		Page
	PART I

Item 1	Business	2

Item 1A	Risk Factors	17

Item 1B	Unresolved Staff Comments	22

Item 2	Properties	22

Item 3	Legal Proceedings	22

Item 4	Submission of Matters to a Vote of Security Holders	23

	PART II

Item 5	Market for Registrant’s Common Equity, Related Stockholder

	Matters and Issuer Purchases of Equity Securities	23

Item 6	Selected Financial Data	26

Item 7	Management’s Discussion and Analysis of Financial Condition andResults of Operations	27

Item 7A	Quantitative and Qualitative Disclosures About Market Risk	35

Item 8	Financial Statements and Supplementary Data	36

Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	36

Item 9A	Controls and Procedures	36

Item 9B	Other Information	37

	PART III

Item 10	Directors, Executive Officers and Corporate Governance	37

Item 11	Executive Compensation	37

Item 12	Security Ownership of Certain Beneficial Owners and Management And Related Stockholder Matters	37


Item 13	Certain Relationships and Related Transactions, and Director Independence	37

Item 14	Principal Accounting Fees and Services	37

	PART IV

Item 15	Exhibits, Financial Statement Schedules	37

The Private Securities Litigation Reform Act of 1995 (the “Reform Act”) and Section 21E of the Securities Exchange Act of 1934 provides 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 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, 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 are 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.

Kenneth Cole Productions, Inc., incorporated in September 1982, designs, sources and markets a broad range of fashion footwear and handbags and, through license agreements, designs and markets apparel and accessories under its Kenneth Cole New York, Kenneth Cole Reaction, Unlisted, and Tribeca brand names. In addition, the Company, through a license agreement, has the rights to use the Bongo trademark for footwear, as well as Gentle Souls for footwear under a proprietary trademark. The Company's products are targeted to appeal to fashion conscious consumers, reflecting a casual urban perspective and a 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 basic 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 more than 6,000 department and specialty store locations, as well as through its Consumer Direct business, which includes a base of retail and Company Stores (formerly “outlet stores”), consumer catalogs and websites, including online 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 (from ''better'' to ''moderate'') and styling. The Company believes the diversity of its product mix provides balance to its overall product sales and business planning and increases sales opportunities to wholesale customers who do not carry the Company's full range of products.

The popularity of the Kenneth Cole brand names 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, sportswear, neckwear, briefcases, portfolios, jewelry, fragrance, belts, leather and fabric outerwear, sunglasses, prescription eyewear, watches, fragrance, swimwear, luggage, hosiery and small leather goods. Women’s product categories currently being sold pursuant to license agreements include sportswear, small leather goods, belts, scarves and wraps, hosiery, leather and fabric outerwear, sunglasses, prescription eyewear, watches, jewelry, fragrance, swimwear, and luggage. In addition, the Company licenses its home collection and boys’ and girls’ apparel under the Kenneth Cole Reaction brand and several categories under the Unlisted brand, which further broadens the Kenneth Cole lifestyle collection.

The Company’s strategy is to continue to build upon the strength of its lifestyle brand franchise, which is comprised of well-differentiated and distinct brands including Kenneth Cole New York, Kenneth Cole Reaction, Unlisted, and Tribeca. The Company is continuing its strategic initiative to elevate its brands. As such, the Company continues to focus on designing and delivering high quality, fashionable products, creating efficient and compelling retail environments, and continuing to develop its partnerships with its licensees to ensure brand quality and distribution integrity. The Company believes that further segmentation and development of the brands afford growth potential within each of the Company’s business segments.

Wholesale. By strengthening and streamlining its distribution channels, the Company continues to reinforce the segmentation of its brands at wholesale, promoting even greater growth capability for each of its brands in the future. This approach will facilitate the broadening of product offerings and price points, attract new customers and further enable the Company to address a wider variety of customers’ needs, both domestically and internationally. Building on its distribution channels and the repositioning of its brands through elevation of its products has given the Company the ability to reach other distribution tiers and new customers. The Company believes it is in a better position to respond quickly to market changes, thereby enabling each wholesale division to deliver appropriate fashions in a more timely and effective manner. This approach has been effective in maintaining the strength of the Kenneth Cole lifestyle brand franchise. The Company believes its strategic initiatives in continuing to elevate the Kenneth Cole New York brand as an accessible luxury brand will take the Company to its next stage of development, which will place the Company in the best position to benefit from the consolidation in the retail environment, and to enable the Company’s brands to reach their potential.

Consumer Direct. The Company’s Consumer Direct segment, which operates full-priced retail and Company Stores, as well as catalogs and e-commerce, affords significant growth potential while simultaneously complementing the Company’s existing Wholesale and Licensing businesses. The Company believes that the sale of footwear, handbags and licensed products through its consumer direct channels of distribution increases consumer awareness of the Company’s brands, reinforces the Company’s image and builds brand equity. The Company believes customers of our wholesale accounts in cities with a Kenneth Cole retail presence have an enhanced brand awareness compared to those in cities without a Kenneth Cole retail presence. Towards the end of 2006, the Company separated the merchandising and support functions between the Company’s Company Stores and its full-priced retail stores, which may lead to weeding out of unproductive stores. As a result, the Company believes it can initiate more effective business and merchandising practices for these stores. The initial stage of the Company’s plan was to eliminate the use of the Company’s Company Stores as clearance centers. This improved the Company’s presentation, margins, and resulted in positive Company Store comparative store sales in the second half of 2006. In addition, the Company is further controlling inventory levels to reduce clearance product, is adjusting product mix to incorporate a wider range of price points, and is evaluating its real estate portfolio. As part of management changes, the Company hired a Kenneth Cole New York brand President and a President of the Company’s Company Stores during 2006. The Company believes it has both the right strategy and leadership to lead the effort toward better retail performance.

The Company believes the Kenneth Cole model provides significant growth potential. The brand enjoys strong consumer support as evidenced by expansion of the Company’s licensee product categories within the brand, a strong retail presence and improving wholesale operations. The Company continues to analyze the Kenneth Cole Reaction brand model for further growth potential within its licensing and wholesale product categories as the brand is repositioned throughout all of its distribution channels.

The Company continues to invest in the enhancement, visual presentation and development of its websites to capitalize on the growth of its e-commerce and emerging technologies. The Company believes that web-based transactions will contribute to the Company’s future, both as a source of consumer information and as a generator of new revenue. Among other things, the websites are designed to create additional revenues through a new distribution channel, build brand equity, fortify image, increase consumer awareness, improve customer service, provide entertainment and promote support for causes the Company believes are important to its customers. The Company has strengths in its existing capabilities in customer service, including telemarketing, merchandising, catalog, fulfillment and e-commerce. However, the Company is exploring other alternatives including outsourcing some or all of these modules.

