UNITED STATES 
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

(Mark One) x ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2009

or

oTRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from___________to___________

Commission File No. 1-13082KENNETH
COLE PRODUCTIONS, INC.(Exact
name of registrant as specified in its charter)

|                                 |                     
|-------------------------------- | --------------------
|New York                         | 13-3131650          
|(State
 or other jurisdiction of | (I.R.S.
 Employer   
|incorporation
 or organization)  | Identification
 No.)

603
West 50th Street, New York, NY 10019(Address of principal
executive offices)

(212) 265-1500(Registrants
telephone number, including area code)

Securities registered pursuant to Section 12(b) of the
Act:
Class A common stock, par value $.01 per share

Securities registered pursuant to Section 12 (g) of the
Act: 
None

Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes o No x

Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act. Yes o No x

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 checkmark whether
the registrant has submitted electronically and posted on its corporate
Website, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T 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 if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of the registrants
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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. (Check one): Large accelerated filer o Accelerated filer o Non-accelerated filer x Smaller reporting company o

Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

The aggregate market value of
voting and non-voting stock held by non-affiliates of the registrant as of the
close of business on June 30, 2009: $66,358,265

Number of shares of Class A
Common Stock, $.01 par value, outstanding as of the close of business on March
2, 2010: 10,081,472

Number of shares of Class B
Common Stock, $.01 par value, outstanding as of the close of business on March
2, 2010: 8,010,497

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of Form 10-K is
incorporated herein by reference to the Registrants definitive proxy statement
to be mailed to the shareholders of the Registrant by April 30, 2010.

---



Kenneth Cole Productions, Inc.TABLE
OF CONTENTS

|        |  |                                                                                                                |     
|------- |  | -------------------------------------------------------------------------------------------------------------- | ----
|        |  |                                                                                                                | Page
|        |  | PART I                                                                                                         |     
|Item 1  |  | Business                                                                                                       | 3   
|        |  |                                                                                                                |     
|Item 1A |  | Risk
 Factors                                                                                                  | 17  
|        |  |                                                                                                                |     
|Item 1B |  | Unresolved
 Staff Comments                                                                                     | 24  
|        |  |                                                                                                                |     
|Item 2> |  | Properties                                                                                                     | 24  
|        |  |                                                                                                                |     
|Item 3  |  | Legal
 Proceedings                                                                                             | 24  
|        |  |                                                                                                                |     
|Item 4  |  | Submission
 of Matters to a Vote of Security Holders                                                           | 24  
|        |  |                                                                                                                |     
|        |  | PART II                                                                                                        |     
|        |  |                                                                                                                |     
|Item 5  |  | Market
 for Registrants Common Equity, Related Stockholder Matters and Issuer
 Purchases of Equity Securities | 25  
|        |  |                                                                                                                |     
|Item 6  |  | Selected
 Financial Data                                                                                       | 28  
|        |  |                                                                                                                |     
|Item 7  |  | Managements
 Discussion and Analysis of Financial Condition and                                               |     
|        |  | Results
 of Operations                                                                                         | 29  
|        |  |                                                                                                                |     
|Item 7A |  | Quantitative
 and Qualitative Disclosures About Market Risk                                                    | 38  
|        |  |                                                                                                                |     
|Item 8  |  | Financial
 Statements and Supplementary Data                                                                   | 38  
|        |  |                                                                                                                |     
|Item 9  |  | Changes
 in and Disagreements with Accountants on Accounting and Financial Disclosure                          | 38  
|        |  |                                                                                                                |     
|Item 9A |  | Controls
 and Procedures                                                                                       | 39  
|        |  |                                                                                                                |     
|Item 9B |  | Other
 Information                                                                                             | 39  
|        |  |                                                                                                                |     
|        |  | PART III                                                                                                       |     
|        |  |                                                                                                                |     
|Item 10 |  | Directors,
 Executive Officers and Corporate Governance                                                        | 40  
|        |  |                                                                                                                |     
|Item 11 |  | Executive
 Compensation                                                                                        | 40  
|        |  |                                                                                                                |     
|Item 12 |  | Security
 Ownership of Certain Beneficial Owners and Management and Related Stockholder
 Matters               | 40  
|        |  |                                                                                                                |     
|Item 13 |  | Certain
 Relationships and Related Transactions, and Director Independence                                     |     
|        |  |                                                                                                                | 40  
|        |  |                                                                                                                |     
|Item 14 |  | Principal
 Accounting Fees and Services                                                                        | 40  
|        |  |                                                                                                                |     
|        |  | PART IV                                                                                                        |     
|        |  |                                                                                                                |     
|Item 15 |  | Exhibits,
 Financial Statement Schedules                                                                       | 40  
|        |  |                                                                                                                |     

2

---



Item 1. Business

Important Factors Relating to Forward Looking
Statements

The
Private Securities Litigation Reform Act of 1995 (the Reform Act) and Section
21E of the Securities Exchange Act of 1934, as amended, (the Exchange Act)
provide a safe harbor for forward-looking statements made by or on behalf of
Kenneth Cole Productions, Inc. (the Company). The Company and its
representatives may from time to time make written or oral statements that are
forward-looking, including statements contained in this report and other
filings with the Securities and Exchange Commission (the SEC) and in reports
to the Companys shareholders. Forward-looking statements generally refer to
future plans and performance and are identified by the words believe,
expect, anticipate, plan, intend, will, estimate, project, or
similar expressions. All statements that express expectations and projections with
respect to future matters, including, but not limited to, the launching or
prospective development of new business initiatives, future licensee sales
growth, gross margins, store expansion and openings, changes in distribution
centers and implementation of management information systems, are
forward-looking statements within the meaning of the Reform Act. These
statements are made on the basis of managements views and assumptions, as of
the time the statements are made, regarding future events and business
performance and are subject to certain risks and uncertainties. Should one or
more of these risks or uncertainties materialize or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, estimated or projected.

While
the Company does communicate from time to time with securities analysts, it is
against Company policy to disclose to them any material non-public information.
Shareholders should not assume that the Company agrees with any statement or
report issued by an analyst, regardless of the content of such statement or
report. To the extent that reports issued by securities analysts contain any
projections, forecasts or opinions, they are not the responsibility of the
Company.

There
can be no assurance that managements expectations will necessarily come to
pass. A number of factors affecting the Companys business and operations could
cause actual results to differ materially from those contemplated by the
forward-looking statements. Those factors include, but are not limited to,
changes in domestic economic conditions or in political, economic or other
conditions affecting foreign operations and sourcing, demand and competition
for the Companys products, risks associated with uncertainty relating to the
Companys ability to implement its growth strategies or its ability to
successfully integrate acquired business, risks arising out of litigation or
trademark conflicts, changes in customer or consumer preferences on fashion
trends, delays in anticipated store openings and changes in the Companys
relationship with its suppliers and other resources. This list of factors that
may affect future performance and the accuracy of forward-looking statements is
illustrative, but by no means exhaustive. Accordingly, readers of this annual
report should consider these facts in evaluating the information and are
cautioned not to place undue reliance on the forward-looking statements
contained herein. The Company undertakes no obligation to update or revise
publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.

General

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, Company
Stores (outlets or Company 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.

3

---



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,
prescription eyewear, watches, fragrance, jewelry, luggage, 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,
fragrance and luggage. In addition, the Company licenses its childrens
apparel. The Company began producing and selling mens sportswear in 2008,
which was formerly offered pursuant to a license agreement.

Business Strategies

To accelerate growth and increase long-term shareholder value, the Company is
focused on six strategic initiatives:

| |    |                                                                                                                                                                                                                                     
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1) | CREATING
 COMPELLING PRODUCT that represents the metropolitan lifestyle of the Kenneth
 Cole brand and offers customers modern styling, innovative design elements
 and a strong price-value relationship.                          
| |    |                                                                                                                                                                                                                                     
| | 2) | ENERGIZING
 THE BRAND through creative marketing and advertising that is consistent
 across consumer touch points to ensure that Kenneth Cole is known as the
 quintessential metropolitan lifestyle brand for modern men and women.
| |    |                                                                                                                                                                                                                                     
| | 3) | ACCELERATING
 RETAIL to showcase the full product assortment of the Kenneth Cole brand
 through Company-owned stores and its e-commerce website and provide
 customers with an engaging shopping experience.                        
| |    |                                                                                                                                                                                                                                     
| | 4) | EVOLVING
 WHOLESALE by working closely with retail partners to leverage the power of
 our brands across multiple categories and provide targeted assortments that
 meet the needs of individual retailers.                          
| |    |                                                                                                                                                                                                                                     
| | 5) | GOING GLOBAL
 by focusing on increasing penetration in existing markets and selectively
 entering new territories with high growth potential.                                                                                       
| |    |                                                                                                                                                                                                                                     
| | 6) | BUILDING A
 WINNING, CONSUMER-DRIVEN CULTURE with an emphasis on building strong talent
 and improving operating capabilities.                                                                                                      
| |    |                                                                                                                                                                                                                                     

Products

The
Company designs, markets, distributes and licenses a broad range of lifestyle
products including footwear, apparel and accessories for men, women and children.
Footwear, handbags and mens sportswear are developed in-house and all other
categories are licensed.

In-House
Categories

Footwear: Products include a broad selection
of mens, womens, and childrens footwear across multiple categories and wear
occasions.

Handbags: Handbag collections include a broad
range of leather and non-leather styles suitable for multiple end uses.

Sportswear: Assortment includes an extensive
collection of mens sportswear including knits, wovens, pants, sweaters, and
jackets, as well as a limited assortment of womens ready-to-wear that is sold
exclusively through the Companys owned retail stores and website.

4

---



Licensed
Categories

Working
closely with its licensee partners, the Company has been able to extend its
brands into a wide variety of categories including jewelry, fragrance, watches,
luggage, small leather goods, swimwear, hosiery, eyewear, womens sportswear,
mens tailored clothing and neckwear, outerwear, and sleepwear among others.

Brands

The
Company has a strong portfolio of well-known and differentiated brands
including Kenneth Cole New York, Kenneth
Cole Reaction, Unlisted, Gentle Souls,and Le Tigre. Each of these brands has a
distinct positioning and appeals to targeted consumer groups, as described
below. The Company believes that further segmentation and development of the
brands affords significant growth potential within each of the Companys
business segments.

Kenneth
Cole New York

Kenneth
Cole New Yorkis modern, day-to-night, work-to-weekend
fashion for men and women 25  44 aspiring to live the metropolitan dream. The
collection is designed for a sophisticated, modern consumer looking for
accessible designer fashion. Kenneth Cole
New York has evolved into a full lifestyle collection with broad
appeal, and offers a strong balance of fashion-forward styles and core basics
across mens and womens footwear, apparel, and accessories. Kenneth Cole New York is both aspirational
and authentic, offering consumers a glimpse into Kenneth Coles chic
metropolitan lifestyle, and competes with contemporary designer collections
generally at bridge price points. As a result of strong brand recognition and a
reputation for style, quality and value, the Company believes that Kenneth Cole New York is an important
resource for better department and specialty stores, both within the United
States and internationally. Kenneth Cole New
York is also sold within the Companys owned retail stores and
online at KennethCole.com.

Kenneth
Cole Reaction

Kenneth
Cole Reaction is a full lifestyle brand that offers
cool, casual, modern style with an energetic, downtown sensibility. The brand
provides well-priced designer fashion, with unique design details principally
to young men and women 18  35. Kenneth Cole
Reaction offers a broad range of mens, womens, and childrens
footwear, apparel and accessories generally at better price points. The brand
emphasizes versatility, contemporary styling, and value, and is ideal for a
broad range of wearing occasions including work, weekend, and evenings out. Kenneth Cole Reaction is primarily sold in
department stores nationwide, in the Companys owned retail stores, online at
KennethCole.com, and internationally.

In
March 2010 the Company entered into an exclusive relationship with Macys to
market and distribute Kenneth Cole Reaction
mens sportswear. When it launches in fall 2010, Kenneth Cole Reaction sportswear will be sold exclusively at
Macys in 150 stores and expects to ultimately roll out to 550 stores.

Unlisted

The
Unlistedbrand offers trendy,
affordable footwear and accessories for young men and women 15  25. The Unlisted brand provides modern styling at
more moderate prices, and enables the Company to target a younger consumer
base. The brand offers mens footwear, womens footwear, and womens handbags
for a range of casual and dressier occasions, and is primarily sold in mid-tier
department stores and national chains.

Gentle
Souls

Gentle
Souls organic womens footwear combines extraordinary
comfort with everyday style for smart, sophisticated women 35  50. Gentle Souls offers patented comfort
technology and high-quality materials across a range of womens footwear for
work and everyday wear. Gentle Soulsis
sold at a limited selection of specialty stores, in better department stores,
in the Companys owned retail stores and online at KennethCole.com.

Le
Tigre

Le
Tigre is a preppy, casual lifestyle brand targeting
young men and women 18  30. The brand offers consumers colorful,
retro-inspired, all-American apparel, footwear, and accessories for the weekend
and casual workplace. In November 2007, the Company entered into a two and a
half year agreement with JC Penney (JCP)

5

---



to relaunch
the brand within JCP stores. The Company and JCP have mutually agreed not to
renew the agreement upon expiration in July 2010. Le Tigre is currently distributed through several domestic
outlet stores and has select licensed distribution in Asia.

Business Segments

The
Company has three business segments, Wholesale, Consumer Direct and Licensing.
The table below presents each business segment as a percentage of net revenues:

|                |  |                                 |      |      |  |      |  |  |      | 
|--------------- |  | ------------------------------- | ---- | ---- |  | ---- |  |  | ---- | 
|                |  | For the Year Ended December 31, |     
|                |  | 2009                            |      | 2008 |  | 2007 | 
|                |  |                                 |      |      |  |      |  |  |      | 
|Wholesale       |  |                                 | 49%  |      |  | 54%  |  |  | 57%  | 
|Consumer Direct |  |                                 | 41   |      |  | 37   |  |  | 34   | 
|Licensing       |  |                                 | 10   |      |  | 9    |  |  | 9    | 
|                |  |                                 |      |      |  |      |  |  |      | 
|Total           |  |                                 | 100% |      |  | 100% |  |  | 100% | 
|                |  |                                 |      |      |  |      |  |  |      | 

Wholesale

The
wholesale channel represents roughly half of total net revenues and includes
sales to department stores, independent specialty stores, national chains and
mass market retailers. The Company continues to reinforce the segmentation of
its brands in wholesale by clarifying brand positioning and developing unique
product assortments for key retail partners. This segmentation approach
provides opportunities to increase market penetration, attract new customers
and further enables the Company to address a wider variety of customers needs,
both domestically and internationally. To develop this channel, the Company
leverages its aspirational, lifestyle marketing, and works with retail partners
to ensure the in-store experience is memorable and engaging. The Company
employs a sales force, as well as corporate account specialists, to sell its
products and to manage its relationships with its wholesale customers. The
Company continues to tightly manage inventory in this channel given current
market conditions.

Domestic

The
Companys products are distributed to approximately 1,400 wholesale accounts
for sale in approximately 5,500 store locations in the United States. The
Company markets its branded products to major department stores, such as Macys
and Dillard Department Stores, and upscale specialty retailers, including
Bloomingdales and Nordstrom. In addition, the Company sells its products to
independent retail stores and footwear chains throughout the country. The
Company sells out-of-season branded products and overruns to off-price
retailers.

The
Company markets its product lines and introduces new styles at separate
industry-wide footwear, handbag and apparel tradeshows that occur several times
throughout the year in New York, Las Vegas, Milan, Italy and at various
domestic regional shows. These tradeshows also afford the Company the
opportunity to assess preliminary demand for its products. After each show, the
Companys sales force and corporate account specialists visit customers to
review the Companys product lines and to secure purchase commitments. The
Companys products are also displayed at showrooms in New York as well as in
various showrooms of its licensees for their specific product category.

International

The
Company commenced international wholesale distribution in 2007. Initially,
markets included Germany and Spain. Currently, the Company is partnering with
retailers in approximately ten countries in Europe and has expanded to
Australia, Malaysia and the Middle East. The Company manages its Canadian
footwear and handbag operations from its New York City headquarters with a
sales staff and third-party distribution center in Canada. The Company markets
its branded products in Canada to independent specialty retailers and large department
stores, including Hudson Bay and Sears Canada.

Private
Label

The
Company designs, develops and sources private label footwear and handbags for
selected retailers. These private label customers include major retailers that
do not purchase the Companys existing brands. The Companys private label
business requires minimal overhead and capital because the Company does not
typically

6

---



incur any
costs related to importing, shipping or warehousing of inventory, all of which
are usually borne by the private label customer.

Consumer
Direct

The
Companys Consumer Direct segment, which operates full-priced retail stores and
outlets, as well as e-commerce (Internet), affords
significant growth potential and provides the ability to control the retail and
brand experience for consumers. Retail stores and the e-commerce site provide a
showcase for the brand, typically carrying a full lifestyle assortment of
footwear, apparel, and accessories for both men and women. The Company believes
that the Consumer Direct segment increases awareness of the Companys brands,
reinforces the Companys image, and builds brand equity.

As
of December 31, 2009, the Company operated 110 full-priced retail stores and outlets
as compared to 96 stores as of December 31, 2008.

Retail
Operations

The
Company continues to pursue opportunities to optimize its retail operations
through select store openings, closings, and right-sizings. At December 31,
2009, the Company operated 38 Kenneth Colefull-priced retail
stores, 68 outlet stores under the Kenneth
Cole name and 4 outlet stores under the Le Tigrename. The Company opened nineteen outlets in 2009,
including fifteen under the Kenneth Colename
and four under the Le Tigre name.
In addition, the Company closed five full-priced retail stores in 2009,
down-sized or relocated five full-priced retail stores, and is evaluating
additional store changes in 2010.

A
portion of the products sold in the Companys full-priced retail stores are
sourced exclusively for those stores to differentiate the product mix from that
of its wholesale customers. Similarly, a portion of the products sold in
outlets are sourced exclusively for those stores to differentiate their product
mix from that of full-priced retail stores and wholesale customers, and to
enhance merchandising and improve gross margins.

To
drive real estate productivity in all of its stores, the Company is focused on
enhanced merchandising and assortments, improving the price-value of its
products, creating a memorable and engaging customer experience, maximizing
conversion opportunities, and improving core processes including inventory
planning and fulfillment. The Company believes that its retail stores represent
an opportunity for future revenue and earnings growth.

Internet

The
Company maintains a website to provide information regarding the Company and
its products, as well as to conduct online business. The Company believes that
its website not only serves as an alternative distribution channel and source
of incremental revenue, but is also a key communications vehicle to build brand
equity, raise consumer awareness, and drive traffic to Kenneth Cole retail stores
and the stores of wholesale partners. The Company continues to invest in
enhancing its website, www.kennethcole.com,to
improve navigation, visual presentation, and the overall customer experience.

The
Company also maintains two toll-free telephone numbers (1-800-KEN-COLE and
1-800-UNLISTED), which provide customer service and answers to product-related
questions. In July 2008, the Company outsourced customer care, fulfillment and
website functionality responsibilities related to its internet business to a
third party that provides direct-to-customer e-commerce services.

Licensing

The
Company believes its strategic licensing relationships are essential to the
growth of the Company both domestically and abroad. Many of the existing
licensee businesses are still relatively small in their individual product
classifications and the Company believes they hold growth potential. The
Company chooses its licensing partners with care, considering many factors,
including the strength of their design, sourcing and distribution abilities,
thereby attempting to maintain the same value and style that Kenneth Cole customers have come to
expect.

Domestic
Licensing

The
strength of the Companys brands, Kenneth
Cole New York, Kenneth Cole
Reaction, Unlisted,
and Le Tigre provides
opportunities, through licensing agreements, to expand into new product
categories and broaden

7

---



existing
distribution channels. The Company views its licensing agreements as a vehicle
to meet the needs of consumers without compromising on price, value or style.
The Company considers entering into licensing and distribution agreements with
respect to certain products if such agreements provide more effective design,
sourcing, marketing and distribution of such products than could be achieved
internally. The Company continues to pursue opportunities in new product
categories that it believes to be complementary to its existing product lines.

Licensees
range from medium-sized manufacturers to companies that are among the industry
leaders in their respective product categories. The Company selects licensees
that it believes can produce and service quality fashion products consistent
with the Kenneth Cole New York, Kenneth Cole
Reaction, Unlisted, and Le Tigre
brand images.

The
Company communicates its design direction and coordinates all marketing efforts
with its licensees. The Company generally grants licenses for three to five
year terms with renewal options, limits licensees to certain territorial rights
and retains the right to terminate the licenses if certain specified sales
levels are not attained. Each license provides the Company with the right to
review, inspect and approve all product designs and quality and approve any use
of its trademarks in packaging, distribution, advertising and marketing. The
Company plans to continue to draw upon the creative strength of its founder,
Kenneth D. Cole, and its design team, as well as its marketing resources to
ensure brand integrity with its licensing partners.

The
following table summarizes the Companys product categories being retailed
under its licensing agreements at the end of 2009 for the Kenneth Cole New York, Kenneth Cole Reaction,
Unlistedand Le Tigrebrands:



Kenneth Cole
        Kenneth ColeProduct Category
        New York
        Reaction
        Unlisted
        Le TigreMens Tailored Clothing
        X
        XMens Sportswear
        
        
        
        XMens Outerwear
        X
        XMens Underwear
        X
        XMens Neckwear
        X
        XMens Dress Shirts
        X
        XMens Casual Pants
        
        XMens Small Leather Goods
        X
        XMens Belts
        X
        XMens Socks
        X
        X
        XMens Jewelry
        X
        XMens Luggage/Briefcases
        X
        XWomens Apparel
        X
        X
        X
        XWomens Outerwear
        X
        XWomens Underwear
        
        
        XWomens Small Leather Goods
        X
        X
        XWomens Jewelry
        XWomens Swimwear
        X
        XWomens Luggage/Briefcases
        XMens/Womens Sleepwear
        
        X
        XMens/Womens Watches
        X
        X
        X
        XMens/Womens Optical Frames
        X
        XMens/Womens Sunglasses
        X
        X
        
        XMens/Womens Fragrances
        X
        XChildrens Apparel
        
        X
        
        X




The
Companys licensees of the Kenneth Cole New
York, Kenneth Cole Reaction, and Unlistedbrands are required to contribute to the Company a percentage of
their net sales of licensed products, subject to minimum amounts, for the
ongoing marketing of the Kenneth Colebrands.

The
Company currently has a corporate gift program, whereby corporate customers are
sold Kenneth Cole items for award
and recognition programs. During 2008, the Company licensed this operation to a
third party provider. Orders are drop-shipped from the Companys licensees or
its warehouses. The Company believes this is another avenue to enhance customer
awareness and strengthen market position of its various brands.

8

---



International
Licensing

At
December 31, 2009, the Company, through its licensees, operated 70 freestanding
stores and 40 shop-in-shops around the world. In 2009, the Companys
international licensees opened five freestanding stores and eight shop-in-shops
in the Asian and Latin American markets as well as executed an agreement with
a licensee in Turkey. In addition, Le Tigrewas
launched in Taiwan and the Company expects further expansion into Asia and
Latin America.

The
Company sells its products through distributors and licensees to wholesale
customers and direct retailers in international markets including Canada,
Mexico, South America, Latin America, the Caribbean Islands, Europe, the Middle
East, and Asia. The Company is also committed to expanding its product
classifications internationally to leverage the capabilities of its licensing
partners, particularly in watches, fragrance and eyewear.

The
Companys Latin American licensee agreement covers Mexico, Latin America, South
America and the Caribbean, with the exception of Brazil, Argentina and Uruguay.
Currently, the Companys licensee operates 44 stores and various shop-in-shops
in this region. Within the Middle East and Asia, the Companys licensees
maintain 26 retail stores and numerous shop-in-shops at local department
stores. The stores are located in the United Arab Emirates, Israel, Bahrain,
Kuwait, Oman, the Philippines, Thailand and Taiwan. In Europe, the Company’s licensee sells footwear to department stores within the United Kingdom and has also entered into an
exclusive arrangement with a leading department store to sell men’s tailored clothing, apparel, dress shirts and neckwear, as well as
women’s apparel and accessories in the United Kingdom. In spring 2010, the Company plans to open two new freestanding
stores with its licensing partner in Turkey. In Canada, the Company also
continues to sell and market its products through its licensing partners excluding footwear and handbags which is distributed directly by the Company.

The
Company is planning the expansion of its international licensing programs as a
means of developing a truly global brand, and believes that international
markets represent an opportunity for future revenue and profit growth. The
Company believes its international licensing partners will play a critical role
in its go forward strategy, and takes significant care to align itself with
viable business partners around the world.

Design

Kenneth
D. Cole founded Kenneth Cole Productions in 1982, and today is the Companys
Chairman and Chief Creative Officer. The Companys success is largely
attributed to Mr. Coles creative vision, from footwear, fashion and accessory
design, to his marketing and advertising prowess. He remains actively involved
in driving the creative vision of the Company, including the design of all
product categories and brands. In 2009, Mr. Cole hired the Companys first
Creative Director to oversee product design on a daily basis, including
managing a team of in-house designers as well as directing external licensees.
Reporting into Mr. Cole, the Companys new Creative Director is charged with
creating compelling and cohesive lifestyle collections for modern men and women
that satisfy their wardrobing needs from day-to-night and work-to-weekend.

Great
product is essential to the Companys success. The Companys design team
dedicates time to monitoring fashion trends to ensure the collections are
always modern and relevant. Select members of the design team travel globally
to assess fashion trends in Europe, the United States and Asia, while searching
for new inspiration. The team also partners with the internal merchandising
team and external retail partners to stay aware of constantly shifting consumer
preferences.

In
order to reduce the impact of changes in fashion trends on the Companys
product sales and to increase the Companys profitability, in 2009 the Company
modified its product assortments to provide a more balanced mix of core and
fashion items. The Company shifted its assortment strategy so that core product
is now roughly half of the mix. It also introduced a number of products to
address more casual wear occasions and initiated good, better, best pricing
tiers to capture opening price points while maintaining high fashion content at
the top of the pyramid. With a greater assortment of core, season-less styles
the Company is able to capitalize on retailers strategies to maintain and reorder
these styles throughout the year, primarily through electronic data interchange
(EDI).

Product
innovation has also been a key area of focus for the Company in 2009. The
Company has been reinventing its business classification by classification,
with the first major initiative being the re-launch of Kenneth Cole New York
ladies footwear, featuring its patented 9-2-5 comfort technology. The Company
re-engineered the comfort technology from its Gentle
Souls footwear brand into attractive high-heeled shoes, which is a
classification of womens footwear that until now has never been able to be
made truly comfortable. This re-launch has generated excitement
across the entire business.

9

---



Sourcing

The
Company does not own or operate any manufacturing facilities. Instead, it
sources its branded and private label products directly or indirectly through
independently-owned manufacturers primarily in Italy and China, among other
European and Asian locations. The Company maintains an office in Dongguan,
China and has long-standing relationships with several independent buying
agents to monitor the production, quality and timely distribution of the
Companys products from its manufacturers. In 2009, the Company hired a Chief
Supply Chain Officer to oversee these operations while focusing on
cost-effective sourcing, quality, margin and speed-to-market initiatives.

The
Company believes it has sufficient manufacturing sources available to meet its
current and future production requirements in the event the Company is required
to change current manufacturers or current manufacturers are unavailable to
fulfill the Companys production needs however, there can be no assurance that,
in the event the Company is required to change its current manufacturers,
alternative suppliers will be available on terms comparable to the Companys
existing arrangements.

In
advance of the fall and spring selling seasons, the Company works with its
manufacturers to develop product prototypes for industry tradeshows. During
this process, the Company works with the manufacturers to determine production
costs, materials, break-even quantities and component requirements for new
styles. Based on indications from the tradeshows and initial purchasing
commitments from wholesalers, the Company will place production orders with the
manufacturers. In addition, the Company has initiated a test and react,
program whereby prototypes are rushed to its own retail stores immediately
after completion to determine initial consumer response and purchase behavior.
Successful styles are used to adjust factory production and line development
prior to initial season shipping.

As
a result of the need to maintain in-stock inventory positions, the Company
places manufacturing orders for open stock and certain fashion products prior
to receiving firm commitments from its customers. Once an order has been
placed, the manufacturing and delivery time ranges from three weeks to four
months depending on whether the product is new or is currently in production.
Throughout the production process, the Company monitors product quality through
inspections at both the factories and upon receipt at its warehouses. To
control inventory levels, the Company monitors sell-through data on a weekly
basis and seeks input on product demand from wholesale customers and its retail
stores to adjust production as needed.

Advertising and Marketing

The
Company believes that marketing and advertising have been integral in
establishing the Kenneth Cole brand over the past 26 years, and are an
essential part of its long-term growth strategy. The Company also believes that
its advertising campaigns have differentiated and enhanced the brands, and that
its unique social voice has brought the Company global recognition for its
timely focus on current events and social issues.

In
2009, the Companys campaigns evolved to more clearly communicate its fashion
identity while retaining its unique social voice. The campaigns have become
aspirational and fashion focused, featuring a selection of stylish products for
men and women that broaden the Companys lifestyle appeal. The Company believes
the creative concepts clearly depict its position as the quintessential
metropolitan lifestyle brand for modern men and women who are confident, clever
and cool.

To
best reach todays sophisticated audience, the Company employs a comprehensive
marketing strategy, including a strong focus on media, public relations and
channel marketing. The Companys media strategy includes a traditional print
and outdoor advertising plan as well as internet and new media initiatives.
The year 2009 marked the brands foray into social networking with the launch of Kenneth
Cole Facebook and Twitter communities, which are actively engaging a rapidly
growing group of followers and strengthening the Companys connection with its
consumer. In addition, the Company believes public relations programs including
feature stories, fashion editorial coverage, special events, and personal
appearances by Kenneth D. Cole further enhance the Companys brand awareness
and equity.

In
order to continue to strengthen brand awareness, grow its consumer base, and
increase sales of its products, the Company actively develops marketing
programs for its Consumer Direct channels and Wholesale partners. The Companys
marketing strategies expanded in 2009 to include targeted direct mail and mass
e-mail

10

---



campaigns,
in-store and online events, compelling windows and in-store environments,
signage and cash wrap programs, and cooperative advertising, each of which
feature a variety of branded products marketed by the Company and its
licensees. In 2009, the Company increased its consistency of messaging by
aligning the campaigns across all channels, geographies, and media, which it
believes has been instrumental in capturing greater share of mind. As a result
of these efforts, the Company believes that there is a more unified focus,
strong synergy and consistency in all of the Companys communications.

An
additional aspect of the Companys marketing efforts is the creation and
placement of branded enhancements and shop-in-shops in key department and
specialty store locations. These focus areas are achieved through the placement
of branded fixtures, point of purchase displays, logos and graphics, and create
an environment that is consistent with the Companys image. The Company
believes that these in-store enhancements enable the retailer to display and
stock a greater volume of the Companys products per square foot of retail
space, and encourage longer-term commitment by retailers to the Companys
products while heightening consumer brand awareness.

