##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended July 3, 2010
 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  (Registrants telephone number, including area code)
 Not Applicable  (Former name, former address and former fiscal year, if changed since last report)
 þ o
 o o
  Large accelerated filer o



Accelerated filer þ



Non-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 3, 2010
 PAGENUMBERPART I   FINANCIAL INFORMATIONItem 1. Financial Statements:Condensed Consolidated Balance Sheets as of July 3, 2010
(Unaudited), January 2, 2010 and July 4, 2009 (Unaudited)
    
    4Condensed Consolidated Statements of Operations for the Six and
Three Month Periods Ended July 3, 2010 (Unaudited) and July 4,
2009 (Unaudited)
    
    5Condensed Consolidated Statements of Cash Flows for the Six
Month Periods Ended July 3, 2010 (Unaudited) and July 4, 2009
(Unaudited)
    
    6Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    7  28Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    29  48Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    48  49Item 4. Controls and Procedures
    
    49PART II   OTHER INFORMATIONItem 1. Legal Proceedings
    
    49  50Item 1A. Risk Factors
    
    50  52Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    52Item 5. Other Information
    
    53Item 6. Exhibits
    
    53SIGNATURES
    
    54EX-3.AEX-31.AEX-31.BEX-32.AEX-32.B




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STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
  
    
    our ability to continue to have the liquidity necessary, through cash flows from
operations and availability under our amended and restated revolving credit facility, which
may be adversely impacted by a number of factors, including the level of our operating cash
flows, our ability to maintain established levels of availability under, and to comply with
the other covenants included in, our amended and restated revolving credit facility and the
borrowing base requirement in our amended and restated revolving credit facility that
limits the amount of borrowings we may make based on a formula of, among other things,
eligible accounts receivable and inventory; the minimum availability covenant in our
amended and restated revolving credit facility that requires us to maintain availability in
excess of an agreed upon level and whether holders of our Convertible Notes issued in
June 2009 will, if and when such notes are convertible, elect to convert a substantial
portion of such notes, the par value of which we must currently settle in cash;
 
    
    general economic conditions in the United States, Europe and other parts of the world;
 
    
    levels of consumer confidence, consumer spending and purchases of discretionary items,
including fashion apparel and related products, such as ours;
 
    
    continued restrictions in the credit and capital markets, which would impair our ability
to access additional sources of liquidity, if needed;
 
    
    changes in the cost of raw materials, labor, advertising and transportation;
 
    
    our dependence on a limited number of large US department store customers, and the risk
of consolidations, restructurings, bankruptcies and other ownership changes in the retail
industry and financial difficulties at our larger department store customers;
 
    
    our ability to successfully implement our long-term strategic plans;
 
    
    our ability to effect a turnaround of our MEXX Europe business;
 
    
    our ability to   successfully
re-launch our LUCKY BRAND product offering;
 
    
    our ability to respond to constantly changing consumer demands and tastes and fashion
trends, across multiple product lines, shopping channels and geographies;
 
    
    our ability to attract and retain talented, highly qualified executives, and maintain
satisfactory relationships with our employees, both union and non-union;
 
    
    our ability to adequately establish, defend and protect our trademarks and other
proprietary rights;
 
    
    our ability to successfully develop or acquire new product lines or enter new markets or
product categories, and risks related to such new lines, markets or categories;
 
    
    risks associated with the implementation of the licensing arrangements with J.C. Penney
Corporation, Inc. and J.C. Penney Company, Inc. and with QVC, Inc. discussed in this
report, including, without limitation, our ability to efficiently change our operational
model and infrastructure as a result of such licensing arrangements, our ability to
continue a good working relationship with these licensees and possible changes in our other
brand relationships or relationships with other retailers as a result;
 
    
    the impact of the highly competitive nature of the markets within which we operate, both
within the US and abroad;
 
    
    our reliance on independent foreign manufacturers, including the risk of their failure
to comply with safety standards or our policies regarding labor practices;
 
    
    risks associated with our agreement with Li & Fung Limited, which results in a single
foreign buying/sourcing agent for a significant portion of our products;
 
    
    a variety of legal, regulatory, political and economic risks, including risks related to
the importation and exportation of product, to which our international operations are
subject;
 
    
    our ability to adapt to and compete effectively in the current quota environment in
which general quota has expired on apparel products but political activity seeking to
re-impose quota has been initiated or threatened;
 
    
    our exposure to domestic and foreign currency fluctuations;
 
    
    our ability to complete the closure of our LIZ CLAIBORNE branded outlet operations on
terms satisfactory to us and the adverse effect such closure may have on our results of
operations and cash flows;
 
    
    limitations on our ability to utilize all or a portion of our US deferred tax assets if
we experience an ownership change; and
 
    
    the outcome of current and future litigations and other proceedings in which we are
involved, which may have a material adverse effect on our results of operations and cash
flows.




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PART I  FINANCIAL INFORMATION
 
 ITEM 1.
    
    FINANCIAL STATEMENTS
 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 July 3, 2010
    
    
    
    
    
    
    July 4, 2009(Unaudited)
    
    
    January 2, 2010
    
    
    (Unaudited)AssetsCurrent Assets:Cash and cash equivalents
    
    $
    21,477
    
    
    $
    20,372
    
    
    $
    52,910Accounts
receivable  trade, net
    
    
    192,209
    
    
    
    263,508
    
    
    
    296,653Inventories, net
    
    
    308,928
    
    
    
    319,713
    
    
    
    385,134Deferred income taxes
    
    
    13
    
    
    
    769
    
    
    
    5,576Other current assets
    
    
    110,935
    
    
    
    267,499
    
    
    
    123,554Assets held for sale
    
    
    15,070
    
    
    
    15,070
    
    
    
    16,649Total current assets
    
    
    648,632
    
    
    
    886,931
    
    
    
    880,476Property and Equipment, Net
    
    
    386,908
    
    
    
    444,688
    
    
    
    510,164Intangibles, Net
    
    
    224,809
    
    
    
    231,229
    
    
    
    250,425Deferred Income Taxes
    
    
    6,382
    
    
    
    7,565
    
    
    
    2,315Other Assets
    
    
    41,175
    
    
    
    35,490
    
    
    
    34,672Total Assets
    
    $
    1,307,906
    
    
    $
    1,605,903
    
    
    $
    1,678,052Liabilities and Stockholders EquityCurrent Liabilities:Short-term borrowings
    
    $
    67,127
    
    
    $
    70,868
    
    
    $
    139,264Convertible Senior Notes
    
    
    72,793
    
    
    
    71,137
    
    
    
    Accounts payable
    
    
    149,401
    
    
    
    144,942
    
    
    
    164,949Accrued expenses
    
    
    251,795
    
    
    
    343,288
    
    
    
    252,812Income taxes payable
    
    
    6,599
    
    
    
    5,167
    
    
    
    1,663Deferred income taxes
    
    
    7,392
    
    
    
    7,150
    
    
    
    Total current liabilities
    
    
    555,107
    
    
    
    642,552
    
    
    
    558,688Long-Term Debt
    
    
    449,704
    
    
    
    516,146
    
    
    
    578,363Other Non-Current Liabilities
    
    
    197,400
    
    
    
    201,027
    
    
    
    161,177Deferred Income Taxes
    
    
    28,094
    
    
    
    26,299
    
    
    
    37,135Commitments and Contingencies (Note 10)Stockholders Equity:Preferred stock, $0.01 par value, authorized shares 
50,000,000, issued shares  none
    
    
    
    
    
    
    
    
    
    
    Common stock, $1.00 par value, authorized shares 
250,000,000, issued shares  176,437,234
    
    
    176,437
    
    
    
    176,437
    
    
    
    176,437Capital in excess of par value
    
    
    329,190
    
    
    
    319,326
    
    
    
    312,534Retained earnings
    
    
    1,510,634
    
    
    
    1,669,316
    
    
    
    1,801,575Accumulated other comprehensive loss
    
    
    (57,045
    )
    
    
    (69,371
    )
    
    
    (75,056
    )1,959,216
    
    
    
    2,095,708
    
    
    
    2,215,490Common stock in treasury, at cost  81,943,392,
81,488,984 and 81,361,693 shares
    
    
    (1,884,333
    )
    
    
    (1,879,160
    )
    
    
    (1,876,430
    )Total Liz Claiborne, Inc. stockholders equity
    
    
    74,883
    
    
    
    216,548
    
    
    
    339,060Noncontrolling interest
    
    
    2,718
    
    
    
    3,331
    
    
    
    3,629Total stockholders equity
    
    
    77,601
    
    
    
    219,879
    
    
    
    342,689Total Liabilities and Stockholders Equity
    
    $
    1,307,906
    
    
    $
    1,605,903
    
    
    $
    1,678,052




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LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Six Months Ended
    
    
    Three Months EndedJuly 3, 2010
    
    
    July 4, 2009
    
    
    July 3, 2010
    
    
    July 4, 2009(26 Weeks)
    
    
    (26 Weeks)
    
    
    (13 Weeks)
    
    
    (13 Weeks)Net Sales
    
    $
    1,178,318
    
    
    $
    1,449,889
    
    
    $
    569,840
    
    
    $
    674,588Cost of goods sold
    
    
    613,788
    
    
    
    781,843
    
    
    
    287,531
    
    
    
    353,533Gross Profit
    
    
    564,530
    
    
    
    668,046
    
    
    
    282,309
    
    
    
    321,055Selling, general & administrative expenses
    
    
    714,530
    
    
    
    803,022
    
    
    
    366,265
    
    
    
    381,566Goodwill impairment
    
    
    
    
    
    
    2,785
    
    
    
    
    
    
    
    887Impairment of other intangible assets
    
    
    2,594
    
    
    
    
    
    
    
    2,594
    
    
    
    Operating Loss
    
    
    (152,594
    )
    
    
    (137,761
    )
    
    
    (86,550
    )
    
    
    (61,398
    )Other income (expense), net
    
    
    41,801
    
    
    
    (1,374
    )
    
    
    22,008
    
    
    
    (7,287
    )Interest expense, net
    
    
    (34,552
    )
    
    
    (29,452
    )
    
    
    (19,100
    )
    
    
    (15,570
    )Loss Before Provision (Benefit) for Income Taxes
    
    
    (145,345
    )
    
    
    (168,587
    )
    
    
    (83,642
    )
    
    
    (84,255
    )Provision (benefit) for income taxes
    
    
    5,367
    
    
    
    (6,451
    )
    
    
    3,783
    
    
    
    (7,711
    )Loss from Continuing Operations
    
    
    (150,712
    )
    
    
    (162,136
    )
    
    
    (87,425
    )
    
    
    (76,544
    )Discontinued operations, net of income taxes
    
    
    (8,525
    )
    
    
    (11,732
    )
    
    
    226
    
    
    
    (5,576
    )Net Loss
    
    
    (159,237
    )
    
    
    (173,868
    )
    
    
    (87,199
    )
    
    
    (82,120
    )Net loss attributable to the
noncontrolling interest
    
    
    (613
    )
    
    
    (383
    )
    
    
    (355
    )
    
    
    (14
    )Net Loss Attributable to Liz Claiborne, Inc.
    