In addition to seasonal image campaigns via traditional advertising media, the Internet has enabled the Company and its customers to communicate directly with each other. The Company’s use of its websites to capture and process this relevant market data on its consumer base provides a greater understanding of its customers and market trends. The Company believes this dynamic relationship is invaluable for building customer loyalty. Further, the Company’s Internet presence through two websites has enabled the creation of a substantial e-mail database by which the Company’s marketing and customer service departments regularly interact with its existing and new consumers online.

Licensing. The strength of the Company’s largest brands, Kenneth Cole New York, Kenneth Cole Reaction, and Unlisted, provides opportunities, through licensing agreements, to expand into new product categories and broaden existing distribution channels. The Company believes its strategic licensing relationships are essential to the growth of the Company both domestically and abroad as a lifestyle branded franchise. 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 sourcing and distribution abilities, thereby attempting to maintain the same value and style that Kenneth Cole customers have come to expect. As part of the Company’s brand elevation strategy, the Company signed an agreement in 2005 with Bernard Chaus, Inc. to distribute women’s Kenneth Cole Reaction apparel. Also, in November 2006, the Company amended its license agreement with Paul Davril Inc. (“PDI”), which covers the manufacture and distribution of men’s and women’s sportswear under the Kenneth Cole New York trademark and men’s sportswear under the Kenneth Cole Reaction trademark. The amended agreement results in the Company to assuming control of its Kenneth Cole New York sportswear categories in early 2007 and Kenneth Cole Reaction by the end of 2007.

The Company’s strategic partnership with its fragrance licensee, Coty, Inc. (”Coty”), is designed to expand consumer awareness through Coty’s global marketing group and provide an extension of brand awareness to the Company licensees and partnerships internationally and domestically. In 2005, the Company introduced Kenneth Cole Reaction fragrance for women, as well as Kenneth Cole Signature for men. In 2006, the Company added RSVP fragrance for men. These fragrances replaced the original Kenneth Cole fragrances allowing for fresh, new and exciting products for market penetration, growth and brand awareness. The Company is committed to strategically expanding its product classifications internationally and to building growth through brand awareness and diversity as it continues to aggressively grow the watch and optical categories abroad, focusing on certain specific international regions. In 2006, the Company’s licensees opened 11 new retail stores within international markets including Israel, Taiwan, and the Gulf Region, as well as wholesale accounts throughout Latin America.

The Company markets its products principally under its Kenneth Cole New York, Kenneth Cole Reaction, Unlisted and Tribeca brand names, along with its licensed brand for footwear, Bongo, each targeted to appeal to different consumers. The Company believes that the products marketed under the Kenneth Cole New York brand names have developed into true aspirational brands, and while it has similar designer cache as other international designer brands, it has greater value credibility.

Kenneth Cole New York products are designed for the fashion conscious consumer and reflect the relaxed urban sophistication that is the hallmark of the Kenneth Cole New York image. The distinctive styling of this line has established Kenneth Cole New York as a fashion authority for sophisticated men and women who are seeking a value alternative to other designer brands. 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, and continues to provide significant growth opportunities. The Kenneth Cole New York product offering has evolved from a very trendy line into one with broad appeal, including both fashion-forward styling and core basics. The Company continues to leverage the strength of its name through brand extensions, in-store shops and the licensing of many product categories. The Company is in the midst of a strategic initiative to elevate its brands. As such, the Company continues to focus on designing and delivering high quality, fashionable products, creating efficient and compelling retail environments, and continuing to develop its partnerships with its licensees to ensure brand quality and distribution integrity.

Kenneth Cole New York men's footwear, manufactured through Italian and Chinese factories, is designed as contemporary, comfortable leather fashion footwear and is sold to the bridge-designer market at retail price points ranging from approximately $155 to $450. As versatile as it is sophisticated, Kenneth Cole New York men’s footwear may be worn to work, for special occasions or on weekends with casual clothes. In addition, the Company uses the label “silver technology” in its line to denote enhanced comfort combined with its fine leather shoe craftsmanship. The silver technology product features a micro-tech midsole, a removable gel insole, and a fiberglass shank.

Kenneth Cole New York women’s footwear, primarily manufactured through Italian and Brazilian factories, includes sophisticated and elegant dress, casual and special occasion footwear that is sold to the bridge-designer market at retail price points ranging from approximately $100 to $500. Women's footwear is constructed by fine leather craftsmen to allow the customer high quality designer styling with value for the fashion conscious woman at work or in social gatherings.

Kenneth Cole Reaction consists of a variety of product classifications, which address the growing trend toward flexible lifestyle dressing at affordable prices. Kenneth Cole Reaction includes a comfort-oriented casual line, as well as more dressy styles. Kenneth Cole Reaction women’s footwear, primarily manufactured in China, is designed for the workplace as well as for outside the office, with an emphasis on comfort, versatility, contemporary styling and value. In addition, the Company has added “RXN comfort technology” which uses a pod system insole and gel heel pad to enhance comfort, support and flexibility. It is targeted to compete in the largest single category of footwear sold in department stores, women’s “better,” and the majority of the line retails primarily in the $70 to $120 price range. Kenneth Cole Reaction men’s footwear, primarily manufactured in China, combines fashionable and versatile styling with affordable pricing and is positioned in the fastest growing classification in the men’s market as consumer preferences lean away from athletic constructed footwear toward regular constructed footwear. This line retails approximately in the $70 to $160 price range.

Kenneth Cole Reaction handbags, primarily manufactured in China, are designed to be multifunctional with a contemporary look and are primarily made of leather and non-leather technical fabrications, such as nylon, microfiber and canvas. Kenneth Cole Reaction handbags have been styled to appeal to the same customer as the Kenneth Cole Reaction footwear line to meet the varying needs of the Company’s customers. This line generally retails at price points ranging from approximately $50 to $200.

Kenneth Cole Reaction children’s footwear, primarily manufactured in China, includes dress and casual footwear sold at price points ranging from $30 to $55 and is targeted to boys and girls ages 6 to 12, who the Company believes are making more of their own fashion choices than ever before. The toddler line for boys and girls ages 2 to 5 has price points ranging from $30 to $50. The Company believes that children’s footwear is a natural extension of its footwear business and that its use of styles based upon successful performers in its existing men’s and women’s styles, greatly enhances the likelihood of product performance.

Gentle Souls women’s footwear is designed and targeted for the sophisticated, active woman who expects a comfortable fit with a stylish design. The footwear is sold in specialty retail and high end department stores at price points ranging from $150 to $250. The line is limited to five to ten styles that are manufactured with high quality leather around an exclusive comfort technology. The product line was launched for Spring 2007.

