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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period endedJuly 5, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from to
 Commission file number: 1-10689
 LIZ CLAIBORNE, INC.
 
 Delaware
    
    13-2842791(State or other 
jurisdiction of 
incorporation or 
organization)
    
    (I.R.S. Employer
Identification No.)
 1441 Broadway, New York, New York
    
    10018(Address of principal executive offices)
    
    (Zip Code)
 (212) 354-4900
 Not Applicable
 þ o
  Large accelerated filer þAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company o
 o þ




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##### 



LIZ CLAIBORNE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
July 5, 2008
 PAGENUMBERPART I 
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements:Condensed Consolidated Balance Sheets as of July 5, 2008
(Unaudited), December 29, 2007 and June 30, 2007 (Unaudited)
    
    
    4Condensed Consolidated Statements of Operations for the Six and
Three Month Periods Ended July 5, 2008 (Unaudited) and June 30,
2007 (Unaudited)
    
    
    5Condensed Consolidated Statements of Cash Flows for the Six
Month Periods Ended July 5, 2008 (Unaudited) and June 30, 2007
(Unaudited)
    
    
    6  7Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    8  30Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    31  51Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    51  53Item 4.
    
    Controls and Procedures
    
    
    53PART II 
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    53Item 1A.
    
    Risk Factors
    
    
    54  59Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    60Item 4.
    

Submission of Matters to a Vote of Security Holders
    
    
    60Item 5.
    
    Other Information
    
    
    60Item 6.
    
    Exhibits
    
    
    61SIGNATURES
    
    
    62EX-10.1: SECOND AMENDMENT TO THE FIVE-YEAR CREDIT AGREEMENT DATED AS OF OCTOBER 13, 2004EX-31.A: CERTIFICATIONEX-31.B: CERTIFICATIONEX-32.A: CERTIFICATIONEX-32.B: CERTIFICATION




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##### Table of Contents



STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
  
    
    Our long-term growth strategies;
    
    Anticipated results of operations or level of business for fiscal 2008, any fiscal
quarter of 2008 or any other future period, including those contained in this Form 10-Q
under the heading Forward Outlook;
    
    Our ability to continue to implement appropriate expense savings initiatives and
maintain a competitive cost structure;
    
    Our ability to develop our retail and supply chain capabilities;
    
    Our ability to expand internationally;
    
    Our ability to be able to commit the resources, structure and marketing investment
necessary to support and grow our brands;
    
    Our ability to navigate the difficult macroeconomic environment and challenges presented
in the wholesale and retail industries;
    
    Our ability to offer products that are acceptable to our department store customers and
consumers; and
    
    Our ability to realize sufficient cash flows from operations and to have access to
financing on acceptable terms to enable us to fund our liquidity requirements.




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##### Table of Contents



4 
 PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
    
    
    
    
    
    
    (Unaudited)July 5,
    
    
    December 29,
    
    
    June 30,2008
    
    
    2007
    
    
    2007AssetsCurrent Assets:Cash and cash equivalents
    
    $
    100,380
    
    
    $
    205,401
    
    
    $
    110,288Accounts receivable  trade, net
    
    
    439,459
    
    
    
    440,160
    
    
    
    500,295Inventories, net
    
    
    496,878
    
    
    
    540,807
    
    
    
    671,850Deferred income taxes
    
    
    100,603
    
    
    
    103,288
    
    
    
    78,594Other current assets
    
    
    301,670
    
    
    
    209,853
    
    
    
    161,586Assets held for sale
    
    
    5,273
    
    
    
    65,332
    
    
    
    Total current assets
    
    
    1,444,263
    
    
    
    1,564,841
    
    
    
    1,522,613Property and Equipment, Net
    
    
    595,819
    
    
    
    580,733
    
    
    
    567,869Goodwill, Net
    
    
    681,503
    
    
    
    677,852
    
    
    
    1,041,459Intangibles, Net
    
    
    313,512
    
    
    
    347,119
    
    
    
    418,625Deferred Income Taxes
    
    
    14,264
    
    
    
    75,445
    
    
    
    Other Assets
    
    
    22,590
    
    
    
    22,477
    
    
    
    21,382Total Assets
    
    $
    3,071,951
    
    
    $
    3,268,467
    
    
    $
    3,571,948Liabilities and Stockholders EquityCurrent Liabilities:Short term borrowings
    
    $
    87,098
    
    
    $
    50,828
    
    
    $
    34,554Accounts payable
    
    
    196,901
    
    
    
    223,522
    
    
    
    276,665Accrued expenses
    
    
    409,480
    
    
    
    459,309
    
    
    
    298,340Income taxes payable
    
    
    
    
    
    
    32,266
    
    
    
    Deferred income taxes
    
    
    497
    
    
    
    497
    
    
    
    Liabilities held for sale
    
    
    
    
    
    
    3,963
    
    
    
    Total current liabilities
    
    
    693,976
    
    
    
    770,385
    
    
    
    609,559Long-Term Debt
    
    
    811,294
    
    
    
    836,883
    
    
    
    683,545Other Non-Current Liabilities
    
    
    114,550
    
    
    
    140,764
    
    
    
    104,131Deferred Income Taxes
    
    
    17,009
    
    
    
    1,111
    
    
    
    66,571Commitments and Contingencies (Note 10)Minority Interest
    
    
    3,873
    
    
    
    3,760
    
    
    
    3,489Stockholders Equity:Preferred stock, $.01 par value, authorized shares 
50,000,000, issued shares  none
    
    
    
    
    
    
    
    
    
    
    Common stock, $1 par value, authorized shares 
250,000,000, issued shares  176,437,234
    
    
    176,437
    
    
    
    176,437
    
    
    
    176,437Capital in excess of par value
    
    
    295,980
    
    
    
    296,158
    
    
    
    278,059Retained earnings
    
    
    2,883,400
    
    
    
    2,948,085
    
    
    
    3,356,118Accumulated other comprehensive loss
    
    
    (48,558
    )
    
    
    (24,582
    )
    
    
    (46,537
    )3,307,259
    
    
    
    3,396,098
    
    
    
    3,764,077Common stock in treasury, at cost 81,676,396,
81,695,077 and 74,174,641 shares
    
    
    (1,876,010
    )
    
    
    (1,880,534
    )
    
    
    (1,659,424
    )Total stockholders equity
    
    
    1,431,249
    
    
    
    1,515,564
    
    
    
    2,104,653Total Liabilities and Stockholders Equity
    
    $
    3,071,951
    
    
    $
    3,268,467
    
    
    $
    3,571,948




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5 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
   Six Months Ended
    
    
    Three Months Ended(27 Weeks)
    
    
    (26 Weeks)
    
    
    (13 Weeks)
    
    
    (13 Weeks)July 5, 2008
    
    
    June 30, 2007
    
    
    July 5, 2008
    
    
    June 30, 2007Net Sales
    
    $
    2,088,303
    
    
    $
    2,112,684
    
    
    $
    973,766
    
    
    $
    1,048,545Cost of goods sold
    
    
    1,098,825
    
    
    
    1,099,988
    
    
    
    512,054
    
    
    
    531,678Gross Profit
    
    
    989,478
    
    
    
    1,012,696
    
    
    
    461,712
    
    
    
    516,867Selling, general & administrative expenses
    
    
    1,036,577
    
    
    
    957,275
    
    
    
    487,479
    
    
    
    492,081Operating (Loss) Income
    
    
    (47,099
    )
    
    
    55,421
    
    
    
    (25,767
    )
    
    
    24,786Other (expense) income, net
    
    
    (3,672
    )
    
    
    (394
    )
    
    
    (925
    )
    
    
    335Interest expense, net
    
    
    (21,873
    )
    
    
    (18,348
    )
    
    
    (9,770
    )
    
    
    (9,816
    )(Loss) Income Before (Benefit) Provision for
Income Taxes
    
    
    (72,644
    )
    
    
    36,679
    
    
    
    (36,462
    )
    
    
    15,305(Benefit) provision for income taxes
    
    
    (43,060
    )
    
    
    15,733
    
    
    
    (20,127
    )
    
    
    5,386(Loss) Income from Continuing Operations
    
    
    (29,584
    )
    
    
    20,946
    
    
    
    (16,335
    )
    
    
    9,919(Loss) income from discontinued
operations, net of tax
    
    
    (10,703
    )
    
    
    8,883
    
    
    
    (5,134
    )
    
    
    3,712Loss on disposal of discontinued
operations, net of tax
    
    
    (13,897
    )
    
    
    
    
    
    
    (1,694
    )
    
    
    Net (Loss) Income
    
    $
    (54,184
    )
    
    $
    29,829
    
    
    $
    (23,163
    )
    
    $
    13,631Earnings per Share:Basic(Loss) Income from Continuing Operations
    
    $
    (0.32
    )
    
    $
    0.20
    
    
    $
    (0.17
    )
    
    $
    0.10Net (Loss) Income
    
    $
    (0.58
    )
    
    $
    0.29
    
    
    $
    (0.25
    )
    
    $
    0.13Diluted(Loss) Income from Continuing Operations
    
    $
    (0.32
    )
    
    $
    0.20
    
    
    $
    (0.17
    )
    
    $
    0.10Net (Loss) Income
    
    $
    (0.58
    )
    
    $
    0.29
    
    
    $
    (0.25
    )
    
    $
    0.13Weighted Average Shares, Basic
    
    
    93,202
    
    
    
    101,825
    
    
    
    93,638
    
    
    
    101,855Weighted Average Shares, Diluted
    
    
    93,202
    
    
    
    102,978
    
    
    
    93,638
    
    
    
    102,828Dividends Paid per Common Share
    
    $
    0.11
    
    
    $
    0.11
    
    
    $
    0.06
    
    
    $
    0.06




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6 
 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
   Six Months EndedJuly 5,
    
    
    June 30,2008
    
    
    2007(27 Weeks)
    
    
    (26 Weeks)Cash Flows from Operating Activities:Net (loss) income
    
    $
    (54,184
    )
    
    $
    29,829Adjustments to arrive at (loss) income from continuing operations
    
    
    24,600
    
    
    
    (8,883
    )(Loss) income from continuing operations
    
    
    (29,584
    )
    
