##### Table of Contents



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 July 4, 2009
 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
    
    (I.R.S. Employerincorporation or organization)
    
    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 þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o
 o þ




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##### 



LIZ CLAIBORNE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
July 4, 2009
 PAGENUMBERPART I   FINANCIAL INFORMATIONItem 1. Financial Statements:Condensed Consolidated Balance Sheets as of July 4, 2009 (Unaudited), January 3, 2009 and July 5, 2008 (Unaudited)
    
    
    4Condensed Consolidated Statements of Operations for the Six and Three Month Periods Ended July 4, 2009 (Unaudited) and July 5, 2008 (Unaudited)
    
    
    5Condensed Consolidated Statements of Cash Flows for the Six Month Periods Ended July 4, 2009 (Unaudited) and July 5, 2008 (Unaudited)
    
    
    6Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    7  33Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    34   58Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    58                59Item 4. Controls and Procedures
    
    
    59PART II   OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    59Item 1A. Risk Factors
    
    
    60  69Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    69Item 4. Submission of Matters to a Vote of Security Holders
    
    
    70Item 5. Other Information
    
    
    70Item 6. Exhibits
    
    
    71SIGNATURES
    
    
    72Exhibit 4.1Exhibit 10.5Exhibit 31(a)Exhibit 31(b)Exhibit 32(a)Exhibit 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 extended 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
financial and other covenants included in our amended and extended credit facility and the
borrowing base requirement in our amended and extended credit facility that limits the
amount of borrowings we may make based on a formula of, among other things, eligible
accounts receivable and inventory;
    
    general economic conditions in the United States, Europe and other parts of the world;
    
    lower 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 U.S. 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 affect 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, including
the risks associated with our sales of Liz & Co. and Concepts by Claiborne outside of
better department stores and risks associated with our Liz Claiborne and Claiborne brands
association with known designers and retailer and consumer acceptance of the resulting
products;
    
    the impact of the highly competitive nature of the markets within which we operate, both
within the United States 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, which results in a single foreign
buying agent for substantially all of our products;
    
    our international operations are subject to a variety of legal, regulatory, political
and economic risks, including risks relating to the importation and exportation of product;
    
    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; and
    
    our exposure to domestic and foreign currency fluctuations.




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1.
    
    FINANCIAL STATEMENTS
 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
  July 4, 2009
    
    
    
    
    
    
    July 5, 2008(Unaudited)
    
    
    January 3, 2009
    
    
    (Unaudited)AssetsCurrent Assets:Cash and cash equivalents
    
    $
    52,910
    
    
    $
    25,431
    
    
    $
    100,380Accounts receivable  trade, net
    
    
    296,653
    
    
    
    339,158
    
    
    
    439,459Inventories, net
    
    
    385,134
    
    
    
    464,619
    
    
    
    496,878Deferred income taxes
    
    
    5,576
    
    
    
    6,816
    
    
    
    100,603Other current assets
    
    
    123,554
    
    
    
    223,379
    
    
    
    301,670Assets held for sale
    
    
    16,649
    
    
    
    
    
    
    
    5,273Total current assets
    
    
    880,476
    
    
    
    1,059,403
    
    
    
    1,444,263Property and Equipment, Net
    
    
    510,164
    
    
    
    572,428
    
    
    
    595,819Goodwill, Net
    
    
    
    
    
    
    
    
    
    
    681,503Intangibles, Net
    
    
    250,425
    
    
    
    251,267
    
    
    
    313,512Deferred Income Taxes
    
    
    2,315
    
    
    
    2,200
    
    
    
    14,264Other Assets
    
    
    34,672
    
    
    
    20,154
    
    
    
    22,590Total Assets
    
    $
    1,678,052
    
    
    $
    1,905,452
    
    
    $
    3,071,951Liabilities and Stockholders EquityCurrent Liabilities:Short-term borrowings
    
    $
    139,264
    
    
    $
    110,219
    
    
    $
    87,098Accounts payable
    
    
    164,949
    
    
    
    211,529
    
    
    
    196,901Accrued expenses
    
    
    252,812
    
    
    
    301,591
    
    
    
    409,480Income taxes payable
    
    
    1,663
    
    
    
    3,890
    
    
    
    Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    497Total current liabilities
    
    
    558,688
    
    
    
    627,229
    
    
    
    693,976Long-Term Debt
    
    
    578,363
    
    
    
    633,420
    
    
    
    811,294Other Non-Current Liabilities
    
    
    161,177
    
    
    
    98,786
    
    
    