Unlisted footwear provides the young consumer with a wide selection of footwear with contemporary styling and quality at affordable prices. Unlisted women’s footwear includes not only fashion styles, but also evening styles, basic pumps and loafers that generally retail at price points ranging from $30 to $50 with approximately 60 styles per season. Unlisted men’s footwear continues brand penetration through additional door expansion, continuing its strong growth, capitalizing on the large youth consumer base. The line includes casual and dress assortments with a variety of fashion styles to compliment the selection of approximately 50 styles per season. Unlisted men’s footwear appeals to a broader young men’s market with shoes that range at retail price points from $60 to $80.

Currently, Bongo footwear includes only women’s and children’s footwear lines. The women’s footwear line has a wide variety of styles for casual, weekend, and special evening events including pumps, boots, and loafers, among others. The price points for the women’s line range from $30 to $50 with approximately 40 styles per season. Children’s price points range from $20 to $30. The brand provides a market that the Company was not previously penetrating with its branded products.

The Company strives to provide affordable fashion footwear, handbags and accessories with consistent marketing and management support to its wholesale customers. The Company provides this support by producing strong image-driven advertising, offering creative quality products and maintaining adequate inventory levels of new products as well as products included in the Company's open stock program. 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, whose duties include analyzing and monitoring their selling information. The Company believes its investment in account specialists to support the sales function is essential to the maintenance and growth of its wholesale businesses.

The Company's products are distributed to more than 1,700 wholesale accounts for sale in approximately 6,000 store locations in the United States. The Company markets its branded products to major department stores and chains, such as Dillard Department Stores, Inc., Federated Department Stores (including Macy’s and Bloomingdales) and upscale specialty retailers, including Nieman Marcus and Nordstrom, Inc. In addition, the Company sells out-of-season branded products and overruns through the Company’s Company Stores and to off-price retailers. The Company also sells its products, directly or through distributors or licensees, to customers in various international markets including Canada, Australia, Western Europe, parts of Asia, the Middle East, Latin America and parts of South America and the Caribbean through leasing agreements.

The Company markets its product lines and introduces new styles at separate industry-wide footwear and handbag tradeshows that occur several times throughout the year in New York, Las Vegas and at various regional shows. These trade shows 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.

The Company also 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 brands. The Company’s private label business requires minimal overhead and capital because the Company does not typically incur any costs related to importing, shipping or warehousing of inventory, all of which are usually borne by the private label customer.

The Company markets its branded products in Canada to independent specialty retailers and large department stores, including Sears Canada, Browns, Townshoe, The Bay, Sterling and Friedmans. The branded products marketed in Canada include Kenneth Cole New York, Kenneth Cole Reaction, and Unlisted men’s and women’s footwear, as well as Kenneth Cole New York handbags and Kenneth Cole Reaction children’s footwear and handbags. In 2005, the Company began Canadian distribution of the Tribeca and Bongo footwear brands.

The Company continues to pursue opportunities to enhance and strengthen its retail operations. At December 31, 2006, the Company operated 54 Kenneth Cole New York full-priced retail stores and 40 Company Stores under the Kenneth Cole New York name. In 2006, the Company separated the merchandising and support functions between the Company’s Company Stores and its full-priced retail stores, which may lead to weeding out of unproductive stores. As a result, the Company believes it can initiate more effective business and merchandising practices for these stores. The initial stage of the Company’s plan was to eliminate the use of the Company’s Company Stores as clearance centers and increase the amount specifically made for Company Store. In addition, the Company continues to control inventory levels and is adjusting product mix to incorporate a wider range of price points, and is evaluating its real estate portfolio.

The Company believes its full-priced retail stores develop consumer recognition of its brand names, provide a showcase for its branded products marketed by the Company and its licensees, and enhance the Company’s overall profitability. The Company believes that these stores complement its wholesale business by building brand awareness. The customer is presented with the Company’s core shoe and handbag business with selected key accessory styles. The Kenneth Cole retail stores enable the Company to reach consumers who prefer the environment of a retail store. A portion of the Company's store products are sourced exclusively for such stores to differentiate the product mix of its stores from that of its wholesale customers, while the Company sources made for Company Store product similar to its exclusive sourcing for retail stores, and, thus, differentiates Company Stores from both retail stores and wholesale customers. The Company opened two full-priced retail stores and closed one store in 2006. As the Company evaluates its real estate portfolio, it is reviewing new store locations for the later half of 2007 and looking for opportunities to weed out unproductive stores.

The success of the Company’s new and existing stores will depend on various factors, including the political instability in certain countries in which the Company has a presence, the possibility of additional terrorist attacks, general economic and business conditions affecting consumer spending, the acceptance by consumers of the Company’s retail concepts, the ability of the Company to successfully manage expansion, the ability of the Company to hire and train personnel, the availability of desirable locations, the negotiation of acceptable lease terms for new locations and the expansion of the Company’s management information systems to support the growth of its retail operations, including the implementation of SAP (see Management Information Systems). The Company believes that its retail stores further enhance its image and represent an opportunity for revenue and earnings growth.

The Company maintains websites to provide information regarding the Company and its products, as well as to conduct online business. The Company’s websites, www.kennethcole.com and www.kennethcolereaction.com, are regularly enhanced to enable consumers to purchase directly from the Company online. The Company also maintains two toll-free telephone numbers (1-800-KEN-COLE and 1-800-UNLISTED), which provide customer service and answer product-related questions.

The Company views its licensing agreements as a vehicle to serve its customers better by extending its product offerings thereby allowing more consumers to meet their fashion accessory needs 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 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 small to medium size 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 and Unlisted brand images. The Company communicates its design ideas 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, advertising and marketing.

The Company continues to elevate the quality, style and price of the Kenneth Cole New York brand through tailored clothing, watches, dress shirts, sportswear and outerwear. This is an important step in further defining Kenneth Cole New York as an accessible premier luxury lifestyle brand. The Company continues to grow the Kenneth Cole Reaction brand across expanding products and markets and elevate the brand throughout the Company’s distribution channels. The Company plans to continue to draw upon Kenneth Cole’s creative strength and the Company’s marketing resources to continue to build brand definition.

