric Outerwear X X
Men's/Women's Watches X X
Women's Leather & Fabric Outerwear X X
Luggage/Men's Small Leather Goods X X
Men's/Women's Sunglasses X X X
Women's Small Leather Goods X X X
Men's/Women's Belts X X
All of the Company's licensees and distributors are required to contribute
a percentage of their net sales of Kenneth Cole products, subject to minimum
amounts, to the advertisement and promotion of the Kenneth Cole Trademark.
International
The Company sells its products, directly or through distributors, to
wholesale customers in Australia, Canada, Hong Kong, Japan, Thailand, the
Philippines and Singapore. During 1997, the Company intends to expand its
international licensing and wholesale distribution programs as a means of
developing global brand recognition and creating additional wholesale markets
for its products.
At December 31, 1996, the Company operated one store in the Netherlands and
licensed the Kenneth Cole retail store format to its joint venture in Hong Kong
and to a third party in Singapore The store licensee acquires Kenneth Cole
branded products through the Company and its licensees. The licensed store's
format and product mix are similar to that of the Company's Kenneth Cole retail
stores. In connection with the Company's business strategy of enhancing and
expanding its retailing operations, the Company is considering certain
licensing, joint venture and distribution agreements with respect to opening
additional retail stores internationally.
Design
The Company was founded by Kenneth D. Cole, Chief Executive Officer and
President, and its success to date is largely attributable to his design talent,
creativity and marketing abilities. The Company selects designers on the basis
of their ability to understand consumers' preferences and on their ability to
originate and define fashion trends as well as to anticipate and react to
changing consumer demands in a timely manner.
The Company maintains design and marketing committees for each of its
product lines that are responsible for the creation, development and marketing
of new product styles. The Company's design committees constantly monitor
fashion trends and search for new inspirations. Members of the various
committees travel extensively to assess fashion trends in Europe, the United
States and Asia and work closely with retailers to monitor consumer preferences.
In addition, the Company's design committees meet frequently to share ideas and
discuss fashion trends occurring within each of the market segments served by
the Company.
7
The process of designing and introducing a new product takes approximately
three to four months. Design committee members work together to create a design
which they believe fits the Company's image, reflects current or approaching
trends and can be manufactured cost-effectively. Once the initial design is
complete, a prototype is developed, reviewed and refined prior to commencement
of production.
In order to reduce the impact of changes in fashion trends on the Company's
product sales and increase the profitability of the Company's products to its
wholesale customers, the Company continuously seeks to develop new core basic
product styles which remain fashionable from season to season without
significant changes in design or styling. Since these core basic products are
seasonless, retailers' inventories of core basic products tend to be maintained
throughout the year and reordered as necessary, primarily through electronic
data interchange.
Sourcing
The Company does not own or operate any manufacturing facilities and
sources its branded and private label products directly or indirectly through
independently owned manufacturers in Italy, Spain, Brazil, India, China and
Korea. The Company maintains offices in Florence, Italy and Hong Kong and
generally has long-standing relationships with several independent buying agents
to monitor the production, quality and timely distribution of the Company's
products from its manufacturers. The Company sources each of its product lines
separately based on the individual design, styling and quality specifications of
such products.
The Company attempts to limit the concentration of manufacturing with any
one manufacturer. However, approximately 14% and 28% of the dollar value of
Kenneth Cole women's footwear purchases in 1996 and 1995, respectively, were
produced by a single manufacturer in Spain and approximately 34% and 44% of the
dollar value of total leathergoods purchased by the Company in 1996 and 1995,
respectively, were produced by two manufacturers in India. These manufacturers,
however, subcontract a significant portion of such purchases to ensure the
consistent and timely delivery of quality products. The Company is the largest
customer of these manufacturers and has established long-standing relationships
with them. While the Company believes it has alternative manufacturing sources
available to meet its current and future production requirements, there can be
no assurance that in the event the Company is required to change from current
manufacturers, alternative suppliers will be available on terms comparable to
the company's existing arrangements.
In advance of the Fall and Spring selling seasons, the Company works with
its manufacturers to develop product prototypes for industry trade shows. During
this process, the Company works with the manufacturers to determine production
costs, materials, break-even quantities and component requirements for new
styles. Based on indications from the trade shows and initial purchasing
commitments from wholesalers, the Company places production orders with the
manufacturers. As a result of the need to maintain in-stock inventory positions,
the Company places manufacturing orders for open stock and certain fashion
products prior to receiving firm commitments. Once an order has been placed, the
manufacturing and delivery time ranges from three weeks to four months depending
on whether it is currently in production or a new product. Throughout the
production process, the Company monitors product quality through inspections at
both the factories and upon receipt at its warehouses. To reduce the risk of
overstocking, the Company monitors sell-through data on a weekly basis and seeks
input on product demand from wholesale customers to adjust production when
needed.
Advertising and Marketing
The Company believes that advertising to promote and enhance the Kenneth
Cole and Kenneth Cole Reaction brands is an intricate part of its long term
growth strategy. The Company believes that its award-winning advertising
campaigns, which have brought it national recognition for their focus on current
events and social issues, have resulted in increased sales and consumer
awareness of its branded products. The Company's advertisements appear in
magazines such as Vogue, Vanity Fair, Details, GQ, Glamour and Marie Claire,
newspapers and outdoor advertising media. All of the Company's licensees are
required to contribute a percentage of their net sales of licensed product,
subject to minimums, to the advertising and promotion of the Kenneth Cole
Trademark. In addition, selected personal appearances by Kenneth Cole and
charitable programs have been utilized to further enhance the Company's image.
The Company employs an advertising and public relations staff to implement these
efforts.
In order to continue to strengthen brand awareness of its products and
increase sales, the Company is actively involved in the development of marketing
and merchandising programs. As part of this effort, the Company utilizes
cooperative advertising programs, sales promotions and produces consumer
catalogs which feature a variety of Kenneth Cole and Kenneth Cole Reaction
branded products marketed by the Company and its licensees. In addition,
8
the Company has, on a limited basis, worked with customers to develop
distinctive catalogs which market the Company's products and to develop point of
sale displays.
An important developing aspect of the Company's marketing efforts is the
creation of shop-in-shops, where an entire collection of the Company's branded
products is featured, along with focus areas, where specific product categories
are highlighted. These shop-in-shops and focus areas create an environment that
is consistent with the Company's image and enables the retailer to display and
stock a greater volume of the Company's products per square foot of retail
space. In addition, these shop-in-shops and focus areas encourage longer term
commitment by the retailer to the Company's products and enhance consumer brand
awareness.
Distribution
During 1996, the Company relocated and entered into a six year lease for a
244,000 square foot distribution and administrative facility located in New
Jersey. The new facility will be able to support the continued growth of the
Company's business. The Company also utilizes a public warehouse located in
California. Upon completion of manufacturing, the Company's products are
inspected, bar coded (in the case of most footwear), packed and shipped by ocean
or air to the United States. The Company utilizes fully integrated information
systems to facilitate the receipt, processing and distribution through its New
Jersey distribution facility. The products are then shipped to the Company's
wholesale customers either in bulk or under its open stock program. The
Company's open stock program allows its wholesale customers to reorder core
basic styles in a range of colors and sizes for immediate shipment. While the
open stock program requires an increased investment in inventories, the Company
believes this program is an important service for its wholesale customers by
allowing them to manage inventory levels more effectively.
The Company produces consumer catalogs which feature a variety of Kenneth
Cole and Kenneth Cole Reaction branded products. Catalog order taking and
fulfillment is currently performed by a third party service located in Virginia.
Management Information Systems
Sophisticated information systems are essential to the Company's
ability to maintain its competitive position and to support continued growth.
The Company's management information system was designed to provide, among other
things, comprehensive order processing, production, accounting and management
information for the sourcing, importing, distribution and marketing aspects of
the Company's business. The Company has also installed an electronic data
interchange ("EDI") system which provides a computer link between the Company
and certain of its wholesale customers that enables both the customer and the
Company to monitor purchases, shipments and invoicing. The Company's EDI system
also improves the efficiency of responding to customer needs. The Company is
expanding its use of bar codes to enhance the efficiency of the EDI system as
well as for the Company's own inventory tracking needs. In its retail stores,
the Company uses point-of-sales registers to capture sales data and track
inventories. The Company regularly evaluates the adequacy of its management
information systems and upgrades such systems to support its growth. However,
the Company's failure to continue to upgrade its management information systems
necessary to support growth or expansion could have a material adverse effect on
the Company's financial condition and its results of operations.
Trademarks
The Company, through its wholly-owned subsidiary, K.C.P.L., Inc., owns
federal registrations for the trademarks Kenneth Cole, Kenneth Cole New York,
Kenneth Cole Reaction, and Unlisted. Each of the federal registrations are
currently in full force and effect and are not the subject of any legal
proceedings. In addition, the Company has several pending federal applications
in the United States Patent and Trademark office for trademarks and service
marks including Kenneth Cole Collection and Reaction. Moreover, the Company is
expanding its current international registrations in numerous countries in Asia,
South America, Europe and elsewhere. The Company regards its trademarks and
other proprietary rights as valuable assets in the marketing and distribution of
its products, and fully intends to maintain and renew the registrations as well
as vigorously defend against infringements.
Competition
Competition in the footwear and leathergoods industries is intense. The
Company's products compete with other branded products within their product
category as well as with private label products sold by retailers,
9
including some of the Company's customers. In varying degrees depending on the
product category involved, the Company competes on the basis of style, price,
quality, comfort and brand prestige and recognition, among other considerations.
The Company also competes with numerous manufacturers, importers and
distributors of footwear and accessories for the limited shelf-space available
for the display of such products to the consumer. Moreover, the general
availability of contract manufacturing capacity allows access by new market
entrants. Some of the Company's competitors are larger, have achieved greater
recognition for their brand names, have captured greater market share and/or
have substantially greater financial, distribution, marketing and other
resources than the Company.
