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 June 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
                           
                           
                           
                           
                           
                           August 3, 2010Class A Common Stock ($.01 par value)
                           
                           
                           
                           
                           
                           10,204,701Class 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 June 30, 2010 andDecember 31, 2009
                           
                           
                           3Condensed Consolidated Statements of Operations for the three and sixmonths ended June 30, 2010 and 2009
                           
                           
                           5Condensed Consolidated Statement of Changes in Shareholders' Equityfor the six months ended June 30, 2010
                           
                           
                           6Condensed Consolidated Statements of Cash Flows for the six monthsended June 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
                           
                           
                           20Item 1A.
                           
                           
                           Risk Factors
                           
                           
                           20Item 2.
                           
                           
                           Unregistered Sales of Equity Securities and Use of Proceeds
                           
                           
                           20Item 3.
                           
                           
                           Defaults Upon Senior Securities
                           
                           
                           20Item 5.
                           
                           
                           Other Information
                           
                           
                           20Item 6.
                           
                           
                           Exhibits
                           
                           
                           20Signatures
                           
                           
                           21
 2


Part I. FINANCIAL INFORMATIONItem 1. Financial Statements Kenneth Cole Productions, Inc. and SubsidiariesCondensed Consolidated Balance Sheets(Unaudited) June 30, 2010
                           
                           
                           December 31,2009AssetsCurrent assets:Cash and cash equivalents
                           
                           $
                           79,211,000
                           
                           $
                           68,505,000Accounts receivable, net
                           
                           
                           32,206,000
                           
                           
                           30,204,000Inventories
                           
                           
                           35,170,000
                           
                           
                           29,080,000Prepaid expenses and other current assets
                           
                           
                           3,353,000
                           
                           
                           8,809,000Total current assets
                           
                           
                           149,940,000
                           
                           
                           136,598,000Property and equipment, at cost, less accumulateddepreciation and amortization
                           
                           
                           50,652,000
                           
                           
                           53,952,000Other assets:Intangible assets, net
                           
                           
                           7,424,000
                           
                           
                           7,492,000Deferred taxes, net
                           
                           
                           1,001,000
                           
                           
                           909,000Investments and other
                           
                           
                           5,926,000
                           
                           
                           8,136,000Deferred compensation plans' assets
                           
                           
                           40,903,000
                           
                           
                           41,170,000Total other assets
                           
                           
                           55,254,000
                           
                           
                           57,707,000Total Assets
                           
                           $
                           255,846,000
                           
                           $
                           248,257,000  See accompanying notes to condensed consolidated financial statements.
 3


Kenneth Cole Productions, Inc. and SubsidiariesCondensed Consolidated Balance Sheets (continued)(Unaudited) June 30,2010
                           
                           
                           December 31,2009Liabilities and Shareholders' EquityCurrent liabilities:Accounts payable and accrued expenses
                           
                           $
                           39,486,000
                           
                           $
                           36,336,000Other current liabilities
                           
                           
                           10,007,000
                           
                           
                           7,852,000Deferred income
                           
                           
                           4,175,000
                           
                           
                           3,799,000Total current liabilities
                           
                           
                           53,668,000
                           
                           
                           47,987,000Accrued rent and other long-term liabilities
                           
                           
                           16,616,000
                           
                           
                           17,501,000Deferred compensation plans' liabilities
                           
                           
                           39,756,000
                           
                           
                           39,477,000Commitments 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; 16,054,758and 15,933,282 issued as of June 30, 2010 and December 31, 2009, respectively
                           
                           
                           160,000
                           
                           
                           159,000Class B Convertible Common Stock, par value $.01, 9,000,000 shares authorized; 8,010,497 issuedand outstanding as of June 30, 2010and December 31, 2009, respectively
                           
                           
                           80,000
                           
                           
                           80,000Additional paid-in capital
                           
                           
                           108,901,000
                           
                           
                           107,452,000Accumulated other comprehensive (loss)/income
                           
                           
                           (262,000
                           )
                           
                           1,346,000Retained earnings
                           
                           
                           161,848,000
                           
                           
                           159,176,000270,727,000
                           
                           
                           268,213,000Class A Common Stock in treasury, at cost, 5,855,550 shares as of June 30, 2010 and December 31, 2009, respectively
                           
                           
                           (124,921,000
                           )
                           
                           (124,921,000
                           )Total shareholders' equity
                           
                           
                           145,806,000
                           
                           
                           143,292,000Total Liabilities and Shareholders' Equity
                           
                           $
                           255,846,000
                           
                           $
                           248,257,000  See accompanying notes to condensed consolidated financial statements.
 4


Kenneth Cole Productions, Inc. and SubsidiariesCondensed Consolidated Statements of Operations(Unaudited) Three Months Ended June 30,
                           
                           
                           
                           
                           
                           Six Months Ended June 30,2010
                           
                           
                           2009
                           
                           
                           
                           
                           
                           2010
                           
                           
                           2009Net sales
                           
                           $
                           96,888,000
                           
                           $
                           84,748,000
                           
                           
                           
                           
                           $
                           196,281,000
                           
                           $
                           179,122,000Royalty revenue
                           
                           
                           11,085,000
                           
                           
                           9,152,000
                           
                           
                           
                           
                           
                           21,204,000
                           
                           
                           18,153,000Net revenues
                           
                           
                           107,973,000
                           
                           
                           93,900,000
                           
                           
                           