    $
    (158,624
    )
    
    $
    (173,485
    )
    
    $
    (86,844
    )
    
    $
    (82,106
    )Earnings per Share:Basic and DilutedLoss from Continuing Operations Attributable to Liz
Claiborne, Inc.
    
    $
    (1.59
    )
    
    $
    (1.72
    )
    
    $
    (0.92
    )
    
    $
    (0.82
    )Net Loss Attributable to Liz Claiborne, Inc.
    
    $
    (1.68
    )
    
    $
    (1.85
    )
    
    $
    (0.92
    )
    
    $
    (0.87
    )Weighted Average Shares, Basic and Diluted
    
    
    94,207
    
    
    
    93,828
    
    
    
    94,243
    
    
    
    93,885




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LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six Months EndedJuly 3, 2010
    
    
    July 4, 2009(26 Weeks)
    
    
    (26 Weeks)Cash Flows from Operating Activities:Net loss
    
    $
    (159,237
    )
    
    $
    (173,868
    )Adjustments to arrive at loss from continuing operations
    
    
    8,525
    
    
    
    11,732Loss from continuing operations
    
    
    (150,712
    )
    
    
    (162,136
    )Adjustments to reconcile loss from continuing operations to net
cash provided by operating activities:Depreciation and amortization
    
    
    76,749
    
    
    
    79,114Impairment of goodwill and other intangible assets
    
    
    2,594
    
    
    
    2,785Loss on asset disposals and impairments, including
streamlining initiatives
    
    
    16,217
    
    
    
    11,102Share-based compensation
    
    
    3,591
    
    
    
    4,423Foreign currency gains, net
    
    
    (39,463
    )
    
    
    Other, net
    
    
    (630
    )
    
    
    137Changes in assets and liabilities:Decrease in accounts receivable  trade, net
    
    
    60,629
    
    
    
    47,108Decrease in inventories, net
    
    
    3,891
    
    
    
    76,542(Increase) decrease in other current and non-current assets
    
    
    (9,118
    )
    
    
    3,199Increase (decrease) in accounts payable
    
    
    9,235
    
    
    
    (40,472
    )(Decrease) increase in accrued expenses and other non-current liabilities
    
    
    (72,930
    )
    
    
    19,439Net change in income tax assets and liabilities
    
    
    166,941
    
    
    
    97,838Net cash provided by (used in) operating activities of
discontinued operations
    
    
    70
    
    
    
    (10,897
    )Net cash provided by operating activities
    
    
    67,064
    
    
    
    128,182Cash Flows from Investing Activities:Purchases of property and equipment
    
    
    (28,611
    )
    
    
    (35,131
    )Payments for purchases of businesses
    
    
    (5,000
    )
    
    
    (8,755
    )Payments for in-store merchandise shops
    
    
    (813
    )
    
    
    (4,978
    )Investments in and advances to equity investee
    
    
    (4,033
    )
    
    
    Other, net
    
    
    (244
    )
    
    
    (721
    )Net cash used in investing activities of discontinued operations
    
    
    (6,099
    )
    
    
    (478
    )Net cash used in investing activities
    
    
    (44,800
    )
    
    
    (50,063
    )Cash Flows from Financing Activities:Short-term borrowings, net
    
    
    (6,608
    )
    
    
    (97,810
    )Proceeds from borrowings on revolving credit agreement
    
    
    159,447
    
    
    
    Repayment of borrowings on revolving credit agreement
    
    
    (153,961
    )
    
    
    Proceeds from issuance of Convertible Senior Notes
    
    
    
    
    
    
    90,000Principal payments under capital lease obligations
    
    
    (3,627
    )
    
    
    (2,148
    )Payment of deferred financing fees
    
    
    (12,827
    )
    
    
    (37,182
    )Net cash used in financing activities
    
    
    (17,576
    )
    
    
    (47,140
    )Effect of Exchange Rate Changes on Cash and Cash Equivalents
    
    
    (3,583
    )
    
    
    (3,500
    )Net Change in Cash and Cash Equivalents
    
    
    1,105
    
    
    
    27,479Cash and Cash Equivalents at Beginning of Period
    
    
    20,372
    
    
    
    25,431Cash and Cash Equivalents at End of Period
    
    $
    21,477
    
    
    $
    52,910




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




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8    NATURE OF OPERATIONS
  PRINCIPLES OF CONSOLIDATION
  USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES
   RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
  OTHER MATTERS




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9




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10       Six Months Ended
    
    
    Three Months EndedJuly 3, 2010
    
    
    July 4, 2009
    
    
    July 3, 2010
    
    
    July 4, 2009In thousands
    
    (26 Weeks)
    
    
    (26 Weeks)
    
    
    (13 Weeks)
    
    
    (13 Weeks)Net sales
    
    $
    13,138
    
    
    $
    14,007
    
    
    $
    7,735
    
    
    $
    8,847(Loss) income before (benefit)
provision for income taxes
    
    $
    (2,461
    )
    
    $
    (9,119
    )
    
    $
    218
    
    
    $
    (4,357
    )(Benefit) provision for income taxes
    
    
    (728
    )
    
    
    
    
    
    
    9
    
    
    
    (Loss) income from discontinued
operations, net of income taxes
    
    $
    (1,733
    )
    
    $
    (9,119
    )
    
    $
    209
    
    
    $
    (4,357
    )(Loss) income on disposal of
discontinued operations, net of
income taxes
    
    $
    (6,792
    )
    
    $
    (2,613
    )
    
    $
    17
    
    
    $
    (1,219
    )




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11   CommonCapital in
    
    
    
    
    
    
    Stock inExcess of Par
    
    
    Retained
    
    
    Treasury, at
    
    
    NoncontrollingIn thousands
    
    Value
    
    
    Earnings
    
    
    Cost
    
    
    InterestBalance as of January 2, 2010
    
    $
    319,326
    
    
    $
    1,669,316
    
    
    $
    (1,879,160
    )
    
    $
    3,331Net loss
    
    
    
    
    
    
    (158,624
    )
    
    
    
    
    
    
    (613
    )Restricted shares issued, net
of cancellations and
shares withheld for taxes
    
    
    6,288
    
    
    
    
    
    
    
    (5,224
    )
    
    
    Share-based compensation
    
    
    3,591
    
    
    
    
    
    
    
    
    
    
    
    Dividend equivalent units vested
    
    
    (15
    )
    
    
    (58
    )
    
    
    51
    
    
    
    Balance as of July 3, 2010
    
    $
    329,190
    
    
    $
    1,510,634
    
    
    $
    (1,884,333
    )
    
    $
    2,718
  CommonCapital in
    
    
    
    
    
    
    Stock inExcess of Par
    
    
    Retained
    
    
    Treasury, at
    
    
    NoncontrollingIn thousands
    
    Value
    
    
    Earnings
    
    
    Cost
    
    
    InterestBalance as of January 3, 2009
    
    $
    292,144
    
    
    $
    1,975,082
    
    
    $
    (1,873,300
    )
    
    $
    4,012Net loss
    
    
    
    
    
    
    (173,485
    )
    
    
    
    
    
    
    (383
    )Issuance of Convertible Senior Notes, net
    
    
    11,992
    
    
    
    
    
    
    
    
    
    
    
    Restricted shares issued, net of
cancellations and
shares withheld for taxes
    
    
    3,999
    
    
    
    
    
    
    
    (3,169
    )
    
    
    Share-based compensation
    
    
    4,423
    
    
    
    
    
    
    
    
    
    
    
    Dividend equivalent units vested
    
    
    (24
    )
    
    
    (22
    )
    
    
    39
    
    
    
    Balance as of July 4, 2009
    
    $
    312,534
    
    
    $
    1,801,575
    
    
    $
    (1,876,430
    )
    
    $
    3,629




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12 
 Six Months Ended
    
    
    Three Months EndedJuly 3, 2010
    
    
    July 4, 2009
    
    
    July 3, 2010
    
    
    July 4, 2009In thousands
    
    (26 Weeks)
    
    
    (26 Weeks)
    
    
    (13 Weeks)
    
    
    (13 Weeks)Net loss
    
    $
    (159,237
    )
    
    $
    (173,868
    )
    
    $
    (87,199
    )
    
    $
    (82,120
    )Other comprehensive (loss) income, net of income
taxes:Change in cumulative translation adjustment
    
    
    26,802
    
    
    
    28
    
    
    
    1,980
    
    
    
    18,978Change in cumulative translation adjustment on
Eurobond and other instruments, net of income
taxes of $2,091, $1,033, $2,780 and $1,033,
respectively
    
    
    (26,901
    )
    
    
    (3,310
    )
    
    
    (8,715
    )
    
    
    (20,880
    )Change in unrealized gains (losses) on
available-for-sale securities, net of income
taxes of $0, $0, $0 and $0, respectively
    
    
    (22
    )
    
    
    177
    
    
    
    (22
    )
    
    
    253Change in fair value of cash flow hedges, net of
income taxes of $2,062, $(640), $1,188 and
$(474), respectively
    
    
    12,447
    
    
    
    (5,235
    )
    
    
    4,891
    
    
    
    (8,503
    )Comprehensive loss
    
    
    (146,911
    )
    
    
    (182,208
    )
    
    
    (89,065
    )
    
    
    (92,272
    )Comprehensive loss attributable to the noncontrolling
interest
    
    
    613
    
    
    
    383
    
    
    
    355
    
    
    
    14Comprehensive loss attributable to Liz Claiborne, Inc.
    