	Kenneth Cole	Kenneth Cole
Product Category	New York	Reaction	Unlisted

Men’s Tailored Clothing	X	X	X
Men’s Sportswear	X	X
Men’s Neckwear	X	X	X
Men’s Dress Shirts	X	X	X
Men’s Casual Pants	X	X
Men’s Leather & Fabric Outerwear	X	X
Men’s Small Leather Goods	X	X	X
Men’s Belts	X	X	X
Men’s Coldweather	X	X
Men’s Socks	X	X
Women’s Sportswear	X	X
Women’s Small Leather Goods		X	X
Women’s Leather & Fabric Outerwear	X	X
Women’s Scarves & Wraps	X	X
Men’s/Women’s Jewelry	X	X	X
Men’s/Women’s Swimwear	X	X	X
Men’s/Women’s Watches	X	X	X
Men’s/Women’s Optical Frames	X	X
Men’s/Women’s Luggage/Briefcases	X	X
Men’s/Women’s Sunglasses	X	X	X
Men’s/Women’s Fragrances	X	X	X
Men’s/Women’s Sleepwear			X
Children’s Apparel		X	X
Home Collection		X

The Company sells its products through distributors and licensees to wholesale customers and direct retailers in international markets including Canada, Australia, parts of Europe, the Middle East, parts of Asia, Central America, parts of South America, and the Caribbean Islands. The Company also continues to grow its international presence through broader wholesale distribution of watches, fragrance and sun and prescription eyewear.

The Company’s continued focus on the Asian market included its licensee opening three freestanding stores in Taiwan, as well as shop-in-shops and freestanding stores in the Philippines through the Company’s Philippine licensee. The Company also maintains agreements for the wholesale distribution of handbags, women’s small leather goods, men’s sportswear, and men’s and women’s footwear in Australia. In addition, the Company also expanded into the Israeli market in 2006 with two freestanding stores and six shop-in-shops, while its Gulf Region licensee continued to operate six freestanding stores in 2006 with plans to open four additional stores in 2007.

In North America, the Company, directly and through licensing arrangements, continues to sell and market its products in Canada. The majority of product classifications available domestically are also available in Canada. Currently, the Company maintains direct distribution of its footwear and handbag businesses in Canada and manages this business from its New York City headquarters through its Wholesale segment. The Company’s Latin American licensee agreement covers Latin America, South America and the Caribbean, with the exception of Brazil, Argentina and Uruguay. Currently, the Company’s licensee operates 27 stores in this region. The Company has successfully converted the majority of stores in this region to Kenneth Cole Reaction stores and maintains three Kenneth Cole New York stores in Mexico City.

In Europe, the Company’s licensee operates a store in London and sells footwear, luggage, small leather goods, and handbags to department stores within the United Kingdom. The Company expects to expand into Germany through direct distribution of its footwear and handbag businesses, while continuing to explore opportunities in the European market, as well as new markets throughout the world. It also sells footwear through footwear agents in Greece and Turkey.

The Company realizes the critical role that licensees have on the strategic plan to reposition Kenneth Cole as an accessible luxury brand, and on the growth and development of Kenneth Cole and its diffusion brands; and therefore, the Company takes significant care to strategically align itself with viable business partners around the world. The Company is optimistic about the expansion of its international licensing programs as a means of developing a truly global brand. The Company currently generates approximately 3-4% of its total brand sales internationally, including sales from licensees, and believes it can ultimately achieve a level of 20 to 25%.

Kenneth D. Cole, the Company’s Chairman and Chief Executive Officer, founded the Company in 1982 and its success to date is largely attributable to his design talent, creativity and marketing abilities. Mr. Cole selects designers to join a design team to work with him in the creation and development of new product styles. Members of each design team collaborate with Mr. Cole to create designs that they believe fit the Company's image, reflect current or approaching trends and can be manufactured cost-effectively.

The Company's design teams constantly monitor fashion trends and search for new inspirations. Members of the various teams travel extensively to assess fashion trends in Europe, the United States and Asia and work closely with retailers to monitor consumer preferences. The process of designing and introducing a new product takes approximately two to four months. Once the initial design is complete, a prototype is developed, reviewed and refined prior to commencement of production.

In order to reduce the impact of changes in fashion trends on the Company's product sales and to increase the Company's profitability, the Company continuously seeks to develop new core basic product styles that remain fashionable from season to season without significant changes in design or styling. Since these core basic products are seasonless, retailers’ inventories of core basic products tend to be maintained throughout the year and reordered as necessary, primarily through electronic data interchange.

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 in Italy, Spain, Brazil, China and Korea, among other locations. The Company maintains an office in Florence, Italy and generally 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 addition, as part of its global sourcing strategy, the Company opened an office in China in 2005 as part of its plan to expand production in that region. The Company sources each of its product lines separately based on the individual design, styling and quality specifications of such products.

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, Spain, Brazil and China. However, approximately 46% of total handbag purchases came from two manufacturers in China during the years ended December 31, 2006 and 2005. Approximately 39% and 21% of Kenneth Cole New York and Kenneth Cole Reaction men’s footwear purchases were from one manufacturer in China utilizing many different factories during the years ended December 31, 2006 and December 31, 2005, respectively. In addition, approximately 55% of Kenneth Cole Reaction ladies’ footwear purchases were sourced through two Chinese manufacturers during the year ended December 31, 2006, and 44% were purchased from one Chinese manufacturer during the year ended December 31, 2005. 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. Many of these manufacturers, however, subcontract a portion of such purchases to ensure the consistent and timely delivery of quality products. The Company is a significant customer of several of these manufacturers and has established long-standing relationships with them. While the Company believes it has alternative manufacturing sources available to meet its current and future production requirements, 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 trade shows. 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 trade shows and initial purchasing commitments from wholesalers, the Company places production orders with the manufacturers. In addition, the Company has a program, “test and react,” whereby prototypes are rushed to its specialty retail stores immediately after completion to determine initial consumer reaction. Successful styles, consumer acceptance and demand 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 reduce the risk of overstocking, the Company monitors sell-through data on a weekly basis and seeks input on product demand from wholesale customers to adjust production as needed.

The Company believes that advertising to promote and enhance its brands is an integral part of its long-term growth strategy. The Company believes that its advertising campaigns, which have brought it national recognition for their timely focus on current events and social issues, have resulted in increased sales and consumer awareness of its branded products. The Company’s advertising appears in magazines such as Vogue, Elle, Harper’s Bazaar, GQ, and InStyle, newspapers, and outdoor and other media advertising. 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. In addition, the Company believes personal appearances by Kenneth D. Cole further enhance the Company’s brand awareness.

The Company utilizes its in-house staff for marketing, advertising and public relations efforts enabling the Company to maintain the integrity of its brands. The Company occasionally will use advertising firms outside the United States to assist with coordination of an international advertising effort; however, all creative campaigns are designed by the Company’s in-house staff.

In order to continue to strengthen brand awareness of its products and increase sales, the Company is actively involved in development, marketing and merchandising programs for its customers. As part of this effort, the Company utilizes cooperative advertising programs, sales promotions and produces trade show sales tools and consumer catalogs which feature a variety of branded products marketed by the Company and its licensees. As a result of these internal productions, the Company believes that there is a singular 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 in key department and specialty store locations. These focus areas create an environment that is consistent with the Company’s image and enables the retailer to display and stock a greater volume of the Company’s products per square foot of retail space. These enhancements are achieved through the placement of fixturing, point of purchase displays and graphics. The Company believes that these in-store enhancements encourage longer-term commitment by retailers to the Company’s products and heighten consumer brand awareness.