                           
                           
                           217,485,000
                           
                           
                           197,275,000Cost of goods sold
                           
                           
                           60,785,000
                           
                           
                           54,087,000
                           
                           
                           
                           
                           
                           124,747,000
                           
                           
                           122,390,000Gross profit
                           
                           
                           47,188,000
                           
                           
                           39,813,000
                           
                           
                           
                           
                           
                           92,738,000
                           
                           
                           74,885,000Selling, general and administrative expenses
                           
                           
                           46,092,000
                           
                           
                           44,965,000
                           
                           
                           
                           
                           
                           90,672,000
                           
                           
                           92,638,000Operating income/(loss)
                           
                           
                           1,096,000
                           
                           
                           (5,152,000
                           )
                           
                           
                           
                           
                           2,066,000
                           
                           
                           (17,753,000
                           )Interest and other income, net
                           
                           
                           65,000
                           
                           
                           114,000
                           
                           
                           
                           
                           
                           1,032,000
                           
                           
                           320,000Impairment of investments
                           
                           
                           (48,000
                           )
                           
                           (41,000
                           )
                           
                           
                           
                           
                           (68,000
                           )
                           
                           (440,000
                           )Income/(loss) before provision for/(benefit from) income taxes
                           
                           
                           1,113,000
                           
                           
                           (5,079,000
                           )
                           
                           
                           
                           
                           3,030,000
                           
                           
                           (17,873,000
                           )Provision for/(benefit from) income taxes
                           
                           
                           176,000
                           
                           
                           (1,813,000
                           )
                           
                           
                           
                           
                           261,000
                           
                           
                           (6,439,000
                           )Net income/(loss)
                           
                           $
                           937,000
                           
                           $
                           (3,266,000
                           )
                           
                           
                           
                           $
                           2,769,000
                           
                           $
                           (11,434,000
                           )Earnings/(loss) per share:Basic
                           
                           $
                           0.05
                           
                           $
                           (0.18
                           )
                           
                           
                           
                           $
                           0.15
                           
                           $
                           (0.64
                           )Diluted
                           
                           $
                           0.05
                           
                           $
                           (0.18
                           )
                           
                           
                           
                           $
                           0.15
                           
                           $
                           (0.64
                           )Shares used to compute earnings/(loss) per share:Basic
                           
                           
                           18,146,000
                           
                           
                           17,954,000
                           
                           
                           
                           
                           
                           18,119,000
                           
                           
                           17,922,000Diluted
                           
                           
                           18,517,000
                           
                           
                           17,954,000
                           
                           
                           
                           
                           
                           18,501,000
                           
                           
                           17,922,000 See accompanying notes to condensed consolidated financial statements.
 5


Kenneth Cole Productions, Inc. and SubsidiariesCondensed Consolidated Statement of Changes in Shareholders' Equity(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' equityDecember 31, 2009
                           
                           
                           15,933,282
                           
                           $
                           159,000
                           
                           
                           8,010,497
                           
                           $
                           80,000
                           
                           $
                           107,452,000
                           
                           $
                           1,346,000
                           
                           $
                           159,176,000
                           
                           
                           (5,855,550
                           )
                           $
                           (124,921,000
                           )
                           $
                           143,292,000Net income
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           2,769,000
                           
                           
                           
                           
                           
                           
                           
                           
                           2,769,000Other-than-temporary impairment for non-credit component of impaired securities
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           65,000
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           65,000Translation adjustment for foreign currency
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           (282,000
                           )
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           (282,000
                           )Reduction in unrealized gain on available-for-sale securities
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           (1,391,000
                           )
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           (1,391,000
                           )Comprehensive income
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           1,161,000Stock-based compensation expense
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           2,084,000
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           2,084,000Exercise of stock options and related tax benefits
                           
                           
                           1,125
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           9,000
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           9,000Issuance of restricted stock
                           
                           
                           172,821
                           
                           
                           1,000
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           1,000Shares surrendered by employees to pay taxes on restricted stock
                           
                           
                           (59,036
                           )
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           (705,000
                           )
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           (705,000
                           )Issuance of Class A Common Stock from Employee Stock Purchase Plan
                           
                           
                           6,566
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           61,000
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           61,000Dividends associated with vesting of restricted stock
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           (97,000
                           )
                           
                           
                           
                           
                           
                           
                           
                           (97,000
                           )Shareholders' equityJune 30, 2010
                           
                           
                           16,054,758
                           
                           $
                           160,000
                           
                           
                           8,010,497
                           
                           $
                           80,000
                           
                           $
                           108,901,000
                           
                           $
                           (262,000
                           )
                           $
                           161,848,000
                           
                           
                           (5,855,550
                           )
                           $
                           (124,921,000
                           )
                           $
                           145,806,000 See accompanying notes to condensed consolidated financial statements.
 6


Kenneth Cole Productions, Inc. and SubsidiariesCondensed Consolidated Statements of Cash Flows(Unaudited) Six Months EndedJune 30,2010
                           
                           
                           2009Cash flows provided by operating activitiesNet income/(loss)
                           
                           $
                           2,769,000
                           
                           $
                           (11,434,000
                           )Adjustments to reconcile net income/(loss) to net cash provided by
                              operating activities:Depreciation and amortization
                           
