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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 ended April 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
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o
 Yes o No þ




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##### 



LIZ CLAIBORNE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
April 3, 2010
 PAGENUMBERPART I   FINANCIAL INFORMATIONItem 1. Financial Statements:Condensed Consolidated Balance Sheets as of April 3, 2010
(Unaudited), January 2, 2010 and April 4, 2009 (Unaudited)
    
    
    4Condensed Consolidated Statements of Operations for the Three
Month Periods Ended April 3, 2010 (Unaudited) and April 4, 2009
(Unaudited)
    
    
    5Condensed Consolidated Statements of Cash Flows for the Three
Month Periods Ended April 3, 2010 (Unaudited) and April 4, 2009
(Unaudited)
    
    
    6Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    7        -        25Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    26        -        40Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    40        -        41Item 4. Controls and Procedures
    
    
    41PART II   OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    41Item 1A. Risk Factors
    
    
    42        -        44Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    44Item 5. Other Information
    
    
    44Item 6. Exhibits
    
    
    45SIGNATURES
    
    
    46EX-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 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;
 
    
    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
 April 3, 2010
    
    
    
    
    
    
    April 4, 2009(Unaudited)
    
    
    January 2, 2010
    
    
    (Unaudited)AssetsCurrent Assets:Cash and cash equivalents
    
    $
    13,127
    
    
    $
    20,372
    
    
    $
    41,457Accounts receivable  trade, net
    
    
    252,799
    
    
    
    263,508
    
    
    
    384,186Inventories, net
    
    
    313,033
    
    
    
    319,713
    
    
    
    436,131Deferred income taxes
    
    
    407
    
    
    
    769
    
    
    
    8,116Other current assets
    
    
    113,022
    
    
    
    267,499
    
    
    
    119,575Assets held for sale
    
    
    15,070
    
    
    
    15,070
    
    
    
    16,649Total current assets
    
    
    707,458
    
    
    
    886,931
    
    
    
    1,006,114Property and Equipment, Net
    
    
    417,896
    
    
    
    444,688
    
    
    
    524,796Intangibles, Net
    
    
    229,843
    
    
    
    231,229
    
    
    
    249,244Deferred Income Taxes
    
    
    8,543
    
    
    
    7,565
    
    
    
    2,164Other Assets
    
    
    32,738
    
    
    
    35,490
    
    
    
    32,986Total Assets
    
    $
    1,396,478
    
    
    $
    1,605,903
    
    
    $
    1,815,304Liabilities and Stockholders EquityCurrent Liabilities:Short-term borrowings
    
    $
    34,733
    
    
    $
    70,868
    
    
    $
    267,966Convertible Senior Notes
    
    
    71,960
    
    
    
    71,137
    
    
    
    Accounts payable
    
    
    124,075
    
    
    
    144,942
    
    
    
    174,660Accrued expenses
    
    
    286,042
    
    
    
    343,288
    
    
    
    260,925Income taxes payable
    
    
    2,565
    
    
    
    5,167
    
    
    
    2,673Deferred income taxes
    
    
    7,164
    
    
    
    7,150
    
    
    
    Total current liabilities
    
    
    526,539
    
    
    
    642,552
    
    
    
    706,224Long-Term Debt
    
    
    484,224
    
    
    
    516,146
    
    
    
    485,929Other Non-Current Liabilities
    
    
    193,550
    
    
    
    201,027
    
    
    
    165,052Deferred Income Taxes
    
    
    27,311
    
    
    
    26,299
    
    
    
    38,422Commitments and Contingencies (Note 10)Stockholders Equity:Preferred stock, $0.01 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
    
    
    327,316
    
    
    
    319,326
    
    
    
    294,845Retained earnings
    
    
    1,597,478
    
    
    
    1,669,316
    
    
    
    1,883,687Accumulated other comprehensive loss
    
    
    (55,179
    )
    
    
    (69,371
    )
    
    
    (64,905
    )2,046,052
    
    
    
    2,095,708
    
    
    
    2,290,064Common stock in treasury, at cost 81,935,665,
81,488,984 and 81,361,036 shares
    
    
    (1,884,271
    )
    
    
    (1,879,160
    )
    
    
    (1,874,030
    )Total Liz Claiborne, Inc. stockholders equity
    
    
    161,781
    
    
    
    216,548
    
    
    
    416,034Noncontrolling interest
    
    
    3,073
    
    
    
    3,331
    
    
    
    3,643Total stockholders equity
    
    
    164,854
    
    
    
    219,879
    
    
    
    419,677Total Liabilities and Stockholders Equity
    
    $
    1,396,478
    
    
    $
    1,605,903
    
    
    $
    1,815,304
   4




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LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
   Three Months EndedApril 3, 2010
    
    
    April 4, 2009(13 Weeks)
    
    
    (13 Weeks)Net Sales
    
    $
    608,478
    
    
    $
    775,301Cost of goods sold
    
    
    326,257
    
    
    
    428,310Gross Profit
    
    
    282,221
    
    
    
    346,991Selling, general & administrative expenses
    
    
    348,265
    
    
    
    421,456Goodwill impairment
    
    
    
    
    
    
    1,898Operating Loss
    
    
    (66,044
    )
    
    
    (76,363
    )Other income, net
    
    
    19,793
    
    
    
    5,913Interest expense, net
    
    
    (15,452
    )
    
    
    (13,882
    )Loss Before Provision for Income Taxes
    
    
    (61,703
    )
    
    
    (84,332
    )Provision for income taxes
    
    
    1,584
    
    
    
    1,260Loss from Continuing Operations
    
    
    (63,287
    )
    
    
    (85,592
    )Discontinued operations, net of income taxes
    
    
    (8,751
    )
    
    
    (6,156
    )Net Loss
    
    
    (72,038
    )
    
    
    (91,748
    )Net loss attributable to the noncontrolling interest
    
    
    (258
    )
    
    
    (369
    )Net Loss Attributable to Liz Claiborne, Inc.
    