    
    20,946Adjustments to reconcile (loss) income from continuing
operations to net cash used in operating activities:Depreciation and amortization
    
    
    81,757
    
    
    
    75,825Streamlining initiatives; asset write-down
    
    
    2,805
    
    
    
    Loss on asset disposals
    
    
    12,855
    
    
    
    9,691Share-based compensation
    
    
    8,015
    
    
    
    10,365Tax benefit on exercise of stock options
    
    
    7
    
    
    
    4,615Other, net
    
    
    (47
    )
    
    
    (784
    )Change in assets and liabilities, exclusive of acquisitions:Decrease in accounts receivable  trade, net
    
    
    9,343
    
    
    
    3,577Decrease (increase) in inventories, net
    
    
    37,272
    
    
    
    (70,930
    )Increase in other current and non-current assets
    
    
    (5,464
    )
    
    
    (9,379
    )Decrease in accounts payable
    
    
    (30,630
    )
    
    
    (2,513
    )Decrease in accrued expenses
    
    
    (58,941
    )
    
    
    (47,273
    )Net change in income tax assets and liabilities
    
    
    (71,245
    )
    
    
    (29,244
    )Net cash (used in) provided by operating activities of
discontinued operations
    
    
    (12,016
    )
    
    
    12,281Net cash used in operating activities
    
    
    (55,873
    )
    
    
    (22,823
    )Cash Flows from Investing Activities:Proceeds from disposition
    
    
    21,252
    
    
    
    Purchases of property and equipment
    
    
    (86,853
    )
    
    
    (67,193
    )Purchases of businesses and payment of related debt
    
    
    (5,137
    )
    
    
    (48,262
    )Payments for in-store merchandise shops
    
    
    (3,133
    )
    
    
    (2,532
    )Proceeds from sales of securities
    
    
    
    
    
    
    9,616Proceeds from sales of property and equipment
    
    
    
    
    
    
    1,410Other, net
    
    
    (430
    )
    
    
    153Net cash provided by (used in) investing activities of
discontinued operations
    
    
    64,913
    
    
    
    (672
    )Net cash used in investing activities
    
    
    (9,388
    )
    
    
    (107,480
    )




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7 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTD)
   Six Months EndedJuly 5,
    
    
    June 30,2008
    
    
    2007(27 Weeks)
    
    
    (26 Weeks)Cash Flows from Financing Activities:Short term borrowings, net
    
    
    (27,005
    )
    
    
    12,252Principal payments under capital lease obligations
    
    
    (2,094
    )
    
    
    (3,188
    )Commercial paper, net
    
    
    
    
    
    
    104,313Proceeds from exercise of common stock options
    
    
    51
    
    
    
    35,286Purchase of common stock
    
    
    
    
    
    
    (81,560
    )Dividends paid
    
    
    (10,525
    )
    
    
    (11,432
    )Excess tax benefit related to share-based compensation
    
    
    
    
    
    
    2,521Other, net
    
    
    (1,110
    )
    
    
    (747
    )Net cash (used in) provided by financing activities
    
    
    (40,683
    )
    
    
    57,445Effect of exchange rate changes on cash and cash equivalents
    
    
    923
    
    
    
    (2,499
    )Net Change in Cash and Cash Equivalents
    
    
    (105,021
    )
    
    
    (75,357
    )Cash and Cash Equivalents at Beginning of Period
    
    
    205,401
    
    
    
    185,645Cash and Cash Equivalents at End of Period
    
    $
    100,380
    
    
    $
    110,288




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LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
      
    
    The Direct Brands segment  consists of the specialty retail, outlet, wholesale
apparel, wholesale non-apparel (including accessories, jewelry and handbags), e-commerce
and licensing operations of the Companys four retail-based operating segments: JUICY
COUTURE, KATE SPADE, LUCKY BRAND and MEXX; and
    
    The Partnered Brands segment  consists of one operating segment including the
wholesale apparel, wholesale non-apparel, outlet and specialty retail, e-commerce and
licensing operations of the Companys wholesale-based brands including: AXCESS,
CLAIBORNE (mens), CONCEPTS BY CLAIBORNE, DANA BUCHMAN, ENYCE, KENSIE, LIZ & CO., LIZ
CLAIBORNE, MAC & JAC, MARVELLA, MONET, NARCISO RODRIGUEZ, SIGRID OLSEN, TRIFARI, VILLAGER
and the Companys licensed DKNY® JEANS, DKNY® ACTIVE and DKNY® MENS brands.




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9       NATURE OF OPERATIONS
  PRINCIPLES OF CONSOLIDATION
  USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES
 Use of Estimates




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10 Revenue Recognition
  Income Taxes
  Accounts Receivable  Trade, Net
  Inventories, Net




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11 Goodwill and Intangibles, Net
        Accrued Expenses




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12 Derivative Instruments
     Share-Based Compensation
  OTHER SIGNIFICANT ACCOUNTING POLICIES
 Fair Value of Financial Instruments
  Cash and Cash Equivalents
  Marketable Securities




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13  Property and Equipment, Net
    Operating Leases
  Foreign Currency Translation




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14 Foreign Currency Transactions
  Cost of Goods Sold
  Advertising, Promotion and Marketing
  Shipping and Handling Costs
  Fiscal Year
  Cash Dividend and Common Stock Repurchase
  RECENTLY ADOPTED ACCOUNTING POLICIES
 Fair Value Measurements
  Level 1 
    
    Quoted market prices in active markets for identical assets or liabilities;Level 2 
    
    Inputs other than Level 1 inputs that are either directly or indirectly observable; andLevel 3 
    
    Unobservable inputs developed using estimates and assumptions developed by us, which reflect those that a market participant would use.




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15  In thousands
    
    Level 2Financial Assets:Derivatives
    
    $
    361Financial Liabilities:Derivatives
    
    $
    6,684




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16       In thousandsAccounts receivable
    
    $
    2,452Inventories
    
    
    13,444Property and equipment
    
    
    7,349Intangible assets
    
    
    41,786Other assets
    
    
    301Total assets held for sale
    
    $
    65,332




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17  Six Months Ended
    
    
    Three Months EndedJuly 5, 2008
    
    
    June 30, 2007
    
    
    July 5, 2008
    
    
    June 30, 2007(27 Weeks)
    
    
    (26 Weeks)
    
    
    (13 Weeks)
    
    
    (13 Weeks)Net sales
    
    $
    35,254
    
    
    $
    170,997
    
    
    $
    4,636
    
    
    $
    82,157(Loss) income before (benefit)
provision for income taxes
    
    $
    (17,529
    )
    
    $
    14,278
    
    
    $
    (8,415
    )
    
    $
    6,030(Benefit) provision for income taxes
    
    
    (6,826
    )
    
    
    5,395
    
    
    
    (3,281
    )
    
    
    2,318(Loss) income from discontinued
operations, net of tax
    
    $
    (10,703
    )
    
    $
    8,883
    
    
    $
    (5,134
    )
    
    $
    3,712
   Capital in
    
    
    
    
    
    
    Common stockexcess of par
    
    
    Retained
    
    
    in treasury, atIn thousands
    
    value
    
    
    earnings
    
    
    costBalance as of December 29, 2007
    
    $
    296,158
    
    
    $
    2,948,085
    
    
    $
    (1,880,534
    )Net loss
    
    
    
    
    
    
    (54,184
    )
    
    
    Restricted shares issued, net of cancellations
and shares withheld for taxes
    
    
    (6,167
    )
    
    
    
    
    
    
    4,498Stock options exercised
    
    
    25
    
    
    
    
    
    
    
    26Share-based compensation
    
    
    8,015
    
    
    
    
    
    
    
    Tax benefit on exercise of stock options
    
    
    7
    
    
    
    
    
    
    
    Tax deficiency related to share-based compensation
    
    
    (2,058
    )
    
    
    
    
    
    
    Dividends declared
    
    
    
    
    
    
    (10,501
    )
    
    
    Balance as of July 5, 2008
    
    $
    295,980
    
    
    $
    2,883,400
    
    
    $
    (1,876,010
    )
  Six Months EndedJuly 5,
    
    
    June 30,2008
    
    
    2007In thousands
    
    (27 Weeks)
    
    
    (26 Weeks)Net (loss) income
    
    $
    (54,184
    )
    
    $
    29,829Other comprehensive (loss) income, net of tax:Change in cumulative translation adjustment
    
    
    8,002
    
    
    
    23,158Change in cumulative translation
adjustment on Eurobonds and other
instruments, net of income tax benefit of
$3,633 in 2008
    
    
    (32,042
    )
    
    
    (12,059
    )Changes in unrealized (losses) gains on
available-for-sale securities, net of
income tax benefit (provision) of $50 and
$(195), respectively
    
    
    (39
    )
    
    
    341Reclassification of holding gains on
available-for-sale securities, net of
income tax provision of $133 in 2007
    
    
    
    
    
    
    (231
    )Changes in fair value of cash flow hedges,
net of income tax (provision) benefit of
$(352) and $319, respectively
    
    
    103
    
    
    
    (1,590
    )Total comprehensive (loss) income, net of tax
    
    $
    (78,160
    )
    
    $
    39,448




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18  July 5,
    
    
    December 29,
    
    
    June 30,In thousands
    
    2008
    
    
    2007
    
    
    2007Cumulative translation adjustment
    
    $
    (42,312
    )
    
    $
    (18,272
    )
    
    $
    (44,172
    )Unrealized losses on cash flow hedging
derivatives, net of taxes of $1,969, $2,321 and
$814, respectively
    
    
    (6,099
    )
    
    
    (6,202
    )
    
    
    (2,333
    )Unrealized losses on available-for-sale
securities, net of taxes of $96, $46 and $37,
respectively
    
    
    (147
    )
    
    
    (108
    )
    
    
    (32
    )Accumulated other comprehensive loss, net of tax
    
    $
    (48,558
    )
    
    $
    (24,582
    )
    
    $
    (46,537
    )
   July 5,
    
    
    December 29,
    
    
    June 30,In thousands
    
    2008
    
    
    2007
    
    
    2007Raw materials
    
    $
    16,342
    
    
    $
    28,743
    
    
    $
    38,301Work in process
    
    
    16,234
    
    
    