                           
                           4,542,000
                           
                           
                           4,770,000Provision for doubtful accounts
                           
                           
                           (31,000
                           )
                           
                           563,000Benefit from deferred taxes
                           
                           
                           (555,000
                           )
                           
                           (6,937,000
                           )Unrealized loss/(gain) from investments
                           
                           
                           831,000
                           
                           
                           (1,154,000
                           )Writedown of investments
                           
                           
                           2,000
                           
                           
                           440,000Stock-based compensation expense
                           
                           
                           2,084,000
                           
                           
                           4,170,000Tax benefit from stock option exercises and restricted stock vested
                           
                           
                           (794,000
                           )
                           
                           (483,000
                           )Changes in operating assets and liabilities:(Increase)/decrease in accounts receivable
                           
                           
                           (1,971,000
                           )
                           
                           11,772,000(Increase)/decrease in inventories
                           
                           
                           (6,090,000
                           )
                           
                           8,273,000Decrease/(increase) in prepaid expenses and other current assets
                           
                           
                           6,251,000
                           
                           
                           (2,019,000
                           )(Increase)/decrease in other assets
                           
                           
                           (555,000
                           )
                           
                           333,000Increase/(decrease) in accounts payable and accrued expenses
                           
                           
                           3,150,000
                           
                           
                           (7,533,000
                           )Increase/(decrease) in deferred income and other current liabilities
                           
                           
                           2,618,000
                           
                           
                           (1,642,000
                           )(Decrease)/increase in other long-term liabilities
                           
                           
                           (606,000
                           )
                           
                           2,488,000Net cash provided by operating activities
                           
                           
                           11,645,000
                           
                           
                           1,607,000Cash flows used in investing activitiesAcquisition of property and equipment
                           
                           
                           (1,035,000
                           )
                           
                           (7,216,000
                           )Proceeds from sale of investments
                           
                           
                           1,055,000
                           
                           
                           --Purchase of intangible assets
                           
                           
                           (139,000
                           )
                           
                           (580,000
                           )Net cash used in investing activities
                           
                           
                           (119,000
                           )
                           
                           (7,796,000
                           )Cash flows used in financing activitiesShares surrendered by employees to pay taxes on restricted stock
                           
                           
                           (705,000
                           )
                           
                           (470,000
                           )Excess tax benefit from stock options
                           
                           
                           1,000
                           
                           
                           --Proceeds from exercise of stock options
                           
                           
                           8,000
                           
                           
                           --Proceeds from employee stock purchase plan
                           
                           
                           61,000
                           
                           
                           85,000Dividends associated with vesting of restricted stock
                           
                           
                           (97,000
                           )
                           
                           (232,000
                           )Net cash used in financing activities
                           
                           
                           (732,000
                           )
                           
                           (617,000
                           )Effect of exchange rate changes on cash
                           
                           
                           (88,000
                           )
                           
                           5,000Net increase in cash
                           
                           
                           10,706,000
                           
                           
                           (6,801,000
                           )Cash and cash equivalents, beginning of period
                           
                           
                           68,505,000
                           
                           
                           64,704,000Cash and cash equivalents, end of period
                           
                           $
                           79,211,000
                           
                           $
                           57,903,000Supplemental disclosures of cash flow informationCash paid during the period for:Interest
                           
                           $
                           11,000
                           
                           $
                           16,000Income taxes (refunded)/paid, net
                           
                           $
                           (3,790,000
                           )
                           $
                           1,431,000 See accompanying notes to condensed consolidated financial statements.
 7


Kenneth Cole Productions, Inc. and SubsidiariesNotes to 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 significant intercompany transactions have
                     been eliminated. Operating results for the six months ended June 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. Included in Accounts receivable, net in the
                     Condensed Consolidated Balance Sheets are Due from factors of
                     $544,000 and $743,000 as of June 30, 2010 and December 31, 2009,
                     respectively. 2. 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 six months ended
                     June 30, 2010 and 2009, the Company granted 557,000 and 698,656 stock
                     options, respectively. The Company also granted 71,190 and 151,272
                     shares of restricted stock during the six months ended June 30, 2010
                     and 2009, respectively. Stock options outstanding and unvested
                     restricted stock amounted to 3,328,370 and 267,255 shares,
                     respectively, as of June 30, 2010.
 8


Kenneth Cole Productions, Inc. and SubsidiariesNotes to Consolidated Financial Statements(Unaudited) 2. Stock-Based Compensation (continued) The following table summarizes the components of stock-based
                     compensation expense for the three and six months ended June 30, 2010
                     and 2009, all of which is included in Selling, general, and
                     administrative expenses in the Condensed Consolidated Statements of
                     Operations: Three months endedJune 30,
                           
                           
                           Six months endedJune 30,2010
                           
                           
                           2009
                           
                           
                           2010
                           
                           
                           2009Stock options
                           
                           $
                           505,000
                           
                           $
                           332,000
                           
                           $
                           858,000
                           
                           $
                           1,773,000
                           (1)Restricted stock awards and employee stock purchase plan
                           
                           
                           445,000
                           
                           
                           1,312,000
                           
                           
                           1,226,000
                           
                           
                           2,397,000Total stock-based compensation expense
                           
                           $
                           950,000
                           
                           $
                           1,644,000
                           
                           $
                           2,084,000
                           
                           $
                           4,170,000 (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 $1,167,000 during the six months ended June
                              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 six months ended June 30, 2010 and 2009: Three months endedJune 30,
                           