    $
    (146,298
    )
    
    $
    (181,825
    )
    
    $
    (88,710
    )
    
    $
    (92,258
    )
  In thousands
    
    July 3, 2010
    
    
    January 2, 2010
    
    
    July 4, 2009Cumulative translation adjustment, net of income taxes
of $5,038, $7,129 and $17,082, respectively
    
    $
    (64,247
    )
    
    $
    (64,148
    )
    
    $
    (66,304
    )Unrealized gains (losses) on cash flow hedging
derivatives, net of income taxes of $(229), $1,833 and
$386, respectively
    
    
    6,883
    
    
    
    (5,564
    )
    
    
    (8,382
    )Unrealized gains (losses) on available-for-sale
securities, net of income taxes of $0, $0 and $0,
respectively
    
    
    319
    
    
    
    341
    
    
    
    (370
    )Accumulated other comprehensive loss, net of income taxes
    
    $
    (57,045
    )
    
    $
    (69,371
    )
    
    $
    (75,056
    )
   In thousands
    
    July 3, 2010
    
    
    January 2, 2010
    
    
    July 4, 2009Raw materials
    
    $
    3,053
    
    
    $
    5,896
    
    
    $
    17,600Work in process
    
    
    21
    
    
    
    773
    
    
    
    3,396Finished goods
    
    
    305,854
    
    
    
    313,044
    
    
    
    364,138Total inventories, net
    
    $
    308,928
    
    
    $
    319,713
    
    
    $
    385,134




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##### Table of Contents



13   In thousands
    
    July 3, 2010
    
    
    January 2, 2010
    
    
    July 4, 2009Land and buildings
    
    $
    69,235
    
    
    $
    69,235
    
    
    $
    69,300Machinery and equipment
    
    
    318,195
    
    
    
    312,444
    
    
    
    337,790Furniture and fixtures
    
    
    249,271
    
    
    
    274,235
    
    
    
    277,895Leasehold improvements
    
    
    486,882
    
    
    
    529,281
    
    
    
    550,1531,123,583
    
    
    
    1,185,195
    
    
    
    1,235,138Less: Accumulated depreciation and
amortization
    
    
    736,675
    
    
    
    740,507
    
    
    
    724,974Total property and equipment, net
    
    $
    386,908
    
    
    $
    444,688
    
    
    $
    510,164
 
   WeightedAverageAmortizationIn thousands
    
    Period
    
    July 3, 2010
    
    
    January 2, 2010
    
    
    July 4, 2009Amortized intangible assets:Gross carrying amount:Licensed trademarks (a)
    
    
    
    $
    
    
    
    $
    
    
    
    $
    32,154Owned trademarks
    
    5 years
    
    
    1,000
    
    
    
    1,000
    
    
    
    1,000Customer relationships
    
    13 years
    
    
    12,195
    
    
    
    12,220
    
    
    
    12,041Merchandising rights (b)
    
    4 years
    
    
    25,658
    
    
    
    35,025
    
    
    
    47,963Other
    
    4 years
    
    
    2,322
    
    
    
    2,322
    
    
    
    2,322Subtotal
    
    7 years
    
    
    41,175
    
    
    
    50,567
    
    
    
    95,480Accumulated amortization:Licensed trademarks
    
    
    
    
    
    
    
    
    
    
    
    
    (21,207
    )Owned trademarks
    
    
    
    
    (616
    )
    
    
    (517
    )
    
    
    (417
    )Customer relationships
    
    
    
    
    (3,910
    )
    
    
    (3,426
    )
    
    
    (2,882
    )Merchandising rights
    
    
    
    
    (19,210
    )
    
    
    (23,488
    )
    
    
    (27,287
    )Other
    
    
    
    
    (1,565
    )
    
    
    (1,487
    )
    
    
    (1,312
    )Subtotal
    
    
    
    
    (25,301
    )
    
    
    (28,918
    )
    
    
    (53,105
    )Net:Licensed trademarks
    
    
    
    
    
    
    
    
    
    
    
    
    10,947Owned trademarks
    
    
    
    
    384
    
    
    
    483
    
    
    
    583Customer relationships
    
    
    
    
    8,285
    
    
    
    8,794
    
    
    
    9,159Merchandising rights
    
    
    
    
    6,448
    
    
    
    11,537
    
    
    
    20,676Other
    
    
    
    
    757
    
    
    
    835
    
    
    
    1,010Total amortized intangible assets, net
    
    
    
    
    15,874
    
    
    
    21,649
    
    
    
    42,375Unamortized intangible assets:Owned trademarks
    
    
    
    
    208,935
    
    
    
    209,580
    
    
    
    208,050Total intangible assets
    
    
    
    $
    224,809
    
    
    $
    231,229
    
    
    $
    250,425




---



##### Table of Contents



14 
 (a)
    
    The decrease in the balance compared to July 4, 2009 reflected a non-cash
impairment charge of $9.5 million recorded in the fourth quarter of 2009 within the Companys
Partnered Brands segment related to the Companys licensed trademark intangible asset
associated with its licensed DKNY® JEANS and DKNY® ACTIVE brands.(b)
    
    The decrease in the balance compared to July 4, 2009 included non-cash impairment
charges of $2.6 million recorded in the second quarter of 2010 primarily within the Companys
Partnered Brands segment related to merchandising rights of its LIZ CLAIBORNE and licensed
DKNY® JEANS brands and a non-cash impairment charge of $4.7 million recorded in the fourth
quarter of 2009 within the Companys Partnered Brands segment primarily related to LIZ
CLAIBORNE merchandising rights.   (In millions)Fiscal Year
    
    Amortization Expense2010
    
    $
    5.62011
    
    
    3.72012
    
    
    2.32013
    
    
    1.22014
    
    
    0.9




---



##### Table of Contents



15    In thousands
    
    July 3, 2010
    
    
    January 2, 2010
    
    
    July 4, 20095.0% Notes, due July 2013 (a)
    
    $
    438,743
    
    
    $
    501,827
    
    
    $
    488,8926.0% Convertible Senior Notes, due June 2014 (b)
    
    
    72,793
    
    
    
    71,137
    
    
    
    69,508Revolving credit facility
    
    
    63,036
    
    
    
    66,507
    
    
    
    138,231Capital lease obligations
    
    
    15,052
    
    
    
    18,680
    
    
    
    20,764Other
    
    
    
    
    
    
    
    
    
    
    232Total debt
    
    
    589,624
    
    
    
    658,151
    
    
    
    717,627Less: Short-term borrowings (c)
    
    
    67,127
    
    
    
    70,868
    
    
    
    139,264Convertible Notes (d)
    
    
    72,793
    
    
    
    71,137
    
    
    
    Long-term debt
    
    $
    449,704
    
    
    $
    516,146
    
    
    $
    578,363
 
 (a)
    
    The change in the balance of these euro-denominated notes reflected the impact
of changes in foreign currency exchange rates.(b)
    
    The balance at July 3, 2010, January 2, 2010 and July 4, 2009 represented principal
of $90.0 million and an unamortized debt discount of $17.2 million, $18.9 million and $20.5
million, respectively.(c)
    
    At July 3, 2010, the balance primarily consisted of outstanding borrowings under the
Companys amended and restated revolving credit facility and obligations under capital leases.(d)
    
    The Convertible Notes were reflected as a current liability since they were
convertible at July 3, 2010 and January 2, 2010, respectively. 5.0% Notes
  6.0% Convertible Senior Notes




---



##### Table of Contents



16   Amended and Restated Revolving Credit Facility




---



##### Table of Contents



17  Total
    
    Borrowing
    
    Outstanding
    
    Letters of
    
    Available
    
    ExcessIn thousands
    
    Facility (a)
    
    Base (a)
    
    Borrowings
    
    Credit Issued
    
    Capacity
    
    Capacity (b)Revolving credit
facility
(a)
    
    $
    350,000
    
    
    $
    288,438
    
    
    $
    63,036
    
    
    $
    30,262
    
    
    $
    195,140
    
    
    $
    150,140
 
 (a)
    
    Availability under the Amended Agreement is the lesser of $350.0 million or a
borrowing base comprised primarily of eligible accounts receivable and inventory.(b)
    
    Excess capacity represents available capacity reduced by the minimum required aggregate
borrowing availability under the Amended Agreement of $45.0 million. Capital Lease
    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 the
Company, which reflect those that a market participant would use.
  Level 2In thousands
    
    July 3, 2010
    
    January 2, 2010
    
    July 4, 2009Financial Assets:Derivatives
    
    $
    5,664
    
    
    $
    586
    
    
    $
    336Financial Liabilities:Derivatives
    
    $
    (84
    )
    
    $
    (3,781
    )
    
    $
    (8,179
    )
   Total LossesNet Carrying
    
    Fair Value Measured and Recorded
    
    Six Months
    
    Three MonthsValue as of
    
    at Reporting Date Using:
    
    Ended
    
    EndedIn thousands
    
    July 3, 2010
    
    Level 1
    
    Level 2
    
    Level 3
    
    July 3, 2010
    
    July 3, 2010Property and equipment
    
    $
    3,393
    
    
    $
    
    
    
    $
    
    
    
    $
    3,393
    
    
    $
    14,775
    
    
    $
    13,152Intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,594
    
    
    