Foreign Operations
The Company's business is subject to risks of doing business abroad, such
as fluctuations in currency exchange rates, labor unrest, political instability
and the imposition of additional regulations relating to imports, including
quotas, duties or taxes and other charges on imports. While these factors have
not had a material adverse impact on the Company's operations to date, there can
be no assurance that they will not have a material adverse affect on the
Company's operations in the future.
In order to reduce the risk of exchange rate fluctuations, the Company
regularly enters into forward exchange contracts to protect the purchase price
under its agreements with its manufacturers or purchases products in United
States dollars. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this report. While
the Company believes that its current procedures with respect to the reduction
of risk associated with currency exchange rate fluctuations is adequate, there
can be no assurance that fluctuations in currency exchange rates in the future
will not have a material adverse effect on the results of operations of the
Company.
Government Regulation
Although the majority of the goods sold by the Company are not currently
subject to quotas, countries in which the Company's products are manufactured
may, from time to time, impose new or adjust prevailing quotas or other
restrictions on exported products. In addition, the United States may impose new
duties, tariffs and other restrictions on imported products, any of which could
have a material adverse affect on the Company's operations and its ability to
import its products at the Company's current or increased quantity levels. In
accordance with the Harmonized Tariff Schedule, a fixed duty structure in effect
for the United States, the Company pays import duties on its products ranging
from approximately 6% to 38%, depending on the principal component of the
product. Other restrictions on the importation of footwear and the Company's
other products are periodically considered by the United States government and
no assurance can be given that tariffs or duties on the Company's goods may not
be raised, resulting in higher costs to the Company, or that import quotas
respecting such goods may not be imposed or made more restrictive.
A significant portion of the Company's products are manufactured in and
imported from China. The Company's operations and its ability to import products
from China at current tariff levels could be materially and adversely affected
if the "most favored nation" status granted to China by the United States
government for trade and tariff purposes is terminated. As a result of such
status, products imported by the Company from China currently receive the lower
tariff rates made available to most of the United States' major trading
partners. While China has been granted "most favored nation" status in every
year since 1979, there can be no assurance that the United States will continue
to grant China "most favored nation" status in the future. In the event that
such status is not renewed in future years, tariff level on imports from China
could rise significantly and could have a material adverse effect on the
Company's results of operations. However, the Company believes that it would be
able to shift production of certain goods to other countries on a cost effective
basis and to continue to produce in China those goods subject to lower tariff
rates.
Customers Under Common Control
The Company's department store customers include major United States
retailers, certain of which are under common ownership. When considered together
as a group under common ownership, sales to the department store customers which
were owned by Federated Department Stores represented 14.2% and 15.8% of the net
sales of the Company for the years ended 1996 and 1995, respectively. The
Company's ten largest customers represented 51% and 53% of the Company's net
sales for the years ended December 31, 1996 and 1995, respectively. While the
Company believes that purchasing decisions have generally been made
independently by each division within a
10
department store group, there is a trend among department store groups toward
centralized purchasing decisions of their divisions.
Backlog
At December 31, 1996 and 1995, the Company had unfilled wholesale customer
orders of $28.9 million and $23.4 million, respectively. The Company's backlog
at a particular time is affected by a number of factors, including seasonality,
timing of market weeks, and wholesale customer purchases of its core basic
products through the Company's open stock program. Accordingly, a comparison of
backlog from period to period may not be indicative of eventual actual
shipments.
Employees
At December 31, 1996, the Company had approximately 600 employees, 140 of
whom are covered under a collective bargaining agreement with a local affiliate
of the International Leather Goods, Plastics, Handbags and Novelty Workers'
Union, Local 1, Division of Local 342-50 United Food and Commercial Workers
Union. The Company considers its relationships with its employees to be
satisfactory.
Directors and Executive Officers
Name Age Present Position
- - ---- --- ----------------
Kenneth D. Cole........ 43 President and Chief Executive Officer
Paul Blum.............. 37 Executive Vice President
Stanley A. Mayer....... 49 Executive Vice President and Chief Financial Officer
Susan Hudson........... 37 Vice President Men's Division
Dick Prout............. 52 Vice President
Maria C. Cole.......... 35 Director
Robert Grayson......... 51 Director
Denis F. Kelly......... 47 Director
Jeffrey G. Lynn........ 47 Director
Kenneth D. Cole, age 43, has served as the Company's President and Chief
Executive Officer since its inception in 1982. Mr. Cole was a founder, and from
1976 through 1982, a senior executive of El Greco, Inc., a shoe manufacturing
and design company which manufactured Candie's women's shoes.
Paul Blum, age 37, has served as Executive Vice President since 1996 and as
Senior Vice President of the Company from 1992 through 1996. From 1982 until
1990, Mr. Blum served as Vice President and was a principal shareholder of The
Blum Co., a fashion accessory firm, the assets of which were purchased in 1990
by the Company.
Stanley A. Mayer, age 49, has served as Executive Vice President, Chief
Financial Officer, Treasurer and Secretary of the Company since March 1988 .
From 1986 until joining the Company, Mr. Mayer held the position of Vice
President-Finance and Administration of Swatch Watch USA, Inc. Mr. Mayer was the
controller of the Ralph Lauren and Karl Lagerfeld womenswear divisions of
Bidermann Industries, USA, Inc. from 1979 until 1986.
Richard Prout, age 52, is, and for more than the past five years has been,
the sole shareholder and employee of Dick Prout Enterprises, Inc., a corporation
that has been engaged by the Company to direct the operations of its landed
branded line of products.
Susan Q. Hudson, age 37, has served as Vice President in charge of men's
footwear since 1990. Prior to joining the Company, Ms. Hudson was at LA Gear,
where she served as Regional Sales Manager.
Maria Cuomo Cole, age 35, is the Chairperson of H.E.L.P., a position she
has held since January 1993. From time to time, Ms. Cole has acted as a
consultant to the Company with respect to public relations. From 1987 to 1992,
Ms. Cole was a partner in C.A. Associates, a public-relations firm based in New
York City which provided public-relations services to the Company.
Robert C. Grayson, age 51, is the Chairman, President and CEO of
Berglass-Grayson Associates (BGA), a consulting firm. From 1992-1996, Mr.
Grayson served initially as an outside consultant to Tommy Hilfiger Corp., a
11
wholesaler and retailer of men's sportswear and boyswear, and later accepted
titles of Chairman of Tommy Hilfiger Retail, Inc. and Vice Chairman of Tommy
Hilfiger Corp. From 1970 to 1992, Mr. Grayson served in various capacities for
Limited Inc., including President and CEO of Lerner New York from 1985 to 1992,
and President and CEO of Limited Stores from 1983 to 1985.
Denis F. Kelly, age 47, is a Managing Director and the head of the Mergers
and Acquisitions Department at Prudential Securities Incorporated since July
1993. From 1991 until 1993, Mr. Kelly was President of Denbrook Capital Corp., a
merchant banking firm. Mr. Kelly was at Merrill Lynch from 1980 to 1991, where
he served as Managing Director, Mergers & Acquisitions from 1984 to 1986, and
then as a Managing Director, Merchant Banking, from 1986 to 1991.
Jeffrey G. Lynn, age 47, has been the Chairman, President and Chief
Executive Officer of Dunham's Athleisure Corp., a specialty retailer of
sportswear, since 1987. Mr. Lynn joined Dunham's Athleisure Corp. in 1985 and
served as President until 1987. Prior to 1985, he served as Executive Vice
President of the Musicland Group, a specialty retailer of audio/video
entertainment software.
Item 2. Properties
The Company leases its 26,000 square foot executive office and showroom
located in New York, New York under a lease which expires December 31, 2006.
During 1996, the Company relocated and entered into a lease for the use of
244,000 square feet of distribution and administrative office space in Secaucus,
New Jersey. The new facility replaces the 63,000 square foot distribution and
office facility located in Secaucus, New Jersey. The term of the lease for the
new distribution and office facility expires on June 29, 2002. The Company also
leases a 23,500 square foot facility in Secaucus used for outlet store space and
as a warehousing facility. The Company has technical and administrative offices
in Florence, Italy and Hong Kong. The Company does not own or operate any
manufacturing facilities.
At December 31, 1996 the Company operated 24 retail stores and 11 outlet
stores, all of which were leased. Generally, the leases provide for an initial
term of five to ten years, with renewal options permitting the Company to extend
the term thereafter.
As the Company continues to expand it will require alternative and/or
additional office space. Accordingly, the Company is currently evaluating
alternative and/or additional locations that will satisfy its projected space
requirements.
Item 3. Legal Proceedings
In 1992, legal action was commenced against the Company in the Supreme
Court of the State of New York situated in New York County. The complaint
alleged that the Company had breached its obligations under a lease with the
plaintiff for the rental of office space in New York City and, as amended,
sought damages of approximately $851,000, representing all rent then due under
the lease.
In January 1994, a second action was commenced against the Company by the
plaintiff in the Supreme Court of the State of New York situated in New York
County for additional rent due under the lease. The complaint, as amended,
sought total damages of approximately $789,000.
During 1996, the Company paid $846,000 and $608,000, respectively, in
satisfaction of all plaintiff's claims in the two actions mentioned above,
exclusive of the plaintiff's claim for attorneys fees. The Company has
established a reserve for the anticipated amount of attorney fees with respect
to this matter.
The Company is, from time to time, a party to litigation that arises in the
normal course of its business operations. The Company is not presently a party
to any such litigation that would have a material adverse effect on its business
or operations.
