UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 Form 10-Q x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2010 or o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-13082 KENNETH COLE PRODUCTIONS, INC. (Exact name of registrant as specified in its charter) New York
                           
                           
                           13-3131650(State or other jurisdiction of incorporation or organization)
                           
                           
                           (I.R.S. EmployerIdentification No.)603 West 50th Street, New York, NY
                           
                           
                           10019(Address of principal executive offices)
                           
                           
                           (Zip Code) (212) 265-1500(Registrant's telephone number, including area code) 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 o Indicate by check mark whether the registrant has submitted
                     electronically and posted on its corporate Web site, if any, every
                     Interactive Data File required to be submitted and posted pursuant to
                     Rule 405 of Regulation S-T (§232.405 of this chapter) during the
                     preceding 12 months (or for such shorter period that the registrant
                     was required to submit and post such files). Yes o   No o Indicate by check mark whether the registrant is a large accelerated
                     filer, an accelerated filer, a non-accelerated filer, or a smaller
                     reporting company. See the definitions of "large accelerated filer,"
                     "accelerated filer" and "smaller reporting company" in Rule 12b-2 of
                     the Exchange Act. Large accelerated filer o Accelerated filer x Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o. Indicate by check mark whether the registrant is a shell company (as
                     defined in Rule 12b-2 of the Exchange Act).
                      Yes o No x Indicate the number of shares outstanding of each of the issuer's
                     classes of common stock, as of the latest practicable date: Class
                           
                           
                           
                           
                           
                           November 4, 2010Class A Common Stock ($.01 par value)
                           
                           
                           
                           
                           
                           10,212,923Class B Common Stock ($.01 par value)
                           
                           
                           
                           
                           
                           8,010,497


Kenneth Cole Productions, Inc.Index to Form 10-Q Part I.
                           
                           
                           FINANCIAL INFORMATIONItem 1.
                           
                           
                           Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of September 30, 2010 andDecember 31, 2009
                           
                           
                           3Condensed Consolidated Statements of Operations for the three and ninemonths ended September 30, 2010 and 2009
                           
                           
                           5Condensed Consolidated Statement of Changes in Shareholders' Equityfor the nine months ended September 30, 2010
                           
                           
                           6Condensed Consolidated Statements of Cash Flows for the nine monthsended September 30, 2010 and 2009
                           
                           
                           7Notes to Condensed Consolidated Financial Statements
                           
                           
                           8Item 2.
                           
                           
                           Management's Discussion and Analysis of Financial Conditionand Results of Operations
                           
                           
                           15Item 3.
                           
                           
                           Quantitative and Qualitative Disclosures About Market Risk
                           
                           
                           19Item 4.
                           
                           
                           Controls and Procedures
                           
                           
                           20Part II.
                           
                           
                           OTHER INFORMATIONItem 1.
                           
                           
                           Legal Proceedings
                           
                           
                           21Item 1A.
                           
                           
                           Risk Factors
                           
                           
                           21Item 2.
                           
                           
                           Unregistered Sales of Equity Securities and Use of Proceeds
                           
                           
                           21Item 3.
                           
                           
                           Defaults Upon Senior Securities
                           
                           
                           21Item 5.
                           
                           
                           Other Information
                           
                           
                           21Item 6.
                           
                           
                           Exhibits
                           
                           
                           21Signatures
                           
                           
                           22
 2


Part I. FINANCIAL INFORMATIONItem 1. Financial Statements Kenneth Cole Productions, Inc. and SubsidiariesCondensed Consolidated Balance Sheets(In thousands, except share and per share amounts)(Unaudited) September 30, 2010
                           
                           
                           December 31,2009AssetsCurrent assets:Cash and cash equivalents
                           
                           $
                           69,793
                           
                           $
                           68,505Accounts receivable, net
                           
                           
                           47,854
                           
                           
                           30,204Inventories
                           
                           
                           51,564
                           
                           
                           29,080Prepaid expenses and other current assets
                           
                           
                           3,156
                           
                           
                           8,809Total current assets
                           
                           
                           172,367
                           
                           
                           136,598Property and equipment, at cost, less accumulated depreciation and amortization
                           
                           
                           49,482
                           
                           
                           53,952Other assets:Intangible assets, net
                           
                           
                           7,350
                           
                           
                           7,492Deferred taxes, net
                           
                           
                           667
                           
                           
                           909Investments and other
                           
                           
                           7,300
                           
                           
                           8,136Deferred compensation plans' assets
                           
                           
                           40,605
                           
                           
                           41,170Total other assets
                           
                           
                           55,922
                           
                           
                           57,707Total Assets
                           
                           $
                           277,771
                           
                           $
                           248,257  See accompanying notes to condensed consolidated financial statements.
 3


Kenneth Cole Productions, Inc. and SubsidiariesCondensed Consolidated Balance Sheets (continued)(In thousands, except share and per share amounts)(Unaudited) September 30,2010
                           
                           
                           December 31,2009Liabilities and Shareholders' EquityCurrent liabilities:Accounts payable and accrued expenses
                           
                           $
                           60,281
                           
                           $
                           36,336Other current liabilities
                           
                           
                           9,453
                           
                           
                           7,852Deferred income
                           
                           
                           3,430
                           
                           
                           3,799Total current liabilities
                           
                           
                           73,164
                           
                           
                           47,987Accrued rent and other long-term liabilities
                           
                           
                           16,253
                           
                           
                           17,501Deferred compensation plans' liabilities
                           
                           
                           39,531
                           
                           
                           39,477Commitments and contingenciesShareholders' Equity:Series A Convertible Preferred Stock, par value $1.00, 1,000,000 shares authorized, none outstanding
                           
                           
                           --
                           
                           
                           --Class A Common Stock, par value $.01, 40,000,000 shares authorized; 16,061,876and 15,933,282 issued as of September 30, 2010 and December 31, 2009, respectively
                           
                           
                           160
                           
                           
                           159Class B Convertible Common Stock, par value $.01, 9,000,000 shares authorized; 8,010,497 issuedand outstanding as of September 30, 2010and December 31, 2009, respectively
                           
                           
                           80
                           
                           
                           80Additional paid-in capital
                           
                           
                           109,875
                           
                           
                           107,452Accumulated other comprehensive (loss)/income
                           
                           
                           (237
                           )
                           
                           1,346Retained earnings
                           
                           
                           163,866
                           
                           
                           159,176273,744
                           
                           
                           268,213Class A Common Stock in treasury, at cost, 5,855,550 shares as of September 30, 2010 and December 31, 2009, respectively
                           
                           
                           (124,921
                           )
                           
                           (124,921
                           )Total shareholders' equity
                           
                           
                           148,823
                           
                           
                           143,292Total Liabilities and Shareholders' Equity
                           
                           $
                           277,771
                           
                           $
                           248,257  See accompanying notes to condensed consolidated financial statements.
 4


Kenneth Cole Productions, Inc. and SubsidiariesCondensed Consolidated Statements of Operations(In thousands, except share and per share amounts)(Unaudited) Three Months Ended September 30,
                           
                           
                           
                           
                           
                           Nine Months Ended September 30,2010
                           
                           
                           2009
                           
                           
                           
                           
                           
                           2010
                           
                           
                           2009Net sales
                           
                           $
                           107,493
                           
                           $
                           93,336
                           
                           
                           
                           
                           $
                           303,774
                           
                           $
                           272,458Royalty revenue
                           
                           
                           11,543
                           
                           
                           10,416
                           
                           
                           
                           
                           
                           32,747
                           
                           
                           28,569Net revenues
                           
                           
                           119,036
                           
                           
                           103,752
                           
                           
                           
                           
                           
                           336,521
                           
                           
                           301,027Cost of goods sold
                           
                           
                           68,411
                           
                           
                           58,871
                           
                           
                           
                           
                           
                           193,158
                           
                           
                           181,261Gross profit
                           
                           
                           50,625
                           
                           
                           44,881
                           
                           
                           
                           
                           
                           143,363
                           
                           
                           119,766Selling, general and administrative expenses
                           
                           
                           48,318
                           
                           
                           44,595
                           
                           
                           
                           
                           
                           138,990
                           
                           
                           137,233Operating income/(loss)
                           
                           
                           2,307
                           
                           
                           286
                           
                           
                           
                           
                           
                           4,373
                           
                           
                           (17,467
                           )Interest and other income, net
                           
                           
                           77
                           
                           
                           94
                           
                           
                           
                           
                           
                           1,109
                           
                           
                           414Impairment of investments
                           
                           
                           (279
                           )
                           
                           (287
                           )
                           
                           
                           
                           
                           (347
                           )
                           
                           (727
                           )Income/(loss) before provision for/(benefit from) income taxes
                           