    13,143
    
    
    
    24,564Finished goods
    
    
    464,302
    
    
    
    498,921
    
    
    
    608,985Total inventories, net
    
    $
    496,878
    
    
    $
    540,807
    
    
    $
    671,850
   July 5,
    
    
    December 29,
    
    
    June 30,In thousands
    
    2008
    
    
    2007
    
    
    2007Land and buildings
    
    $
    108,097
    
    
    $
    108,097
    
    
    $
    135,991Machinery and equipment
    
    
    396,736
    
    
    
    385,294
    
    
    
    430,383Furniture and fixtures
    
    
    309,965
    
    
    
    304,411
    
    
    
    281,925Leasehold improvements
    
    
    538,031
    
    
    
    529,427
    
    
    
    495,0651,352,829
    
    
    
    1,327,229
    
    
    
    1,343,364Less: Accumulated depreciation and
amortization
    
    
    757,010
    
    
    
    746,496
    
    
    
    775,495Total property and equipment, net
    
    $
    595,819
    
    
    $
    580,733
    
    
    $
    567,869




---



##### Table of Contents



19   WeightedAverageAmortization
    
    
    July 5,
    
    
    December 29,
    
    
    June 30,In thousands
    
    Period
    
    
    2008
    
    
    2007
    
    
    2007Amortized intangible assets:Gross Carrying Amount:Licensed trademarks
    
    15 years
    
    $
    32,749
    
    
    $
    32,749
    
    
    $
    33,339Owned trademarks
    
    7 years
    
    
    9,900
    
    
    
    9,900
    
    
    
    16,501Customer relationships (a)
    
    14 years
    
    
    30,639
    
    
    
    30,665
    
    
    
    49,511Merchandising rights (a)
    
    4 years
    
    
    43,284
    
    
    
    57,023
    
    
    
    53,881Other (b)
    
    5 years
    
    
    3,204
    
    
    
    3,235
    
    
    
    Subtotal
    
    9 years
    
    
    119,776
    
    
    
    133,572
    
    
    
    153,232Accumulated Amortization:Licensed trademarks
    
    
    
    
    
    
    (18,104
    )
    
    
    (16,641
    )
    
    
    (15,649
    )Owned trademarks
    
    
    
    
    
    
    (1,636
    )
    
    
    (901
    )
    
    
    (1,090
    )Customer relationships
    
    
    
    
    
    
    (6,967
    )
    
    
    (5,875
    )
    
    
    (8,851
    )Merchandising rights
    
    
    
    
    
    
    (25,915
    )
    
    
    (34,246
    )
    
    
    (29,704
    )Other
    
    
    
    
    
    
    (1,033
    )
    
    
    (675
    )
    
    
    Subtotal
    
    
    
    
    
    
    (53,655
    )
    
    
    (58,338
    )
    
    
    (55,294
    )Net:Licensed trademarks
    
    
    
    
    
    
    14,645
    
    
    
    16,108
    
    
    
    17,690Owned trademarks
    
    
    
    
    
    
    8,264
    
    
    
    8,999
    
    
    
    15,411Customer relationships
    
    
    
    
    
    
    23,672
    
    
    
    24,790
    
    
    
    40,660Merchandising rights
    
    
    
    
    
    
    17,369
    
    
    
    22,777
    
    
    
    24,177Other
    
    
    
    
    
    
    2,171
    
    
    
    2,560
    
    
    
    Total amortized intangible assets, net
    
    
    
    
    
    
    66,121
    
    
    
    75,234
    
    
    
    97,938Unamortized intangible assets:Owned trademarks(c)
    
    
    
    
    
    
    247,391
    
    
    
    271,885
    
    
    
    320,687Total intangible assets
    
    
    
    
    
    $
    313,512
    
    
    $
    347,119
    
    
    $
    418,625
 
 (a)
    
    The change in the balance compared to June 30, 2007 primarily reflects the impact of
dispositions subsequent thereto.(b)
    
    Relates to the Companys acquisition of Kate Spade and Narciso Rodriguez.(c)
    
    The change in the balance compared to June 30, 2007 reflects (i) a non-cash
impairment charge of $36.3 million recorded within the Companys Partnered Brands segment in
the second half of 2007 related to the former ELLEN TRACY trademark and (ii) the impact of
dispositions subsequent to June 30, 2007.   (In millions)Fiscal Year
    
    Amortization Expense2008
    
    $
    16.22009
    
    
    14.22010
    
    
    10.72011
    
    
    8.62012
    
    
    7.1




---



##### Table of Contents



20  In thousandsBalance as of December 29, 2007
    
    $
    677,852Additional purchase price  JUICY COUTURE
    
    
    6,696Other
    
    
    (477
    )Translation difference
    
    
    (2,568
    )Balance as of July 5, 2008
    
    $
    681,503




---



##### Table of Contents



21   July 5,
    
    
    December 29,
    
    
    June 30,In thousands
    
    2008
    
    
    2007
    
    
    20075% Notes, due July 2013 (a)
    
    $
    547,900
    
    
    $
    512,044
    
    
    $
    471,121Revolving credit facility and
commercial paper program
    
    
    241,800
    
    
    
    301,200
    
    
    
    186,388Capital lease obligations
    
    
    24,750
    
    
    
    26,725
    
    
    
    28,821Other (b)
    
    
    83,942
    
    
    
    47,742
    
    
    
    31,769Total debt
    
    
    898,392
    
    
    
    887,711
    
    
    
    718,099Less: current portion (c)
    
    
    87,098
    
    
    
    50,828
    
    
    
    34,554Long-term debt
    
    $
    811,294
    
    
    $
    836,883
    
    
    $
    683,545
 
 (a)
    
    The increase in the balance of these euro-denominated notes at July 5, 2008 reflects
the impact of changes in foreign currency exchange rates.(b)
    
    At July 5, 2008, the balance consists principally of outstanding borrowings under
working capital lines of credit.(c)
    
    At July 5, 2008, the balance consists primarily of borrowings under working capital
lines of credit and obligations under capital leases.




---



##### Table of Contents



22   Outstanding
    
    Letters of Credit
    
    AvailableIn thousands
    
    Total Capacity
    
    Borrowings
    
    Issued
    
    CapacityRevolving credit facility and
commercial paper program
(a)
    
    $
    750,000
    
    
    $
    241,800
    
    
    $
    
    
    
    $
    508,200Letter of credit facility
    
    
    400,000
    
    
    
    
    
    
    
    179,052
    
    
    
    220,948Short-term borrowing facilities
    
    
    157,646
    
    
    
    83,020
    
    
    
    11,430
    
    
    
    63,196
 
 (a)
    
    The Companys $750 million revolving credit facility has a final maturity date of
October 2009 and contains the committed capacity to issue $250 million in letters of credit.     2008 Actions




---



##### Table of Contents



23 2007 Actions
  
    
    Realigning its organization into two new reporting segments: Direct Brands (comprised
of the Companys JUICY COUTURE, KATE SPADE, LUCKY BRAND and MEXX retail-based lifestyle brands) and
Partnered Brands (comprised of LIZ CLAIBORNE and other Company-owned and licensed
wholesale-based brands). The strategic realignment reflects a brand-focused approach,
designed to optimize the operational coordination and resource allocation of the Companys
businesses across multiple functional areas including specialty retail, retail outlets,
wholesale apparel, wholesale non-apparel, e-commerce and licensing;
    
    Conducting a review of strategic alternatives, including possible divestiture,
discontinuation or licensing of sixteen of the Companys brands:
 
    
    On October 4, 2007, the Company completed the sale of its former EMMA
JAMES, INTUITIONS, J.H. COLLECTIBLES and TAPEMEASURE brands. The Company also
consolidated its TINT brand into LIZ & CO. and STAMP 10 brand into AXCESS
and closed its FIRST ISSUE brand.
    
    In January 2008, the Company entered into an exclusive license
agreement with Kohls, naming Kohls as the exclusive retailer for the DANA BUCHMAN
brand.
    
    On February 4, 2008, the Company completed the sale of its former C&C
CALIFORNIA and LAUNDRY BY DESIGN brands. The Company also announced retention of
ENYCE and closure of SIGRID OLSEN, completed in the first half of 2008.
    
    On April 4, 2008, the Company completed the sale of its former prAna
brand.
    
    In the first quarter of 2008, the Company announced its decision to
retain the KENSIE and MAC & JAC brands.
    
    On April 10, 2008, the Company completed the sale of its former ELLEN TRACY brand.
 
    
    Implementing and maintaining a more competitive cost structure:
 
    
    The Company has accelerated its structural realignment and other
initiatives to achieve cost savings targets through staff reductions, closing and
consolidation of distribution facilities and office space, discretionary expense
cuts, process re-engineering and supply chain cost rationalization.
 2006 Actions




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##### Table of Contents



24  Six Months Ended
    
    
    Three Months EndedJuly 5,
    
    
    June 30,
    
    
    July 5,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007In thousands
    
    (27 weeks)
    
    
    (26 Weeks)
    
    
    (13 Weeks)
    
    
    (13 Weeks)Direct Brands
    
    $
    10,366
    
    
    $
    5,899
    
    
    $
    3,938
    
    
    $
    5,899Partnered Brands
    
    
    49,303
    
    
    
    21,538
    
    
    
    17,612
    
    
    
    14,561Total
    
    $
    59,669
    
    
    $
    27,437
    
    
    $
    21,550
    
    
    $
    20,460
  LeasePayroll and
    
    
    Termination
    
    
    Fixed AssetIn thousands
    
    Related Costs
    
    
    Costs
    
    
    Write-Downs
    
    
    Other Costs
    
    
    TotalBalance at December 29, 2007
    
    $
    18,567
    
    
    $
    11,823
    
    
    $
    
    
    
    $
    225
    
    
    $
    30,6152008 provision
    
    
    26,630
    
    
    
    17,646
    
    
    
    8,434
    
    
    
    6,959
    
    
    
    59,6692008 fixed asset write-downs
    
    
    
    
    
    
    
    
    
    
    (8,434
    )
    
    
    
    
    
    
    (8,434
    )Translation difference
    
    
    569
    
    
    