                           
                           Six months endedJune 30,2010
                           
                           
                           2009
                           
                           
                           2010
                           
                           
                           2009Weighted-average volatility
                           
                           
                           56.7%
                           
                           
                           56.3%
                           
                           
                           56.7%
                           
                           
                           55.0%Risk-free interest rate
                           
                           
                           3.3%
                           
                           
                           3.3% to 3.7%
                           
                           
                           3.3% to 3.7%
                           
                           
                           3.0% to 3.7%Weighted-average dividend yield
                           
                           
                           0%
                           
                           
                           0%
                           
                           
                           0%
                           
                           
                           0%Expected term
                           
                           
                           3 to 9 years
                           
                           
                           3 to 9 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 June 30, 2010, approximately $7.4 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 2.3
                     years, compared to approximately $7.8 million of unrecognized
                     stock-based compensation expense as of June 30, 2009.
 9


Kenneth Cole Productions, Inc. and SubsidiariesNotes to Consolidated Financial Statements(Unaudited) 3. 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 June
                     30, 2010 in an aggregate amount of 2,506,000 have been excluded in
                     the diluted per share calculation as the impact would be
                     antidilutive. All stock options and restricted stock outstanding as
                     of June 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
                           
                           
                           Six Months EndedJune 30, 2010
                           
                           
                           June 30, 2009
                           
                           
                           June 30, 2010
                           
                           
                           June 30, 2009Weighted-average common shares outstanding
                           
                           
                           18,146,000
                           
                           
                           17,954,000
                           
                           
                           18,119,000
                           
                           
                           17,922,000Effect of dilutive securities:Restricted stock and employee stock purchase plan
                           
                           
                           167,000
                           
                           
                           --
                           
                           
                           193,000
                           
                           
                           --Stock options
                           
                           
                           204,000
                           
                           
                           --
                           
                           
                           189,000
                           
                           
                           --Weighted-average common shares outstanding and common share equivalents
                           
                           
                           18,517,000
                           
                           
                           17,954,000
                           
                           
                           18,501,000
                           
                           
                           17,922,000 4. 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 $0.1 million related to auction-rate
                     securities within Impairment of investments in the Condensed
                     Consolidated Statements of Operations during the six months ended
                     June 30, 2010. During the six months ended June 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 Consolidated Financial Statements(Unaudited)  4. Investments (continued) The following table presents gross unrealized gains on, and estimated
                     fair value of, the Company's long-term investments as of June 30,
                     2010 and December 31, 2009: June 30, 2010Gross UnrealizedHistorical Cost
                           
                           
                           (2)Cost Basis
                           
                           
                           EstimatedFair Value
                           
                           
                           Other-than-temporary Impairment (1)
                           
                           
                           Gains
                           
                           
                           LossesAuction-rate securities
                           
                           $
                           7,100,000
                           
                           $
                           3,324,000
                           
                           $
                           3,411,000
                           
                           $
                           (23,000
                           )
                           $
                           110,000
                           
                           
                           --Equity securities
                           
                           
                           5,128,000
                           
                           
                           508,000
                           
                           
                           1,514,000
                           
                           
                           --
                           
                           
                           1,006,000
                           
                           
                           --Total
                           
                           $
                           12,228,000
                           
                           $
                           3,832,000
                           
                           $
                           4,925,000
                           
                           $
                           (23,000
                           )
                           $
                           1,116,000
                           
                           
                           --  December 31, 2009Gross UnrealizedHistorical Cost
                           
                           
                           (2)Cost Basis
                           
                           
                           Estimated Fair Value
                           
                           
                           Other-than- temporary Impairment (1)
                           
                           
                           Gains
                           
                           
                           LossesAuction-rate securities
                           
                           $
                           7,100,000
                           
                           $
                           3,392,000
                           
                           $
                           3,529,000
                           
                           $
                           (90,000
                           )
                           $
                           227,000
                           
                           
                           --Equity securities
                           
                           
                           5,338,000
                           
                           
                           717,000
                           
                           
                           3,365,000
                           
                           
                           --
                           
                           
                           2,648,000
                           
                           
                           --Total
                           
                           $
                           12,438,000
                           
                           $
                           4,109,000
                           
                           $
                           6,894,000
                           
                           $
                           (90,000
                           )
                           $
                           2,875,000
                           
                           
                           -- (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. 5. Fair Value Measurement The Company's financial assets, measured at fair value on a recurring
                     basis, were as follows: Fair Value atJune 30, 2010
                           
                           
                           Fair Value atDecember 31, 2009
                           
                           
                           HierarchyEquity securities
                           
                           $
                           1,514,000
                           
                           $
                           3,365,000
                           
                           
                           Level 1Deferred compensation plans' assets
                           
                           
                           36,549,000
                           
                           
                           36,192,000
                           
                           
                           Level 2Auction-rate securities
                           
                           
                           3,411,000
                           
                           
                           3,529,000
                           
                           
                           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.
 11


Kenneth Cole Productions, Inc. and SubsidiariesNotes to Consolidated Financial Statements(Unaudited) 5. Fair Value Measurement (continued) The primary variables used in determining 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 inputs,
                     auction-rate securities, measured at fair value using observable
                     inputs based on unobservable data in an inactive market for the six
                     months ended June 30, 2010: Beginning balance at January 1, 2010
                           
