UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549  Form 10-Q  (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the quarterly period ended March 31, 2010 or  (  )  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 York13-3131650(State or other jurisdiction of
incorporation or organization)(I.R.S. Employer
Identification No.)  603 West 50th Street, New York, NY10019(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 (  )  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 (  ) No (  )  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 (  )   Accelerated filer (  ) Non-accelerated filer (X) (Do not
check if a smaller reporting company) Smaller reporting company (  ).  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes (  ) No (X)  Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date:  ClassMay 4, 2010Class A Common Stock ($.01 par value)10,086,571Class B Common Stock ($.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 March 31, 2010 and

December 31, 20093Condensed Consolidated Statements of Operations for the three months ended March 31, 2010 and 20095Condensed Consolidated Statement of Changes in Shareholders Equity
for the three months ended March 31, 20106Condensed Consolidated Statements of Cash Flows for the three months  ended March 31, 2010 and 20097Notes to Condensed Consolidated Financial Statements8Item 2.Managements Discussion and Analysis of Financial Condition and
Results of Operations15Item 3.Quantitative and Qualitative Disclosures about Market Risk19Item 4.Controls and Procedures19Part II.OTHER INFORMATIONItem 1.Legal Proceedings20Item 1A.Risk Factors20Item 2.Unregistered Sales of Equity Securities and Use of Proceeds20Item 3.Defaults Upon Senior Securities20Item 5.Other Information20Item 6.Exhibits20Signatures21

2




Part I. FINANCIAL INFORMATION
Item 1.  Financial Statements



Kenneth Cole Productions, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)





March 31,
2010December 31,
2009AssetsCurrent assets:Cash and cash equivalents$ 66,302,000$  68,505,000Due from factors1,823,000743,000Accounts receivable, net41,787,00029,461,000Inventories35,246,00029,080,000Prepaid expenses and other current assets

4,190,000

8,809,000Total current assets149,348,000136,598,000Property and equipment, at cost, less accumulated depreciation and amortization52,006,00053,952,000Other assets:Intangible assets, net7,483,0007,492,000Deferred taxes, net1,242,000909,000Investments and other6,170,0008,136,000Deferred compensation plans assets41,666,00041,170,000Total other assets56,561,00057,707,000Total Assets$257,915,000$248,257,000


See accompanying notes to condensed consolidated financial statements.


3




Kenneth Cole Productions, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (continued)
(Unaudited)

March 31,
2010December 31,
2009Liabilities and Shareholders EquityCurrent liabilities:Accounts payable and accrued expenses$40,964,000$ 36,336,000Other current liabilities7,162,0007,779,000Deferred income7,458,0003,799,000Income taxes payable62,00073,000Total current liabilities55,646,00047,987,000Accrued rent and other long-term liabilities16,890,00017,501,000Deferred compensation plans liabilities40,374,00039,477,000Commitments 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; 15,939,295
and 15,933,282 issued as of March 31, 2010 and December 31, 2009, respectively159,000159,000Class B Convertible Common Stock, par value $.01,
9,000,000 shares authorized; 8,010,497 issued
and outstanding as of March 31, 2010
and December 31, 2009, respectively80,00080,000Additional paid-in capital108,591,000107,452,000Accumulated other comprehensive income89,0001,346,000Retained earnings161,007,000159,176,000269,926,000268,213,000Class A Common Stock in treasury, at cost, 5,855,550 shares as of March 31, 2010 and December 31, 2009, respectively(124,921,000)(124,921,000)Total shareholders equity145,005,000143,292,000Total Liabilities and Shareholders Equity$257,915,000$248,257,000

See accompanying notes to condensed consolidated financial statements.

4




Kenneth Cole Productions, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)


Three Months Ended
March 31,20102009Net sales$ 99,393,000$ 94,374,000Royalty revenue10,119,0009,001,000Net revenues109,512,000103,375,000Cost of goods sold63,962,00068,303,000Gross profit45,550,00035,072,000Selling, general and administrative expenses44,580,00047,673,000Operating income/(loss)970,000(12,601,000)Interest and other income, net967,000206,000Impairment of investments(20,000)(399,000)Income/(loss) before provision for/(benefit from) income taxes1,917,000(12,794,000)Provision for/(benefit from) income taxes85,000(4,626,000)Net income/(loss)$   1,832,000$  (8,168,000)Earnings/(loss) per share:Basic$0.10$(0.46)Diluted$0.10$(0.46)Dividends declared per share----Shares used to compute earnings/(loss) per share:Basic18,092,00017,889,000Diluted18,484,00017,889,000



See accompanying notes to condensed consolidated financial statements.