Item 4. Submission of Matters to a Vote of Security Holders
None
12
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Class A Common Stock is listed and traded (trading symbol
KCP) on the New York Stock Exchange ("NYSE"). On October 17, 1995, the Board of
Directors declared a two-for-one stock split, to be effected in the form of a
stock dividend. Shareholders of record on October 27, 1995 received one
additional share of the Company's Class A Common Stock and Class B Common Stock
for each share of Class A Common Stock and Class B Common Stock held.
On March 24, 1997 the closing sale price for the Class A Common Stock was
$19.75. The following table sets forth the high and low sale prices for the
Class A Common Stock for each quarterly period for 1995 and 1996, as reported on
the NYSE Composite Tape (1):
1995: High Low
---- ---
First Quarter 13 3/8 9 1/16
Second Quarter 16 13/16 11 3/4
Third Quarter 20 16 1/16
Fourth Quarter 22 1/2 17 3/8
1996:
First Quarter 19 1/4 11 3/4
Second Quarter 20 1/2 17 1/8
Third Quarter 20 3/8 15 1/8
Fourth Quarter 20 1/4 14 1/2
(1) All per share amounts have been restated to reflect the stock split.
The number of shareholders of record of the Class A Common Stock on March
24, 1997 was 46.
There is one holder of record of Class B Common Stock and 5,785,398 shares
of Class B Common Stock are issued and outstanding. There is no established
public trading market for the Company's Class B Common Stock.
Dividend Policy
The Company intends to retain its earnings to finance the development,
expansion and growth of its existing business. Accordingly, the Company does not
anticipate paying cash dividends on its Class A Common Stock in the foreseeable
future. The payment of any future dividends will be at the discretion of the
Company's Board of Directors and will depend upon, among other things, future
earnings, operations, capital requirements, the financial condition of the
Company and general business conditions.
Item 6. Selected Financial Data
The following selected financial data is derived from the financial
statements of the Company. The following data should be read in conjunction with
the consolidated financial statements and notes thereto, and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Year Ended December 31,
-----------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(dollars in thousands, except share data)
Income Statement Data:
Net sales ......................................... $ 148,258 $ 113,828 $ 84,893 $ 60,831 $ 46,049
Cost of goods sold ................................ 86,919 67,382 50,166 36,132 28,741
Gross profit ...................................... 61,339 46,446 34,727 24,699 17,308
Licensing and other income ........................ 3,575 1,856 795 514 332
Selling and general administrative
expense(1) .................................... 43,048 30,608 21,246 16,836 12,347
Executive officers' compensation (2) ............. 1,200 1,350 1,530 4,176 1,879
Loss on abandonment of leasehold
improvements and equipment (3) ................. 106 147 269 9
Operating income .................................. 20,560 16,344 12,746 4,054 3,145
Interest (income) expense, net .................... 22 (30) 25 180 298
Income before provision for income taxes .......... 20,538 16,374 12,721 3,874 2,847
Provision for income .............................. 8,251 6,550 2,894 351 252
Net income ........................................ 12,287 9,824 9,827 3,523 2,595
Earnings per share ................................ $ .90 $ .72
Weighted average shares of common
stock outstanding ................................. 13,578,326 13,575,572
Pro Forma Income Statement Data:(4)
Net sales ......................................... $ 84,893 $ 60,831
Cost of goods sold ................................ 50,166 36,132
Gross profit ...................................... 34,727 24,699
Licensing and other income ........................ 795 514
Selling, general and administrative expenses (1) .. 21,246 16,836
Executive officers' compensation .................. 1,530 1,471
Loss on abandonment of leasehold improvements
and equipment (3) ................................ 147
Operating income .................................. 12,746 6,759
Interest, net ..................................... 25 180
Income before provision for income taxes .......... 12,721 6,579
Provision for income taxes ........................ 5,088 2,609
Net income ........................................ 7,633 3,970
Supplementary pro forma net income per share ...... $ .60 $ .33
Supplementary pro forma shares outstanding (5) .... 12,689,640 11,909,148
14
As At December 31,
------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(dollars in thousands)
Balance Sheet Data:
Working capital.............. $37,023 $27,309 $18,701 $7,449 $5,021
Total assets................. 65,255 43,307 31,886 20,307 12,355
Total debt, including current
maturities................ 489 102 166 1,858 516
Total shareholders' equity... 46,599 33,489 22,356 8,454 5,978
(1) Includes shipping and warehousing expenses. Includes non-recurring charges
of approximately $950,000 and $345,000 in 1993 and 1992, respectively, for
rent expense relating to vacated office space.
(2) Includes in 1993 (a) amounts paid to Kenneth Cole as additional
compensation to enable him to pay his taxes attributable to the Company's S
Corporation earnings and (b) a one-time bonus to an executive officer of
$245,000 paid in the form of shares of Class A Common Stock.
(3) Reflects losses on abandonment of leasehold improvements and equipment (a)
in 1996 and 1993 resulting from the decision to move its distribution and
administrative offices and (b) in 1992 resulting from the relocation of the
Company's principal offices.
(4) Reflects the effect on the historical income statement data for the year
ended December 31, 1994 and 1993 as if the Company's initial public
offering, which was consummated in June 1994, had been completed as of
January 1, 1993 and the Company (a) paid to its executive officers
aggregate annual compensation of $1,471,000 in 1993, which represents the
annual base salary payable to the Company's executive officers under their
respective employment agreements, and the estimated amortization of
compensatory stock options granted to an executive officer and (b) was
treated as a C Corporation filing on a consolidated return basis for income
tax purposes, with an assumed effective income tax rate of 40%.
(5) For 1993, supplementary pro forma shares includes 4,685,522 shares of Class
A Common Stock (including 2,058,064 shares sold at the Company's initial
public offering, the proceeds of which were used to repay short-term
borrowings of $11,484,000) and 7,096,542 shares of Class B Common Stock,
increased by 127,084 shares of Class A Common Stock representing the common
stock equivalents derived from applying the treasury stock method to the
exercise of options granted to an officer of the Company to purchase
200,000 shares of Class A Common Stock at $2.1875 per share.
For 1994, supplementary pro forma shares includes (i) the weighted average
shares outstanding during the period (12,463,360) and (ii) the assumed
exercise of options for the purchase of 222,950 and 373,900 shares of Class
A Common Stock at $2.1875 and 6.00 per share respectively.
15
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and the notes thereto included elsewhere
in this document.
Results of Operations
The Company's net sales and operating income have increased at compounded
annual growth rates of approximately 35% and 45%, respectively, since 1993,
principally as a result of increased wholesales sales of its branded footwear
and handbags and increased revenues generated from the higher number of retail
and outlet stores. Net income increased 25% to $12.3 million compared to net
income of $9.8 million in 1995. Net income for 1996 and 1995 reflects income
taxes with an effective tax rate of 40%. Pro forma net income reflects income
taxes as if the Company had been a "C" Corporation for all periods in 1994 with
an effective tax rate of 40%.
The following table sets forth operating data of the Company as a
percentage of net sales for the periods indicated below.
Year Ended December 31,
-----------------------
1996 1995 1994
-------------------------------
Net sales...................................................... 100.0% 100.0% 100.0%
Cost of goods sold............................................. 58.6 59.2 59.1
-------------------------------
Gross profit................................................... 41.4 40.8 40.9
Licensing and other income..................................... 2.4 1.6 0.9
Selling, general and administrative expenses(1)................ 29.9 28.0 26.8
Operating income............................................... 13.9 14.4 15.0
Income before provision for income taxes....................... 13.9 14.4 15.0
Provision for income taxes..................................... 5.6 5.8 3.4
-------------------------------
Net income..................................................... 8.3 8.6 11.6
-------------------------------
Pro forma net income........................................... N/A N/A 9.0
* ==============================
(1) Includes shipping and warehousing expenses.
1996 Compared to 1995
Net sales were $148.3 million in 1996 compared to $113.8 million in 1995,
an increase of $34.5 million or 30.3%. Net sales of the Company's wholesale
operations, excluding sales to its retail division, increased $20.4 million or
21.3% to $116.1 million in 1996 from $95.7 million in 1995. Wholesale sales
increased due to increased brand awareness, continued growing consumer
acceptance and the strengthening of the Company's three distinct brands, Kenneth
Cole, Unlisted and Kenneth Cole Reaction. The Company's retail and outlet stores
sales increased $14.1 million, or 78%, from $18.1 million to $32.2 million. This
increase reflects a 5.4% comparable store sales gains and the opening of seven
retail stores and four outlet stores in 1996.
Gross profit was $61.3 million in 1996, an increase of $14.9 million or
32.1% from $46.4 million in 1995. As a percentage of net sales, gross profit
increased to 41.4% in 1996 from 40.8% in 1995. The increase in gross profit as a
percentage of net sales was primarily attributable to the relative increase in
retail operations which produce higher margins than wholesale operations.
Revenues from royalties increased 93% from $1.9 million in 1995 to $3.6
million in 1996. This increase primarily results from an increase in sales of
existing licensed products, including men's and women's leather outerwear and
new license agreements which introduced several new product offerings.
Selling, general and administrative expenses increased $12.4 million to
$44.4 million in 1996 from $32.0 million in 1995. The increase is due to volume
related expenses, including the hiring of new personnel, necessary to
16
support the increase in revenue of the Company's wholesale and retail
operations. As a percentage of net sales, selling, general and administrative
expenses increased to 29.9% from 28.0% due to the continued expansion of the
Company's retail division which operates at a higher cost structure than its
wholesale operations.
As a result of the foregoing, operating income increased 26% in 1996 to
$20.6 million (13.9% of sales) from $16.3 million (14.4% of sales) in 1995.