    224
    
    
    
    
    
    
    
    (78
    )
    
    
    7152008 spending
    
    
    (29,989
    )
    
    
    (11,639
    )
    
    
    
    
    
    
    (7,089
    )
    
    
    (48,717
    )Balance at July 5, 2008
    
    $
    15,777
    
    
    $
    18,054
    
    
    $
    
    
    
    $
    17
    
    
    $
    33,848




---



##### Table of Contents



25   Six Months Ended
    
    
    Three Months EndedJuly 5,
    
    
    June 30,
    
    
    July 5,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007In thousands
    
    (27 Weeks)
    
    
    (26 Weeks)
    
    
    (13 Weeks)
    
    
    (13 Weeks)(Loss) Income from Continuing
Operations
    
    $
    (29,584
    )
    
    $
    20,946
    
    
    $
    (16,335
    )
    
    $
    9,919(Loss) income from
discontinued operations, net
of tax
    
    
    (10,703
    )
    
    
    8,883
    
    
    
    (5,134
    )
    
    
    3,712Loss on disposal of
discontinued operations, net
of tax
    
    
    (13,897
    )
    
    
    
    
    
    
    (1,694
    )
    
    
    Net (Loss) Income
    
    $
    (54,184
    )
    
    $
    29,829
    
    
    $
    (23,163
    )
    
    $
    13,631Basic weighted average shares
outstanding(a)
    
    
    93,202
    
    
    
    101,825
    
    
    
    93,638
    
    
    
    101,855Stock options and restricted
stock
grants(a)(b)(c)
    
    
    
    
    
    
    1,153
    
    
    
    
    
    
    
    973Diluted weighted average
shares
outstanding(a)
    
    
    93,202
    
    
    
    102,978
    
    
    
    93,638
    
    
    
    102,828Earnings per share:Basic(Loss) Income from
Continuing Operations
    
    $
    (0.32
    )
    
    $
    0.20
    
    
    $
    (0.17
    )
    
    $
    0.10(Loss) income from
discontinued operations
    
    
    (0.11
    )
    
    
    0.09
    
    
    
    (0.06
    )
    
    
    0.03Loss on disposal of
discontinued operations
    
    
    (0.15
    )
    
    
    
    
    
    
    (0.02
    )
    
    
    Net (Loss) Income
    
    $
    (0.58
    )
    
    $
    0.29
    
    
    $
    (0.25
    )
    
    $
    0.13Diluted(Loss) income from
continuing operations
    
    $
    (0.32
    )
    
    $
    0.20
    
    
    $
    (0.17
    )
    
    $
    0.10(Loss) income from
discontinued operations
    
    
    (0.11
    )
    
    
    0.09
    
    
    
    (0.06
    )
    
    
    0.03Loss on disposal of
discontinued operations
    
    
    (0.15
    )
    
    
    
    
    
    
    (0.02
    )
    
    
    Net (loss) income
    
    $
    (0.58
    )
    
    $
    0.29
    
    
    $
    (0.25
    )
    
    $
    0.13
 
 (a)
    
    Because the Company incurred a loss from continuing operations in the six and three
months ended July 5, 2008, outstanding stock options and restricted shares are anti-dilutive.
Accordingly, basic and diluted weighted average shares outstanding are equal for such periods.(b)
    
    Options to purchase 825,356 shares of common stock were outstanding as of June 30,
2007, but were not included in the computation of diluted EPS for the six and three month
periods then ended because such options were anti-dilutive.(c)
    
    Excludes restricted stock for which the performance period has not yet lapsed and
criteria have not yet been achieved.




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##### Table of Contents



26 14.
    
    SEGMENT REPORTING
  
    
    The Direct Brands segment  consists of the specialty retail, outlet, wholesale
apparel, wholesale non-apparel (including accessories, jewelry and handbags), e-commerce
and licensing operations of the Companys four retail-based brands: JUICY COUTURE, KATE
SPADE, LUCKY BRAND and MEXX; and
    
    The Partnered Brands segment  consists of one operating segment including the
wholesale apparel, wholesale non-apparel, outlet and specialty retail, e-commerce and
licensing operations of the Companys wholesale-based brands including: AXCESS,
CLAIBORNE (mens), CONCEPTS BY CLAIBORNE, DANA BUCHMAN, ENYCE, KENSIE, LIZ & CO., LIZ
CLAIBORNE, MAC & JAC, MARVELLA, MONET, NARCISO RODRIGUEZ, SIGRID OLSEN, TRIFARI, VILLAGER
and the Companys licensed DKNY® JEANS, DKNY® ACTIVE and DKNY® MENS.
  C
  Six Months EndedJuly 5, 2008
    
    
    June 30, 2007(27 Weeks)
    
    
    (26 weeks)Direct
    
    
    Partnered
    
    
    
    
    
    
    Direct
    
    
    PartneredIn thousands
    
    Brands
    
    
    Brands
    
    
    Total
    
    
    Brands
    
    
    Brands
    
    
    TotalTotal net sales
    
    $
    1,204,330
    
    
    $
    883,973
    
    
    $
    2,088,303
    
    
    $
    979,671
    
    
    $
    1,133,013
    
    
    $
    2,112,684% to total
    
    
    57.7
    %
    
    
    42.3
    %
    
    
    100.0
    %
    
    
    46.4
    %
    
    
    53.6
    %
    
    
    100.0
    %Total operating
(loss) income
    
    $
    40,023
    
    
    $
    (87,122
    )
    
    $
    (47,099
    )
    
    $
    79,984
    
    
    $
    (24,563
    )
    
    $
    55,421% of sales
    
    
    3.3
    %
    
    
    (9.9
    )%
    
    
    (2.3
    )%
    
    
    8.2
    %
    
    
    (2.2
    )%
    
    
    2.6
    %




---



##### Table of Contents



27 Three Months EndedJuly 5, 2008
    
    
    June 30, 2007(13 Weeks)
    
    
    (13 weeks)Direct
    
    
    
    
    
    
    
    
    
    
    DirectIn thousands
    
    Brands
    
    
    Partnered Brands
    
    
    Total
    
    
    Brands
    
    
    Partnered Brands
    
    
    TotalTotal net sales
    
    $
    584,180
    
    
    $
    389,586
    
    
    $
    973,766
    
    
    $
    494,066
    
    
    $
    554,479
    
    
    $
    1,048,545% to total
    
    
    60.0
    %
    
    
    40.0
    %
    
    
    100.0
    %
    
    
    47.1
    %
    
    
    52.9
    %
    
    
    100.0
    %Total operating
(loss) income
    
    $
    12,650
    
    
    $
    (38,417
    )
    
    $
    (25,767
    )
    
    $
    29,934
    
    
    $
    (5,148
    )
    
    $
    24,786% of sales
    
    
    2.2
    %
    
    
    (9.9
    )%
    
    
    (2.6
    )%
    
    
    6.1
    %
    
    
    (0.9
    )%
    
    
    2.4
    %
  Six Months EndedJuly 5, 2008
    
    
    June 30, 2007(27 Weeks)
    
    
    (26 weeks)In thousands
    
    Domestic
    
    
    International
    
    
    Total
    
    
    Domestic
    
    
    International
    
    
    TotalTotal net sales(a)
    
    $
    1,343,558
    
    
    $
    744,745
    
    
    $
    2,088,303
    
    
    $
    1,449,162
    
    
    $
    663,522
    
    
    $
    2,112,684% to total
    
    
    64.3
    %
    
    
    35.7
    %
    
    
    100.0
    %
    
    
    68.6
    %
    
    
    31.4
    %
    
    
    100.0
    %Total operating (loss) income
    
    $
    (61,840
    )
    
    $
    14,741
    
    
    $
    (47,099
    )
    
    $
    30,795
    
    
    $
    24,626
    
    
    $
    55,421% of sales
    
    
    (4.6
    )%
    
    
    2.0
    %
    
    
    (2.3
    )%
    
    
    2.1
    %
    
    
    3.7
    %
    
    
    2.6
    %
 
 (a)
    
    International sales include MEXX sales of $631,455 and $552,184, respectively. Three Months EndedJuly 5, 2008
    
    
    June 30, 2007(13 Weeks)
    
    
    (13 weeks)In thousands
    
    Domestic
    
    
    International
    
    
    Total
    
    
    Domestic
    
    
    International
    
    
    TotalTotal net sales(a)
    
    $
    627,918
    
    
    $
    345,848
    
    
    $
    973,766
    
    
    $
    729,490
    
    
    $
    319,055
    
    
    $
    1,048,545% to total
    
    
    64.5
    %
    
    
    35.5
    %
    
    
    100.0
    %
    
    
    69.6
    %
    
    
    30.4
    %
    
    
    100.0
    %Total operating (loss) income
    
    $
    (29,828
    )
    
    $
    4,061
    
    
    $
    (25,767
    )
    
    $
    12,883
    
    
    $
    11,903
    
    
    $
    24,786% of sales
    
    
    (4.8
    )%
    
    
    1.2
    %
    
    
    (2.6
    )%
    
    
    1.8
    %
    
    
    3.7
    %
    
    
    2.4
    %
 
 (a)
    
    International net sales include MEXX net sales of $289,221 and $265,723,
respectively.