                           
                           2,105
                           
                           
                           93
                           
                           
                           
                           
                           
                           5,135
                           
                           
                           (17,780
                           )Provision for/(benefit from) income taxes
                           
                           
                           85
                           
                           
                           (93
                           )
                           
                           
                           
                           
                           346
                           
                           
                           (6,532
                           )Net income/(loss)
                           
                           $
                           2,020
                           
                           $
                           186
                           
                           
                           
                           
                           $
                           4,789
                           
                           $
                           (11,248
                           )Earnings/(loss) per share:Basic
                           
                           $
                           0.11
                           
                           $
                           0.01
                           
                           
                           
                           
                           $
                           0.26
                           
                           $
                           (0.63
                           )Diluted
                           
                           $
                           0.11
                           
                           $
                           0.01
                           
                           
                           
                           
                           $
                           0.26
                           
                           $
                           (0.63
                           )Shares used to compute earnings/(loss) per share:Basic
                           
                           
                           18,215,000
                           
                           
                           18,018,000
                           
                           
                           
                           
                           
                           18,151,000
                           
                           
                           17,954,000Diluted
                           
                           
                           18,537,000
                           
                           
                           18,423,000
                           
                           
                           
                           
                           
                           18,513,000
                           
                           
                           17,954,000 See accompanying notes to condensed consolidated financial statements.
 5


Kenneth Cole Productions, Inc. and SubsidiariesCondensed Consolidated Statement of Changes in Shareholders' Equity(In thousands, except share amounts)(Unaudited) Class A
                           
                           
                           Class B
                           
                           
                           
                           
                           
                           AccumulatedCommon Stock
                           
                           
                           Common Stock
                           
                           
                           Additional
                           
                           
                           Other
                           
                           
                           
                           
                           
                           Treasury StockNumber
                           
                           
                           
                           
                           
                           Number
                           
                           
                           
                           
                           
                           Paid-in
                           
                           
                           Comprehensive
                           
                           
                           Retained
                           
                           
                           Numberof shares
                           
                           
                           Amount
                           
                           
                           of shares
                           
                           
                           Amount
                           
                           
                           Capital
                           
                           
                           Income/(Loss)
                           
                           
                           Earnings
                           
                           
                           of shares
                           
                           
                           Amount
                           
                           
                           TotalShareholders' equity December 31, 2009
                           
                           
                           15,933,282
                           
                           $
                           159
                           
                           
                           8,010,497
                           
                           $
                           80
                           
                           $
                           107,452
                           
                           $
                           1,346
                           
                           $
                           159,176
                           
                           
                           (5,855,550
                           )
                           $
                           (124,921
                           )
                           $
                           143,292Net income
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           4,789
                           
                           
                           
                           
                           
                           
                           
                           
                           4,789Other-than-temporary impairment for non-credit component of impaired securities
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           90
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           90Translation adjustment for foreign currency
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           (237
                           )
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           (237
                           )Reduction in unrealized gain on available-for-sale securities
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           (1,658
                           )
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           (1,658
                           )Comprehensive income
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           2,984Realized loss for non-credit component of impaired securities
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           222
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           222Stock-based compensation expense
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           3,024
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           3,024Exercise of stock options and related tax benefits
                           
                           
                           3,625
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           28
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           28Issuance of restricted stock
                           
                           
                           175,528
                           
                           
                           1
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           1Shares surrendered by employees to pay taxes on restricted stock
                           
                           
                           (60,083
                           )
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           (718
                           )
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           (718
                           )Issuance of Class A Common Stock for Employee Stock Purchase Plan
                           
                           
                           9,524
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           89
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           89Dividends associated with vesting of restricted stock
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           (99
                           )
                           
                           
                           
                           
                           
                           
                           
                           (99
                           )Shareholders' equity September 30, 2010
                           
                           
                           16,061,876
                           
                           $
                           160
                           
                           
                           8,010,497
                           
                           $
                           80
                           
                           $
                           109,875
                           
                           $
                           (237
                           )
                           $
                           163,866
                           
                           
                           (5,855,550
                           )
                           $
                           (124,921
                           )
                           $
                           148,823 See accompanying notes to condensed consolidated financial statements.
 6


Kenneth Cole Productions, Inc. and SubsidiariesCondensed Consolidated Statements of Cash Flows(In thousands)(Unaudited) Nine Months EndedSeptember 30,2010
                           
                           
                           2009Cash flows provided by operating activitiesNet income/(loss)
                           
                           
                           
                           
                           $
                           4,789
                           
                           $
                           (11,248
                           )Adjustments to reconcile net income/(loss) to net cash provided by
                              operating activities:Depreciation and amortization
                           
                           
                           
                           
                           
                           6,912
                           
                           
                           7,173Provision for doubtful accounts
                           
                           
                           
                           
                           
                           30
                           
                           
                           527Benefit from deferred taxes
                           
                           
                           
                           
                           
                           (144
                           )
                           
                           (6,417
                           )Unrealized loss/(gain) from investments
                           
                           
                           
                           
                           
                           999
                           
                           
                           (1,494
                           )Writedown of investments
                           
                           
                           
                           
                           
                           347
                           
                           
                           727Stock-based compensation expense
                           
                           
                           
                           
                           
                           3,026
                           
                           
                           5,270Tax benefit from stock option exercises and restricted stock vested
                           
                           
                           
                           
                           
                           (813
                           )
                           
                           (485
                           )Changes in operating assets and liabilities:Increase in accounts receivable
                           
                           
                           
                           
                           
                           (17,680
                           )
                           
                           (10
                           )(Increase)/decrease in inventories
                           
                           
                           
                           
                           
                           (22,484
                           )
                           
                           6,945Decrease/(increase) in prepaid expenses and other current assets
                           
                           
                           
                           
                           
                           5,654
                           
                           
                           (2,943
                           )(Increase)/decrease in other assets
                           
                           
                           
                           
                           
                           (1,450
                           )
                           
                           669Increase in accounts payable and accrued expenses
                           
                           
                           
                           
                           
                           23,943
                           
                           
                           1,934Increase/(decrease) in deferred income and other current liabilities
                           
                           
                           
                           
                           
                           1,422
                           
                           
                           (6,032
                           )Increase in income taxes payable
                           
                           
                           
                           
                           
                           (30
                           )
                           
                           --(Decrease)/increase in other long-term liabilities
                           
                           
                           
                           
                           
                           (1,194
                           )
                           
                           3,080Net cash provided by/(used in) operating activities
                           
                           
                           
                           
                           
                           3,327
                           
                           
                           (2,304
                           )Cash flows used in investing activitiesAcquisition of property and equipment
                           
                           
                           
                           
                           
                           (2,138
                           )
                           
                           (10,493
                           )Purchase of intangible assets
                           
                           
                           
                           
                           
                           (162
                           )
                           
                           (640
                           )Proceeds from sale of investments
                           
                           
                           
                           
                           
                           1,055
                           
                           
                           --Net cash used in investing activities
                           
                           
                           
                           
                           
                           (1,245
                           )
                           
                           (11,133
                           )Cash flows used in financing activitiesShares surrendered by employees to pay taxes on restricted stock
                           
                           
                           
                           
                           
                           (718
                           )
                           
                           (472
                           )Excess tax benefit from stock options
                           
                           
                           
                           
                           
                           3
                           
                           
                           --Proceeds from exercise of stock options
                           
                           
                           
                           
                           
                           25
                           
                           
                           --Proceeds from employee stock purchase plan
                           
                           
                           
                           
                           
                           89
                           
                           
                           121Payments of financing costs
                           
                           
                           
                           
                           
                           --
                           
                           
                           (724
                           )Dividends associated with vesting of restricted stock
                           
                           
                           
                           
                           
                           (99
                           )
                           
                           (233
                           )Net cash used in financing activities
                           
                           
                           
                           
                           
                           (700
                           )
                           
                           (1,308
                           )Effect of exchange rate changes on cash
                           
                           
                           
                           
                           
                           (94
                           )
                           
                           77Net increase/(decrease) in cash
                           
                           
                           
                           
                           
                           1,288
                           
                           
                           (14,668
                           )Cash and cash equivalents, beginning of period
                           
                           
                           
                           
                           
                           68,505
                           
                           
                           64,704Cash and cash equivalents, end of period
                           
                           
                           
                           
                           $
                           69,793
                           
                           $
                           50,036Supplemental disclosures of cash flow informationCash paid during the period for:Interest
                           
                           
                           
                           
                           $
                           39
                           
                           $
                           30Income taxes (refunded)/paid,
                              net
                           
                           
                           
                           
                           $
                           (4,079
                           )
                           $
                           1,664 See accompanying notes to condensed consolidated financial statements.
 7