    $
    (71,780
    )
    
    $
    (91,379
    )Earnings per Share:Basic and DilutedLoss from Continuing Operations Attributable to Liz Claiborne, Inc.
    
    $
    (0.67
    )
    
    $
    (0.91
    )Net Loss Attributable to Liz Claiborne, Inc.
    
    $
    (0.76
    )
    
    $
    (0.97
    )Weighted Average Shares, Basic
    
    
    94,170
    
    
    
    93,771Weighted Average Shares, Diluted
    
    
    94,170
    
    
    
    93,771
   5




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LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
   Three Months EndedApril 3, 2010
    
    
    April 4, 2009(13 Weeks)
    
    
    (13 Weeks)Cash Flows from Operating Activities:Net loss
    
    $
    (72,038
    )
    
    $
    (91,748
    )Adjustments to arrive at loss from continuing operations
    
    
    8,751
    
    
    
    6,156Loss from continuing operations
    
    
    (63,287
    )
    
    
    (85,592
    )Adjustments to reconcile loss from continuing operations to net cash provided
by operating activities:Depreciation and amortization
    
    
    36,571
    
    
    
    38,262Impairment of goodwill
    
    
    
    
    
    
    1,898Loss on asset disposals and impairments, including streamlining initiatives
    
    
    2,016
    
    
    
    9,318Share-based compensation
    
    
    1,772
    
    
    
    1,894Foreign currency gains, net
    
    
    (19,023
    )
    
    
    Other, net
    
    
    161
    
    
    
    (57
    )Changes in assets and liabilities:Decrease (increase) in accounts receivable  trade, net
    
    
    4,907
    
    
    
    (45,111
    )Decrease in inventories, net
    
    
    5,364
    
    
    
    24,354(Increase) decrease in other current and non-current assets
    
    
    (3,829
    )
    
    
    10,281Decrease in accounts payable
    
    
    (18,594
    )
    
    
    (31,063
    )(Decrease) increase in accrued expenses and other non-current liabilities
    
    
    (60,029
    )
    
    
    28,058Net change in income tax assets and liabilities
    
    
    160,397
    
    
    
    101,487Net cash provided by (used in) operating activities of discontinued operations
    
    
    714
    
    
    
    (7,895
    )Net cash provided by operating activities
    
    
    47,140
    
    
    
    45,834Cash Flows from Investing Activities:Purchases of property and equipment
    
    
    (9,612
    )
    
    
    (18,659
    )Payments for purchases of businesses
    
    
    (5,000
    )
    
    
    (5,000
    )Payments for in-store merchandise shops
    
    
    (401
    )
    
    
    (1,225
    )Investments in and advances to equity investee
    
    
    (4,033
    )
    
    
    Other, net
    
    
    (32
    )
    
    
    309Net cash used in investing activities of discontinued operations
    
    
    (484
    )
    
    
    Net cash used in investing activities
    
    
    (19,562
    )
    
    
    (24,575
    )Cash Flows from Financing Activities:Short-term borrowings, net
    
    
    (34,614
    )
    
    
    27,958Principal payments under capital lease obligations
    
    
    (1,066
    )
    
    
    (1,066
    )Payment of deferred financing fees
    
    
    (2,028
    )
    
    
    (26,651
    )Net cash (used in) provided by financing activities
    
    
    (37,708
    )
    
    
    241Effect of Exchange Rate Changes on Cash and Cash Equivalents
    
    
    2,885
    
    
    
    (5,474
    )Net Change in Cash and Cash Equivalents
    
    
    (7,245
    )
    
    
    16,026Cash and Cash Equivalents at Beginning of Period
    
    
    20,372
    
    
    
    25,431Cash and Cash Equivalents at End of Period
    
    $
    13,127
    
    
    $
    41,457
   6




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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, DKNY® ACTIVE
and DKNY® MENS brands.
     7




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




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9




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Three Months EndedApril 3, 2010
    
    
    April 4, 2009In thousands
    
    (13 Weeks)
    
    
    (13 Weeks)Net sales
    
    $
    5,403
    
    
    $
    5,160Loss before benefit for income taxes
    
    $
    (2,679
    )
    
    $
    (4,762
    )Benefit for income taxes
    
    
    (737
    )
    
    
    Loss from discontinued operations, net of income taxes
    
    $
    (1,942
    )
    
    $
    (4,762
    )Loss on disposal of discontinued operations, net of income taxes
    
    $
    (6,809
    )
    
    $
    (1,394
    )
   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
    
    
    
    
    
    
    (71,780
    )
    
    
    
    
    
    
    (258
    )Restricted shares issued, net
of cancellations and
shares withheld for taxes
    
    
    6,233
    
    
    
    
    
    
    
    (5,162
    )
    
    
    Share-based compensation
    
    
    1,772
    
    
    
    
    
    
    
    
    
    
    
    Dividend equivalent units vested
    
    
    (15
    )
    
    
    (58
    )
    
    
    51
    
    
    
    Balance as of April 3, 2010
    
    $
    327,316
    
    
    $
    1,597,478
    
    
    $
    (1,884,271
    )
    
    $
    3,073
  10




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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
    
    
    
    
    
    
    (91,379
    )
    
    
    
    
    
    
    (369
    )Restricted shares issued, net
of cancellations and
shares withheld for taxes
    
    
    825
    
    
    
    
    
    
    
    (756
    )
    
    
    Share-based compensation
    
    
    1,894
    
    
    
    
    
    
    
    
    
    
    
    Dividend equivalent units vested
    
    
    (18
    )
    
    
    (16
    )
    
    
    26
    
    
    
    Balance as of April 4, 2009
    
    $
    294,845
    
    
    $
    1,883,687
    
    
    $
    (1,874,030
    )
    