    2,594




---



##### Table of Contents



18  Total LossesNet Carrying
    
    Fair Value Measured and Recorded
    
    Six Months
    
    Three MonthsValue as of
    
    at Reporting Date Using:
    
    Ended
    
    EndedIn thousands
    
    July 4, 2009
    
    Level 1
    
    Level 2
    
    Level 3
    
    July 4, 2009
    
    July 4, 2009Property and equipment
    
    $
    681
    
    
    $
    
    
    
    $
    
    
    
    $
    681
    
    
    $
    3,584
    
    
    $
    494
    July 3, 2010
    
    January 2, 2010
    
    July 4, 2009Carrying
    
    
    
    
    
    Carrying
    
    
    
    
    
    CarryingIn thousands
    
    Fair Value
    
    Value
    
    Fair Value
    
    Value
    
    Fair Value
    
    Value5.0% Notes, due July 2013 (a)
    
    $
    360,267
    
    
    $
    438,743
    
    
    $
    392,615
    
    
    $
    501,827
    
    
    $
    333,716
    
    
    $
    488,8926.0% Convertible Senior Notes, due June
2014 (a)
    
    
    126,567
    
    
    
    72,793
    
    
    
    160,738
    
    
    
    71,137
    
    
    
    93,449
    
    
    
    69,508Revolving credit facility (b)
    
    
    63,036
    
    
    
    63,036
    
    
    
    66,507
    
    
    
    66,507
    
    
    
    138,231
    
    
    
    138,231
 
 (a)
    
    Carrying values include unamortized debt discount.(b)
    
    Borrowings under the revolving credit facility bear interest based on market rate;
accordingly, its fair value approximates its carrying value.   Buying/Sourcing




---



##### Table of Contents



19 Acquisitions
   Other




---



##### Table of Contents



20  2010 Actions
  
    
    planned closure of its Vernon, California distribution facility, which is expected to
close on or about October 15, 2010; and
    
    planned closure of a distribution facility in Marcel Laurin, Canada, which is expected
to close on or about August 15, 2010.
   2009 Actions




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##### Table of Contents



21  Six Months Ended
    
    
    Three Months EndedJuly 3, 2010
    
    
    July 4, 2009
    
    
    July 3, 2010
    
    
    July 4, 2009In thousands
    
    (26 Weeks)
    
    
    (26 Weeks)
    
    
    (13 Weeks)
    
    
    (13 Weeks)Domestic-Based Direct Brands
    
    $
    11,391
    
    
    $
    12,355
    
    
    $
    6,547
    
    
    $
    1,775International-Based Direct Brands
    
    
    3,086
    
    
    
    14,423
    
    
    
    1,567
    
    
    
    10,597Partnered Brands
    
    
    32,741
    
    
    
    20,402
    
    
    
    25,504
    
    
    
    1,467Total
    
    $
    47,218
    
    
    $
    47,180
    
    
    $
    33,618
    
    
    $
    13,839
  ContractPayroll and
    
    
    Termination
    
    
    AssetIn thousands
    
    Related Costs
    
    
    Costs
    
    
    Write-Downs
    
    
    Other Costs
    
    
    TotalBalance at January 2, 2010
    
    $
    32,696
    
    
    $
    22,821
    
    
    $
    
    
    
    $
    7,204
    
    
    $
    62,7212010 provision
    
    
    8,392
    
    
    
    21,281
    
    
    
    12,245
    
    
    
    5,300
    
    
    
    47,2182010 asset write-downs
    
    
    
    
    
    
    
    
    
    
    (12,245
    )
    
    
    
    
    
    
    (12,245
    )Translation difference
    
    
    (966
    )
    
    
    (224
    )
    
    
    
    
    
    
    (600
    )
    
    
    (1,790
    )2010 spending
    
    
    (33,264
    )
    
    
    (16,146
    )
    
    
    
    
    
    
    (6,244
    )
    
    
    (55,654
    )Balance at July 3, 2010
    
    $
    6,858
    
    
    $
    27,732
    
    
    $
    
    
    
    $
    5,660
    
    
    $
    40,250
   Six Months Ended
    
    
    Three Months EndedJuly 3, 2010
    
    
    July 4, 2009
    
    
    July 3, 2010
    
    
    July 4, 2009In thousands
    
    (26 Weeks)
    
    
    (26 Weeks)
    
    
    (13 Weeks)
    
    
    (13 Weeks)Loss from continuing operations
    
    $
    (150,712
    )
    
    $
    (162,136
    )
    
    $
    (87,425
    )
    
    $
    (76,544
    )Net loss attributable to the noncontrolling
interest
    
    
    (613
    )
    
    
    (383
    )
    
    
    (355
    )
    
    
    (14
    )Loss from continuing operations attributable to
Liz Claiborne, Inc.
    
    
    (150,099
    )
    
    
    (161,753
    )
    
    
    (87,070
    )
    
    
    (76,530
    )(Loss) income from discontinued operations, net of
income taxes
    
    
    (8,525
    )
    
    
    (11,732
    )
    
    
    226
    
    
    
    (5,576
    )Net loss attributable to Liz Claiborne, Inc.
    
    $
    (158,624
    )
    
    $
    (173,485
    )
    
    $
    (86,844
    )
    
    $
    (82,106
    )Basic weighted average shares outstanding
    
    
    94,207
    
    
    
    93,828
    
    
    
    94,243
    
    
    
    93,885Stock options and nonvested shares(a)(b)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Convertible Notes(c)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted weighted average shares outstanding
    
    
    94,207
    
    
    
    93,828
    
    
    
    94,243
    
    
    
    93,885Earnings per share:Basic and dilutedLoss from continuing operations attributable to
Liz Claiborne, Inc.
    
    $
    (1.59
    )
    
    $
    (1.72
    )
    
    $
    (0.92
    )
    
    $
    (0.82
    )(Loss) income from discontinued operations
attributable to Liz Claiborne, Inc.
    
    $
    (0.09
    )
    
    $
    (0.13
    )
    
    $
    
    
    
    $
    (0.05
    )Net loss attributable to Liz Claiborne, Inc.
    
    $
    (1.68
    )
    
    $
    (1.85
    )
    
    $
    (0.92
    )
    
    $
    (0.87
    )




---



##### Table of Contents



22 
 (a)
    
    Because the Company incurred a loss from continuing operations for the six and
three months ended July 3, 2010 and July 4, 2009, all outstanding stock options and nonvested
shares are antidilutive for such periods. Accordingly, for the six and three months ended July
3, 2010 and July 4, 2009, approximately 5.9 million and 6.3 million outstanding stock options,
respectively and approximately 0.9 million and 1.2 million outstanding nonvested shares,
respectively, were excluded from the computation of diluted loss per share.(b)
    
    Excludes approximately 0.2 million and 0.4 million nonvested shares for the
six and three months ended July 3, 2010 and July 4, 2009, respectively, for which the
performance criteria have not yet been achieved.(c)
    
    Because the Company incurred a loss from continuing operations for the six
and three months ended July 3, 2010, approximately 11.2 million and 11.6 million potentially
dilutive shares issuable upon conversion of the Convertible Notes were considered antidilutive
for such periods, and were excluded from the computation of diluted loss per share. The
average market price of the Companys stock during the six and three months ended July 4, 2009
was less than $3.58 and, as a result, the Convertible Notes were not dilutive for the six and
three months ended July 4, 2009.  Licensing-Related Transactions
    Condensed Consolidated Statements of Cash Flows Supplementary Disclosures
    Related Party Transactions




---



##### Table of Contents



23    
    
    Domestic-Based 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 three domestic, retail-based operating
segments: JUICY COUTURE, KATE SPADE and LUCKY BRAND.
    
    International-Based Direct Brands segment  consists of the specialty retail,
outlet, concession, wholesale apparel, wholesale non-apparel (including accessories,
jewelry and handbags), e-commerce and licensing operations of MEXX, the Companys
international, retail-based operating segment.
    
    Partnered Brands segment  consists of one operating segment including the
wholesale apparel, wholesale non-apparel, specialty retail, outlet, e-commerce and
licensing operations of the Companys wholesale-based brands including: AXCESS,
CLAIBORNE (mens), CONCEPTS BY CLAIBORNE, DANA BUCHMAN, KENSIE, LIZ & CO., LIZ CLAIBORNE,
MAC & JAC, MARVELLA, MONET, TRIFARI and the Companys licensed DKNY® JEANS and DKNY® ACTIVE
brands.
  OperatingDollars in thousands
    
    Net Sales
    
    
    % to Total
    
    
    Loss
    
    
    % of SalesSix Months Ended July 3, 2010 (26 weeks)Domestic-Based Direct Brands
    
    $
    482,772
    
    
    
    41.0
    %
    
    $
    (23,024
    )
    
    
    (4.8
    )%International-Based Direct Brands
    
    
    343,703
    
    
    
    29.2
    %
    
    
    (55,633
    )
    
    
    (16.2
    )%Partnered Brands
    
    
    351,843
    
    
    
    29.8
    %
    
    
    (73,937
    )
    
    
    (21.0
    )%Totals
    
    $
    1,178,318
    
    
    
    100.0
    %
    
    $
    (152,594
    )
    
    
    (13.0
    )%Six Months Ended July 4, 2009 (26 weeks)Domestic-Based Direct Brands
    
    $
    510,399
    
    
    
    35.2
    %
    
    $
    (30,294
    )
    
    
    (5.9
    )%International-Based Direct Brands
    
    
    397,096
    
    
    
    27.4
    %
    
    
    (50,304
    )
    
    
    (12.7
    )%Partnered Brands
    
    
    542,394
    
    
    
    37.4
    %
    
    
    (57,163
    )
    
    
    (10.5
    )%Totals
    
    $
    1,449,889
    
    
    
    100.0
    %
    
    $
    (137,761
    )
    
