Forward-Looking Statements Disclosure

The statements contained in this report which are not historical facts, including, without limitation, statements that relate to future performance and/or statements regarding the Company's anticipated results or level of business for 2009 or any other future period, may be deemed to constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based on current expectations only, and actual future results might differ materially from those projected in such statements due to a number of risks and uncertainties, including, but not limited to, demand and competition for the Company's products, the ability to enter into new licensee agreements, to maintain and renew existing licensing agreements, and to open new stores, changes in consumer preferences or fashion trends, events causing disruption in product shipment, change in import regulations, dependence on certain large customers, changes in the Company's relationships with vendors and other resources, the launching or prospective development of new business initiatives, future licensee sales growth, gross margins, store expansion, renovation and openings, changes in distribution centers, and the implementation of management information systems.
The forward-looking statements contained herein are also subject to other risks and uncertainties that are described in the Company's reports and registration statements filed with the Securities and Exchange Commission. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future results or otherwise.

Update on Critical Accounting Policies and Estimates

The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require the Company to make estimates in the application of its accounting policies based on the best assumptions, judgments and opinions of management. There have been no changes to the Company's significant accounting policies from the policies previously disclosed in the Company's Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2008 except the additional details described within the income tax policy below:

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 to the extent that management believes a portion will not be realized. 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 quarterly 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.

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, Unlisted and Gentle Souls brand names. The Company also designs, sources and markets sportswear, footwear, handbags and other accessories under the Le Tigre brand name. 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 fashion conscious consumers and reflect a metropolitan lifestyle uniquely associated with Kenneth Cole. 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 5,700 department and specialty store locations, as well as through its Consumer Direct business, which includes full-priced retail stores, Company Stores ("outlets") and e-commerce. 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, handbags, 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, underwear, socks, 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.

Our opportunities for long-term growth are accompanied by challenges and risks, particularly in the current steep recessionary environment. Our results are dependent on consumer demand for our products and factors such as general economic and business conditions, unemployment rates, consumer credit availability, interest rate fluctuations, energy costs, geo political stability, retail traffic, tax law, stock market activity and other consumer impacting conditions. The recent unprecedented volatility that has disrupted capital and consumer markets has also reduced incomes and employment and reduced consumer confidence to levels that have not been seen in decades. Since fashion and fashion related products are viewed as discretionary spending, the economic environment has reduced customer spending dramatically. The Company cannot predict the duration of the current economic downturn. The macroeconomic environment and related factors could have a material adverse effect on the Company's results of operations and financial condition.

The Company recorded net revenues of $103.8 million for the three months ended September 30, 2009. Diluted earnings per share was $0.01 for the three months ended September 30, 2009 as compared to a diluted loss per share of $(0.09) for the three months ended September 30, 2008. As of September 30, 2009, the Company had $50.0 million in cash and cash equivalents and no long-term debt.

Results of Operations


The following table sets forth the Company's Condensed Consolidated Statements
of Operations in thousands of dollars and as a percentage of net revenues for
the three and nine months ended September 30, 2009 and September 30, 2008.


                             Three Months Ended September 30,      Nine Months Ended September 30,
                                  2009              2008                 2009             2008
Net sales                     $ 93,336  90.0%   $120,161  91.0%     $272,458   90.5% $333,669  91.2%
Royalty revenue                 10,416   10.0     11,947    9.0       28,569     9.5   32,087    8.8
Net revenues                   103,752  100.0    132,108  100.0      301,027   100.0  365,756  100.0
Gross profit (1)                44,881   43.3     54,351   41.1      119,766    39.8  150,622   41.2
Selling, general
and administrative expenses     44,595   43.0     51,896   39.3      137,233    45.6  150,113   41.1
Operating income/(loss)            286    0.3      2,455    1.8     (17,467)   (5.8)      509    0.1
Interest income, net                94    0.1        395    0.3          414     0.1    1,637    0.5
Impairment of investments        (287)  (0.3)    (3,282)  (2.5)        (727)   (0.2)  (4,114)  (1.2)
Income/(loss) before income
taxes                               93    0.1      (432)  (0.4)     (17,780)   (5.9)  (1,968)  (0.6)
Income tax
(benefit)/expense                 (93)  (0.1)      1,122    0.8      (6,532)   (2.2)      831    0.2
Net income/(loss)              $   186   0.2%   $(1,554) (1.2)%    $(11,248)  (3.7)% $(2,799) (0.8)%


_______________________

Gross profit may not be comparable to other entities, since some entities include the costs related to their distribution network (receiving and warehousing) in cost of goods sold and other entities, similar to the Company, exclude these costs from gross profit, including them instead in a line item such as selling, general and administrative expenses.