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 of America 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 electronic data interchange (“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 shipments of footwear and handbag products as well as direct shipments to its catalog and Internet customers. The Company’s EDI program is also used to re-supply its retail store 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 believes that sophisticated information systems are essential to the Company's ability 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 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, catalog 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 also uses point-of-sale registers to capture sales data, track inventories and generate EDI replenishment orders.

The Company regularly evaluates the adequacy of its management information systems and upgrades such systems to support its growth. In 2006, the Company signed a software license agreement with SAP America, Inc. (“SAP”) to implement an integrated business platform, using SAP software products, across the Company’s retail and Company Stores. The estimated expenditures related to the SAP retail implementation are expected to be approximately $10 million over the term of the contract. However, any failure by the Company to continue to upgrade its management information systems necessary to support growth or expansion, which could arise either with its internal systems or systems of its third parties, could have a material adverse effect on the Company’s financial condition and its results of operations (See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”).

The Company, through its wholly-owned subsidiary, Kenneth Cole Productions (LIC), Inc., owns federal registrations for its principal trademarks Kenneth Cole, Kenneth Cole New York, Kenneth Cole Reaction, Reaction, Kenneth Cole Collection, Tribeca and Unlisted as well as several other ancillary and derivative trademarks. Each of the federal registrations is currently in full force and effect and is not the subject of any legal proceedings. 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, as well as vigorously defend all of its trademarks against infringements.

Competition in the footwear and handbag 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 may be 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.

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 routinely enters into forward exchange contracts to protect the future purchase price of inventory denominated in Euro. These Euro 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 (see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”).

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 range from approximately 6% to 37.5%, depending on the category and the principal component of the product. Other restrictions on the importation of footwear 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.

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: sales and earnings are 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, the results for any one quarter may not be indicative of the results for the full year.

The Company’s department store customers include major United States retailers, several of which are under common ownership. In 2006 and 2005, 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 43.9% and 39.2% of the Company’s net sales for the years ended December 31, 2006 and 2005, respectively. While the Company believes that purchasing decisions have generally been made independently by each division within a department store group, there is a trend among department store groups toward centralized purchasing decisions of their divisions.

The Company had unfilled wholesale customer orders of $77.3 million and $73.7 million at February 27, 2007 and February 28, 2006, 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 basic products through the Company's open stock program. Accordingly, a comparison of backlog from period to period may not be indicative of eventual shipments.

The Company’s ability to collect factor 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.

At December 31, 2006, the Company had approximately 1,900 employees (which includes 1,000 part-time employees), none of whom are covered under a collective bargaining agreement. The Company considers its relationship with its employees to be satisfactory. The Company had a collective bargaining agreement, which expired in April 2004, at which time it outsourced its distribution operation and closed its New Jersey distribution center. Prior to that, the Company utilized a local affiliate of the International Leather Goods, Plastics, Handbags and Novelty Workers’ Union, Local 1, Division of Local 342-50 United Food and Commercial Workers Union. In connection with this transition in 2004, the Company incurred approximately $1.1 million in aggregate costs, including severance, the write-off of unamortized leasehold improvements and moving costs during 2004. These costs were expensed as incurred in accordance with SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activity" within the Selling, general and administrative expenses caption on the face of the Consolidated Statement of Income.

Name	Age	Present Position
Kenneth D. Cole	52	Chief Executive Officer, Chairman of the Board of Directors
Joel Newman	65	Vice Chairman and Chief Operating Officer
David P. Edelman	45	Chief Financial Officer
Michael F. Colosi	41	Corporate Vice President and General Counsel and Secretary
Doug Jakubowski	43	President, Kenneth Cole Reaction Brand
Joshua Schulman	35	President, Kenneth Cole New York Brand
Michael DeVirgilio	38	Executive Vice President, Business Development
Richard S. Olicker	49	Executive Vice President, Wholesale
Kyle Andrew	40	Senior Vice President, Marketing and Advertising
Harry Kubetz	53	Senior Vice President, Operations
Henrik Madsen	40	Senior Vice President, International Operations
Linda Nash Merker	50	Senior Vice President, Human Resources
Martin E. Franklin	42	Director
Robert C. Grayson	62	Director
Denis F. Kelly	57	Director
Philip R. Peller	67	Director

Kenneth D. Cole has served as the Company’s Chief Executive Officer and Chairman of the Board since its inception in 1982 and was also President until February 2002. 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 American 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. Mr. Cole is also a Director and President of nearly all of the wholly-owned subsidiaries of the Company.

Joel Newman joined the Company as Chief Operating Officer in February 2006. Prior to joining the Company, he held the positions of Chief Operating Officer of Tommy Hilfiger U.S.A., Inc., a subsidiary of Tommy Hilfiger Corporation, Inc., and Executive Vice President of Finance and Operations of Tommy Hilfiger Corporation, Inc., its parent company. Prior to joining Tommy Hilfiger U.S.A., Inc., Mr. Newman held various senior operations and financial positions with major companies in the apparel wholesale and retail industries.

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 10 years as a CPA with Ernst & Young 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. Colosi has served as Corporate Vice President and General Counsel for the Company since July 2000 and as Corporate Secretary since July 2004. Previously, 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 engaged in the private practice of law from 1992 to 1996.

Doug Jakubowski has served as President of the Kenneth Cole Reaction brand since November 2006. He preveiously served as Senior Vice President of Reaction from July 2005. 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 the positions of Vice President of Sales and Marketing at International News, and Director of Marketing and Sales at Koral Industries.

Joshua Schulman joined the Company as President of the Kenneth Cole New York brand in October 2006. He previously served at Gap Inc. where he concurrently held two roles as Managing Director/International Strategic Alliances for Gap Inc. and Senior Vice President/International Product Development and Merchandising for Gap Brand. Prior to serving at the Gap Inc., Mr. Schulman spent seven years at Gucci Group, first as Worldwide Director/Women's Ready to Wear for the Gucci brand and then as Executive Vice President/ Worldwide Merchandising and Wholesale for the Yves Saint Laurent brand.

Michael DeVirgilio has served as Executive Vice President of Business Development since January 2006. Mr. DeVirgilio previously served as Senior Vice President of Licensing from May 2005. 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).