5


Kenneth Cole Productions, Inc. and Subsidiaries Condensed Consolidated Statement of Changes in Shareholders Equity (Unaudited)   Class A
Common StockClass B
Common StockAdditionalAccumulated
Other

Treasury StockNumber
of sharesAmountNumber
of sharesAmountPaid-in
CapitalComprehensive
IncomeRetained
EarningsNumber of
SharesAmountTotalShareholders equity
January 1, 201015,933,282$159,0008,010,497$80,000$107,452,000$1,346,000$159,176,000(5,855,550)$(124,921,000)$143,292,000Net income1,832,0001,832,000Other-than-temporary impairment for non-credit component of impaired securities10,00010,000Translation adjustment for foreign currency102,000102,000Reduction in unrealized gain on available-for-sale securities


(1,369,000)(1,369,000)Comprehensive income575,000Stock-based compensation expense1,134,0001,134,000Issuance of restricted stock and related tax benefits4,022(4,000)(4,000)Shares surrendered by employees to pay taxes on restricted stock(1,749)(22,000)(22,000)Issuance of Class A Common Stock from ESPP3,74031,00031,000Dividends associated with vesting of restricted stock(1,000)(1,000)Shareholders equity
March 31, 201015,939,295$159,0008,010,497$80,000$108,591,000$89,000$161,007,000(5,855,550)$(124,921,000)$145,005,000 See accompanying notes to condensed consolidated financial statements.   6


Kenneth Cole Productions, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended
March 31,20102009Cash flows used in operating activitiesNet income/(loss)$     1,832,000$  (8,168,000)Adjustments to reconcile net income/(loss) to net cash
used in operating activities:Depreciation and amortization2,172,0002,387,000Provision for doubtful accounts(43,000)17,000Benefit from deferred taxes(337,000)(4,541,000)Unrealized loss/(gain) from investments101,000(355,000)Writedown of investments2,000399,000Stock-based compensation expense1,134,0002,526,000Tax benefit from stock option exercises and restricted stock vested(19,000)(9,000)Changes in operating assets and liabilities:(Increase)/decrease in due from factors(1,080,000)6,477,000Increase in accounts receivable(12,283,000)(12,516,000)Increase in inventories(6,166,000)(778,000)Decrease/(increase) in prepaid expenses and other current assets4,634,000(1,107,000)Increase in other assets(1,043,000)(77,000)Increase in accounts payable and accrued expenses4,628,0004,632,000Increase/(decrease) in deferred income and other current liabilities3,105,000(4,236,000)(Decrease)/increase in income taxes payable(11,000)203,000Increase/(decrease) in other long-term liabilities286,000(345,000)Net cash used in operating activities(3,088,000)(15,491,000)Cash flows provided by/(used in) investing activitiesAcquisition of property and equipment(129,000)(2,354,000)Proceeds from sale of investments1,055,000--Purchase of intangible assets(88,000)(556,000)Net cash provided by/(used in) investing activities838,000(2,910,000)Cash flows provided by financing activitiesShares surrendered by employees to pay taxes on restricted stock(22,000)(8,000)Proceeds from employee stock purchase plan31,00046,000Dividends associated with vesting of restricted stock(1,000)(2,000)Net cash provided by financing activities8,00036,000Effect of exchange rate changes on cash39,000(6,000)Net decrease in cash(2,203,000)(18,371,000)Cash and cash equivalents, beginning of period68,505,00064,704,000Cash and cash equivalents, end of period$  66,302,000$   46,333,000Supplemental disclosures of cash flow informationCash paid during the period for:Interest$            5,000$          15,000Income taxes (refunded)/paid, net$  (4,012,000)$        945,000 See accompanying notes to condensed consolidated financial statements.