                           $
                           3,529,000Unrealized loss recorded in Accumulated other comprehensive (loss)/income
                           
                           
                           (116,000
                           )Impairment charge included in Condensed Consolidated Statement of Operations
                           
                           
                           (2,000
                           )Ending balance at June 30, 2010
                           
                           $
                           3,411,000 The Company recorded a $0.1 million and $0.4 million writedown in its
                     auction-rate securities within Impairment of investments in the
                     Condensed Consolidated Statements of Operations during the six months
                     ended June 30, 2010 and 2009, respectively. 6. 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 six months ended June 30, 2010 amounted to
                     $0.6 million and $1.2 million, respectively. Comprehensive loss for
                     the three and six months ended June 30, 2009 amounted to $2.4 million
                     and $10.3 million, respectively. 7. 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 its 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 of
                     royalties earned on licensee sales to third parties of products
                     bearing the Company's trademarks and trade names and on the purchase
                     and sale to foreign retailers, distributors, or to consumers in
                     foreign countries. 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 Consolidated Financial Statements(Unaudited) 7. Segment Information (continued) Financial information of the Company's reportable segments is as
                     follows (in thousands): Three Months EndedJune 30, 2010
                           
                           
                           
                           
                           
                           Six Months EndedJune 30, 2010Consumer
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           ConsumerWholesale
                           
                           
                           Direct
                           
                           
                           Licensing
                           
                           
                           Totals
                           
                           
                           
                           
                           
                           Wholesale
                           
                           
                           Direct
                           
                           
                           Licensing
                           
                           
                           TotalsRevenue from external customers
                           
                           $
                           52,068
                           
                           $
                           44,820
                           
                           $
                           11,085
                           
                           $
                           107,973
                           
                           
                           
                           
                           $
                           114,503
                           
                           $
                           81,778
                           
                           $
                           21,204
                           
                           $
                           217,485Intersegment revenues
                           
                           
                           11,208
                           
                           
                           --
                           
                           
                           --
                           
                           
                           11,208
                           
                           
                           
                           
                           
                           18,958
                           
                           
                           --
                           
                           
                           --
                           
                           
                           18,958Segment income/(loss) (1)(2)
                           
                           
                           227
                           
                           
                           (4,422
                           )
                           
                           8,536
                           
                           
                           4,341
                           
                           
                           
                           
                           
                           2,379
                           
                           
                           (9,478
                           )
                           
                           16,348
                           
                           
                           9,249Segment assets (3)
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           173,239
                           
                           
                           45,914
                           
                           
                           36,693
                           
                           
                           255,846  Three Months EndedJune 30, 2009
                           
                           
                           
                           
                           
                           Six Months EndedJune 30, 2009Consumer
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           ConsumerWholesale
                           
                           
                           Direct
                           
                           
                           Licensing
                           
                           
                           Totals
                           
                           
                           
                           
                           
                           Wholesale
                           
                           
                           Direct
                           
                           
                           Licensing
                           
                           
                           TotalsRevenue from external customers
                           
                           $
                           46,165
                           
                           $
                           38,583
                           
                           $
                           9,152
                           
                           $
                           93,900
                           
                           
                           
                           
                           $
                           107,823
                           
                           $
                           71,299
                           
                           $
                           18,153
                           
                           $
                           197,275Intersegment revenues
                           
                           
                           7,163
                           
                           
                           --
                           
                           
                           --
                           
                           
                           7,163
                           
                           
                           
                           
                           
                           16,313
                           
                           
                           --
                           
                           
                           --
                           
                           
                           16,313Segment (loss)/income (1)(2)
                           
                           
                           (3,968
                           )
                           
                           (4,928
                           )
                           
                           7,452
                           
                           
                           (1,444
                           )
                           
                           
                           
                           
                           (7,707
                           )
                           
                           (16,465
                           )
                           
                           14,468
                           
                           
                           (9,704
                           )Segment assets (3)
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           
                           188,518
                           
                           
                           54,310
                           
                           
                           55,933
                           
                           
                           298,761  (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
                           
                           
                           Six Months EndedJune 30, 2010
                           
                           
                           June 30, 2009
                           
                           
                           June 30, 2010
                           
                           
                           June 30, 2009Income/(loss)Total income/(loss) for reportable segments (1)
                           
                           $
                           4,341
                           
                           $
                           (1,444
                           )
                           $
                           9,249
                           
                           $
                           (9,704
                           )Adjustment for stock-based compensation expense, writedown of
                              marketable securities and unallocated corporate overhead
                           
                           
                           (3,228
                           )
                           
                           (3,635
                           )
                           
                           (6,219
                           )
                           
                           (8,169
                           )Total income/(loss) before provision for/(benefit from) income taxes
                           
                           $
                           1,113
                           
                           $
                           (5,079
                           )
                           $
                           3,030
                           
                           $
                           (17,873
                           ) _________________(1) Excludes stock-based compensation expense, writedown of marketable
                              securities, unallocated corporate overhead and income taxes. Revenues from international customers were approximately 5.4% and
                     3.3% of the Company's consolidated revenues for the three months
                     ended June 30, 2010 and 2009, respectively, and approximately 6.4%
                     and 4.2% of the Company's consolidated revenues for the six months
                     ended June 30, 2010 and June 30, 2009, respectively.
 13