Richard S. Olicker joined the Company as President of the Wholesale Division and Executive Vice President of the Corporation in January 2006. Mr. Olicker was previously employed by Steven Madden, Ltd. where he held the position of President since 2001 and was responsible for seven independently operating wholesale footwear divisions, including Steve Madden, Stevies, l.e.i., and Candie’s. Mr. Olicker also had visibility of the operation of the retail, licensing, Internet and international divisions. Prior to this, Mr. Olicker co-founded Aerogroup International, Inc. (Aerosoles), the footwear import and marketing firm, and previously also served as General Counsel and Licensing Business Director at El Greco Inc. - Candie’s.

Kyle Andrew joined the Company in February 2007 as Senior Vice President of Marketing and Advertising. Ms. Andrew previously served as the Vice President of Marketing at Gap Brand, and was responsible for all Brand Communications and Creative. In this capacity, Ms. Andrew oversaw all advertising, media, public relations, promotions, buzz marketing, events, packaging and in-store creative for Gap, Baby Gap, Gap Kids, and Gap Body. Prior to working at Gap Inc., Kyle worked on the agency side at various companies, including Arnell Group, Toth and Select Communications.

Henrik Madsen joined the Company as Senior Vice President and General Manager of International Operations in January 2006. Prior to joining the Company, Mr. Madsen served as Chief Executive Officer and President of Kasper Europe Ltd., a subsidiary of Jones Apparel Group. Mr. Madsen has over 14 years of experience in the international fashion industry, including senior management roles under the IPI Spa. (Prada Group) and French Connection Ltd.

Linda Nash Merker joined the Company as Senior Vice President of Human Resources in May of 2004. Previously, she served as Senior Vice President of Human Resources at Perry Ellis from January 2002 to November 2003, and Senior Vice President of Human Resources at Loehmann’s from 1994 until 2000. While at Macy’s East from 1987 until 1994, Ms. Merker also held various positions, the last of which was Vice President of Human Resources - Merchandise Recruitment and Development.

Martin E. Franklin has served as the Chairman and Chief Executive Officer of Jarden Corporation since September 2001. He also serves as the Chairman of Freedom Acquisition Holdings, Inc. since December 2006. Prior to this, Mr. Franklin served as Executive Chairman of Bolle Inc. from July 1997 to February 2000. He also held the position of Chairman and CEO of Lumen Technologies, Inc. from May 1996 to December 1998, and its predecessor, Benson Eyecare Corporation, from October 1992 to May 1996. Mr. Franklin is currently a member of the Board of Directors of the Jewish Theological Seminary of America and One Family Fund, and various other charitable organizations.

Robert C. Grayson is a partner in Berglass-Grayson, a management consulting and executive search firm. 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 Ann Taylor Corporation, Lillian August Inc., Urban Brands, and Know Fat.

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. Peller was 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 of a privately-owned insurance company and serves as a consultant to other companies.

The Company files its annual, quarterly and current reports and other information with the Securities and Exchange Commission. 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 of “About Us” on the Company’s website www.kennethcole.com. These reports, and any amendments to these reports, are made available on our website as soon as reasonably practicable after such reports are filed with or furnished to the Securities and Exchange Commission. 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, will include, free of charge, items related to corporate governance matters, including our Corporate Governance Guidelines, charters of various committees of our Board of Directors and our Code of Business Conduct and Ethics applicable to our employees, officers and directors. A printed copy of our Corporate Governance Guidelines and our 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, Secaucus, NJ 07094.

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 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 introduce 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.

Footwear, apparel and accessories are cyclical industries dependent upon the overall level of consumer spending. Our customers anticipate and respond to adverse changes in economic conditions and uncertainty by reducing inventories and canceling orders. As a result, any substantial deterioration in general economic conditions, increases in energy costs or interest rates, acts of nature or political events that diminish consumer spending and confidence in any of the regions in which we compete, could reduce our sales and adversely affect our business and financial condition.

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. In varying degrees, depending on the product category involved, the 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 product 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.

In the future, retailers may have financial problems or 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 our sales and adversely affect its business condition.

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 Cole, or the inability to attract and retain qualified personnel could delay the development and introduction of new products, harm our ability to sell products, damage the image of its brands and/or prevent the Company from executing its business strategy.

In order to reduce the risk of exchange rate fluctuations, the Company often enters 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 increase 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.

Currently, Kenneth D. Cole owns approximately 87% of the voting power and approximately 42% 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 votes. Mr. Cole’s interests may differ from the interests of the other stockholders.

In the event of war or acts of terrorism or the escalation of existing hostilities, or if any are threatened, 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 sell 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.

Substantially all of the Company’s apparel 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 manufactures may be adversely effected by addition 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 its 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 licenses its trademarks to third parties for manufacturing, marketing, distribution and sale of various products and intend 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 results could be affected by the results of its licensees or distributors, or the transition of any of its licensing catagories 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 business 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 business.

As previously announced, the Company has reached agreement to end its license agreement for Kenneth Cole New York and Kenneth Cole Reaction men’s sportswear and Kenneth Cole New York women’s sportswear. The Company is creating a wholesale apparel division to design source and market these products, though the Company is also simultaneously considering proposals to enter into a strategic licensing agreement or similar venture with a new partner or partners for all or some of these products. In addition to all of the risk factors listed in this section, the new wholesale apparel division will be a new business for the Company subject to all the associated risks of a new business, including but not limited to, startup development costs incurred in advance of sales commencing, inability to attract and retain employees with sufficient expertise to manage these new clasifications, inexperience of existing management with direct control of the business. New product classifications may require different methods of operations than those used in the past and may involve different customers or competitors, possible difficulties, delays or costs in integrating these lines into the business, operations, personnel or systems of the Company in ways not currently anticipated by Company management; and projected sales, margins and profits may not be realized.

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 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 warehousing and distribution facilities in California and New Jersey. Any events at either of these facilities due to fire, earthquake, flood, terrorist attack or any other natural or manmade cause, including operational or financial hardship of the provider or its capacity, could damage a portion of the Company’s inventory or impair its ability to use its warehousing and distribution facilities.

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 devotes 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 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. Moreover, there can be no assurances that others will not assert rights in, or ownership of, the Company’s trademarks and other proprietary rights or that the Company will be able to successfully resolve such conflicts. In addition, the laws of certain foreign countries may not protect proprietary rights to the same extent as do the laws of the United States. Any litigation regarding our trademarks 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.

During 2007, the Company will continue to implement the SAP information management software in its retail operations and consider further expansion as an entity-wide integrated system solution. The implementation of such software could be delayed and the Company may encounter computer and operational complications in connection with such implementation that could have a material adverse effect on its business, financial condition or results of operations. Difficulties migrating existing systems to the new software could impact its ability to design, produce and ship its products on a timely basis.

The Company’s business is subject to seasonal fluctuations. Historically, fourth quarter’s 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.