    
    (9.5
    )%




---



##### Table of Contents



24 OperatingDollars in thousands
    
    Net Sales
    
    
    % to Total
    
    
    Loss
    
    
    % of SalesThree Months Ended July 3, 2010 (13 weeks)Domestic-Based Direct Brands
    
    $
    239,911
    
    
    
    42.1
    %
    
    $
    (13,051
    )
    
    
    (5.4
    )%International-Based Direct Brands
    
    
    162,541
    
    
    
    28.5
    %
    
    
    (26,170
    )
    
    
    (16.1
    )%Partnered Brands
    
    
    167,388
    
    
    
    29.4
    %
    
    
    (47,329
    )
    
    
    (28.3
    )%Totals
    
    $
    569,840
    
    
    
    100.0
    %
    
    $
    (86,550
    )
    
    
    (15.2
    )%Three Months Ended July 4, 2009 (13 weeks)Domestic-Based Direct Brands
    
    $
    250,863
    
    
    
    37.2
    %
    
    $
    (9,131
    )
    
    
    (3.6
    )%International-Based Direct Brands
    
    
    188,555
    
    
    
    27.9
    %
    
    
    (33,113
    )
    
    
    (17.6
    )%Partnered Brands
    
    
    235,170
    
    
    
    34.9
    %
    
    
    (19,154
    )
    
    
    (8.1
    )%Totals
    
    $
    674,588
    
    
    
    100.0
    %
    
    $
    (61,398
    )
    
    
    (9.1
    )%
  OperatingDollars in thousands
    
    Net Sales
    
    
    % to Total
    
    
    Loss
    
    
    % of SalesSix Months Ended July 3, 2010 (26 weeks)Domestic
    
    $
    769,927
    
    
    
    65.3
    %
    
    $
    (91,254
    )
    
    
    (11.9
    )%International
    
    
    408,391
    
    
    
    34.7
    %
    
    
    (61,340
    )
    
    
    (15.0
    )%Totals
    
    $
    1,178,318
    
    
    
    100.0
    %
    
    $
    (152,594
    )
    
    
    (13.0
    )%Six Months Ended July 4, 2009 (26 weeks)Domestic
    
    $
    985,587
    
    
    
    68.0
    %
    
    $
    (71,507
    )
    
    
    (7.3
    )%International
    
    
    464,302
    
    
    
    32.0
    %
    
    
    (66,254
    )
    
    
    (14.3
    )%Totals
    
    $
    1,449,889
    
    
    
    100.0
    %
    
    $
    (137,761
    )
    
    
    (9.5
    )%
 OperatingDollars in thousands
    
    Net Sales
    
    
    % to Total
    
    
    Loss
    
    
    % of SalesThree Months Ended July 3, 2010 (13 weeks)Domestic
    
    $
    373,096
    
    
    
    65.5
    %
    
    $
    (57,108
    )
    
    
    (15.3
    )%International
    
    
    196,744
    
    
    
    34.5
    %
    
    
    (29,442
    )
    
    
    (15.0
    )%Totals
    
    $
    569,840
    
    
    
    100.0
    %
    
    $
    (86,550
    )
    
    
    (15.2
    )%Three Months Ended July 4, 2009 (13 weeks)Domestic
    
    $
    455,832
    
    
    
    67.6
    %
    
    $
    (21,285
    )
    
    
    (4.7
    )%International
    
    
    218,756
    
    
    
    32.4
    %
    
    
    (40,113
    )
    
    
    (18.3
    )%Totals
    
    $
    674,588
    
    
    
    100.0
    %
    
    $
    (61,398
    )
    
    
    (9.1
    )%




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##### Table of Contents



25   Foreign Currency Contracts Designated as Hedging InstrumentsIn thousands
    
    Asset Derivatives
    
    Liability DerivativesBalance Sheet
    
    Notional
    
    
    
    
    
    Balance Sheet
    
    NotionalPeriod
    
    Location
    
    Amount
    
    Fair Value
    
    Location
    
    Amount
    
    Fair ValueJuly 3, 2010
    
    Other current assets
    
    $
    63,431
    
    
    $
    5,664
    
    
    Accrued expenses
    
    $
    
    
    
    $
    January 2, 2010
    
    Other current assets
    
    
    26,408
    
    
    
    586
    
    
    Accrued expenses
    
    
    74,634
    
    
    
    3,091July 4, 2009
    
    Other current assets
    
    
    18,838
    
    
    
    240
    
    
    Accrued expenses
    
    
    135,169
    
    
    
    7,940Foreign Currency Contracts Not Designated as Hedging InstrumentsIn thousands
    
    Asset Derivatives
    
    Liability DerivativesBalance Sheet
    
    Notional
    
    
    
    
    
    Balance Sheet
    
    NotionalPeriod
    
    Location
    
    Amount
    
    Fair Value
    
    Location
    
    Amount
    
    Fair ValueJuly 3, 2010
    
    Other current assets
    
    $
    
    
    
    $
    
    
    
    Accrued expenses
    
    $
    3,899
    
    
    $
    84January 2, 2010
    
    Other current assets
    
    
    
    
    
    
    
    
    
    Accrued expenses
    
    
    12,015
    
    
    
    690July 4, 2009
    
    Other current assets
    
    
    5,488
    
    
    
    96
    
    
    Accrued expenses
    
    
    6,227
    
    
    
    239
  Location of Gain or
    
    
    
    
    
    Amount of Gain orAmount of Gain or
    
    (Loss) Reclassified
    
    Amount of Gain or
    
    (Loss) Recognized(Loss) Recognized
    
    from Accumulated
    
    (Loss) Reclassified
    
    in Operations onin Accumulated
    
    OCI into Operations
    
    from Accumulated
    
    DerivativeOCI on Derivative
    
    (Effective and
    
    OCI into Operations
    
    (IneffectiveIn thousands
    
    (Effective Portion)
    
    Ineffective Portion)
    
    (Effective Portion)
    
    Portion)Six months ended
July 3, 2010
    
    $
    8,961
    
    
    Cost of goods sold
    
    $
    (5,548
    )
    
    $
    (124
    )Six months ended
July 4, 2009
    
    
    360
    
    
    Cost of goods sold
    
    
    5,903
    
    
    
    (124
    )Three months ended
July 3, 2010
    
    
    5,173
    
    
    Cost of goods sold
    
    
    (906
    )
    
    
    235
    )Three months ended
July 4, 2009
    
    
    (5,146
    )
    
    Cost of goods sold
    
    
    3,831
    
    
    
    (503
    )




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##### Table of Contents



26        Stock Options
  Six Months EndedValuation Assumptions:
    
    July 3, 2010
    
    July 4, 2009Weighted-average fair value of options granted
    
    $
    3.56
    
    
    $
    1.84Expected volatility
    
    56.9% to 58.8%
    
    48.7% to 74.8%Weighted-average volatility
    
    
    58.4
    %
    
    
    61.9
    %Expected term (in years)
    
    
    5.0
    
    
    
    5.1Dividend yield
    
    
    
    
    
    
    Risk-free rate
    
    0.3% to 5.3%
    
    0.5% to 5.0%Expected annual forfeiture
    
    
    12.6
    %
    
    
    12.0
    %




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##### Table of Contents



27  Weighted
    
    Weighted Average
    
    AggregateAverage Exercise
    
    Remaining
    
    Intrinsic ValueShares
    Price
    Contractual Term
    (In thousands)Outstanding at January 2, 2010
    
    
    4,918,630
    
    
    $
    19.27
    
    
    
    4.9
    
    
    $
    4,736Granted
    
    
    1,490,000
    
    
    
    7.08Cancelled
    
    
    (550,984
    )
    
    
    17.09Outstanding at July 3, 2010
    
    
    5,857,646
    
    
    $
    16.38
    
    
    
    5.0
    
    
    $
    2,022Vested or expected to vest at July 3, 2010
    
    
    5,201,841
    
    
    $
    17.69
    
    
    
    4.9
    
    
    $
    1,673Exercisable at July 3, 2010
    
    
    2,033,671
    
    
    $
    31.83
    
    
    
    3.2
    
    
    $
    17
   Restricted Stock
  WeightedAverage GrantShares
    
    
    Date Fair ValueNonvested stock at January 2, 2010 (a)
    
    
    1,132,856
    
    
    $
    16.58Granted
    
    
    363,500
    
    
    
    6.95Vested
    
    
    (228,994
    )
    
    
    31.35Cancelled
    
    
    (190,955
    )
    
    
    9.43Nonvested stock at July 3, 2010 (a)
    
    
    1,076,407
    
    
    $
    11.45Expected to vest as of July 3, 2010
    
    
    669,830
    
    
    $
    11.38
 
 (a)
    
    In the second and third quarters of 2008, performance shares were granted to a
group of key executives. These shares are subject to certain service and performance
conditions, a portion of which were measured as of fiscal 2008 year-end and the remainder will
be measured at fiscal 2010 year-end. The shares which were contingently issuable based on 2008
performance were deemed not earned and were cancelled. The ultimate amount of earned shares
measured at fiscal 2010 year-end 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.   The Levy Group, Inc. L.C. Licensing, Inc. and Liz Claiborne, Inc.




---



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28




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 OVERVIEW
 Business / Segments
  
    
    Domestic-Based 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 three domestic, retail-based operating segments:
JUICY COUTURE, KATE SPADE and LUCKY BRAND.
    
    International-Based Direct Brands segment  consists of the specialty retail,
outlet, concession, wholesale apparel, wholesale non-apparel (including accessories,
jewelry and handbags), e-commerce and licensing operations of MEXX, our international,
retail-based operating segment.
    
    Partnered Brands segment  consists of one operating segment including the
wholesale apparel, wholesale non-apparel, specialty retail, outlet, e-commerce and
licensing operations of our wholesale-based brands including: AXCESS, CLAIBORNE
(mens), CONCEPTS BY CLAIBORNE, DANA BUCHMAN, KENSIE, LIZ & CO., LIZ CLAIBORNE, MAC & JAC,
MARVELLA, MONET, TRIFARI and our licensed DKNY® JEANS and DKNY® ACTIVE brands.
  