    $
    3,643
  Three Months EndedApril 3, 2010
    
    
    April 4, 2009In thousands
    
    (13 Weeks)
    
    
    (13 Weeks)Net loss
    
    $
    (72,038
    )
    
    $
    (91,748
    )Other comprehensive loss, net of income taxes:Change in cumulative translation adjustment
    
    
    24,822
    
    
    
    (13,489
    )Change in cumulative translation adjustment on Eurobond
and other instruments, net of income taxes of $(689) and
$0, respectively
    
    
    (18,186
    )
    
    
    12,109Change in unrealized losses on available-for-sale
securities, net of income taxes of $0 and $0, respectively
    
    
    
    
    
    
    (77
    )Change in fair value of cash flow hedges, net of income
taxes of $874 and $(166), respectively
    
    
    7,556
    
    
    
    3,268Comprehensive loss
    
    
    (57,846
    )
    
    
    (89,937
    )Comprehensive loss attributable to the noncontrolling interest
    
    
    258
    
    
    
    369Comprehensive loss attributable to Liz Claiborne, Inc.
    
    $
    (57,588
    )
    
    $
    (89,568
    )
  In thousands
    
    April 3, 2010
    
    
    January 2, 2010
    
    
    April 4, 2009Cumulative translation adjustment, net of income taxes
of $7,818, $7,129 and $18,115, respectively
    
    $
    (57,512
    )
    
    $
    (64,148
    )
    
    $
    (64,402
    )Unrealized gains (losses) on cash flow hedging
derivatives, net of income taxes of $959, $1,833 and
$1,152, respectively
    
    
    1,992
    
    
    
    (5,564
    )
    
    
    121Unrealized gains (losses) on available-for-sale
securities, net of income taxes of $0, $0 and $0,
respectively
    
    
    341
    
    
    
    341
    
    
    
    (624
    )Accumulated other comprehensive loss, net of income taxes
    
    $
    (55,179
    )
    
    $
    (69,371
    )
    
    $
    (64,905
    )
   In thousands
    
    April 3, 2010
    
    
    January 2, 2010
    
    
    April 4, 2009Raw materials
    
    $
    4,652
    
    
    $
    5,896
    
    
    $
    22,767Work in process
    
    
    41
    
    
    
    773
    
    
    
    3,413Finished goods
    
    
    308,340
    
    
    
    313,044
    
    
    
    409,951Total inventories, net
    
    $
    313,033
    
    
    $
    319,713
    
    
    $
    436,131
  11




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In thousands
    
    April 3, 2010
    
    
    January 2, 2010
    
    
    April 4, 2009Land and buildings
    
    $
    70,814
    
    
    $
    69,235
    
    
    $
    69,300Machinery and equipment
    
    
    308,660
    
    
    
    312,444
    
    
    
    335,098Furniture and fixtures
    
    
    264,419
    
    
    
    274,235
    
    
    
    268,204Leasehold improvements
    
    
    521,310
    
    
    
    529,281
    
    
    
    542,8301,165,203
    
    
    
    1,185,195
    
    
    
    1,215,432Less: Accumulated depreciation and
amortization
    
    
    747,307
    
    
    
    740,507
    
    
    
    690,636Total property and equipment, net
    
    $
    417,896
    
    
    $
    444,688
    
    
    $
    524,796
    WeightedAverageAmortizationIn thousands
    
    Period
    
    
    April 3, 2010
    
    
    January 2, 2010
    
    
    April 4, 2009Amortized intangible assets:Gross carrying amount:Licensed trademarks (a)
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    32,154Owned trademarks
    
    5 years
    
    
    1,000
    
    
    
    1,000
    
    
    
    1,000Customer relationships
    
    13 years
    
    
    12,294
    
    
    
    12,220
    
    
    
    11,928Merchandising rights (b)
    
    4 years
    
    
    35,162
    
    
    
    35,025
    
    
    
    43,714Other
    
    4 years
    
    
    2,322
    
    
    
    2,322
    
    
    
    2,618Subtotal
    
    6 years
    
    
    50,778
    
    
    
    50,567
    
    
    
    91,414Accumulated amortization:Licensed trademarks
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,501
    )Owned trademarks
    
    
    
    
    
    
    (566
    )
    
    
    (517
    )
    
    
    (367
    )Customer relationships
    
    
    
    
    
    
    (3,698
    )
    
    
    (3,426
    )
    
    
    (2,609
    )Merchandising rights
    
    
    
    
    
    
    (25,101
    )
    
    
    (23,488
    )
    
    
    (24,402
    )Other
    
    
    
    
    
    
    (1,526
    )
    
    
    (1,487
    )
    
    
    (1,293
    )Subtotal
    
    
    
    
    
    
    (30,891
    )
    
    
    (28,918
    )
    
    
    (49,172
    )Net:Licensed trademarks
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,653Owned trademarks
    
    
    
    
    
    
    434
    
    
    
    483
    
    
    
    633Customer relationships
    
    
    
    
    
    
    8,596
    
    
    
    8,794
    
    
    
    9,319Merchandising rights
    
    
    
    
    
    
    10,061
    
    
    
    11,537
    
    
    
    19,312Other
    
    
    
    
    
    
    796
    
    
    
    835
    
    
    
    1,325Total amortized intangible assets, net
    
    
    
    
    
    
    19,887
    
    
    
    21,649
    
    
    
    42,242Unamortized intangible assets:Owned trademarks
    
    
    
    
    
    
    209,956
    
    
    
    209,580
    
    
    
    207,002Total intangible assets
    
    
    
    
    
    $
    229,843
    
    
    $
    231,229
    
    
    $
    249,244
 
 (a)
    
    The decrease in the balance compared to April 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 April 4, 2009 included 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.  12