7


Kenneth Cole Productions, Inc. and Subsidiaries Notes to Condensed Consolidated Financial Statements (Unaudited)   1.  Basis of Presentation  The accompanying unaudited condensed consolidated financial statements have been prepared by 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 three months ended March 31, 2010 are not necessarily indicative of the results that may
be expected for the year ended December 31, 2010. These unaudited condensed consolidated financial statements should be read
in conjunction with the financial statements and footnotes included in the Companys Annual Report on Form 10-K for the year
ended December 31, 2009.  The
Companys Consolidated Balance Sheet at December 31, 2009, as presented, was derived from the audited financial statements
included in the Companys Annual Report on Form 10-K for the year ended December 31, 2009.  2.  Stock-Based Compensation  The
Company has stock-based compensation 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 three to
four year period or cliff vest after three years. During the three months ended March 31, 2009, the Company
granted 343,672 stock options for the Companys Chairman and CEO who elected to receive 100% and 50%, respectively,
of their 2008 annual bonuses in stock options in lieu of cash. The Company granted 6,000 stock options during the
three months ended March 31, 2010. The Company did not grant shares of restricted stock during the three months
ended March 31, 2010 and 2009. Stock options outstanding and unvested restricted stock amounted to 2,797,395 and
365,382 shares, respectively, as of March 31, 2010.   8    Kenneth Cole Productions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)

2.  Stock-Based Compensation (continued)


The
following table summarizes the components of stock-based compensation expense for the three months ended March 31, 2010 and 2009,
all of which is included in Selling, general, and administrative expenses in the Condensed Consolidated Statements of
Operations:


Three months ended
March 31,20102009Stock options (1)$    353,000$  1,441,000Restricted stock units and employee stock purchase plan781,0001,085,000Total stock-based compensation expense$ 1,134,000$  2,526,000_____________(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 three months ended March 31, 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 months ended March 31, 2010 and
2009:


20102009Weighted-average volatility64.2%53.6%Risk-free interest rate3.7%3.0%Weighted-average dividend yield0%0%Expected term3 years9 years


The
weighted-average volatility for the current period was developed using historical volatility for periods equal to the expected
term of the options. The risk-free interest rate was developed using the U.S. Treasury yield curve for periods equal to the
expected term of the options on the grant date. The dividend yield is calculated by using the dividends declared per share
and the Companys stock price on the date of grant. The expected term of stock option grants was developed after
considering vesting schedules, life of the option, historical experience and estimates of future exercise behavior patterns.



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. Stock-based compensation is
recognized for the number of awards that are ultimately expected to vest. As a result, for most awards, recognized stock
compensation expense was reduced for estimated forfeitures prior to vesting primarily based on historical annual forfeiture rates
by employee classification. Estimated forfeitures will continue to be reassessed in subsequent periods and may change based
on new facts and circumstances.



As
of March 31, 2010, approximately $4.7 million of unrecognized stock 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 2.0 years,
compared to approximately $7.4 million of unrecognized stock compensation expense as of March 31, 2009.


9



Kenneth Cole Productions, Inc. and Subsidiaries
Notes to Condensed 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 for the three months ended March 31, 2010 in an aggregate
amount of 2,105,000 have been excluded in the diluted per share calculation as the impact would be antidilutive.
All stock options and restricted stock outstanding as of March 31, 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
March 31,
20102009Weighted-average common shares outstanding18,092,00017,889,000Effect of dilutive securities:Restricted stock & employee     stock purchase plan219,000--Stock options173,000--Weighted-average commonshares outstanding and commonshare equivalents18,484,00017,889,000

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 $20,000 related to auction-rate securities within Impairment of investments in
the Condensed Consolidated Statements of Operations during the three months ended March 31, 2010.