Kenneth Cole Productions, Inc. and SubsidiariesNotes to Condensed Consolidated Financial Statements(Unaudited) 1. Basis of Presentation The accompanying unaudited condensed consolidated financial
                     statements include the accounts of Kenneth Cole Productions, Inc. and
                     its subsidiaries (the "Company") in accordance with accounting
                     principles generally accepted in the United States for interim
                     financial information. Accordingly, they do not include all of the
                     information and footnotes required by accounting principles generally
                     accepted in the United States for complete financial statements.
                     Certain items contained in these financial statements are based on
                     estimates. In the opinion of the Company's management, the
                     accompanying unaudited condensed consolidated financial statements
                     reflect all significant adjustments, consisting of only normal and
                     recurring adjustments, necessary for a fair presentation of the
                     financial position and results of operations and cash flows for the
                     periods presented. All intercompany transactions have been eliminated. Operating results for the nine months ended September 30, 2010 are
                     not necessarily indicative of the results that may be expected for
                     the year ended December 31, 2010. These unaudited condensed
                     consolidated financial statements should be read in conjunction with
                     the financial statements and footnotes included in the Company's
                     Annual Report on Form 10-K for the year ended December 31, 2009. The Company's Consolidated Balance Sheet at December 31, 2009, as
                     presented, was derived from the audited financial statements included
                     in the Company's Annual Report on Form 10-K for the year ended
                     December 31, 2009. 2. Accounts Receivable Included in Accounts receivable, net in the Condensed Consolidated
                     Balance Sheets are Due from factors of $1.2 million and $0.7 million
                     as of September 30, 2010 and December 31, 2009, respectively. 3. Stock-Based Compensation The Company has stock incentive plans under which directors, officers
                     and other eligible employees receive stock options, restricted stock,
                     and other equity-based awards. Stock options are granted with an exercise price equal to the market
                     value of a share of common stock on the date of grant. Stock option
                     grants expire within 10 years and generally vest on a graded basis
                     within two to four years from the date of grant. Restricted stock
                     unit awards generally vest on a graded basis over a two to three year
                     period or cliff vest after three years. During the nine months ended
                     September 30, 2010 and 2009, the Company granted 559,500 and 708,656
                     stock options, respectively. The Company also granted 71,190 and
                     151,272 shares of restricted stock during the nine months ended
                     September 30, 2010 and 2009, respectively. Stock options outstanding
                     and unvested restricted stock amounted to 3,304,245 and 262,623
                     shares, respectively, as of September 30, 2010.
 8


Kenneth Cole Productions, Inc. and SubsidiariesNotes to Condensed Consolidated Financial Statements(Unaudited) 3. Stock-Based Compensation (continued) The following table summarizes the components of stock-based
                     compensation expense for the three and nine months ended September
                     30, 2010 and 2009, all of which is included in Selling, general, and
                     administrative expenses in the Condensed Consolidated Statements of
                     Operations (in thousands): Three months endedSeptember 30,
                           
                           
                           Nine months endedSeptember 30,2010
                           
                           
                           2009
                           
                           
                           2010
                           
                           
                           2009Stock options
                           
                           $
                           578
                           
                           $
                           330
                           
                           $
                           1,436
                           
                           $
                           2,103(1
                           )Restricted stock awards and employee stock purchase plan
                           
                           
                           364
                           
                           
                           770
                           
                           
                           1,590
                           
                           
                           3,167Total stock-based compensation expense
                           
                           $
                           942
                           
                           $
                           1,100
                           
                           $
                           3,026
                           
                           $
                           5,270 (1)
                           
                           
                           The Company's Chairman and CEO elected to receive 100% and 50%,
                              respectively, of their 2008 annual bonuses in stock options in lieu
                              of cash which amounted to $1,167 during the nine months ended
                              September 30, 2009. These amounts were accrued within payroll expense
                              as of December 31, 2008. The fair value of stock options was estimated using the Black-Scholes
                     option-pricing model. The following table summarizes the assumptions
                     used to compute the weighted-average fair value of stock option
                     grants for the three and nine months ended September 30, 2010 and
                     2009: Three months endedSeptember 30,
                           
                           
                           Nine months endedSeptember 30,2010
                           
                           
                           2009
                           
                           
                           2010
                           
                           
                           2009Weighted-average volatility
                           
                           
                           66.0%
                           
                           
                           61.2%
                           
                           
                           56.8%
                           
                           
                           55.0%Risk-free interest rate
                           
                           
                           3.0%
                           
                           
                           3.7%
                           
                           
                           3.0% to 3.7%
                           
                           
                           3.0% to 3.7%Weighted-average dividend yield
                           
                           
                           0%
                           
                           
                           0%
                           
                           
                           0%
                           
                           
                           0%Expected term
                           
                           
                           3 years
                           
                           
                           3 years
                           
                           
                           3 to 9 years
                           
                           
                           3 to 9 years The fair value of restricted stock was calculated by multiplying the
                     Company's stock price on the date of grant by the number of shares
                     granted and is being amortized on a straight-line basis over the
                     vesting periods. As of September 30, 2010, approximately $6.5 million of unrecognized
                     stock-based compensation expense related to unvested stock options
                     and restricted stock awards, net of estimated forfeitures, is
                     expected to be recognized over a weighted-average period of 2.1
                     years, compared to approximately $6.3 million of unrecognized
                     stock-based compensation expense as of September 30, 2009.
 9


Kenneth Cole Productions, Inc. and SubsidiariesNotes to Condensed Consolidated Financial Statements(Unaudited) 4. Earnings/(loss) Per Share Basic earnings/(loss) per share is calculated by dividing net
                     income/(loss) by weighted-average common shares outstanding. Diluted
                     earnings/(loss) per share is calculated similarly, except that it
                     includes the dilutive effect of the assumed exercise of securities
                     under the Company's stock incentive plans. Dilutive securities, which
                     include stock options and restricted stock, are determined under the
                     treasury stock method by calculating the assumed proceeds available
                     to repurchase stock using the weighted-average shares outstanding for
                     the period. Stock options and restricted stock outstanding as of
                     September 30, 2010 and 2009 in an aggregate amount of 2,494,000 and
                     2,223,000, respectively, have been excluded in the diluted per share
                     calculation as the impact would be antidilutive. All stock options
                     and restricted stock outstanding for the nine months ended September
                     30, 2009 have been excluded in the diluted per share calculation as
                     the impact would be antidilutive. The shares used to calculate basic
                     and diluted earnings/(loss) per common share consists of the
                     following: Three Months Ended
                           
                           
                           Nine Months EndedSeptember 30, 2010
                           
                           
                           September 30, 2009
                           
                           
                           September 30, 2010
                           
                           
                           September 30, 2009Weighted-average common shares outstanding
                           
                           
                           18,215,000
                           
                           
                           18,018,000
                           
                           
                           18,151,000
                           
                           
                           17,954,000Effect of dilutive securities:Restricted stock and employee stock purchase plan
                           
                           
                           99,000
                           
                           
                           313,000
                           
                           
                           162,000
                           
                           
                           --Stock options
                           
                           
                           223,000
                           
                           
                           92,000
                           
                           
                           200,000
                           
                           
                           --Weighted-average common shares outstanding and common share equivalents
                           
                           
                           18,537,000
                           
                           
                           18,423,000
                           
                           
                           18,513,000
                           
                           
                           17,954,000 5. Investments The Company reviews its investments for other-than-temporary
                     impairment whenever the fair value of an investment is less than
                     amortized cost and evidence indicates that an investment's carrying
                     value may not be recoverable within a reasonable period of time.  In
                     the Company's evaluation of its investments it also considered its
                     ability and intent to hold the investment until the market price
                     recovers, the reasons for the decline in fair value, the duration of
                     the decline in fair value and expected future performance.  Based on
                     this evaluation, the Company recorded an other-than-temporary
                     impairment of investments of approximately $0.3 million related to
                     auction-rate securities within Impairment of investments in the
                     Condensed Consolidated Statements of Operations during the three and
                     nine months ended September 30, 2010. During the nine months ended September 30, 2010, the Company sold a
                     portion of its equity investments. The cost basis of the equity
                     investment sold was $0.2 million which was determined utilizing the
                     specific identification method. The proceeds from the sale were $1.0
                     million, resulting in a net realized gain of $0.8 million, which is
                     recorded in Interest and other income, net in the Condensed
                     Consolidated Statements of Operations.
 10


Kenneth Cole Productions, Inc. and SubsidiariesNotes to Condensed Consolidated Financial Statements(Unaudited)  5. Investments (continued) The following table presents gross unrealized gains on, and estimated
                     fair value of, the Company's long-term investments as of September
                     30, 2010 and December 31, 2009 (in thousands): September 30, 2010Gross UnrealizedHistorical Cost
                           