---



##### Table of Contents



28         Stock Options
  Six Months EndedValuation Assumptions:
    
    July 5, 2008
    
    June 30, 2007Weighted-average fair value of options granted
    
    $
    5.02
    
    
    $
    11.51Expected volatility
    
    28.1% to 40.9%
    
    23.1% to 39.5%Weighted-average volatility
    
    
    28.9
    %
    
    
    24.0
    %Expected term (in years)
    
    
    5.0
    
    
    
    4.7Dividend yield
    
    
    1.17
    %
    
    
    0.52
    %Risk-free rate
    
    1.5% to 5.2%
    
    4.4% to 4.8%Expected annual forfeiture
    
    
    12.8
    %
    
    
    12.0
    %




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##### Table of Contents



29   Weighted
    
    Weighted Average
    
    AggregateAverage Exercise
    
    Remaining
    
    Intrinsic ValueShares
    
    Price
    
    Contractual Term
    
    ($000)Outstanding at December 29, 2007
    
    
    4,636,409
    
    
    $
    34.33
    
    
    
    5.3
    
    
    $
    204Granted
    
    
    1,142,250
    
    
    
    19.25Exercised
    
    
    (3,100
    )
    
    
    16.60Cancelled
    
    
    (587,805
    )
    
    
    33.23Outstanding at July 5, 2008
    
    
    5,187,754
    
    
    $
    31.14
    
    
    
    5.2
    
    
    $
    Vested or expected to vest at July 5, 2008
    
    
    4,826,200
    
    
    $
    31.64
    
    
    
    4.0
    
    
    $
    Exercisable at July 5, 2008
    
    
    3,064,241
    
    
    $
    33.38
    
    
    
    4.4
    
    
    $
    
    Restricted Stock
  WeightedAverageShares
    
    
    Exercise PriceNonvested stock at December 29, 2007 (a)
    
    
    1,538,379
    
    
    $
    38.42Granted (b)
    
    
    926,625
    
    
    
    18.85Vested
    
    
    (309,176
    )
    
    
    35.75Cancelled
    
    
    (300,442
    )
    
    
    37.71Nonvested stock at July 5, 2008 (a)(b)
    
    
    1,855,386
    
    
    $
    29.21Expected to vest as of July 5, 2008
    
    
    1,616,516
    
    
    $
    29.19
 
 (a)
    
    In the third quarter of 2007, performance shares were granted to a group of key
executives. These shares are subject to certain service and performance conditions to be
measured as of the fiscal 2009 year-end. The ultimate amount of shares earned will be
determined by the extent of achievement of the performance criteria set forth in the
performance share agreements and will range from 0  150% of target.(b)
    
    In the second quarter of 2008, performance shares were granted to a group of key
executives. These shares are subject to certain service and performance conditions to be
measured as of the fiscal 2008 year-end and fiscal 2010 year-end. The ultimate amount of
shares earned will be determined by the extent of achievement of the performance criteria set
forth in the performance share agreements and will range from 0  200% of target.




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31 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 OVERVIEW
 Business/Segments
  
    
    The Direct Brands segment  consists of the specialty retail, outlet, wholesale
apparel, wholesale non-apparel (including accessories, jewelry and handbags), e-commerce
and licensing operations of our four retail-based operating segments: JUICY COUTURE, KATE
SPADE, LUCKY BRAND and MEXX; and
    
    The Partnered Brands segment  consists of one operating segment including the
wholesale apparel, wholesale non-apparel, outlet and specialty retail, e-commerce and
licensing operations of our wholesale-based brands including: AXCESS, CLAIBORNE
(mens), CONCEPTS BY CLAIBORNE, DANA BUCHMAN (which, as
previously announced, we have licensed to Kohls Corporation (Kohls)), ENYCE, KENSIE, LIZ & CO., LIZ CLAIBORNE, MAC
& JAC, MARVELLA, MONET, NARCISO RODRIGUEZ, SIGRID OLSEN (which we have closed as of July 5, 2008), TRIFARI, VILLAGER and our licensed
DKNY® JEANS, DKNY® ACTIVE and DKNY® MENS brands.
  
    
    Domestic (wholesale customers, Company-owned specialty retail and
outlet stores located in the United States and e-commerce sites); and
 
    
    International (wholesale customers and Company-owned specialty retail and
outlet, as well as concession stores located outside of the United States).




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##### Table of Contents



32   Competitive Profile
   Reconfiguring our organization into two new reporting business segments:
 
    
    Direct Brands (comprised of our JUICY COUTURE, KATE SPADE, LUCKY BRAND and MEXX
retail-based lifestyle brands); and
    
    Partnered Brands (comprised of LIZ CLAIBORNE and our other owned and licensed
wholesale-based brands).
  The completion of our strategic review of 16 specific brands in our portfolio in an effort to
narrow our brand offerings to a select group that we believe we can fully resource and develop into
powerful, sustaining brands:
 
    
    On October 4, 2007, we completed the sale of our former EMMA JAMES, INTUITIONS, J.H.
COLLECTIBLES and TAPEMEASURE brands.
    
    We consolidated our TINT brand into LIZ & CO. and STAMP 10 brand into AXCESS and
closed our FIRST ISSUE brand.
    
    On January 8, 2008, we announced the decision to retain the ENYCE brand.
    
    In January 2008, we entered into an exclusive license agreement
with Kohls, naming Kohls as the exclusive retailer for our DANA
BUCHMAN brand. As a result, we closed our former DANA BUCHMAN operations in the first half
of 2008 and expect to launch the new DANA BUCHMAN line in Kohls stores no later than the
first quarter of 2009.
    
    On February 4, 2008, we completed the sale of our former C&C CALIFORNIA and LAUNDRY BY
DESIGN brands.
    
    In the first quarter of 2008, we announced our decision to retain the KENSIE and MAC &
JAC brands.
    
    On April 4, 2008, we completed the sale of our former prAna brand.




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##### Table of Contents



33 
 
    
    On April 10, 2008, we completed the sale of our former ELLEN TRACY brand.
    
    During the second quarter of 2008, we completed the closure of our SIGRID OLSEN brand.
 Implementing and maintaining a more competitive cost structure:
 
    
    We have accelerated our structural realignment and other initiatives to achieve targeted cost
savings. Key actions taken include significant headcount reductions, the closing
of three of our distribution centers, real estate rationalization and discretionary expense
cuts.
    
    We anticipate additional cost reductions to be realized through further staff
reductions, consolidations of distribution facilities and office space, discretionary
expense cuts, process re-engineering and supply chain cost rationalization.
 Committing the resources, structure and marketing investment necessary to fully support and
maximize the growth of our brands:
 
    
    We have engaged two well regarded designers to reposition our LIZ CLAIBORNE and
CLAIBORNE brands, with new collections debuting in spring of 2009.
    
    Acquired the license for DKNY® better mens apparel, debuting in Spring of 2009.
    
    We estimate committing approximately $195 million to capital expenditures, including
approximately $125 million to open new stores primarily within our Direct Brands segment in
2008.
    
    We anticipate spending approximately $85 million in 2008 in marketing activities in
support of our growth initiatives within our Direct Brands segment.
 Developing best-in-class, retail-centric capabilities and initiating investments to optimize
our supply chain activities and accelerate the flow of goods to stores in both retail and wholesale
formats.
  Market Environment




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##### Table of Contents



34   Overall Results for the Six Months Ended July 5, 2008
 Net Sales
  Gross Profit and (Loss) Income from Continuing Operations
  Balance Sheet
  International Operations
  Acquisitions




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35




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##### Table of Contents



36 RESULTS OF OPERATIONS
  SIX MONTHS ENDED JULY 5, 2008 COMPARED TO SIX MONTHS ENDED JUNE 30, 2007
  Six Months Ended
    
    
    VarianceJuly 5,
    
    
    June 30,Dollars in millions
    
    2008
    
    
    2007
    
    
    $
    
    
    %Net Sales
    
    $
    2,088.3
    
    
    $
    2,112.7
    
    
    $
    (24.4
    )
    
    
    (1.2
    )%Gross Profit
    
    
    989.5
    
    
    
    1,012.7
    
    
    
    (23.2
    )
    
    
    (2.3
    )%Selling, general & administrative
expenses
    
    
    1,036.6
    
    
    
    957.3
    
    
    
    79.3
    
    
    
    8.3
    %Operating (Loss) Income
    
    
    (47.1
    )
    
    
    55.4
    
    
    
    (102.5
    )
    
    
    *Other expense, net
    
    
    (3.7
    )
    
    
    (0.4
    )
    
    
    (3.3
    )
    
    
    *Interest expense, net
    
    
    (21.9
    )
    
    
    (18.4
    )
    
    
    (3.5
    )
    
    
    (19.0
    )%(Benefit) provision for income taxes
    
    
    (43.1
    )
    
    
    15.7
    
    
    
    (58.8
    )
    
    
    *(Loss) Income from Continuing
Operations
    
    
    (29.6
    )
    
    
    20.9
    
    
    
    (50.5
    )
    
    
    *Discontinued operations, net of tax
    
    
    (24.6
    )
    
    
    8.9
    
    
    
    (33.5
    )
    
    
    *Net (Loss) Income
    
    $
    (54.2
    )
    
    $
    29.8
    
    
    $
    (84.0
    )
    
    
    *
 
 *
    
    Not meaningful. Net Sales
  
    
    Direct Brands net sales were $1.204 billion, increasing $224.7 million, or 22.9%, reflecting the following:
 
    
    Net sales for MEXX were $631.4 million, a 14.4%
increase compared to 2007. Excluding the impact of changes in foreign
currency exchange rates, net sales for MEXX were $550.4 million, a
0.3% increase, primarily due to increased sales in our MEXX Canada
retail operations, partially offset by decreases in our MEXX Europe
retail operations.
 
    
    We ended the first half of 2008 with 133 specialty
retail stores, 95 outlets and 284 concessions,
reflecting the net addition over the last 12 months
of 10 outlet stores and the net closure of 22
concession stores;
    
    Average retail square footage in the first half of
2008 was approximately 1.413 million square feet, an
8.0% increase compared to 2007;
    
    Sales productivity increased to $207 per average square
foot as compared to $195 for the first half of fiscal
2007, primarily due to the impact of exchange rate fluctuations




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##### Table of Contents



37 in our European and Canadian
operations;
 
    
    Comparable store net sales in our MEXX
Company-owned stores decreased by 7.2% overall,
primarily the result of a decrease in our MEXX Europe
retail operations partially offset by increased sales
in our MEXX Canada specialty retail business; and
    
    An $81.1 million increase resulting from the
impact of fluctuations in foreign currency exchange
rates in our European and Canadian businesses.
 
    
    Net sales for JUICY COUTURE were $287.8 million, a
52.2% increase compared to 2007, primarily driven by
increases in retail, and wholesale non-apparel
(including fragrance).
 