    
    Domestic (wholesale customers, licensing, Company-owned specialty retail and
outlet stores located in the US and e-commerce sites); and
    
    International (wholesale customers, licensing, Company-owned specialty retail
and outlet stores, concession stores located outside of the US and e-commerce sites).
  Market Environment / Global Economic Uncertainty




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##### Table of Contents



30 Competitive Profile
    Recent Initiatives
  ® ®
 Distribution of Our Liz Claiborne Brands




---



##### Table of Contents



31 Cost Reduction Initiatives
   Liquidity
     Discontinued Operations




---



##### Table of Contents



32   Overall Results for the Six Months Ended July 3, 2010
 Net Sales
   Gross Profit and Loss from Continuing Operations
  Balance Sheet
  International Operations




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##### Table of Contents



33  RESULTS OF OPERATIONS
  SIX MONTHS ENDED JULY 3, 2010 COMPARED TO SIX MONTHS ENDED JULY 4, 2009
  Six Months Ended
    
    
    VarianceJuly 3, 2010
    
    
    July 4, 2009Dollars in millions
    
    (26 Weeks)
    
    
    (26 Weeks)
    
    
    $
    
    
    %Net Sales
    
    $
    1,178.3
    
    
    $
    1,449.9
    
    
    $
    (271.6
    )
    
    
    (18.7
    )%Gross Profit
    
    
    564.5
    
    
    
    668.0
    
    
    
    (103.5
    )
    
    
    (15.5
    )%Selling, general & administrative
expenses
    
    
    714.5
    
    
    
    803.0
    
    
    
    88.5
    
    
    
    11.0
    %Impairment of goodwill and other
intangible assets
    
    
    2.6
    
    
    
    2.8
    
    
    
    0.2
    
    
    
    7.1
    %Operating Loss
    
    
    (152.6
    )
    
    
    (137.8
    )
    
    
    (14.8
    )
    
    
    (10.7
    )%Other income (expense), net
    
    
    41.8
    
    
    
    (1.4
    )
    
    
    43.2
    
    
    
    *Interest expense, net
    
    
    (34.5
    )
    
    
    (29.5
    )
    
    
    (5.0
    )
    
    
    (16.9
    )%Provision (benefit) for income taxes
    
    
    5.4
    
    
    
    (6.5
    )
    
    
    (11.9
    )
    
    
    *Loss from Continuing Operations
    
    
    (150.7
    )
    
    
    (162.2
    )
    
    
    11.5
    
    
    
    7.1
    %Discontinued operations, net of income
taxes
    
    
    (8.5
    )
    
    
    (11.7
    )
    
    
    3.2
    
    
    
    27.4
    %Net Loss
    
    
    (159.2
    )
    
    
    (173.9
    )
    
    
    14.7
    
    
    
    8.5
    %Net loss attributable to the
noncontrolling interest
    
    
    (0.6
    )
    
    
    (0.4
    )
    
    
    0.2
    
    
    
    50.0
    %Net Loss Attributable to Liz Claiborne,
Inc.
    
    $
    (158.6
    )
    
    $
    (173.5
    )
    
    $
    14.9
    
    
    
    8.6
    %
 
 *
    
    Not meaningful. Net Sales




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##### Table of Contents



34  
    
    Domestic-Based Direct Brands net sales were $482.8 million, a decrease of $27.6 million, or 5.4%, reflecting the
following:
 -
    
    Net sales for JUICY COUTURE were $228.6 million, a 5.9% decrease compared to 2009, reflecting a
decrease in wholesale apparel operations, partially offset by increases in outlet and wholesale
non-apparel operations.Store counts and key operating metrics for our JUICY COUTURE retail operations included the
following:
 
    
    We ended the first half of 2010 with 68 specialty stores and 35 outlet stores, reflecting the
net addition over the last 12 months of 5 specialty stores and 2 outlet stores;
    
    Average retail square footage in the first six months of 2010 was approximately 330 thousand
square feet, a 2.9% increase compared to 2009;
    
    Sales productivity was $339 per average square foot as compared to $348 for the first six
months of 2009; and
    
    Comparable store net sales in our Company-owned stores decreased by 3.4% in the first six
months of 2010.
 -
    
    Net sales for LUCKY BRAND were $178.1 million, a 12.8% decrease compared to 2009, reflecting
decreases in specialty retail,
partially resulting from reduced average selling prices due to the aggressive liquidation of inventory, in addition to decreases in
wholesale apparel and wholesale non-apparel operations.
Store counts and key operating metrics for our LUCKY BRAND retail operations included the
following:
 
    
    We ended the first half of 2010 with 190 specialty stores and 40 outlet stores, reflecting the
net closure over the last 12 months of 4 specialty stores and 1 outlet store;
    
    Average retail square footage in the first six months of 2010 was approximately 581 thousand
square feet, a 1.1% increase compared to 2009;
    
    Sales productivity was $169 per average square foot as compared to $196 for the first six
months of 2009; and
    
    Comparable store net sales in our Company-owned stores decreased by 17.4% in the first six
months of 2010.
 -
    
    Net sales for KATE SPADE were $76.1 million, a 20.3% increase compared to 2009, primarily driven
by increases in e-commerce, wholesale apparel, specialty retail and outlet operations.
Store counts and key operating metrics for our KATE SPADE retail operations included the following:
 
    
    We ended the first half of 2010 with 39 specialty stores and 29 outlet stores, reflecting the
net closure over the last 12 months of 9 specialty stores;
    
    Average retail square footage in the first six months of 2010 was approximately 139 thousand
square feet, a 10.7% decrease compared to 2009;
    
    Sales productivity was $265 per average square foot as compared to $208 for the first six
months of 2009; and
    
    Comparable store net sales in our Company-owned stores increased by 16.5% in the first six
months of 2010.
 
    
    International-Based Direct Brands, comprised of our MEXX retail-based lifestyle brand, net sales
were $343.7 million, a decrease of $53.4 million, or 13.4%, compared to 2009, primarily due to
decreases in our MEXX Europe wholesale and retail operations and MEXX Canada wholesale operations,
partially offset by an increase in our MEXX Canada retail operations. Excluding the impact of
fluctuations in foreign currency exchange rates, net sales were $332.1 million, a 16.4% decrease as
compared to 2009.Store counts and key operating metrics for our MEXX retail operations included the following:
 -
    
    We ended the first half of 2010 with 169
specialty stores, 94 outlet stores and 175
concessions, reflecting the net addition over
the last 12 months of 32 specialty stores and
the net closure of 5 outlet stores and 57
concessions (inclusive of the conversion of 29
concessions to specialty retail formats);-
    
    Average retail square footage in the first six
months of 2010 was approximately 1.549 million
square feet, a 5.3% increase compared to 2009;-
    
    Sales productivity was $131 per average square
foot as compared to $151 for the first six
months of 2009; and-
    
    Comparable store net sales in our
Company-owned stores decreased by 8.1% in the
first six months of 2010.




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##### Table of Contents



35 
    
    Partnered Brands net sales were $351.8 million, a decrease of $190.6 million, or 35.1%, reflecting:
 -
    
    A net $77.1 million, or 14.2%, decrease related to reduced sales of our ongoing Partnered
Brands business, primarily related to our licensed DKNY® JEANS brand and our MONET and
AXCESS brands;-
    
    A $94.5 million, or 17.4%, decrease related to brands that have been licensed or exited,
primarily due to an $84.9 million decrease in sales in our LIZ CLAIBORNE family of brands
as we transition from the legacy department store model to the licensing model under the
JCPenney and QVC arrangements; and-
    
    A $19.0 million, or 3.5%, decrease related to reduced sales in our outlet operations.

Store counts and key operating metrics for our Partnered Brands outlet operations included
the following:
 
    
    We ended the first half of 2010 with 98
outlet stores (excluding the LIZ CLAIBORNE
Canada retail stores, which are reported
as discontinued operations), reflecting
the net closure over the last 12 months of
13 outlet stores;
    
    Average retail square footage in the first
six months of 2010 was approximately 887
thousand square feet, a 3.5% decrease
compared to 2009;
    
    Sales productivity was $53 per average
square foot as compared to $71 for the
first six months of 2009; and
    
    Comparable store net sales in our
Company-owned outlet stores decreased
25.8% in the first six months of 2010.
  -
    
    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
20.0% 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.
  Domestic International
 Gross Profit




---



##### Table of Contents



36 Selling, General & Administrative Expenses
  
    
    A $65.1 million decrease in our Partnered Brands segment and corporate SG&A, inclusive of a decrease
associated with our LIZ CLAIBORNE family of brands as we transition to the licensing model under the JCPenney
and QVC arrangements;
    
    A $26.7 million decrease in our International-Based Direct Brands segment, including a $7.7 million decrease
in shipping and handling expenses, a $6.4 million decrease in concession fees and a $5.3 million decrease in
payroll related expenses;
    
    A $7.5 million decrease in our Domestic-Based Direct Brands segment, including a reduction of $11.9 million
in payroll related expenses, partially offset by an increase in consulting fees;
    
    A $7.3 million increase due to the impact of fluctuations in foreign currency exchange rates in our
international operations; and
    
    A $3.5 million increase in expenses associated with our streamlining initiatives and brand-exiting activities.
  Impairment of Goodwill and Other Intangible Assets
 ®
  Operating Loss
  
    
    Domestic-Based Direct Brands operating loss in the first half of 2010
was $23.0 million ((4.8)% of net sales), compared to an operating loss
of $30.3 million ((5.9)% of net sales) in 2009. The decreased
operating loss reflected a decrease in SG&A, including reduced payroll
related expenses of $11.9 million, partially offset by decreased gross
profit.
    