Another
important component of the Companys marketing strategy is its “Awearness”
initiative. Heavily promoted in 2008 with the publication of the Awearness
book, Awearness is a philanthropic, not-for-profit organization that inspires
social change and encourages everyone to do good while looking good. The Company
believes the initiative differentiates and enhances the Kenneth Cole brand,
while heightening awareness of the Company, its brands, products and social
issues.

The
Company utilizes its in-house staff for marketing, advertising and public relations
efforts, enabling the Company to maintain the integrity of its brands. It utilizes outside advertising agencies periodically to assist in the
development of creative campaigns as well as outside public relations and
marketing firms to coordinate its international efforts. The majority of the
Companys licensees are required to contribute to the Company a percentage of
their net sales of licensed products, subject to minimums, for the advertising
and promotion of the image of the Companys brands.

Distribution

To
facilitate distribution, the Companys products are inspected, bar coded,
packed and shipped from manufacturers by ocean or air to the Companys
distribution facilities located in the United States and Canada. The Company
utilizes fully-integrated information systems and bar code technology to
facilitate the receipt, processing and distribution of products through
third-party warehouse distribution centers. The products are then shipped to
the Companys wholesale and direct customers either in predetermined sizes, in
case packs or under its open stock program. The Companys open stock program
allows its wholesale customers to reorder, typically via EDI, core basic styles
in a range of colors and sizes as well as many fashion styles, for immediate
shipment. While the open stock program requires an increased investment in
inventories, the Company believes this program is an important service for its
wholesale customers by allowing them to manage inventory levels more effectively.
The Company expects that affording customers improved flexibility in ordering
specific stock keeping units (SKUs) in smaller quantities will ultimately
reduce the incidence of markdowns and allowances.

The
Company has capitalized on its centralized distribution facilities to provide
additional support to its retail store operations on daily shipments of
footwear, handbags and apparel to improve speed to market. The Companys EDI
program is also used to re-supply its retail stores on a variety of products,
thereby enhancing its service to the Companys retail operations through
improved inventory management and customer response. To facilitate
distribution, the Company has third-party public warehouses located on both the
east and west coasts of the United States, as well as in Canada, to accommodate
merchandise imported from Asia, Europe and South America. The Company uses a
third-party internet service provider to handle distribution and warehousing as
part of the fulfillment agreement, while the Company supplies merchandise to
the provider based on customer demand.

Information Technologies

The
Company believes that sophisticated information systems are essential to
maintain its competitive position and to support continued growth. The
Companys management information systems were designed to provide, among other
things, comprehensive order processing, production, accounting and management
information for the sourcing, importing, distribution and marketing aspects of
the Companys business. The Company continues to update and enhance its
distribution and financial systems with newer technology that offers greater
functionality and reporting capabilities. The Company also utilizes an EDI
system that provides a computer link between the

11

---



Company and
many of its wholesale customers, as well as its retail operations, that enable
the Company to receive online orders and to accumulate sales information on its
products shipped to its wholesale customers, retail stores and internet customers.
The Companys EDI system also improves the efficiency of responding to customer
needs and allows both the customer and the Company to monitor purchases,
shipments and invoicing. In its retail stores, the Company uses point-of-sale
registers to capture sales data, track inventories, monitor traffic and
generate EDI replenishment orders.

The
Company regularly evaluates the adequacy of its information technologies and
upgrades such systems to support its growth. The Company has a software license
agreement with SAP America, Inc. (SAP) and implemented an integrated business
platform, using SAP software products, across the Companys full-priced retail
stores and Company Stores. The Company believes that continuous upgrading and
enhancements to its management information systems to support growth and
expansion, in both its internal systems and in systems of third parties, is
vital in protecting the Companys financial condition and its operations. In
2008, the Company outsourced website responsibilities, customer care, and
fulfillment to GSI. The GSI e-commerce platform improved functionality and was
interfaced with the Companys SAP retail store system.

Trademarks

The
Company, through its wholly-owned subsidiary, Kenneth Cole Productions (LIC),
LLC, owns federal registrations for its principal trademarks Kenneth Cole, Kenneth Cole New York, Kenneth
Cole Reaction, Reaction,and Unlistedas well as several other ancillary and derivative trademarks. Also,
the subsidiary owns the Le Tigre
trademark and other intellectual property associated with the Le Tigre brand and the Gentle Souls trademark, patent, certain
other trade secrets and proprietary processes, and other intellectual property
associated with the Gentle Souls
brand. Each of the federal registrations is currently in full force and effect.
In addition, the Company has several federal applications pending in the United
States Patent and Trademark office for trademarks and service marks. Moreover,
the Company continues to expand its current international registrations in
numerous countries throughout the world. The Company regards its trademarks and
other proprietary rights as valuable assets in the marketing and distribution
of its products, and fully intends to maintain, renew and protect the
registrations, where appropriate and consistent with pertinent law, as well as
vigorously defend all of its trademarks against infringements.

Competition

Competition
in the footwear, handbag and apparel industries is intense and these product
classifications are subject to rapidly changing consumer demands. The Company
competes with numerous designers, brands and manufacturers of footwear,
handbags, apparel and accessories, some of which are larger, have achieved
greater recognition for their brand names, have captured greater market share
and/or have substantially greater financial, distribution, marketing and other
resources than the Company. The Company also competes for the limited
shelf-space available for the display of its products to consumers, and the
Companys licensed apparel and accessories also compete with a substantial
number of designer and non-designer brands. Moreover, the general availability
of contract manufacturing capacity allows access by new market entrants. The
Company believes the success of its business depends on its ability to
stimulate and respond to changing consumer preferences by producing innovative
and attractive products, brands and marketing, while remaining competitive in
quality and price.

Foreign Operations

The
Companys business is subject to the risks of doing business abroad, such as
fluctuations in currency exchange rates, local market conditions, labor unrest,
political instability, actions of a public enemy, military or other government
intervention, priorities, restrictions or allocations and the imposition of
additional regulations relating to imports, including quotas, duties or taxes
and other charges on imports. There can be no assurance that these factors will
not have a material adverse effect on the Companys operations in the future.

In
order to reduce the risk of exchange rate fluctuations, the Company may enter
into forward exchange contracts to protect the future purchase price of
inventory denominated in foreign currencies. These foreign currency forward
exchange contracts are used to reduce the Companys exposure to changes in
foreign exchange rates and are not held for the purpose of trading or
speculation.

12

---



Import Restrictions

Although
most of the goods sourced by the Company are not currently subject to quotas,
countries in which the Companys products are manufactured may, from time to
time, impose new or adjust prevailing quotas or other restrictions on exported
products. In addition, the United States may impose new duties, tariffs and
other restrictions on imported products, any of which could have a material
adverse effect on the Companys operations and its ability to import its
products at current or increased quantity levels. In accordance with the
Harmonized Tariff Schedule, a fixed duty structure in effect for the United
States, the Company pays import duties on its products. The majority of its
products have import duties that primarily fall within a range of approximately
6% to 37.5%, depending on the category and the principal component of the
product. Other restrictions on the importation of footwear, apparel, and other
products are periodically considered by the United States government and no
assurance can be given that tariffs or duties on the Companys goods may not be
raised, resulting in higher costs to the Company, or that import quotas
restricting such goods may not be imposed or made more restrictive.

Seasonality

The
Companys products are marketed primarily for fall and spring seasons, with
slightly higher volume of wholesale products sold during the first and third
quarters. The Companys retail business follows the general seasonal trends
that are characteristic of the retail industry, with sales and earnings highest
in the fourth quarter and weakest in the first quarter. Because the timing of
wholesale shipments of products for any season may vary from year to year and
retails highest sales and earnings are in the fourth quarter, the results for
any one quarter may not be indicative of the results for the full year. In
2008, the fourth quarter results were significantly impacted by the severe
deterioration in the economy during the quarter, which negatively impacted the
Companys fourth quarter and full year results, and carried into the first half
of 2009.

Customers

The
Companys department store customers include major United States retailers,
several of which are under common ownership. In 2009 and 2008, the Company had
no customer or group under common ownership account for more than 10% of
consolidated sales. The Companys ten largest customers represented 36.7% and
39.0% of the Companys net sales for the years ended December 31, 2009 and
2008, respectively.

Backlog

The
Company had unfilled wholesale customer orders, excluding discontinued
businesses, through the end of the second quarter of $51.6 million and $49.4
million as of February 27, 2010 and 2009, respectively. The Companys backlog
at a particular time is affected by a number of factors, including seasonality,
timing of market weeks and wholesale customer purchases of its core products
through the Companys open stock program. Accordingly, a comparison of backlog
from period to period may not be indicative of eventual shipments.

Sales Returns and Allowances

The
Companys chargebacks for deductions taken by its customers for returns,
discounts and allowances as well as potential future customer deductions is
significant to its operations. The Company reserves against known chargebacks
as well as potential future customer deductions based on a combination of
historical activity and current market conditions. Actual results may differ
from these estimates under different assumptions or conditions, which may have a
significant impact on the Companys results.

Employees

At
December 31, 2009, the Company had approximately 1,900 employees (which include
approximately 1,100 part-time employees), none of whom are covered under a
collective bargaining agreement. The Company considers its relationship with
its employees to be satisfactory.

13

---



Executive
Officers and Directors

|                     |  |     |  |                                                                   
|-------------------- |  | --- |  | ------------------------------------------------------------------
|Name                 |  | Age |  | Present Position                                                  
|                     |  |     |  |                                                                   
|                     |  |     |  |                                                                   
|Kenneth D.
 Cole     |  | 55  |  | Chairman of
 the Board of Directors and Chief Creative Officer    
|Jill Granoff         |  | 47  |  | Chief
 Executive Officer                                          
|David P.
 Edelman    |  | 48  |  | Chief
 Financial Officer and Treasurer                            
|Michael F.
 Colosi   |  | 44  |  | Senior Vice
 President and General Counsel and Corporate Secretary
|Peter
 Charles       |  | 45  |  | Chief Supply
 Chain Officer                                       
|Jeffrey
 Cohen       |  | 56  |  | President of
 Consumer Direct                                     
|Michael
 DeVirgilio  |  | 41  |  | President of
 Licensing and International                         
|Danesha
 Dixon Smith |  | 37  |  | Senior Vice
 President, Human Resources                           
|Kristen
 Dykstra     |  | 38  |  | Senior Vice
 President, Chief Marketing Officer                   
|Douglas
 Jakubowski  |  | 46  |  | Chief Merchandising
 Officer                                      
|Chris
 Nakatani      |  | 46  |  | President of
 Wholesale                                           
|Ingo Wilts           |  | 44  |  | Senior Vice
 President, Creative Director                         
|Michael J.
 Blitzer  |  | 60  |  | Director                                                          
|Martin E.
 Franklin  |  | 45  |  | Director                                                          
|Robert C.
 Grayson   |  | 64  |  | Director                                                          
|Denis F.
 Kelly      |  | 60  |  | Director                                                          
|Philip R.
 Peller    |  | 70  |  | Director                                                          

Kenneth
D. Cole has served as the Companys Chairman of the
Board since its inception in 1982 and was also President until February 2002
and Chief Executive Officer until May 2008. Prior to founding Kenneth Cole Productions,
Inc., Mr. Cole was a founder and, from 1976 through 1982, a senior executive of
El Greco, Inc., a shoe manufacturing and design company which manufactured
Candies womens shoes. Mr. Cole is the Chairman of the Board of Directors of
the Foundation for AIDS Research (amfAR). In addition, he is on the Board of
Trustees of the Sundance Institute and the Council of Fashion Designers of
America.

Jill
Granoff  joined the Company as its Chief Executive
Officer in May 2008. Ms. Granoff was previously Executive Vice President of Liz
Claiborne Inc. (Liz Claiborne) where she had global responsibility for Juicy
Couture, Lucky Brand Jeans, Kate Spade and its Outlet and E-Commerce
businesses. Prior to joining Liz Claiborne, Ms. Granoff was President and Chief
Operating Officer of Victoria Secret Beauty, a division of Limited Brands,
where she worked from 1999 to 2006. From 1990 to 1999, Ms. Granoff held various
executive positions at The Estee Lauder Companies. Ms. Granoff is a member of
the Board of Governors of Cosmetic Executive Women and The Womens Forum.

David
P. Edelman was appointed as the Chief Financial
Officer in July 2004. He joined the Company in January 1995 and served as the
Companys Senior Vice President of Finance since April 2000. Before joining the
Company, Mr. Edelman was Chief Financial Officer of a womens suit wholesaler,
and he was employed for 10 years as a Certified Public Accountant with Ernst
& Young (E&Y) in various specialty groups including E&Ys
National Consulting Office and its Retail and Apparel Audit Group. Mr. Edelman
serves on the Board of Directors of the American Apparel and Footwear
Association.

Michael
F. Colosihas been the Companys Senior Vice
President, General Counsel and Corporate Secretary since March 2007. Mr. Colosi
previously served as Corporate Vice President and General Counsel for the
Company from July 2000 to February 2007 and as Corporate Secretary since July
2004. Prior to joining the Company, Mr. Colosi was the Associate General
Counsel and Assistant Secretary for The Warnaco Group, Inc. from 1996 to 2000.
After clerking for Judge J. Edward Lumbard of the U.S. Court of Appeals for the
Second Circuit, he was associated with major law firms from 1992 to 1996.

Peter
J. Charles joined the Company as its Chief Supply
Chain Officer in August 2009. Mr. Charles was previously Executive Vice
President of Sourcing and Production at The Nine West Footwear Group where he
was responsible for a portfolio of over 15 brands such as Nine West, Anne
Klein, Enzo Angiolini, Joan and David and 9&Co. Prior to The Nine West
Footwear Group, Mr. Charles spent eight years at The Striderite Corporation in
the role of Senior Vice President and General Manager for Striderite Sourcing
International. Prior to The Striderite Corporation, Mr. Charles worked for The
Timberland Company in the role of Vice President of Footwear Sourcing. From
1985 to 1996, Mr. Charles held various leadership positions at Clarks Shoes.

14

---



Jeffrey
Cohen was named President of Consumer Direct in March
2008. He joined the Company as Divisional President of Company Stores in
October 2006. Previously, he served as President of Retail at Calvin Klein,
Inc., Guess? and Ecko Unlimited. Mr. Cohen served as President of Retail at
Tommy Hilfiger, Inc. from 1993 to 2000. Prior to 1993, Mr. Cohen served as
President of Retail with Polo Ralph Lauren (Polo) and held other executive
positions during his ten years with Polo.

Michael
DeVirgilio was named President of Licensing and
International in February 2009. Mr. DeVirgilio previously served as Executive
Vice President of Business Development from January 2006 to February 2009. He
served as Senior Vice President of Licensing from May 2005 to January 2006. Prior
to that, he served as Corporate Vice President of Licensing and Design Services
from March 2002 to May 2005. From 1999 to 2001, Mr. DeVirgilio served as
Divisional Vice President of Licensing. Mr. DeVirgilio joined the Company as
Director of Licensing in 1997. Prior to joining the Company, Mr. DeVirgilio was
Director of Merchandising for the Joseph & Feiss Company (a division of
Hugo Boss, USA).

Danesha
Dixon Smith joined the Company as Senior Vice
President of Human Resources in October 2008. She previously worked at Liz
Claiborne, Inc. in positions of increasing responsibility culminating in her
appointment as Senior Vice President, Human Resources. From April 2005 to April
2007, Ms. Smith was the Vice President of Human Resources at Cendant Corporation
where she worked in the companys real estate division. Ms. Smith also held
numerous leadership positions at the Home Depot.

Kristen
Dykstra joined the Company as Senior Vice President,
Chief Marketing Officer in August 2008. Ms. Dykstra was previously employed by
BCBG Max Azria Group, Inc. from October 1997 to July 2008, where she most
recently served as Senior Vice President of Global Marketing and Public
Relations. Prior to BCBG, Ms. Dykstra worked at various public relations and advertising
agencies including Orsi Public Relations and Lord Dentsu & Partners, a
division of Young & Rubicam.

Douglas
Jakubowski was named Chief Merchandising Officer in
February 2009. Mr. Jakubowski previously served as Divisional President  Apparel
and Corporate Relations from October 2007 to February 2009. He previously
served as President of the Kenneth Cole
Reaction brand and Senior Vice President of Reactionfrom July 2005 to October 2007.
Prior to joining the Company, Mr. Jakubowski served as President of Perry Ellis
Menswear from 2003 to 2005. From 1997 to 2003, he served as Executive Vice
President of Merchandising and Design for Perry Ellis Sportswear. Prior to
joining Perry Ellis, Mr. Jakubowski held various management positions including
Vice President of Sales and Marketing at International News, and Director of
Marketing and Sales at Koral Industries.

Chris
Nakatanijoined the Company as President of Wholesale
in March 2009. Mr. Nakatani was most recently employed with Perry Ellis
International where he was the Corporate EVP Strategic Planning, responsible
for three separate wholesale divisions. From 1998 to 2006, Mr. Nakatani was
employed by Tommy Hilfiger in roles of increasing responsibility including his
last position as President of Sales & Planning. Prior to Tommy Hilfiger,
Mr. Nakatani was employed by Polo Ralph Lauren from 1989 to 1998 where he
served in roles of increasing responsibility including those in sales and
merchandising. He started his career at Nordstrom.

Ingo
Wilts joined the Company as its Senior Vice President,
Creative Director in August 2009. Mr. Wilts was most recently employed with
Hugo Boss, where he spent nine years in roles of increasing responsibility. He
was most recently the SVP, Creative Director for BOSS Black, BOSS Green, and
the luxury brand BOSS Selection. Mr. Wilts had oversight responsibility for all
mens and womens product categories, including apparel, footwear, and
accessories. In addition, he oversaw all brand image efforts for all channels
of communication and store visual merchandising. Prior to joining Hugo Boss,
Mr. Wilts was the Designer of mens sportswear at Joop!. He has additionally
held various design positions at Miltenberger where he worked on the Lagerfeld and
Daniel Hecter brands.

Michael
J. Blitzer is a Principal of Portsmouth Partners, LLC,
an advisory firm that provides operational and strategic services to private
equity groups that focus on retail, wholesale and consumer industries since
2005. Previously, Mr. Blitzer served as the Vice Chairman of Phillips-Van
Heusen Corporation, one of the worlds largest apparel companies, from
September 1997 until he retired in November 2002. Mr. Blitzer spent over 30
years at Phillips-Van Heusen Corporation and at Macys in various executive
merchandising positions in Womens and Menswear, Accessories and Footwear. Mr.
Blitzer has also worked with a variety of companies in both apparel and
accessories including Neiman Group and Liz Claiborne Inc. Mr. Blitzer has
served on the boards of Kate Spade,

15

---



LLC, Charlotte
Russe Holdings, Inc. and LeSportsac Inc. and currently serves on the boards of
Intermix LLC, and Modells Sporting Goods.

Martin
E. Franklinhas served as the Chairman and Chief Executive
Officer of Jarden Corporation since 2001. Previously Mr. Franklin served as
Executive Chairman of Bollé Inc. from 1997 to 2000. He also held the position
of Chairman and CEO of Lumen Technologies, Inc. from 1996 to 1998, and its
predecessor, Benson Eyecare Corporation, from 1992 to 1996. Mr. Franklin has
served as the Chairman of Liberty Acquisitions Holdings, Corp since 2007. He
also serves on the Board of Directors of GLG Partners, Inc.

Robert
C. Graysonis the founder of Robert C. Grayson &
Associates (d.b.a. The Grayson Company), a broad-based consulting practice for
the consumer goods sector. From 1992 to 1996, Mr. Grayson served initially as
an outside consultant to Tommy Hilfiger Corp., a wholesaler and retailer of
mens sportswear and boyswear, and later accepted titles of Chairman of Tommy
Hilfiger Retail, Inc. and Vice Chairman of Tommy Hilfiger Corp. From 1970 to
1992, Mr. Grayson served in various capacities for Limited Inc., including
President and CEO of Lerner New York from 1985 to 1992, and President and CEO
of Limited Stores from 1982 to 1985. He also serves as a director of St. John
Knits, Lillian August Inc., U-Food, and Stax Incorporated.

Denis
F. Kelly is a Managing Partner of Scura, Rise &
Partners, LLC as well as Chairman of Ashburn Hill Corp, a manufacturer of fire
resistant (FR) garments. From July 1993 to December 2000, Mr. Kelly was the
head of the Mergers and Acquisitions Department at Prudential Securities
Incorporated. From 1991 to 1993, Mr. Kelly was President of Denbrook Capital
Corp., a merchant-banking firm. Mr. Kelly was at Merrill Lynch from 1980 to
1991, where he served as Managing Director, Mergers & Acquisitions from
1984 to 1986, and then as a Managing Director, Merchant Banking, from 1986 to
1991. Mr. Kelly is a director of MSC Industrial Direct, Inc.

Philip
R. Pellerwas employed by Arthur Andersen LLP for 39
years. Prior to his retirement from Arthur Andersen in 1999, he served as
Managing Partner of Practice Protection and Partner Matters for Andersen
Worldwide SC, the coordinating entity for the activities of Arthur Andersen and
Andersen Consulting, from 1996 to 1999. Prior to that appointment, Mr. Peller
served as the Managing Director - Quality, Risk Management and Professional Competence
for the worldwide audit practice. Mr. Peller joined Arthur Andersen in 1960 and
was promoted to Audit Partner in 1970. Mr. Peller is a Certified Public
Accountant. Mr. Peller is currently a member of the Board of Directors and
Chair of the Audit Committee of MSC Industrial Direct Co., Inc. and serves as a
consultant to other companies.

Available Information

The
Company files its annual, quarterly and current reports and other information
with the SEC. The certifications required under Section 302 of the
Sarbanes-Oxley Act of 2002 are filed as exhibits to the annual and quarterly
reports on Form 10-K and Form 10-Q, respectively. In addition, the Company has
provided the annual certification to the New York Stock Exchange. The Companys
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are
available free of charge in the Investor section under the subheading About
Us on the Companys website, www.kennethcole.com.
These reports, and any amendments to these reports, are made available on the
Companys website as soon as reasonably practicable after such reports are filed
with or furnished to the SEC. The public may read and copy any materials filed
by the Company with the SEC at the SECs Public Reference Room at 100 F Street,
NE, Washington, DC 20549. The public may also obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In
addition, the SEC maintains an Internet site that contains reports, proxy and
information statements and other information regarding the Company, which is
available at http://www.sec.gov.

In
addition, the Companys website, www.kennethcole.com,includes, free of charge, items related to corporate governance matters,
including the Companys Corporate Governance Guidelines, charters of various
committees of the Companys Board of Directors and the Companys Code of
Business Conduct and Ethics applicable to employees, officers and directors. A
printed copy of the Companys Form 10-K, Corporate Governance Guidelines and
Code of Business Conduct and Ethics is available without charge by sending a
written request to: Investor Relations, Kenneth Cole Productions, Inc., 400
Plaza Drive, 3rd Floor, Secaucus, NJ 07094.

16

---



Item 1A. Risk Factors

The Company
operates in a changing environment that involves numerous known risks and
uncertainties that could materially adversely affect its operations. The risks
described below highlight some of the factors that have affected and in the
future could affect the Companys operations. Additional risks that the Company
does not yet know of or that it currently thinks are immaterial may also affect
business operations. If any of the events or circumstances described below
actually occurs, the Companys business, financial condition or results of
operations could be materially adversely impacted.

The Company may not be able to respond to
changing fashion and consumer demands in a timely manner.

The footwear,
apparel and accessory industries are subject to changing consumer demands and
fashion trends. The Company believes that its success depends in large part
upon its ability to identify and interpret fashion trends and to anticipate and
respond to such trends in a timely manner. The Company has generally been
successful in this regard but there can be no assurance that the Company will
be able to continue to meet changing consumer demands or to develop successful
styles in the future. If the Company misjudges the market for a particular
product or product line, it may result in an increased inventory of unsold and
outdated finished goods, which may have an adverse effect on the Companys
financial condition and results of operations. In addition, any failure by the
Company to identify or respond to changing demands and trends could, in the
long term, adversely affect consumer acceptance of the Companys brand names,
which may have an adverse effect on the Companys business and prospects.

The Company
intends to market additional lines of footwear, apparel and fashion accessories
in the future. As is typical with new products, demand and market acceptance
for any new products introduced by the Company will be subject to uncertainty.
Achieving market acceptance for each of these products may require substantial
marketing efforts and the expenditure of significant funds to create customer
demand. There can be no assurance that the Companys marketing effort will
successfully generate sales or that the Company will have the funds necessary
to undertake such an effort.

The Companys sales are influenced by general
economic cycles and the current economic situation.

Footwear,
apparel and accessories are cyclical industries dependent upon the overall
level of consumer spending. The Companys wholesale customers may anticipate
and respond to adverse changes in economic conditions and uncertainty by
reducing inventories and canceling orders. As a result, any of the following
could reduce the Companys sales and adversely affect its business and
financial condition: continued adverse general economic conditions, consumer
confidence and spending levels, consumer credit availability, global factory
production, commercial real estate market conditions, or credit market
conditions, or a substantial deterioration in any of these; a substantial
increase in fuel and energy costs, unemployment, or interest rates; and any
adverse acts of nature or political events.

The current
economic situation is having a significant negative impact on businesses around
the world, including some of the Companys customers, suppliers and licensees.
Although the Company believes that its cash position will provide it with
liquidity sufficient to endure the current environment, the impact of current
market conditions on the Companys major customers, suppliers and licensees
cannot be predicted and may be severe. The inability of major manufacturers to
ship products could impair the Companys ability to meet the delivery date
requirements of the Companys customers. A disruption in the ability of the
Companys significant customers and licensees to access liquidity could cause
serious disruptions or an overall deterioration of their businesses which could
lead to a significant reduction in their future orders of the Companys
products and the inability or failure on their part to meet their payment
obligations to the Company, any of which could have a material adverse effect
on the Companys results of operations. Additionally, consumer demand for the
Companys merchandise has been impacted by consumer confidence and other
economic factors currently impacting consumer spending behavior. Furthermore,
the Company derives a relatively insignificant portion of its sales from
international markets, which enhances its exposure to domestic economic
conditions.

The footwear, apparel and accessory
industries are highly competitive. Any increased competition could result in
reduced sales or margins.

Competition in
the footwear, apparel and accessory industries is intense. The Companys
products compete with other branded products within their product categories as
well as with private label products sold by retailers, including some of the
Companys customers. To varying degrees, depending on the product category
involved, the

17

---



Company
competes on the basis of style, price, quality, comfort and brand prestige and
recognition, among other considerations. The Company also competes with
numerous manufacturers, importers and distributors of footwear, apparel and
accessories for the limited shelf space available for the display of such
products to the consumer. Moreover, the general availability of contract manufacturing
capacity allows ease of access by new market entrants. Some of the Companys
competitors are larger, have achieved greater recognition for their brand
names, have captured greater market share and/or have substantially greater
financial, distribution, marketing and other resources than the Company.

The loss of any of the Companys largest
customers could have a material adverse effect on its financial results.

Although
currently no customer comprises more than ten percent of the Companys customer
base, should one of its larger customers be negatively impacted, it could
adversely affect the Companys business. In recent years the retail industry
has experienced consolidation and other ownership changes.

In the future,
retailers may continue to have financial problems, consolidate, undergo
restructurings or reorganizations, or realign their affiliations, any of which
could further increase the concentration of the Companys customers. The loss
of any of the Companys largest customers, or the bankruptcy or material
financial difficulty of any customer, could have a material adverse effect on
its business. The Company does not have long-term contracts with any of its
customers, and sales to customers generally occur on an order-by-order basis.
As a result, customers can terminate their relationships with the Company at
any time or under certain circumstances cancel or delay orders, which could
reduce the Companys sales and adversely affect its business condition.

The success of the Companys business depends
on its ability to attract and retain key employees.

The Company is
heavily dependent on its current executive officers and management. The loss of
any of its executive officers or management, including but not limited to,
Kenneth D. Cole, or the inability to attract and retain qualified personnel
could delay the development and introduction of new products, harm the
Companys ability to sell products, damage the image of its brands and/or
prevent the Company from executing its business strategy.

Imposition of quotas and fluctuations in
exchange rates could increase the Companys costs and impact its ability to
source goods.

The Companys
business is subject to risks of doing business abroad, including, but not
limited to, fluctuations in exchange rates and the imposition of additional
regulations relating to imports, including quotas, duties, taxes and other
charges on imports.

In order to
reduce the risk of exchange rate fluctuations, the Company may enter into
forward exchange contracts to protect the purchase price under its agreements
with its manufacturers or purchases products in United States dollars. The
Company cannot fully anticipate all of its currency needs and, therefore,
cannot fully protect against the effect of such fluctuations.

Although the
majority of the goods sold by the Company are not currently subject to quotas,
countries in which the Companys products are manufactured may, from time to
time, impose new or adjust prevailing quotas or other restrictions on exported
products and the United States may impose new duties, tariffs and other
restrictions on imported products, any of which could adversely affect the
Companys operations and its ability to import its products at the Companys
current or increased quantity levels. Other restrictions on the importation of
footwear and the Companys other products are periodically considered by the
United States Congress and no assurances can be given that tariffs or duties on
the Companys goods may not be raised. If tariffs are raised in the future,
they will result in higher costs to the Company, and if import quotas are
imposed or made more restrictive, the Company may not be able to source its
goods at historical factories or at similar prices.

The voting shares of the Companys stock are
concentrated in one majority shareholder.

Currently,
Kenneth D. Cole owns approximately 90% of the voting power and approximately
47% of the outstanding common stock of the Company. As a result, Mr. Cole has
the ability to control (i) the election of all of the Companys directors other
than the directors who will be elected by the holders of Class A Common Stock,
voting separately as a class, and (ii) the results of all other shareholder
matters. Mr. Coles interests may differ from the interests of the other
stockholders.

18

---



War, acts of terrorism, and natural disasters
could affect the Companys ability to procure, sell and deliver product.

In the event
of actual or threatened war, acts of terrorism or the escalation of existing
hostilities, or in the event of a natural disaster, the Companys ability to
procure its products from its manufacturers for sale to its customers may be
negatively affected. The Company imports a substantial portion of its products
from other countries. If it becomes difficult or impossible to import the
Companys products into the countries in which it sells its products, the
Companys sales and profit margins may be adversely affected. Additionally,
war, military responses to future international conflicts, and possible future
terrorist attacks may lead to a downturn in the U.S. and/or international
economies, which could have a material adverse effect on the Companys results
of operations.

The Companys business is subject to risks
associated with sourcing outside the United States.