1995 Compared to 1994
Net sales were $113.8 million in 1995 compared to $84.9 million in 1994, an
increase of $28.9 million or 34%. Net sales of the Company's wholesale
operations, excluding sales to its retail division, increased $19.2 million or
25.1% to $95.7 million in 1995 from $76.5 million in 1994. This increase was
primarily due to a $13.6 million or 28% increase in sales of Kenneth Cole
branded product reflecting increased brand awareness and consumer acceptance.
The Company's retail and outlet stores sales increased $9.7 million, or 115%,
from $8.4 million to $18.1 million. This increase reflects a 12.7% comparable
store sales gains and the opening of eight retail stores and five outlet stores
in 1995.
Gross profit was $46.4 million in 1995, an increase of $11.7 million or
33.7% from $34.7 million in 1994. As a percentage of net sales, gross profit
decreased to 40.8% in 1995 from 40.9% in 1994. The decrease in gross profit as a
percentage of net sales was attributable to additional markdowns that the
Company recorded during the fourth quarter of 1995, partially offset by an
increase in higher gross margins from sales generated by the Company's retail
stores.
Selling, general and administrative expenses were $32.0 million (28.0% of
sales) in 1995 and $22.8 million (26.8% of sales) in 1994. The increase is due
to the hiring of additional personnel to support wholesale and retail growth,
the increase in the number of retail stores and higher marketing and production
costs attributable to the Company's expanding catalog business and increased
marketing efforts. The increase as a percentage of sales is primarily due to the
increase in the number of retail stores, which carry a higher expense level than
the wholesale division.
As a result of the foregoing, operating income increased 28.3% in 1995 to
$16.3 million (14.4% of sales) from $12.7 million (15.0% of sales) in 1994.
Liquidity and Capital Resources
The Company relies primarily on cash flow from operations and borrowings
under its line of credit to finance operations and growth. Net cash provided by
operating activities in 1996 was $3.6 million. Cash (used in) provided by
operations in 1995 and 1994 was $(.2) million and $4.9 million, respectively.
The Company's primary funding requirements are to finance working capital and
the continued growth of the business. This includes the purchase of inventory in
anticipation of increased sales as well as the capital expenditures related to
the expansion of the retail operations.
During the first quarter of each year, the Company normally experiences
negative cash flows from operations due to the build-up of inventory and the
timing of collection of receivables (due from factors) relating to the peak
spring sales period. Cash flows may vary from time to time as a result of
seasonal requirements, the timing of the receipt of merchandise from suppliers
and the delivery by the Company of the merchandise to its customers, the
Company's open stock inventory program and the level of accounts receivable and
due from factors balances. At December 31, 1996 and 1995, working capital was
$36.9 million and $27.3 million, respectively.
The Company sells substantially all of its accounts receivable to two
factors without recourse. In circumstances where a customer's account cannot be
factored without recourse, the Company may take other measures to reduce its
credit exposure which could include requiring the customer to pay in advance or
to provide a letter of credit covering the sales price of the merchandise
ordered.
The Company currently has a line of credit, as amended on November 8, 1996,
under which up to $20.0 million is available to finance working capital
requirements and letters of credit to finance the Company's purchases.
Borrowings available under the line of credit are determined by a specified
percentage of eligible accounts receivable and inventories and bear interest at
(i) the higher of The Bank of New York's prime lending rate
17
or the Federal Funds rate plus 0.5% at the date of borrowing or (ii) a
negotiated rate. In connection with the line of credit, the Company has agreed
to eliminate all the outstanding balances under the facility for at least 30
consecutive days during each calendar year. In addition, borrowings under the
line of credit are secured by certain assets of the Company.
Capital expenditures, which were primarily for leasehold improvements and
furniture and fixtures associated with new store openings, were approximately
$4.9 million, $3.4 million and $2.3 million for 1996, 1995 and 1994,
respectively. The Company anticipates opening, in total, approximately 10 to 12
retail and outlet stores in 1997 requiring aggregate capital expenditures of
approximately $3.0 million. In addition, the Company expects to spend
approximately $2.0 million for the initial inventory requirements of the new
stores.
The Company anticipates that it will require increased capital expenditures
to support its continued growth including an increase in its office and
warehouse space and improvements to its management information systems.
The Company believes that it will be able to satisfy its ongoing cash
requirements for the foreseeable future, including requirements for its
expansion, primarily with cash flow from operations, supplemented by borrowings
under its line of credit.
The retail industry has experienced significant changes and difficulties
over the past several years, including consolidation of ownership, increased
centralization of buying decisions, restructurings, bankruptcies and
liquidations. Although to date these circumstances have not had a material
adverse effect on the Company, the Company cannot predict what effect, if any,
continued changes within the retail industry will have on the Company's cash
flow from operations.
The Company regularly purchases inventory in foreign currencies from
manufacturers in Spain and Italy. In order to reduce the risks associated with
currency exchange rates, the Company regularly enters into forward exchange
contracts for the purchase of inventory at future dates, payable in foreign
currencies. At December 31, 1996, forward exchange contracts totaling $2.1
million were outstanding with settlement dates ranging from January 1997 through
March 1997. The Company expects to continue routinely to enter into additional
foreign exchange contracts throughout the year. While the Company believes that
its current procedures with respect to the reduction of risk associated with
currency exchange rate fluctuations is adequate, there can be no assurance that
such fluctuations will not have a material adverse effect on the results of
operations of the Company in the future.
The Company intends to retain its earnings to finance the development,
expansion and growth of its existing business. Accordingly, the Company does not
anticipate paying cash dividends on its Class A Common Stock in the foreseeable
future. The payment of any future dividends will be at the discretion of the
Company's Board of Directors and will depend upon, among other things, future
earnings, operations, capital requirements, the financial condition of the
Company and general business conditions.
Seasonality
The Company's products are marketed primarily for Fall and Spring seasons,
with slightly higher volume of wholesale products sold during the first and
third quarters. The Company's retail operations generally experience their
strongest results in the fourth quarter and their weakest in the first quarter.
Effects of Inflation
The Company does not believe that the relatively moderate rates of
inflation experienced over the last few years in the United States, where it
primarily competes, have had a significant effect on revenues or profitability.
Item 8. Financial Statements and Supplementary Data
See page F-1 for a listing of the consolidated financial statements
submitted as part of this report.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
18
PART III
Item 10. Directors and Executive Officers of the Registrant.
Except for the information regarding directors and executive officers of
the registrant, which is included in Part I, the information required by this
item will be contained in the Company's Proxy Statement for its Annual
Shareholders Meeting to be held May 29, 1997 to be filed with the Securities and
Exchange Commission within 120 days after December 31, 1996 and is incorporated
herein by reference in response to this item.
Item 11. Executive Compensation
The information required by this item will be contained in the Company's
Proxy Statement for its Annual Shareholders Meeting to be held May 29, 1997 to
be filed with the Securities and Exchange Commission within 120 days after
December 31, 1996 and is incorporated herein by reference in response to this
item.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item will be contained in the Company's
Proxy Statement for its Annual Shareholders Meeting to be held May 29, 1997 to
be filed with the Securities and Exchange Commission within 120 days after
December 31, 1996 and is incorporated herein by reference in response to this
item.
Item 13. Certain Relationships and Related Transactions
The information required by this item will be contained in the Company's
Proxy Statement for its Annual Shareholders Meeting to be held May 29, 1997 to
be filed with the Securities and Exchange Commission within 120 days after
December 31, 1996 and is incorporated herein by reference in response to this
item.
19
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) See page F-1 for a listing of consolidated financial statements
submitted as part of this report.
(a) (2) All schedules, for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, are shown in the financial statements or are inapplicable
and therefore have been omitted.
(a) (3). The following exhibits are included in this report.
Exhibit
No.
---
Description
-----------
3.01 -- Restated Certificate of Incorporation of Kenneth Cole Productions,
Inc.; Certificate of Merger of Cole Fifth Avenue, Inc. into Kenneth
Cole Productions, Inc.; Certificate of Merger of Cole Productions,
Inc. into Kenneth Cole Productions, Inc.; Certificate of Merger of
Cole Sunset, Inc., into Kenneth Cole Productions, Inc.; Certificate of
Merger of Cole Union Street, Inc. into Kenneth Cole Productions, Inc.;
Certificate of Merger of Cole West, Inc. into Kenneth Cole
Productions, Inc., Certificate of Merger of Kenneth Cole Woodbury,
Inc. into Kenneth Cole Productions, Inc.; Certificate of Merger of
Kenneth Cole Leather Goods, Inc. into Kenneth Cole Productions, Inc.;
Certificate of Merger of Unlisted into Kenneth Cole Productions, Inc.
(Incorporated by reference to Exhibit 3.01 to the Company's
Registration Statement on Form S-1, Registration No. 33-77636).
3.02 -- By-laws. (Incorporated by reference to Exhibit 3.02 to the Company's
Registration Statement on Form S-1, Registration No. 33-77636).
4.01 -- Specimen of Class A Common Stock Certificate. (Incorporated by
reference to Exhibit 4.01 to the Company's Registration Statement on
Form S-1, Registration No. 33-77636).
10.01 -- Tax Matters Agreement, dated as of June 1, 1994, among Kenneth Cole
Productions, Inc., Kenneth D. Cole, Paul Blum and Stanley A. Mayer.
(Incorporated by reference to Exhibit 10.01 to the Company's
Registration Statement on Form S-1, Registration No. 33-77636).