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##### Table of Contents



(In millions)Fiscal Year
    
    Amortization Expense2010
    
    $
    6.92011
    
    
    4.62012
    
    
    2.82013
    
    
    1.42014
    
    
    1.1
         13




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##### Table of Contents



In thousands
    
    April 3, 2010
    
    
    January 2, 2010
    
    
    April 4, 20095.0% Notes, due July 2013 (a)
    
    $
    471,038
    
    
    $
    501,827
    
    
    $
    468,0926.0% Convertible Senior Notes, due June 2014 (b)
    
    
    71,960
    
    
    
    71,137
    
    
    
    Revolving credit facility
    
    
    30,306
    
    
    
    66,507
    
    
    
    263,797Capital lease obligations
    
    
    17,613
    
    
    
    18,680
    
    
    
    21,783Other
    
    
    
    
    
    
    
    
    
    
    223Total debt
    
    
    590,917
    
    
    
    658,151
    
    
    
    753,895Less: Short-term borrowings (c)
    
    
    34,733
    
    
    
    70,868
    
    
    
    267,966Convertible Notes (d)
    
    
    71,960
    
    
    
    71,137
    
    
    
    Long-term debt
    
    $
    484,224
    
    
    $
    516,146
    
    
    $
    485,929
 
 (a)
    
    The change in the balance of these euro-denominated notes reflected the impact
of changes in foreign currency exchange rates.(b)
    
    The Companys 6.0% Convertible Senior Notes were issued during the second quarter of
2009. The balance at April 3, 2010 and January 2, 2010 represented principal of $90.0 million
and an unamortized debt discount of $18.0 million and $18.9 million, respectively.(c)
    
    At April 3, 2010, the balance primarily consisted of outstanding borrowings under
the Companys prior amended and restated revolving credit facility and obligations under
capital leases. Outstanding revolver borrowings were reflected as a current liability due to
the requirement to repay such obligations with substantially all cash collected by the Company
in accordance with the prior amended and restated revolving credit agreement.(d)
    
    The Convertible Notes were reflected as a current liability since they were
convertible at April 3, 2010 and January 2, 2010, respectively. 5.0% Notes
  6.0% Convertible Senior Notes
    14




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##### Table of Contents



Amended and Restated Revolving Credit Facility
        15




---



##### Table of Contents



Total
    
    
    Borrowing
    
    
    Outstanding
    
    
    Letters of
    
    
    AvailableIn thousands
    
    Facility (a)
    
    
    Base (a)
    
    
    Borrowings
    
    
    Credit Issued
    
    
    CapacityRevolving credit facility (a)
    
    $
    600,000
    
    
    $
    310,083
    
    
    $
    30,306
    
    
    $
    31,594
    
    
    $
    248,183
 
 (a)
    
    Availability under the prior agreement was the lesser of $600.0 million or a
borrowing base comprised primarily of eligible accounts receivable and inventory. 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
    
    April 3, 2010
    
    
    January 2, 2010
    
    
    April 4, 2009Financial Assets:Derivatives
    
    $
    2,751
    
    
    $
    586
    
    
    $
    945Financial Liabilities:Derivatives
    
    $
    (1,405
    )
    
    $
    (3,781
    )
    
    $
    (5,673
    )
   Total LossesNet Carrying
    
    
    Fair Value Measured and Recorded at
    
    
    for ThreeValue as of
    
    
    Reporting Date Using:
    
    
    Months EndedIn thousands
    
    April 3, 2010
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    April 3, 2010Property and equipment
    
    $
    790
    
    
    $
    
    
    
    $
    
    
    
    $
    790
    
    
    $
    1,623
   16




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##### Table of Contents



Total LossesNet Carrying
    
    
    Fair Value Measured and Recorded at
    
    
    for ThreeValue as of
    
    
    Reporting Date Using:
    
    
    Months EndedIn thousands
    
    April 4, 2009
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    April 4, 2009Long-lived assets held and used
    
    $
    432
    
    
    $
    
    
    
    $
    
    
    
    $
    432
    
    
    $
    3,090
    April 3, 2010
    
    
    January 2, 2010In thousands
    
    Fair Value
    
    
    Carrying Value
    
    
    Fair Value
    
    
    Carrying Value5.0% Notes, due July 2013 (a)
    
    $
    388,239
    
    
    $
    471,038
    
    
    $
    392,615
    
    
    $
    501,8276.0% Convertible Senior Notes, due June
2014 (a)
    
    
    201,453
    
    
    
    71,960
    
    
    
    160,738
    
    
    
    71,137Revolving credit facility (b)
    
    
    30,306
    
    
    
    30,306
    
    
    
    66,507
    
    
    
    66,507
 
 (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
  Acquisitions
   17




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##### Table of Contents



Other
      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 30, 2010.
  18




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##### Table of Contents



2009 Actions
         Three Months EndedApril 3, 2010
    
    
    April 4, 2009In thousands
    
    (13 Weeks)
    
    
    (13 Weeks)Domestic-Based Direct Brands
    
    $
    4,844
    
    
    $
    10,580International-Based Direct Brands
    
    
    1,519
    
    
    
    3,826Partnered Brands
    
    
    7,237
    
    
    
    18,935Total
    
    $
    13,600
    
    
    $
    33,341
  19




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##### Table of Contents



LeasePayroll and
    
    
    Termination
    
    
    Fixed AssetIn thousands
    
    Related Costs
    
    
    Costs
    
    
    Write-Downs
    
    
    Other Costs
    
    
    TotalBalance at January 2, 2010
    
    $
    32,696
    
    
    $
    22,821
    
    
    $
    
    
    
    $
    7,204
    
    
    $
    62,7212010 provision
    
    
    5,436
    
    
    
    4,480
    
    
    
    1,883
    
    
    
    1,801
    
    
    
    13,6002010 fixed asset write-downs
    
    
    
    
    
    
    
    
    
    
    (1,883
    )
    
    
    
    
    
    
    (1,883
    )Translation difference
    
    
    (702
    )
    
    
    (147
    )
    
    
    
    
    
    
    (342
    )
    
    
    (1,191
    )2010 spending
    
    
    (21,083
    )
    
    
    (9,423
    )
    
    
    
    
    
    
    (4,066
    )
    
    
    (34,572
    )Balance at April 3, 2010
    
    $
    16,347
    
    
    $
    17,731
    
    
    $
    
    
    
    $
    4,597
    
    
    $
    38,675
   Three Months EndedApril 3, 2010
    
    
    April 4, 2009In thousands
    
    (13 Weeks)
    
    
    (13 Weeks)Loss from continuing operations
    
    $
    (63,287
    )
    
    $
    (85,592
    )Net loss attributable to the noncontrolling interest
    
    
    (258
    )
    
    
    (369
    )Loss from continuing operations attributable to Liz Claiborne, Inc.
    