Substantially
all of the Companys products are produced by independent manufacturers. The
Company faces the risk that these third-party manufacturers with whom it
contracts to produce its products may not produce and deliver its products on a
timely basis, or at all. The Company cannot be certain that it will not
experience operational difficulties with its manufacturers, such as reductions
in the availability of production capacity, errors in complying with product
specifications, insufficient quality control, and failures to meet production
deadlines or increases in manufacturing costs. The failure of any manufacturer
to perform to the Companys expectations could result in supply shortages for
certain products and harm its business.

In addition,
the Companys foreign manufacturers may be adversely affected by additional
factors such as political instability in countries where contractors and
suppliers are located, imposition of regulations and quotas relating to
imports, imposition of duties, taxes and other charges on imports, significant
fluctuation of the value of the dollar against foreign currencies and
restrictions on the transfer of funds to or from foreign countries.

The capacity
of the Companys manufacturers to manufacture its products also is dependent,
in part, upon the availability of raw materials. The Companys manufacturers
may experience shortages of raw materials, which could result in delays in
deliveries of the Companys products by its manufacturers or in increased costs
to the Company. Any shortage of raw materials or inability of a manufacturer to
manufacture or ship its products in a timely manner, or at all, could impair
the Companys ability to ship orders of its products in a cost-efficient,
timely manner and could cause the Company to miss the delivery requirements of
its customers. As a result, the Company could experience cancellations of
orders, refusals to accept deliveries or reductions in its prices and margins,
any of which could harm the Companys financial performance and results of
operations.

The Company relies on licensees for revenues,
supply of products and compliance with Company standards.

The Company
licenses its trademarks to third parties for manufacturing, marketing,
distribution and sale of various products and intends to expand its licensing
programs. While the Company enters into comprehensive licensing agreements with
its licensees covering product design, product quality, sourcing,
manufacturing, marketing and other requirements, its licensees may not comply
fully with those agreements. Non-compliance could include marketing products
under the Companys brand names that do not meet its quality and other
requirements or engaging in manufacturing practices that do not meet the
Companys supplier code of conduct. These activities could harm the Companys
brand equity, its reputation and its business.

In addition,
the Companys royalty revenues could be affected by the results of its
licensees or distributors, or the transition of any of its licensing categories
in-house. The financial difficulties of any of its partners or their failure to
produce and deliver acceptable product could have an adverse impact on the
Companys royalty revenues in the future. In the event of a business failure of
any such partner or of the breakdown of the Companys relationship with any
domestic or foreign partner, there is no guarantee that the Company could
replace such royalty revenues or business.

Failure to anticipate and maintain proper
inventory levels could have an adverse financial effect on the Companys
business.

The Company
maintains an inventory of selected products that it anticipates will be in high
demand. The Company may be unable to sell the products it ordered in advance
from manufacturers or that it has in its inventory. Inventory levels in excess
of customer demand may result in inventory write-downs or the sale of excess
inventory at discounted or closeout prices. These events could significantly
harm the Companys operating results and impair the image of the Companys
brands. Conversely, if the Company underestimates consumer demand for its
products

19

---



or if
manufacturers fail to supply quality products in a timely manner, the Company
may experience inventory shortages, which may result in unfilled orders,
negatively impact customer relationships, diminish brand loyalty and result in
lost revenues.

The Company relies on third parties for
distribution and warehousing.

The Company
relies on warehousing and distribution facilities operated by third parties in
California, New Jersey and Ontario, Canada. Any damage at any of these
facilities due to fire, earthquake, flood, terrorist attack or any other
natural or man-made cause, including operational or financial hardship of the
provider or its capacity, could impair a portion of the Companys inventory or
its ability to use its warehousing and distribution facilities.

Outcomes of litigation or changes in
regulatory control could impact the Companys financial condition.

From time to
time, the Company may be a party to lawsuits and regulatory actions relating to
its business. Due to the inherent uncertainties of litigation and regulatory
proceedings, the Company cannot accurately predict the ultimate outcome of any
such proceedings. An unfavorable outcome could have a material adverse impact
on the Companys business, financial condition and results of operations. In
addition, regardless of the outcome of any litigation or regulatory
proceedings, such proceedings could result in substantial costs and may require
that the Company devote substantial resources to defend itself. Further,
changes in government regulations both in the United States and in the
countries in which the Company operates could have adverse affects on its
business and subject it to additional regulatory actions.

The loss or infringement of the Companys
trademarks and other proprietary rights, or its failure to procure these
rights, could have a material adverse effect on its operations.

The Company
believes that its trademarks and other proprietary rights are important to its
success and competitive position. Accordingly, the Company devotes substantial
resources to the establishment and protection of its trademarks on a worldwide
basis. There can be no assurances that such actions taken to establish and
protect the Companys trademarks and other proprietary rights will be adequate
to prevent imitation of its products by others or to prevent others from
seeking to block sales of the Companys products as violative of their trademarks
and proprietary rights. In addition, the laws of certain foreign countries may
not protect trademarks and proprietary rights to the same extent as do the laws
of the United States. During the course of the Companys expansion of its
trademark portfolio, it has experienced conflicts with various third parties
that have acquired or claimed ownership rights in one or more of its trademarks
or otherwise have contested the Companys rights to its trademarks. The Company
has in the past endeavored to resolve certain of these conflicts through both
legal action and negotiated settlements. There can be no assurances that the
Company will be able to resolve such conflicts successfully or that others will
not assert rights in, or ownership of, the Companys trademarks and other
proprietary rights. Any litigation regarding Company trademarks or other
proprietary rights could be time consuming and costly, and the loss of such
trademarks and other proprietary rights, or the loss of the exclusive use of
such trademarks and other proprietary rights, could have a material adverse
effect on the Companys operations.

Implementation of management information
systems may impact the Companys financial results.

The Company
utilizes SAP information management software in its retail operations and may
consider further expansion of SAP as an entity-wide integrated system solution.
If any further implementation of SAP or new system enhancements is initiated,
delays or computer and operational complications in connection with such
implementation, could have a material adverse effect on the Companys business,
financial condition or results of operations. Difficulties migrating existing
systems to any new software or enhancements could impact the Companys ability
to design, produce and ship its products on a timely basis.

Seasonality of the Companys business and the
timing of store openings and closings could result in fluctuations in its
financial performance.

The Companys
business is subject to seasonal fluctuations. Historically, fourth quarter
sales are typically higher due to holiday business. Therefore, results of
operations for any single quarter are not necessarily indicative of the results
that may be achieved for a full fiscal year. Quarterly results have been, and
in the future will continue to be, significantly impacted by the timing of new
store openings and their respective pre-opening costs, as well as store

20

---



closings and
related costs. In 2009, the financial results of the Company were significantly
impacted by the severe deterioration of the economy that began in 2008, which
negatively impacted the full year results.

Adverse publicity could negatively affect
public perception of the brand.

The Companys
results could be substantially affected by adverse publicity resulting from its
products or its advertising.

Expiration of leases could result in
fluctuations in the Companys financial performance.

As retail
store leases expire, the Company may not be able to renew them on acceptable
terms or secure suitable replacement locations. While the Company continues to
explore new markets and is always evaluating new potential locations, some
stores may close, and this may have an adverse impact on the financial
operations of the Companys Consumer Direct division.

The Companys expectations of growth
anticipate new store openings which are subject to many factors beyond its
control.

Future growth
in sales and profits in the Companys Consumer Direct division will depend to
some extent on its ability to increase the number of stores. The lease
negotiation and development timeframes, and the accomplishment of other
milestones on which opening new stores depend, vary from location to location
and can be subject to unforeseen delays. The number and timing of new stores
actually opened during any given period, and their associated contribution to
net income for the period, will depend on a number of factors including, but
not limited to: the identification and availability of suitable markets,
locations, and leases; the negotiation of acceptable lease terms for new
locations; the development of new merchandise and effective management of
inventory to meet the needs of new and existing stores on a timely basis; the
successful management of its infrastructure to accommodate new store openings;
the fostering of current relationships and development of new relationships
with vendors that are capable of supplying a greater volume of merchandise; the
availability of suitable financing to the Company and its landlords; the timing
of the delivery of the leased premises to the Company from its landlords in
order to commence build-out construction activities; the ability of the Company
and its landlords to obtain all necessary governmental licenses and permits to
construct, open, and operate its stores on a timely basis; the Companys
ability to manage the construction and development costs of new stores, and the
availability and/or cost of raw materials; the avoidance of construction delays
and cost overruns in connection with the build-out of new stores; the
rectification of any unforeseen engineering or environmental problems with the
leased premises; adverse weather during the construction period; and the hiring
and training of qualified operating personnel in the local market. Any of the
above factors could have a material adverse impact on the Companys financial
condition.

The Companys
plans to expand its store base may not be successful and may not result in an
increase in its revenues even though they increase costs. The Company will be
required to enter into additional leases, increase its rental expenses and make
capital expenditures for these stores. These commitments may be costly to
terminate, and these investments may be difficult to recapture if the Company
decides to close a store or alter its strategy. The Company must offer a broad
product assortment, appropriately manage retail inventory levels, operate
effective retail systems, execute effective pricing strategies and integrate
its stores into its overall business mix. In addition, the opening of stores
may divert some revenues from its wholesale customers. The increased demands of
operating additional stores could cause the Company to operate less
effectively, which could cause the performance of its existing operations to
suffer materially. As a result, the Companys revenues could decline and its
profitability could be adversely affected.

The effects of hurricanes and other natural
disasters may increase insurance costs for which the Company may take on higher
deductibles if losses occur.

The Company
has operations in flood, hurricane and earthquake zones. As such, the Company
has insured itself against losses from natural disasters. The cost of such
insurance could rise significantly as a result of the effects of future natural
disasters throughout the United States. To offset such costs, the Company may
take on larger deductibles which, if aggregated through multiple disaster
locations, could have a material effect on its results of operations.

21

---



Negative conditions in global credit markets
may impair the Companys marketable securities portfolio.

The Company
has investments in auction-rate securities with a fair value of $3.5 million as
of December 31, 2009 which reset every 28 days that are double A through
double C rated debt obligations, and substantially all have insurers.
Continuing adverse conditions in the global credit markets have prevented some
investors from liquidating their holdings of auction-rate securities because
the amount of securities submitted for sale has exceeded the amount of purchase
orders for such securities. If there is insufficient demand for the securities
at the time of auction, the auction may not be completed and the interest rates
may not be reset to predetermined interest rates. When auctions for these
securities fail, the investments may not be readily convertible to cash until a
future auction of these investments is successful or they are redeemed or
mature. If a decline in market value continues that is deemed other-than-temporary
resulting in a writedown, the result could have a material effect on the
Companys results of operations.

The Companys ability to collect receivables
could be impacted by adverse economic conditions.

A financial
institution engaged by the Company collects and insures significant receivable
balances. If the global credit markets or economic conditions do not improve or
worsen, the Company may be exposed to potential significant write-offs that
could adversely impact its financial results. In addition, challenging economic
conditions may impair the ability of the Companys customers to pay for
products and licensees to pay royalties. As a result, reserves for doubtful
accounts and write-offs of accounts receivable may increase.

The worldwide apparel industry is subject to
ongoing pricing pressure, which could adversely affect the Companys sales and
margins.

The apparel
market is characterized by low barriers to entry for both suppliers and
marketers, intense competition, global sourcing through suppliers located
throughout the world, trade liberalization, continuing movement of product
sourcing to lower cost countries, the ongoing emergence of new competitors with
widely varying strategies and resources, consolidation in the retail industry,
and pressure from retailers to reduce the costs of products. These factors
contribute to ongoing downward pricing pressure. This pressure may require the
Company to: reduce wholesale prices on existing products; reduce gross margins
across the Companys product lines; and yield to increased retailer demands for
allowances, incentives and other forms of economic support. If the Companys
sales prices decline and the Company fails to reduce its product costs or
operating expenses sufficiently, its losses could continue or grow. This could
have a material adverse effect on the Companys results of operations and
financial condition.

The Company may experience continued
contraction in its primary distribution channels.

In the United
States, department stores are the primary distribution channels for the
Companys products. Sales through these distribution channels could constrict,
or the Company may be unable to increase sales of its products through these
channels, for several reasons, including, but not limited to: many of the
Companys primary customers are reducing the number of stores they operate,
thereby reducing the number of doors into which the Companys products can be
sold; and these customers maintain  and seek to grow  substantial private-label
and exclusive offerings as they strive to differentiate the brands and products
they offer from those of their competitors. The ability to maintain retail
floor space, market share and sales in these channels depends on the Companys
ability to offer differentiated and exclusive products and to increase retailer
profitability on its products, which could have an adverse impact on the
Companys margins.

The Company cannot assure the successful
implementation of its long-term strategic plan.

The Company
seeks to undertake a number of strategic initiatives, including extending
certain of its brands, conducting and executing a strategic review of certain
other of its brands, expanding its geographic coverage, and enhancing its
operations. The success of its long-term strategic plan and its ability to
execute this plan are subject to a variety of risks, including, but not limited
to, the following:

| |   |                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The
 Companys strategy involves the expansion of the Companys retail stores. The
 risks associated with that strategy are detailed above under the heading The Companys expectations of growth anticipate new
 store openings which are subject to many factors beyond its control.

22

---



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | As part of
 the Companys strategic plan, it designated certain brands for strategic
 review, which includes the possible consolidation of certain lines into other
 brands or the licensure of brands to third parties. There can be no
 assurances that the Company will identify the appropriate brands for
 strategic review or that the measures the Company takes with respect to those
 brands will yield the intended results.                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | Part of the
 Companys strategic plan is the growth of the Le Tigre brand. The growth of that brand cannot be
 assured. In 2007, the Company signed a two and a half year agreement with JC
 Penney to relaunch the Le Tigrebrand
 at JC Penney which ends in July 2010. The Company has reached a mutual decision
 with JC Penney not to renew the agreement. The ability of the Company to
 execute new or expanding licensee or distribution agreements domestically and
 abroad for the brand, as well as ongoing economic uncertainty, may negatively
 impact 2010 and beyond. Additionally, the growth of the brand abroad may be
 challenged by difficulties procuring the necessary trademarks and proprietary
 rights.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | The Company
 has previously announced structural realignment measures and other
 initiatives designed to yield substantial cost savings. There can be no
 assurances that the Company can successfully execute these measures or that
 they will produce the anticipated cost savings.                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | The Company
 lacks the distribution channels abroad that it has in the U.S., and it may
 have difficulty developing successful distribution strategies and alliances
 in each of the major countries that it has targeted for significant
 international growth. Additionally, macroeconomic trends may continue to be
 extremely difficult, and could limit the Companys ability to implement its
 growth strategies in select geographies.                                                                                                                                                                                                                                                                                  

The Company could suffer if one of its
manufacturers fails to use acceptable labor practices.

The Company
requires its independent manufacturers to operate in compliance with Company
guidelines and applicable laws and regulations. While the Companys internal
and vendor operating guidelines promote ethical business practices, the Company
does not control these manufacturers or their labor practices. The violation of
labor or other laws by an independent manufacturer used by the Company, or the
divergence of an independent manufacturers labor practices from those
generally accepted as ethical or appropriate in the U.S., could interrupt, or
otherwise disrupt, the shipment of finished products to the Company or damage
its reputation. Any of these, in turn, could have a material adverse effect on
the Companys financial condition and results of operations.

If the Company fails to maintain the value of
its brands, its sales are likely to decline.

The Companys
success depends on the value of its brands. The brands under which the Company
sells products are integral to its business as well as to the implementation of
its strategies for expanding its business. Maintaining, promoting, and
positioning the Companys brands will depend largely on the success of its
marketing and merchandising efforts and its ability to provide a consistent,
high quality customer experience. Its brands could be adversely affected if it
fails to achieve these objectives or if its public image or reputation were to
be tarnished by negative publicity or consumer perception. Any of these events
could result in decreases in sales.

The Companys inability to maintain levels of
comparable store sales could cause earnings to decline.

If the
Companys future comparable store sales fail to meet market expectations, its
losses could continue or grow. A variety of factors affect comparable store
sales, including fashion trends, competition, current economic conditions,
pricing, inflation, the timing of the release of new merchandise and
promotional events, changes in merchandise mix, the success of marketing
programs, timing and level of markdowns and weather conditions. These factors
may cause comparable store sales results to be materially lower than recent
periods or expectations, which could cause declines in quarterly earnings and
stock price.

A reduction in the volume of traffic to the
Companys stores could significantly reduce sales and leave the Company with
unsold inventory.

The Companys
stores are located in premiere shopping districts and shopping malls. Sales at
these stores are derived, in part, from the volume of traffic in those areas.
The Companys mall stores benefit from the ability of the malls anchor
tenants, generally large department stores, and other area attractions to
generate consumer traffic in the vicinity of its stores and the continuing
popularity of the malls as shopping destinations. Sales volume and traffic at
mall stores could continue to be adversely affected by economic downturns, the
closing of anchor department stores and competition from non-mall retailers and
other malls where the Company does not have stores.

23

---



Any of these
events, or a decline in the desirability of the shopping environment of a
particular mall or area or in the popularity of shopping generally among the
Companys customers, would adversely affect the Companys results.

The inability to renew certain of the
Companys licenses, or to do so on terms that are favorable to the Company,
could have a material adverse effect on its financial results.

The Company
has entered into licenses with numerous partners for the distribution and sale
of certain products domestically and around the world. These licenses are for
fixed terms, following which the Company and the licensee decide whether they
wish to extend the term of the license. There is no guarantee that the Company
and its partners will reach mutually agreeable terms for extending a licensing
relationship. Similarly, in those instances where a licensee enjoys the option
to extend the term of a license as a result of having achieved certain
conditions, there is no guarantee that the licensee will avail itself of such
option. The Companys financial results could be adversely affected if the
Company is unable to extend a license agreement, if it is unable to do so on
terms favorable to the Company, or it if it cannot locate a suitable
alternative to an incumbent licensee who has decided not to renew a license.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The
Companys corporate headquarters building is located at 603 West 50th
Street, New York, New York. The building is owned by the Company and has
approximately 119,000 square feet of space. The Company leases 51,000 square
feet of office space in Secaucus, New Jersey for its administrative offices.
The Company also has a technical and administrative office in Dongguan, China.
The Company does not own or operate any manufacturing facilities. As of
December 31, 2009, the Company leased space for all of its 38 full-priced
retail stores (aggregating approximately 178,000 square feet) and 72 Company
Stores (aggregating approximately 300,000 square feet). Generally, the leases
provide for an initial term of five to ten years and certain leases provide for
renewal options permitting the Company to extend the term thereafter. In
addition, certain leases have co-tenancy failure options allowing the Company
to terminate leases prior to contractual expiration dates based on specified
terms not met by the landlord or the Company as defined by the lease.

Item 3. Legal Proceedings

The
Company is, from time to time, a party to litigation that arises in the normal
course of its business operations. The Company is not presently a party to any
litigation that it believes might have a material adverse effect on its
business operations.

Item 4. Submission of Matters to a Vote of
Security Holders

None.

24

---



PART II

Item 5. Market for Registrants Common
Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

The
Companys Class A Common Stock is listed and traded (trading symbol: KCP) on
the New York Stock Exchange (NYSE). On February 26, 2010 the closing sale
price for the Class A Common Stock was $11.72. The following table sets forth
the high and low closing sale prices for the Class A Common Stock for each
quarterly period for 2009 and 2008, as reported on the NYSE Composite Tape:

|                |       |  |       | 
|--------------- | ----- |  | ----- | 
|2009:           | High  |  | Low   | 
|                |       |  |       | 
|                |       |  |       | 
|First
 Quarter  | 8.43  |  | 5.03  | 
|Second
 Quarter | 8.77  |  | 5.97  | 
|Third
 Quarter  | 11.45 |  | 6.60  | 
|Fourth
 Quarter | 10.87 |  | 8.25  | 
|                |       |  |       | 
|2008:           | High  |  | Low   | 
|                |       |  |       | 
|                |       |  |       | 
|First
 Quarter  | 17.68 |  | 14.10 | 
|Second
 Quarter | 19.51 |  | 12.70 | 
|Third Quarter   | 18.02 |  | 12.39 | 
|Fourth
 Quarter | 14.37 |  | 5.69  | 

The
number of shareholders of record of the Companys Class A Common Stock on
February 28, 2010 was 94.

There
were 8 holders of record of the Companys Class B Common Stock on February 28,
2010, all of which were directly or indirectly owned by Kenneth D. Cole. There
is no established public trading market for the Companys Class B Common Stock.

The
Company repurchased 1,619,200 shares of its own stock during 2008. No shares
were repurchased during 2009.

Dividend Policy

The
payment of any future dividends will be at the discretion of the Companys
Board of Directors and will depend, among other things, upon future earnings,
operations, capital requirements, proposed tax legislation, the financial
condition of the Company and general business conditions.

The
Board of Directors suspended the Companys quarterly dividend on February 26,
2009. Therefore, there were no dividend payments during 2009. The Company made
$0.09 per share dividend payments to shareholders of record as of the close of
business on March 14, May 22, August 21 and November 20 during the fiscal year
ended December 31, 2008.

25

---



The
Company had the following securities authorized for issuance under equity
compensation plans as of December 31, 2009:

|                                                            |                                                                                                  |                                                                                |                                                                                                                                              
|----------------------------------------------------------- | ------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------
|                                                            |                                                                                                  |                                                                                |                                                                                                                                              
|Plan
 Category                                              | Number of
 securities to be issued upon 
exercise of outstanding options, warrants, 
and
 rights | Weighted-average
 exercise price of outstanding 
options, warrants, and rights | Number of
 securities remaining available for future issuance under equity compensation
 plans (excluding securities reflected in column (a))
|                                                            |                                                                                                  |                                                                                |                                                                                                                                              
|                                                            | (a)                                                                                              | (b)                                                                            | (c)                                                                                                                                          
|                                                            |                                                                                                  |                                                                                |                                                                                                                                              
|Equity
 compensation plans approved by security holders     | 3,009,286                                                                                        | $17.66                                                                         | 2,965,274                                                                                                                                    
|                                                            |                                                                                                  |                                                                                |                                                                                                                                              
|Equity
 compensation plans not approved by security holders | N/A                                                                                              | N/A                                                                            | N/A                                                                                                                                          
|                                                            |                                                                                                  |                                                                                |                                                                                                                                              

Stock
Performance Graph

The
following graph compares the yearly percentage change in the cumulative total
shareholder return on the Class A Common Stock during the period beginning on
December 31, 2004 and ending on December 31, 2009 with the cumulative total
return on the Standard & Poors 500 Composite Index, an Old Peer Group and
a New Peer Group. The comparison assumes that $100 was invested on December 31,
2004 in the Class A Common Stock in the foregoing indices and assumes the
reinvestment of dividends. The Company pared down its 2008 peer group to better reflect footwear and apparel companies that are of similar
size and operations to the Company in its new peer group.

26

---



(LINE CHART)

27

---



Item 6. Selected Financial Data

The
following selected financial data has been derived from the consolidated
financial statements of the Company and should be read in conjunction with the
consolidated financial statements and notes thereto that appear elsewhere in
this Annual Report and in Managements Discussion and Analysis of Financial
Condition and Results of Operations set forth in Item 7 of this Annual Report.

(Amounts are
in thousands except for per share and dividend amounts.)

|                                                                |  |      |         |      |   |         |   |      |         |      |   |         |  |   |         | 
|--------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | - | ---- | ------- | ---- | - | ------- |  | - | ------- | 
|                                                                |  | 2009 |         | 2008 |   | 2007    |   | 2006 |         | 2005 |  
|                                                                |  |      |         |      |   |         |   |      |         |      |  
|Income Statement Data:                                          |  |      |         |      |   |         |   |      |         |      |   |         |  |   |         | 
|Net sales                                                       |  | $    | 370,955 |      | $ | 448,578 |   | $    | 466,405 |      | $ | 492,282 |  | $ | 474,060 | 
|Royalty revenue                                                 |  |      | 39,445  |      |   | 43,759  |   |      | 44,315  |      |   | 44,217  |  |   | 43,983  | 
|Net revenues                                                    |  |      | 410,400 |      |   | 492,337 |   |      | 510,720 |      |   | 536,499 |  |   | 518,043 | 
|Cost of goods sold                                              |  |      | 239,396 |      |   | 293,452 |   |      | 287,408 |      |   | 304,672 |  |   | 283,727 | 
|Gross profit (1)                                                |  |      | 171,004 |      |   | 198,885 |   |      | 223,312 |      |   | 231,827 |  |   | 234,316 | 
|Selling, general and administrative
 expenses (2)               |  |      | 182,209 |      |   | 208,168 |   |      | 207,863 |      |   | 194,718 |  |   | 188,953 | 
|Impairment of intangible and long-lived
 assets                 |  |      | 19,280  |      |   | 3,028   |   |      | 10,564  |      |   | 121     |  |   |        | 
|Operating (loss)/income                                         |  |      | (30,485 | )    |   | (12,311 | ) |      | 4,885   |      |   | 36,988  |  |   | 45,363  | 
|Interest and other income, net                                  |  |      | 484     |      |   | 1,730   |   |      | 5,661   |      |   | 4,875   |  |   | 4,151   | 
|Impairment of investments                                       |  |      | (1,038  | )    |   | (7,840  | ) |      | (295    | )    |   |        |  |   |        | 
|(Loss)/income before provision for/(benefit
 from) income taxes |  |      | (31,039 | )    |   | (18,421 | ) |      | 10,251  |      |   | 41,863  |  |   | 49,514  | 
|(Benefit from)/provision for income taxes                       |  |      | (11,404 | )    |   | (6,753  | ) |      | 3,168   |      |   | 15,098  |  |   | 15,988  | 
|Deferred tax valuation allowance                                |  |      | 43,603  |      |   | 3,132   |   |      |        |      |   |        |  |   |        | 
|Net (loss)/income                                               |  | $    | (63,238 | )    | $ | (14,800 | ) | $    | 7,083   |      | $ | 26,765  |  | $ | 33,526  | 
|(Loss)/earnings per share:                                      |  |      |         |      |   |         |   |      |         |      |   |         |  |   |         | 
|Basic                                                           |  | $    | (3.52   | )    | $ | (0.80   | ) | $    | 0.35    |      | $ | 1.34    |  | $ | 1.69    | 
|Diluted                                                         |  | $    | (3.52   | )    | $ | (0.80   | ) | $    | 0.35    |      | $ | 1.31    |  | $ | 1.65    | 
|Weighted-average shares outstanding:                            |  |      |         |      |   |         |   |      |         |      |   |         |  |   |         | 
|Basic                                                           |  |      | 17,983  |      |   | 18,423  |   |      | 20,057  |      |   | 20,046  |  |   | 19,888  | 
|Diluted                                                         |  |      | 17,983  |      |   | 18,423  |   |      | 20,325  |      |   | 20,396  |  |   | 20,318  | 
|Cash dividends per share                                        |  |      |        |      | $ | 0.36    |   | $    | 0.72    |      | $ | 0.72    |  | $ | 0.66    | 

|                                          |  |              |         |      |   |         |  |      |         |      |   |         |  |   |         | 
|----------------------------------------- |  | ------------ | ------- | ---- | - | ------- |  | ---- | ------- | ---- | - | ------- |  | - | ------- | 
|                                          |  | December 31, |        
|                                          |  | 2009         |         | 2008 |   | 2007    |  | 2006 |         | 2005 |  
|                                          |  |              |         |      |   |         |  |      |         |      |  
|Balance Sheet Data:                       |  |              |         |      |   |         |  |      |         |      |   |         |  |   |         | 
|Working
 capital                          |  | $            | 88,611  |      | $ | 97,521  |  | $    | 139,677 |      | $ | 169,862 |  | $ | 187,106 | 
|Cash                                      |  |              | 68,505  |      |   | 64,704  |  |      | 90,653  |      |   | 105,441 |  |   | 63,747  | 
|Marketable
 securities                    |  |              | 3,529   |      |   | 5,085   |  |      | 8,305   |      |   | 12,250  |  |   | 66,400  | 
|Inventory                                 |  |              | 29,080  |      |   | 43,342  |  |      | 48,033  |      |   | 46,274  |  |   | 45,465  | 
|Total assets                              |  |              | 248,257 |      |   | 313,435 |  |      | 356,122 |      |   | 361,113 |  |   | 340,671 | 
|Total debt,
 including current maturities |  |              |        |      |   |        |  |      |        |      |   |        |  |   | 3,000   | 
|Total
 shareholders equity               |  | $            | 143,292 |      | $ | 199,762 |  | $    | 241,990 |      | $ | 257,676 |  | $ | 244,660 | 

| |     |                                                                                                                                                                                                                                                                                                                                                                         | 
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| |     |                                                                                                                                                                                                                                                                                                                                                                         | 
| |     |                                                                                                                                                                                                                                                                                                                                                                         | 
| | (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.
| |     |                                                                                                                                                                                                                                                                                                                                                                         | 
| | (2) | Includes
 warehousing and receiving expenses.                                                                                                                                                                                                                                                                                                                          

28

---



Item 7. Managements Discussion and Analysis
of Financial Condition and Results of Operations

The
following discussion and analysis should be read in conjunction with the
consolidated financial statements and the notes thereto that appear elsewhere
in this Annual Report.

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,
prescription eyewear, watches, fragrance, jewelry, luggage, 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,
fragrance and luggage. In addition, the Company licenses its childrens
apparel.

The
Company recorded net revenues of $410.4 million for the year ended December 31,
2009. As of December 31, 2009, the Company had $68.5 million in cash and cash
equivalents up $3.8 million versus a year ago, decreased its inventory 32.9%
through disciplined inventory management and no long-term debt. In March 2010,
the Company announced it signed a strategic alliance agreement with Macys,
where it will launch a new mens sportswear collection under the Kenneth Cole Reactionbrand. Under the
strategic alliance agreement, Macys will be the exclusive department store
retailer of the new Reactionmens
sportswear line in the United States and its territories. The Company expects
to launch in fall 2010 in 150 stores and ultimately grow the brand to 550
stores.

Results of Operations

While
the Company lost money in 2009, it demonstrated improving operating performance
throughout the year with quarter over quarter improvement excluding non-cash
charges as described below. The Company returned to profitability in the back
half of the year and believes it made a number of important strides, including
strengthening its brand position, streamlining overhead, improving inventory
turns and realigning the organization to enhance design, merchandising and
supply chain capabilities.