During the three months ended March 31, 2010, the Company sold a portion of its equity investments. The cost
basis of the equity investment sold was $0.2 million. 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 Subsidiaries
Notes to Condensed 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 March 31, 2010 and December 31, 2009:
March 31, 2010Historical Cost
(2)
 Cost Basis
Estimated Fair Value
Other than Temporary Impairment (1)
Gross UnrealizedGainsLossesAuction-rate securities$  7,100,000$3,372,000$3,426,000$(80,000)$   134,000--Equity securities5,128,000508,0001,569,000--1,061,000--Total$12,228,000$3,880,000$4,995,000$(80,000)$1,195,000--December 31, 2009Historical Cost(2)
Cost BasisEstimated Fair ValueOther than Temporary Impairment (1)Gross UnrealizedGainsLossesAuction-rate securities$  7,100,000$3,392,000$3,529,000$(90,000)$   227,000--Equity securities5,338,000717,0003,365,000--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 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 at
March 31, 2010Fair Value at
December 31, 2009HierarchyInvestments$  1,569,000$  3,365,000Level 1Deferred compensation plans assets36,908,00036,192,000Level 2Auction-rate securities3,426,0003,529,000Level 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 assets are primarily comprised
of interests in limited partnerships that invest in a variety of assets including publicly traded equity securities,
debt securities and privately-held companies. The general partners that manage the limited partnerships determine
the fair value of the plans investment by determining the net asset valuation in accordance with applicable
accounting standards. Certain of these investments have short-term lockup provisions and redemption restrictions
which require advance notice for redemption. Management does not believe that these short-term lockup provisions
and redemption restrictions affect the Plans ability to transact redemptions at the net asset value. A Level
3 hierarchy represents a fair value that is derived from inputs that are unobservable or from observable inputs based on
unobservable data in an inactive market. The fair value of the Companys auction-rate securities is determined from
an independent third-party valuation. The primary variables used in determining fair value include collateral,
rating, insurance, credit risk and downgrade risk of the security.


11



Kenneth Cole Productions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)



5.
Fair Value Measurement (continued)

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 three months ended March 31, 2010:


Beginning balance at January 1, 2010$3,529,000Unrealized loss recorded in Accumulated other comprehensive income(93,000)Impairment charge recorded in Accumulated other comprehensive income(8,000)Impairment charge included in Statement of Operations(2,000)Ending balance at March 31, 2010$3,426,000
The Company recorded a $20,000 and a $0.4 million writedown in its auction-rate securities within Impairment of investments in the Condensed Consolidated Statements of Operations during the three months ended March 31, 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 months ended March 31, 2010 amounted to $0.6 million.  Comprehensive loss for the three months ended March 31, 2009 amounted to $7.9 million.

7.
Segment Information


The
Company has three reportable segments: Wholesale, Consumer Direct and Licensing. The Wholesale segment designs and
sources a broad range of fashion footwear, handbags, accessories, and apparel and markets its products for sale to approximately
5,500 U.S. 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, 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 a footwear resource to a diverse 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 managedseparately,
althoughplanning, implementation and results across segments are reviewed internally 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 Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)

7.
Segment Information (continued)
Financial information of the Companys reportable segments is as follows (in thousands):

Three Months EndedMarch 31, 2010WholesaleConsumer
DirectLicensingTotalsRevenue from external customers$ 62,435$ 36,958$ 10,119$ 109,512Intersegment revenues7,750----7,750Segment income/(loss) (1) (2)2,152(5,056)7,8124,908Segment assets (3)170,80248,05939,158258,019
Three Months EndedMarch 31, 2009WholesaleConsumer
DirectLicensingTotalsRevenue from external customers$  61,658$  32,716$  9,001$103,375Intersegment revenues9,150----9,150Segment (loss)/income (1) (2)(3,739)(11,537)7,016(8,260)Segment assets (3)195,89755,22957,314308,440_________________
(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 revenues and income/(loss) are as follows (in thousands):




Three Months EndedMarch 31, 2010March 31, 2009RevenuesRevenues for reportable segments$109,512$103,375Intersegment revenues7,7509,150Elimination of intersegment revenues(7,750)(9,150)Total consolidated revenues$109,512$103,375Income/(loss)Total income/(loss) for reportable segments (1)$    4,908$(8,260)Adjustment for stock-based compensation expense, writedown of marketable securities and unallocated corporate overhead(2,991)(4,534)Total income/(loss) before provision for/(benefit from) income taxes$    1,917$(12,794)____________________
(1)
Excludes stock-based compensation expense, writedown of marketable securities, unallocated corporate overhead and income taxes.