                           
                           (2)Cost Basis
                           
                           
                           EstimatedFair Value
                           
                           
                           Other-than-temporary Impairment (1)
                           
                           
                           Gains
                           
                           
                           LossesAuction-rate securities
                           
                           $
                           7,100
                           
                           $
                           3,268
                           
                           $
                           3,360
                           
                           
                           --
                           
                           $
                           92
                           
                           
                           --Equity securities
                           
                           
                           5,128
                           
                           
                           508
                           
                           
                           1,353
                           
                           
                           --
                           
                           
                           845
                           
                           
                           --Total
                           
                           $
                           12,228
                           
                           $
                           3,776
                           
                           $
                           4,713
                           
                           
                           --
                           
                           $
                           937
                           
                           
                           --  December 31, 2009Gross UnrealizedHistorical Cost
                           
                           
                           (2)Cost Basis
                           
                           
                           Estimated Fair Value
                           
                           
                           Other-than- temporary Impairment (1)
                           
                           
                           Gains
                           
                           
                           LossesAuction-rate securities
                           
                           $
                           7,100
                           
                           $
                           3,392
                           
                           $
                           3,529
                           
                           $
                           (90
                           )
                           $
                           227
                           
                           
                           --Equity securities
                           
                           
                           5,338
                           
                           
                           717
                           
                           
                           3,365
                           
                           
                           --
                           
                           
                           2,648
                           
                           
                           --Total
                           
                           $
                           12,438
                           
                           $
                           4,109
                           
                           $
                           6,894
                           
                           $
                           (90
                           )
                           $
                           2,875
                           
                           
                           -- (1)
                           
                           
                           The non-credit portion of the other-than-temporary impairment related
                              to auction-rate securities are recorded in Accumulated other
                              comprehensive (loss)/income.(2)
                           
                           
                           The cost basis is historical cost less other-than-temporary
                              impairment charged to income. 6. Fair Value Measurement The Company's financial assets, measured at fair value on a recurring
                     basis, were as follows (in thousands): Fair Value atSeptember 30, 2010
                           
                           
                           Fair Value atDecember 31, 2009
                           
                           
                           HierarchyEquity securities
                           
                           $
                           1,353
                           
                           $
                           3,365
                           
                           
                           Level 1Deferred compensation plans' assets
                           
                           
                           35,922
                           
                           
                           36,192
                           
                           
                           Level 2Auction-rate securities
                           
                           
                           3,360
                           
                           
                           3,529
                           
                           
                           Level 3 A Level 1 hierarchy represents a fair value that is derived from
                     unadjusted quoted prices in active markets for identical assets or
                     liabilities that the Company has the ability to access at the
                     measurement date. A Level 2 hierarchy represents a fair value that is
                     derived from inputs other than quoted prices included within Level 1
                     that are observable for the asset or liability, either directly or
                     indirectly. The deferred compensation plans' assets are primarily
                     comprised of interests in limited partnerships that invest in a
                     variety of assets including publicly traded equity securities, debt
                     securities and privately-held companies. The general partners that
                     manage the limited partnerships determine the fair value of the
                     plan's investment by determining the net asset valuation in
                     accordance with applicable accounting standards. Certain of these
                     investments have short-term lockup provisions and redemption
                     restrictions which require advance notice for redemption. Management
                     does not believe that these short-term lockup provisions and
                     redemption restrictions affect the Plan's ability to transact
                     redemptions at the net asset value. A Level 3 hierarchy represents a
                     fair value that is derived from inputs that are unobservable or from
                     observable inputs based on unobservable data in an inactive market.
                     The fair value of the Company's auction-rate securities is determined
                     from an independent third-party valuation. The primary variables used
                     in determining
 11


Kenneth Cole Productions, Inc. and SubsidiariesNotes to Condensed Consolidated Financial Statements(Unaudited) 6. Fair Value Measurement (continued) fair value include collateral, rating, insurance, credit risk and
                     downgrade risk of the security. Maturity dates for these auction-rate
                     securities range from 2033 to 2050. The following table presents the reconciliation of the beginning and
                     ending fair value measurements of the Company's Level 3 assets,
                     auction-rate securities, measured at fair value using observable
                     inputs based on unobservable data in an inactive market for the nine
                     months ended September 30, 2010 (in thousands): Beginning balance at January 1, 2010
                           
                           $
                           3,529Unrealized loss recorded in Accumulated other comprehensive (loss)/income
                           
                           
                           (134
                           )Impairment charge included in Condensed Consolidated Statements of Operations
                           
                           
                           (35
                           )Ending balance at September 30, 2010
                           
                           $
                           3,360 The Company recorded a $0.3 million and $0.7 million writedown in its
                     auction-rate securities within Impairment of investments in the
                     Condensed Consolidated Statements of Operations during the nine
                     months ended September 30, 2010 and 2009, respectively. 7. Comprehensive Income/(Loss) Comprehensive income/(loss) is comprised of net income/(loss), the
                     effect of foreign currency translation and changes in unrealized
                     gains and losses on available-for-sale securities. Comprehensive
                     income for the three and nine months ended September 30, 2010
                     amounted to $1.8 million and $3.0 million, respectively.
                     Comprehensive income for the three months ended September 30, 2009
                     amounted to $0.6 million. Comprehensive loss for the nine months
                     ended September 30, 2009 amounted to $9.6 million. 8. Segment Information The Company designs and sources a broad range of fashion footwear,
                     handbags, accessories, and apparel and has three reportable segments:
                     Wholesale, Consumer Direct and Licensing. The Wholesale segment
                     markets footwear, handbags and men's apparel products for sale to
                     approximately 5,500 domestic department and specialty store
                     locations, to the Company's Consumer Direct segment and international
                     retailers. The Consumer Direct segment markets a broad selection of
                     the Company's branded products, including licensee products, for sale
                     directly to the consumer through its own channels of distribution,
                     which include full-priced retail stores, Company Stores ("outlets")
                     and its e-commerce website (at website address www.kennethcole.com). The Licensing segment, through third-party licensee agreements,
                     has evolved the Company from primarily a footwear resource to a
                     diverse global lifestyle brand competing effectively in approximately
                     30 apparel and accessories categories for men, women and children.
                     The Company maintains control over quality, brand image and
                     distribution of the licensees' products. The segment consists
                     primarily of royalties earned on domestic and international licensee
                     sales to third parties of products bearing the Company's trademarks
                     and trade names. The Company's reportable segments are business units that offer
                     products to overlapping consumers through different channels of
                     distribution. Each segment is managed separately, while results
                     across segments are reviewed by the executive management committee.
                     The Company evaluates performance of each of its segments and
                     allocates resources based on profit or loss before stock-based
                     compensation expense, writedown of marketable securities, impairment
                     of intangible and long-lived assets, unallocated corporate overhead
                     and income taxes for each segment. Intersegment sales between the
                     Wholesale and Consumer Direct segments are eliminated in
                     consolidation.
 12


Kenneth Cole Productions, Inc. and SubsidiariesNotes to Condensed Consolidated Financial Statements(Unaudited) 8. Segment Information (continued) Financial information of the Company's reportable segments is as
                     follows (in thousands): Three Months EndedSeptember 30, 2010
                           
                           
                           
                           
                           
                           Nine Months EndedSeptember 30, 2010Consumer
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           ConsumerWholesale
                           
                           
                           Direct
                           
                           
                           Licensing
                           
                           
                           Totals
                           
                           
                           
                           
                           
                           Wholesale
                           
                           
                           Direct
                           
                           
                           Licensing
                           
                           
                           TotalsRevenue from external customers
                           
                           $
                           62,486
                           
                           $
                           45,007
                           
                           $
                           11,543
                           
                           $
                           119,036
                           
                           
                           
                           
                           $
                           176.989
                           
                           $
                           126,785
                           
                           $
                           32,747
                           
                           $
                           336,521Intersegment revenues
                           
                           
                           11,613
                           
                           
                           --
                           
                           
                           --
                           
                           
                           11,613
                           
                           
                           
                           
                           
                           30,571
                           
                           
                           --
                           
                           
                           --
                           
                           
                           30,571Segment income/(loss) (1)(2)
                           
                           
                           1,518
                           
                           
                           (5,590
                           )
                           
                           9,650
                           
                           
                           5,578
                           
                           
                           
                           
                           
                           3,897
                           
                           
                           (15,068
                           )
                           
                           25,998
                           
                           
                           14,827Segment assets (3)
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           212,202
                           
                           
                           54,559
                           
                           
                           11,010
                           
                           
                           277,771  Three Months EndedSeptember 30, 2009
                           
                           
                           
                           
                           