29

---



The
following table sets forth certain operating data of the Company as a
percentage of net revenues for the periods indicated below:

|                                                                |  |      |       |      |  |       |     |  |       |  
|--------------------------------------------------------------- |  | ---- | ----- | ---- |  | ----- | --- |  | ----- | -
|                                                                |  | 2009 |       | 2008 |  | 2007  |    
|                                                                |  |      |       |      |  |       |    
|Net sales                                                       |  |      | 90.4  | %    |  | 91.1  | %   |  | 91.3  | %
|Royalty revenue                                                 |  |      | 9.6   |      |  | 8.9   |     |  | 8.7   |  
|                                                                |  |      |       |      |  |       |     |  |       |  
|Net revenues                                                    |  |      | 100.0 |      |  | 100.0 |     |  | 100.0 |  
|Cost of goods sold                                              |  |      | 58.3  |      |  | 59.6  |     |  | 56.3  |  
|                                                                |  |      |       |      |  |       |     |  |       |  
|Gross profit (1)                                                |  |      | 41.7  |      |  | 40.4  |     |  | 43.7  |  
|Selling, general and administrative
 expenses (2)               |  |      | 44.4  |      |  | 42.3  |     |  | 40.7  |  
|Impairment of intangible and long-lived
 assets                 |  |      | 4.7   |      |  | 0.6   |     |  | 2.0   |  
|Operating (loss)/income                                         |  |      | (7.4  | )    |  | (2.5  | )   |  | 1.0   |  
|Interest and other income, net                                  |  |      | 0.1   |      |  | 0.4   |     |  | 1.1   |  
|Impairment of investments                                       |  |      | (0.3  | )    |  | (1.6  | )   |  | (0.1  | )
|(Loss)/income before provision for/(benefit
 from) income taxes |  |      | (7.6  | )    |  | (3.7  | )   |  | 2.0   |  
|Provision for/(benefit from) income taxes
 (3)                  |  |      | 7.8   |      |  | (0.7  | )   |  | 0.6   |  
|                                                                |  |      |       |      |  |       |     |  |       |  
|Net (loss)/income                                               |  |      | (15.4 | ) %  |  | (3.0  | ) % |  | 1.4   | %
|                                                                |  |      |       |      |  |       |     |  |       |  



| |     |                                                                                                                                                                                                                                                                                                                                                                        
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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.
| |     |                                                                                                                                                                                                                                                                                                                                                                        
| | (2) | Includes
 warehousing and receiving expenses.                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                        
| | (3) | Includes a
 $43.6 million valuation allowance for the year ended December 31, 2009.                                                                                                                                                                                                                                                                                    

Year Ended December 31, 2009 Compared to Year
Ended December 31, 2008

Net
revenues decreased $81.9 million, or 16.6%, to $410.4 million in 2009 from
$492.3 million in 2008. The decrease was due to decreases in each of the
Companys business segments.

Wholesale
net sales (excluding sales to the Companys Consumer Direct business segment)
decreased $65.7 million, or 24.6%, to $201.5 million in 2009 from $267.2
million in 2008. The decrease was primarily a result of the Companys decision
to streamline its portfolio of brands and eliminate unprofitable businesses.
Over 70% of the decline was attributable to the Companys planned exit of the Tribecaand Bongofootwear lines, as well as reductions in associated
private label programs and sales to the Companys off-priced customers. The
remaining decline was attributable to a decrease in sales across the majority
of the Companys wholesale businesses as a result of factors including retailer
destocking, a challenging retail environment and continued stress in the
macro-economic marketplace.

Net
sales in the Companys Consumer Direct segment decreased $11.9 million, or
6.6%, to $169.5 million for the year ended December 31, 2009 from $181.4
million for the year ended December 31, 2008. Sales associated with fourteen
net new stores opened since the prior year was offset by a comparable store
sales decrease of 12.8%, or $19.2 million. The Company chose to be less
promotional in the back half of the year and therefore while its sales were
down the lack of clearance activity resulted in higher percentage of full
price sales and improved gross margin. 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. During 2009, the Company opened nineteen outlets and closed five
full-priced retail stores as compared to opening eleven outlets, opening two
full-priced retail stores and closing eight full-priced retail stores during
2008.

Royalty
revenue decreased $4.3 million, or 9.9%, to $39.4 million in 2009 from $43.7
million in 2008. The decrease in royalty revenues was primarily attributable to
a reduction in the recognition of contract initiation fees and a reduction in
licensee sales into the off-price channel offset by improved performance in
certain of its mens and womens apparel categories.

Consolidated
gross profit, as a percentage of net revenues, increased to 41.7% for the year
ended December 31, 2009 from 40.4% for the year ended December 31, 2008.
Quarterly consolidated gross profit improved quarter over quarter throughout
fiscal 2009 primarily from disciplined inventory management, better
sell-through and less promotion as follows: First Quarter 33.9%; Second Quarter
42.4%; Third Quarter 43.3%; Fourth Quarter 46.8%. The increase, as a percentage
of net revenues for fiscal 2009, was also due to revenue mix shifting to the
Consumer

30

---



Direct and
Licensing segments as a percentage of total revenue. The Consumer Direct
segment, which operates at a higher gross profit level than the Wholesale
segment, increased as a percentage of net revenues to 41.3% for the year ended
December 31, 2009 compared to 36.9% for the year ended December 31, 2008, while
the Wholesale segment revenues as a percentage of net revenues decreased to
49.1% for the year ended December 31, 2009 from 54.2% for the year ended
December 31, 2008. The revenues in the Licensing segment, which carries nominal
cost of goods sold, increased as a percentage of revenue to 9.6% for the year
ended December 31, 2009 compared to 8.9% for the year ended December 31, 2008.

Selling,
general and administrative (SG&A) expense, inclusive of warehousing and
receiving expenses, decreased $26.0 million to $182.2 million for the year
ended December 31, 2009 from $208.2 million for the year ended December 31,
2008. The decrease in SG&A expenses was primarily attributable to cost
reduction programs enacted during the course of the year, including various
cuts in payroll and discretionary spending. As a percentage of net revenues,
SG&A expenses increased to 44.4% for the year ended December 31, 2009
compared to 42.3% for the year ended December 31, 2008. While SG&A as a
percentage of revenues improved in the back half of the year, over the annual
period SG&A increased due to a loss of leverage and the increased
concentration of the Consumer Direct Segment, which carries a higher SG&A
expense level than the Wholesale and Licensing segments.

Impairments
of intangible and long-lived assets were $19.3 million for the year ended
December 31, 2009 and $3.0 million for the year ended December 31, 2008.
Impairments in 2009 included a $12.8 million charge for the Le Tigretrademark and $6.5 million for
retail store long-lived assets, while 2008 included $1.9 million for retail
store long-lived assets and $1.1 million for certain shop-in-shop build-out
costs. In 2009, the Company opened four Le Tigre outlet stores and began
expanding the Le Tigrebrand
internationally; however, it also reached a mutual agreement with JC Penney not
to renew the exclusive license agreement for Le
Tigrewhich prompted an impairment indicator. The Company, with the
assistance of an independent appraiser, utilized a combination of the market
approach and the royalty savings method under the income approach to estimate
fair value. Based upon the review, the Company recorded a charge of $12.8
million for the year ended December 31, 2009. Also, management reviewed its
retail stores fair value based upon estimated undiscounted future cash flows.
In 2009, the Company recorded a charge of $6.5 million for underperforming
retail stores whose fair value was below carrying value.

Interest
and other income, net decreased $1.2 million to approximately $0.5 million for
the year ended December 31, 2009 as compared to $1.7 million for the year ended
December 31, 2008. The decrease is primarily due to lower interest rates as the
majority of the Companys cash balances are in government money market
accounts.

Impairment
of investments was $1.0 million for the year ended December 31, 2009 and $7.8
million for the year ended December 31, 2008. The Company recorded an
other-than-temporary impairment of $1.0 million related to auction-rate securities
during the year ended December 31, 2009 and recorded other-than-temporary
impairments of $7.8 million, of which $4.6 million related to an investment in
the common stock of one of its licensees and $3.2 million related to
auction-rate securities, during the year ended December 31, 2008. The fair value
of the Companys auction-rate securities was determined utilizing an
independent appraiser. The primary variables used in determining fair value
include collateral, rating, insurance, credit risk and downgrade risk of the
security.

The
Companys effective tax rate was a 103.8% provision for the year ended December
31, 2009 compared to a 19.7% benefit for the year ended December 31, 2008. The
change in the Companys tax rate is a result of a $43.6 million valuation
allowance against the Companys deferred tax assets offset by the tax benefit
from the Companys net loss.

The
Company analyzed both positive and negative evidence in determining the
potential requirement for a valuation allowance on its deferred tax assets. The
Company reviewed its results over the last three years, which resulted in a
cumulative loss over such period. In accordance with income tax accounting
guidance, a three-year historical cumulative loss is considered significant
negative evidence and difficult to overcome in the absence of compelling
positive evidence. As such, the Company recorded a valuation allowance of
approximately $43.6 million for the year ended December 31, 2009.

The
establishment of the valuation allowance does not preclude the Company from
using the net operating loss carryforwards or other deferred tax assets in the
future. If the Company begins to generate taxable income on a sustained basis
the need for a deferred tax asset valuation allowance will change resulting in
the reversal of all or a portion of this deferred tax asset valuation
allowance.

31

---



As
a result of the foregoing, net loss increased by $48.4 million, to $63.2
million or (15.4%) of net revenues for the year ended December 31, 2009 from
$14.8 million or (3.0%) of net revenues for the year ended December 31, 2008.
The net loss includes a $43.6 million valuation allowance along with $20.3
million of pre-tax asset impairments.

Year Ended December 31, 2008 Compared to Year
Ended December 31, 2007

Net
revenues decreased $18.4 million, or 3.6%, to $492.3 million in 2008 from
$510.7 million in 2007. The decrease was due to decreases in the Companys
Wholesale and Licensing business segments, partially offset by increases in the
Companys Consumer Direct business.

Wholesale
net sales (excluding sales to the Companys Consumer Direct business segment)
decreased $23.6 million, or 8.1%, to $267.2 million in 2008 from $290.8 million
in 2007. The decrease was primarily attributable to a decline in sales across
the Companys branded footwear businesses,
offset by incremental sales from the Companys in-house launch of its
previously licensed mens sportswear collections. The challenging retail
environment and continued stress in the macro-economic marketplace,
particularly the department store channel, as well as generally softer
sell-thrus compared to the prior year, resulted in declines in most of the
Companys Wholesale businesses.

Net
sales in the Companys Consumer Direct segment increased $5.8 million, or 3.3%,
to $181.4 million for the year ended December 31, 2008 from $175.6 million for
the year ended December 31, 2007. Comparable store sales decreased $3.0
million, or 2.0%, primarily from a highly challenging holiday retail
environment, while new store sales in 2008 plus that portion of 2008 sales for
stores not open for all of 2007 increased $4.5 million. In addition, Internet
sales increased 73.8% for the year ended December 31, 2008 as compared to December
31, 2007. 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. During 2008 the
Company opened two full-priced retail stores and closed eight, while continuing
its expansion in Company Stores by opening eleven stores. As the Company has
increased the amount of specific made for Company Store product and focused
merchandising on key assortments, sales have improved at its Company Store
locations. In its full-priced retail stores, the Company continued to balance
its assortments, tailored to the local markets, and adjusted its price points
to align the price-value relationship of the Companys brands and continues to
review its real estate portfolio for both its full-priced retail and Company
stores. In addition, the Company outsourced customer care, fulfillment and
website responsibilities related to its Internet business to a third-party that
provides direct-to-customer e-commerce services. In July 2008, the third party
platform was also integrated with SAP, the Companys retail store system.

Royalty
revenue decreased $0.6 million, or 1.3%, to $43.7 million in 2008 from $44.3
million in 2007. The decrease in licensing revenues was primarily attributable
to a reduction in mens sportswear royalties from an a licensing agreement that
terminated December 31, 2007 offset by incremental royalties received from
existing licensees and the launch of the Le Tigrebrand. During 2008, the Company began shipping mens sportswear,
effectively transitioning the licensing model to an in-house operation.

Consolidated
gross profit, as a percentage of net revenues, decreased to 40.4% for the year
ended December 31, 2008 from 43.7% for the year ended December 31, 2007. The
decrease, as a percentage of net revenues, was primarily the result of a
decrease in the Wholesale and Consumer Direct segment margins, partially offset
by the sales and revenue mix shifting to Consumer Direct and Licensing as a
percentage of total sales. The decrease in the margins was primarily due to
soft sell-thrus and higher dilution from a promotional and challenging macro
environment, while converting the Companys inventory to cash, specifically
during the fourth quarter, to improve liquidity, thereby keeping assortments
fresh and current for the spring 2009 season. 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 of 36.9% for the year ended
December 31, 2008 compared to 34.4% for the year ended December 31, 2007, while
the Wholesale segment revenues as a percentage of net revenues decreased to
54.2% for the year ended December 31, 2008 from 56.9% for the year ended
December 31, 2007. The revenues in the Licensing segment, which carries no cost
of goods sold, increased as a percentage of revenue to 8.9% for the year ended
December 31, 2008 compared to 8.7% for the year ended December 31, 2007.

Selling,
general and administrative (SG&A) expenses and impairment of long-lived
assets, inclusive of warehousing and receiving expenses, decreased $7.2 million
to $211.2 million for the year ended December 31, 2008 from $218.4 million for
the year ended December 31, 2007. The decrease in 2008 is primarily related to
the

32

---



impairment of
certain store leasehold improvements, furniture and fixtures and certain
shop-in-shop buildout costs of $3.0 million as compared to $10.6 million in
2007. The decrease in expenses excluding those charges denoted above were
primarily attributable to a reduction in payroll as the Company reduced its
headcount and a variety of cuts in discretionary spending such as tradeshows,
travel and entertainment and information technology costs. As a percentage of
net revenues, expenses excluding severance and asset impairment increased to
41.8% for the year ended December 31, 2008 compared to 40.5% for the year ended
December 31, 2007. Total SG&A expenses and impairment of long-lived assets
as a percent of revenues were 42.3% and 40.7% for the years ended December 31,
2008 and 2007, respectively. The increase was due to loss of leverage on the
decrease in Wholesale sales and the greater portion of revenues from the
Consumer Direct segment which carries a higher SG&A expense level than the
Wholesale and Licensing segments due primarily to store occupancy and store
payroll costs. The Company is continuing the right-sizing of its cost structure
by taking additional actions, including incremental payroll reductions,
compensation adjustments, reductions in third party distribution costs as well
as curtailment of non-media related marketing.

Interest
income, net decreased $3.9 million to approximately $1.7 million for the year
ended December 31, 2008 as compared to $5.6 million for the year ended December
31, 2007. The decrease is primarily due to the Companys lower average cash
balances and interest rates.

Impairment
of investment increased $7.5 million to approximately $7.8 million for the year
ended December 31, 2008 as compared to $0.3 million for the year ended December
31, 2007. The increase is due to the Company recording other-than-temporary
impairments of $4.6 million related to an investment in the common stock of one
of its licensees which is recorded at market value based upon the underlying
share price and a $3.2 million charge related to auction-rate securities during
the year ended December 31, 2008 as compared to an other-than-temporary
impairment of $0.3 million related to auction-rate securities during the year
ended December 31, 2007.

The
Companys effective tax rate decreased to a 19.7% benefit for the year ended
December 31, 2008 compared to a 30.9% provision for the year ended December 31,
2007. The decrease in the Companys tax rate is a result of the tax benefit
from the Companys net loss offset by a valuation allowance of $3.1 million
reserved against tax assets for certain other-than-temporary investment impairments
and the impact of interest and penalties on tax reserves for uncertain
positions.

As
a result of the foregoing, net (loss)/ income decreased by $21.9 million, to
$(14.8) million ((3.0%) of net revenues) for the year ended December 31, 2008 from
$7.1 million (1.4% of net revenues) for the year ended December 31, 2007.

Related Party Transactions

The
Company had an exclusive license agreement with Iconix Brand Group, Inc. and
its trademark holding company, IP Holdings, LLC (Iconix), to use the Bongo trademark in connection with the
manufacture, sale and distribution of womens, mens and childrens footwear in
certain territories.The Chairman
and Chief Executive Officer of Iconix is the brother of the Companys Chairman
and Chief Creative Officer. The term of the agreement was through December 31,
2010. During 2009, the Company terminated the agreement effective December 31,
2009 which eliminates any future obligations for 2010. Management believes that
the license agreement with Iconix was entered into at arms-length. The Company
was obligated to pay Iconix a percentage of net sales based upon the terms of
the agreement. The Company recorded approximately $0.2 million, $1.1 million
and $1.1 million in aggregate royalty and advertising expense under the
agreement for the years ended December 31, 2009, 2008 and 2007, respectively.

The
Company recorded expenses of approximately $0.7 million, $0.6 million and $0.5
million for the years ended December 31, 2009, 2008 and 2007, 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 December 31, 2009, the Company had $68.5 million in cash and cash
equivalents, which consist primarily of government money market funds as
compared to $64.7 million as of December 31, 2008. The Companys cash
requirements are primarily for working capital needs, retail expansion, new
technology, and other

33

---



corporate
activities. The Company uses cash from operations as the primary source of
financing its capital expenditures and seasonal requirements. Cash needs vary
from time to time as a result of the timing of the receipt of merchandise from
suppliers, the delivery by the Company of merchandise to its customers and the
level of inventory and accounts receivable balances. At December 31, 2009,
working capital was $88.6 million compared to $97.5 million at December 31,
2008 primarily due to a decrease in receivables and inventory, partially offset
by a decrease in accounts payable and accrued expenses.

Net
cash provided by operating activities was $17.3 million for the year ended
December 31, 2009 compared to $21.9 million for the year ended December 31,
2008. The decrease in cash flows provided
by operations is primarily attributable to cash generated through a decrease in
inventory offset by decreases related to the timing of receivables and
payables.

Net
cash used in investing activities totaled $11.8 million for the year ended
December 31, 2009 compared to $15.9 million for the year ended December 31,
2008. The decrease was primarily attributable to a $5.8 million decrease in the
purchases of intangible assets. Included in the purchases of intangible assets
during the year ended December 31, 2008 are final payments of $5.5 million
related to two performance targets within the Le
TigreAsset Purchase Agreement. Capital expenditures increased $2.7
million during the year ended December 31, 2009 compared to December 31, 2008.
Capital expenditures for the year ended December 31, 2009 and 2008 included
approximately $11.0 million and $7.2 million, respectively, for amounts
associated with furniture, fixtures and leasehold improvements for existing and
new stores. In addition, the Company had proceeds of $1.1 million from the sale
of an auction-rate security during the year ended December 31, 2009.

Net
cash used in financing activities was $1.8 million for the year ended December
31, 2009 compared to $31.7 million for the year ended December 31, 2008. The
decrease was primarily attributable to the reduction in shares repurchased by
the Company. No shares were repurchased during the year ended December 31, 2009
as compared to $24.4 million used to repurchase 1,619,200 treasury shares
during the year ended December 31, 2008. The Company also did not pay dividends
during the year ended December 31, 2009 compared to $6.7 million during the
year ended December 31, 2008.

As
of December 31, 2008, the Company had federal net operating loss carryforwards
of approximately $13.5 million. In 2009, newly enacted government legislation
extended the carryback period on losses for 2008 or 2009 to five years from two
years. This legislation allowed the Company to carryback all of the 2008 net
operating losses into prior periods that it was unable to previously and
therefore, the Company has recorded a federal tax receivable of approximately
$4.0 million for the year ended December 31, 2009.

During
the fourth quarter of 2008, the Company converted its factoring agreement with
its largest factor, a unit of CIT Group Inc. (CIT), to a Receivables
Management Agreement (RMA). Under the RMA, CIT acts as a collection agent for
the Companys assigned receivables without transfer of ownership and as a
credit grantor for those receivables subject to credit approval. Prior to the
RMA, the Company sold primarily all of it accounts receivable to its factors
without recourse. On November 1, 2009, CIT entered into a prepackaged plan of reorganization
and subsequently emerged from the reorganization. The Company has no exposure
to CIT.

The
Companys material obligations under contractual agreements, primarily
commitments for future payments under operating lease agreements, as of
December 31, 2009 are summarized as follows:

|                                       |  |                       |             |                |   |            |  |           |            |               |   |            |  |   |            | 
|-------------------------------------- |  | --------------------- | ----------- | -------------- | - | ---------- |  | --------- | ---------- | ------------- | - | ---------- |  | - | ---------- | 
|                                       |  | Payment Due by Period |            
|                                       |  |                       |            
|                                       |  | Total                 |             | 1 year or less |   | 2-3 years  |  | 4-5 years |            | After 5 years |  
|Operating Leases and Other Obligations |  | $                     | 143,840,000 |                | $ | 26,380,000 |  | $         | 48,522,000 |               | $ | 39,629,000 |  | $ | 29,309,000 | 
|Purchase Obligations                   |  |                       | 44,506,000  |                |   | 44,506,000 |  |           |           |               |   |           |  |   |           | 
|                                       |  |                       |            
|Total Contractual Obligations          |  | $                     | 188,346,000 |                | $ | 70,886,000 |  | $         | 48,522,000 |               | $ | 39,629,000 |  | $ | 29,309,000 | 
|                                       |  |                       |            

Contingent
rent and other charges amounted to $8.5 million and $8.6 million for the years
ended December 31, 2009 and 2008, respectively.

On
July 31, 2009, the Company amended its five-year senior unsecured revolving
credit facility to convert it to a revolving senior secured asset based credit
facility (the Amended Facility) to provide the Company with increased
availability and strategic flexibility. Availability under the Amended Facility
is $60 million, which may

34

---



be increased
to $85 million at the election of the 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
Amended Facility terminates by its terms, and all amounts borrowed under the
Amended Facility shall be due and payable, on December 20, 2011. The Amended
Facility includes a $7.5 million sublimit for Swingline Loans and a $35 million
aggregate sublimit for letters of credit, with a further sublimit of $15
million for standby letters of credit. Revolving loans under the Amended
Facility may be base rate loans or Eurodollar loans, at the Companys election.
Base rate loans shall bear interest at a rate per annum equal to the sum of (i)
the greatest of (a) the Prime Rate in effect on such day, (b) the Federal Funds
Effective Rate in effect on such day plus 1⁄2 of 1% and (c) the Adjusted LIBO
Rate for a one month Interest Period on such day plus 1%; plus (ii) 2.5%.
Eurodollar loans shall bear interest at the Adjusted LIBO Rate, plus 3.5%. The
Amended Facility is secured by substantially all the assets of the Company and
its domestic subsidiaries, including a pledge by the Company of its equity
interest in each of its domestic subsidiaries. If availability under the
Amended Facility is less than $10,000,000, the Company will be subject to a
monthly fixed charge coverage ratio. The Amended Facility limits the Companys
ability to incur indebtedness or liens, its ability to enter into mergers or
sell assets, its ability to change the nature of its business, and its ability
to enter into certain guarantees. In addition, the Company may not declare or
pay dividends if Availability under the Amended Facility is less than
$10,000,000. The Amended Facility also contains customary events of default.
Upon the occurrence of an event of default, the outstanding obligations under
the Amended Facility may be accelerated and become immediately due and payable.

During
2009, the Company incurred facility fees of approximately $0.1 million. In
addition, the Company made payments of approximately $0.7 million for financing
costs related to the Amended Facility. There were no outstanding advances under
this agreement at December 31, 2009. Amounts available under the Amended
Facility at December 31, 2009 were reduced by $1.2 million of standby and open
letters of credit. The Company did not borrow under the Amended Facility during
2009. The Company had $22.8 million available to borrow as of December 31,
2009.

Through
July 30, 2009, the Company had a five-year senior unsecured revolving credit
facility (the Revolving Credit Facility), with various lenders. During 2009
and 2008, the Company incurred facility fees of approximately $0.1 million and
$0.1 million, respectively. There were no outstanding advances under this
agreement. Amounts available under the Revolving Credit Facility at December
31, 2008 were reduced by $3.5 million of standby and open letters of credit.
The Company had no availability under the Revolving Credit Facility during 2008
and through its termination in 2009.

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.

Off-Balance Sheet Arrangements

The
Company did not have any off-balance sheet arrangements as of December 31,
2009.

Exchange Rates

The
Company may enter into forward exchange contracts for its future purchases of
inventory denominated in foreign currencies. Gains and losses on forward
exchange contracts that are used for hedges are accounted for on the Companys
Consolidated Balance Sheet as inventory and an adjustment to equity, and are
subsequently accounted for as part of the purchase price of the inventory upon
execution of the contract. At December 31, 2009, the Company had no unrealized
gains or losses as no forward contracts were outstanding. Unrealized gains and losses
are typically included in Accumulated other comprehensive income in the
Companys Statement of Changes in Shareholders Equity and as an adjustment to
inventory, which is the underlying exposure on the Companys Consolidated
Balance Sheet. While the Company believes that its current procedures with
respect to the reduction of risk associated with currency exchange rate
fluctuations are adequate, there can be no assurance that such fluctuations
will not have a material adverse effect on the results of operations of the
Company in the future.

Inventory
from contract manufacturers in Asia and Central/South America are purchased in
United States dollars and the recent fluctuations of many of these currencies
against the United States dollar has not had any material adverse impact on the
Company. However, future purchase prices for the Companys products may be
impacted by fluctuations in the exchange rate between the United States dollar
and the local currencies of the

35

---



contract
manufacturer, which may affect the Companys cost of goods in the future. The
Company currently does not believe the potential effects of such fluctuations
would have a material adverse effect on the Company.

Effects of Inflation

The
Company does not believe that the relatively low rates of inflation experienced
over the last few years in the United States, where it primarily competes, have
had a significant effect on revenues or profitability.

Critical Accounting Policies and Estimates

General

The
Companys managements discussion and analysis of its financial condition and
results of operations are based upon the Companys consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires the Company to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an ongoing basis, the
Company evaluates its estimates, including those related to product returns,
bad debts, inventories, income taxes, financing operations, contingencies and
litigation. The Company bases its estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions.

The
Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements:

Inventory

The
Company writes down its inventory for estimated obsolescence equal to the
difference between the cost of inventory and the estimated market value based
upon assumptions about future demand and market conditions. If actual market
conditions are less favorable than those projected by management, additional
inventory write-downs may be required.

Sales Returns and Allowances

The
Companys chargebacks for deductions taken by its customers for returns, discounts
and allowances as well as potential future customer deductions is significant
to its operations. The Company reserves against known chargebacks as well as
potential future customer deductions based on a combination of historical
activity and current market conditions. Actual results may differ from these
estimates under different assumptions or conditions, which may have a
significant impact on the Companys results.

Allowance for Doubtful Accounts

The
Company maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers and licensees to make required
payments. Customers include non-factored accounts, accounts collected by the
Companys factors with recourse and credit card receivables from third-party
service providers. If the financial conditions of these customers and licensees
were to deteriorate and impair their ability to make payments, additional
allowances may be required.

Impairment of Indefinite-lived Intangible
Assets and Long-Lived Assets

The
Company performs a review of its indefinite-lived intangible assets and
long-lived assets for impairment on a quarterly basis or whenever events or
changes in circumstances indicate that the carrying amount may not be
recoverable. If the total of the expected future undiscounted cash flows is
less than the carrying amount of the asset, a loss is recognized for the
difference between the fair value and carrying value of the asset.

36

---



Fair Value

The
Companys financial assets and liabilities are measured using inputs from the
three levels of the fair value hierarchy, which are as follows:

| | Level 1 - 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;
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                  
| | Level 2 - 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; and        
|  |                                                                                                                                                                                                  
| | Level 3 - a
 fair value that is derived from inputs that are unobservable or from
 observable inputs based on unobservable data in an inactive market.                                           

Income Taxes

Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Deferred taxes are evaluated for
future realization and reduced by a valuation allowance based on income tax
accounting guidance applied by management. The Companys assessment of deferred
tax assets is performed quarterly and many factors are considered when
assessing the likelihood of future realization of deferred tax assets,
including the recent earnings experience and expectations of future taxable
income by taxing jurisdiction, the carryforward periods available for tax
reporting purposes, tax planning strategies and other relevant factors. The
actual realization of deferred tax assets may differ significantly from the
amounts the Company has recorded.

The
Companys income taxes are routinely under audit by federal, state or local
authorities. These audits include questioning of the timing and amount of
deductions and the allocation of income among various tax jurisdictions. Based
on its evaluations of tax positions, the Company believes it has appropriately
accrued for probable exposures. To the extent the Company is required to pay
amounts in excess of recorded income tax liabilities, the Companys effective
tax rate in a given financial statement period could be materially impacted.
The Company also measures tax position taken or expected to be taken in a
return and records them in the financial statements.

Litigation

The
Company is periodically involved in various legal actions arising in the normal
course of business. Management is required to assess the probability of any
adverse judgments as well as the potential range of any losses. Management
determines the required accruals after a careful review of the facts of each
significant legal action. The Companys accruals may change in the future due
to new developments in these matters.

Contingencies

In
the ordinary course of business, the Company is involved in and subject to
compliance and regulatory reviews and audits by numerous authorities, agencies
and other governmental agents and entities from various jurisdictions. The
Company is required to assess the likelihood of any adverse outcomes of these
matters. A determination of the amount of reserves required, if any, for these
reviews is made after careful analysis of each individual issue. The reserves
may change in the future due to new developments or final resolution in each
matter, which may have a significant impact on the Companys results.

Stock-based Compensation

The
Company records all share-based payments, including grants of employee stock
options, to be recognized in the financial statements based on their fair
values. The Company measures the cost of services received in exchange for
stock options and similar awards based on the grant-date fair value of the
award and recognizes this cost in the income statement over the period during
which an award recipient is required to provide services in exchange for the
award. The Company uses the Black-Scholes model to assess the fair value of
non-qualified employee stock options and amortizes this cost over the service
period. In addition, stock compensation expense is reduced for estimated

37

---



forfeitures
prior to vesting primarily based on historical annual forfeiture rates and by
employee classification. Estimated forfeitures are reassessed on a quarterly
basis and may change based on new facts and circumstances.

New Accounting Pronouncements

In
January 2010, the FASB issued Accounting Standards Update 2010-06, Improving Disclosures About Fair Value Measurements(ASU
2010-06). ASU 2010-06 adds new requirements for disclosures of significant
transfers into and out of Levels 1, 2 and 3 of the fair value hierarchy, the
reasons for the transfers and the policy for determining when transfers are
recognized. ASU 2010-06 also adds new requirements for disclosures about
purchases, sales, issuances and settlements on a gross rather than net basis
relating to the reconciliation of the beginning and ending balances of Level 3
recurring fair value measurements. It also clarifies the level of
disaggregation to require disclosures by class rather than by major category
of assets and liabilities and clarifies that a description of inputs and
valuation techniques used to measure fair value is required for both recurring
and nonrecurring fair value measurements classified as Level 2 or 3. ASU
2010-06 is effective January 1, 2010 except for the requirements to provide the
Level 3 activity of purchases, sales, issuances and settlements on a gross
basis which are effective January 1, 2011. The Company will adopt the update on
January 1, 2010 and has determined that it will not have a material impact on
the Companys consolidated financial statements.

Item 7A. Quantitative and Qualitative
Disclosures about Market Risk

The
Company has marketable securities, specifically 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 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 December 31, 2009, the Company had no forward
contracts outstanding.

The
Companys earnings may also be affected by changes in short-term interest rates
as a result of borrowings that may be made under its credit facilities. A two
or less percentage point increase in interest rates affecting the Companys
credit facilities would not have had a material effect on the Companys 2009
and 2008 operations.