Three Months Ended September 30, 2009 Compared to Three Months Ended September 30, 2008

REVENUES: Net revenues decreased $28.3 million, or 21.5%, to $103.8 million for the three months ended September 30, 2009 from $132.1 million for the three months ended September 30, 2008. The decrease in revenues occurred in each of the Company's business segments as further described below in the sections entitled "NET SALES" and "ROYALTY REVENUE".

NET SALES: Wholesale net sales (excluding sales to the Company's Consumer Direct business segment) decreased $25.9 million, or 33.4%, to $51.7 million for the three months ended September 30, 2009 from $77.6 million for the three months ended September 30, 2008. Over 70% of the decline was attributable to a decrease in our planned closures of the Company's Tribeca and Bongo footwear lines, associated private label, and the planned reductions in the Company's off-priced business. The remaining decline was attributable to a decrease in sales across primarily all 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 $0.9 million, or 2.2%, to $41.7 million for the three months ended September 30, 2009 from $42.6 million for the three months ended September 30, 2008. Sales associated with 18 net new stores opened since the close of the third quarter last year were offset by a comparable store sales decrease of 12.9%, or $4.7 million. Comparable stores are defined as new stores that are open for longer than thirteen months.
A store that stops operations is included in the comparable sales calculation through the date of closing. The Company opened five Kenneth Cole Company Stores ("outlets") during the three months ended September 30, 2009.

ROYALTY REVENUE: Royalty revenue decreased $1.5 million, or 12.8%, to $10.4 million for the three months ended September 30, 2009 from $11.9 million for the three months ended September 30, 2008. Approximately half of the decrease in royalty revenues was due to a reduction in licensee sales into the off-price channel, along with a decrease in contract initiation fees and the expectation that certain licensees will exceed their contractual minimums in the fourth quarter this year versus the third quarter last year.

GROSS PROFIT: Consolidated gross profit, as a percentage of net revenues, increased to 43.3% for the three months ended September 30, 2009 from 41.1% for the three months ended September 30, 2008. The increase, as a percentage of net revenues, was primarily the result of an increase in the Consumer Direct segment margins as the Company better manages its inventory and improves its product assortment, coupled with a revenue mix shifting to Consumer Direct and Licensing as a percentage of total revenues. The Consumer Direct segment, which operates at a higher gross profit level than the Wholesale segment, increased as a percentage of net revenues to 40.2% for the three months ended September 30, 2009 compared to 32.3% for the three months ended September 30, 2008, while the Wholesale segment, as a percentage of net revenues, decreased to 49.8% for the three months ended September 30, 2009 from 58.7% for the three months ended September 30, 2008. The revenues in the Licensing segment, which carries less cost of goods sold, as a percentage of revenues, increased to 10.0% for the three months ended September 30, 2009 compared to 9.0% for the three months ended September 30, 2008.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and administrative ("SG&A") expenses, including warehousing and receiving expenses, decreased $7.3 million to $44.6 million for the three months ended September 30, 2009 from $51.9 million for the three months ended September 30, 2008. The decrease in SG&A expenses was primarily attributable to a reduction in payroll and various cuts in discretionary spending offset by costs associated with new stores and other expenses associated with the Company's strategic initiatives.
Total SG&A expenses, as a percentage of revenues, were 43.0% and 39.3% for the three months ended September 30, 2009 and 2008, respectively. The increase was due to loss of leverage on the decline in sales in the Wholesale and Consumer Direct segments 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 payroll costs.

INTEREST INCOME, NET: Interest income, net decreased $0.3 million to approximately $0.1 million for the three months ended September 30, 2009 as compared to $0.4 million for the three months ended September 30, 2008. The decrease is primarily due to the Company's lower interest rates.

IMPAIRMENT OF INVESTMENTS: The Company recorded an other-than-temporary impairment of auction-rate securities of approximately $0.3 million during the three months ended September 30, 2009 as compared to $3.3 million, of which $3.2 million related to an equity investment and $0.1 million related to auction-rate securities, during the three months ended September 30, 2008.

INCOME TAXES: The Company's effective tax rate decreased to a 100.6% benefit for the three months ended September 30, 2009 from a provision of 259.7% for the three months ended September 30, 2008. The tax benefit is primarily a result of adjustments to the Company's tax reserves for agreements with certain tax jurisdictions offset by the provision for the Company's net income during the three months ended September 30, 2009. The Company currently has $43.3 million of net deferred tax assets as of September 30, 2009 inclusive of $12.4 million of net operating loss carryforwards that expire between 2028 and 2029 and valuation allowances of $3.1 million for unrealized tax losses on available for sale securities.