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 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: (1) the identification and availability of suitable locations and leases; (2) the availability of suitable financing to the Company and its landlords; (3) the timing of the delivery of the leased premises to the Company from its landlords in order to commence build-out construction activities; (4) the Company’s ability and its landlords’ ability to obtain all necessary governmental licenses and permits to construct and operate its stores on a timely basis; (5) the Company’s ability to manage the construction and development costs of new stores, and the availability and/or cost of raw materials; (6) the rectification of any unforeseen engineering or environmental problems with the leased premises; (7) adverse weather during the construction period; and (8) 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 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 has risen significantly as a result of the effects of recent disasters throughout the United States. To offset such costs, the Company has taken on larger deductibles which, if aggregated through multiple disaster locations, could have a material effect on our results of operations.

In June 2006, the Company finalized the purchase of its corporate headquarters building, for a purchase price of approximately $24 million. The Company currently occupies 119,500 square feet and is located at 603 West 50^th Street, New York, New York. The Company held a lease for its former executive offices and showrooms, which expired in December 2006, and was under a subtenant lease agreement, which also expired in December 2006.

In 2004, the Company entered into a new 10-year lease for 51,000 square feet of office space in Secaucus, New Jersey for its administrative offices and completed the move in June 2004. The former distribution facility was moved to a third-party public warehouse and distribution center in New Jersey. In addition, the Company also leases a 23,500 square foot facility in Secaucus used for Company Store space as well as an additional distribution warehousing facility. The Company also has a technical and administrative office in Florence, Italy, and the Company opened a similar office in China in 2005. The Company does not own or operate any manufacturing facilities.

As of December 31, 2006, the Company leased space for all of its 54 full-priced retail stores (aggregating approximately 253,000 square feet) and 40 Company Stores (aggregating approximately 204,000 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 April 2005, a purported class action lawsuit was filed against the Company in the Superior Court of California for the County of San Diego. The individual plaintiff was a floor supervisor in one of the Company’s retail stores who purported to bring suit on behalf of himself and other similarly situated current and former floor supervisors. Among other claims, the plaintiff alleged that he and other floor supervisors worked hours for which they were entitled to receive, but did not receive, overtime compensation under California law. The lawsuit sought damages, penalties, restitution, equitable relief, interest and attorneys’ fees and costs. In September 2006, counsel for the plaintiffs agreed to dismiss the purported class action. In October 2006, the individual plaintiff and the Company executed a settlement agreement, for a nominal amount, for his individual claims and the Court entered final judgment in the case, which settlement included Plaintiff’s attorneys’ fees as well as court costs. All amounts due under the final judgment have now been paid and the period for any appeal has now been exhausted. The settlement did not have a material impact on the Company’s financial statements.

In September 2004, a purported class action lawsuit was filed against the Company in the Superior Court of California for the County of Los Angeles. The individual plaintiffs were current or former store managers or assistant managers who brought a suit on behalf of themselves and other similarly situated store managers and assistant managers. Among other claims, the plaintiffs alleged that they worked hours for which they were entitled to receive, but did not receive, overtime compensation under California law. The lawsuit sought damages, penalties, restitution, reclassification and attorneys’ fees and costs. In January 2006, the Company reached an agreement in principle to settle the matter, and the parties filed a fully executed Stipulation of Class Settlement and Release. In June 2006, the Court entered final judgment in the case, which settlement included the plaintiffs’ attorneys’ fees as well as court and claims administration costs. All amounts due under the final judgment have now been paid and the period for any appeal has now been exhausted. The settlement did not have a material impact on the Company’s financial statements.

In July 2006, an Italian footwear manufacturer served the Company with a complaint claiming that the Company is selling certain styles of footwear that infringe on its patents. The complaint seeks unspecified monetary relief and an injunction to prohibit the Company from selling allegedly infringing shoes. In December 2006, the Company entered into a settlement agreement which resulted in an order from the Federal Court of the Southern District of New York for dismissal on January 17, 2007. The settlement did not have a material impact on the Company’s financial statements.

The Company’s Class A Common Stock is listed and traded (trading symbol: KCP) on the New York Stock Exchange (“NYSE”). On February 23, 2007 the closing sale price for the Class A Common Stock was $23.95. The following table sets forth the high and low closing sale prices for the Class A Common Stock for each quarterly period for 2006 and 2005, as reported on the NYSE Composite Tape:

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 securitie reflected in column (a))
	(a)	(b)	(c)
Equity compensation plans approved by security holders	2,118,885	$23.60	1,314,881
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, 2001 and ending on December 31, 2006 with the cumulative total return on the Standard & Poor's 500 Composite Index and the Standard & Poor’s Footwear Index. The comparison assumes that $100 was invested on December 31, 2001 in the Class A Common Stock in the foregoing indices and assumes the reinvestment of dividends.

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.

	2006		2005		2004		2003		2002
Income Statement Data:
Net sales	$	492,282	$	474,060	$	473,438	$	430,101	$	404,336
Royalty revenue		44,217		43,983		42,763		38,252		28,713
Net revenue		536,499		518,043		516,201		468,353		433,049
Cost of goods sold		304,672		283,727		284,817		258,457		235,255
Gross profit (2)		231,827		234,316		231,384		209,896		197,794
Selling and general administrative expenses (1)		194,718		188,953		174,519		157,824		152,618
Impairment of long-lived assets		121		--		448		1,153		4,446
Operating income		36,988		45,363		56,417		50,919		40,730
Interest and other income, net		4,875		4,151		1,411		825		1,102
Income before provision for income taxes		41,863		49,514		57,828		51,744		41,832
Provision for income taxes.		15,098		15,988		21,976		19,145		15,687
Net income		26,765		33,526		35,852		32,599		26,145
Earnings per share:
Basic	$	1.34	$	1.69	$	1.79	$	1.66	$	1.33
Diluted	$	1.31	$	1.65	$	1.74	$	1.59	$	1.27
Weighted-average shares outstanding:
Basic		20,046		19,888		20,050		19,609		19,643
Diluted		20,396		20,318		20,652		20,486		20,590
Cash dividends per share	$	0.72	$	0.66	$	0.52	$	0.17		--

	2006		2005		2004		2003		2002

Balance Sheet Data:
Working capital	$	169,862	$	187,106	$	173,007	$	154,161	$	124,103
Cash		105,441		63,747		80,014		111,102		91,549
Marketable Securities		12,250		66,400		40,000		--		--
Inventory		46,274		45,465		47,166		44,851		43,724
Total assets		361,113		340,671		304,587		273,841		240,317
Total debt, including curren maturities		--		3,000		--		--		171
Total shareholders' equity		257,676		244,660		216,528		196,334		164,902

Kenneth Cole Productions, Inc. designs, sources and markets a broad range of fashion footwear and handbags and, through license agreements, designs and markets apparel and accessories under its Kenneth Cole New York, Kenneth Cole Reaction, Unlisted, Bongo, and Tribeca brand names. The Company’s products are targeted to appeal to fashion conscious consumers, reflecting a casual urban perspective and a contemporary lifestyle uniquely associated with Kenneth Cole.