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 8. Financial Statements and
Supplementary Data

See
page F-1 for an index to the consolidated financial statements, the Report of
Management and the Reports of the Registered Public Accounting Firm submitted
as part of this Annual Report.

Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure

None.

38

---



Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and
Procedures

As
of December 31, 2009, 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 Exchange Act
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.

Managements Report on Internal Control over
Financial Reporting

The
Companys management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Rules
13a-15(f) and 15d-15(f) of the Exchange Act. Under the supervision and with the
participation of management, including the Chief Executive Officer and Chief
Financial Officer, the Company conducted an evaluation of the effectiveness of
its internal control over financial reporting as of December 31, 2009 based on
the framework in Internal ControlIntegrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). Based on that
evaluation, management concluded that the Companys internal control over
financial reporting was effective as of December 31, 2009.

The
Companys internal control over financial reporting as of December 31, 2009 was
audited by Ernst & Young, LLP, an independent registered public accounting
firm, as stated in their report which is included herein.

Changes in Internal Control over Financial
Reporting

There
were no changes in the Companys internal controls over financial reporting
during its last fiscal quarter that have materially affected, or are reasonably
likely to materially affect, the Companys internal control over financial
reporting.

Item 9B. Other Information

None.

39

---



PART III

Item 10. Directors, Executive Officers and
Corporate Governance

Except
for the information regarding directors and executive officers of the
registrant, which is included in Part I of this Form 10-K, the information
required by this item will be contained in the Companys Proxy Statement for
its Annual Shareholders Meeting to be held May 27, 2010 to be filed with the
Securities and Exchange Commission within 120 days after December 31, 2009 and
which is incorporated herein by reference in response to this item.

Item 11. Executive Compensation

The
information required by this item will be contained in the Companys Proxy
Statement for its Annual Shareholders Meeting to be held May 27, 2010 to be
filed with the Securities and Exchange Commission within 120 days after
December 31, 2009 and which is incorporated herein by reference in response to
this item.

Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters

The
information required by this item will be contained in the Companys Proxy
Statement for its Annual Shareholders Meeting to be held May 27, 2010 to be
filed with the Securities and Exchange Commission within 120 days after
December 31, 2009 and which is incorporated herein by reference in response to
this item.

Item 13. Certain Relationships and Related
Transactions, and Director Independence

The
information required by this item will be contained in the Companys Proxy
Statement for its Annual Shareholders Meeting to be held May 27, 2010 to be
filed with the Securities and Exchange Commission within 120 days after
December 31, 2009, and which is incorporated herein by reference in response to
this item.

Item 14. Principal Accounting Fees and
Services

The
information required by this item will be contained in the Companys Proxy
Statement for its Annual Shareholders Meeting to be held May 27, 2010 to be
filed with the Securities and Exchange Commission within 120 days after
December 31, 2009 and which is incorporated herein by reference in response to
this item.

PART IV

Item 15. Exhibits, Financial Statement Schedules

|    |  |                                                                                                                                                                                                                                                                                    
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | 
|(a) |  | (1) See page
 F-1 for an index to the consolidated financial statements submitted as part
 of this Annual Report.                                                                                                                                                                  
|    |  |                                                                                                                                                                                                                                                                                    
|    |  | (2) Schedule
 II  Valuation and Qualifying Accounts is required to be filed by Item 8 of
 Form 10-K.                                                                                                                                                                              
|    |  |                                                                                                                                                                                                                                                                                    
|    |  | All other
 schedules, for which provision is made in the applicable accounting
 regulations of the Securities and Exchange Commission are not required under
 the related instructions, are shown in the financial statements or are
 inapplicable and therefore have been omitted.
|    |  | (3) The
 following exhibits are included in this report:                                                                                                                                                                                                                           

40

---

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|3.01        |  | Restated
 Certificate of Incorporation of Kenneth Cole Productions, Inc.; Certificate
 of Merger of Cole Fifth Avenue, Inc. into Kenneth Cole Productions, Inc.;
 Certificate of Merger of Cole Productions, Inc. into Kenneth Cole
 Productions, Inc.; Certificate of Merger of Cole Sunset, Inc. into Kenneth
 Cole Productions, Inc.; Certificate of Merger of Cole Union Street, Inc. into
 Kenneth Cole Productions, Inc.; Certificate of Merger of Cole West, Inc. into
 Kenneth Cole Productions, Inc.; Certificate of Merger of Kenneth Cole
 Woodbury, Inc. into Kenneth Cole Productions, Inc.; Certificate of Merger of
 Kenneth Cole Leather Goods, Inc. into Kenneth Cole Productions, Inc.;
 Certificate of Merger of Unlisted into Kenneth Cole Productions, Inc.
 (Incorporated by reference to Exhibit 3.01 to the Companys Registration
 Statement on Form S-1, Registration No. 33-77636).
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|3.02        |  | By-laws.
 (Incorporated by reference to Exhibit 3.02 to the Companys Registration
 Statement on Form S-1, Registration No. 33-77636).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|3.03        |  | Certificate
 of Amendment of the Certificate of Incorporation of Kenneth Cole Productions,
 Inc. dated October 15, 2007 (Previously filed as Exhibit 10.32 to the
 Registrants Quarterly Report on Form 10-Q for the quarterly period ended
 September 30, 2007 and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|4.01        |  | Specimen of
 Class A Common Stock Certificate. (Incorporated by reference to Exhibit 4.01
 to the Companys Registration Statement on Form S-1, Registration No.
 33-77636).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|*10.01      |  | Kenneth Cole
 Productions, Inc. 1994 Stock Option Plan. (Incorporated by reference to
 Exhibit 10.04 to the Companys Registration Statement on Form S-1,
 Registration No. 33-77636).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|*10.02      |  | Employment
 Agreement, dated as of April 30, 1994, between Kenneth Cole Productions, Inc.
 and Kenneth D. Cole. (Incorporated by reference to Exhibit 10.05 to the
 Companys Registration Statement on Form S- 1, Registration No. 33-77636).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|*10.03      |  | Amended and
 Restated Kenneth Cole Productions, Inc. 1994 Stock Option Plan (Previously
 filed as an Exhibit to the Registrants Proxy Statement filed on April 22,
 1997 and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.04       |  | Kenneth Cole
 Productions, Inc. Employee Stock Purchase Plan (Incorporated by reference to
 the Companys Registration Statement on Form S-8 Registration No. 33-31868,
 filed on March 7, 2000).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.05       |  | Kenneth Cole
 Productions, Inc. 2004 Stock Incentive Plan (Incorporated by reference to the
 Companys Registration Statement on Form S-8 Registration No. 333-119101,
 filed on September 17, 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.06       |  | Kenneth Cole
 Productions, Inc. 2004 Stock Incentive Plan (Incorporated by reference to the
 Companys Registration Statement on Form S-8 Registration No. 333-131724 filed
 on February 10, 2006).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.07       |  | Stock
 Purchase Agreement between Kenneth Cole Productions, Inc. and Bernard Chaus,
 Inc. dated June13, 2005 (Previously filed as Exhibit 10.21 to the
 Registrants Quarterly Report on Form 10-Q for the quarterly period ended
 June 30, 2005 and incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.08       |  | Employment
 Agreement between Kenneth Cole Productions, Inc. and Richard S. Olicker dated
 January 3, 2006 (Previously filed as Exhibit 10.1 to the Registrants Current
 Report on Form 8-K filed on January 10, 2006).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.09       |  | Employment
 Agreement between Kenneth Cole Productions, Inc. and Joel Newman dated
 February 13, 2006 (Previously filed as Exhibit 10.1 to the Registrants
 Current Report on Form 8-K, filed on February 16, 2006).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|10.10       |  | Kenneth Cole
 Productions, Inc. 2004 Stock Incentive Plan (Amended and Restated as of April
 20, 2005) (Previously filed as Exhibit 10.26 to the Registrants Quarterly
 Report on Form 10-Q for the quarterly period ended March 31, 2006 and
 incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

41

---



|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.11  |  | Kenneth Cole
 Productions, Inc. Sample Grant Award Letter (Previously filed as Exhibit
 10.27 to the Registrants Quarterly Report on Form 10-Q for the quarterly
 period ended March 31, 2006 and incorporated herein by reference).                                                                                                                                                                                                
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.12  |  | Employment
 Agreement between Kenneth Cole Productions, Inc. and Michael DeVirgilio dated
 March 31, 2006 (Previously filed as Exhibit 10.28 to the Registrants
 Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2006 and
 incorporated herein by reference).                                                                                                                                                 
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.13  |  | Employment
 Agreement between Kenneth Cole Productions, Inc. and Douglas Jakubowski dated
 October 12, 2006 (Previously filed as Exhibit 10.30 to the Registrants
 Quarterly Report on Form 10-Q for the quarterly period ended September 30,
 2006 and incorporated herein by reference).                                                                                                                                          
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.14  |  | 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 December 20, 2006. (Previously filed as Exhibit 10.31 to the
 Registrants Annual Report on Form 10-K for the year ended December 31, 2006
 and incorporate herein by reference).
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.15  |  | Employment
 Agreement between Kenneth Cole Productions, Inc. and Jill Granoff dated May
 5, 2008 (Previously filed as Exhibit 10.33 to the Registrants Quarterly
 Report on Form 10-Q for the quarterly period ended March 31, 2008 and
 incorporated herein by reference).                                                                                                                                                         
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.16  |  | Receivables
 management agreement between The CIT Group/Commercial Services, Inc. and
 Kenneth Cole Productions, Inc. dated November 7, 2008.                                                                                                                                                                                                                                                                                        
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.17  |  | Amendment
 No. 2 to the 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).                              
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|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).                                 
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|+21.01 |  | List of
 Subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                               
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|+23.01 |  | Consent of
 Independent Registered Public Accounting Firm.                                                                                                                                                                                                                                                                                                                                                                           
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|+23.02 |  | Consent of
 Independent Appraisal Firm.                                                                                                                                                                                                                                                                                                                                                                                              
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|+23.03 |  | Consent of
 Independent Appraisal Firm.                                                                                                                                                                                                                                                                                                                                                                                              
|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|+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.                                                                                                                                                                                                                                                                                 

|  |  |                                                                                                                                | 
|- |  | ------------------------------------------------------------------------------------------------------------------------------ | 
|  |  |                                                                                                                                | 
|* |  | Management
 contract or compensatory plan or arrangement required to be identified
 pursuant to Item 15(a) (3) of this report.
|  |  |                                                                                                                               
|+ |  | Filed
 herewith.                                                                                                              

42

---



Kenneth Cole Productions, Inc. and
Subsidiaries 
Index to Consolidated Financial Statements

|                                                                                                                  |  |     
|----------------------------------------------------------------------------------------------------------------- |  | ----
|Reports of
 Independent Registered Public Accounting Firm                                                         |  | F-2 
|                                                                                                                  |  |     
|Consolidated
 Balance Sheets as of December 31, 2009 and 2008                                                     |  | F-5 
|                                                                                                                  |  |     
|Consolidated
 Statements of Operations for the years ended December 31, 2009, 2008 and 2007                       |  | F-7 
|                                                                                                                  |  |     
|Consolidated
 Statements of Changes in Shareholders Equity for the years ended December
 31, 2009, 2008 and 2007 |  | F-8 
|                                                                                                                  |  |     
|Consolidated
 Statements of Cash Flows for the years ended December 31, 2009, 2008 and 2007                       |  | F-9 
|                                                                                                                  |  |     
|Notes to
 Consolidated Financial Statements                                                                       |  | F-10

F-1

---



Report of Independent Registered Public
Accounting Firm

To The Board of Directors and Shareholders of
Kenneth Cole Productions, Inc.

We
have audited the accompanying consolidated balance sheets of Kenneth Cole
Productions, Inc. and subsidiaries (the Company) as of December 31, 2009 and
2008, and the related consolidated statements of operations, changes in
shareholders equity, and cash flows for each of the three years in the period
ended December 31, 2009. Our audits also included the financial statement
schedule listed in the Index at Item 15(a). These financial statements and
schedule are the responsibility of the Companys management. Our responsibility
is to express an opinion on these financial statements and schedule based on
our audits.

We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company at
December 31, 2009 and 2008, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
2009, in conformity with U.S. generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.

As
discussed in Note 4 to the consolidated financial statements, the Company
changed its method of accounting for other-than-temporary impairment on
investments with the adoption of the guidance originally issued in FASB Staff
Position FAS 115-2, FAS 124-2, and EITF 99-20-2, Recognition and Presentation of Other-Than-Temporary Impairments(codified
in FASB ASC Topic 320, Investments - Debt
and Equity Securities) effective June 15, 2009.

We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the Companys internal control over
financial reporting as of December 31, 2009, based on criteria established in
Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 8, 2010
expressed an unqualified opinion thereon.

|                    |                      
|------------------- | ---------------------
|                    | /s/ Ernst & Young LLP
|                    |                      
|New York,
 New York |                      
|March 8,
 2010      |                      

F-2

---



Report of Independent Registered Public
Accounting Firm

To The Board of Directors and Shareholders of
Kenneth Cole Productions, Inc.

We
have audited Kenneth Cole Productions, Inc. and subsidiaries (the Company)
internal control over financial reporting as of December 31, 2009, based on
criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO
criteria). The Companys management is responsible for maintaining effective
internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the
accompanying Managements Report on Internal Control over Financial Reporting.
Our responsibility is to express an opinion on the Companys internal control
over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.

A
companys internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A companys internal control
over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition
of the companys assets that could have a material effect on the financial
statements.

Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

In
our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2009, based on the COSO criteria.

F-3

---



We
also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets of
the Company as of December 31, 2009 and 2008, and the related consolidated statements
of operations, changes in shareholders equity, and cash flows for each of the
three years in the period ended December 31, 2009 and our report dated March 8,
2010 expressed an unqualified opinion thereon.

|                    |                      
|------------------- | ---------------------
|                    | /s/ Ernst & Young LLP
|New York,
 New York |                      
|March 8,
 2010      |                      

F-4

---



Kenneth Cole Productions, Inc. and
Subsidiaries Consolidated Balance Sheets

|                                                                                                    |  |              |             |      |   |             | 
|--------------------------------------------------------------------------------------------------- |  | ------------ | ----------- | ---- | - | ----------- | 
|                                                                                                    |  | December 31,
|                                                                                                    |  | 2009         |             | 2008 |  
|                                                                                                    |  |              |             |      |  
|Assets                                                                                              |  |              |             |      |   |             | 
|Current assets:                                                                                     |  |              |             |      |   |             | 
|Cash and cash equivalents                                                                           |  | $            | 68,505,000  |      | $ | 64,704,000  | 
|Due from factors                                                                                    |  |              | 743,000     |      |   | 9,190,000   | 
|Accounts receivable, less allowance
for
 doubtful accounts of $186,000 and $1,061,000, respectively |  |              | 29,461,000  |      |   | 32,018,000  | 
|Inventories                                                                                         |  |              | 29,080,000  |      |   | 43,342,000  | 
|Prepaid expenses and other current
assets                                                           |  |              | 8,809,000   |      |   | 2,738,000   | 
|Deferred taxes, net                                                                                 |  |              |            |      |   | 5,645,000   | 
|                                                                                                    |  |              |             |      |   |             | 
|Total current assets                                                                                |  |              | 136,598,000 |      |   | 157,637,000 | 
|                                                                                                    |  |              |             |      |   |             | 
|Property and equipment, at cost,
less
 accumulated depreciation and amortization                    |  |              | 53,952,000  |      |   | 57,790,000  | 
|                                                                                                    |  |              |             |      |   |             | 
|Other assets:                                                                                       |  |              |             |      |   |             | 
|Intangible assets, net                                                                              |  |              | 7,492,000   |      |   | 19,842,000  | 
|Deferred taxes, net                                                                                 |  |              | 909,000     |      |   | 33,541,000  | 
|Investments and other                                                                               |  |              | 8,136,000   |      |   | 7,280,000   | 
|Deferred compensation plans
assets                                                                 |  |              | 41,170,000  |      |   | 37,345,000  | 
|                                                                                                    |  |              |             |      |   |             | 
|Total other assets                                                                                  |  |              | 57,707,000  |      |   | 98,008,000  | 
|                                                                                                    |  |              |             |      |   |             | 
|                                                                                                    |  |              |             |      |   |             | 
|Total Assets                                                                                        |  | $            | 248,257,000 |      | $ | 313,435,000 | 
|                                                                                                    |  |              |             |      |   |             | 

See accompanying notes to consolidated
financial statements.

F-5

---



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

|                                                                                                                                                                 |  |              |              |      |   |              |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------------ | ---- | - | ------------ | -
|                                                                                                                                                                 |  | December 31,
|                                                                                                                                                                 |  | 2009         |              | 2008 |  
|                                                                                                                                                                 |  |              |              |      |  
|Liabilities and Shareholders
Equity                                                                                                                             |  |              |              |      |   |              |  
|Current liabilities:                                                                                                                                             |  |              |              |      |   |              |  
|Accounts payable and accrued
expenses                                                                                                                            |  | $            | 36,336,000   |      | $ | 42,935,000   |  
|Other current liabilities                                                                                                                                        |  |              | 7,779,000    |      |   | 11,669,000   |  
|Deferred income                                                                                                                                                  |  |              | 3,799,000    |      |   | 5,512,000    |  
|Income taxes payable                                                                                                                                             |  |              | 73,000       |      |   |             |  
|                                                                                                                                                                 |  |              |              |      |   |              |  
|Total current liabilities                                                                                                                                        |  |              | 47,987,000   |      |   | 60,116,000   |  
|                                                                                                                                                                 |  |              |              |      |   |              |  
|                                                                                                                                                                 |  |              |              |      |   |              |  
|Accrued rent and other long-term
 liabilities                                                                                                                    |  |              | 17,501,000   |      |   | 17,842,000   |  
|Deferred compensation plans
liabilities                                                                                                                         |  |              | 39,477,000   |      |   | 35,715,000   |  
|                                                                                                                                                                 |  |              |              |      |   |              |  
|Commitments and contingencies                                                                                                                                    |  |              |              |      |   |              |  
|                                                                                                                                                                 |  |              |              |      |   |              |  
|Shareholders 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; 15,933,282 and 15,726,672 issued 
 as of December 31, 2009 and 2008, respectively         |  |              | 159,000      |      |   | 157,000      |  
|Class B Convertible Common Stock, par value
 $.01, 9,000,000 shares authorized; 8,010,497 
issued and outstanding as of
 December 31, 2009 and 2008,respectively |  |              | 80,000       |      |   | 80,000       |  
|Additional paid-in capital                                                                                                                                       |  |              | 107,452,000  |      |   | 103,318,000  |  
|Accumulated other comprehensive income                                                                                                                           |  |              | 1,346,000    |      |   | 650,000      |  
|Retained earnings                                                                                                                                                |  |              | 159,176,000  |      |   | 220,478,000  |  
|                                                                                                                                                                 |  |              |              |      |   |              |  
|                                                                                                                                                                 |  |              | 268,213,000  |      |   | 324,683,000  |  
|                                                                                                                                                                 |  |              |              |      |   |              |  
|Class A Common Stock in treasury, at cost,
 5,855,550 as of December 31, 2009 and 2008,respectively                                                              |  |              | (124,921,000 | )    |   | (124,921,000 | )
|                                                                                                                                                                 |  |              |              |      |   |              |  
|Total shareholders equity                                                                                                                                       |  |              | 143,292,000  |      |   | 199,762,000  |  
|                                                                                                                                                                 |  |              |              |      |   |              |  
|                                                                                                                                                                 |  |              |              |      |   |              |  
|Total Liabilities and Shareholders
Equity                                                                                                                       |  | $            | 248,257,000  |      | $ | 313,435,000  |  
|                                                                                                                                                                 |  |              |              |      |   |              |  

See accompanying notes to consolidated
financial statements.

F-6

---



Kenneth Cole Productions, Inc. and
Subsidiaries Consolidated Statements of Operations

|                                                                |  |                         |             |      |   |             |   |   |             |  
|--------------------------------------------------------------- |  | ----------------------- | ----------- | ---- | - | ----------- | - | - | ----------- | -
|                                                                |  | Year ended December 31,
|                                                                |  |                        
|                                                                |  | 2009                    |             | 2008 |   | 2007        |  
|                                                                |  |                         |             |      |   |             |  
|Net sales                                                       |  | $                       | 370,955,000 |      | $ | 448,578,000 |   | $ | 466,405,000 |  
|Royalty revenue                                                 |  |                         | 39,445,000  |      |   | 43,759,000  |   |   | 44,315,000  |  
|                                                                |  |                         |             |      |   |             |   |   |             |  
|Net revenues                                                    |  |                         | 410,400,000 |      |   | 492,337,000 |   |   | 510,720,000 |  
|Cost of goods sold                                              |  |                         | 239,396,000 |      |   | 293,452,000 |   |   | 287,408,000 |  
|                                                                |  |                         |             |      |   |             |   |   |             |  
|Gross profit                                                    |  |                         | 171,004,000 |      |   | 198,885,000 |   |   | 223,312,000 |  
|                                                                |  |                         |             |      |   |             |   |   |             |  
|Selling, general and administrative
 expenses                   |  |                         | 182,209,000 |      |   | 208,168,000 |   |   | 207,863,000 |  
|Impairment of intangible and long-lived
 assets                 |  |                         | 19,280,000  |      |   | 3,028,000   |   |   | 10,564,000  |  
|                                                                |  |                         |             |      |   |             |   |   |             |  
|Operating (loss)/income                                         |  |                         | (30,485,000 | )    |   | (12,311,000 | ) |   | 4,885,000   |  
|Interest and other income, net                                  |  |                         | 484,000     |      |   | 1,730,000   |   |   | 5,661,000   |  
|Impairment of investments                                       |  |                         | (1,038,000  | )    |   | (7,840,000  | ) |   | (295,000    | )
|                                                                |  |                         |             |      |   |             |   |   |             |  
|                                                                |  |                         |             |      |   |             |   |   |             |  
|(Loss)/income before provision for/(benefit
 from) income taxes |  |                         | (31,039,000 | )    |   | (18,421,000 | ) |   | 10,251,000  |  
|Provision for/(benefit from) income taxes                       |  |                         | 32,199,000  |      |   | (3,621,000  | ) |   | 3,168,000   |  
|                                                                |  |                         |             |      |   |             |   |   |             |  
|Net (loss)/income                                               |  | $                       | (63,238,000 | )    | $ | (14,800,000 | ) | $ | 7,083,000   |  
|                                                                |  |                         |             |      |   |             |   |   |             |  
|                                                                |  |                         |             |      |   |             |   |   |             |  
|(Loss)/earnings per share:                                      |  |                         |             |      |   |             |   |   |             |  
|Basic                                                           |  | $                       | (3.52       | )    | $ | (0.80       | ) | $ | 0.35        |  
|Diluted                                                         |  | $                       | (3.52       | )    | $ | (0.80       | ) | $ | 0.35        |  
|                                                                |  |                         |             |      |   |             |   |   |             |  
|Dividends declared per share                                    |  |                         |            |      | $ | 0.36        |   | $ | 0.72        |  
|                                                                |  |                         |             |      |   |             |   |   |             |  
|                                                                |  |                         |             |      |   |             |   |   |             |  
|Shares used to compute (loss)/earnings per
 share:              |  |                         |             |      |   |             |   |   |             |  
|Basic                                                           |  |                         | 17,983,000  |      |   | 18,423,000  |   |   | 20,057,000  |  
|Diluted                                                         |  |                         | 17,983,000  |      |   | 18,423,000  |   |   | 20,325,000  |  
|                                                                |  |                         |             |      |   |             |   |   |             |  
|                                                                |  |                         |             |      |   |             |   |   |             |  

See accompanying notes to consolidated
financial statements.

F-7

---



Kenneth Cole Productions, Inc. and
Subsidiaries Consolidated Statements of Changes in Shareholders Equity

|`                                                                                                               |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   |            |   |       |             |   |  |            |   |   |              |   |   |             |   | 
|--------------------------------------------------------------------------------------------------------------- |  | --------------------- | ---------- | --------------------- | - | ----------------- | - | ------ | --------- | ----------------------------- | - | -------------------------------------------- |  | ------------------ | -------------- | ----------------- | - | ---------- | - | ----- | ----------- | - |  | ---------- | - | - | ------------ | - | - | ----------- | - | 
|                                                                                                                |  | Class A
 Common Stock |            | Class B
 Common Stock |   |                   |   |        |           |                               |   |                                              |  |                    | Treasury Stock |                   |   |            |  
|                                                                                                                |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   |            |  
|                                                                                                                |  | Number
 of Shares     |            | Amount                |   | Number
 of Shares |   | Amount |           | Additional
 Paid-In 
 Capital |   | Accumulated 
 Other 
 Comprehensive 
 Income |  | Retained
 Earnings |                | Number
 of Shares |   | Amount     |   | Total |            
|                                                                                                                |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   |            |   |       |            
|Balance at 12/31/06                                                                                             |  |                       | 15,587,651 |                       | $ | 156,000           |   |        | 8,010,497 |                               | $ | 80,000                                       |  | $                  | 92,041,000     |                   | $ | 1,884,000  |   | $     | 249,653,000 |   |  | (3,596,592 | ) | $ | (86,138,000  | ) | $ | 257,676,000 |  
|Net Income                                                                                                      |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   |            |   |       | 7,083,000   |   |  |            |   |   |              |   |   | 7,083,000   |  
|Translation adjustment from                                                                                     |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   |            |   |       |             |   |  |            |   |   |              |   |   |             |  
|Foreign currency, net of taxes
$388,000                                                                         |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   | 620,000    |   |       |             |   |  |            |   |   |              |   |   | 620,000     |  
|Unrealized loss on available-for-sale securities,
net of taxes
 $(995,000)                                      |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   | (1,590,000 | ) |       |             |   |  |            |   |   |              |   |   | (1,590,000  | )
|                                                                                                                |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   |            |   |       |             |   |  |            |   |   |              |   |   |             |  
|Comprehensive income                                                                                            |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   |            |   |       |             |   |  |            |   |   |              |   |   |             |  
|                                                                                                                |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   |            |   |       |             |   |  |            |   |   |              |   |   | 6,113,000   |  
|Stock-based compensation expense                                                                                |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    | 7,065,000      |                   |   |            |   |       |             |   |  |            |   |   |              |   |   | 7,065,000   |  
|Exercise of stock options and related tax
benefits                                                              |  |                       | 308,800    |                       |   | 3,000             |   |        |           |                               |   |                                              |  |                    | 5,357,000      |                   |   |            |   |       |             |   |  |            |   |   |              |   |   | 5,360,000   |  
|Issuance of restricted stock and related tax
benefits                                                           |  |                       | 97,320     |                       |   | 1,000             |   |        |           |                               |   |                                              |  |                    | 118,000        |                   |   |            |   |       |             |   |  |            |   |   |              |   |   | 119,000     |  
|Shares surrendered by employees to pay taxes on
restricted stock                                                |  |                       | (37,878    | )                     |   |                   |   |        |           |                               |   |                                              |  |                    | (887,000       | )                 |   |            |   |       |             |   |  |            |   |   |              |   |   | (887,000    | )
|Issuance of Class A Common Stock from ESPP                                                                      |  |                       | 17,022     |                       |   |                   |   |        |           |                               |   |                                              |  |                    | 340,000        |                   |   |            |   |       |             |   |  |            |   |   |              |   |   | 340,000     |  
|Purchase of Class A Stock                                                                                       |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   |            |   |       |             |   |  | (1,008,000 | ) |   | (19,168,000  | ) |   | (19,168,000 | )
|Reissuance of Treasury Shares                                                                                   |  |                       | (368,242   | )                     |   | (4,000            | ) |        |           |                               |   |                                              |  |                    | (4,757,000     | )                 |   |            |   |       |             |   |  | 368,242    |   |   | 4,761,000    |   |   |            |  
|Dividends paid on common stock                                                                                  |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   |            |   |       | (14,628,000 | ) |  |            |   |   |              |   |   | (14,628,000 | )
|                                                                                                                |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   |            |   |       |             |   |  |            |   |   |              |   |   |             |  
|Balance at 12/31/07                                                                                             |  |                       | 15,604,673 |                       | $ | 156,000           |   |        | 8,010,497 |                               | $ | 80,000                                       |  | $                  | 99,277,000     |                   | $ | 914,000    |   | $     | 242,108,000 |   |  | (4,236,350 | ) | $ | (100,545,000 | ) | $ | 241,990,000 |  
|Net Loss                                                                                                        |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   |            |   |       | (14,800,000 | ) |  |            |   |   |              |   |   | (14,800,000 | )
|Translation adjustment from                                                                                     |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   |            |   |       |             |   |  |            |   |   |              |   |   |             |  
|Foreign currency, net of taxes ($189,000)                                                                       |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   | (773,000   | ) |       |             |   |  |            |   |   |              |   |   | (773,000    | )
|Unrealized gain on available-for-sale securities,
net of
 reclassification adjustment, net of taxes of $319,000 |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   | 509,000    |   |       |             |   |  |            |   |   |              |   |   | 509,000     |  
|                                                                                                                |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   |            |   |       |             |   |  |            |   |   |              |   |   |             |  
|Comprehensive loss                                                                                              |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   |            |   |       |             |   |  |            |   |   |              |   |   | (15,064,000 | )
|Stock-based compensation expense                                                                                |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    | 5,224,000      |                   |   |            |   |       |             |   |  |            |   |   |              |   |   | 5,224,000   |  
|Exercise of stock options and related tax
benefits                                                              |  |                       | 5,400      |                       |   |                   |   |        |           |                               |   |                                              |  |                    | 71,000         |                   |   |            |   |       |             |   |  |            |   |   |              |   |   | 71,000      |  
|Issuance of restricted stock and related tax
benefits                                                           |  |                       | 148,541    |                       |   | 1,000             |   |        |           |                               |   |                                              |  |                    | (676,000       | )                 |   |            |   |       |             |   |  |            |   |   |              |   |   | (675,000    | )
|Shares surrendered by employees to pay taxes on
restricted stock                                                |  |                       | (48,271    | )                     |   |                   |   |        |           |                               |   |                                              |  |                    | (789,000       | )                 |   |            |   |       |             |   |  |            |   |   |              |   |   | (789,000    | )
|Issuance of Class A Common Stock from ESPP                                                                      |  |                       | 16,329     |                       |   |                   |   |        |           |                               |   |                                              |  |                    | 211,000        |                   |   |            |   |       |             |   |  |            |   |   |              |   |   | 211,000     |  
|Purchase of Class A Stock                                                                                       |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   |            |   |       |             |   |  | (1,619,200 | ) |   | (24,376,000  | ) |   | (24,376,000 | )
|Dividends paid on common stock                                                                                  |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   |            |   |       | (6,830,000  | ) |  |            |   |   |              |   |   | (6,830,000  | )
|                                                                                                                |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   |            |   |       |             |   |  |            |   |   |              |   |   |             |  
|Balance at 12/31/08                                                                                             |  |                       | 15,726,672 |                       | $ | 157,000           |   |        | 8,010,497 |                               | $ | 80,000                                       |  | $                  | 103,318,000    |                   | $ | 650,000    |   | $     | 220,478,000 |   |  | (5,855,550 | ) | $ | (124,921,000 | ) | $ | 199,762,000 |  
|Cumulative adjustment for non-credit component of
impaired securities
 through Q2 2009                          |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   | (2,298,000 | ) |       | 2,298,000   |   |  |            |   |   |              |   |   |            |  
|Net Loss                                                                                                        |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   |            |   |       | (63,238,000 | ) |  |            |   |   |              |   |   | (63,238,000 | )
|Other-than-temporary impairment for non-credit
component of impaired
 securities                                |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   | (90,000    | ) |       |             |   |  |            |   |   |              |   |   | (90,000     | )
|Translation adjustment from foreign
currency                                                                    |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   | 418,000    |   |       |             |   |  |            |   |   |              |   |   | 418,000     |  
|Unrealized gain on available-for-sale
securities                                                                |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   | 2,252,000  |   |       |             |   |  |            |   |   |              |   |   | 2,252,000   |  
|                                                                                                                |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   |            |   |       |             |   |  |            |   |   |              |   |   |             |  
|Comprehensive loss                                                                                              |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   |            |   |       |             |   |  |            |   |   |              |   |   | (60,658,000 | )
|                                                                                                                |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   |            |   |       |             |   |  |            |   |   |              |  
|Realized loss for non-credit component of impaired
securities                                                   |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   | 414,000    |   |       |             |   |  |            |   |   |              |   |   | 414,000     |  
|Stock-based compensation expense                                                                                |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    | 6,555,000      |                   |   |            |   |       |             |   |  |            |   |   |              |   |   | 6,555,000   |  
|Issuance of restricted stock and related tax
benefits                                                           |  |                       | 288,917    |                       |   | 2,000             |   |        |           |                               |   |                                              |  |                    | (1,736,000     | )                 |   |            |   |       |             |   |  |            |   |   |              |   |   | (1,734,000  | )
|Shares surrendered by employees to pay taxes on
restricted stock                                                |  |                       | (107,442   | )                     |   |                   |   |        |           |                               |   |                                              |  |                    | (842,000       | )                 |   |            |   |       |             |   |  |            |   |   |              |   |   | (842,000    | )
|Issuance of Class A Common Stock from ESPP                                                                      |  |                       | 25,135     |                       |   |                   |   |        |           |                               |   |                                              |  |                    | 157,000        |                   |   |            |   |       |             |   |  |            |   |   |              |   |   | 157,000     |  
|Dividends associated with vesting of restricted
stock                                                           |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   |            |   |       | (362,000    | ) |  |            |   |   |              |   |   | (362,000    | )
|                                                                                                                |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   |            |   |       |             |   |  |            |   |   |              |   |   |             |  
|Balance at 12/31/09                                                                                             |  |                       | 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 | ) | $ | 143,292,000 |  
|                                                                                                                |  |                       |            |                       |   |                   |   |        |           |                               |   |                                              |  |                    |                |                   |   |            |   |       |             |   |  |            |   |   |              |   |   |             |  