NET INCOME/(LOSS): As a result of the foregoing, the Company recorded net income of $0.2 million for the three months ended September 30, 2009 or 0.2% of net revenues compared to a net loss of $1.6 million or (1.2)% of net revenues for the three months ended September 30, 2008.

Nine Months Ended September 30, 2009 Compared to Nine Months Ended September 30, 2008

REVENUES: Net revenues decreased $64.8 million, or 17.7%, to $301.0 million for the nine months ended September 30, 2009 from $365.8 million for the nine months ended September 30, 2008. The decrease in revenues occurred in each of the Company's business segments as further described below in the sections entitled "NET SALES" and "ROYALTY REVENUE".

NET SALES: Wholesale net sales (excluding sales to the Company's Consumer Direct business segment) decreased $50.2 million, or 23.9%, to $159.4 million for the nine months ended September 30, 2009 from $209.6 million for the nine months ended September 30, 2008. The decrease was attributable to a decline in sales across primarily all 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. In addition, the decline included the exiting of the Company's Tribeca business and terminating its Bongo business.

Net sales in the Company's Consumer Direct segment decreased $11.1 million, or 9.0%, to $113.0 million for the nine months ended September 30, 2009 from $124.1 million for the nine months ended September 30, 2008. Sales associated with 18 net new stores opened since the close of the third quarter last year were offset by a comparable store sales decreased 15.9%, or $17.0 million. Comparable stores are defined as new stores that are open for longer than thirteen months.
A store that stops operations is included in the comparable sales calculation through the date of closing. The Company opened thirteen Kenneth Cole Company Stores ("outlets") and closed three full-priced retail stores during the nine months ended September 30, 2009 as compared to opening seven Company Stores ("outlets"), opening two full-priced retail stores and closing eight full-priced retail stores during the nine months ended September 30, 2008.

ROYALTY REVENUE: Royalty revenue decreased $3.5 million, or 11.0%, to $28.6 million for the nine months ended September 30, 2009 from $32.1 million for the nine months ended September 30, 2008. The decrease in royalty revenues was primarily attributable to a reduction in contract initiation fees and a reduction in licensee sales into the off-price channel.

GROSS PROFIT: Consolidated gross profit, as a percentage of net revenues, decreased to 39.8% for the nine months ended September 30, 2009 from 41.2% for the nine months ended September 30, 2008. 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 revenue mix shifting to Consumer Direct and Licensing as a percentage of total revenues. The Consumer Direct segment, which operates at a higher gross profit level than the Wholesale segment, increased as a percentage of net revenues to 37.5% for the nine months ended September 30, 2009 compared to 33.9% for the nine months ended September 30, 2008, while the Wholesale segment, as a percentage of net revenues, decreased to 53.0% for the nine months ended September 30, 2009 from 57.3% for the nine months ended September 30, 2008. The revenues in the Licensing segment, which carries less cost of goods sold, increased as a percentage of revenues, to 9.5% for the nine months ended September 30, 2009 compared to 8.8% for the nine months ended September 30, 2008. The decrease in the Wholesale and Consumer Direct segment margins for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 was primarily due to a promotional and challenging retail environment and the macro-economic marketplace.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: SG&A expenses, including warehousing and receiving expenses, decreased $12.9 million to $137.2 million for the nine months ended September 30, 2009 from $150.1 million for the nine months ended September 30, 2008. The decrease in SG&A expenses was primarily attributable to a reduction in payroll and various cuts in discretionary spending offset by costs associated with new stores and other expenses associated with the Company's strategic initiatives. Total SG&A expenses, as a percentage of revenues, were 45.6% and 41.1% for the nine months ended September 30, 2009 and 2008, respectively. The increase was due to loss of leverage on the decline in sales in the Wholesale and Consumer Direct segments 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 payroll costs.

INTEREST INCOME, NET: Interest income, net decreased $1.2 million to $0.4 million for the nine months ended September 30, 2009 as compared to $1.6 million for the nine months ended September 30, 2008. The decrease is primarily due to the Company's lower average cash balances and lower interest rates.

IMPAIRMENT OF INVESTMENTS: The Company recorded an other-than-temporary impairment of auction-rate securities of $0.7 million during the nine months ended September 30, 2009 as compared to $4.1 million, of which $3.2 million related to an equity investment and $0.9 million related to auction-rate securities, during the nine months ended September 30, 2008.