    114,550Deferred Income Taxes
    
    
    37,135
    
    
    
    38,358
    
    
    
    17,009Commitments and Contingencies (Note 10)Stockholders Equity:Preferred stock, $.01 par value, authorized shares 
50,000,000, issued shares  none
    
    
    
    
    
    
    
    
    
    
    Common stock, $1 par value, authorized shares 
250,000,000, issued shares  176,437,234
    
    
    176,437
    
    
    
    176,437
    
    
    
    176,437Capital in excess of par value
    
    
    312,534
    
    
    
    292,144
    
    
    
    295,980Retained earnings
    
    
    1,801,575
    
    
    
    1,975,082
    
    
    
    2,883,400Accumulated other comprehensive loss
    
    
    (75,056
    )
    
    
    (66,716
    )
    
    
    (48,558
    )2,215,490
    
    
    
    2,376,947
    
    
    
    3,307,259Common stock in treasury, at cost 81,361,693, 81,316,925 and 81,676,396 shares
    
    
    (1,876,430
    )
    
    
    (1,873,300
    )
    
    
    (1,876,010
    )Total Liz Claiborne, Inc. stockholders equity
    
    
    339,060
    
    
    
    503,647
    
    
    
    1,431,249Noncontrolling interest
    
    
    3,629
    
    
    
    4,012
    
    
    
    3,873Total stockholders equity
    
    
    342,689
    
    
    
    507,659
    
    
    
    1,435,122Total Liabilities and Stockholders Equity
    
    $
    1,678,052
    
    
    $
    1,905,452
    
    
    $
    3,071,951
   4




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LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
   Six Months Ended
    
    
    Three Months EndedJuly 4, 2009
    
    
    July 5, 2008
    
    
    July 4, 2009
    
    
    July 5, 2008(26 Weeks)
    
    
    (27 Weeks)
    
    
    (13 Weeks)
    
    
    (13 Weeks)Net Sales
    
    $
    1,463,435
    
    
    $
    2,058,804
    
    
    $
    683,770
    
    
    $
    963,430Cost of goods sold
    
    
    788,223
    
    
    
    1,071,743
    
    
    
    357,381
    
    
    
    503,420Gross Profit
    
    
    675,212
    
    
    
    987,061
    
    
    
    326,389
    
    
    
    460,010Selling, general & administrative expenses
    
    
    812,130
    
    
    
    1,021,165
    
    
    
    387,101
    
    
    
    481,707Goodwill impairment
    
    
    2,785
    
    
    
    
    
    
    
    887
    
    
    
    Operating Loss
    
    
    (139,703
    )
    
    
    (34,104
    )
    
    
    (61,599
    )
    
    
    (21,697
    )Other expense, net
    
    
    (1,374
    )
    
    
    (3,559
    )
    
    
    (7,287
    )
    
    
    (965
    )Interest expense, net
    
    
    (29,452
    )
    
    
    (21,873
    )
    
    
    (15,570
    )
    
    
    (9,770
    )Loss Before Benefit for Income Taxes
    
    
    (170,529
    )
    
    
    (59,536
    )
    
    
    (84,456
    )
    
    
    (32,432
    )Benefit for income taxes
    
    
    (6,451
    )
    
    
    (38,052
    )
    
    
    (7,711
    )
    
    
    (18,607
    )Loss from Continuing Operations
    
    
    (164,078
    )
    
    
    (21,484
    )
    
    
    (76,745
    )
    
    
    (13,825
    )Discontinued operations, net of tax
    
    
    (9,790
    )
    
    
    (32,587
    )
    
    
    (5,375
    )
    
    
    (9,322
    )Net Loss
    
    
    (173,868
    )
    
    
    (54,071
    )
    
    
    (82,120
    )
    
    
    (23,147
    )Net (loss) income attributable to the noncontrolling interest
    
    
    (383
    )
    
    
    113
    
    
    
    (14
    )
    
    
    16Net Loss Attributable to Liz Claiborne, Inc.
    
    $
    (173,485
    )
    
    $
    (54,184
    )
    
    $
    (82,106
    )
    
    $
    (23,163
    )Earnings per Share:Basic and DilutedLoss from Continuing Operations Attributable to Liz Claiborne, Inc.
    
    $
    (1.75
    )
    
    $
    (0.23
    )
    
    $
    (0.82
    )
    
    $
    (0.15
    )Net Loss Attributable to Liz Claiborne, Inc.
    