See accompanying notes to consolidated
financial statements

F-8

---



Kenneth Cole Productions, Inc. and Subsidiaries Consolidated Statements of Cash
Flows

|                                                                                          |  |                                   |             |      |   |             |   |   |             |  
|----------------------------------------------------------------------------------------- |  | --------------------------------- | ----------- | ---- | - | ----------- | - | - | ----------- | -
|                                                                                          |  | For
 the years ended December 31, |            
|                                                                                          |  |                                   |            
|                                                                                          |  | 2009                              |             | 2008 |   | 2007        |  
|                                                                                          |  |                                   |             |      |   |             |  
|Cash flows provided by operating
activities                                               |  |                                   |             |      |   |             |   |   |             |  
|Net (loss)/income                                                                         |  | $                                 | (63,238,000 | )    | $ | (14,800,000 | ) | $ | 7,083,000   |  
|Adjustments to reconcile net (loss)/income to net
cash provided by
 operating activities: |  |                                   |             |      |   |             |   |   |             |  
|Depreciation and
amortization                                                             |  |                                   | 9,734,000   |      |   | 9,229,000   |   |   | 12,032,000  |  
|Impairment of intangible and
long-lived assets                                            |  |                                   | 19,280,000  |      |   | 3,028,000   |   |   | 10,564,000  |  
|(Benefit from)/provision for
doubtful accounts                                            |  |                                   | (320,000    | )    |   | 1,309,000   |   |   | 188,000     |  
|Provision for/(benefit from)
deferred taxes                                               |  |                                   | 30,737,000  |      |   | (10,371,000 | ) |   | (10,989,000 | )
|Unrealized (gain)/loss from
investments                                                   |  |                                   | (2,252,000  | )    |   | (509,000    | ) |   | 1,590,000   |  
|Writedown of investments                                                                  |  |                                   | 1,038,000   |      |   | 7,840,000   |   |   | 295,000     |  
|Stock-based compensation
expense                                                          |  |                                   | 6,555,000   |      |   | 5,145,000   |   |   | 7,144,000   |  
|Tax benefit from stock option
exercises and restricted stock vested                       |  |                                   | (892,000    | )    |   | (933,000    | ) |   | (2,309,000  | )
|Changes in operating assets and
liabilities:                                              |  |                                   |             |      |   |             |   |   |             |  
|Decrease in due from
factors                                                              |  |                                   | 8,447,000   |      |   | 18,942,000  |   |   | 7,404,000   |  
|Decrease/(increase) in accounts
receivable                                                |  |                                   | 2,877,000   |      |   | (13,522,000 | ) |   | (352,000    | )
|Decrease/(increase) in
inventories                                                        |  |                                   | 14,262,000  |      |   | 4,691,000   |   |   | (1,759,000  | )
|(Increase)/decrease in prepaid
expenses and other current assets                          |  |                                   | (6,913,000  | )    |   | 2,149,000   |   |   | (219,000    | )
|Decrease/(increase) in other
assets                                                       |  |                                   | 6,305,000   |      |   | 10,168,000  |   |   | (8,206,000  | )
|(Decrease)/increase in accounts
payable and accrued expenses                              |  |                                   | (6,599,000  | )    |   | 3,965,000   |   |   | 2,916,000   |  
|(Decrease)/increase in deferred
income and other current liabilities                      |  |                                   | (5,223,000  | )    |   | 753,000     |   |   | 1,621,000   |  
|Increase/(decrease) in income
taxes payable                                               |  |                                   | 73,000      |      |   | (1,355,000  | ) |   | (1,052,000  | )
|Increase/(decrease) in other
long-term liabilities                                        |  |                                   | 3,421,000   |      |   | (3,827,000  | ) |   | 8,456,000   |  
|                                                                                          |  |                                   |             |      |   |             |   |   |             |  
|Net cash provided by operating activities                                                 |  |                                   | 17,292,000  |      |   | 21,902,000  |   |   | 34,407,000  |  
|                                                                                          |  |                                   |             |      |   |             |   |   |             |  
|Cash flows used in investing
activities                                                   |  |                                   |             |      |   |             |   |   |             |  
|Acquisition of property and equipment                                                     |  |                                   | (12,059,000 | )    |   | (9,382,000  | ) |   | (10,573,000 | )
|Purchase of intangible assets                                                             |  |                                   | (767,000    | )    |   | (6,567,000  | ) |   | (13,368,000 | )
|Proceeds from sale of marketable
securities                                               |  |                                   | 1,068,000   |      |   |            |   |   | 8,350,000   |  
|Purchases of marketable securities                                                        |  |                                   |            |      |   |            |   |   | (4,700,000  | )
|                                                                                          |  |                                   |             |      |   |             |   |   |             |  
|Net cash used in investing activities                                                     |  |                                   | (11,758,000 | )    |   | (15,949,000 | ) |   | (20,291,000 | )
|                                                                                          |  |                                   |             |      |   |             |   |   |             |  
|Cash flows used in financing
activities                                                   |  |                                   |             |      |   |             |   |   |             |  
|Shares surrendered by employees to pay taxes on
restricted stock                          |  |                                   | (842,000    | )    |   | (789,000    | ) |   | (887,000    | )
|Excess tax benefit from stock options and restricted
stock                                |  |                                   |            |      |   | 8,000       |   |   | 1,194,000   |  
|Proceeds from exercise of stock options                                                   |  |                                   |            |      |   | 63,000      |   |   | 4,285,000   |  
|Proceeds from employee stock purchase plan                                                |  |                                   | 157,000     |      |   | 211,000     |   |   | 340,000     |  
|Payments of financing costs                                                               |  |                                   | (724,000    | )    |   |            |   |   |            |  
|Acquisition of treasury shares                                                            |  |                                   |            |      |   | (24,376,000 | ) |   | (19,168,000 | )
|Dividends associated with vesting of restricted
stock                                     |  |                                   | (362,000    | )    |   | (168,000    | ) |   | (92,000     | )
|Dividends paid to shareholders                                                            |  |                                   |            |      |   | (6,662,000  | ) |   | (14,536,000 | )
|                                                                                          |  |                                   |             |      |   |             |   |   |             |  
|Net cash used in financing activities                                                     |  |                                   | (1,771,000  | )    |   | (31,713,000 | ) |   | (28,864,000 | )
|                                                                                          |  |                                   |             |      |   |             |   |   |             |  
|Effect of exchange rate changes on
cash                                                   |  |                                   | 38,000      |      |   | (189,000    | ) |   | (40,000     | )
|                                                                                          |  |                                   |             |      |   |             |   |   |             |  
|Net increase/(decrease) in cash                                                           |  |                                   | 3,801,000   |      |   | (25,949,000 | ) |   | (14,788,000 | )
|Cash and cash equivalents, beginning of
year                                              |  |                                   | 64,704,000  |      |   | 90,653,000  |   |   | 105,441,000 |  
|                                                                                          |  |                                   |             |      |   |             |   |   |             |  
|Cash and cash equivalents, end of year                                                    |  | $                                 | 68,505,000  |      | $ | 64,704,000  |   | $ | 90,653,000  |  
|                                                                                          |  |                                   |             |      |   |             |   |   |             |  
|                                                                                          |  |                                   |             |      |   |             |   |   |             |  
|Supplemental disclosures of cash flow
information                                         |  |                                   |             |      |   |             |   |   |             |  
|Cash paid during the year for:                                                            |  |                                   |             |      |   |             |   |   |             |  
|Interest                                                                                  |  | $                                 | 32,000      |      | $ | 175,000     |   | $ | 14,000      |  
|Income taxes, net                                                                         |  | $                                 | 1,123,000   |      | $ | 3,664,000   |   | $ | 16,575,000  |  
|                                                                                          |  |                                   |             |      |   |             |   |   |             |  

See accompanying notes to consolidated financial
statements.

F-9

---



Kenneth Cole Productions, Inc. and
Subsidiaries Notes to Consolidated Financial Statements

Note 1 - Summary of Significant Accounting
Policies

A. Description of business

Kenneth
Cole Productions, Inc. and its subsidiaries (the Company) 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, Unlisted and Le Tigrebrand
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 markets its products to approximately 5,500 U.S.
department and specialty store locations, the Companys full-priced retail
stores, Company Stores (outlets) and its e-commerce website, as well as
internationally through its licensee partners and international retailers.

B. Principles of consolidation

The
consolidated financial statements include the accounts of Kenneth Cole
Productions, Inc. and its subsidiaries, all of which are wholly owned.
Intercompany transactions and balances have been eliminated in consolidation.
Certain amounts in the Companys previous financial statements have been
reclassified to conform to the 2009 presentation.

C. Use of estimates

The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

D.
Cash and cash equivalents

The
Company considers all highly liquid investments with an original maturity of
three months or less at the time of purchase to be cash equivalents.

E. Investments

The
Company has marketable securities, specifically auction-rate securities, that
are double A through double C rated debt obligations and a preferred share
closed end fund that are substantially all insured. Maturity dates for these
securities range from 2033 to 2050. The Company records the securities at fair
value, and has classified them as available-for-sale securities. The securities
are marketable through a monthly auction process and the interest rate on these
securities is reset every 28 days. If the auction process fails a default
interest rate is set as defined within the investment prospectus. The purchase
and sale of these securities is included in the accompanying Consolidated
Statements of Cash Flows as an investing activity. In addition, the Company
also has equity investments that are classified as available-for-sale
securities.

The
Company reviews its security investments to determine whether a decline in fair
value is other-than-temporary. Any decline in fair value of an equity
investment that is determined to be other-than-temporary is adjusted by an
impairment charge within Impairment of investments in the Consolidated
Statements of Operations. Any decline in the fair value of an auction-rate
security that is determined to be other-than-temporary is adjusted by an
impairment charge for only the credit component

F-10

---



Kenneth Cole Productions, Inc. and
Subsidiaries 
Notes to Consolidated Financial Statements

Note 1 - Summary of Significant Accounting
Policies (continued)

E. Investments (continued)

of the impairment. The
non-credit component is recorded within Accumulated other comprehensive income
within the Consolidated Balance Sheets. The primary factors the Company
considers in its determination are the length of time that the fair value of
the investment is below the Companys carrying value, the financial condition
and operating performance of the investee, the reason for the decline in the
fair value and the Companys intent and ability to hold the investment for a
period of time sufficient to allow for a recovery in fair value.

F. Inventories

Inventories,
which consist of finished goods, are stated at the lower of cost or fair market
value. Cost for the wholesale segment inventory is determined by the first-in,
first-out method, while full-priced retail and outlet inventories are based on
the moving-average cost method.

G. Property and equipment

Property
and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization is computed using the estimated
useful lives of the related assets ranging from three to forty years on a
straight-line basis. Leasehold improvements are amortized using the
straight-line method over the term of the related lease or the estimated useful
life, whichever is less.

The
Company reviews long-lived assets for possible impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable as measured by comparing the undiscounted future cash flows to
the assets net book value. Impaired assets are written down to fair value
which represents the lesser of the related assets net book value or the
discounted future cash flows of the assets.

H. Intangible Assets

Intangible
assets are recorded at cost. Intangible assets that have indefinite lives are
not subject to amortization while those with finite lives are amortized over
their estimated useful lives.

The
Company reviews intangible assets for possible impairment at least annually or
whenever events or changes in circumstances indicate that an impairment
indicator exists. The Company, with the assistance of an independent appraiser,
utilizes a combination of the market approach and the royalty savings method
under the income approach to estimate fair value through the application of the
discount rate derived from the weighted average cost of capital over the
projected cash flows. If the fair value is below the carrying value, the
Company will impair the asset.

I. Income Taxes

Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Deferred taxes are evaluated for
future realization and reduced by a valuation allowance based on income tax
accounting guidance applied by management. The Companys assessment of deferred
tax assets is performed quarterly and many factors are considered when
assessing the likelihood of future realization of deferred tax assets,
including the recent earnings experience and expectations of future taxable
income by taxing jurisdiction, the carryforward periods available for tax
reporting purposes, tax

F-11

---



Kenneth Cole Productions, Inc. and
Subsidiaries 
Notes to Consolidated Financial Statements

Note 1 - Summary of Significant Accounting
Policies (continued)

I. Income taxes (continued)

planning strategies and
other relevant factors.

The
Companys income taxes are routinely under audit by federal, state or local
authorities. These audits include questioning of the timing and amount of
deductions and the allocation of income among various tax jurisdictions. Based
on its evaluations of tax positions, the Company believes it has appropriately
accrued for probable exposures. To the extent the Company is required to pay
amounts in excess of recorded income tax liabilities, the Companys effective
tax rate in a given financial statement period could be materially impacted.
The Company also measures tax position taken or expected to be taken in a
return and records them in the financial statements.

J. Revenue recognition

Wholesale
revenues are recognized upon shipment of products to customers since title
passes upon shipment. Full-priced retail and outlet revenues are recognized at
the time of sale. Both wholesale and retail store revenues are shown net of
returns, discounts and other allowances. Reserves for estimated returns and
allowances for discounts are provided when sales are recorded. The Company has
also entered into various trade name license agreements that provide revenues
based on minimum royalties and additional revenues based on percentage of
defined sales. Minimum royalty revenue is recognized on a straight-line basis
over each contract period, as defined in each license agreement. In
circumstances whereby licensee sales exceed the quarterly contractual minimums,
but not the annual minimums, royalties are deferred on the Consolidated Balance
Sheets. As the licensee sales exceed the annual contractual minimums, the
royalties are recognized.

K.
Advertising costs

Advertising
costs are expensed as incurred and are included in Selling, general, and
administrative expenses (SG&A) in the accompanying Consolidated
Statements of Operations. Included in advertising expenses are costs associated
with cooperative advertising programs, under which the Company generally shares
the cost of a customers advertising expenditures. In addition, licensee
contributions toward advertising are recognized when licensed products are sold
by the Companys licensees. Such contributions are based on contractual
percentages of sales and contain minimums. For licensees whose sales are not
expected to exceed contractual sales minimums, contributions relating to
advertising are recognized based on the contractual minimums. In circumstances
whereby licensee sales exceed the quarterly contractual minimums, but not the
annual minimums, such contributions toward advertising are deferred on the
Consolidated Balance Sheets. As the licensee sales exceed the annual
contractual minimums, the licensee contributions toward advertising are
recognized.

L. Stock-based compensation

The Company records all share-based
payments,
including grants of employee stock options, based on their fair values and uses
the modified prospective method to record stock-based compensation expense. The
Company measures the cost of services received in exchange for stock options
and similar awards based on the grant-date fair value of the award and
recognizes this cost in the Consolidated Statements of Operations over the
period during which an award recipient is required to provide service in
exchange for the award. The Company uses the Black-Scholes model to assess the
fair value of share-

F-12

---



Kenneth Cole Productions, Inc. and
Subsidiaries 
Notes to Consolidated Financial Statements

Note 1 - Summary of Significant Accounting
Policies (continued)

L. Stock-based compensation (continued)

based payments and amortizes
this cost over the service period. In addition, stock compensation expense is
reduced for estimated forfeitures prior to vesting primarily based on
historical annual forfeiture rates and by employee classification. Estimated
forfeitures are reassessed on a quarterly basis and may change based on new
facts and circumstances.

M.
Derivative instruments and hedging
activities

The
Company may use derivative instruments, typically forward contracts, to manage
its risk associated with movements in foreign currency exchange rates in
purchasing inventory. The Company recognizes all derivatives on the
Consolidated Balance Sheets. Also, derivative instruments that meet certain
criteria are classified as cash flow hedges, and changes in fair value are
recognized in Accumulated other comprehensive income in the accompanying
Consolidated Statements of Changes in Shareholders Equity, until the
underlying transaction is completed and the derivative is settled. Upon
settlement, any amounts remaining in Accumulated other comprehensive income are
reclassified to earnings. Those derivatives that are not classified as cash
flow hedges are adjusted to fair value through earnings. The Company does not
hold derivative instruments for the purpose of trading or speculation.

N. Shipping and Handling Costs

The
Company includes amounts billed to customers for shipping costs in Net Sales.
The related internal and external shipping and handling costs incurred by the
Company are included in the Cost of goods sold line item in the accompanying
Consolidated Statements of Operations. Such costs include inbound freight
costs, purchasing costs, inspection costs, internal transfer costs, and other
product procurement related charges.

O. Cost of Goods Sold and Selling, General and
Administrative Expenses

Costs
associated with the production and procurement of product are included in the
Cost of goods sold line item in the accompanying Consolidated Statements of
Operations, including inbound freight costs, purchasing costs, inspection
costs, and other product procurement related charges. All other expenses,
excluding interest and income taxes, are included in Selling, general, and
administrative expenses, including receiving, warehousing, and distribution
expenses that are general and administrative in nature.

P. Research and Development Costs

The
Company does not incur research and development costs.

F-13

---



Kenneth Cole Productions, Inc. and
Subsidiaries 
Notes to Consolidated Financial Statements

Note 2  (Loss)/Earnings Per Share

Basic
(loss)/earnings per share is calculated by dividing net (loss)/income by
weighted-average common shares outstanding. Diluted (loss)/earnings 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. All stock options and restricted stock outstanding as of December
31, 2009 and 2008 have been excluded in the diluted (loss)/earnings per share
calculation as the impact would be antidilutive. Stock options amounting to
1,423,000 as of December 31, 2007 have been excluded from the diluted per share
calculations, as the impact would be antidilutive. Basic and diluted loss per
common share consists of the following:

|                                                                         |  |                                 |            |      |  |            |  |  |            | 
|------------------------------------------------------------------------ |  | ------------------------------- | ---------- | ---- |  | ---------- |  |  | ---------- | 
|                                                                         |  | For the Year Ended December 31, |           
|                                                                         |  | 2009                            |            | 2008 |  | 2007       | 
|                                                                         |  |                                 |            |      |  |            | 
|Weighted-average common shares outstanding                               |  |                                 | 17,983,000 |      |  | 18,423,000 |  |  | 20,057,000 | 
|Effect of dilutive securities:                                           |  |                                 |            |      |  |            |  |  |            | 
|Restricted stock & employee stock purchase
plan                          |  |                                 |           |      |  |           |  |  | 132,000    | 
|Stock options                                                            |  |                                 |           |      |  |           |  |  | 136,000    | 
|                                                                         |  |                                 |            |      |  |            |  |  |            | 
|Weighted-average common shares outstanding and
common share
 equivalents |  |                                 | 17,983,000 |      |  | 18,423,000 |  |  | 20,325,000 | 
|                                                                         |  |                                 |            |      |  |            |  |  |            | 

Note 3 - Due from Factors and Accounts
Receivable

At
December 31, 2009 and 2008, the Accounts receivable balance of $29.5 million
and $32.0 million, respectively, is net of allowances for doubtful accounts and
Consumer Direct sales returns of $0.9 million and $1.8 million, respectively.
The allowance for doubtful accounts is provided for estimated losses resulting
from the inability of the Companys wholesale customers to make required
payments, while the allowance provided for sales returns is for potential
future retail customer merchandise returns, both of which are based on
managements estimates. In addition, Accounts receivable at December 31, 2009
and 2008 is net of allowances for chargebacks from wholesale customers for
returns, discounts, and other deductions of approximately $7.3 million and $6.5
million, respectively. The allowances are provided for known chargebacks
reserved for but not written off the Companys financial records and for
potential future customer deductions based on managements estimates.

At
December 31, 2009 and 2008, the Due from factors balances of $0.7 million and
$9.2 million, respectively, which includes chargebacks, is net of allowances
for returns, discounts, and other deductions of approximately $0.3 million and
$2.9 million, respectively. The Due from factors balances include receivables
subject to recourse of $0.1 million and $0.6 million for the year ended
December 31, 2009 and 2008, respectively. During the fourth quarter of 2008,
the Company converted its factoring agreement with its largest factor to a
Receivables Management Agreement (RMA). Under the RMA, the factor acts as a
collection agent for the Companys assigned receivables without transfer of
ownership and as a credit grantor for those receivables subject to credit
approval, and are included within Accounts receivable on the Consolidated
Balance Sheets. Prior to the RMA, the Company sold primarily all of its
accounts receivable to its factors without recourse.

F-14

---



Kenneth Cole Productions, Inc. and
Subsidiaries 
Notes to Consolidated Financial Statements

Note 4 - Investments

The
Company reviews its investments for other-than-temporary impairment whenever
the fair value of an investment is less than historical cost and evidence
indicates that an investments carrying value may not be recoverable within a
reasonable period of time. The fair value of the Companys auction-rate
securities (marketable securities) is determined utilizing 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. 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 $1.0 million of its marketable
securities, specifically due to decreases in the credit ratings of certain
auction-rate securities, within Impairment of investments in the Consolidated
Statements of Operations for the year ended December 31, 2009. The Company
recorded an other-than-temporary impairment of $7.8 million consisting of
marketable securities of $3.2 million and an investment in common stock of one
of its licensees of $4.6 million within Impairment of investments in the
Consolidated Statements of Operations during the year ended December 31, 2008.

The
following table presents gross unrealized gains/(losses) on, and estimated fair
value of, the Companys long-term investments as of December 31, 2009 and 2008:

|                        |  |                  |            |                 |   |                       |  |                           |           |       |            |         |                  |   |           |  |   |   | 
|----------------------- |  | ---------------- | ---------- | --------------- | - | --------------------- |  | ------------------------- | --------- | ----- | ---------- | ------- | ---------------- | - | --------- |  | - | - | 
|                        |  |                  |            |                 |   |                       |  | December 31, 2009         |          
|                        |  |                  |            |                 |   |                       |  |                           |          
|                        |  |                  |            |                 |   |                       |  |                           |           |       | Other than |         | Gross Unrealized |  
|                        |  |                  |            |                 |   |                       |  |                           |           |       |            |         |                  |  
|                        |  | Historical
 Cost |            | (2)
 Cost Basis |   | Estimated
 Fair Value |  | Temporary
 Impairment (1) |           | Gains |            | Losses  |                 
|                        |  |                  |            |                 |   |                       |  |                           |           |       |            |         |                 
|Auction-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 |  | $ |  | 
|                        |  |                  |            |                 |   |                       |  |                           |           |       |            |         |                  |   |           |  |   |   | 



|                        |  |            |            |             |   |             |  |                    |           |        |   |         |  |  |   | 
|----------------------- |  | ---------- | ---------- | ----------- | - | ----------- |  | ------------------ | --------- | ------ | - | ------- |  |  | - | 
|                        |  |            |            |             |   |             |  | December
 31, 2008 |          
|                        |  |            |            |             |   |             |  |                    |          
|                        |  | Historical |            | (2)         |   | Estimated   |  | Gross
 Unrealized  |          
|                        |  |            |            |             |   |             |  |                    |          
|                        |  | Cost       |            | Cost
 Basis |   | Fair
 Value |  | Gains              |           | Losses |  
|                        |  |            |            |             |   |             |  |                    |           |        |  
|Auction-rate securities |  | $          | 8,600,000  |             | $ | 5,085,000   |  | $                  | 5,085,000 |        | $ |        |  |  |  | 
|Equity securities       |  |            | 5,338,000  |             |   | 717,000     |  |                    | 899,000   |        |   | 182,000 |  |  |  | 
|                        |  |            |            |             |   |             |  |                    |           |        |   |         |  |  |   | 
|Total                   |  | $          | 13,938,000 |             | $ | 5,802,000   |  | $                  | 5,984,000 |        | $ | 182,000 |  |  |  | 
|                        |  |            |            |             |   |             |  |                    |           |        |   |         |  |  |   | 



| |                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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 not reflected in
 Accumulated other comprehensive income.                         

In
accordance with accounting guidance issued and effective June 30, 2009, the
Company recorded a balance sheet reclassification between Retained earnings and
Accumulated other comprehensive income of $2.3 million related to the non-credit
component of previous writedowns of auction-rate securities in the Consolidated
Balance Sheets. As the result of the sale of one of its auction-rate securities
during 2009, the Company recorded a realized loss of $0.4 million which had
been previously reclassified to Accumulated other comprehensive income as well
as a $0.1 million realized gain from the proceeds of the sale. The proceeds
were $1.1 million with a cost basis of $1.0 million. The security was written
down from a historical cost of $1.5 million through other-than-temporary
impairments recorded prior to being sold. The Company also recorded a $0.7
million other-than-

F-15

---



Kenneth Cole Productions, Inc. and
Subsidiaries 
Notes to Consolidated Financial Statements

Note 4  Investments (continued)

temporary impairment of its
remaining auction-rate securities during the year-ended December 31, 2009,
which in aggregate resulted in the recording of a $1.0 million realized loss
within Impairment of investments in the Consolidated Statements of Operations.
In addition, the Company recorded a net unrealized gain of approximately $2.7
million and $0.2 million for the years ended December 31, 2009 and 2008,
respectively, primarily relating to its equity securities. Auction-rate
securities are recorded as long-term within Investments and other in the
Consolidated Balance Sheets at December 31, 2009 and 2008 based on the lack of
an active credit market for investors to purchase and sell these investments.

Note 5 - Fair Value Measurement

The
Companys financial assets, measured at fair value on a recurring basis, were
as follows:

|                                                |  |                                   |            |                                   |   |            |  |          |  | 
|----------------------------------------------- |  | --------------------------------- | ---------- | --------------------------------- | - | ---------- |  | -------- |  | 
|                                                |  | Fair Value at
 December 31,
 2009 |            | Fair Value at
 December 31,
 2008 |   | Hierarchy  | 
|                                                |  |                                   |            |                                   |   |            | 
|Investments                                     |  | $                                 | 3,365,000  |                                   | $ | 899,000    |  | Level
 1 |  | 
|Deferred compensation plans assets             |  | $                                 | 36,192,000 |                                   | $ | 32,909,000 |  | Level
 2 |  | 
|Marketable securities (auction-rate
securities) |  | $                                 | 3,529,000  |                                   | $ | 5,085,000  |  | 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. 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
following table presents the reconciliation of the beginning and ending fair
value measurements of the Companys Level 3 inputs, marketable securities,
specifically auction-rate securities, measured at fair value using observable
inputs based on unobservable data in an inactive market as of December 31,
2009:

|                                                         |  |   |            |  
|-------------------------------------------------------- |  | - | ---------- | -
|Beginning balance at January 1, 2009                     |  | $ | 5,085,000  |  
|Realized gain included in Statement of
Operations        |  |   | 107,000    |  
|Sale of marketable security (auction-rate
security)      |  |   | (1,068,000 | )
|Unrealized gains recorded in other comprehensive
income  |  |   | 227,000    |  
|Impairment charge recorded in other comprehensive
income |  |   | (90,000    | )
|Impairment charge included in Statement of
Operations    |  |   | (732,000   | )
|                                                         |  |   |            |  
|Ending balance at December 31, 2009                      |  | $ | 3,529,000  |  
|                                                         |  |   |            |  

The
Company recorded an other-than-temporary impairment of $0.7 million and $0.3
million of its marketable securities, specifically auction-rate securities,
within Impairment of investments in the Consolidated Statements of Operations
for the year ended December 31, 2009 and 2007, respectively. For the year ended
December 31, 2008, the Company recorded an other-than temporary impairment of
$7.8 million consisting of marketable securities of $3.2 million and an
investment in common stock of one of its licensees of $4.6 million within
Impairment of investments in the Consolidated Statements of Operations.