                           Nine Months EndedSeptember 30, 2009Consumer
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           ConsumerWholesale
                           
                           
                           Direct
                           
                           
                           Licensing
                           
                           
                           Totals
                           
                           
                           
                           
                           
                           Wholesale
                           
                           
                           Direct
                           
                           
                           Licensing
                           
                           
                           TotalsRevenue from external customers
                           
                           $
                           51,654
                           
                           $
                           41,682
                           
                           $
                           10,416
                           
                           $
                           103,752
                           
                           
                           
                           
                           $
                           159,477
                           
                           $
                           112,981
                           
                           $
                           28,569
                           
                           $
                           301,027Intersegment revenues
                           
                           
                           8,135
                           
                           
                           --
                           
                           
                           --
                           
                           
                           8,135
                           
                           
                           
                           
                           
                           24,448
                           
                           
                           --
                           
                           
                           --
                           
                           
                           24,448Segment (loss)/income (1)(2)
                           
                           
                           (1,610
                           )
                           
                           (4,491
                           )
                           
                           8,500
                           
                           
                           2,399
                           
                           
                           
                           
                           
                           (9,266
                           )
                           
                           (20,956
                           )
                           
                           22,916
                           
                           
                           (7,306
                           )Segment assets (3)
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           193,868
                           
                           
                           56,885
                           
                           
                           55,308
                           
                           
                           306,061 (1)
                           
                           
                           Excludes stock-based compensation expense, writedown of marketable
                              securities, unallocated corporate overhead and income taxes.(2)
                           
                           
                           The Wholesale segment includes primarily all of the Company's
                              allocated corporate overhead.(3)
                           
                           
                           The Wholesale segment includes corporate assets. The reconciliation of the Company's reportable segment income/(loss)
                     is as follows (in thousands): Three Months Ended
                           
                           
                           
                           
                           
                           Nine Months EndedSeptember 30,2010
                           
                           
                           
                           
                           
                           September 30,2009
                           
                           
                           
                           
                           
                           September 30,2010
                           
                           
                           
                           
                           
                           September 30,2009Total income/(loss) for reportable segments (1)
                           
                           $
                           5,578
                           
                           
                           
                           
                           $
                           2,399
                           
                           
                           
                           
                           $
                           14,827
                           
                           
                           
                           
                           $
                           (7,306
                           )Adjustment for stock-based compensation expense, writedown of
                              marketable securities and unallocated corporate overhead
                           
                           
                           (3,473
                           )
                           
                           
                           
                           
                           (2,306
                           )
                           
                           
                           
                           
                           (9,692
                           )
                           
                           
                           
                           
                           (10,474
                           )Total income/(loss) before provision for/(benefit from) income taxes
                           
                           $
                           2,105
                           
                           
                           
                           
                           $
                           93
                           
                           
                           
                           
                           $
                           5,135
                           
                           
                           
                           
                           $
                           (17,780
                           ) (1)
                           
                           
                           Excludes stock-based compensation expense, writedown of marketable
                              securities, unallocated corporate overhead and income taxes.  Revenues from international customers were approximately 6.9% and
                     7.1% of the Company's consolidated revenues for the three months
                     ended September 30, 2010 and 2009, respectively, and approximately
                     6.5% and 5.2% of the Company's consolidated revenues for the nine
                     months ended September 30, 2010 and 2009, respectively.
 13


Kenneth Cole Productions, Inc. and SubsidiariesNotes to Condensed Consolidated Financial Statements(Unaudited) 9. Income Taxes During the three and nine months ended September 30, 2010 the Company
                     reversed a portion of the deferred tax valuation allowance
                     established during 2009, relating to net operating losses utilized,
                     which offset substantially all of the Company's federal income
                     tax expense. 10. Related Party Transaction The Company recorded travel expenses of approximately $0.1 million
                     and $0.3 million for the three and nine months ended September 30,
                     2010, respectively, related to a third-party aviation company which
                     hires and uses an aircraft partially owned by Emack LLC, a company
                     which is wholly owned by the Company's Chairman and Chief Creative
                     Officer. During the three and nine months ended September 30, 2009,
                     the Company recorded expenses of approximately $0.1 million and $0.3
                     million, respectively. Management believes that all transactions were
                     made on terms and conditions similar to or more favorable than those
                     available in the marketplace from unrelated parties. 11. New Accounting Pronouncement In January 2010, the FASB issued further guidance under ASC No. 820, Fair Value Measurements and Disclosures ("ASC 820"). ASC 820 requires disclosures about the transfers of
                     investments between levels in the fair value hierarchy and
                     disclosures relating to the reconciliation of fair value measurements
                     using significant unobservable inputs (level 3 investments). ASC 820
                     is effective for the fiscal years and interim periods beginning after
                     December 15, 2010. The Company expects that ASC 820 will not have a
                     material impact on the Company's consolidated financial statements. 12. Subsequent Event On October 18, 2010, Kenneth Cole Productions, Inc. ("the Company")
                     announced that the Company had made the strategic decision to bring
                     its women's sportswear business in-house. As part of the strategic
                     decision, the Company reached an agreement with Bernard Chaus, Inc.
                     to end its license agreement for women's sportswear effective June 1,
                     2011.
 14


Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                        AND RESULTS OF OPERATIONS Forward-Looking Statements Disclosure The statements contained in this report which are not historical
                     facts, including, without limitation, statements that relate to
                     future performance and/or statements regarding the Company's
                     anticipated results or level of business for 2010 or any other future
                     period, may be deemed to constitute "forward-looking statements"
                     within the meaning of the Private Securities Litigation Reform Act of
                     1995. Such statements are based on current expectations only, and
                     actual future results might differ materially from those projected in
                     such statements due to a number of risks and uncertainties,
                     including, but not limited to, demand and competition for the
                     Company's products, the ability to enter into new licensee
                     agreements, to maintain and renew existing licensing agreements, to
                     open new stores, changes in consumer preferences or fashion trends,
                     events causing disruption in product shipment, change in import
                     regulations, dependence on certain large customers, changes in the
                     Company's relationships with vendors and other resources, the
                     launching or prospective development of new business initiatives,
                     future licensee sales growth, gross margins, store expansion,
                     renovation and openings, changes in distribution centers, and the
                     implementation of management information systems. The forward-looking
                     statements contained herein are also subject to other risks and
                     uncertainties that are described in the Company's reports and
                     registration statements filed with the Securities and Exchange
                     Commission. The Company undertakes no obligation to publicly update
                     or revise any forward-looking statement, whether as a result of new
                     information, future results or otherwise. Update on Critical Accounting Policies and Estimates The Company's consolidated financial statements are prepared in
                     accordance with accounting principles generally accepted in the
                     United States, which require the Company to make estimates in the
                     application of its accounting policies based on the best assumptions,
                     judgments and opinions of management. For a summary of the Company's
                     significant accounting policies, see the Company's Consolidated
                     Financial Statements included in the Company's Annual Report on Form
                     10-K for the year ended December 31, 2009. Overview Kenneth Cole Productions, Inc. designs, sources and markets a broad
                     range of fashion footwear, handbags and apparel and, through license
                     agreements, designs and markets apparel and accessories under its Kenneth Cole New York, Kenneth Cole Reaction, Unlistedand Le Tigre brand names, as well as footwear under the proprietary trademark Gentle Souls. In addition, the Company designs, develops and sources private
                     label footwear and handbags for selected retailers. The Company's
                     products are targeted to appeal to modern fashion conscious consumers
                     who seek accessible designer fashion that reflects a metropolitan
                     lifestyle. These products include core basics that generally remain
                     in demand from season to season and fashion products that are
                     designed to establish or capitalize on market trends. The combination
                     of core products and fashion styles provides freshness in assortments
                     and maintains a fashion-forward image, while a multiple brand
                     strategy helps diversify business risk. The Company markets its products through approximately 5,500 domestic
                     department and specialty store locations, the Company's full-priced
                     retail stores, outlet stores, and its e-commerce website, as well as
                     internationally through its licensee partners and international
                     retailers. The Company believes the diversity of its product
                     offerings distinguishes the Company from its competitors in terms of
                     product classifications (men's, women's and children's footwear,
                     apparel and accessories), prices ("bridge", "better" and "moderate")
                     and styling. The Company believes the diversity of its product mix
                     provides balance to its overall sales and increases opportunities in
                     all channels of distribution. The popularity of the Kenneth Cole brand names, including Kenneth Cole New York, Kenneth Cole Reaction and Unlisted,among consumers has enabled the Company to expand its product
                     offerings and channels of distribution through licensing agreements.
                     The Company offers, through these agreements, a lifestyle collection
                     of men's product categories, including tailored clothing, dress
                     shirts, dress pants, neckwear, outerwear, sleepwear, socks,
                     underwear, belts, business cases, small leather goods, sunglasses,
                     prescription eyewear, watches, jewelry and fragrance. Women's product
                     categories currently being sold pursuant to license agreements
                     include sportswear, outerwear, swimwear, sleepwear, small leather
                     goods, belts, sunglasses, prescription eyewear, watches, jewelry and
                     fragrance. In addition, the Company licenses its luggage and
                     children's apparel. On October 19, 2010, the Company announced that
                     it had made the strategic decision to terminate the licensing
                     agreement with its women's sportswear licensee effective June 1,
                     2011, and will be bringing the business in-house starting with the
                     Fall 2011 season. The Company recorded net revenues of $119.0 million and $336.5
                     million for the three and nine months ended September 30, 2010,
                     respectively. Diluted earnings per share were $0.11 for the three
                     months ended September 30, 2010 as
 15