Kenneth Cole Productions, Inc. and SubsidiariesNotes to Consolidated Financial Statements(Unaudited) 8. Income Taxes During the three and six months ended June 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. 9. Related Party Transaction The Company recorded expenses of approximately $0.1 million for the
                     three and six months ended June 30, 2010, respectively, 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
                     six months ended June 30, 2009, the Company recorded expenses of
                     approximately $0.2 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. 10. 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.
 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 to 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. The Company recorded net revenues of $108.0 million and $217.5
                     million for the three and six months ended June 30, 2010,
                     respectively. Diluted earnings per share were $0.05 for the three
                     months ended June 30, 2010 as compared to a diluted loss per share of
                     $(0.18) for the three months ended June 30, 2009. Diluted earnings
                     per share were $0.15 for the six months ended June 30, 2010 as
                     compared to a diluted loss per share of $(0.64) for the six months
                     ended June 30, 2009. Cash and cash equivalents were $79.2 million at
                     June 30, 2010 versus $57.9 million at June 30, 2009 and the Company
                     has no long-term debt.
 15


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 six months ended June 30, 2010 and
                     June 30, 2009. Three Months Ended June 30,
                           
                           
                           
                           
                           
                           Six Months Ended June 30,2010
                           
                           
                           2009
                           
                           
                           
                           
                           
                           2010
                           
                           
                           2009Net sales
                           
                           $
                           96,888
                           
                           
                           89.7
                           %
                           $
                           84,748
                           
                           
                           90.3
                           %
                           
                           
                           
                           $
                           196,281
                           
                           
                           90.3
                           %
                           $
                           179,122
                           
                           
                           90.8
                           %Royalty revenue
                           
                           
                           11,085
                           
                           
                           10.3
                           
                           
                           9,152
                           
                           
                           9.7
                           
                           
                           
                           
                           
                           21,204
                           
                           
                           9.7
                           
                           
                           18,153
                           
                           
                           9.2Net revenues
                           
                           
                           107,973
                           
                           
                           100.0
                           
                           
                           93,900
                           
                           
                           100.0
                           
                           
                           
                           
                           
                           217,485
                           
                           
                           100.0
                           
                           
                           197,275
                           
                           
                           100.0Gross profit (1)
                           
                           
                           47,188
                           
                           
                           43.7
                           
                           
                           39,813
                           
                           
                           42.4
                           
                           
                           
                           
                           
                           92,738
                           
                           
                           42.6
                           
                           
                           74,885
                           
                           
                           38.0Selling, general and administrative expenses
                           
                           
                           46,092
                           
                           
                           42.7
                           
                           
                           44,965
                           
                           
                           47.9
                           
                           
                           
                           
                           
                           90,672
                           
                           
                           41.7
                           
                           
                           92,638
                           
                           
                           47.0Operating income/(loss)
                           
                           
                           1,096
                           
                           
                           1.0
                           
                           
                           (5,152
                           )
                           
                           (5.5
                           )
                           
                           
                           
                           
                           2,066
                           
                           
                           0.9
                           
                           
                           (17,753
                           )
                           
                           (9.0
                           )Interest and other income, net
                           
                           
                           65
                           
                           
                           0.0
                           
                           
                           114
                           
                           
                           0.1
                           
                           
                           
                           
                           
                           1,032
                           
                           
                           0.5
                           
                           
                           320
                           
                           
                           0.1Impairment of investments
                           
                           
                           (48
                           )
                           
                           0.0
                           
                           
                           (41
                           )
                           
                           0.0
                           
                           
                           
                           
                           
                           (68
                           )
                           
                           0.0
                           
                           
                           (440
                           )
                           
                           (0.2
                           )Income/(loss) before income taxes
                           
                           
                           1,113
                           
                           
                           1.0
                           
                           
                           (5,079
                           )
                           
                           (5.4
                           )
                           
                           
                           
                           
                           3,030
                           
                           
                           1.4
                           
                           
                           (17,873
                           )
                           
                           (9.1
                           )Income tax expense/(benefit)
                           
                           
                           176
                           
                           
                           0.1
                           
                           
                           (1,813
                           )
                           
                           (1.9
                           )
                           
                           
                           
                           
                           261
                           
                           
                           0.1
                           
                           
                           (6,439
                           )
                           
                           (3.3
                           )Net income/(loss)
                           
                           $
                           937
                           
                           
                           0.9
                           %
                           $
                           (3,266
                           )
                           
                           (3.5
                           )%
                           
                           
                           
                           $
                           2,769
                           
                           
                           1.3
                           %
                           $
                           (11,434
                           )
                           