F-16

---



Kenneth Cole Productions, Inc. and
Subsidiaries 
Notes to Consolidated Financial Statements

Note 6 - Property and Equipment

Property
and equipment consist of the following:

|                                               |  |              |                 |      |              |             |  |   |             | 
|---------------------------------------------- |  | ------------ | --------------- | ---- | ------------ | ----------- |  | - | ----------- | 
|                                               |  |              |                 |      | December 31, |            
|                                               |  | Useful lives |                 | 2009 |              | 2008        | 
|                                               |  |              |                 |      |              |             | 
|Property and equipmentat cost:                |  |              |                 |      |              |             |  |   |             | 
|Land                                           |  |              |                 |      | $            | 5,462,000   |  | $ | 5,462,000   | 
|Building and building
improvements             |  |              | 15-40
 years    |      |              | 34,254,000  |  |   | 33,773,000  | 
|Furniture and fixtures                         |  |              | 7
 years        |      |              | 33,550,000  |  |   | 30,263,000  | 
|Machinery and equipment                        |  |              | 3-7
 years      |      |              | 27,131,000  |  |   | 26,568,000  | 
|Leasehold improvements                         |  |              | Up
 to 10 years |      |              | 38,099,000  |  |   | 36,017,000  | 
|                                               |  |              |                 |      |              |             |  |   |             | 
|                                               |  |              |                 |      |              | 138,496,000 |  |   | 132,083,000 | 
|Less accumulated depreciation and
amortization |  |              |                 |      |              | 84,544,000  |  |   | 74,293,000  | 
|                                               |  |              |                 |      |              |             |  |   |             | 
|Net property and equipment                     |  |              |                 |      | $            | 53,952,000  |  | $ | 57,790,000  | 
|                                               |  |              |                 |      |              |             |  |   |             | 

Depreciation
and amortization expense amounted to $9.4 million, $8.9 million and $11.8
million for the years ended December 31, 2009, 2008 and 2007, respectively, and
are classified within SG&A in the Consolidated Statements of Operations.

Note 7  Impairment of Long-Lived Assets

The Company reviews long-lived assets for possible impairment
whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable as measured by comparing the undiscounted future cash flows to
the asset’s net book value. In 2009, 2008, and 2007, the Company recorded non-cash asset impairment charges of $6.5 million, $1.9
million and $10.6 million, respectively, related to its stores’ assets. In 2008, the Company recorded a non-cash asset impairment
charge of $1.1 million for shop-in-shops’ build out costs. These impairment charges were recorded within Impairment of intangible and
long-lived assets in the Consolidated Statements of Operations.

Note 8 - Intangible Assets

Intangible assets, primarily
trademarks, consist of the following:

|                                   |  |              |            |      |   |            |  
|---------------------------------- |  | ------------ | ---------- | ---- | - | ---------- | -
|                                   |  | December 31, |           
|                                   |  | 2009         |            | 2008 |  
|                                   |  |              |            |      |  
|Indefinite lived intangible assets |  | $            | 5,000,000  |      | $ | 17,762,000 |  
|                                   |  |              |            |      |   |            |  
|Finite lived intangible assets     |  |              | 3,789,000  |      |   | 3,022,000  |  
|Less accumulated amortization      |  |              | (1,297,000 | )    |   | (942,000   | )
|                                   |  |              |            |      |   |            |  
|Net finite lived intangible assets |  |              | 2,492,000  |      |   | 2,080,000  |  
|                                   |  |              |            |      |   |            |  
|Net intangible assets              |  | $            | 7,492,000  |      | $ | 19,842,000 |  
|                                   |  |              |            |      |   |            |  

F-17

---



Kenneth Cole Productions, Inc. and
Subsidiaries 
Notes to Consolidated Financial Statements

Note 8 - Intangible Assets (continued)

Amortization
expense amounted to $0.4 million, $0.3 million and $0.2 million for the years
ended December 31, 2009, 2008 and 2007, respectively, and are classified within
SG&A in the Consolidated Statements of Operations. The weighted-average
amortization period of intangible assets acquired in 2009 and 2008 is 16.5
years and 9.6 years, respectively. Amortization expense for the following five
years is estimated to be as follows:

|     |  |   |         | 
|---- |  | - | ------- | 
|2010 |  | $ | 360,000 | 
|2011 |  |   | 344,000 | 
|2012 |  |   | 335,000 | 
|2013 |  |   | 306,000 | 
|2014 |  |   | 284,000 | 

The
Company acquired the Le Tigretrademark
and other intellectual property associated with the Le Tigre brand from Le Tigre, LLC for $18.5 million. The
Company recorded the intellectual property in Intangible assets, net on the
accompanying Consolidated Balance Sheets at fair value. Based on an independent
appraisal, management allocated the majority of the $18.5 million paid as an indefinite lived intangible asset, which
is
not subject to amortization, and a nominal amount as a finite lived intangible
asset, which is subject to amortization.

In
connection with its annual impairment review of the indefinite lived Le Tigretrademark as of December 31,
2009, management reviewed its business plan and internal forecasts along with
its ability to enter into or expand agreements with its licensees or potential
licensees and partners to determine if impairment indicators existed. The
Company has expanded the brand internationally and domestically through retail
outlets; however, the Company mutually agreed to not extend its two and a half
year Le Tigrelicensing agreement
with JC Penney which prompted an impairment indicator. As such, the Company
compared the fair value of the trademark to the carrying value. The Company,
with the assistance of an independent appraiser, utilized a combination of the
market approach and the royalty savings method under the income approach to
estimate fair value. Based upon this review, the Company recorded an impairment
charge of $12.8 million for the year ended December 31, 2009 within Impairment
of intangible and long-lived assets in the Consolidated Statements of
Operations within the Licensing segment.

During
2009, the Company purchased the Gentle Souls
footwear technology patent for $0.5 million. During 2008, the Company paid $0.5
million for the final cash payment related to the Gentle Soulstrademark purchased in 2006.

F-18

---



Kenneth Cole Productions, Inc. and
Subsidiaries
Notes to Consolidated Financial Statements

Note 9 - Segment Reporting

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. This segment primarily consists of
royalties earned on the purchase and sale to foreign retailers, distributors,
or to consumers in foreign countries and licensee sales to third parties of the
Companys trademarks and trade names. The Companys reportable segments are
business units that offer products to overlapping consumers through different
channels of distribution. Each segment is managed separately, although planning,
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. The accounting policies of the reportable segments are
the same as those described in the Summary of Significant Accounting Policies.
Intersegment sales between the Wholesale and Consumer Direct segments are
eliminated in consolidation.

F-19

---



Kenneth Cole Productions, Inc. and
Subsidiaries
Notes to Consolidated Financial Statements

Note 9 - Segment Reporting (continued)

Financial
information of the Companys reportable segments is as follows (dollars in
thousands):

|                                               |  |           |         |                  |   |           |   |        |        |  |   |         | 
|---------------------------------------------- |  | --------- | ------- | ---------------- | - | --------- | - | ------ | ------ |  | - | ------- | 
|                                               |  | Wholesale |         | Consumer
 Direct |   | Licensing |   | Totals |       
|                                               |  |           |        
|Year Ended December 31, 2009                   |  |           |         |                  |   |           |   |        |        |  |   |         | 
|Revenues                                       |  | $         | 201,420 |                  | $ | 169,535   |   | $      | 39,445 |  | $ | 410,400 | 
|Intersegment revenues                          |  |           | 35,210  |                  |   |          |   |        |       |  |   | 35,210  | 
|Interest and other income, net                 |  |           | 484     |                  |   |          |   |        |       |  |   | 484     | 
|Depreciation expense                           |  |           | 2,974   |                  |   | 6,405     |   |        |       |  |   | 9,379   | 
|Segment (loss)/income (1) (2)                  |  |           | (8,807  | )                |   | (19,982   | ) |        | 31,932 |  |   | 3,143   | 
|Impairment of intangible and long-lived
assets |  |           |        |                  |   | 6,518     |   |        | 12,762 |  |   | 19,280  | 
|Segment assets (3)                             |  |           | 160,270 |                  |   | 48,007    |   |        | 39,980 |  |   | 248,257 | 
|Expenditures for long-lived assets             |  |           | 1,081   |                  |   | 11,023    |   |        | 722    |  |   | 12,826  | 
|                                               |  |           |         |                  |   |           |   |        |        |  |   |         | 
|Year Ended December 31, 2008                   |  |           |         |                  |   |           |   |        |        |  |   |         | 
|Revenues                                       |  | $         | 267,151 |                  | $ | 181,427   |   | $      | 43,759 |  | $ | 492,337 | 
|Intersegment revenues                          |  |           | 40,458  |                  |   |          |   |        |       |  |   | 40,458  | 
|Interest and other income, net                 |  |           | 1,730   |                  |   |          |   |        |       |  |   | 1,730   | 
|Depreciation expense                           |  |           | 3,048   |                  |   | 5,873     |   |        |       |  |   | 8,921   | 
|Segment (loss)/income (1) (2)                  |  |           | (8,484  | )                |   | (18,662   | ) |        | 33,785 |  |   | 6,639   | 
|Impairment of long-lived assets                |  |           | 1,111   |                  |   | 1,917     |   |        |       |  |   | 3,028   | 
|Segment assets (3)                             |  |           | 196,024 |                  |   | 55,071    |   |        | 62,340 |  |   | 313,435 | 
|Expenditures for long-lived assets             |  |           | 2,088   |                  |   | 7,309     |   |        | 6,552  |  |   | 15,949  | 
|                                               |  |           |         |                  |   |           |   |        |        |  |   |         | 
|Year Ended December 31, 2007                   |  |           |         |                  |   |           |   |        |        |  |   |         | 
|Revenues                                       |  | $         | 290,768 |                  | $ | 175,637   |   | $      | 44,315 |  | $ | 510,720 | 
|Intersegment revenues                          |  |           | 27,804  |                  |   |          |   |        |       |  |   | 27,804  | 
|Interest and income, net                       |  |           | 5,366   |                  |   |          |   |        |       |  |   | 5,366   | 
|Depreciation expense                           |  |           | 3,575   |                  |   | 8,145     |   |        | 73     |  |   | 11,793  | 
|Segment income/(loss) (1) (2)                  |  |           | 13,544  |                  |   | (13,373   | ) |        | 36,655 |  |   | 36,826  | 
|Impairment of long-lived assets                |  |           |        |                  |   | 10,564    |   |        |       |  |   | 10,564  | 
|Segment assets (3)                             |  |           | 255,818 |                  |   | 51,904    |   |        | 48,400 |  |   | 356,122 | 
|Expenditures for long-lived assets             |  |           | 1,309   |                  |   | 9,364     |   |        | 13,268 |  |   | 23,941  | 



|    |                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Excludes stock-based
 compensation expense, writedown of marketable securities, impairment of
 intangible and long-lived assets, unallocated corporate overhead and income
 taxes. In 2009, the Company reclassified the impairment of long-lived assets
 from the Consumer Direct segment to an unallocated corporate charge. Amounts
 in 2008 and 2007 have been reclassified to conform to the 2009 presentation.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                     
|(2) | The Wholesale segment
 includes primarily all of the Companys allocated corporate overhead.                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                     
|(3) | The Wholesale segment
 includes corporate assets.                                                                                                                                                                                                                                                                                                                                                                   

F-20

---



Kenneth Cole Productions, Inc. and
Subsidiaries
Notes to Consolidated Financial Statements

Note 9 - Segment Reporting (continued)

The
reconciliation of the Companys reportable segment revenues and profit and loss
are as follows (dollars in thousands):

|                                                                                                                                                                         |  |      |         |      |   |         |   |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ------- | ---- | - | ------- | - | - | ------- | -
|Revenues                                                                                                                                                                 |  | 2009 |         | 2008 |   | 2007    |  
|                                                                                                                                                                         |  |      |        
|Revenues for reportable segments                                                                                                                                         |  | $    | 410,400 |      | $ | 492,337 |   | $ | 510,720 |  
|Intersegment revenues                                                                                                                                                    |  |      | 35,210  |      |   | 40,458  |   |   | 27,804  |  
|Elimination of intersegment revenues                                                                                                                                     |  |      | (35,210 | )    |   | (40,458 | ) |   | (27,804 | )
|                                                                                                                                                                         |  |      |         |      |   |         |   |   |         |  
|Total consolidated
revenues                                                                                                                                              |  | $    | 410,400 |      | $ | 492,337 |   | $ | 510,720 |  
|                                                                                                                                                                         |  |      |         |      |   |         |   |   |         |  
|                                                                                                                                                                         |  |      |         |      |   |         |   |   |         |  
|(Loss)/income                                                                                                                                                            |  |      |         |      |   |         |   |   |         |  
|Total income for reportable segments (1)                                                                                                                                 |  | $    | 3,143   |      | $ | 6,639   |   | $ | 36,826  |  
|Elimination of stock-based compensation expense,
writedown of
 marketable securities, impairment of intangible and long-lived assets and
 unallocated corporate overhead |  |      | (34,182 | )    |   | (25,060 | ) |   | (26,575 | )
|                                                                                                                                                                         |  |      |         |      |   |         |   |   |         |  
|Total (loss)/income before
provision for/(benefit from) income taxes                                                                                                     |  | $    | (31,039 | )    | $ | (18,421 | ) | $ | 10,251  |  
|                                                                                                                                                                         |  |      |         |      |   |         |   |   |        

| |     |                                                                                                                                                                                   
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                   
| |     |                                                                                                                                                                                   
| |     |                                                                                                                                                                                   
| |     |                                                                                                                                                                                   
| |     |                                                                                                                                                                                   
| |     |                                                                                                                                                                                   
|
| |     |                                                                                                                                                                                   
| | (1) | Excludes stock-based
 compensation expense, writedown of marketable securities, impairment of
 intangible and long-lived assets, unallocated corporate overhead and income
 taxes.

Revenues
from international customers were approximately 5.0%, 3.9%, and 3.0% of the
Companys consolidated revenues for the years ended December 31, 2009, 2008 and
2007, respectively.

Note 10 - Other Current Liabilities

Other
current liabilities consist of the following:

|                                |  |              |           |      |   |            | 
|------------------------------- |  | ------------ | --------- | ---- | - | ---------- | 
|                                |  | December 31, |          
|                                |  | 2009         |           | 2008 |  
|                                |  |              |          
|Rent                            |  | $            | 837,000   |      | $ | 989,000    | 
|Compensation                    |  |              | 4,348,000 |      |   | 7,972,000  | 
|Customer credits                |  |              | 1,673,000 |      |   | 1,750,000  | 
|Other                           |  |              | 921,000   |      |   | 958,000    | 
|                                |  |              |           |      |   |            | 
|Total other current liabilities |  | $            | 7,779,000 |      | $ | 11,669,000 | 
|                                |  |              |           |      |   |            | 

Note 11 - Benefit Plans

A. 401(k) Plan

The
Companys 401(k) profit-sharing plan covers all domestic employees, subject to
certain minimum age and length of service requirements who are permitted to
contribute specified percentages of their salary up to the maximum permitted by
the Internal Revenue Service. As defined in the 401(k) Plan document, the
Company may make a matching and/or additional discretionary contribution. No
additional discretionary contributions were made during 2009. Contributions to
the plan for the years ended December 31, 2009, 2008 and 2007 were
approximately $0.2 million, $0.5 million and $0.5 million, respectively.

F-21

---



Kenneth Cole Productions, Inc. and
Subsidiaries
Notes to Consolidated Financial Statements

Note 11 - Benefit Plans (continued)

B. Deferred compensation plans

The
Company has three nonqualified deferred compensation plans that are maintained
primarily to provide deferred compensation benefits for the Companys highly
compensated employees, as defined. The Company accounts for the investments in
the deferred compensation plans as trading securities. The unrealized gains and
losses on the investments are recorded in Selling, general and administrative
expenses in the accompanying Consolidated Statements of Operations offset
against the related deferred compensation accounts within the Consolidated
Balance Sheets. The assets are included in Deferred compensation plans assets,
and the related liabilities are included in Deferred compensation plans
liabilities. The Companys deferred compensation plans comply with regulation
409a of the Internal Revenue Code which regulates deferred compensation.

The
Kenneth Cole Productions, Inc. Deferred Compensation Plan is solely for the
Companys Chairman and Chief Creative Officer. During 2009, the Companys
Chairman and Chief Creative Officer did not defer any of his salary or bonus to
the plan. Amounts deferred and invested under this plan, at his discretion,
were $1.6 million and $2.0 million for the years ended December 31, 2008 and
2007, respectively. As of December 31, 2009 and 2008, the Company has recorded
the fair value of the related assets and a corresponding liability of $36.2
million and $32.9 million, respectively, for this plan. 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. The
Company records the plans assets at their fair value as of the dates of the
Consolidated Balance Sheets based upon the net asset valuation. 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. At December 31,
2009 and 2008 there are no unfunded commitments to the limited partnerships.

The
Kenneth Cole Productions, Inc. Nonqualified Deferred Compensation Plan
(Nonqual Plan) provides for the Company, at its discretion, to fund the
Nonqual Plan on behalf of qualified employees. Contributions by the Company are
100% vested at time of funding and the employee has the right to select various
investment options. The employees are entitled to the assets based upon the returns
of the various investments that they can elect. The Company has the right to
invest in any funds it chooses. The Company has funded the Nonqual Plan with
Company owned variable life insurance contracts. Amounts deferred under the
plan were $0.1 million, $0.3 million and $0.2 million for the years ended
December 31, 2009, 2008 and 2007, respectively. As of December 31, 2009 and
2008, the Company has recorded a liability of $0.8 million and $0.8 million,
respectively, for this plan.

The
Supplemental Executive Retirement Plan (SERP) provides for the Company, at
its discretion, to fund the SERP on behalf of qualified employees.
Contributions by the Company are vested based upon the respective participants
years of service, and the employee has the right to select various investment
options. Employees are entitled to the assets based upon the returns of various
investments they elect from the Companys contributions that are vested. The
Company has the right to invest in any funds at its discretion and has funded
the SERP with Company owned variable life insurance contracts. As of December
31, 2009 and 2008, the Company has recorded a liability of $2.5 million and
$2.0 million, respectively.

F-22

---



Kenneth Cole Productions, Inc. and
Subsidiaries
Notes to Consolidated Financial Statements

Note 11 - Benefit Plans (continued)

B. Deferred Compensation Plans (continued)

The
cash surrender value of the Nonqual Plan and SERP investments was $5.0 million
and $4.4 million at December 31, 2009 and 2008, respectively.

On
January 1, 2008 the Company amended its SERP. Under the amended plan, benefits
earned become 30% vested after 3 years of service, 60% vested after 6 years of
service and 100% vested after 10 years of service or termination of service
resulting from retirement, disability or death.

C. Employee Stock Purchase Plan

The
Company sponsors a qualified employee stock purchase plan (ESPP), the terms
of which allow for qualified employees, as defined, to participate in the
purchase of designated shares of the Companys Class A Common Stock at a price
equal to 85% of the closing price at the end of each quarterly stock purchase
period. For the years ended December 31, 2009, 2008 and 2007, employees
purchased 25,135, 16,329, and 17,022 shares, respectively. Total shares
purchased through December 31, 2009 were 152,938.

Note 12 - StockBased Compensation

The
Companys 2004 Stock Incentive Plan (the Plan), as amended, authorizes the
grant of options and restricted stock to employees for up to 9,320,162 shares
of the Companys Class A Common Stock, of which 2,965,274 are available for
future grants. The Plan provides for the grant of stock options, restricted
stock awards and other stock unit awards to directors, officers and other
eligible employees. 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 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 four year period or cliff vest
after three years. All awards are expensed on a straight-line basis.

The
Company elected to use the modified perspective transition method to record
stock-based compensation expense. All share-based payments to employees,
including grants of employee stock options, are recognized as compensation
expense over the service period (generally the vesting period) in the
consolidated financial statements based on their fair values. The impact of
forfeitures that may occur prior to vesting is also estimated and considered in
the amount recognized. Also, the realization of tax benefits in excess of
amounts recognized for financial reporting purposes is recognized in the
Consolidated Statements of Cash Flows as a financing activity. In addition, the
Companys ESPP is considered compensatory, as the ESPP contains a purchase
price discount in excess of 5%.

F-23

---



Kenneth Cole Productions, Inc. and
Subsidiaries
Notes to Consolidated Financial Statements

Note 12 - StockBased Compensation
(continued)

The
following table summarizes stock option activity for the years ended December
31, 2009, 2008 and 2007:

|                                    |  |        |           |                                              |   |       | 
|----------------------------------- |  | ------ | --------- | -------------------------------------------- | - | ----- | 
|                                    |  | Shares |           | Weighted-
 average exercise
 price per share |  
|                                    |  |        |          
|Outstanding as of December 31, 2006 |  |        | 2,118,885 |                                              | $ | 23.60 | 
|                                    |  |        |           |                                              |   |       | 
|Granted                             |  |        | 20,000    |                                              | $ | 23.75 | 
|Exercised                           |  |        | (308,800  | )                                            | $ | 13.88 | 
|Expired                             |  |        | (65,306   | )                                            | $ | 29.62 | 
|Forfeited                           |  |        | (10,000   | )                                            | $ | 23.85 | 
|                                    |  |        |           |                                              |   |       | 
|Outstanding as of December 31, 2007 |  |        | 1,754,779 |                                              | $ | 25.08 | 
|                                    |  |        |           |                                              |   |       | 
|Granted                             |  |        | 881,500   |                                              | $ | 14.69 | 
|Exercised                           |  |        | (5,400    | )                                            | $ | 11.71 | 
|Expired                             |  |        | (173,949  | )                                            | $ | 24.96 | 
|Forfeited                           |  |        | (45,667   | )                                            | $ | 14.97 | 
|                                    |  |        |           |                                              |   |       | 
|Outstanding as of December 31, 2008 |  |        | 2,411,263 |                                              | $ | 21.51 | 
|                                    |  |        |           |                                              |   |       | 
|Granted                             |  |        | 838,656   |                                              | $ | 6.71  | 
|Exercised                           |  |        |          |                                              |   |      | 
|Expired                             |  |        | (186,508  | )                                            | $ | 19.53 | 
|Forfeited                           |  |        | (54,125   | )                                            | $ | 13.12 | 
|                                    |  |        |           |                                              |   |       | 
|Outstanding as of December 31, 2009 |  |        | 3,009,286 |                                              | $ | 17.66 | 
|                                    |  |        |           |                                              |   |       | 
|                                    |  |        |           |                                              |   |       | 
|Exercisable as of December 31, 2009 |  |        | 1,938,552 |                                              | $ | 20.96 | 
|                                    |  |        |           |                                              |   |       | 

The
weighted-average grant-date fair value of options granted during the years
ended December 31, 2009, 2008 and 2007 was $3.52, $4.98 and $10.18,
respectively. The weighted-average remaining term for stock options outstanding
and exercisable, as of December 31, 2009, was 6.0 and 4.4 years, respectively.
The aggregate intrinsic value of stock options outstanding and exercisable as
of December 31, 2009 was $2.4 million and $1.5 million, respectively. The
intrinsic value for stock options is calculated based on the exercise price of
the underlying awards and the market price of the Companys common stock as of
the reporting date. The total fair value of options vested during the years
ended December 31, 2009, 2008 and 2007 was $2.4 million, $1.5 million and $1.4
million, respectively.

For
the year ended December 31, 2009 there were no stock option exercises. The intrinsic value related to the exercise
of stock options was approximately $20,000 and $2.9 million for the years ended
December 31, 2008 and 2007, respectively, which was tax deductible. In
addition, 368,242 treasury shares were re-issued for options exercised and
restricted stock vested during the year ended December 31, 2007.

F-24

---



Kenneth Cole Productions, Inc. and
Subsidiaries
Notes to Consolidated Financial Statements

Note 12 - StockBased Compensation
(continued)

The
following table summarizes restricted stock unit activity for the years ended
December 31, 2009, 2008 and 2007.

|                                 |  |        |          |  
|-------------------------------- |  | ------ | -------- | -
|                                 |  | Shares |         
|                                 |  |        |         
|Unvested as of January 1, 2007   |  |        | 566,103  |  
|                                 |  |        |          |  
|Granted                          |  |        | 305,044  |  
|Vested                           |  |        | (97,320  | )
|Forfeited                        |  |        | (111,647 | )
|                                 |  |        |          |  
|Unvested as of December 31, 2007 |  |        | 662,180  |  
|                                 |  |        |          |  
|Granted                          |  |        | 329,455  |  
|Vested                           |  |        | (148,541 | )
|Forfeited                        |  |        | (154,236 | )
|                                 |  |        |          |  
|Unvested as of December 31, 2008 |  |        | 688,858  |  
|                                 |  |        |          |  
|Granted                          |  |        | 161,272  |  
|Vested                           |  |        | (288,917 | )
|Forfeited                        |  |        | (191,291 | )
|                                 |  |        |          |  
|Unvested as of December 31, 2009 |  |        | 369,922  |  
|                                 |  |        |          |  
|                                 |  |        |          |  
|Vested as of December 31, 2009   |  |        | 583,698  |  
|                                 |  |        |          |  

The
weighted-average grant-date fair value of restricted stock awards granted
during the years ended December 31, 2009, 2008 and 2007 was $7.21, $11.89 and
$23.71, respectively. The total grant-date fair value of restricted shares
vested during the years ended December 31, 2009, 2008 and 2007 was $7.0
million, $3.7 million and $2.6 million, respectively. The weighted-average
remaining contractual term of unvested shares of restricted stock as of
December 31, 2009 and 2008 was 1.6 years and 1.8 years, respectively.

The
following table summarizes the components of stock-based compensation expense,
which is recorded in Selling, general and administrative expenses in the
Consolidated Statements of Operations, for the years ended December 31, 2009,
2008 and 2007.

|                                                        |  |                         |           |      |   |           |  |   |           | 
|------------------------------------------------------- |  | ----------------------- | --------- | ---- | - | --------- |  | - | --------- | 
|                                                        |  | Year ended December 31, |          
|                                                        |  | 2009 (1)                |           | 2008 |   | 2007      | 
|                                                        |  |                         |          
|Stock options                                           |  | $                       | 2,461,000 |      | $ | 928,000   |  | $ | 1,714,000 | 
|Restricted stock units and employee stock purchase
plan |  |                         | 4,094,000 |      |   | 4,217,000 |  |   | 5,532,000 | 
|                                                        |  |                         |           |      |   |           |  |   |           | 
|Total stock-based compensation expense                  |  | $                       | 6,555,000 |      | $ | 5,145,000 |  | $ | 7,246,000 | 
|                                                        |  |                         |           |      |   |           |  |   |          

| |                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                   
| | (1) In the first quarter of
 2009, 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 year ended December 31, 2009. These
 amounts were accrued within payroll expense as of December 31, 2008.

Tax
benefits were attributed to the stock-based compensation expense. The Company elected
to adopt the alternative method of calculating the historical pool of windfall
tax benefits. This is a simplified method to determine the pool of windfall tax
benefits that is used in determining the tax effects of stock compensation in
the results of operations and cash flow reporting.

F-25

---



Kenneth Cole Productions, Inc. and
Subsidiaries
Notes to Consolidated Financial Statements

Note 12 - StockBased Compensation
(continued)

The
fair value of stock options was estimated using the Black-Scholes
option-pricing model. This model requires the input of subjective assumptions
that will usually have a significant impact on the fair value estimate. The assumptions for the current period grants
were
developed based on accounting guidance for share-based payments.

The
following table summarizes the assumptions used to compute the weighted-average
fair value of stock option grants:

|                                 |                         |  |               |  |              
|-------------------------------- | ----------------------- |  | ------------- |  | -------------
|                                 | Year Ended December 31,
|                                 | 2009                    |  | 2008          |  | 2007         
|                                 |                         |  |               |  |              
|Weighted-average
 volatility     | 54.7%                   |  | 38.3%         |  | 45.0%        
|Risk-free interest rate          | 3.0% to 3.7%            |  | 4.0%
 to 4.1% |  | 4.0%
 to 4.8%
|Weighted-average dividend
 yield |                        |  | 2.5%          |  | 3.2%         
|Expected term                    | 3-9 years               |  | 4-9
 years    |  | 9
 years     

The
weighted-average volatility for the options granted during the years ended December
31, 2009, 2008, and 2007 was developed using historical volatility for periods
equal to the expected term of the options. An increase in the weighted-average
volatility assumption will increase stock compensation expense. The expected
volatility used in the calculation of the Companys stock-based compensation
expense for the year ended December 31, 2009 ranged from 50.9% to 62.8%.

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. An
increase in the risk-free interest rate will increase stock compensation
expense.

The
dividend yield is a ratio that estimates the expected dividend payments to
shareholders. The dividend yield is calculated by using the dividends declared
per share and the Companys stock price on the date of grant. A decrease in the
dividend yield will increase stock compensation expense. There was no dividend
yield used in the calculation of stock-based compensation for 2009 as the
Company did not issue dividends during the year ended December 31, 2009.

The
expected term of the stock option grants was developed after considering
vesting schedules, life of the option, historical experience and estimates of
future exercise behavior patterns. An increase in the expected holding period
will increase stock compensation expense.

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 for the number of
awards that are ultimately expected to vest. As a result, for most awards,
recognized stock compensation was reduced for estimated forfeitures prior to
vesting primarily based on historical annual forfeiture rates and by employee
classification ranging from 0% to 100% for stock options, and 0% to 100% for
restricted stock. Estimated forfeitures will continue to be reassessed in
subsequent periods and may change based on new facts and circumstances.

As
of December 31, 2009, approximately $12.1 million of unrecognized stock
compensation related to unvested stock options and restricted stock awards, net
of estimated forfeitures, is expected to be recognized over a weighted-average
period of 2.1 years.

F-26

---



Kenneth Cole Productions, Inc. and
Subsidiaries
Notes to Consolidated Financial Statements

Note 13 - Advertising Costs

The
Company incurred advertising costs, including certain in-house marketing
expenses, of $15.9 million, $20.7 million, and $19.5 million for the years
ended December 31, 2009, 2008 and 2007, respectively.