10.02 -- Term Loan Agreement, dated as of May 26, 1994, by and among Kenneth
Cole Productions, Inc., Kenneth Cole Leather Goods, Inc., Unlisted,
Inc., Cole West, Inc., Kenneth Cole Financial Services, Inc., Kenneth
Cole Woodbury, Inc., Cole Fifth Avenue, Inc., Cole Union Street, Inc.
and The Bank of New York; Promissory Notes, dated May 26, 1994, issued
by each of Kenneth Cole Leather Goods, Inc., Unlisted Inc., Cole West,
Inc., Kenneth Cole Financial Services, Inc., Kenneth Cole Woodbury,
Inc., Cole Fifth Avenue, Inc., Cole Union Street, Inc. to The Bank of
New York; Shareholder Guaranty by and between Kenneth D. Cole and The
Bank of New York, dated as of May 26, 1994; Subordination Agreement by
and among Kenneth D. Cole, Kenneth Cole Productions, Inc., Kenneth
Cole Leather Goods, Inc., Unlisted, Inc., Cole West, Inc., Kenneth
Cole Financial Services, Inc., Kenneth Cole Woodbury, Inc., Cole Fifth
Avenue, Inc., Cole Union Street, Inc. and The Bank of New York, dated
as of April 13, 1994; Reinvestment Agreement by and among Kenneth D.
Cole, Kenneth Cole Productions, Inc., Unlisted, Inc., Cole West, Inc.,
Kenneth Cole Financial Services, Inc., Kenneth Cole Woodbury, Inc.,
Cole Fifth Avenue, Inc., Cole Union Street, Inc. and The Bank of New
York, dated as of May 26, 1994; Amendment No. 1 to the Term Loan
Agreement and the Reinvestment Agreement by and among Kenneth D. Cole,
Kenneth Cole Productions, Inc., Cole West, Inc., Kenneth Cole
Woodbury, Inc., Cole Fifth Avenue, Inc., Cole Union Street, Inc.,
Kenneth Cole Financial Services, Inc. and The Bank of New York, dated
as of May 31, 1994. (Incorporated by reference to Exhibit 10.02 to the
Company's Registration Statement on Form S-1, Registration No.
33-77636).
10.03 -- Line of Credit Letter, dated January 13, 1994, from The Bank of New
York to Kenneth Cole Productions, Inc., Kenneth Cole Leather Goods,
Inc. and Unlisted, Inc.; $7,500,000 Promissory Note, dated February 1,
1994 by Kenneth Cole Productions, Inc., Kenneth Cole Leather Goods,
Inc. and Unlisted, Inc. issued to The Bank of New York; Letter
Agreement, dated December 16, 1993, between The Bank of New York and
Kenneth Cole Productions, Inc., Unlisted, Inc., Kenneth Cole Leather
Goods, Inc., Cole Productions, Inc., Cole West, Inc., Kenneth Cole
Financial Services, Inc., Cole Woodbury, Inc., Cole Sunset, Inc. and
Cole Fifth Avenue, Inc.; General Guarantees, dated December 16, 1993,
in favor of The Bank of New
20
York by Kenneth Cole Leather Goods, Inc. for Unlisted, Inc., by
Kenneth Cole Leather Goods, Inc. for Kenneth Cole Productions, Inc.,
by Unlisted, Inc. for Kenneth Cole Productions, Inc., by Unlisted,
Inc. for Kenneth Cole Leather Goods, Inc., by Kenneth Cole
Productions, Inc. for Kenneth Cole Leather Goods, Inc., and by Kenneth
Cole Productions, Inc. for Unlisted, Inc.; General Loan and Security
Agreements, dated December 16, 1993, between The Bank of New York and
each of Kenneth Cole Productions, Inc., Kenneth Cole Leather Goods,
Inc. and Unlisted, Inc.; and Personal Guarantees of Mr. Kenneth D.
Cole, dated December 16, 1993, in favor of The Bank of New York for
Kenneth Cole Productions, Inc., Unlisted, Inc. and Kenneth Cole
Leather Goods, Inc. (Incorporated by reference to Exhibit 10.03 to the
Company's Registration Statement on Form S-1, Registration No.
33-77636).
Line of Credit Letter, dated December 9, 1994 from The Bank of New
York to Kenneth Cole Productions, Inc.; $7,500 Promissory Note, dated
December 15, 1994 by Kenneth Cole Productions, Inc. issued to The Bank
of New York; Letter of Termination of Personal Guarantees of Mr.
Kenneth D. Cole, dated December 8, 1994, in favor of The Bank of New
York for Kenneth Cole Productions, Inc., Unlisted, Inc. and Kenneth
Cole Leather Goods, Inc. (Incorporated by reference to Exhibit 10.03
to the Company's 1994 Form 10-K).
10.03A $10,000 Promissory Note, dated July 31, 1995 by Kenneth Cole
Productions, Inc. issued to The Bank of New York. (Previously filed as
Exhibit 10.03A to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996 and incorporated herein by reference).
*10.04 -- Kenneth Cole Productions, Inc. 1994 Stock Option Plan. (Incorporated
by reference to Exhibit 10.04 to the Company's Registration Statement
on Form S-1, Registration No. 33-77636).
*10.05 -- Employment Agreement, dated as of April 30, 1994, between Kenneth Cole
Productions, Inc. and Kenneth D. Cole. (Incorporated by reference to
Exhibit 10.05 to the Company's Registration Statement on Form S-1,
Registration No. 33-77636).
*10.06 -- Employment Agreement, dated as of April 30, 1994, between Kenneth Cole
Productions, Inc. and Paul Blum. (Incorporated by reference to Exhibit
10.06 to the Company's Registration Statement on Form S-1,
Registration No. 33-77636).
*10.07 -- Employment Agreement, dated as of April 30, 1994, between Kenneth Cole
Productions, Inc. and Stanley A. Mayer; Stock Option Agreement dated
as of March 31, 1994 between Kenneth Cole Productions, Inc. and
Stanley A. Mayer. (Incorporated by reference to Exhibit 10.07 to the
Company's Registration Statement on Form S-1, Registration No.
33-77636).
Stock Option Agreement dated as of June 1, 1994, between Kenneth Cole
Productions, Inc. and Stanley A. Mayer; Stock Option Agreement dated
as of July 7, 1994, between Kenneth Cole Productions, Inc. and Stanley
A. Mayer (Incorporated by reference to Exhibit 10.07 to the Company's
1994 Form 10-K).
10.08 -- Collective Bargaining Agreement by and between the New York Industrial
Council of the National Fashion Accessories Association, Inc. and
Leather Goods, Plastics, Handbags and Novelty Workers' Union, Local 1,
dated as of April 25, 1987; Memorandum of Agreement by and between the
New York Industrial Council of the National Fashion Accessories
Association, Inc. and Leather Goods, Plastics, Handbags and Novelty
Workers' Union, Local 1, Division of Local 342-50 United Food and
Commercial Workers Union, dated as of June 16, 1993. (Incorporated by
reference to Exhibit 10.08 to the Company's Registration Statement on
Form S-1, Registration No. 33-77636).
10.09 Memorandum of Agreement between the New York Industrial Council of the
National Fashion Accessories Association Inc. and Local 1 Leather
Goods, Plastics, Handbags, and Novelty Workers Union, Division of
Local 342-50 United Food and Commercial Workers Union (Previously
filed as Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1996 and incorporated
herein by reference).
10.10 Employment Agreement between Kenneth Cole Productions, Inc., and Paul
Blum. Previously filed as Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 1996 and
incorprated herein by reference).
+10.11 Sublease Agreement, dated June 17, 1996, between Kenneth Cole
Productions, Inc. and Liz Claiborne Accessories, Inc.
21
+21.01 -- List of Subsidiaries.
+23.01 Consent of Ernst & Young LLP
+27 Financial Data Schedule
- - ----------------------------
* Management contract or compensatory plan or arrangement required to be
identified pursuant to Item 14(a) of this report.
+ Filed herewith.
(b) Reports on Form 8-K
None.
(c) See (a) (3) above for a listing of the exhibits included as a part of this
report.
22
Kenneth Cole Productions, Inc. and Subsidiaries
Index to Consolidated Financial Statements
Page
----
Report of Independent Auditors........................................ F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995.......... F-3
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994................................... F-5
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1996, 1995 and 1994............... F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994................................... F-7
Notes to Consolidated Financial Statements............................ F-8
F-1
Report of Independent Auditors
Board of Directors and Shareholders
Kenneth Cole Productions, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Kenneth
Cole Productions, Inc. and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, changes in shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Kenneth Cole
Productions, Inc. and subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
February 25, 1997
F-2
Kenneth Cole Productions, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31,
1996 1995
-----------------------------------
Assets
Current assets:
Cash $ 1,626,000 $ 2,204,000
Due from factors 17,976,000 13,898,000
Accounts receivable, less allowance for doubtful accounts
of $65,000 in 1996, and $30,000 in 1995 3,339,000 2,316,000
Inventories 29,265,000 16,361,000
Prepaid expenses and other current assets 1,001,000 909,000
Deferred income taxes 755,000 514,000
-----------------------------------
Total current assets 53,962,000 36,202,000
-----------------------------------
Property and equipment - at cost:
Furniture and fixtures 3,234,000 1,716,000
Machinery and equipment 2,916,000 1,788,000
Leasehold improvements 6,610,000 4,523,000
-----------------------------------
12,760,000 8,027,000
Less accumulated depreciation and amortization 3,428,000 2,374,000
-----------------------------------
Net property and equipment 9,332,000 5,653,000
-----------------------------------
Other assets:
Deferred income taxes 145,000 422,000
Deposits and sundry 1,816,000 1,030,000
-----------------------------------
Total other assets 1,961,000 1,452,000
-----------------------------------
Total assets $ 65,255,000 $ 43,307,000
===================================
See accompanying notes to consolidated financial statements.