    
    (63,029
    )
    
    
    (85,223
    )Loss from discontinued operations, net of income taxes
    
    
    (8,751
    )
    
    
    (6,156
    )Net loss attributable to Liz Claiborne, Inc.
    
    $
    (71,780
    )
    
    $
    (91,379
    )Basic weighted average shares outstanding
    
    
    94,170
    
    
    
    93,771Stock options and nonvested shares(a)(b)
    
    
    
    
    
    
    Convertible Notes(c)
    
    
    
    
    
    
    Diluted weighted average shares outstanding(a)(b)(c)
    
    
    94,170
    
    
    
    93,771Earnings per share:Basic and dilutedLoss from continuing operations attributable to Liz Claiborne, Inc.
    
    $
    (0.67
    )
    
    $
    (0.91
    )Loss from discontinued operations attributable to Liz Claiborne, Inc.
    
    $
    (0.09
    )
    
    $
    (0.06
    )Net loss attributable to Liz Claiborne, Inc.
    
    $
    (0.76
    )
    
    $
    (0.97
    )
 
 (a)
    
    Because the Company incurred a loss from continuing operations for the three
months ended April 3, 2010 and April 4, 2009, all outstanding stock options and nonvested
shares are antidilutive for such periods. Accordingly, for the three months ended April 3,
2010 and April 4, 2009, approximately 6.0 million and 5.9 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
three months ended April 3, 2010 and April 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
three months ended April 3, 2010, approximately 10.8 million potentially dilutive shares
issuable upon conversion of the Convertible Notes were considered antidilutive for such
period, and were excluded from the computation of diluted loss per share.  20




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##### Table of Contents



Licensing-Related Transactions
   Condensed Consolidated Statements of Cash Flows Supplementary Disclosures
    Related Party Transactions
    
    
    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, DKNY® ACTIVE
and DKNY® MENS brands.
  21




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##### Table of Contents



OperatingDollars in thousands
    
    Net Sales
    
    
    % to Total
    
    
    Loss
    
    
    % of SalesThree Months Ended April 3, 2010 (13 weeks)Domestic-Based Direct Brands
    
    $
    242,861
    
    
    
    39.9
    %
    
    $
    (9,973
    )
    
    
    (4.1
    )%International-Based Direct Brands
    
    
    181,162
    
    
    
    29.8
    %
    
    
    (29,463
    )
    
    
    (16.3
    )%Partnered Brands
    
    
    184,455
    
    
    
    30.3
    %
    
    
    (26,608
    )
    
    
    (14.4
    )%Totals
    
    $
    608,478
    
    
    
    100.0
    %
    
    $
    (66,044
    )
    
    
    (10.9
    )%Three Months Ended April 4, 2009 (13 weeks)Domestic-Based Direct Brands
    
    $
    259,536
    
    
    
    33.5
    %
    
    $
    (21,163
    )
    
    
    (8.2
    )%International-Based Direct Brands
    
    
    208,541
    
    
    
    26.9
    %
    
    
    (17,191
    )
    
    
    (8.2
    )%Partnered Brands
    
    
    307,224
    
    
    
    39.6
    %
    
    
    (38,009
    )
    
    
    (12.4
    )%Totals
    
    $
    775,301
    
    
    
    100.0
    %
    
    $
    (76,363
    )
    
    
    (9.8
    )%
  OperatingDollars in thousands
    
    Net Sales
    
    
    % to Total
    
    
    Loss
    
    
    % of SalesThree Months Ended April 3, 2010 (13 weeks)Domestic
    
    $
    396,831
    
    
    
    65.2
    %
    
    $
    (34,146
    )
    
    
    (8.6
    )%International
    
    
    211,647
    
    
    
    34.8
    %
    
    
    (31,898
    )
    
    
    (15.1
    )%Totals
    
    $
    608,478
    
    
    
    100.0
    %
    
    $
    (66,044
    )
    
    
    (10.9
    )%Three Months Ended April 4, 2009 (13 weeks)Domestic
    
    $
    529,755
    
    
    
    68.3
    %
    
    $
    (50,223
    )
    
    
    (9.5
    )%International
    
    
    245,546
    
    
    
    31.7
    %
    
    
    (26,140
    )
    
    
    (10.6
    )%Totals
    
    $
    775,301
    
    
    
    100.0
    %
    
    $
    (76,363
    )
    
    
    (9.8
    )%
   22




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##### Table of Contents



Foreign Currency Contracts Designated as Hedging InstrumentsIn thousands
    
    Asset Derivatives
    
    
    Liability DerivativesBalance Sheet
    
    Notional
    
    
    
    
    
    
    Balance Sheet
    
    NotionalPeriod
    
    Location
    
    Amount
    
    
    Fair Value
    
    
    Location
    
    Amount
    
    
    Fair ValueApril 3, 2010
    
    Other current assets
    
    $
    68,076
    
    
    $
    2,751
    
    
    Accrued expenses
    
    $
    14,089
    
    
    $
    808January 2, 2010
    
    Other current assets
    
    
    26,408
    
    
    
    586
    
    
    Accrued expenses
    
    
    74,634
    
    
    