The popularity of the Kenneth Cole brand names among consumers has enabled the Company to expand its product offerings and channels of distribution through licensing agreements and offers through these agreements a lifestyle collection of men’s product categories including tailored clothing, dress shirts, dress pants, sportswear, neckwear, briefcases, portfolios, jewelry, fragrance, belts, leather and fabric outerwear, swimwear, sunglasses, prescription eyewear, watches, fragrance, swimwear, luggage, hosiery and small leather goods. Women’s product categories currently being sold pursuant to license agreements include sportswear, small leather goods, belts, scarves and wraps, hosiery, leather and fabric outerwear, sunglasses, prescription eyewear, watches, jewelry, fragrance, swimwear, and luggage. In addition, the Company licenses boys’ and girls’ apparel, as well as housewares, under the Kenneth Cole Reaction brand, as well as the Unlisted brand in certain categories.

The Company recorded record revenues of $536.5 million for the year ended December 31, 2006. Diluted earnings per share decreased to $1.31 from $1.65 year over year. The Company’s revenues for the year have increased over the prior year, primarily due to the Company’s strength in its wholesale operations, and continued success in a variety of licensed product classifications. The Company’s Balance Sheet is strong with $117.7 million in cash and cash equivalents and marketable securities and remains free of debt. In addition, the Company entered into a five-year $100 million committed revolving credit facility and the Company expects to continue its quarterly cash dividend, currently set at $0.18. The Company continues to focus on designing and delivering high quality, fashionable products, creating efficient and compelling retail environments, and continuing to develop its partnerships with its licensees to ensure brand quality and distribution integrity.

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 on-going 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 maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments, as well as royalties and advertising revenues from its licensing partners. These customers include non-factored accounts and credit card receivables from third-party service providers. If the financial conditions of these customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

The Company performs a review of its 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.

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 annual 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 is periodically involved in various legal actions arising in the normal course of business. Management is required to assess the probability of any adverse judgements 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.

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.

The Company adopted Statement of Financial Accounting Standards No. 123R, “Share-based Payment” (“SFAS 123R”) on January 1, 2006 using the modified prospective method. SFAS 123R supersedes APB Opinion No. 25 and requires all share-based payments, including grants of employee stock options, to be recognized in the financial statements based on their fair values. Under SFAS 123R, 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 service in exchange for the award. The Company uses the Black-Scholes model to assess the fair value of share-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.

In 2004, Internal Revenue Code Section 965 was enacted, as part of the American Jobs Creation Act. This is a temporary provision that allows U.S. companies to repatriate earnings from their foreign subsidiaries at a reduced tax rate provided that specified conditions and restrictions are satisfied. In addition, FASB Staff Position FAS 109-2 was issued to provide accounting and disclosure guidance relating to the repatriation provision. In 2005, the Company’s Board of Directors approved and adopted a repatriation plan and, as such, the Company repatriated $12.5 million of unremitted foreign earnings, which resulted in a tax benefit of approximately $3.0 million for the year ended December 31, 2005, as a result of the Company providing for taxes for the foreign earnings at the prior statutory rate.

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the Company’s financial statements in accordance with FASB Statement No. 109 “Accounting for Income Taxes.” FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a return, as well as guidance on derecognition, classification, interest and penalties and financial statement reporting disclosures. FIN 48 is effective for the Company on January 1, 2007. Based on the Company’s evaluation and analysis, FIN 48 is not expected to have a material impact on the Company’s consolidated financial statements.

In September 2006, the FASB issued FASB Statement No. 157, “Fair Value Measurements” (“FAS 157”), which addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under generally accepted accounting principles. The FASB believes that the new standard will make the measurement of fair value more consistent and comparable and improve disclosures about those measures. FAS 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the requirements and impact of FAS 157 on the Company’s consolidated financial statements, and will adopt the provisions on January 1, 2008. FAS 157 is not expected to have a material impact on the Company’s consolidated financial statements.

Also in September 2006, the FASB issued FASB Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132-R” (“FAS 158”). FAS 158 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity. FAS 158 also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position. This statement is effective for the Company as of December 31, 2006, but did not have an impact on the Company’s consolidated financial statements as the Company does not sponsor a defined benefit pension or postretirement plan.

In June 2006, the Emerging Issues Task Force (the “Task Force”) issued EITF No. 06-3, “How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation.” (the “Issue”). The Task Force reached a consensus that the scope of this Issue includes any tax assessed by a governmental authority that is both imposed on and concurrent with a specific revenue-producing transaction between a seller and a customer, and may include, but is not limited to, sales, use, value added, and some excise taxes. The Task Force also reached a consensus that the presentation of taxes within the scope of this Issue on either a gross basis (included in revenues and costs) or a net basis (excluded from revenues) is an accounting policy decision that should be disclosed pursuant to APB Opinion No. 22, “Disclosure of Accounting Policies.” An entity is not required to reevaluate its existing policies related to taxes assessed by a governmental authority as a result of this consensus. In addition, for any such taxes that are reported on a gross basis, an entity should disclose the amounts of those taxes in interim and annual financial statements for each period for which an income statement is presented if those amounts are significant. The Company currently uses the net basis. The Company adopted this Issue on January 1, 2007 and determined that it had no impact on its consolidated financial statements.

New York	13-3131650
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification Number)

2006:	High	Low

First Quarter	28.52	25.47
Second Quarter	28.56	22.33
Third Quarter	25.52	22.07
Fourth Quarter	26.60	22.97

2005:	High	Low

First Quarter	31.30	25.90
Second Quarter	32.32	28.09
Third Quarter	35.29	26.30
Fourth Quarter	29.60	23.81

	$0.18 per share	November 22, 2006
	$0.18 per share	August 25, 2006
	$0.18 per share	May 23, 2006
	$0.18 per share	March 9, 2006
	$0.18 per share	November 23, 2005
	$0.16 per share	August 25, 2005
	$0.16 per share	May 24, 2005
	$0.16 per share	March 9, 2005

	2006			2005			2004
Net sales		91.8	%		91.5	%		91.7	%
Royalty revenue		8.2			8.5			8.3
Net revenues		100.0			100.0			100.0
Cost of goods sold		56.8			54.8			55.2
Gross profit (1)		43.2			45.2			44.8

	Year Ended December 31
	2006			2005			2004
Wholesale		59	%		55	%		54	%
Consumer Direct		33			37			38
Licensing		8			8			8
Total		100	%		100	%		100	%