compared to $0.01 for the three months ended September 30, 2009.
                     Diluted earnings per share were $0.26 for the nine months ended
                     September 30, 2010 as compared to a diluted loss per share of $(0.63)
                     for the nine months ended September 30, 2009. Cash and cash
                     equivalents were $69.8 million at September 30, 2010 versus $50.0
                     million at September 30, 2009 and the Company has no long-term debt. Results of Operations The following table sets forth the Company's Condensed Consolidated
                     Statements of Operations in thousands of dollars and as a percentage
                     of net revenues for the three and nine months ended September 30,
                     2010 and September 30, 2009. Three Months Ended September 30,
                           
                           
                           
                           
                           
                           Nine Months Ended September 30,2010
                           
                           
                           2009
                           
                           
                           
                           
                           
                           2010
                           
                           
                           2009Net sales
                           
                           $
                           107,493
                           
                           
                           90.3
                           %
                           $
                           93,336
                           
                           
                           90.0
                           %
                           
                           
                           
                           $
                           303,774
                           
                           
                           90.3
                           %
                           $
                           272,458
                           
                           
                           90.5
                           %Royalty revenue
                           
                           
                           11,543
                           
                           
                           9.7
                           
                           
                           10,416
                           
                           
                           10.0
                           
                           
                           
                           
                           
                           32,747
                           
                           
                           9.7
                           
                           
                           28,569
                           
                           
                           9.5Net revenues
                           
                           
                           119,036
                           
                           
                           100.0
                           
                           
                           103,752
                           
                           
                           100.0
                           
                           
                           
                           
                           
                           336,521
                           
                           
                           100.0
                           
                           
                           301,027
                           
                           
                           100.0Gross profit (1)
                           
                           
                           50,625
                           
                           
                           42.5
                           
                           
                           44,881
                           
                           
                           43.3
                           
                           
                           
                           
                           
                           143,363
                           
                           
                           42.6
                           
                           
                           119,766
                           
                           
                           39.8Selling, general and administrative expenses
                           
                           
                           48,318
                           
                           
                           40.6
                           
                           
                           44,595
                           
                           
                           43.0
                           
                           
                           
                           
                           
                           138,990
                           
                           
                           41.3
                           
                           
                           137,233
                           
                           
                           45.6Operating income/(loss)
                           
                           
                           2,307
                           
                           
                           1.9
                           
                           
                           286
                           
                           
                           0.3
                           
                           
                           
                           
                           
                           4,373
                           
                           
                           1.3
                           
                           
                           (17,467
                           )
                           
                           (5.8
                           )Interest and other income, net
                           
                           
                           77
                           
                           
                           0.1
                           
                           
                           94
                           
                           
                           0.1
                           
                           
                           
                           
                           
                           1,109
                           
                           
                           0.3
                           
                           
                           414
                           
                           
                           0.1Impairment of investments
                           
                           
                           (279
                           )
                           
                           (0.2
                           )
                           
                           (287
                           )
                           
                           (0.3
                           )
                           
                           
                           
                           
                           (347
                           )
                           
                           (0.1
                           )
                           
                           (727
                           )
                           
                           (0.2
                           )Income/(loss) before income taxes
                           
                           
                           2,105
                           
                           
                           1.8
                           
                           
                           93
                           
                           
                           0.1
                           
                           
                           
                           
                           
                           5,135
                           
                           
                           1.5
                           
                           
                           (17,780
                           )
                           
                           (5.9
                           )Income tax expense/(benefit)
                           
                           
                           85
                           
                           
                           0.1
                           
                           
                           (93
                           )
                           
                           (0.1
                           )
                           
                           
                           
                           
                           346
                           
                           
                           0.1
                           
                           
                           (6,532
                           )
                           
                           (2.2
                           )Net income/(loss)
                           
                           $
                           2,020
                           
                           
                           1.7
                           %
                           $
                           186
                           
                           
                           0.2
                           %
                           
                           
                           
                           $
                           4,789
                           
                           
                           1.4
                           %
                           $
                           (11,248
                           )
                           
                           (3.7
                           )% (1)
                           
                           
                           Gross profit may not be comparable to other entities, since some
                              entities include the costs related to their distribution network
                              (receiving and warehousing) in cost of goods sold and other entities,
                              similar to the Company, exclude these costs from gross profit,
                              including them instead in a line item such as selling, general and
                               administrative expenses. Three Months Ended September 30, 2010 Compared to Three Months Ended
                        September 30, 2009 REVENUES: Net revenues increased 14.7%, or $15.2 million, to $119.0
                     million for the three months ended September 30, 2010 from $103.8
                     million for the three months ended September 30, 2009. The Company's
                     revenue performance was strong, with each segment contributing to
                     the growth. NET SALES: Wholesale net sales (excluding sales to the Company's
                     Consumer Direct business segment) increased 21.0%, or $10.8 million
                     to $62.5 million, for the three months ended September 30, 2010 from
                     $51.7 million for the three months ended September 30, 2009.  The
                     increase was primarily a result of double-digit growth in men's and
                     women's branded footwear, as well as the launch of Reaction men's sportswear. Net sales in the Company's Consumer Direct segment increased 8.0%, or
                     $3.3 million, to $45.0 million for the three months ended September
                     30, 2010 from $41.7 million for the three months ended September 30,
                     2009. The increase was driven by a comparable store sales increase of
                     6.7%, or $2.5 million, and by a strong double-digit growth in
                     e-commerce. Comparable stores are defined as new stores that are open
                     for longer than thirteen months. A store that stops operations is
                     included in the comparable sales calculation through the date of
                     closing. The Company did not open or close any stores during the
                     three months ended September 30, 2010 compared to opening five
                     outlets and closing one full-priced retail store during the three
                     months ended September 30, 2009. The Company expects to close at
                     least seven unproductive stores by early next year and anticipates
                     nonrecurring costs associated with these store closings. LICENSING REVENUE: Licensing revenue increased 10.8%, or $1.1
                     million, to $11.5 million for the three months ended September 30,
                     2010 from $10.4 million for the three months ended September 30,
                     2009. The increase in licensing revenues was driven primarily by
                     strong business in men's dress shirts, tailored clothing and dress
                     furnishings categories, as well as outerwear, women's sportswear and
                     watches. Included within licensing revenue is approximately $0.3
                     million of royalties for the Le Tigre license with JC Penney during
                     the three months ended September 30, 2010 compared to $0.8 million of
                     royalties for the three months ended September 30, 2009. Contractual
                     minimums for the Le Tigre license with JC Penney ceased during the
                     third quarter of 2010 as the license was not renewed through a mutual
                     agreement. GROSS PROFIT: Consolidated gross profit, as a percentage of net
                     revenues, decreased to 42.5% for the three months ended September 30,
                     2010 from 43.3% for the three months ended September 30, 2009. The
                     decrease was the result of two factors.
 16