F-3
Kenneth Cole Productions, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
December 31,
1996 1995
------------------------------------
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 12,738,000 $ 6,765,000
Accrued expenses and other current liabilities 2,376,000 1,859,000
Advances due under revolving credit facility and
current portion of long-term debt 489,000 54,000
Income taxes payable 1,247,000
Deferred license income 89,000 121,000
------------------------------------
Total current liabilities 16,939,000 8,799,000
Rent payable 521,000 367,000
Other non-current liabilities 1,196,000 652,000
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, 7,353,179 and 7,299,382
outstanding in 1996 and 1995 74,000 73,000
Class B Convertible Common Stock, par value $.01,
6,000,000 shares authorized, 5,785,398
outstanding in 1996 and 1995 58,000 58,000
Additional paid-in capital 19,104,000 18,510,000
Retained earnings 27,432,000 15,145,000
Deferred compensation--stock options (69,000) (297,000)
------------------------------------
Total shareholders' equity 46,599,000 33,489,000
------------------------------------
Total liabilities and shareholders' equity $ 65,255,000 $ 43,307,000
------------------------------------
See accompanying notes to consolidated financial statements.
F-4
Kenneth Cole Productions, Inc. and Subsidiaries
Consolidated Statements of Income
Year ended December 31,
1996 1995 1994
-----------------------------------------------------------
Net sales $ 148,258,000 $ 113,828,000 $ 84,893,000
Cost of goods sold 86,919,000 67,382,000 50,166,000
-----------------------------------------------------------
Gross profit 61,339,000 46,446,000 34,727,000
Licensing and other income 3,575,000 1,855,000 795,000
Operating costs and expenses:
Selling, general and administrative and shipping
and warehousing 44,354,000 31,957,000 22,776,000
-----------------------------------------------------------
44,354,000 31,957,000 22,776,000
-----------------------------------------------------------
Operating income 20,560,000 16,344,000 12,746,000
Interest (income) expense, net 22,000 (30,000) 25,000
-----------------------------------------------------------
Income before provision for income taxes 20,538,000 16,374,000 12,721,000
Provision for income taxes 8,251,000 6,550,000 2,894,000
Net income $ 12,287,000 $ 9,824,000 $ 9,827,000
Earnings per share $ .90 $ .72
Shares used to compute earnings per share 13,578,000 13,576,000
Unaudited pro forma information:
Historical income before taxes $ 12,721,000
Pro forma adjustment for taxes (5,088,000)
--------------------
Pro forma net income $ 7,633,000
--------------------
Supplementary pro forma net income
per share
$.60
--------------------
Shares used to compute supplementary pro forma
net income per share 12,690,000
--------------------
See accompanying notes to consolidated financial statements.
F-5
Kenneth Cole Productions, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
Class A Common Stock Class B Common Stock
----------------------------- ---------------------------- Total
Number Number Common
of Shares Amount of Shares Amount Stock
------------------------------------------------------------------------
Shareholders' equity,
December 31, 1993 1,155,714 $ 11,000 3,548,271 $ 36,000 $ 47,000
Deferred compensation under
stock option plan
Stock grants
Exercise of stock option 158,015 2,000 2,000
S corporation dividends
Distribution to shareholders
Net proceeds from initial public
offering, net 1,613,000 16,000 16,000
Net income
Amortization of deferred
compensation ------------------------------------------------------------------------
Shareholders' equity,
December 31, 1994 2,926,729 29,000 3,548,271 36,000 65,000
Conversion of Class B to Class A 655,572 7,000 (655,572) (7,000)
Exercise of stock option,
including tax benefit from 67,390 1,000 1,000
exercise of stock options
Net income
Amortization of deferred
compensation
Two-for-one stock split 3,649,691 36,000 2,892,699 29,000 65,000
------------------------------------------------------------------------
Shareholders' equity,
December 31, 1995 7,299,382 73,000 5,785,398 58,000
131,000
Exercise of stock option,
including tax benefit from 53,797 1,000 1,000
exercise of stock options
Net income
Amortization of deferred
compensation ------------------------------------------------------------------------
Shareholders' equity,
December 31, 1996 7,353,179 $ 74,000 5,785,398 $58,000 $ 132,000
========================================================================
Additional
Paid-In Retained Deferred
Capital Earnings Compensation Total
------------------------------------------------------------
Shareholders' equity,
December 31, 1993 $ 2,944,000 $ 5,463,000 $ 8,454,000
Deferred compensation under
stock option plan 674,000 $ (674,000)
Stock grants 154,000 154,000
Exercise of stock option 4,000 6,000
S corporation dividends (3,320,000) (9,180,000) (12,500,000)
Distribution to shareholders (789,000) (789,000)
Net proceeds from initial public
offering, net 17,036,000 17,052,000
Net income 9,827,000 9,827,000
Amortization of deferred 152,000 152,000
compensation ------------------------------------------------------------
Shareholders' equity,
December 31, 1994 17,492,000 5,321,000 (522,000) 22,356,000
Conversion of Class B to Class A
Exercise of stock option,
including tax benefit from 1,083,000 1,084,000
exercise of stock options
Net income 9,824,000 9,824,000
Amortization of deferred 225,000 225,000
compensation
Two-for-one stock split (65,000)
------------------------------------------------------------
Shareholders' equity,
December 31, 1995 18,510,000 15,145,000 (297,000) 33,489,000
Exercise of stock option,
including tax benefit from 594,000 595,000
exercise of stock options
Net income 12,287,000 12,287,000
Amortization of deferred 228,000 228,000
compensation ------------------------------------------------------------
Shareholders' equity,
December 31, 1996 $ 19,104,000 $ 27,432,000 $ (69,000) $ 46,599,000
============================================================
See accompanying notes to consolidated financial statements.
F-6
Kenneth Cole Productions, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
1996 1995 1994
----------------------------------------------------
Cash flows from operating activities
Net income ............................................................. $ 12,287,000 $ 9,824,000 $ 9,827,000
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization ..................................... 1,109,000 794,000 477,000
Provision for doubtful accounts ................................... 35,000 35,000 91,000
Amortization of deferred compensation ............................. 228,000 225,000 152,000
Abandonment of leasehold improvements and equipment ............... 106,000
Provision (benefit) for deferred taxes ............................ 36,000 186,000 (971,000)
Changes in operating assets and liabilities:
Increase in due from factors .................................. (4,078,000) (6,105,000) (1,999,000)
Increase in accounts receivable ............................... (1,058,000) (424,000) (1,237,000)
Increase in inventories ....................................... (12,904,000) (4,585,000) (328,000)
Increase in prepaid expenses and
other current assets ........................................ (92,000) (514,000) (283,000)
Increase in deposits and sundry ............................... (786,000) (600,000) (364,000)
Increase (decrease) in income taxes payable ................... 1,497,000 (220,000) 559,000
Increase in accounts payable .................................. 5,973,000 1,129,000 1,746,000
Increase (decrease) in accrued expenses and
other current liabilities ................................... 485,000 (566,000) (2,891,000)
Increase in other non-current liabilities ..................... 747,000 551,000 108,000
----------------------------------------------------
Net cash provided by (used in) operating activities .................... 3,585,000 (270,000) 4,887,000
Cash flows from investing activities
Acquisition of property and equipment, net ............................. (4,894,000) (3,320,000) (2,263,000)
----------------------------------------------------
Net cash used in investing activities .................................. (4,894,000) (3,320,000) (2,263,000)
Cash flows from financing activities
Proceeds (repayment) of revolving line of credit, net .................. 440,000 (1,432,000)
Net proceeds from initial public offering .............................. 17,052,000
Proceeds from exercise of stock options ................................ 345,000 542,000 6,000
S corporation dividends paid ........................................... (12,500,000)
Distribution to shareholders ........................................... (789,000)
Repayment of notes payable to shareholders ............................. (209,000)
Repayment of long-term debt ............................................ (54,000) (63,000) (52,000)
----------------------------------------------------
Net cash provided by financing activities .............................. 731,000 479,000 2,076,000
Net (decrease) increase in cash ........................................ (578,000) (3,111,000) 4,700,000
Cash, beginning of year ................................................ 2,204,000 5,315,000 615,000
----------------------------------------------------
Cash, end of year ...................................................... $ 1,626,000 $ 2,204,000 $ 5,315,000
====================================================
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest ............................................................ $ 119,000 $ 82,000 $ 143,000
Income taxes ........................................................ $ 5,804,000 $ 6,357,000 $ 3,378,000
See accompanying notes to consolidated financial statements.
F-7
Kenneth Cole Productions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
1. Description of Business
Kenneth Cole Productions, Inc. and its subsidiaries (the "Company") designs
and sources a broad range of quality footwear, handbags and accessories
primarily under its Kenneth Cole, Unlisted and Kenneth Cole Reaction brand names
and markets its products for sale to more than 2,500 department stores and
specialty store locations in the United States, in several foreign countries and
through its retail and outlet store base. In addition, the Company has granted
licenses to certain third parties for a variety of accessory and apparel product
categories, including men's neckwear, briefcases, portfolios, fabric outerwear,
tailored clothing, jewelry, women's hosiery and small leather goods, and men's
and women's belts, scarves and wraps, leather outerwear, sunglasses and eyewear,
watches, and luggage. The Company produces consumer catalogues which feature a
variety of Kenneth Cole and Kenneth Cole Reaction branded products.
Organization and Initial Public Offering
The Company was incorporated in September 1982. The Company completed an
initial public offering (the "Offering") of 1,860,000 shares of Class A Common
Stock, in which the Company sold 1,613,000 shares, par value $.01 on June 9,
1994 at $12 per share. Net proceeds to the Company were approximately $17.1
million, which is net of $2.5 million of fees to underwriters and other expenses
related to the Offering.
Stock Split
On October 17, 1995, a two-for-one stock split of the Company's Common
Stock was effected in the form of a stock dividend of one share of Common Stock
for each share of Common Stock outstanding at the close of business on October
27, 1995 (the "Stock Split"). Accordingly, all applicable share and per share
data have been adjusted for the Stock Split.