    3,091April 4, 2009
    
    Other current assets
    
    
    34,669
    
    
    
    734
    
    
    Accrued expenses
    
    
    99,293
    
    
    
    5,673Foreign Currency Contracts Not Designated as Hedging InstrumentsIn thousands
    
    Asset Derivatives
    
    
    Liability DerivativesBalance Sheet
    
    Notional
    
    
    
    
    
    
    Balance Sheet
    
    NotionalPeriod
    
    Location
    
    Amount
    
    
    Fair Value
    
    
    Location
    
    Amount
    
    
    Fair ValueApril 3, 2010
    
    Other current assets
    
    $
    
    
    
    $
    
    
    
    Accrued expenses
    
    $
    6,882
    
    
    $
    597January 2, 2010
    
    Other current assets
    
    
    
    
    
    
    
    
    
    Accrued expenses
    
    
    12,015
    
    
    
    690April 4, 2009
    
    Other current assets
    
    
    10,582
    
    
    
    211
    
    
    Accrued expenses
    
    
    
    
    
    
    
  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)Three months
ended April 3, 2010
    
    $
    3,788
    
    
    Cost of goods sold
    
    $
    (4,642
    )
    
    $
    (359
    )Three months
ended April 4, 2009
    
    
    5,506
    
    
    Cost of goods sold
    
    
    2,072
    
    
    
    379
    23




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##### Table of Contents



Stock Options
  Three Months EndedValuation Assumptions:
    
    April 3, 2010
    
    April 4, 2009Weighted-average fair value of options granted
    
    $3.57
    
    $0.80Expected volatility
    
    56.9% to 58.8%
    
    48.7% to 60.7%Weighted-average volatility
    
    58.4%
    
    50.0%Expected term (in years)
    
    5.0
    
    4.9Dividend yield
    
    
    
    Risk-free rate
    
    0.3% to 5.3%
    
    0.8% to 4.5%Expected annual forfeiture
    
    12.6%
    
    12.7%
   24




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##### Table of Contents



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
    
    
    1,470,000
    
    
    
    7.10Cancelled
    
    
    (386,934
    )
    
    
    18.02Outstanding at April 3, 2010
    
    
    6,001,696
    
    
    $
    16.37
    
    
    
    5.2
    
    
    $
    5,583Vested or expected to vest at April 3, 2010
    
    
    5,230,955
    
    
    $
    17.86
    
    
    
    5.1
    
    
    $
    4,495Exercisable at April 3, 2010
    
    
    2,093,971
    
    
    $
    31.83
    
    
    
    3.4
    
    
    $
    32
   Restricted Stock
  WeightedAverage GrantShares
    
    
    Date Fair ValueNonvested stock at January 2, 2010 (a)
    
    
    1,132,856
    
    
    $
    16.58Granted
    
    
    332,500
    
    
    
    7.12Vested
    
    
    (225,134
    )
    
    
    31.60Cancelled
    
    
    (139,695
    )
    
    
    10.38Nonvested stock at April 3, 2010 (a)
    
    
    1,100,527
    
    
    $
    11.44Expected to vest as of April 3, 2010
    
    
    663,140
    
    
    $
    11.46
 
 (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 shares measured
at fiscal 2010 year-end 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.   The Levy Group, Inc. L.C. Licensing, Inc. and Liz Claiborne, Inc.
   25




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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, DKNY® ACTIVE and DKNY® MENS 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
    26




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##### Table of Contents



Competitive Profile
    Recent Initiatives
 Distribution of Our Liz Claiborne Brands
    Cost Reduction Initiatives
   27




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##### Table of Contents



Liquidity
     Discontinued Operations
      28




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##### Table of Contents



Overall Results for the Three Months Ended April 3, 2010
 Net Sales
   Gross Profit and Loss from Continuing Operations
  Balance Sheet
  International Operations
  RESULTS OF OPERATIONS
   29




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##### Table of Contents



THREE MONTHS ENDED APRIL 3, 2010 COMPARED TO THREE MONTHS ENDED APRIL 4, 2009
  Three Months Ended
    
    
    VarianceApril 3, 2010
    
    
    April 4, 2009Dollars in millions
    
    (13 Weeks)
    
    
    (13 Weeks)
    
    
    $
    
    
    %Net Sales
    
    $
    608.5
    
    
    $
    775.3
    
    
    $
    (166.8
    )
    
    
    (21.5
    )%Gross Profit
    
    
    282.2
    
    
    
    347.0
    
    
    
    (64.8
    )
    
    
    (18.7
    )%Selling, general & administrative
expenses
    
    
    348.2
    
    
    
    421.5
    
    
    
    73.3
    
    
    
    17.4
    %Goodwill impairment
    
    
    
    
    
    
    1.9
    
    
    
    1.9
    
    
    
    *Operating Loss
    
    
    (66.0
    )
    
    
    (76.4
    )
    
    
    10.4
    
    
    
    13.6
    %Other income, net
    
    
    19.8
    
    
    
    5.9
    
    
    
    13.9
    
    
    
    *Interest expense, net
    
    
    (15.5
    )
    
    
    (13.8
    )
    
    
    (1.7
    )
    
    
    (12.3
    )%Provision for income taxes
    
    
    1.6
    
    
    
    1.3
    
    
    
    (0.3
    )
    
    
    (23.1
    )%Loss from Continuing Operations
    
    
    (63.3
    )
    
    
    (85.6
    )
    
    
    22.3
    
    
    
    26.1
    %Discontinued operations, net of income
taxes
    
    
    (8.7
    )
    
    
    (6.1
    )
    
    
    (2.6
    )
    
    
    (42.6
    )%Net Loss
    
    
    (72.0
    )
    
    
    (91.7
    )
    
    
    19.7
    
    
    
    21.5
    %Net loss attributable to the
noncontrolling interest
    
    
    (0.2
    )
    
    
    (0.4
    )
    
    
    (0.2
    )
    
    
    (50.0
    )%Net Loss Attributable to Liz Claiborne,
Inc.
    