    International-Based Direct Brands operating loss in the first half of
2010 was $55.6 million ((16.2)% of net sales), compared to an
operating loss of $50.3 million ((12.7)% of net sales) in 2009. The
increased operating loss related to decreased gross profit and a $1.4
million decrease resulting from fluctuations in foreign currency
exchange rates, partially offset by (i) a $7.7 million reduction in
shipping and handling expenses; (ii) a $6.4 million reduction in
concession fees; and (iii) a $5.3 million decrease in payroll related
expenses.
    
    Partnered Brands operating loss in the first half of 2010 was $74.0
million ((21.0)% of net sales), compared to an operating loss of $57.2
million ((10.5)% of net sales) in 2009. The increased operating loss
reflected reduced gross profit, including a reduction resulting from
the liquidation of LIZ CLAIBORNE related merchandise as we transition
to the licensing model under the JCPenney and QVC arrangements,
partially offset by reduced SG&A.
 Domestic International




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##### Table of Contents



37 Other Income (Expense), Net
  Interest Expense, Net
  Provision (Benefit) for Income Taxes
  Loss from Continuing Operations
  Discontinued Operations, Net of Income Taxes
  Net Loss Attributable to Liz Claiborne Inc.




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##### Table of Contents



THREE MONTHS ENDED JULY 3, 2010 COMPARED TO THREE MONTHS ENDED JULY 4, 2009
  Three Months Ended
    
    
    VarianceJuly 3, 2010
    
    
    July 4, 2009Dollars in millions
    
    (13 Weeks)
    
    
    (13 Weeks)
    
    
    $
    
    
    %Net Sales
    
    $
    569.8
    
    
    $
    674.6
    
    
    $
    (104.8
    )
    
    
    (15.5
    )%Gross Profit
    
    
    282.3
    
    
    
    321.1
    
    
    
    (38.8
    )
    
    
    (12.1
    )%Selling, general & administrative
expenses
    
    
    366.3
    
    
    
    381.6
    
    
    
    15.3
    
    
    
    4.0
    %Impairment of goodwill and other
intangible assets
    
    
    2.6
    
    
    
    0.9
    
    
    
    (1.7
    )
    
    
    *Operating Loss
    
    
    (86.6
    )
    
    
    (61.4
    )
    
    
    (25.2
    )
    
    
    (41.0
    )%Other income (expense), net
    
    
    22.1
    
    
    
    (7.3
    )
    
    
    29.4
    
    
    
    *Interest expense, net
    
    
    (19.1
    )
    
    
    (15.5
    )
    
    
    (3.6
    )
    
    
    (23.2
    )%Provision (benefit) for income taxes
    
    
    3.8
    
    
    
    (7.7
    )
    
    
    (11.5
    )
    
    
    *Loss from Continuing Operations
    
    
    (87.4
    )
    
    
    (76.5
    )
    
    
    (10.9
    )
    
    
    (14.2
    )%Discontinued operations, net of income
taxes
    
    
    0.2
    
    
    
    (5.6
    )
    
    
    5.8
    
    
    
    *Net Loss
    
    
    (87.2
    )
    
    
    (82.1
    )
    
    
    (5.1
    )
    
    
    (6.2
    )%Net loss attributable to the
noncontrolling interest
    
    
    (0.4
    )
    
    
    
    
    
    
    0.4
    
    
    
    *Net Loss Attributable to Liz Claiborne,
Inc.
    
    $
    (86.8
    )
    
    $
    (82.1
    )
    
    $
    (4.7
    )
    
    
    (5.7
    )%
 
 *
    
    Not meaningful. Net Sales




---



##### Table of Contents



39  
    
    Domestic-Based Direct Brands net sales were $239.9 million, a decrease of $11.0 million, or 4.4%,
reflecting the following:
 -
    
    Net sales for JUICY COUTURE were $111.9 million, a 1.5% increase compared to 2009,
reflecting an increase in wholesale non-apparel operations, partially offset by a
decrease in wholesale apparel operations.Key operating metrics for our JUICY COUTURE retail operations included the following:
 
    
    Average retail square footage in the second quarter of 2010 was approximately 330
thousand square feet, a 2.5% increase compared to 2009;
    
    Sales productivity was $167 per average square foot as compared to $177 for the
second quarter of 2009; and
    
    Comparable store net sales in our Company-owned stores decreased by 6.7% in the
second quarter of 2010.
 -
    
    Net sales for LUCKY BRAND were $86.4 million, a 19.4% decrease compared to 2009,
reflecting decreases in specialty retail, partially resulting from
reduced average selling prices due to the aggressive liquidation of
inventory, in addition to decreases in wholesale apparel, wholesale non-apparel
and outlet operations.Key operating metrics for our LUCKY BRAND retail operations included the following:
 
    
    Average retail square footage in the second quarter of 2010 was approximately 581
thousand square feet, a 1.2% increase compared to 2009;
    
    Sales productivity was $81 per average square foot as compared to $102 for the
second quarter of 2009; and
    
    Comparable store net sales in our Company-owned stores decreased by 20.7% in the
second quarter of 2010.
 -
    
    Net sales for KATE SPADE were $41.6 million, a 24.9% increase compared to 2009,
primarily driven by increases in specialty retail, e-commerce, wholesale apparel and
wholesale non-apparel operations.Key operating metrics for our KATE SPADE retail operations included the following:
 
    
    Average retail square footage in the second quarter of 2010 was approximately 139
thousand square feet, a 9.9% decrease compared to 2009;
    
    Sales productivity was $150 per average square foot as compared to $119 for the
second quarter of 2009; and
    
    Comparable store net sales in our Company-owned stores increased by 15.2% in the
second quarter of 2010.
 
    
    International-Based Direct Brands net sales were $162.5 million, a decrease of $26.0 million, or 13.8%,
compared to 2009, primarily due to decreases in our MEXX Europe wholesale and
retail operations and MEXX Canada wholesale operations, partially offset by an
increase in our MEXX Canada retail operations. Excluding the impact of
fluctuations in foreign currency exchange rates, net sales were $164.0 million, a
13.0% decrease as compared to 2009.Key operating metrics for our MEXX retail operations included the following:
 -
    
    Average retail square footage in the
second quarter of 2010 was
approximately 1.549 million square
feet, a 4.5% increase compared to
2009;-
    
    Sales productivity was $71 per
average square foot as compared to
$87 for the second quarter of 2009;
and-
    
    Comparable store net sales in our
Company-owned stores decreased by
8.5% in the second quarter of 2010.
 
    
    Partnered Brands net sales were $167.4 million, a decrease of $67.8 million, or 28.8%, reflecting:
 -
    
    A $35.6 million, or 15.1%, decrease related to brands that have been licensed or exited,
primarily due to a $33.1 million decrease in sales in our LIZ CLAIBORNE family of brands as
we transition from the legacy department store model to the licensing model under the
JCPenney and QVC arrangements;-
    
    A net $22.6 million, or 9.6%, decrease related to reduced sales of our ongoing Partnered
Brands business, primarily related to our licensed DKNY® JEANS and our MONET
brands; and-
    
    A $9.6 million, or 4.1%, decrease related to reduced sales in our outlet operations.




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##### Table of Contents



40 
 Key operating metrics for our Partnered Brands outlet operations included the following:
 
    
    Average retail square footage in the second
quarter of 2010 was approximately 880
thousand square feet, a 3.1% decrease
compared to 2009;
    
    Sales productivity was $31 per average
square foot as compared to $40 for the
second quarter of 2009; and
    
    Comparable store net sales in our
Company-owned outlet stores decreased 21.8%
in the second quarter of 2010.
 Domestic International
 Gross Profit
  Selling, General & Administrative Expenses
  
    
    A $21.5 million decrease in our Partnered Brands segment and corporate
SG&A, inclusive of a decrease associated with our LIZ CLAIBORNE family
of brands as we transition to the licensing model under the JCPenney
and QVC arrangements;
    
    An $11.9 million decrease in our International-Based Direct Brands
segment, including a $4.4 million decrease in concession fees and a
$2.3 million decrease in shipping and handling expenses;
    
    A $3.3 million decrease due to the impact of fluctuations in foreign
currency exchange rates in our international operations;
    
    A $21.1 million increase in expenses associated with our streamlining
initiatives and brand-exiting activities; and
    
    A $0.3 million increase in our Domestic-Based Direct Brands segment,
including increases in advertising and consulting fees, offset by a
reduction of $5.5 million in payroll related expenses.
  Impairment of Goodwill and Other Intangible Assets
 ®




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##### Table of Contents



41 Operating Loss
  
    
    Domestic-Based Direct Brands operating loss was $13.1 million ((5.4)%
of net sales), compared to an operating loss of $9.1 million ((3.6)%
of net sales) in 2009. The increased operating loss reflected a
decrease in gross profit and a $4.9 million increase in expenses
associated with our streamlining initiatives and brand exiting
activities.
    
    International-Based Direct Brands operating loss was $26.2 million
((16.1)% of net sales), compared to an operating loss of $33.1 million
((17.6)% of net sales) in 2009. The decreased operating loss reflected
(i) a $4.4 million reduction in concession fees; (ii) a $2.3 million
reduction in shipping and handling expenses; (iii) a $3.2 million
decrease resulting from fluctuations in foreign currency exchange
rates; and (iv) decreased gross profit.
    