F-8
Kenneth Cole Productions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Significant Accounting Policies
Management's Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts 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 period. Actual results could differ from these estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of Kenneth Cole
Productions, Inc. and its wholly owned subsidiaries. All intercompany
transactions and balances have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less at the time of purchase to be cash equivalents. Restricted
cash in the amount of $1,196,000 and $603,000 related to deferred compensation
is included in other non current assets in 1996 and 1995, respectively.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
on the first-in, first-out method. All inventory is comprised of finished goods.
The Company sources each of its product lines separately, based on the
individual design, styling and quality specifications of such products. The
Company sources all of its products directly or indirectly through manufacturers
in Italy, Spain, Brazil, India, China and Korea. The Company attempts to limit
the concentration with any one manufacturer. However, approximately 14% and 28%
of the dollar value of Kenneth Cole women's footwear purchases were produced by
a single manufacturer in Spain and approximately 34% and 44% of the dollar value
of total leathergoods purchases by the Company were produced by two
manufacturers in India in 1996 and 1995, respectively. The Company believes it
has alternative manufacturing sources available to meet its current and future
production requirements in the event the Company is required to change current
manufacturers or current manufacturers are unavailable to fulfill the Comapny's
production needs.
F-9
Kenneth Cole Productions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Significant Accounting Policies (continued)
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
are computed using the straight-line method over estimated useful lives ranging
from five to seven years. Leasehold improvements are amortized by the
straight-line method over the term of the related lease or the estimated useful
life, whichever is less.
Licensing and Other Income
The Company has entered into various trade name license agreements which
provide revenues based on minimum royalties and additional amounts based on
percentage of defined sales. Minimum royalty revenue is recognized on a
straight-line basis over each period, as defined, in each license agreement.
Royalties exceeding the defined minimum amounts are recognized as income during
the period corresponding to the licensee sales.
Revenue Recognition
Wholesale sales are recognized upon shipment of products to the customers.
Retail sales are recognized when the payment is received from the customers.
Advertising Costs
The Company incurred advertising expense of $5.0 million, $3.5 million and
$2.7 million, before advertising contributions made by licensees, for 1996, 1995
and 1994, respectively. The Company records advertising expense concurrent with
the first time the advertising takes place.
Stock Based Compensation
The Company adopted Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" (SFAS 123), in 1996. Under the
provisions of SFAS, companies can elect to account for stock-based compensation
plans using a fair value based method or continue measuring compensation expense
for those plans using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" (APB
25) and related Interpretations. The Company has elected to continue using the
intrinsic value method to account for stock-based compensation plans. SFAS 123
requires companies electing to continue using the intrinsic value method to make
certain pro forma disclosures (see Note 9).
F-10
Kenneth Cole Productions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Significant Accounting Policies (continued)
Income Taxes
The Company accounts for income taxes using the liability method. Under
this method, deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Earnings Per Share
Earnings per share is based upon the weighted average number of shares of
common stock outstanding during the period and the dilutive effect of stock
options.
Reclassifications
Certain amounts included in the 1995 and 1994 financial statements have
been reclassified to conform with the 1996 presentation.
3. Pro Forma Information--Unaudited
The pro forma financial information presents the effects on the historical
consolidated financial information as if the Company has been treated as a C
Corporation rather than an S Corporation throughout 1994. Prior to the Offering,
the Company had elected to be treated as an S Corporation for Federal and, where
permitted, state income tax purposes. Upon the closing of the Offering, the
Company terminated its status as an S Corporation. The pro forma adjustment
reflects increased provisions for Federal and state taxes to reflect an
effective rate of 40%.
Supplementary Pro Forma Net Income Per Share
Supplementary pro forma net income per share is based upon (i) the weighted
average shares outstanding during 1994 (12,463,360) and (ii) the assumed
exercise of options for the purchase of 222,950 and 373,900 shares of Class A
Common Stock at $2.1875 and $6.00 per share, respectively.
4. Due from Factors and Line of Credit Facility
The Company sells substantially all of its accounts receivables to factors,
without recourse, subject to credit limitations established by the factors for
each individual account. Certain accounts receivable in excess of established
limits are factored with recourse. Included in amounts due from factors at
December 31, 1996 and 1995 are accounts receivable totaling approximately
$811,000 and $606,000, respectively, subject to recourse. The agreements with
the factors provide for payment of a service fee on receivables sold.
F-11
Kenneth Cole Productions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Due from Factors and Line of Credit Facility (continued)
At December 31, 1996 and 1995, the balance due from factors, which includes
chargebacks due from customers is net of sales allowances of approximately
$2,200,000 and $1,800,000, respectively.
On December 16, 1993, the Company entered into a Line of Credit Facility
(the "Facility"). The Facility, as amended, allows for uncommitted borrowings,
letter of credits and banker's acceptances subject to individual maximums and in
the aggregate, an amount not to exceed the lesser of $20,000,000 or a "Borrowing
Base." The Borrowing Base is calculated on a specified percentage of eligible
amounts due under factoring arrangements, eligible non-factored accounts
receivable, and eligible inventory. Borrowings under the revolving loan portion
of the Facility ("Advances") are due on demand. The Company may pay down and
re-borrow at will under the Facility. Advances bear interest at the Alternate
Base Rate (defined as the higher of the Prime Rate or the Federal Funds in
effect at borrowing date plus 1/2 of 1%) or the Note Rate (which will be agreed
upon between the lender and the Company). Outstanding advances under this
agreement were $440,000 at December 31, 1996. There were no outstanding advances
at December 31, 1995.
In connection with the line of credit, the Company has agreed to eliminate
all the outstanding balances under the facility for at least 30 consecutive days
during each calendar year. In addition, borrowings under the line of credit are
secured by certain assets of the Company.
5. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following:
December 31,
1996 1995
-----------------------
Rent expense $ 707,000 $ 750,000
Compensation 977,000 837,000
Other 692,000 272,000
-----------------------
$2,376,000 $1,859,000
=======================
6. Other Noncurrent Liabilities
Included in other noncurrent liabilities is deferred compensation of
approximately $1,196,000 and $603,000 in 1996 and 1995, respectively and
long-term debt of $49,000 in 1995.
F-12
Kenneth Cole Productions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Foreign Currency Transactions
The Company routinely enters into firm commitments for the purchase of
imported merchandise at future dates, payable in foreign currencies. Due to
fluctuations in foreign currency exchange rates, the Company enters into forward
exchange contracts ($2,065,000, and $3,463,000 at December 31, 1996 and 1995,
respectively) to protect the purchase price under such commitments. Gains and
losses on forward exchange contracts are deferred and accounted for as part of
the purchase price of imported merchandise. At December 31, 1996, forward
exchange contracts have maturity dates through March 1997. The unrealized loss
on these forward exchange contracts is approximately $2,000.
8. Income Taxes
Prior to the Offering, the Company had elected to be treated as a
Subchapter S Corporation for federal and, where permitted, state income tax
purposes. As an S Corporation, the Company was not responsible for the payment
of federal and certain state income taxes. On June 2, 1994, in connection with
the Offering, the Company terminated its S Corporation status and, accordingly,
has been subject to federal and state income taxes as a C Corporation since that
date. As a result of the termination of the Company's S Corporation status, net
deferred income tax assets totaling approximately $787,000 have been reinstated
as of June 2, 1994 and have been included as an income tax benefit in 1994.
Significant items comprising the Company's net deferred tax assets as of
December 31, 1996 and 1995 are:
December 31,
1996 1995
-----------------------
Current:
Inventory capitalization and reserves $ 399,000 $ 422,000
Allowance for bad debts 26,000 12,000
Rent 170,000
Other 160,000 80,000
-----------------------
$ 755,000 $ 514,000
=======================
Non-current:
Depreciation (260,000) (140,000)
Deferred compensation 633,000 311,000
Undistributed foreign earnings (358,000)
Other 130,000 251,000
-----------------------
$ 145,000 $ 422,000
=======================
F-13
Kenneth Cole Productions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Income Taxes (continued)
The provision for income taxes consists of the following:
December 31,
1996 1995 1994
-----------------------------------------
Federal $ 6,543,000 $ 5,031,000 $ 2,936,000
State and local 1,650,000 1,300,000 889,000
Foreign 22,000 32,000 40,000
------------------------------------------
8,215,000 6,363,000 3,865,000
Deferred:
Federal 32,000 163,000 (205,000)
State and local 4,000 23,000 21,000
Reinstatement of deferred income taxes (787,000)
------------------------------------------
36,000 186,000 (971,000)
------------------------------------------
$ 8,251,000 $ 6,549,000 $ 2,894,000
==========================================
The reconciliation of income tax computed at the U.S. federal statutory tax
rate to the effective income tax rate for 1996, 1995 and 1994 is as follows:
1996 1995 1994
-----------------------------------------
Federal income tax at statutory rate 35% 35% 35%
S Corporation income (11)
State and local taxes, net of federal tax benefit 5 6 5
Deferred income taxes resulting from change in tax status (6)
Other (1)
-----------------------------------------
40% 40% 23%
=========================================
F-14
Kenneth Cole Productions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Stock Option Plans and Grants
1994 Stock Option Plan
The Company has elected to continue to follow Accounting Principles Board
Opinion No. 25, in accounting for its employee stock options. Under APB 25, when
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized. Had compensation cost for the stock options been determined based on
the fair value at the grant dates for awards under the plan, consistent with the
alternative method set forth under SFAS 123, net income and net income per share
would have been reduced.