                           (5.8
                           )% (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 June 30, 2010 Compared to Three Months Ended June 30, 2009 REVENUES: Net revenues increased 15.0%, or $14.1 million, to $108.0
                     million for the three months ended June 30, 2010 from $93.9 million
                     for the three months ended June 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 12.8%, or $6.0 million to
                     $52.1 million for the three months ended June 30, 2010 from $46.1
                     million for the three months ended June 30, 2009.  Excluding the
                     discontinued Tribeca and Bongo footwear lines which amounted to $1.3 million of sales, Wholesale
                     net sales increased 16.0% primarily as a result of an increase in the
                     Company's wholesale international divisions as well as Reactionand Unlistedbranded footwear. In 2009, the Company discontinued its non-profitable Tribeca and Bongo footwear lines to focus on its core footwear brands. On a
                     year-over-year comparative basis, the Company expects a continued
                     reduction in these lines through the end of the fiscal third quarter
                     of 2010, which represents the anniversary of the time at which the
                     last planned exits and reductions occurred. The Company does not
                     anticipate discontinuing any other lines at this time. Net sales in the Company's Consumer Direct segment increased 16.2%,
                     or $6.2 million, to $44.8 million for the three months ended June 30,
                     2010 from $38.6 million for the three months ended June 30, 2009. The
                     increase was driven by a comparable store sales increase of 8.4%, or
                     $2.8 million, and the addition of eight net new stores. 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 Company Store ("outlet") and closed one full-priced retail
                     store and one outlet during the three months ended June 30, 2010 compared to opening
                     seven outlets and closing one full-priced retail store during the
                     three months ended June 30, 2009. LICENSING REVENUE: Licensing revenue increased 21.1%, or $1.9
                     million, to $11.1 million for the three months ended June 30, 2010
                     from $9.2 million for the three months ended June 30, 2009. The
                     increase in licensing revenues was primarily attributable to an
                     increase in contractual minimums and additional royalties from its
                     international licensees. In addition, approximately 75% of the
                     Company's licensees reported sales increases for the three months
                     ended June 30, 2010 versus the comparable period. Included within
                     licensing revenue is approximately $0.9 million of royalties for the Le Tigrelicense with JC Penney during the three months ended June 30, 2010.
                     Contractual minimums for the Le Tigrelicense with JC Penney will cease 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 43.7% for the three months ended June 30, 2010
                     from 42.4% for the three months ended June 30, 2009. The 130 basis
                     point increase was attributable to an increase in the Wholesale
                     segment gross profit primarily from enhanced merchandise assortments,
                     continued disciplined inventory management and better sell-throughs.
                     In addition, the increase as a percentage of net revenues was due to
                     the 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 41.5% for the three months
 16


ended June 30, 2010 compared to 41.1% for the three months ended June
                     30, 2009. The Wholesale segment revenues, as a percentage of total
                     net revenues, decreased to 48.2% for the three months ended June 30,
                     2010 from 49.2% for the three months ended June 30, 2009. The
                     revenues in the Licensing segment, which carries nominal cost of
                     goods sold, increased, as a percentage of total net revenues, to
                     10.3% for the three months ended June 30, 2010 compared to 9.7% for
                     the three months ended June 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 520 basis points
                     to 42.7% for the three months ended June 30, 2010 compared to 47.9%
                     for the three months ended June 30, 2009 as the Company achieved
                     leverage from increased revenues in each of its business segments.
                     Total SG&A increased $1.1 million to $46.1 million for the three
                     months ended June 30, 2010 from $45.0 million for the three months
                     ended June 30, 2009. The increase in SG&A expenses versus the prior
                     year was primarily attributable to additional expenses associated
                     with operating eight net new stores, variable shipping costs and
                     compensation for the Company's pay-for-performance annual bonus
                     incentive. INCOME TAXES: The Company's effective tax rate was 15.8% for the
                     three months ended June 30, 2010 compared to 35.7% for the three
                     months ended June 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 June 30, 2010. The effective tax rate 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 $0.9 million or 0.9% of net revenues for the three
                     months ended June 30, 2010 compared to a net loss of $(3.3) million,
                     or (3.5%) of net revenues for the three months ended June 30, 2009. Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009 REVENUES: Net revenues increased 10.2%, or $20.2 million, to $217.5
                     million for the six months ended June 30, 2010 from $197.3 million
                     for the six months ended June 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 6.2%, or $6.7 million, to
                     $114.5 million for the six months ended June 30, 2010 from $107.8
                     million for the three months ended June 30, 2009.  Excluding the
                     discontinued Tribeca and Bongo footwear lines which amounted to $4.5
                     million of sales, Wholesale net sales increased 10.8% primarily as a
                     result of an increase in sales from the wholesale international
                     divisions while footwear sales remained relatively flat. In 2009, the
                     Company discontinued its non-profitable Tribeca and Bongo footwear lines to focus on its core footwear brands. On a
                     year-over-year comparative basis, the Company expects a continued
                     reduction in these lines through the end of the fiscal third quarter
                     of 2010, which represents the anniversary of the time at which the
                     last planned exits occurred. The Company does not anticipate
                     discontinuing any other lines at this time. Net sales in the Company's Consumer Direct segment increased 14.7%,
                     or $10.5 million, to $81.8 million for the six months ended June 30,
                     2010 from $71.3 million for the six months ended June 30, 2009. The
                     increase was driven by a comparable store sales increase of 7.2%, or
                     $4.3 million, and the addition of eight net new stores. 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 six months ended June 30, 2010 compared to opening
                     eight outlets and closing three full-priced retail stores during the
                     six months ended June 30, 2009. LICENSING REVENUE: Licensing revenue increased 16.8%, or $3.0
                     million, to $21.2 million for the six months ended June 30, 2010 from
                     $18.2 million for the six months ended June 30, 2009. The increase in
                     licensing revenues was primarily attributable to an increase in
                     contractual minimums. Included within licensing revenue is
                     approximately $1.9 million of royalties for the Le Tigrelicense with JC Penney during the six months ended June 30, 2010.
                     Contractual minimums for the Le Tigrelicense with JC Penney will cease 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 six months ended June 30, 2010
                     from 38.0% for the six months ended June 30, 2009. The 460 basis
                     point increase was attributable to increases in both Wholesale and
                     Consumer Direct segment gross profit primarily from enhanced product
                     and merchandise assortments, disciplined inventory management and
                     better sell-through. 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 37.6%
                     for the six months ended June 30, 2010 compared to 36.1% for the six
                     months ended June 30, 2009. The Wholesale segment revenues, as a
                     percentage of total net revenues, decreased to 52.7% for the six
                     months ended June 30, 2010 from 54.7% for
 17