Revenues from international customers were approximately 7.3% and 5.0% of the Companys consolidated revenues for the three months ended March 31, 2010 and 2009, respectively.

13



Kenneth Cole Productions, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)


8.
Income Taxes

During the three months ended March 31, 2010 the Company reversed a portion of the deferred tax valuation allowance established during 2009 which offset substantially all of the Companys federal income tax expense.

During the three months ended March 31, 2010, the Company received a Federal tax refund of $4.0 million applicable to a prior year operating loss carryback (as a consequence of legislation enacted in 2009).

9.
Related Party Transaction

The Company recorded expenses of approximately $51,000 and $43,000 for the three months ended March
31, 2010 and 2009, 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. 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 U.S. 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, sunglasses,


15




prescription eyewear, watches, fragrance, jewelry,
business cases and small leather goods. 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
$109.5 million for the three months ended March 31, 2010. Diluted earnings per share were $0.10 for the three months ended
March 31, 2010 as compared to a diluted loss per share of $(0.46) for the three months ended March 31, 2009. First quarter
diluted earnings per share for 2010 included $0.05 related to the gain on the sale of a portion of an equity investment while the
year-ago period included $(0.05) related to restructuring and other unusual charges. Cash and cash equivalents were $66.3
million at March 31, 2010 versus $46.3 million at March 31, 2009 and the Company has no long-term debt. In addition, the Company decreased
its inventory 20.0% through disciplined inventory management as compared to March 31, 2009.



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 months ended March 31, 2010 and March 31, 2009.







Three Months Ended March 31,20102009Net sales$99,39390.8%$  94,37491.3%Royalty revenue10,1199.29,0018.7Net revenues109,512100.0103,375100.0Gross profit (1)45,55041.635,07233.9Selling, general & administrative expenses44,58040.747,67346.1Operating income/(loss)9700.9(12,601)(12.2)Interest and other income, net9670.92060.2Impairment of investments(20)0.0(399)(0.4)Income/(loss) before income taxes1,9171.8(12,794)(12.4)Income tax expense/(benefit)850.1(4,626)(4.5)Net income/(loss)$1,8321.7%$  (8,168)(7.9)%_______________________

(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.

16



Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009


REVENUES:  Net revenues increased 5.9%, or $6.1
million, to $109.5 million for the three months ended March 31, 2010 from $103.4 million for the three months ended March 31,
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 1.3%, or $0.7 million, to $62.4 million for the three months ended
March 31, 2010 from $61.7 million for the three months ended March 31, 2009. The increase was primarily attributable to an
increase in sales within the handbag and international divisions partially offset by the exiting of its Bongoand
Tribecafootwearbusiness. Excluding the sales of Bongoand TribecaWholesale net sales would
have increased 6.8%, or $3.9 million, to $62.4 million for the three months ended March 31, 2010 from $58.5 million for the three
months ended March 31, 2009.



Net sales in the Companys Consumer Direct segment
increased 13.0%, or $4.3 million, to $37.0 million for the three months ended March 31, 2010 from $32.7 million for the three
months ended March 31, 2009. Comparable store sales increased 5.6%, or $1.5 million, while 2010 sales for stores not open
for all of 2009, increased by $2.4 million for the three months ended March 31, 2010 compared to the three months ended March 31,
2009. Comparable stores are defined as new stores that are open for longer than thirteen months. A store that stops
operations is included in the comparable sales calculation through the date of closing. The Company did not open or close
any stores during the three months ended March 31, 2010 as compared to opening one Company Store (outlet) and closing
two full-priced retail stores during the three months ended March 31, 2009.



LICENSING REVENUE:  Royalty revenue increased 12.4%, or
$1.1 million, to $10.1 million for the three months ended March 31, 2010 from $9.0 million for the three months ended March 31,
2009. The increase in licensing revenues was primarily attributable to an increase in contractual minimums. In
addition, more than 80% of the Companys licensees reported sales increases for the three months ended March 31, 2010 versus
the comparable period.