INCOME TAXES: The Company's effective tax rate decreased to a 36.7% benefit for the nine months ended September 30, 2009 from a provision of 42.2% for the nine months ended September 30, 2008. The tax benefit is primarily a result of an increase in the Company's net loss and for adjustments to the Company's tax reserves for agreements with certain tax jurisdictions. The Company currently has $43.3 million of net deferred tax assets as of September 30, 2009 inclusive of $12.4 million of net operating loss carryforwards that expire between 2028 and 2029 and valuation allowances of $3.1 million for unrealized tax losses on available for sale securities.

NET LOSS: As a result of the foregoing, the Company recorded a net loss of $11.2 million for the nine months ended September 30, 2009 ((3.7%) of net revenues) compared to a loss of $2.8 million ((0.8%) of net revenues) for the nine months ended September 30, 2008.

New Accounting Pronouncement

Effective July 1, 2009, the Financial Accounting Standards Board's ("FASB") Accounting Standards Codification ("ASC") became the single official source of authoritative U.S. generally accepted accounting principles ("GAAP") recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission ("SEC") under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The ASC supersedes all existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the ASC became nonauthoritative. The Company's accounting policies were not affected by the conversion to ASC.

Related Party Transactions

The Company has 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. In April 2009, the Company terminated the agreement effective December 31, 2009 which eliminates any future obligation 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 $10,000 of income related to an advertising allowance per the license agreement for the three months ended September 30, 2009. The Company recorded approximately $247,000 in aggregate royalty and advertising expense under the agreement for the nine months ended September 30, 2009. The Company recorded approximately $284,000 and $857,000 in aggregate royalty and advertising expense under the agreement for the three and nine months ended September 30, 2008, respectively.

The Company recorded expenses of approximately $49,000 and $255,000 for the three and nine months ended September 30, 2009, respectively, to a third-party aviation company which hires and uses an aircraft partially owned by Emack LLC, a company which is wholly owned by the Company's Chairman and Chief Creative Officer. During the three and nine months ended September 30, 2008, the Company recorded expenses of approximately $161,000 and $427,000, respectively, for hire and use of aircraft partially owned by Emack LLC. 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 September 30, 2009, the Company had $50.0 million in cash and cash equivalents, which consist primarily of government money market funds as compared to $51.0 million as of September 30, 2008. The Company uses cash from operations as the primary source of financing for its capital expenditures and seasonal requirements. Cash requirements vary from time to time as a result of the timing of the receipt of merchandise from suppliers, the delivery by the Company of merchandise to its wholesale customers and the level of inventory, accounts receivable and due from factors' balances. At September 30, 2009 and December 31, 2008, working capital was $81.3 million and $97.5 million, respectively.

Cash used in operating activities was $2.3 million for the nine months ended September 30, 2009, compared to $0.9 million for the nine months ended September 30, 2008. The decrease in cash flows provided by operations is primarily attributable to a decrease in net income and the timings of receivables and payables.

Net cash used in investing activities totaled $11.1 million for the nine months ended September 30, 2009 compared to $8.6 million for the nine months ended September 30, 2008. The increase was primarily attributable to a $5.2 million increase in capital expenditures during the nine months ended September 30, 2009 compared to September 30, 2008. Included in capital expenditures for the nine months ended September 30, 2009 and 2008 were approximately $9.4 million and $3.5 million, respectively, for amounts associated with furniture, fixtures and leasehold improvements for existing and new stores. This was offset by a $2.7 million decrease in intangible asset purchases during the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. During the nine months ended September 30, 2008, the Company paid $2.5 million for intangible assets as defined within the Le Tigre Asset Purchase Agreement Amendment.

Net cash used in financing activities was $1.3 million for the nine months ended September 30, 2009 compared to $30.1 million used in financing activities for the nine months ended September 30, 2008. The decrease was primarily attributable to no repurchases of treasury shares during the nine months ended September 30, 2009 as compared to $24.4 million used to repurchase 1,619,200 treasury shares during the nine months ended September 30, 2008. The Company also did not pay a quarterly dividend for the nine months ended September 30, 2009 compared to a $5.0 million quarterly dividend paid for the nine months ended September 30, 2008.

Through July 30, 2009, the Company had a revolving credit facility (the "Facility") with various lenders, which provided up to $100.0 million to finance working capital requirements, letters of credit and other general corporate activities. During this period the Company had no borrowing availability under the Facility. On July 31, 2009, the Company amended the Facility (the "Amended Facility") to convert it to a revolving senior secured asset based credit facility. Pursuant to the terms of the Amended Facility, the Company may borrow . . .