the six months ended June 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 six months ended
                     June 30, 2010 compared to 9.2% for the six months ended June 30, 2009. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: SG&A expenses,
                     including warehousing and receiving expenses, as a percentage of net
                     revenues, improved 530 basis points to 41.7% for the six months ended
                     June 30, 2010 compared to 47.0% for the six months ended June 30,
                     2009 as the Company achieved leverage from increased revenues in each
                     of its business segments. In addition, total SG&A decreased $1.9
                     million to $90.7 million for the six months ended June 30, 2010 from
                     $92.6 million for the six months ended June 30, 2009. The decrease in
                     SG&A expenses versus the prior period was primarily attributable to
                     cost containment programs, partially offset by the additional
                     expenses associated with operating eight net new stores, variable
                     shipping costs and compensation for the Company's pay-for-performance
                     annual bonus incentive. INTEREST AND OTHER INCOME, NET: Interest and other income, net
                     increased $0.7 million to $1.0 million for the six months ended June
                     30, 2010 compared to $0.3 million for the six months ended June 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 $0.1
                     million during the six months ended June 30, 2010 compared to $0.4
                     million during the six months ended June 30, 2009. INCOME TAXES: The Company's effective tax rate was 8.6% for the six
                     months ended June 30, 2010 compared to 36.0% for the six months ended
                     June 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 six months ended
                     June 30, 2010. The effective tax rate 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 $2.8 million or 1.3% of net revenues for the six months
                     ended June 30, 2010 compared to a net loss of $(11.4) million, or
                     (5.8%) of net revenues for the six months ended June 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 expenses of approximately $0.1 million for the
                     three and six months ended June 30, 2010, respectively, 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
                     six months ended June 30, 2009, the Company recorded expenses of
                     approximately $0.2 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. Liquidity and Capital Resources As of June 30, 2010, the Company had $79.2 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 June 30, 2010 and December 31, 2009, working capital was $96.3
                     million and $88.6 million, respectively. Cash provided by operating activities was $11.6 million for the six
                     months ended June 30, 2010 compared to $1.6 million for the six
                     months ended June 30, 2009. The improvement in cash flows provided by
                     operations is primarily attributable to an increase in net income and
                     $4.0 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.
 18


Net cash used in investing activities totaled $0.1 million for the
                     six months ended June 30, 2010 compared to $7.8 million for the six
                     months ended June 30, 2009. The decrease was primarily attributable
                     to a $6.2 million decrease in capital expenditures during the six
                     months ended June 30, 2010 compared to June 30, 2009. In addition,
                     the Company received proceeds of $1.0 million from the sale of a
                     portion of an equity investment during the six months ended June 30,
                     2010, while intangible asset purchases decreased $0.5 million during
                     the six months ended June 30, 2010 compared to the six months ended
                     June 30, 2009. Net cash used in financing activities was $0.7 million for the six
                     months ended June 30, 2010 compared to $0.6 million used in financing
                     activities for the six months ended June 30, 2009. 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 six months ended June 30,
                     2010 compared to the six months ended June 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 six months ended June 30,
                     2010. Amounts available under the Facility at June 30, 2010 were
                     reduced by $3.6 million of standby and open letters of credit. The Company believes that it will be able to satisfy its current
                     expected cash requirements for 2010, including requirements for its
                     new stores, 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 June 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 foreign exchange contracts. The
                     Company does not enter into foreign currency transactions for trading
                     or speculative purposes. At June 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.
 19


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. Part II - OTHER INFORMATION Item 1.
                           
                           
                           Legal Proceedings. NoneItem 1A.
                           
                           
                           Risk Factors. There have been no material changes during the quarterly period
                              ended June 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.Item 2.
                           
                           
                           Unregistered Sales of Equity Securities and Use of Proceeds. NoneItem 3.
                           
                           
                           Defaults Upon Senior Securities. NoneItem 5.
                           
                           
                           Other Information. NoneItem 6.
                           
                           
                           Exhibits.10.18
                           
                           
                           Amended and Restated Credit Agreement between J.P. Morgan Securities
                              Inc., JPMorgan Chase Bank, National Association, PNC Bank, National
                              Association, Bank of America, N.A., and Wachovia Bank, National
                              Association, and Kenneth Cole Productions, Inc. dated as of July 30,
                              2009. (Previously filed as Exhibit 10.01 to the Registrant's Current
                              Report on Form 8-K filed on August 6, 2009).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.
 20


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.RegistrantAugust 5, 2010
                           
                           
                           
                           
                           
                           /s/ DAVID P. EDELMANDavid P. EdelmanChief Financial Officer(Principal Financial and Accounting Officer)
 21