    $
    (71.8
    )
    
    $
    (91.3
    )
    
    $
    19.5
    
    
    
    21.4
    %
 
 *
    
    Not meaningful. Net Sales
   30




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##### Table of Contents




    
    Domestic-Based Direct Brands net sales were $242.9 million, a decrease of $16.7 million, or 6.4%, reflecting the
following:
 
    
    Net sales for JUICY COUTURE were $116.7 million, a 12.0% decrease compared to 2009, reflecting
decreases in wholesale apparel and wholesale non-apparel operations, partially offset by an
increase in outlet operations.Store counts and key operating metrics for our JUICY COUTURE retail operations included the
following:
 
    
    We ended the quarter with 66 specialty stores and 31 outlet stores, reflecting the net addition
over the last 12 months of 3 specialty stores and the net closure of 2 outlet stores;
    
    Average retail square footage in the first three months of 2010 was approximately 328 thousand
square feet, a 2.5% increase compared to 2009;
    
    Sales productivity was $173 per average square foot as compared to $170 for the first three
months of 2009; and
    
    Comparable store net sales in our Company-owned stores increased by 3.8% in the first three
months of 2010.
 
    
    Net sales for LUCKY BRAND were $91.7 million, a 5.5% decrease compared to 2009, reflecting a
decrease in specialty retail operations, partially offset by an increase in outlet operations.Store counts and key operating metrics for our LUCKY BRAND retail operations included the
following:
 
    
    We ended the quarter with 192 specialty stores and 46 outlet stores, reflecting the net closure
over the last 12 months of 1 specialty store and the net addition of 8 outlet stores;
    
    Average retail square footage in the first three months of 2010 was approximately 597 thousand
square feet, a 4.9% increase compared to 2009;
    
    Sales productivity was $86 per average square foot as compared to $95 for the first three months
of 2009; and
    
    Comparable store net sales in our Company-owned stores decreased by 10.4% in the first three
months of 2010.
 
    
    Net sales for KATE SPADE were $34.5 million, a 15.1% increase compared to 2009, primarily driven
by increases in 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 quarter with 38 specialty stores and 29 outlet stores, reflecting the net closure
over the last 12 months of 9 specialty stores and the net addition of 1 outlet store;
    
    Average retail square footage in the first three months of 2010 was approximately 139 thousand
square feet, a 9.8% decrease compared to 2009;
    
    Sales productivity was $115 per average square foot as compared to $90 for the first three
months of 2009; and
    
    Comparable store net sales in our Company-owned stores increased by 20.1% in the first three
months of 2010.
 
    
    International-Based Direct Brands, comprised of our MEXX retail-based lifestyle brand, net sales
were $181.2 million, a decrease of $27.4 million, or 13.1%, 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 $168.1 million, a 19.4% decrease as
compared to 2009.Store counts and key operating metrics for our MEXX retail operations included the following:
 
    
    We ended the quarter with 159 specialty
stores, 93 outlet stores and 186 concessions,
reflecting the net addition over the last 12
months of 23 specialty stores and the net
closure of 6 outlet stores and 47 concessions
(inclusive of the conversion of 29 concessions
to specialty retail formats);
    
    Average retail square footage in the first
three months of 2010 was approximately 1.540
million square feet, a 5.2% increase compared
to 2009;
    
    Sales productivity was $60 per average square
foot as compared to $64 for the first three
months of 2009; and
    
    Comparable store net sales in our
Company-owned stores decreased by 7.0% in the
first three months of 2010.
 
    
    Partnered Brands net sales were $184.4 million, a decrease of $122.8 million, or 40.0%, reflecting:
 
    
    A net $61.6 million, or
20.0%, 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;
  31




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##### Table of Contents




    
    A $51.8 million, or
16.9%, decrease related to reduced 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 $9.4 million, or
3.1%, 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 quarter with 107
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 5 outlet
stores;
    
    Average retail square footage in
the first three months of 2010
was approximately 894 thousand
square feet, a 3.9% decrease
compared to 2009;
    
    Sales productivity was $22 per
average square foot as compared
to $31 for the first three months
of 2009; and
    
    Comparable store net sales in our
Company-owned outlet stores
decreased 30.7% in the first
three 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
  Selling, General & Administrative Expenses
  
    
    A $43.7 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 $17.6 million decrease in expenses associated with our streamlining
initiatives and brand-exiting activities;
    
    A $14.8 million decrease in the operations of our International-Based
Direct Brands segment, including a $5.4 million decrease in shipping
and handling expenses and a $5.3 million decrease in payroll related
expenses in our European operations;
  32




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##### Table of Contents




    
    A $7.7 million decrease in our Domestic-Based Direct Brands segment,
including a reduction of $6.4 million in payroll related expenses; and
    
    A $10.5 million increase due to the impact of fluctuations in foreign
currency exchange rates in our international operations.
  Goodwill Impairment
  Operating Loss
  
    
    Domestic-Based Direct Brands operating loss was $10.0 million ((4.1)%
of net sales), compared to an operating loss of $21.2 million ((8.2)%
of net sales) in 2009. The decreased operating loss reflected a
decrease in payroll related expenses of $6.8 million and a $5.4
million decrease in expenses associated with our streamlining
initiatives and brand exiting activities, partially offset by
decreased gross profit, as discussed above.
    
    International-Based Direct Brands operating loss was $29.4 million
((16.3)% of net sales), compared to an operating loss of $17.2 million
((8.2)% of net sales) in 2009. The increased operating loss reflected
decreased gross profit and a $1.8 million increase resulting from
fluctuations in foreign currency exchange rates, partially offset by;
(i) reduced shipping and handling expenses of $5.4 million; (ii)
reduced payroll related expenses of $5.3 million; and (iii) a $2.2
million reduction in marketing expenses in our European operations.
    