GROSS PROFIT:  Consolidated gross profit, as a
percentage of net revenues, increased to 41.6% for the three months ended March 31, 2010 from 33.9% for the three months ended
March 31, 2009. The 770 basis point increase was attributable to increases in both Wholesale and Consumer Direct segments
primarily from enhanced product and merchandise assortments, disciplined inventory management, better sell-through and less
promotion. In addition, the increase as a percentage of net revenues was also 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 net revenues to 33.8% for the three months ended March 31, 2010 compared to
31.7% for the three months ended March 31, 2009, while the Wholesale segment revenues, as a percentage of net revenues, decreased
to 57.0% for the three months ended March 31, 2010 from 59.6% for the three months ended March 31, 2009. The revenues in the
Licensing segment, which carries nominal cost of goods sold, increased, as a percentage of revenues, to 9.2% for the three months
ended March 31, 2010 compared to 8.7% for the three months ended March 31, 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 540 basis points to 40.7% for the three months ended March 31, 2010 as compared to 46.1%
for the three months ended March 31, 2009 as the Company gained leverage from greater revenues. In addition, total SG&A
decreased $3.1 million to $44.6 million for the three months ended March 31, 2010 from $47.7 million for the three months ended
March 31, 2009. The decrease in SG&A expenses was primarily attributable to cost reduction programs and lower shipping
and handling costs. The Company achieved this reduction despite additional expenses associated with operating 15 net new
stores versus the prior year period.



INTEREST AND OTHER INCOME, NET:  Interest and other
income, net increased $0.8 million to approximately $1.0 million for the three months ended March 31, 2010 as compared to $0.2
million for the three months ended March 31,


17



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.



INCOME TAXES:The Companys effective tax
rate was 4.4% for the three months ended March 31, 2010 compared to 36.2% for the three months ended March 31, 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 which offset substantially all of the Companys federal income tax expense
for the three months ended March 31, 2010.



NET INCOME/(LOSS):  As a result of the foregoing, the
Company recorded net income of $1.8 million or 1.7% of net revenues for the three months ended March 31, 2010 as compared to a net
loss of $(8.2) million, or (7.9%) of net revenues for the three months ended March 31, 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 $51,000 and $43,000 for the three months ended March 31, 2010 and 2009, 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. 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 March 31, 2010, the Company had
$66.3 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, accounts receivable and due from
factors balances. At March 31, 2010 and December 31, 2009, working capital was $93.7 million and $88.6 million,
respectively.



Cash used in operating activities was $3.1
million for the three months ended March 31, 2010, compared to $15.5 million for the three months ended March 31, 2009.
The improvement in cash flows used in operations is primarily attributable to an increase in net income, $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 and royalty prepayments offset by an increase in receivables and inventory.



Net cash provided by investing activities
totaled $0.8 million for the three months ended March 31, 2010 compared to net cash used in investing activities of $2.9 million
for the three months ended March 31, 2009. The increase was primarily attributable to proceeds of $1.0 million from the sale
of a portion of an equity investment. In addition, capital expenditures decreased $2.2 million and intangible asset
purchases decreased $0.5 million during the three months ended March 31, 2010 as compared to March 31, 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


18



Company upon the satisfaction of 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 three months ended March 31, 2010. Amounts available under the Facility at
March 31, 2010 were reduced by $1.7 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 retail 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 March 31, 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 US 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 March 31, 2010, the
Company had no forward contracts outstanding.



The Company sources a significant amount
of product from China and is subject to foreign currency exposure. If the Yuan is allowed to float freely against other
foreign currency, a two percent change in exchange rates could have a material effect on the cost of future inventory purchases to
be transacted by the Company.



Item 4.  Controls and Procedures

Evaluation of disclosure controls and procedures


The Companys Chief Executive Officer
and Chief Financial Officer have evaluated the effectiveness of the Companys disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (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.


19



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.  None


Item 1A.  Risk Factors.  There have been no
material changes during the quarterly period ended March 31, 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.  None

Item 3.
Defaults Upon Senior Securities.  None

Item 5.
Other Information.  None

Item 6.
Exhibits.


10.19Employment Agreement between Kenneth Cole Productions, Inc. and Ingo Wilts dated March 10, 2009.31.1Certification 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 2002.31.2Certification 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 2002.32.1Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2Certification 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.
Registrant



May 7, 2010
/s/ DAVID P. EDELMAN
David P. Edelman
Chief Financial Officer


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