    
    We ended the first half of 2008 with 48 specialty
retail stores and 25 outlet stores, reflecting the
net addition over the last 12 months of 22 specialty
retail stores and 12 outlet stores;
    
    Average retail square footage in the first half of
2008 was approximately 226 thousand square feet, a
139.4% increase compared to 2007;
    
    Sales productivity was $410 per average square
foot as compared to $489 for the first half fiscal
2007; and
    
    Comparable store net sales in our Company-owned
stores increased by 13.5% in the first half of 2008.
 
    
    Net sales for LUCKY BRAND were $227.7 million, a
14.7% increase compared to 2007, primarily driven by
increases in retail and wholesale apparel.
 
    
    We ended the first half of 2008 with 179 specialty
retail stores and 29 outlet stores, reflecting the
net addition over the last 12 months of 32 specialty
retail stores and 22 outlet stores;
    
    Average retail square footage in the first half of
2008 was approximately 448 thousand square feet, a
28.6% increase compared to 2007;
    
    Sales productivity was $287 per average square
foot as compared to $286 for the first half of fiscal
2007; and
    
    Comparable store net sales in our Company-owned
stores decreased by 0.3% in the first half of 2008.
 
    
    Net sales for KATE SPADE were $57.4 million, a 44.3%
increase compared to 2007, primarily driven by an
increased number of retail stores, as well as
increases on our wholesale operations.
 
    
    We ended the first half of 2008 with 33 specialty
retail stores and 23 outlet stores, reflecting the net
addition over the last 12 months of 13 specialty
retail stores and 19 outlet stores;
    
    Average retail square footage in the first half of
2008 was approximately 99 thousand square feet, a
91.8% increase compared to 2007;
    
    Sales productivity was $303 per average square
foot as compared to $327 for the first half of fiscal
2007; and
    
    Comparable store net sales in our Company-owned
stores decreased by 4.5% in the first half of 2008.
  
    
New stores become comparable after 14 full fiscal months of
operations (on the 1st day of the 15th full fiscal month);
    
    Except in unusual circumstances, closing stores become
non-comparable one full fiscal month prior to the scheduled closing
date;
    
    A remodeled store will be changed to non-comparable when
there is a 20% or more increase/decrease in its selling square
footage (effective at the start of the fiscal month when construction
begins). The store becomes comparable again after 14 full fiscal
months from the re-open date;
    
    A store that relocates becomes non-comparable when the new
location is materially different from the original location (in
respect to selling square footage and/or traffic patterns);
and
    
    Stores that are acquired are not comparable until they have
been reflected in our results for a period of 12 months.
  
    
    Partnered Brands net sales were $884.0 million, a decrease of $249.0 million or (22.0)%, reflecting:
 
    
    Our department store customers continued focus
on inventory productivity and product
differentiation to gain competitive market share
and improve margins and cash flows as discussed
above. This operating environment continued to
adversely affect our Partnered Brands segment and
contributed to reduced sales in the following
brands: LIZ CLAIBORNE, CLAIBORNE and ENYCE
brands. Sales also declined in the following
brands: SIGRID OLSEN (closed in the second
quarter of 2008), Cosmetics group of brands (due
to the exiting of certain brands and the license
of the remaining brands to Elizabeth Arden
effective June 10, 2008), FIRST ISSUE (which
closed in early 2008), former ELLEN TRACY brand (which
was sold on April 10, 2008), DANA BUCHMAN
(licensed on an exclusive basis to Kohls in
January 2008, with current operations closed in
the second quarter of 2008, and MONET (due to the
discontinuation of MONET 2), partially offset by
increases in LIZ & CO., licensed DKNY® Jeans,
and KENSIE (due to increased department store
distribution); and
    
    The impact of fluctuations in foreign currency exchange rates
increased net sales by $13.1 million primarily
related to our LIZ CLAIBORNE operations in Europe
and Canada.
 Domestic International




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##### Table of Contents



38  Gross Profit
  Selling, General & Administrative Expenses
  
    
    A $46.8 million increase in expenses associated with our streamlining initiatives and brand-exiting activities;
    
    A $30.7 million increase in Direct Brands SG&A;
    
    A $55.0 million increase due to the impact of fluctuations in foreign currency exchange rates in our
international operations;
    
    A $40.6 million increase primarily resulting from the retail expansion in our Direct Brands segment;
    
    The inclusion of an $8.1 million charge associated with the sale of our former ELLEN TRACY brand; and
    
    A $101.9 million decrease in Partnered Brands and corporate SG&A.
  Operating (Loss) Income
  
    
    Direct Brands operating income was $40.0 million, decreasing $40.0
million, or 50.0%, as a result of reduced earnings in our JUICY
COUTURE and LUCKY BRAND operations due to expenses associated
with retail expansion and reduced income in our MEXX Europe operations,
partially offset by a $1.7 million increase resulting from
fluctuations in foreign currency
exchange rates in our international operations.
 
    
    Partnered Brands operating loss was $87.1 million ((9.9)% of net
sales), compared to an operating loss of $24.6 million ((2.2)% of net
sales) in 2007, as a result of lower sales and increased retailer
support, as well as an increase in expenses associated with our
streamlining initiatives and brand-exiting activities.
 Domestic International
 Other Expense, Net




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39 Interest Expense, Net
  (Benefit) Provision for Income Taxes
  (Loss) Income from Continuing Operations
  Discontinued Operations, Net of Tax
  Net (Loss) Income
  THREE MONTHS ENDED JULY 5, 2008 COMPARED TO THREE MONTHS ENDED JUNE 30, 2007
  Three Months Ended
    
    
    VarianceJuly 5,
    
    
    June 30,Dollars in millions
    
    2008
    
    
    2007
    
    
    $
    
    
    %Net Sales
    
    $
    973.8
    
    
    $
    1,048.5
    
    
    $
    (74.7
    )
    
    
    (7.1
    )%Gross Profit
    
    
    461.7
    
    
    
    516.9
    
    
    
    (55.2
    )
    
    
    (10.7
    )%Selling, general & administrative
expenses
    
    
    487.5
    
    
    
    492.1
    
    
    
    (4.6
    )
    
    
    (0.9
    )%Operating (Loss) Income
    
    
    (25.8
    )
    
    
    24.8
    
    
    
    (50.6
    )
    
    
    *Other (expense) income, net
    
    
    (0.8
    )
    
    
    0.3
    
    
    
    (1.1
    )
    
    
    *Interest expense, net
    
    
    (9.8
    )
    
    
    (9.8
    )
    
    
    
    
    
    
    (Benefit) provision for income taxes
    
    
    (20.1
    )
    
    
    5.4
    
    
    
    (25.5
    )
    
    
    *(Loss) Income from Continuing
Operations
    
    
    (16.3
    )
    
    
    9.9
    
    
    
    (26.2
    )
    
    
    *Discontinued operations, net of tax
    
    
    (6.9
    )
    
    
    3.7
    
    
    
    (10.6
    )
    
    
    *Net (Loss) Income
    
    $
    (23.2
    )
    
    $
    13.6
    
    
    $
    (36.8
    )
    
    
    *
 
 *
    
    Not meaningful.




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##### Table of Contents



Net Sales
  
    
    Direct Brands net sales were $584.2 million, increasing $90.1 million, or 18.2%, reflecting the following:
 
    
    Net sales for MEXX were $289.2 million, an 8.8%
increase compared to 2007. Excluding the impact of
changes in foreign currency exchange rates, net
sales for MEXX were $252.8 million, a 4.9% decrease
compared to last year, primarily due to decreased
sales in our MEXX Europe operations.
 
    
    Average retail square footage in the second
quarter was approximately 1.446 million square feet,
a 9.4% increase compared to 2007;
    
    Sales productivity increased to $115 per average square
foot as compared to $108 for the second quarter of
fiscal 2007, primarily due to  the impact of exchange rate
fluctuations in our European and Canadian
operations;
    
    Comparable store net sales in our MEXX
Company-owned stores decreased by 2.1% overall,
primarily the result of a decrease in our MEXX
Europe operations, partially offset by increases in
our MEXX Canada retail operations; and
    
    A $36.4 million increase resulting from the impact
of fluctuations in foreign currency exchange rates
in our European and Canadian businesses.
 
    
    Net sales for JUICY COUTURE were $147.7 million, a
47.4% increase compared to 2007, primarily driven by
increases in retail as well as growth in our
domestic and international wholesale apparel and
non-apparel operations.
 
    
    Average retail square footage in the second
quarter was approximately 235 thousand square feet,
a 125.9% increase compared to 2007;
    
    Sales productivity was $198 per average square
foot as compared to $246 for the second quarter of
fiscal 2007; and
    
    Comparable store net sales in our Company-owned
stores increased by 12.9% in the second quarter.
 
    
    Net sales for LUCKY BRAND were $117.6 million, a
9.3% increase compared to 2007, primarily driven by
increases in retail partially offset by declines in
wholesale apparel and non-apparel, due to declines
in sales to specialty retail customers partially
offset by increased shipments to department store
customers.
 
    
    Average retail square footage in the second
quarter was approximately 457 thousand square feet,
a 28.7% increase compared to 2007;
    
    Sales productivity was $146 per average square
foot as compared to $145 for the second quarter of
fiscal 2007; and
    
    Comparable store net sales in our Company-owned
stores increased by 4.5% in the second quarter.
 
    
    Net sales for KATE SPADE were $29.7 million, a 44.5%
increase compared to 2007, primarily driven by an
increased number of retail stores.
 
    
    Average retail square footage in the second
quarter was approximately 102 thousand square feet,
a 96.7% increase compared to 2007;
    
    Sales productivity was $163 per average square
foot as compared to $178 for the second quarter of
fiscal 2007; and
    
    Comparable store net sales in our Company-owned
stores decreased by 6.5% in the second quarter due
to a 15.0% decrease in our full priced stores,
partially offset by a 34.9% increase in our outlet
stores.