    Partnered Brands operating loss in the first quarter was $26.6 million
((14.4)% of net sales), compared to an operating loss of $38.0 million
((12.4)% of net sales) in 2009. The decreased operating loss reflected
reduced SG&A, including a $10.7 million decrease in expenses
associated with our streamlining initiatives and brand exiting
activities, partially offset by reduced gross profit.
 Domestic International
 Other Income, Net
  Interest Expense, Net
   33




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##### Table of Contents



Provision for Income Taxes
  Loss from Continuing Operations
  Discontinued Operations, Net of Income Taxes
  Net Loss Attributable to Liz Claiborne Inc.
  FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
 Cash Requirements
 Sources of Cash
   34




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Cash and Debt Balances.
  35




---



##### Table of Contents



Accounts Receivable
 Inventories
 Borrowings
 Net cash provided by operating activities
 Net cash used in investing activities
 Net cash (used in) provided by financing activities
 Commitments and Capital Expenditures
   36




---



##### Table of Contents




    
    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
currently estimate that the aggregate of the remaining contingent payments will be in the
range of approximately $0-$5.0 million, which will be accounted for as additional purchase
price when paid.
 
    
    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
    
    April 3, 2010
    
    
    January 2, 2010
    
    
    April 4, 20095.0% Notes (a)
    
    $
    471,038
    
    
    $
    501,827
    
    
    $
    468,0926.0% Convertible Senior Notes(b)
    
    
    71,960
    
    
    
    71,137
    
    
    
    Revolving credit facility
    
    
    30,306
    
    
    
    66,507
    
    
    
    263,797Capital lease obligations
    
    
    17,613
    
    
    
    18,680
    
    
    
    21,783Other
    
    
    
    
    
    
    
    
    
    
    223Total debt
    
    $
    590,917
    
    
    $
    658,151
    
    
    $
    753,895
 
 (a)
    
    The change in the balance of these euro-denominated notes reflected the impact
of changes in foreign currency exchange rates.(b)
    
    Our 6.0% Convertible Senior Notes were issued during the second quarter of 2009. The
balance at April 3, 2010 and January 2, 2010 represented principal of $90.0 million and an
unamortized debt discount of $18.0 million and $18.9 million, respectively.    37




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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 ValueApril 3, 2010
    
    Other current assets
    
    $
    68,076
    
    
    $
    2,751
    
    
    Accrued expenses
    
    $
    14,089
    
    
    $
    808January 2, 2010
    
    Other current assets
    
    
    26,408
    
    
    
    586
    
    
    Accrued expenses
    
    
    74,634
    
    
    
    3,091April 4, 2009
    
    Other current assets
    
    
    34,669
    
    
    
    734
    
    
    Accrued expenses
    
    
    99,293
    
    
    
    5,673
  38




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##### Table of Contents



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 ValueApril 3, 2010
    
    Other current assets
    
    $
    
    
    
    $
    
    
    
    Accrued expenses
    
    $
    6,882
    
    
    $
    597January 2, 2010
    
    Other current assets
    
    
    
    
    
    
    
    
    
    Accrued expenses
    
    
    12,015
    
    
    
    690April 4, 2009
    
    Other current assets
    
    
    10,582
    
    
    
    211
    
    
    Accrued expenses
    
    
    
    
    
    
    
  Location of Gainor (Loss)
    
    Amount of Gain orAmount of Gain or
    
    
    Reclassified from
    
    (Loss) Reclassified
    
    
    Amount of Gain or(Loss) Recognized
    
    
    Accumulated OCI
    
    from Accumulated
    
    
    (Loss) Recognizedin Accumulated
    
    
    into Operations
    
    OCI into
    
    
    in Operations onOCI on Derivative
    
    
    (Effective and
    
    Operations
    
    
    DerivativeIn thousands
    
    (Effective Portion)
    
    
    Ineffective Portion)
    
    (Effective Portion)
    
    
    (Ineffective Portion)Three months
ended
April 3, 2010
    
    $
    3,788
    
    
    Cost of goods sold
    
    $
    (4,642
    )
    
    $
    (359
    )Three months ended
April 4, 2009
    
    
    5,506
    
    
    Cost of goods sold
    
    
    2,072
    
    
    
    379
    USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES
     39




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##### Table of Contents



ACCOUNTING PRONOUNCEMENTS
  
 ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   In millions
    
    April 3, 2010
    
    
    January 2, 2010
    
    
    April 4, 2009Variable rate debt
    
    $
    30.3
    
    
    $
    66.5
    
    
    $
    263.8Average interest rate
    
    
    7.10
    %
    
    
    6.87
    %
    
    
    6.21
    %
      40




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##### Table of Contents



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
   41




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##### Table of Contents



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.
     42




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##### Table of Contents



43




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##### Table of Contents



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)January 3, 2010 - January 30, 2010
    
    
    30.4
    
    
    $
    5.24
    
    
    
    
    
    
    $
    28,749January 31, 2010 - March 6, 2010
    
    
    55.6
    
    
    
    7.19
    
    
    
    
    
    
    
    28,749March 7, 2010 - April 3, 2010
    
    
    0.6
    
    
    
    7.16
    
    
    
    
    
    
    
    28,749Total -13 Weeks Ended April 3, 2010
    
    
    86.6
    
    
    $
    6.50
    
    
    
    
    
    
    $
    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. 
 ITEM 5.
    
    OTHER INFORMATION
   44




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##### Table of Contents



ITEM 6.
    
    EXHIBITS
 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.  45




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##### Table of Contents



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

ANDREW WARREN 
Chief Financial Officer
(Principal financial officer)
    
    By:
    
    /s/ Elaine H. Goodell

ELAINE H. GOODELL 
Vice President  Corporate
Controller and 
Chief Accounting Officer

(Principal accounting officer)
  46