    Partnered Brands operating loss in the second quarter was $47.3
million ((28.3)% of net sales), compared to an operating loss of $19.2
million ((8.1)% of net sales) in 2009. The increased operating loss
reflected reduced gross profit and a $25.6 million increase in
expenses associated with our streamlining initiatives and brand
exiting activities.
 Domestic International
 Other Income (Expense), Net
  Interest Expense, Net
  Provision (Benefit) for Income Taxes
  Loss from Continuing Operations




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42 Discontinued Operations, Net of Income Taxes
  Net Loss Attributable to Liz Claiborne Inc.
  FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
 Cash Requirements
 Sources of Cash




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43      Cash and Debt Balances.
 Accounts Receivable
 Inventories




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44 Borrowings
 Net cash provided by operating activities
 Net cash used in investing activities
 Net cash used in financing activities
 Commitments and Capital Expenditures
   
    
    On January 26, 2006, we acquired 100% of the equity of Westcoast Contempo
Fashions Limited and Mac & Jac Holdings Limited, which collectively design, market and sell
the Mac & Jac, Kensie and Kensiegirl apparel lines (Mac & Jac). The purchase price
totaled 26.2 million Canadian dollars (or $22.7 million), which included the retirement of
debt at closing and fees, but excluded contingent payments to be determined based upon a
multiple of Mac & Jacs earnings in fiscal years 2006, 2008, 2009 and 2010. In May of 2009,
we paid the former owners of Mac & Jac $3.8 million based on 2008 fiscal year earnings. We
estimate that the remaining contingent payment based on 2010 earnings will be in the range
of approximately $0-$5.0 million, which will be accounted for as additional purchase price
when paid.




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##### Table of Contents



45 
    
    On June 8, 1999, we acquired 85.0% of the equity of Lucky Brand Dungarees, Inc.
(Lucky Brand), whose core business consists of the Lucky Brand Dungarees line of women
and mens denim-based sportswear. The total purchase price consisted of aggregate cash
payments of $126.2 million and additional payments made from 2005 to 2009 totaling $65.0
million for 12.3% of the remaining equity of Lucky Brand. We acquired 0.4% of the equity of
Lucky Brand in January of 2010 for a payment of $5.0 million. The remaining 2.3% of the
original shares outstanding will be settled for an aggregate purchase price composed of the
following two installments: (i) a payment made in 2008 of $15.7 million that was 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 $0-$5.0 million.
    In thousands
    
    July 3, 2010
    
    
    January 2, 2010
    
    
    July 4, 20095.0% Notes (a)
    
    $
    438,743
    
    
    $
    501,827
    
    
    $
    488,8926.0% Convertible Senior Notes(b)
    
    
    72,793
    
    
    
    71,137
    
    
    
    69,508Revolving credit facility
    
    
    63,036
    
    
    
    66,507
    
    
    
    138,231Capital lease obligations
    
    
    15,052
    
    
    
    18,680
    
    
    
    20,764Other
    
    
    
    
    
    
    
    
    
    
    232Total debt
    
    $
    589,624
    
    
    $
    658,151
    
    
    $
    717,627
 
 (a)
    
    The change in the balance of these euro-denominated notes reflected the impact
of changes in foreign currency exchange rates.(b)
    
    The balance at July 3, 2010, January 2, 2010 and July 4, 2009, represented principal
of $90.0 million and an unamortized debt discount of $17.2 million, $18.9 million and $20.5
million, respectively.    Total
    
    Borrowing
    
    Outstanding
    
    Letters of
    
    Available
    
    ExcessIn thousands
    
    Facility (a)
    
    Base (a)
    
    Borrowings
    
    Credit Issued
    
    Capacity
    
    Capacity (b)Revolving credit
facility
(a)
    
    $
    350,000
    
    
    $
    288,438
    
    
    $
    63,036
    
    
    $
    30,262
    
    
    $
    195,140
    
    
    $
    150,140
 
 (a)
    
    Availability under the Amended Agreement is the lesser of $350.0 million or a
borrowing base comprised primarily of eligible accounts receivable and inventory.(b)
    
    Excess capacity represents available
capacity reduced by the minimum required aggregate
borrowing availability under the Amended Agreement of $45.0 million.




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46 Off-Balance Sheet Arrangements
    Hedging Activities
   Foreign Currency Contracts Designated as Hedging InstrumentsIn thousands
    
    Asset Derivatives
    
    Liability DerivativesBalance Sheet
    
    Notional
    
    
    
    
    
    Balance Sheet
    
    NotionalPeriod
    
    Location
    
    Amount
    
    Fair Value
    
    Location
    
    Amount
    
    Fair ValueJuly 3, 2010
    
    Other current assets
    
    $
    63,431
    
    
    $
    5,664
    
    
    Accrued expenses
    
    $
    
    
    
    $
    January 2, 2010
    
    Other current assets
    
    
    26,408
    
    
    
    586
    
    
    Accrued expenses
    
    
    74,634
    
    
    
    3,091July 4, 2009
    
    Other current assets
    
    
    18,838
    
    
    
    240
    
    
    Accrued expenses
    
    
    135,169
    
    
    
    7,940




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47 Foreign Currency Contracts Not Designated as Hedging InstrumentsIn thousands
    
    Asset Derivatives
    
    Liability DerivativesBalance Sheet
    
    Notional
    
    
    
    
    
    Balance Sheet
    
    NotionalPeriod
    
    Location
    
    Amount
    
    Fair Value
    
    Location
    
    Amount
    
    Fair ValueJuly 3, 2010
    
    Other current assets
    
    $
    
    
    
    $
    
    
    
    Accrued expenses
    
    $
    3,899
    
    
    $
    84January 2, 2010
    
    Other current assets
    
    
    
    
    
    
    
    
    
    Accrued expenses
    
    
    12,015
    
    
    
    690July 4, 2009
    
    Other current assets
    
    
    5,488
    
    
    
    96
    
    
    Accrued expenses
    
    
    6,227
    
    
    
    239
  Amount of GainLocation of Gain or
    
    Amount of Gain
    
    or (Loss)Amount of Gain or
    
    (Loss) Reclassified
    
    or (Loss)
    
    Recognized in(Loss) Recognized
    
    from Accumulated
    
    Reclassified from
    
    Operations onin Accumulated
    
    OCI into Operations
    
    Accumulated OCI
    
    DerivativeOCI on Derivative
    
    (Effective and
    
    into Operations
    
    (IneffectiveIn thousands
    
    (Effective Portion)
    
    Ineffective Portion)
    
    (Effective Portion)
    
    Portion)Six months ended
July 3, 2010
    
    $
    8,961
    
    
    Cost of goods sold
    
    $
    (5,548
    )
    
    $
    (124
    )Six months ended
July 4, 2009
    
    
    360
    
    
    Cost of goods sold
    
    
    5,903
    
    
    
    (124
    )Three months ended
July 3, 2010
    
    
    5,173
    
    
    Cost of goods sold
    
    
    (906
    )
    
    
    235
    )Three months ended
July 4, 2009
    
    
    (5,146
    )
    
    Cost of goods sold
    
    
    3,831
    
    
    
    (503
    )
    USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES




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##### Table of Contents



ACCOUNTING PRONOUNCEMENTS
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   In
millions
    
    July 3, 2010
    
    January 2, 2010
    
    July 4, 2009Variable rate debt
    
    $
    63.0
    
    
    $
    66.5
    
    
    $
    138.2Average interest rate
    
    
    5.29
    %
    
    
    6.87
    %
    
    
    6.39
    %




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##### Table of Contents



49    
 ITEM 4. CONTROLS AND PROCEDURES
   
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 The Levy Group, Inc. L.C. Licensing, Inc. and Liz Claiborne, Inc.
 Angela Tyler (individually and on behalf of all others
similarly situated) v. Liz Claiborne, Inc, Trudy F. Sullivan and William L. McComb




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##### Table of Contents



50  
 ITEM 1A. RISK FACTORS
   Our ability to continue to have the liquidity necessary, through cash flows from operations and
availability under our second amended and restated revolving credit facility, may be adversely
impacted by a number of factors, including the level of our operating cash flows, our ability to
maintain established levels of availability under, and to comply with the other covenants included
in, our second amended and restated revolving credit facility and the borrowing base requirement in
our amended and restated revolving credit facility that limits the amount of borrowings we may make
based on a formula of, among other things, eligible accounts receivable and inventory; the minimum
availability covenant in our amended and restated revolving credit facility that requires us to
maintain availability in excess of an agreed upon level and whether holders of our Convertible
Notes issued in June 2009 will, if and when such notes are convertible, elect to convert a
substantial portion of such notes, the par value of which we must currently settle in cash.




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51




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52   We may not be able to complete the closure of our Liz Claiborne branded outlet operations on terms
satisfactory to us, and such closure may have an adverse effect on our results of operations and
cash flows.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  MaximumApproximateTotal Number of
    
    Dollar Value ofShares Purchased as
    
    Shares that MayTotal Number
    
    
    
    
    
    Part of Publicly
    
    Yet Be Purchasedof Shares
    
    
    
    
    
    Announced Plans or
    
    Under the Plans orPurchased
    
    Average Price
    
    Programs
    
    ProgramsPeriod
    

    (In thousands) (a)
    
    Paid Per Share
    
    (In thousands)
    
    (In thousands) (b)April 4, 2010 - May 1, 2010
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    28,749May 2, 2010 - June 5, 2010
    
    
    1.5
    
    
    
    5.81
    
    
    
    
    
    
    
    28,749June 6, 2010 - July 3, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,749Total -13 Weeks Ended July 3, 2010
    
    
    1.5
    
    
    $
    5.81
    
    
    
    
    
    
    $
    28,749
 
 (a)
    
    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.(b)
    
    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. The Amended Agreement
currently restricts the Companys ability to repurchase
stock.




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##### Table of Contents



53 
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 3(a)
    
    Restated Certificate of
Incorporation of Liz Claiborne, Inc. and Certificate of Amendment to
the Restated Certificate of Incorporation of Liz Claiborne, Inc.3(b)
    
    By-Laws of Registrant, as amended through May 27, 2010
(incorporated herein by reference to Exhibit 3(b) to Registrants
Current Report on Form 8-K dated June 3, 2010).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 SEC or its staff upon request.




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##### Table of Contents



54 
 SIGNATURES
   LIZ CLAIBORNE, INC.
    
    LIZ CLAIBORNE, INC.By:
    
    /s/ Andrew Warren

ANDREW WARREN
    
    By:
    
    /s/ Elaine H. Goodell

ELAINE H. GOODELLChief Financial Officer
    
    
    
    Vice President  Corporate Controller and(Principal financial officer)
    
    
    
    Chief Accounting Officer(Principal accounting officer)