---



##### Table of Contents



41 
    
    Partnered Brands net sales were $389.6 million, a decrease of $164.8 million or (29.7)%, reflecting:
 
    
    Our department store customers continued focus
on inventory productivity and product
differentiation to gain competitive market share
and improve margins and cash flows as discussed
above. This operating environment continued to
adversely affect our Partnered Brands segment and
contributed to reduced sales in the following
brands: LIZ CLAIBORNE, CLAIBORNE and ENYCE. Sales
also declined in the following brands: SIGRID
OLSEN (closed in the second quarter of 2008),
Cosmetics group of brands (due to the closure of
certain brands and the license of the remaining
brands to Elizabeth Arden effective June 10,
2008), FIRST ISSUE (which closed in early 2008),
former ELLEN TRACY brand (which was sold on April 10,
2008), DANA BUCHMAN (licensed on an exclusive
basis to Kohls in January 2008, with operations
closed in the second quarter of 2008) and MONET
(due to the discontinuation of MONET 2),
partially offset by increases in LIZ & CO.,
licensed
DKNY®
JEANS and KENSIE (due to increased
department store distribution); and
    
    The impact of fluctuations in foreign currency exchange rates
increased net sales by $6.0 million primarily
related to our LIZ CLAIBORNE operations in Europe
and Canada.
 Domestic International
 Gross Profit
  Selling, General & Administrative Expenses
  
    
    A $12.7 million increase in expenses associated with our streamlining initiatives and brand-exiting activities;
    
    A $16.2 million increase in Direct Brands SG&A;
    
    A $26.4 million increase due to the impact of fluctuations in foreign currency exchange rates in our
international operations;
    
    A $17.4 million increase primarily resulting from the retail expansion in our Direct Brands segment;
    
    A $77.3 million decrease in Partnered Brands and corporate SG&A.




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##### Table of Contents



42  Operating (Loss) Income
  
    
    Direct Brands operating income was $12.7 million, decreasing $17.3
million, or 57.7%, as a result of reduced earnings in our MEXX Europe
operations, increased overhead expenses resulting from retail
expansion in our JUICY COUTURE brand and increased retailer support in
wholesale operations of our JUICY COUTURE brand, partially offset by
increased earnings in our KATE SPADE brand.
    
    Partnered Brands operating loss in the second quarter was $38.5
million ((9.9)% of net sales), compared to an operating loss of $5.1
million ((0.9)% of net sales) in 2007, as a result of lower sales and
an increase in expenses associated with our streamlining initiatives
and brand-exiting activities.
 Domestic International
 Other (Expense) Income, Net
  Interest Expense, Net
  (Benefit) Provision for Income Taxes
  (Loss) Income from Continuing Operations
  Discontinued Operations, Net of Tax Net (Loss) Income




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##### Table of Contents



43 FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
 Cash Requirements
 Sources of Cash.
 2008 vs. 2007
 Cash and Debt Balances.
 Accounts Receivable
 Inventories
 Borrowings




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##### Table of Contents



44 Net cash used in operating activities
 Net cash used in investing activities
 Net cash (used in) provided by financing activities
 Commitments and Capital Expenditures
  
    
    We will
acquire 0.4% of the equity of Lucky Brand in each of January of 2009
and 2010 for payments of $5.0 million each. The remaining 2.28% of the
original shares outstanding will be settled for an aggregate purchase
price composed of the following two installments: (i) a 2008 payment
of approximately $14.4 million based on a multiple of LUCKY BRANDs
2007 earnings and (ii) a 2011 payment that will be based on a multiple
of LUCKY BRANDs 2010 earnings, net of the 2008 payment which we
estimate will be in the range of approximately $9-12 million.
    
    On January 26, 2006, we acquired 100 percent of the equity
of Westcoast Contempo Fashions Limited and Mac & Jac Holdings Limited
for an initial payment of 26.2 million Canadian dollars (or $22.7
million). The Mac & Jac acquisition agreement provides for contingent
payments in fiscal years 2006, 2008, 2009 and 2010 that will be based
upon a multiple of Mac & Jacs earnings in each year. There was no
contingent payment made based on 2006 fiscal year earnings. We
currently estimate that the aggregate of these contingent payments
will be in the range of approximately $20-29 million, which will be
accounted for as additional purchase price when paid.
 Financing Arrangements
  July 5,
    
    
    December 29,
    
    
    June 30,In thousands
    
    2008
    
    
    2007
    
    
    20075% Notes (a)
    
    $
    547,900
    
    
    $
    512,044
    
    
    $
    471,121Revolving credit
facility and commercial
paper program
    
    
    241,800
    
    
    
    301,200
    
    
    
    186,388Capital lease obligations
    
    
    24,750
    
    
    
    26,725
    
    
    
    28,821Other (b)
    
    
    83,942
    
    
    
    47,742
    
    
    
    31,769Total debt
    
    $
    898,392
    
    
    $
    887,711
    
    
    $
    718,099
 
 (a)
    
    The increase in the balance of these euro-denominated notes at July 5, 2008 reflects
the impact of changes in foreign currency exchange rates.(b)
    
    At July 5, 2008, the balance consists principally of outstanding borrowings under
working capital lines of credit.




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##### Table of Contents



45     Outstanding
    
    Letters of CreditIn thousands
    
    Total Capacity
    
    Borrowings
    
    Issued
    
    Available CapacityRevolving credit facility and
commercial paper program (a)
    
    $
    750,000
    
    
    $
    241,800
    
    
    $
    
    
    
    $
    508,200Letter of credit facility (b)
    
    
    400,000
    
    
    
    
    
    
    
    179,052
    
    
    
    220,948Short-term borrowing facilities
    
    
    157,646
    
    
    
    83,020
    
    
    
    11,430
    
    
    
    63,196
 
 (a)
    
    Our $750 million revolving credit facility has a final maturity date of October 2009
and contains the committed capacity to issue $250 million in letters of credit.(b)
    
    Because many of our international vendors have moved to open account terms, we have
been able to reduce our reliance on our letter of credit facility. As a result, we have chosen
to decrease capacity under this facility to $285 million, which we believe is adequate for our
current and future letter of credit requirements. Off-Balance Sheet Arrangements




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46  Hedging Activities
    USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES




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47   Revenue Recognition
  Income Taxes
  Accounts Receivable  Trade, Net




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48  Inventories, Net
  Goodwill and Intangibles, Net




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49     Accrued Expenses
  Derivative Instruments




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50   Share-Based Compensation
  RECENTLY
ADOPTED ACCOUNTING POLICIES
  Level 1 
    
    Quoted market prices in active markets for identical assets or liabilities;Level 2 
    
    Inputs other than Level 1 inputs that are either directly or indirectly observable;
andLevel 3 
    
    Unobservable inputs developed using estimates and assumptions developed by us,
which reflect
those that a market participant would use.
   In thousands
    
    Level 2Financial Assets:Derivatives
    
    $
    361Financial Liabilities:Derivatives
    
    $
    6,684




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51 RECENT ACCOUNTING PRONOUNCEMENTS
      
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   In millions
    
    July 5, 2008
    
    December 29, 2007
    
    June 30,2007Variable rate debt
    
    $
    324.8
    
    
    $
    348.0
    
    
    $
    217.6Average interest rate
    
    
    3.50
    %
    
    
    5.65
    %
    
    
    5.30
    %




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52     US Dollar
    
    Hong Kong
    
    Contract
    
    UnrealizedCurrency in thousands
    
    Amount
    
    Dollar Amount
    
    Rate
    
    Gain (Loss)Forward Contracts:Euro
    
    
    
    
    
    
    389,875
    
    
    
    0.0835 to 0.0950
    
    
    $
    (5,917
    )Canadian Dollars
    
    $
    9,994
    
    
    
    
    
    
    
    0.9746 to 1.0229
    
    
    
    Canadian Dollars
    
    
    
    
    
    
    103,037
    
    
    
    0.1284 to 0.1322
    
    
    
    122Euro
    
    $
    23,500
    
    
    
    
    
    
    
    0.6462 to 0.6837
    
    
    
    (720
    )Foreign Exchange Collar Contracts:Canadian Dollars
    
    $
    3,334
    
    
    
    
    
    
    
    0.9709 to 1.0417
    
    
    
    
  US Dollar
    
    Hong Kong
    
    Contract
    
    UnrealizedCurrency in thousands
    
    Amount
    
    Dollar Amount
    
    Rate
    
    LossForward Contracts:Euro
    
    
    
    
    
    
    736,250
    
    
    
    0.0877 to 0.0991
    
    
    $
    (6,179
    )Canadian Dollars
    
    $
    14,279
    
    
    
    
    
    
    
    0.9393 to 1.0234
    
    
    
    Canadian Dollars
    
    
    
    
    
    
    185,082
    
    
    
    0.1272 to 0.1367
    
    
    
    (894
    )Foreign Exchange Collar Contracts:Canadian Dollars
    
    $
    7,505
    
    
    
    
    
    
    
    0.9174 to 1.0417
    
    
    
    




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53  US Dollar
    
    Hong Kong
    
    Contract
    
    UnrealizedCurrency in thousands
    
    Amount
    
    Dollar Amount
    
    Rate
    
    LossForward Contracts:Euro
    
    
    
    
    
    
    577,376
    
    
    
    0.0939 to 0.0996
    
    
    $
    (2,246
    )Canadian Dollars
    
    $
    14,194
    
    
    
    
    
    
    
    0.8702 to 0.9400
    
    
    
    Canadian Dollars
    
    
    
    
    
    
    111,171
    
    
    
    0.1367 to 0.1482
    
    
    
    (858
    )Foreign Exchange Collar Contracts:Euro
    
    
    
    
    
    
    15,500
    
    
    
    0.0980 to 0.1007
    
    
    $
    (69
    )Canadian Dollars
    
    $
    1,232
    
    
    
    
    
    
    
    0.8403 to 0.8799
    
    
    
    Canadian Dollars
    
    
    
    
    
    $
    15,403
    
    
    
    0.1428 to 0.1527
    
    
    
    (100
    )
 
 ITEM 4. CONTROLS AND PROCEDURES
   
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS




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54 
 ITEM 1A. RISK FACTORS
  Risks Related to Our Business and Our Long-Term Growth Strategy
 We cannot assure the successful implementation and results of the long-term strategic plan that we
announced in July 2007.
  
    
    In June 2007, we announced that we reorganized our Company into five
operating segments that aggregate into two reportable segments, Direct
Brands and Partnered Brands, and realigned our management structure
around this new organization. There can be no assurances that such
restructuring and realignment will improve our operations or our
results.
 