First, about two-thirds of the decrease was due to a shift in revenue
                     mix because the Wholesale segment, which carries the lowest gross
                     margin of any segment, grew fastest and therefore became a larger
                     percentage of the business. Second, the promotional activity in
                     outlets was at a slightly higher level than the prior year. The
                     Consumer Direct segment, which operates at a higher gross profit
                     level than the Wholesale segment, had decreased revenues as a
                     percentage of total net revenues to 37.8% for the three months ended
                     September 30, 2010 compared to 40.2% for the three months ended
                     September 30, 2009. The Wholesale segment revenues, as a percentage
                     of total net revenues, increased to 52.5% for the three months ended
                     September 30, 2010 from 49.8% for the three months ended September
                     30, 2009. The revenues in the Licensing segment, which carries
                     nominal cost of goods sold, decreased, as a percentage of total net
                     revenues, to 9.7% for the three months ended September 30, 2010
                     compared to 10.0% for the three months ended September 30, 2009. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and
                     administrative ("SG&A") expenses, including warehousing and receiving
                     expenses, as a percentage of net revenues, improved 240 basis points
                     to 40.6% for the three months ended September 30, 2010 compared to
                     43.0% for the three months ended September 30, 2009 as the Company
                     achieved leverage from increased revenues in each of its business
                     segments. Total SG&A increased $3.7 million to $48.3 million for the
                     three months ended September 30, 2010 from $44.6 million for the
                     three months ended September 30, 2009. The increase in SG&A expenses
                     versus the prior year was primarily attributable to variable shipping
                     costs and compensation expense for the Company's pay-for-performance
                     annual bonus incentive. IMPAIRMENT OF INVESTMENTS: The Company recorded an
                     other-than-temporary impairment of auction-rate securities of $0.3
                     million during the three months ended September 30, 2010 compared to
                     $0.3 million during the three months ended September 30, 2009. INCOME TAXES: The Company's effective tax rate was 4.0% for the three
                     months ended September 30, 2010 compared to 100.6% for the three
                     months ended September 30, 2009. The change in the Company's
                     effective tax rate is primarily a result of a reversal of a portion
                     of the deferred tax valuation allowance established by the Company
                     during 2009, relating to net operating losses utilized, which offset
                     substantially all of the Company's federal income tax expense for the
                     three months ended September 30, 2010. The income tax expense for
                     2010 is primarily taxes from state, local and foreign jurisdictions. NET INCOME: As a result of the foregoing, the Company recorded net
                     income of $2.0 million or 1.7% of net revenues for the three months
                     ended September 30, 2010 compared to $0.2 million, or 0.2% of net
                     revenues for the three months ended September 30, 2009. Nine Months Ended September 30, 2010 Compared to Nine Months Ended
                        September 30, 2009 REVENUES: Net revenues increased 11.8%, or $35.5 million, to $336.5
                     million for the nine months ended September 30, 2010 from $301.0
                     million for the nine months ended September 30, 2009. The increase in
                     revenues occurred in each of the Company's business segments. NET SALES: Wholesale net sales (excluding sales to the Company's
                     Consumer Direct business segment) increased 11.0%, or $17.5 million,
                     to $177.0 million for the nine months ended September 30, 2010 from
                     $159.4 million for the nine months ended September 30, 2009. 
                     Excluding the discontinued Tribeca and Bongo footwear lines which
                     amounted to $4.8 million of sales during the nine months ended
                     September 30, 2009, Wholesale net sales increased 14.4% primarily as
                     a result of the launch of Reaction men's sportswear, double-digit growth in Reactionfootwear and an increase in sales from the Company's Wholesale
                     international divisions. In 2009, the Company discontinued its
                     non-profitable Tribeca and Bongo footwear lines to focus on its core footwear brands. Net sales in the Company's Consumer Direct segment increased 12.2%,
                     or $13.8 million, to $126.8 million for the nine months ended
                     September 30, 2010 from $113.0 million for the nine months ended
                     September 30, 2009. The increase was driven by a comparable store
                     sales increase of 7.0%, or $6.8 million, new stores and e-commerce.
                     Comparable stores are defined as new stores that are open for longer
                     than thirteen months. A store that stops operations is included in
                     the comparable sales calculation through the date of closing. The
                     Company opened one outlet and closed one full-priced retail store and
                     one outlet during the nine months ended September 30, 2010 compared
                     to opening thirteen outlets and closing three full-priced retail
                     stores during the nine months ended September 30, 2009. The Company
                     expects to close at least seven unproductive stores by early next
                     year and anticipates nonrecurring costs associated with these store
                     closings. LICENSING REVENUE: Licensing revenue increased 14.6%, or $4.2
                     million, to $32.7 million for the nine months ended September 30,
                     2010 from $28.6 million for the nine months ended September 30, 2009.
                     The increase in licensing revenues was driven primarily by strong
                     business in men's dress shirts and tailored clothing, as well as
                     outerwear, women's sportswear and watches. Included within licensing
                     revenue is approximately $2.2 million of royalties for the Le Tigre
                     license with JC Penney
 17


during the nine months ended September 30, 2010 compared to $1.6
                     million of royalties for the nine months ended September 30, 2009.
                     Contractual minimums for the Le Tigre license with JC Penney ceased
                     during the third quarter of 2010 as the license was not renewed
                     through a mutual agreement. GROSS PROFIT: Consolidated gross profit, as a percentage of net
                     revenues, increased to 42.6% for the nine months ended September 30,
                     2010 from 39.8% for the nine months ended September 30, 2009. The 280
                     basis point increase was attributable to increases in both Wholesale
                     and Consumer Direct segment gross profit primarily from enhanced
                     product and merchandise assortments and better sell-throughs, offset
                     by increased markdowns in outlets. In addition, the increase as a
                     percentage of total net revenues was due to revenue mix shifting to
                     the Consumer Direct and Licensing segments. The Consumer Direct
                     segment, which operates at a higher gross profit level than the
                     Wholesale segment, had increased revenues as a percentage of total
                     net revenues to 37.7% for the nine months ended September 30, 2010
                     compared to 37.5% for the nine months ended September 30, 2009. The
                     Wholesale segment revenues, as a percentage of total net revenues,
                     decreased to 52.6% for the nine months ended September 30, 2010 from
                     53.0% for the nine months ended September 30, 2009. The revenues in
                     the Licensing segment, which carries nominal cost of goods sold,
                     increased, as a percentage of total net revenues, to 9.7% for the
                     nine months ended September 30, 2010 compared to 9.5% for the nine
                     months ended September 30, 2009. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: SG&A expenses,
                     including warehousing and receiving expenses, as a percentage of net
                     revenues, improved 430 basis points to 41.3% for the nine months
                     ended September 30, 2010 compared to 45.6% for the nine months ended
                     September 30, 2009 as the Company achieved leverage from increased
                     revenues in each of its business segments. In addition, total SG&A
                     increased $1.8 million to $139.0 million for the nine months ended
                     September 30, 2010 from $137.2 million for the nine months ended
                     September 30, 2009. The increase in SG&A expenses versus the prior
                     period was primarily attributable to variable shipping costs,
                     compensation expense for the Company's pay-for-performance annual bonus
                     incentive and additional expenses associated with new stores. INTEREST AND OTHER INCOME, NET: Interest and other income, net
                     increased $0.7 million to $1.1 million for the nine months ended
                     September 30, 2010 compared to $0.4 million for the nine months ended
                     September 30, 2009.  The increase is primarily due to the gain on the
                     sale of a portion of the Company's equity investments of
                     approximately $0.8 million offset by lower interest rates. IMPAIRMENT OF INVESTMENTS: The Company recorded an
                     other-than-temporary impairment of auction-rate securities of $0.3
                     million during the nine months ended September 30, 2010 compared to
                     $0.7 million during the nine months ended September 30, 2009. INCOME TAXES: The Company's effective tax rate was 6.7% for the nine
                     months ended September 30, 2010 compared to 36.7% for the nine months
                     ended September 30, 2009. The change in the Company's effective tax
                     rate is primarily a result of a reversal of a portion of the deferred
                     tax valuation allowance established by the Company during 2009,
                     relating to net operating losses utilized, which offset substantially
                     all of the Company's federal income tax expense for the nine months
                     ended September 30, 2010. The income tax expense for 2010 is
                     primarily taxes from state, local and foreign jurisdictions. NET INCOME/(LOSS): As a result of the foregoing, the Company recorded
                     net income of $4.8 million or 1.4% of net revenues for the nine
                     months ended September 30, 2010 compared to a net loss of $(11.2)
                     million or (3.7%) of net revenues for the nine months ended September
                     30, 2009. New Accounting Pronouncement In January 2010, the FASB issued further guidance under ASC No. 820, Fair Value Measurements and Disclosures ("ASC 820"). ASC 820 requires disclosures about the transfers of
                     investments between levels in the fair value hierarchy and
                     disclosures relating to the reconciliation of fair value measurements
                     using significant unobservable inputs (level 3 investments). ASC 820
                     is effective for the fiscal years and interim periods beginning after
                     December 15, 2010. The Company expects that ASC 820 will not have a
                     material impact on the Company's consolidated financial statements. Related Party Transaction The Company recorded travel expenses of approximately $0.1 million
                     and $0.3 million for the three and nine months ended September 30,
                     2010, respectively, related to a third-party aviation company which
                     hires and uses an aircraft partially owned by Emack LLC, a company
                     which is wholly owned by the Company's Chairman and Chief Creative
                     Officer. During the three and nine months ended September 30, 2009,
                     the Company recorded expenses of approximately $0.1 million and $0.3
                     million, respectively. Management believes that all transactions were
                     made on terms and conditions similar to or more favorable than those
                     available in the marketplace from unrelated parties.
 18