Note 14 - Income Taxes

The
components of (loss)/income before provision for/(benefit from) income taxes
are as follows:

|                         |  |      |             |      |   |             |   |   |            | 
|------------------------ |  | ---- | ----------- | ---- | - | ----------- | - | - | ---------- | 
|Year
 Ended December 31, |  | 2009 |             | 2008 |   | 2007        |  
|                         |  |      |             |      |   |             |  
|Domestic                 |  | $    | (35,452,000 | )    | $ | (26,328,000 | ) | $ | 3,286,000  | 
|International            |  |      | 4,413,000   |      |   | 7,907,000   |   |   | 6,965,000  | 
|                         |  |      |             |      |   |             |   |   |            | 
|                         |  | $    | (31,039,000 | )    | $ | (18,421,000 | ) | $ | 10,251,000 | 
|                         |  |      |             |      |   |             |   |   |            | 

Significant
items comprising the Companys deferred tax assets and liabilities are as
follows:

|                                                     |  |              |             |      |   |            |  
|---------------------------------------------------- |  | ------------ | ----------- | ---- | - | ---------- | -
|                                                     |  | December 31, |            
|                                                     |  | 2009         |             | 2008 |  
|                                                     |  |              |            
|Deferred tax assets:                                 |  |              |             |      |   |            |  
|Inventory allowances and
capitalization              |  | $            | 2,576,000   |      | $ | 3,033,000  |  
|Allowance for doubtful accounts and
sales allowances |  |              | 446,000     |      |   | 894,000    |  
|Deferred rent                                        |  |              | 6,068,000   |      |   | 4,322,000  |  
|Deferred compensation                                |  |              | 13,880,000  |      |   | 14,693,000 |  
|Depreciation and asset
impairment                    |  |              | 5,508,000   |      |   | 5,221,000  |  
|Stock-based compensation                             |  |              | 3,269,000   |      |   | 3,383,000  |  
|Writedown of investments                             |  |              | 2,645,000   |      |   | 3,132,000  |  
|Writedown of intangible
asset                        |  |              | 3,953,000   |      |   |           |  
|Deferred income, customer
obligations, and other     |  |              | 2,672,000   |      |   | 2,895,000  |  
|Net operating loss
carryforwards                     |  |              | 5,840,000   |      |   | 5,472,000  |  
|Non-deductible accruals                              |  |              | 909,000     |      |   | 792,000    |  
|                                                     |  |              |             |      |   |            |  
|Total deferred tax assets                            |  |              | 47,766,000  |      |   | 43,837,000 |  
|                                                     |  |              |             |      |   |            |  
|                                                     |  |              |             |      |   |            |  
|Deferred tax liabilities:                            |  |              |             |      |   |            |  
|Amortization of intangible
assets                    |  |              |            |      |   | (471,000   | )
|Unrealized gains on
available-for-sale securities    |  |              | (511,000    | )    |   | (70,000    | )
|Undistributed foreign
earnings                       |  |              | (220,000    | )    |   | (978,000   | )
|                                                     |  |              |             |      |   |            |  
|Total deferred tax liabilities                       |  |              | (731,000    | )    |   | (1,519,000 | )
|                                                     |  |              |             |      |   |            |  
|Net deferred tax assets                              |  |              | 47,035,000  |      |   | 42,318,000 |  
|Valuation allowances on net
deferred tax assets      |  |              | (46,126,000 | )    |   | (3,132,000 | )
|                                                     |  |              |             |      |   |            |  
|Net deferred tax assets                              |  | $            | 909,000     |      | $ | 39,186,000 |  
|                                                     |  |              |             |      |   |            |  

As
of December 31, 2009, the Company had federal net operating loss carryforwards
of approximately $12.9 million that will expire in 2028, state net operating
loss carryforwards of approximately $1.3 million that expire between 2021 and
2029 and foreign net operating loss carryforwards of $0.5 million that expire
between 2016 and 2029.

F-27

---



Kenneth Cole Productions, Inc. and
Subsidiaries
Notes to Consolidated Financial Statements

Note 14 - Income Taxes (continued)

As
of December 31, 2008, the Company had federal net operating loss carryforwards
of approximately $13.5 million. In 2009, newly enacted government legislation
extended the carryback period on losses for 2008 or 2009 to five years from two
years. This legislation allowed the Company to carryback all of the 2008 net
operating losses into prior periods that it was unable to previously and
therefore, the Company has recorded a federal tax receivable of approximately
$4.0 million in Prepaid and other current assets within the Consolidated
Balance Sheets, with a corresponding reduction in deferred tax assets for the
year ended December 31, 2009.

As
defined within income tax accounting guidance, deferred tax assets are reduced
by a valuation allowance, if based on all available evidence, it is considered
more likely than not that a portion or all of the recorded deferred tax
assets will not realized in a future period. In determining more likely than
not the Company reviews positive and negative evidence to evaluate the
recovery of its deferred tax assets. Both positive and negative evidence was
analyzed in determining the potential requirement for a valuation allowance on
the Companys deferred tax assets. The Company reviewed taxable income in prior
carryback years if carryback is permitted under the tax law, future reversals
of existing taxable temporary differences, tax planning strategies and future
taxable income exclusive of reversing temporary differences and carryforwards
for positive evidence. The Company then reviewed its results over the last
three years, which resulted in a cumulative loss over such period. In
accordance with income tax accounting guidance, a three-year historical
cumulative loss is considered significant negative evidence and difficult to
overcome in the absence of compelling positive evidence. As such, the Company
concluded that it did not have enough positive evidence to outweigh the
negative evidence of the three-year cumulative loss and therefore, the Company
recorded a valuation allowance of approximately $43.6 million as of December
31, 2009. The Company also has a valuation allowance related to the writedown
of investments due to the uncertainty of ultimately realizing theses future tax
benefits. The establishment of the valuation allowances does not preclude the
Company from using the net operating loss carryforwards or other deferred tax
assets in the future.

The
provision for/(benefit from) income taxes consist of the following:

|                |  |              |            |      |   |             |   |   |             |  
|--------------- |  | ------------ | ---------- | ---- | - | ----------- | - | - | ----------- | -
|                |  | December 31, |           
|                |  | 2009         |            | 2008 |   | 2007        |  
|                |  |              |           
|Current:        |  |              |            |      |   |             |   |   |             |  
|Federal         |  | $            | 623,000    |      | $ | 5,988,000   |   | $ | 13,045,000  |  
|State and local |  |              | 495,000    |      |   | 376,000     |   |   | 414,000     |  
|Foreign         |  |              | 344,000    |      |   | 386,000     |   |   | 698,000     |  
|                |  |              |            |      |   |             |   |   |             |  
|                |  |              | 1,462,000  |      |   | 6,750,000   |   |   | 14,157,000  |  
|Deferred:       |  |              |            |      |   |             |   |   |             |  
|Federal         |  |              | 25,779,000 |      |   | (9,131,000  | ) |   | (10,104,000 | )
|State and local |  |              | 4,965,000  |      |   | (1,247,000  | ) |   | (885,000    | )
|Foreign         |  |              | (7,000     | )    |   | 7,000       |   |   |            |  
|                |  |              |            |      |   |             |   |   |             |  
|                |  |              | 30,737,000 |      |   | (10,371,000 | ) |   | (10,989,000 | )
|                |  |              |            |      |   |             |   |   |             |  
|                |  | $            | 32,199,000 |      | $ | (3,621,000  | ) | $ | 3,168,000   |  
|                |  |              |            |      |   |             |   |   |             |  

F-28

---



Kenneth Cole Productions, Inc. and
Subsidiaries 
Notes to Consolidated Financial Statements

Note 14 - Income Taxes (continued)

The
reconciliation of income tax computed at the U.S. federal statutory tax rate to
the effective income tax rate for 2009, 2008 and 2007 is as follows:

|                                                  |  |      |        |      |  |       |    |  |      |   
|------------------------------------------------- |  | ---- | ------ | ---- |  | ----- | -- |  | ---- | --
|                                                  |  | 2009 |        | 2008 |  | 2007  |   
|                                                  |  |      |        |      |  |       |   
|Federal income tax at statutory rate              |  |      | 35.0   | %    |  | 35.0  | %  |  | 35.0 | % 
|State and local taxes, net of federal tax
benefit |  |      | (11.5  | )%   |  | 3.9   | %  |  | 0.7  | % 
|Adjustment to unrecognized tax benefits           |  |      | 0.4    | %    |  | (3.2  | )% |  | (1.8 | )%
|Valuation allowances                              |  |      | (125.8 | )%   |  | (15.4 | )% |  |     |   
|Other permanent differences                       |  |      | (1.9   | )%   |  | (0.6  | )% |  | 1.8  | % 
|Effect of rate changes                            |  |      |       |      |  |      |    |  | (4.8 | )%
|                                                  |  |      |        |      |  |       |    |  |      |   
|                                                  |  |      | (103.8 | %)   |  | 19.7  | %  |  | 30.9 | % 
|                                                  |  |      |        |      |  |       |    |  |      |   

The
Companys policy on classification of interest and penalties on uncertain tax
positions is to include these amounts in the provision for income taxes in the
accompanying Consolidated Statements of Operations. For the year ended December
31, 2009, the Company recognized a nominal tax expense for interest and
penalties and a tax benefit of $0.3 million for the year ended December 31,
2008. Interest and penalties accrued at December 31, 2009 and 2008 were $1.2
million. The total amount of unrecognized tax benefits at December 31, 2009 and
2008 is approximately $1.6 million and $2.4 million, respectively, of which
$1.0 million and $1.1 million would affect the Companys effective tax rate if
recognized. If settlements are effected in accordance with the Companys
expectations, the total unrecognized tax benefits could decrease by
approximately $0.2 million within the next twelve months.

Unrecognized
tax benefits consist of the following:

|                                            |  |      |           |      |   |            |  
|------------------------------------------- |  | ---- | --------- | ---- | - | ---------- | -
|                                            |  | 2009 |           | 2008 |  
|                                            |  |      |           |      |   |            |  
|Balance as of January 1                     |  | $    | 2,388,000 |      | $ | 2,423,000  |  
|Additions to current period positions       |  |      |          |      |   | 267,000    |  
|Additions for positions of prior years      |  |      | 44,000    |      |   | 1,040,000  |  
|Reductions for positions of prior years     |  |      |          |      |   |           |  
|Settlements with taxing authorities         |  |      | (729,000  | )    |   | (1,099,000 | )
|Lapses of applicable statute of
limitations |  |      | (112,000  | )    |   | (243,000   | )
|                                            |  |      |           |      |   |            |  
|Balance as of December 31                   |  | $    | 1,591,000 |      | $ | 2,388,000  |  
|                                            |  |      |           |      |   |            |  

The
Company and certain of its subsidiaries are subject to U.S. federal income tax
as well as income tax of multiple state, local, and foreign jurisdictions. U.S.
federal income tax returns have been examined through 2006. In addition, audits
are currently being conducted for certain state and federal tax jurisdictions
ranging from 2004 to 2007.

F-29

---



Kenneth Cole Productions, Inc. and
Subsidiaries 
Notes to Consolidated Financial Statements

Note 15 - Commitments and Contingencies

A. Operating leases and Other Property Agreements

The
Company leases 51,000 square feet of office space in Secaucus, New Jersey for
its administrative offices. The Company also has a technical and administrative
office in Dongguan, China. The Company closed its office in Florence, Italy
during 2008. The Company does not own or operate any manufacturing facilities.

The
Company leases space for all of its 38 full-priced retail stores (aggregating
approximately 178,000 square feet) and 72 outlets (aggregating approximately
300,000 square feet). Generally, the leases provide for an initial term of five
to ten years and certain leases provide for renewal options permitting the
Company to extend the term thereafter. Future minimum lease
payments for non-cancelable leases with initial terms of one year or more
consisted of the following at December 31, 2009:

|                             |  |   |             | 
|---------------------------- |  | - | ----------- | 
|2010                         |  | $ | 26,380,000  | 
|2011                         |  |   | 25,207,000  | 
|2012                         |  |   | 23,315,000  | 
|2013                         |  |   | 22,122,000  | 
|2014                         |  |   | 17,507,000  | 
|Thereafter                   |  |   | 29,309,000  | 
|                             |  |   |             | 
|Total minimum cash
 payments |  | $ | 143,840,000 | 
|                             |  |   |             | 

In
addition, certain of these leases contain rent escalation provisions and
require additional percentage rent payments to be made. Step rent provisions
and escalation clauses are taken into account in computing the minimum lease
payments, recognized on a straight-line basis over the minimum lease term. The
Company may also receive capital improvement funding from landlords, primarily
as an incentive for the Company to lease retail and outlet store space from the
landlords. Such amounts are amortized as a reduction of rent expense over the
life of the related lease.

Rent
expense is as follows:

|                          |  |      |            |      |   |            |  |   |            | 
|------------------------- |  | ---- | ---------- | ---- | - | ---------- |  | - | ---------- | 
|                          |  | 2009 |            | 2008 |   | 2007       | 
|                          |  |      |            |      |   |            |  |   |            | 
|Minimum rent              |  | $    | 26,269,000 |      | $ | 25,563,000 |  | $ | 26,835,000 | 
|Contingent rent and other |  |      | 8,505,000  |      |   | 8,570,000  |  |   | 8,414,000  | 
|                          |  |      |            |      |   |            |  |   |            | 
|Total rent expense        |  | $    | 34,774,000 |      | $ | 34,133,000 |  | $ | 35,249,000 | 
|                          |  |      |            |      |   |            |  |   |            | 

B. Letters of credit

The
Company was contingently liable for $0.5 million and $2.6 million of open
letters of credit as of December 31, 2009 and 2008, respectively. In addition,
at December 31, 2009 and 2008, stand-by letters of credit amounted to
approximately $0.7 million and $0.9 million, respectively.

F-30

---



Kenneth Cole Productions, Inc. and
Subsidiaries 
Notes to Consolidated Financial Statements

Note 15 - Commitments and Contingencies
(continued)

C.
Concentrations

In
the normal course of business, the Company sells to major department stores and
specialty retailers and believes that its broad customer base will mitigate the
impact that financial difficulties of any such retailers might have on the
Companys operations. The Company had no customer account for more than 10% of
consolidated net sales for the years ended December 31, 2009, 2008 and 2007.

The
Company sources each of its product lines separately, based on the individual
design, styling and quality specifications of such products. The Company
primarily sources its products directly or indirectly through manufacturers in
Italy and China. However, approximately 52% and 42% of total handbag purchases
came from two manufacturers in China during the years ended December 31, 2009
and 2008, respectively. Approximately 41% of Kenneth
Cole and Kenneth Cole Reaction
mens footwear purchases were from one manufacturer in China during the year
ended December 31, 2009 and 40% were from two manufacturers in China during the
year ended December 31, 2008, respectively. Approximately 62% and 61% of Kenneth Cole Reactionladies
footwear
purchases were sourced through two Chinese manufacturers during the years ended
December 31, 2009 and 2008, respectively. Approximately 74% and 42% of Unlistedladies footwear
purchases were
sourced through one agent and one manufacturer in China during the years ended
December 31, 2009 and 2008, respectively. The Company believes it has
alternative manufacturing sources available to meet its current and future
production requirements in the event the Company is required to change current
manufacturers or current manufacturers are unavailable to fulfill the Companys
production needs.

D. Lines of Credit Facilities

On
July 31, 2009, the Company amended its five-year senior unsecured revolving
credit facility to convert it to a revolving senior secured asset based credit
facility (the Amended Facility) to provide the Company with increased
availability and strategic flexibility. Availability under the Amended Facility
is $60 million, which may be increased to $85 million at the election of the
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
Amended Facility terminates by its terms, and all amounts borrowed under the
Amended Facility shall be due and payable, on December 20, 2011. The Amended
Facility includes a $7.5 million sublimit for Swingline Loans and a $35 million
aggregate sublimit for letters of credit, with a further sublimit of $15
million for standby letters of credit. Revolving loans under the Amended
Facility may be base rate loans or Eurodollar loans, at the Companys election.
Base rate loans shall bear interest at a rate per annum equal to the sum of (i)
the greatest of (a) the Prime Rate in effect on such day, (b) the Federal Funds
Effective Rate in effect on such day plus 1⁄2 of 1% and (c) the Adjusted LIBO
Rate for a one month Interest Period on such day plus 1%; plus (ii) 2.5%.
Eurodollar loans shall bear interest at the Adjusted LIBO Rate, plus 3.5%.
Borrowings under the Amended Facility would be secured by substantially all the
assets of the Company and its domestic subsidiaries, including a pledge by the
Company of its equity interest in each of its domestic subsidiaries. If
availability under the Amended Facility is less than $10,000,000, the Company
will be subject to a monthly fixed charge coverage ratio. The Amended Facility
limits the Companys ability to incur indebtedness or liens, its ability to
enter into mergers or sell assets, its ability to change the nature of its
business, and its ability to enter into certain guarantees. In addition, the
Company may not declare or pay dividends if Availability under the Amended
Facility is less than $10,000,000. The Amended Facility also contains customary
events of default. Upon the occurrence of an event of default, the outstanding
obligations under the Amended Facility may be accelerated and become
immediately due and payable.

F-31

---



Kenneth Cole Productions, Inc. and
Subsidiaries 
Notes to Consolidated Financial Statements

Note 15 - Commitments and Contingencies
(continued)

D. Lines of Credit Facilities (continued)

During
2009, the Company incurred facility fees of approximately $0.1 million. In
addition, the Company made payments of approximately $0.7 million for financing
costs related to the Amended Facility. There were no outstanding advances under
this agreement at December 31, 2009. Amounts available under the Amended
Facility at December 31, 2009 were reduced by $1.2 million of standby and open
letters of credit. The Company did not borrow under the Amended Facility during
2009. The Company had $22.8 million available to borrow as of December 31,
2009.

Through
July 30, 2009, the Company had a five-year senior unsecured revolving credit
facility (the Revolving Credit Facility), with various lenders. During 2009
and 2008, the Company incurred facility fees of approximately $0.1 million and
$0.1 million, respectively. There were no outstanding advances under this
agreement. Amounts available under the Revolving Credit Facility at December
31, 2008 were reduced by $3.5 million of standby and open letters of credit.
The Company had no availability under the Revolving Credit Facility during 2008
and through its termination in 2009.

Note 16 - Shareholders Equity

A. Common stock

Class
A Common Shareholders are entitled to one vote for each share held of record
and Class B Common Shareholders are entitled to ten votes for each share held
of record. Each share of Class B Common Stock is convertible into one share of
Class A Common Stock at the option of the Class B Shareholder. The Class A
Common Shareholders vote together with Class B Common Shareholders on all
matters subject to shareholder approval, except that Class A Common
Shareholders vote separately as a class to elect 25%, but not less than two, of
the Board of Directors of the Company. Shares of neither class of common stock
have preemptive or cumulative voting rights.

B. Preferred Stock

The
Companys Certificate of Incorporation authorizes the issuance of 1,000,000
shares of preferred stock. The preferred stock may be issued from time to time
as determined by the Board of Directors of the Company, without shareholder
approval. Such preferred stock may be issued in such series and with such
preferences, conversion or other rights, voting powers, restrictions, or
limitations as to dividends, qualifications or other provisions, as may be
fixed by the Board of Directors.

C. Common Stock Repurchase

In
2008, the Companys Board of Directors increased the authorization for the
Companys common stock repurchase plan by approximately 4,000,000 shares to an
aggregate of 9,388,400 of shares of Class A common stock. During 2009, the
Company did not repurchase shares and during 2008, repurchased 1,619,200 of its
shares at an aggregate price of $24.4 million. The Company had 3,072,800 shares
available for repurchase as of December 31, 2009 and 2008, respectively.

F-32

---



Kenneth Cole Productions, Inc. and
Subsidiaries 
Notes to Consolidated Financial Statements

Note 17 - Related Party Transactions

The
Company had an exclusive license agreement with Iconix Brand Group, Inc. and
its trademark holding company, IP Holdings, LLC (Iconix), to use the Bongo trademark in
connection with the
manufacture, sale and distribution of womens, mens and childrens footwear in
certain territories.The Chairman and Chief Executive Officer of
Iconix is the brother of the Companys Chairman and Chief Creative Officer. The
term of the agreement was through December 31, 2010. During 2009, the Company
terminated the agreement effective December 31, 2009 which eliminates any
future obligations for 2010. Management believes that the license agreement
with Iconix was entered into at arms-length. The Company was obligated to pay
Iconix a percentage of net sales based upon the terms of the agreement. The
Company recorded approximately $0.2 million, $1.1 million and $1.1 million in aggregate
royalty and advertising expense under the agreement for the years ended
December 31, 2009, 2008 and 2007, respectively.

The
Company recorded expenses of approximately $0.7 million, $0.6 million and $0.5
million for the years ended December 31, 2009, 2008 and 2007, 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.

Note 18 - New Accounting Pronouncements

In
January 2010, the FASB issued Accounting Standards Update 2010-06, Improving Disclosures About Fair Value
Measurements(ASU
2010-06). ASU 2010-06 adds new requirements for disclosures of significant
transfers into and out of Levels 1, 2 and 3 of the fair value hierarchy, the
reasons for the transfers and the policy for determining when transfers are
recognized. ASU 2010-06 also adds new requirements for disclosures about
purchases, sales, issuances and settlements on a gross rather than net basis
relating to the reconciliation of the beginning and ending balances of Level 3
recurring fair value measurements. It also clarifies the level of
disaggregation to require disclosures by class rather than by major category
of assets and liabilities and clarifies that a description of inputs and
valuation techniques used to measure fair value is required for both recurring
and nonrecurring fair value measurements classified as Level 2 or 3. ASU
2010-06 is effective January 1, 2010 except for the requirements to provide the
Level 3 activity of purchases, sales, issuances and settlements on a gross
basis which are effective January 1, 2011. The Company will adopt the update on
January 1, 2010 and has determined that it will not have a material impact on
the Companys consolidated financial statements.

F-33

---



Kenneth Cole Productions, Inc. and
Subsidiaries 
Notes to Consolidated Financial Statements

Note 19 - Quarterly Financial Data
(Unaudited)

Summarized
quarterly financial data for 2009 and 2008 appear below (in thousands, except
per share and dividend data):

|                                  |                                                                                                                                                                                                                                                                                                                      |                |         |                 |   |                |   |                     |         |   |   |         |  
|--------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------- | --------------- | - | -------------- | - | ------------------- | ------- | - | - | ------- | -
|                                  |                                                                                                                                                                                                                                                                                                                      | First
 Quarter |         | Second
 Quarter |   | Third
 Quarter |   | Fourth
 Quarter (1) |        
|                                  |                                                                                                                                                                                                                                                                                                                      |                |         |                 |   |                |   |                     |         |   |   |         |  
|2009                              |                                                                                                                                                                                                                                                                                                                      |                |         |                 |   |                |   |                     |         |   |   |         |  
|Net sales                         |                                                                                                                                                                                                                                                                                                                      | $              | 94,374  |                 | $ | 84,748         |   | $                   | 93,336  |   | $ | 98,497  |  
|Royalty revenue                   |                                                                                                                                                                                                                                                                                                                      |                | 9,001   |                 |   | 9,152          |   |                     | 10,416  |   |   | 10,876  |  
|Net revenues                      |                                                                                                                                                                                                                                                                                                                      |                | 103,375 |                 |   | 93,900         |   |                     | 103,752 |   |   | 109,373 |  
|Gross profit                      |                                                                                                                                                                                                                                                                                                                      |                | 35,072  |                 |   | 39,813         |   |                     | 44,881  |   |   | 51,238  |  
|Operating (loss)/income           |                                                                                                                                                                                                                                                                                                                      |                | (12,601 | )               |   | (5,152         | ) |                     | 286     |   |   | (13,018 | )
|Net (loss)/income                 |                                                                                                                                                                                                                                                                                                                      |                | (8,168  | )               |   | (3,266         | ) |                     | 186     |   |   | (51,990 | )
|(Loss)/earnings per share basic   |                                                                                                                                                                                                                                                                                                                      | $              | (0.46   | )               | $ | (0.18          | ) | $                   | 0.01    |   | $ | (2.88   | )
|(Loss)/earnings per share diluted |                                                                                                                                                                                                                                                                                                                      | $              | (0.46   | )               | $ | (0.18          | ) | $                   | 0.01    |   | $ | (2.88   | )
|Dividends declared                |                                                                                                                                                                                                                                                                                                                      |                |        |                 |   |               |   |                     |        |   |   |        |  
|                                  |                                                                                                                                                                                                                                                                                                                      |                |         |                 |   |                |   |                     |         |   |   |         |  
|2008                              |                                                                                                                                                                                                                                                                                                                      |                |         |                 |   |                |   |                     |         |   |   |         |  
|Net sales                         |                                                                                                                                                                                                                                                                                                                      | $              | 112,615 |                 | $ | 100,893        |   | $                   | 120,161 |   | $ | 114,909 |  
|Royalty revenue                   |                                                                                                                                                                                                                                                                                                                      |                | 9,882   |                 |   | 10,258         |   |                     | 11,947  |   |   | 11,672  |  
|Net revenues                      |                                                                                                                                                                                                                                                                                                                      |                | 122,497 |                 |   | 111,151        |   |                     | 132,108 |   |   | 126,581 |  
|Gross profit                      |                                                                                                                                                                                                                                                                                                                      |                | 50,227  |                 |   | 46,044         |   |                     | 54,351  |   |   | 48,263  |  
|Operating income/(loss)           |                                                                                                                                                                                                                                                                                                                      |                | 1,112   |                 |   | (3,058         | ) |                     | 2,455   |   |   | (12,820 | )
|Net income/(loss)                 |                                                                                                                                                                                                                                                                                                                      |                | 807     |                 |   | (2,052         | ) |                     | (1,554  | ) |   | (12,001 | )
|Earnings/(loss) per share basic   |                                                                                                                                                                                                                                                                                                                      | $              | 0.04    |                 | $ | (0.11          | ) | $                   | (0.09   | ) | $ | (0.67   | )
|Earnings/(loss) per share diluted |                                                                                                                                                                                                                                                                                                                      | $              | 0.04    |                 | $ | (0.11          | ) | $                   | (0.09   | ) | $ | (0.67   | )
|Dividends declared                |                                                                                                                                                                                                                                                                                                                      | $              | 0.09    |                 | $ | 0.09           |   | $                   | 0.09    |   | $ | 0.09    |  
|                                  |                                                                                                                                                                                                                                                                                                                     
|                                  | (1) The Company recorded a
 $19.3 million impairment of intangible and long-lived assets and a $43.6
 million valuation allowance during the fourth quarter of 2009. The Company
 recorded a $3.0 million impairment of long-lived assets and a $3.1 million
 valuation allowance during the fourth quarter of 2008.

F-34

---



Kenneth Cole Productions, Inc.
Schedule II 
Valuation and Qualifying Accounts 
For the Years Ended December 31, 2009, 2008 and 2007

|                                         |  |                                  |             |                                 |   |             |   |                            |            |  |   |             |  
|---------------------------------------- |  | -------------------------------- | ----------- | ------------------------------- | - | ----------- | - | -------------------------- | ---------- |  | - | ----------- | -
|Description                              |  | Balance at
 Beginning
 of Period |             | Charged to
 Costs and
 Expenses |   | Deductions  |   | Balance
 at End
 of Period |           
|                                         |  |                                  |             |                                 |   |             |   |                            |            |  |   |             |  
|Year ended December 31, 2009             |  |                                  |             |                                 |   |             |   |                            |            |  |   |             |  
|Allowance for doubtful accounts          |  | $                                | (1,061,000  | )                               | $ | 320,000     |   | $                          | 555,000    |  | $ | (186,000    | )
|Reserve for returns and sales
allowances |  |                                  | (10,117,000 | )                               |   | (23,619,000 | ) |                            | 25,467,000 |  |   | (8,269,000  | )
|                                         |  |                                  |             |                                 |   |             |   |                            |            |  |   |             |  
|                                         |  | $                                | (11,178,000 | )                               | $ | (23,299,000 | ) | $                          | 26,022,000 |  | $ | (8,455,000  | )
|                                         |  |                                  |             |                                 |   |             |   |                            |            |  |   |             |  
|                                         |  |                                  |             |                                 |   |             |   |                            |            |  |   |             |  
|Year ended December 31, 2008             |  |                                  |             |                                 |   |             |   |                            |            |  |   |             |  
|Allowance for doubtful accounts          |  | $                                | (230,000    | )                               | $ | (1,309,000  | ) | $                          | 478,000    |  | $ | (1,061,000  | )
|Reserve for returns and sales
allowances |  |                                  | (11,456,000 | )                               |   | (29,981,000 | ) |                            | 31,320,000 |  |   | (10,117,000 | )
|                                         |  |                                  |             |                                 |   |             |   |                            |            |  |   |             |  
|                                         |  | $                                | (11,686,000 | )                               | $ | (31,290,000 | ) | $                          | 31,798,000 |  | $ | (11,178,000 | )
|                                         |  |                                  |             |                                 |   |             |   |                            |            |  |   |             |  
|Year ended December 31, 2007             |  |                                  |             |                                 |   |             |   |                            |            |  |   |             |  
|Allowance for doubtful accounts          |  | $                                | (249,000    | )                               | $ | (188,000    | ) | $                          | 207,000    |  | $ | (230,000    | )
|Reserve for returns and sales
allowances |  |                                  | (9,736,000  | )                               |   | (24,770,000 | ) |                            | 23,050,000 |  |   | (11,456,000 | )
|                                         |  |                                  |             |                                 |   |             |   |                            |            |  |   |             |  
|                                         |  | $                                | (9,985,000  | )                               | $ | (24,958,000 | ) | $                          | 23,257,000 |  | $ | (11,686,000 | )
|                                         |  |                                  |             |                                 |   |             |   |                            |            |  |   |             |  

---



Signatures

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

| |                                
| | -------------------------------
| | KENNETH COLE PRODUCTIONS,
 INC.
| | By:                            
| |                                
| | Jill Granoff                   
| | Chief
 Executive Officer       
| |                                
| | Date: March 8, 2010            

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

|    |                     |  |                                                   |  |               
|--- | ------------------- |  | ------------------------------------------------- |  | --------------
|    | Signature           |  | Title                                             |  | Date          
|    |                     |  |                                                   |  |               
|    |                     |  |                                                   |  |               
|/s/ | KENNETH D. COLE     |  | Chairman of the Board and
 Chief Creative Officer |  | March
 8, 2010
|    |                     |  |                                                   |  |               
|    | Kenneth
 D. Cole    |  |                                                   |  |               
|    |                     |  |                                                   |  |               
|/s/ | JILL GRANOFF        |  | Chief Executive Officer                           |  | March
 8, 2010
|    |                     |  |                                                   |  |               
|    | Jill
 Granoff       |  |                                                   |  |               
|    |                     |  |                                                   |  |               
|/s/ | DAVID P. EDELMAN    |  | Chief Financial Officer                           |  | March
 8, 2010
|    |                     |  |                                                   |  |               
|    | David
 P. Edelman   |  |                                                   |  |               
|    |                     |  |                                                   |  |               
|/s/ | MICHAEL J. BLITZER  |  | Director                                          |  | March
 8, 2010
|    |                     |  |                                                   |  |               
|    | Michael
 J. Blitzer |  |                                                   |  |               
|    |                     |  |                                                   |  |               
|/s/ | MARTIN E. FRANKLIN  |  | Director                                          |  | March
 8, 2010
|    |                     |  |                                                   |  |               
|    | Martin
 E. Franklin |  |                                                   |  |               
|    |                     |  |                                                   |  |               
|/s/ | ROBERT C. GRAYSON   |  | Director                                          |  | March
 8, 2010
|    |                     |  |                                                   |  |               
|    | Robert
 C. Grayson  |  |                                                   |  |               
|    |                     |  |                                                   |  |               
|/s/ | DENIS F. KELLY      |  | Director                                          |  | March
 8, 2010
|    |                     |  |                                                   |  |               
|    | Denis
 F. Kelly     |  |                                                   |  |               
|    |                     |  |                                                   |  |               
|/s/ | PHILIP R. PELLER    |  | Director                                          |  | March
 8, 2010
|    |                     |  |                                                   |  |               
|    | Philip
 R. Peller   |  |                                                   |  |               

---