    
    As part of our strategic plan, we designated 16 brands for strategic
review, which included possible sale, licensing or closure. There can
be no assurances that we appropriately identified the appropriate
brands for strategic review or that we appropriately valued the assets
which we have sold or licensed to third parties.
 
    
    Our strategic plan involves a significant expansion of our specialty
retail business. The successful operation and expansion of our
specialty retail business in our Direct Brands segment is subject to,
among other things, our ability to successfully expand the specialty
store base of our Direct Brands segment, our ability to successfully
find appropriate sites, negotiate favorable leases, design and create
appealing merchandise, appropriately manage inventory levels, install
and operate effective retail systems, apply appropriate pricing
strategies and integrate such stores into our overall business mix.
There can be no assurances that we can be successful in this regard,
and our inability to successfully expand our specialty retail business
would have a material adverse effect on our results.
 
    
    We have announced a number of initiatives designed to achieve greater
collaboration with our wholesale customers and to improve results of
the Companys wholesale-based Partnered Brands. These initiatives
include design agreements with Isaac Mizrahi with respect to our LIZ
CLAIBORNE brand and John Bartlett with respect to our CLAIBORNE
(mens) brand. Our wholesale customers have been seeking
differentiated product and we believe that these design agreements
will enable us to distinguish our product offering. However, there
can be no assurances that these arrangements will result in improved
product or that the resulting products will be acceptable to our
wholesale customers or consumers.
 
    
    The successful implementation of our strategic plan will require us to
evolve our supply chain system, including our product development,
sourcing, logistics and technology functions, to reduce product
cycle-time and costs and meet customer demands and the requirements of
the projected growth of our retail-based Direct Brands segment. There
can be no assurances that we can be successful in these efforts and
our failure to evolve our supply chain capabilities and reduce costs
in this area will have a material adverse impact on our business and
results.
 
    
    We previously announced that our structural realignment and other
initiatives would yield substantial cost savings, and that we expected
such savings would drive operating margin expansion beginning in 2008.
There can be no assurances that we can successfully implement the
anticipated cost savings.
 
    
    Our strategic plan focuses on building strong brands through increased
marketing spending. Our ability to fund such efforts is critical to
the success of our strategy. Our inability to fund marketing
initiatives appropriate to support our strategic plan will have a
material adverse impact on our ability to achieve the growth we
project in our Direct Brands segment.
 We cannot assure that we can attract and retain talented highly qualified executives, or maintain
satisfactory relationships with our employees, both union and non-union.




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55   The success of our business depends on our ability to respond to constantly changing consumer
demands and tastes and fashion trends, across multiple product lines, shopping channels and
geographies.
   Our business could suffer if we cannot adequately establish, defend and protect our trademarks and
other proprietary rights.




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56 Our success will depend on our ability to successfully develop or acquire new product lines or
enter new markets or product categories.
  
    
    Our ability to identify appropriate business development
opportunities, including new product lines and markets.
 
    
    New businesses, product lines or market activities may require methods
of operations, investments and marketing and financial strategies
different from those employed in our other businesses, and may also
involve buyers, store customers and/or competitors different from our
historical buyers, store customers and competitors.
 
    
    We may not be able to generate projected or satisfactory level of
sales, profits and/or return on investment for a new business or
product line, and may also encounter unanticipated events and unknown
or uncertain liabilities that could materially impact our business.
 
    
    We may experience possible difficulties, delays and/or unanticipated
costs in integrating the business, operations, personnel and/or
systems of an acquired business and may also not be able to retain and
appropriately motivate key personnel of an acquired business.
 
    
    We may not be able to maintain product licenses, which are subject to
agreement with a variety of terms and conditions, or to enter into new
licenses to enable us to launch new products and lines.
 
    
    With respect to a business where we act as licensee, such as our
licensed DKNY® JEANS, DKNY® ACTIVE and DKNY® MENS brands and our
NARCISO RODRIGUEZ brand, there are a number of inherent risks,
including, without limitation, compliance with terms set forth in the
applicable license agreements, including among other things the
maintenance of certain levels of sales and the public perception
and/or acceptance of the licensors brands or other product lines,
which are not within our control.
 Our ability to continue to have the liquidity necessary, through cash flow from operations and
financing, may be adversely impacted by a number of factors, including the downgrading of our
credit rating.
     Risks Associated With Competition and the Marketplace
 The markets in which we operate are highly competitive, both within the United States and abroad.




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57 
    
    Anticipating and responding to changing consumer demands in a timely manner;
 
    
    Establishing and maintaining favorable brand name and recognition;
 
    
    Product quality;
 
    
    Maintaining and growing market share;
 
    
    Developing quality and differentiated products that appeal to consumers;
 
    
    Establishing and maintaining acceptable relationships with our retail customers;
 
    
    Pricing products appropriately;
 
    
    Providing appropriate service and support to retailers;
 
    
    Optimizing our retail and supply chain capabilities;
 
    
    Size and location of our retail stores and department store selling space; and
 
    
    Protecting intellectual property.
  Our wholesale
business is largely dependent on sales to a limited number of large US department
store customers, and our business could suffer as a result of consolidations, restructurings and
other ownership changes in the retail industry.
     Our reliance on independent manufacturers could cause delay and loss and damage our reputation and
customer relationships.




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58    Economic, Social, Political and Regulatory Risks
 General economic conditions, including a continued weakening of the economy, may affect consumer
purchases of discretionary items and fashion and retail products, which could adversely affect our
sales.
    Our business is exposed to domestic and foreign currency fluctuations.




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59  Our international operations, including manufacturing, are subject to a variety of legal,
regulatory, political and economic risks, including risks relating to the importation and
exportation of product.
  
    
    Quotas imposed by bilateral textile agreements with China and non-WTO countries.
These agreements limit the amount and type of goods that may be imported annually
from these countries;
 
    
    Changes in social, political, legal and economic conditions or terrorist acts that
could result in the disruption of trade from the countries in which our
manufacturers or suppliers are located;
 
    
    The imposition of additional regulations relating to imports or exports;
 
    
    The imposition of additional duties, taxes and other charges on imports or exports;
 
    
    Risks of increased sourcing costs, including costs for materials and labor,
including as a result of the elimination of quota on apparel products;
 
    
    Our ability to adapt to and compete effectively in the current quota environment,
including changes in sourcing patterns resulting from the elimination of quota on
apparel products, as well as lowered barriers to entry;
 
    
    Significant delays in the delivery of cargo due to security considerations;
 
    
    The imposition of antidumping or countervailing duty proceedings resulting in the
potential assessment of special antidumping or countervailing duties; and
 
    
    The enactment of new legislation or the administration of current international
trade regulations, or executive action affecting international textile agreements,
including the United States reevaluation of the trading status of certain
countries and/or retaliatory duties, quotas or other trade sanctions, which, if
enacted, would increase the cost of products purchased from suppliers in such
countries, and the January 1, 2005 elimination of quota, which may significantly
impact sourcing patterns (although China has agreed to safeguard quota on certain
classes of apparel products through 2008 as a result of a surge in exports to the
United States, political pressure will likely continue for restraint on
importation of apparel).




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60





ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS




MaximumApproximate DollarTotal Number of
    
    
    Value of Shares thatTotal Number
    
    
    
    
    
    
    Shares Purchased as
    
    
    May Yet Beof Shares
    
    
    
    
    
    
    Part of Publicly
    
    
    Purchased Under thePurchased
    
    
    Average Price
    
    
    Announced Plans or
    
    
    Plans or ProgramsPeriod
    
    (in thousands)
    
    
    Paid Per Share
    
    
    Programs
    
    
    (in thousands) (2)April 6, 2008  May 3, 2008
    
    
    0.1
    (1)
    
    $
    18.50
    
    
    
    
    
    
    $
    28,749May 4, 2008  June 7, 2008
    
    
    0.5
    (1)
    
    
    19.03
    
    
    
    
    
    
    
    28,749June 8, 2008  July 5, 2008
    
    
    0.2
    (1)
    
    
    15.74
    
    
    
    
    
    
    
    28,749Total 13 weeks ended July 5, 2008
    
    
    0.8
    (1)
    
    $
    18.11
    
    
    
    
    
    
    $
    28,749





|    |  |                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | Includes shares withheld to cover tax-withholding
requirements relating to the vesting of restricted stock
issued to employees pursuant to the Companys
shareholder-approved stock incentive plans.                                                                                                                                                                  
|   
|(2) |  | The Company initially announced the authorization of a
share buyback program in December 1989. Since its
inception, the Companys Board of Directors has authorized
the purchase under the program of an aggregate of $2.275
billion of the Companys stock. As of August 1, 2008, the
Company had $28.7 million remaining in buyback
authorization under its program.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS




VotesNominee
    
    For
    
    Withheld
    
    AbstainKenneth B. Gilman
    
    
    81,004,099
    
    
    
    1,452,516
    
    
    
    698,394Kay Koplovitz
    
    
    80,909,508
    
    
    
    1,507,297
    
    
    
    738,205William L. McComb
    
    
    81,000,538
    
    
    
    1,437,137
    
    
    
    717,335Oliver R. Sockwell
    
    
    80,984,134
    
    
    
    1,449,203
    
    
    
    721,671







ITEM 5. OTHER INFORMATION






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61 
 ITEM 6. EXHIBITS
 10.1
    
    Second
Amendment to the Five-Year Credit Agreement dated as of October 13, 2004.31(a)
    
    Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.31(b)
    
    Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32(a)*
    
    Certification of Chief Executive Officer Pursuant to Section 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32(b)*
    
    Certification of Chief Financial Officer Pursuant to Section 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    A signed original of the written statement required by Section 906 has
been provided to the Company and will be retained by the Company and
forwarded to the S.E.C. or its staff upon request.




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62





SIGNATURES






LIZ CLAIBORNE, INC.
    
    
    
    LIZ CLAIBORNE, INC.By:
    
    /s/ Andrew Warren
    
    
    
    By:
    
    /s/ Elaine H. GoodellANDREW WARREN
Chief Financial Officer
(Principal financial officer)
    
    
    
    
    
    ELAINE H. GOODELL
Vice President  Corporate
Controller and 
Chief Accounting Officer
(Principal accounting officer)