Liquidity and Capital Resources As of September 30, 2010, the Company had $69.8 million in cash and
                     cash equivalents, which consist primarily of government money market
                     funds. The Company uses cash from operations as the primary source of
                     financing for its capital expenditures and seasonal requirements.
                     Cash requirements vary from time to time as a result of the timing of
                     the receipt of merchandise from suppliers, the delivery by the
                     Company of merchandise to its wholesale customers and its retail
                     stores and the level of inventory and accounts receivable balances.
                     At September 30, 2010 and December 31, 2009, working capital was
                     $99.2 million and $88.6 million, respectively. Cash provided by operating activities was $3.3 million for the nine
                     months ended September 30, 2010 compared to cash used in operations
                     of $2.3 million for the nine months ended September 30, 2009. The
                     improvement in cash flows provided by operations is primarily
                     attributable to an increase in net income and $4.1 million of tax
                     receipts from net operating loss carrybacks filed with the U.S.
                     Treasury as part of government tax legislation enacted in 2009,
                     offset by an increase in receivables and inventory. Net cash used in investing activities totaled $1.2 million for the
                     nine months ended September 30, 2010 compared to $11.1 million for
                     the nine months ended September 30, 2009. The decrease was primarily
                     attributable to an $8.4 million decrease in capital expenditures as
                     the Company opened and renovated fewer stores during the nine months
                     ended September 30, 2010 compared to September 30, 2009. In addition,
                     the Company received proceeds of $1.0 million from the sale of a
                     portion of an equity investment during the nine months ended
                     September 30, 2010, while intangible asset purchases decreased $0.5
                     million during the nine months ended September 30, 2010 compared to
                     the nine months ended September 30, 2009. Net cash used in financing activities was $0.7 million for the nine
                     months ended September 30, 2010 compared to $1.3 million used in
                     financing activities for the nine months ended September 30, 2009.
                     The decrease primarily resulted from no payments for financing costs
                     during the nine months ended September 30, 2010 compared to $0.7
                     million during the nine months ended September 30, 2009. In addition,
                     a $0.2 million increase in shares surrendered for taxes on restricted
                     stock was offset by a decrease of $0.1 million for dividends
                     associated with the vesting of restricted stock for the nine months
                     ended September 30, 2010 compared to the nine months ended September
                     30, 2009. The Company has a revolving senior secured asset based credit
                     facility (the "Facility") which provides the Company with borrowing
                     availability of $60 million. The Facility may be increased to $85
                     million at the election of the Company upon meeting certain
                     conditions, but may not exceed a borrowing base equal to a percentage
                     of the Company's accounts receivable and inventory. The Company did
                     not borrow under the Facility during the nine months ended September
                     30, 2010. The Company had $2.5 million of standby and open letters of
                     credit against the Facility as of September 30, 2010. The Company believes that it will be able to satisfy its current
                     expected cash requirements for 2010, including requirements for its
                     new stores, anticipated store closing costs, expected enhancement of
                     information systems and anticipated current obligations, primarily
                     with cash flow from operations and cash on hand. The Company did not
                     have any off-balance sheet arrangements as of September 30, 2010. The foregoing commentary should be considered to fall within the
                     coverage of the "Safe Harbor Statement" under the Private Securities Litigation reform Act of 1995 included
                     in this report. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company has auction-rate securities that contain "double A"
                     through "double C" rated debt obligations and a preferred share
                     closed end fund that are substantially all insured. All of the
                     Company's auction rate securities have failed at auction as a result
                     of illiquidity and imbalance in order flow within the market. A
                     failed auction is not an indication of an increased credit risk or a
                     reduction in the underlying collateral; however, parties wishing to
                     sell securities could not do so. Based on current market conditions,
                     it is not known when or if the capital markets will come back into
                     balance to achieve successful auctions for these securities. If these
                     auctions continue to fail, it could result in the Company holding
                     securities beyond their next scheduled auction reset dates and will
                     limit the liquidity of these investments. Based on the Company's
                     expected operating cash flows, and other sources and uses of cash,
                     the Company does not anticipate that the lack of liquidity on these
                     investments will affect its ability to execute its current business
                     plan. These assets have been classified as long-term in the Company's
                     Condensed Consolidated Balance Sheets and have been recorded at their
                     fair value. The Company is exposed to currency exchange rate risks with respect
                     to its inventory transactions denominated in foreign currencies,
                     although greater than 95% of the transactions are in U.S. dollars.
                     Business activities in various currencies expose the Company to the
                     risk that the eventual net dollar cash flows from transactions with
                     foreign suppliers denominated in foreign currencies may be adversely
                     affected by changes in currency rates. The Company manages these
                     risks by periodically utilizing
 19


foreign exchange contracts. The Company does not enter into foreign
                     currency transactions for trading or speculative purposes. At
                     September 30, 2010, the Company had no forward contracts outstanding. The Company sources a significant amount of product from China and is
                     subject to foreign currency exposure. If the Yuan is allowed to float
                     freely against other foreign currency, a two percent change in
                     exchange rates could have a material effect on the cost of future
                     inventory purchases to be transacted by the Company. Item 4. Controls and Procedures Evaluation of disclosure controls and procedures The Company's Chief Executive Officer and Chief Financial Officer
                     have evaluated the effectiveness of the Company's disclosure controls
                     and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the
                     Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
                     of the end of the period covered by this quarterly report, and have
                     concluded that the Company's disclosure controls and procedures were
                     effective and designed to ensure that all material information
                     required to be disclosed by the Company in reports filed or submitted
                     under the Exchange Act is (1) recorded, processed, summarized and
                     reported within the time periods specified in the Securities and
                     Exchange Commission rules and forms, and (2) accumulated and
                     communicated to the Company's management, including the Company's
                     Chief Executive Officer and Chief Financial Officer, to allow timely
                     decisions regarding required disclosures. Changes in internal control over financial reporting There were no changes in the Company's internal controls over
                     financial reporting during the period covered by this report that
                     have materially affected, or are reasonably likely to materially
                     affect, the Company's internal control over financial reporting.
 20


Part II - OTHER INFORMATION Item 1.
                           
                           
                           Legal Proceedings. NoneItem 1A.
                           
                           
                           Risk Factors. There have been no material changes during the quarterly period
                                 ended September 30, 2010 from the risk factors previously disclosed
                                 in the Company's Annual Report on Form 10-K for the year ended
                                 December 31, 2009, other than the following:
                              
                              Fluctuations in the price, availability and quality of raw materials
                                    could cause delay and increase costs
                              
                              Fluctuations in the price, availability and quality of the fabrics or
                                 other raw materials used to manufacture the Company's apparel,
                                 footwear and accessories could have a material adverse effect on the
                                 Company's cost of goods or the ability to meet customers' demands.
                                 The prices for such fabrics depend largely on the market prices for
                                 the raw materials used to produce them, particularly cotton, leather
                                 and synthetics. The price and availability of such raw materials may
                                 fluctuate significantly, depending on many factors, including crop
                                 yields and weather patterns. In the future, the Company may not be
                                 able to pass all or a portion of such higher raw materials prices on
                                 to the Company's customers.Item 2.
                           
                           
                           Unregistered Sales of Equity Securities and Use of Proceeds. NoneItem 3.
                           
                           
                           Defaults Upon Senior Securities. NoneItem 5.
                           
                           
                           Other Information. NoneItem 6.
                           
                           
                           Exhibits.31.1
                           
                           
                           Certification of Chief Executive Officer pursuant to Securities
                              Exchange Act Rule 13a-14 and 15d-14, as adopted pursuant to Section
                              302 of the Sarbanes-Oxley Act of 2002.31.2
                           
                           
                           Certification of Chief Financial Officer pursuant to Securities
                              Exchange Act Rule 13a-14 and 15d-14, as adopted pursuant to Section
                              302 of the Sarbanes-Oxley Act of 2002.32.1
                           
                           
                           Certification of Chief Executive Officer pursuant to 18 U.S.C.
                              Section 1350, as adopted pursuant to Section 906 of the
                              Sarbanes-Oxley Act of 2002.32.2
                           
                           
                           Certification of Chief Financial Officer pursuant to 18 U.S.C.
                              Section 1350, as adopted pursuant to Section 906 of the
                              Sarbanes-Oxley Act of 2002.
 21


SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934,
                     the registrant has duly caused this report to be signed on its behalf
                     by the undersigned thereunto duly authorized. Kenneth Cole Productions, Inc.RegistrantNovember 8, 2010
                           
                           
                           
                           
                           
                           /s/ DAVID P. EDELMANDavid P. EdelmanChief Financial Officer(Principal Financial and Accounting Officer)
 22