The pro forma amounts are indicated below:
1996 1995
-----------------------------------------
Net income:
As reported $12,287,000 $9,824,000
Pro forma $11,916,000 $9,633,000
Net income per share
As reported $.90 $.72
Pro forma $.88 $.71
The effects of applying SFAS 123 on this pro forma disclosure may not be
indicative of future results. SFAS 123 does not apply to grants prior to 1995
and additional awards in future years are anticipated.
The Company's 1994 Incentive Stock Option Plan has authorized the grant of
options to employees for up to 1,000,000 shares of the Company's common stock.
Certain options granted under the Plan vest in one-third increments in each of
the first, second and third years following the date of grant and certain
options vest up to 10%, 30%, 60% and 100% in the second, third, fourth and fifth
years, respectively. Options granted have 10 year terms. Non employee Director
options granted have 10 year terms and vest 50% on the first anniversary of the
date of grant and become fully exercisable at the end of two years.
Pro forma information regarding net income and earnings per share is
required by Statement 123 and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995 respectively: risk-free interest rate of 6.25%; 0%
dividend yields; expected volatility factors of .359 and .346 and expected lives
of 6.3 and 4.5 years. The weighted average of fair value of options granted was
$7.21 and $5.15 for the years ended December 31, 1996 and 1995, respectively.
F-15
Kenneth Cole Productions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
The following table summarizes all stock option transactions from the
inception of the plan through December 31, 1996.
Shares Weighted-Average
Exercise Price
----------------------- ------------------------
Outstanding at December 31, 1993 0
Granted 403,950 $6.00
Exercised 0
Forfeited (30,050) $6.00
-----------------------
Outstanding at December 31, 1994 373,900 $6.00
Granted 420,372 $10.59
Exercised (64,780) $6.00
Forfeited (27,034) $7.52
-----------------------
Outstanding at December 31, 1995 702,458
Granted 156,583 $15.89
Exercised (53,797) $6.35
Forfeited (43,919) $9.04
-----------------------
Outstanding at December 31, 1996 761,325
=======================
The following table summarizes information about stock options at December
31, 1996:
Outstanding Stock Options Exercisable Stock Options
------------------------- -------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Exercise Contractual Exercise Exercise
Prices Shares Life Price Shares Price
------ ------ ---- ----- ------ -----
$ 6.00 to $ 9.00 230,368 7.5 years $ 6.00 123,584 $ 6.00
$ 9.01 to $14.00 342,000 8.0 years $ 9.88 666 $ 9.50
$14.01 to $21.00 188,957 6.6 years $16.37 14,098 $18.10
Exercise Prices for options outstanding as of December 31, 1996 range
from $6.00 to $20.44.
F-16
Kenneth Cole Productions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. Stock Option Plans and Grants (continued)
Stock Option Grants
In 1994, the Board of Directors granted non-transferable stock options to
an officer of the Company, for the purchase of 222,950 shares of Class A Common
Stock at an exercise price of $2.1875 per share. The option vests in one-third
increments on each of the first, second and third anniversaries after grant.
During 1995, 70,000 options were exercised. At December 31, 1996, options to
purchase 152,950 shares are outstanding, of which 78,632 are exercisable.
10. 401(k) Plan
The Company's 401(k) profit-sharing plan covers all non-union eligible
employees, subject to certain minimum age and length of service requirements who
are permitted to contribute specified percentages of their salary up to the
maximum permitted by the Internal Revenue Service. The Company is obligated to
make a matching contribution and may make an additional discretionary
contribution, as defined. Contributions to the plan for the years ended December
31, 1996, 1995, and 1994 were approximately $54,000, $38,000 and $29,000,
respectively.
11. Commitments and Contingencies
Leases
The Company leases office, retail, and warehouse facilities under
non-cancelable operating leases. Future minimum lease payments for
non-cancelable leases with initial terms of one year or more consisted of the
following at December 31, 1996:
1997 $4,603,000
1998 4,702,000
1999 4,454,000
2000 4,245,000
2001 4,158,000
Thereafter 13,228,000
----------
$35,390,000
===========
F-17
Kenneth Cole Productions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Commitments and Contingencies (continued)
In addition, certain of these leases contain rent escalation and percentage
rent clauses that require additional payments to be made.
Rent expense for the years ended December 31, 1996, 1995 and 1994 was
$4,646,000 $2,782,000, and $1,331,000, respectively.
The Company is, from time to time, a party to litigation that arises in the
normal course of its business operations. The Company is not presently a party
to any such litigation that would have a material adverse effect on its business
or operations.
Letters of Credit
At December 31, 1996 and 1995, the Company was contingently liable for
approximately $4,855,000 and $4,035,000 of open letters of credit, respectively.
In addition, at December 31, 1996 and 1995, the Company was contingently liable
for approximately $278,000 of standby letters of credit.
12. Shareholders' Equity
Consolidation
Prior to the Offering, Kenneth Cole Productions, Inc. ("KCP") revised its
capital structure. As part of that revision, (i) the 1,000 authorized shares of
KCP common stock were exchanged for 20,000,000 authorized shares of Class A
Common Stock and 6,000,000 authorized shares of Class B Common Stock, (ii) a new
class of 1,000,000 shares of preferred stock was authorized, with the Board of
Directors of the Company having authority to designate the relative voting,
dividend, liquidation and other rights, preferences and limitations of the
preferred stock and (iii) the 1,000 shares of KCP common stock outstanding were
exchanged for 459,790 shares of Class A Common Stock and 3,042,692 shares of
Class B Common Stock. On May 26, 1994, an executive officer of the Company
exercised an incentive stock option issued to him in 1990 to acquire 10% of the
outstanding shares of common stock of Kenneth Cole Leathergoods ("KCLG"). In
order to consolidate the Company's wholesale operations, KCLG and Unlisted,
Inc., another affiliated corporation, were merged into KCP on May 27, 1994 and
the shareholders of KCLG and Unlisted, Inc. received an aggregate of 2,086,240
shares of Class A Common Stock and 3,594,060 shares of Class B Common Stock in
connection therewith. On May 31, 1994, certain other affiliated corporations
were merged into KCP and the sole shareholder received 400,000 shares of Class B
Common Stock in connection therewith. On June 2, 1994, KCP and the principal
shareholder of certain other affiliated corporations entered into a
Consolidation Agreement pursuant to which the shareholder contributed to KCP all
of his shares of such affiliated corporations. As consideration for his
contribution of such shares, the shareholder received an aggregate of 59,790
shares of Class B Common Stock. The foregoing events are referred to
collectively as the "Consolidation."
F-18
Kenneth Cole Productions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Shareholders' Equity (continued)
The Consolidation, as described above, has been accounted for in a manner
similar to pooling of interests and the financial statements reflect the
consummation of the Consolidation on a retroactive basis for all periods
presented.
Common Stock
Holders of Class A Common Stock are entitled to one vote for each share
held of record, and holders of Class B Common Stock are entitled to ten votes
for each share held of record. Each share of Class B Common Stock is convertible
into one share of Class A Common Stock at the option of the Class B shareholder.
The holders of Class A Common Stock vote together with the holders of Class B
Common Stock on all matters subject to shareholder approval, except Class A
Common Stock shareholders vote separately as a class to elect 25% of the Board
of Directors of the Company. Shares of neither class of common stock have
preemptive or cumulative voting rights.
Preferred Stock
The Company's Certificate of Incorporation authorizes the issuance of
1,000,000 shares of preferred stock. The preferred stock may be issued from time
to time as determined by the Board of Directors of the Company, without
shareholder approval. Such preferred stock may be issued in such series and with
such preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or other provisions, as may be fixed
by the Board of Directors. There are no shares of preferred stock currently
outstanding.
13. Principal Customer
The Company has a significant customer, which accounted for approximately 14.2%
and 15.6% of net sales in 1996 and 1995, respectively.
F-19
Kenneth Cole Productions, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for 1996 and 1995 appear below (in
thousands, except per share data):
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------------- ---------------- ---------------- ----------------
1996
Net sales $ 35,110 $ 35,019 $ 39,841 $ 38,288
Gross profit 14,785 14,312 16,500 15,742
Operating income 5,051 4,552 6,814 4,143
Net income 2,956 2,701 4,077 2,553
Earnings per share $ .22 $ .20 $ .30 $ .19
1995
Net sales $ 26,131 $ 25,259 $ 32,574 $ 29,863
Gross profit 10,925 10,546 13,729 11,246
Operating income 4,205 3,703 5,786 2,650
Net income 2,541 2,228 3,445 1,610
Earnings per share $ .19 $ .16 $ .25 $ .12
F-20
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.
KENNETH COLE PRODUCTIONS, INC.
By /s/ KENNETH D. COLE
--------------------------------
Kenneth D. Cole
President and Chief Executive Officer
Date:
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature Title Date
- - ---------------------------------------------------------------------------------------------------------------------------
/S/ KENNETH D. COLE President, Chief Executive March 28, 1997
- - ------------------------------------
Kenneth D. Cole Officer and Director
/S/ STANLEY A. MAYER Executive Vice President, March 28, 1997
- - ------------------------------------
Stanley A. Mayer Chief Financial Officer,
Treasurer and Director
/S/ PAUL BLUM Executive Vice President March 28, 1997
- - ------------------------------------
Paul Blum and Director
/S/ DAVID P. EDELMAN Vice President Finance (Principal March 28, 1997
- - ------------------------------------
David P. Edelman Accounting Officer)
/S/ MARIA CUOMO COLE Director March 28, 1997
- - ------------------------------------
Maria Cuomo Cole
/S/ ROBERT C. GRAYSON Director March 28, 1997
- - ------------------------------------
Robert C. Grayson
/S/ DENIS F. KELLY Director March 28, 1997
- - ------------------------------------
Denis F. Kelly
/S/ JEFFREY G. LYNN Director March 268, 1997
- - ------------------------------------
Jeffrey G. Lynn
F-21