    $
    (1.85
    )
    
    $
    (0.58
    )
    
    $
    (0.87
    )
    
    $
    (0.25
    )Weighted Average Shares, Basic and Diluted
    
    
    93,828
    
    
    
    93,202
    
    
    
    93,885
    
    
    
    93,638
   5




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LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
   Six Months EndedJuly 4, 2009
    
    
    July 5, 2008(26 Weeks)
    
    
    (27 Weeks)Cash Flows from Operating Activities:Net loss
    
    $
    (173,868
    )
    
    $
    (54,071
    )Adjustments to arrive at loss from continuing operations
    
    
    9,790
    
    
    
    32,587Loss from continuing operations
    
    
    (164,078
    )
    
    
    (21,484
    )Adjustments to reconcile loss from continuing operations to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    79,922
    
    
    
    80,130Impairment of goodwill
    
    
    2,785
    
    
    
    Streamlining initiatives and other asset write-downs
    
    
    7,999
    
    
    
    2,805Loss on asset disposals, net
    
    
    4,710
    
    
    
    12,855Share-based compensation
    
    
    4,423
    
    
    
    8,015Other, net
    
    
    137
    
    
    
    (42
    )Changes in assets and liabilities:Decrease in accounts receivable  trade, net
    
    
    47,108
    
    
    
    9,343Decrease in inventories, net
    
    
    76,542
    
    
    
    37,272Decrease (increase) in other current and non-current assets
    
    
    3,199
    
    
    
    (5,464
    )Decrease in accounts payable
    
    
    (40,472
    )
    
    
    (30,630
    )Increase (decrease) in accrued expenses and other non-current liabilities
    
    
    19,439
    
    
    
    (59,053
    )Net change in income tax assets and liabilities
    
    
    97,838
    
    
    
    (71,245
    )Net cash used in operating activities of discontinued operations
    
    
    (11,370
    )
    
    
    (18,375
    )Net cash provided by (used in) operating activities
    
    
    128,182
    
    
    
    (55,873
    )Cash Flows from Investing Activities:Proceeds from disposition
    
    
    
    
    
    
    21,252Purchases of property and equipment
    
    
    (35,609
    )
    
    
    (86,716
    )Payments for purchases of businesses
    
    
    (8,755
    )
    
    
    (5,137
    )Payments for in-store merchandise shops
    
    
    (4,978
    )
    
    
    (3,133
    )Other, net
    
    
    (721
    )
    
    
    (430
    )Net cash provided by investing activities of discontinued operations
    
    
    
    
    
    
    64,776Net cash used in investing activities
    
    
    (50,063
    )
    
    
    (9,388
    )Cash Flows from Financing Activities:Short-term borrowings, net
    
    
    (97,810
    )
    
    
    (27,005
    )Proceeds from issuance of convertible senior notes
    
    
    90,000
    
    
    
    Principal payments under capital lease obligations
    
    
    (2,148
    )
    
    
    (2,094
    )Dividends paid
    
    
    
    
    
    
    (10,525
    )Payment of deferred financing fees
    
    
    (37,182
    )
    
    
    (1,059
    )Net cash used in financing activities
    
    
    (47,140
    )
    
    
    (40,683
    )Effect of Exchange Rate Changes on Cash and Cash Equivalents
    
    
    (3,500
    )
    
    
    923Net Change in Cash and Cash Equivalents
    
    
    27,479
    
    
    
    (105,021
    )Cash and Cash Equivalents at Beginning of Period
    
    
    25,431
    
    
    
    205,401Cash and Cash Equivalents at End of Period
    
    $
    52,910
    
    
    $
    100,380
   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
    8




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Revenue Recognition
  Income Taxes
  Accounts Receivable  Trade, Net
  Inventories, Net
   9




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Goodwill and Intangibles, Net
        10




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Accrued Expenses
  Derivative Instruments
     11




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Share-Based Compensation
  OTHER SIGNIFICANT ACCOUNTING POLICIES
 Fair Value Measurements
          Cash and Cash Equivalents
   12




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Property and Equipment, Net
      Operating Leases
  Foreign Currency Translation
   13




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Foreign Currency Transactions
  Cost of Goods Sold
  Advertising, Promotion and Marketing
  Shipping and Handling Costs
  Fiscal Year
  Subsequent Events
  RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
    14




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LIQUIDITY AND OTHER MATTERS
 Liquidity Enhancement and Cost Reduction
      15




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16




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Six Months Ended
    
    
    Three Months EndedJuly 4, 2009
    
    
    July 5, 2008
    
    
    July 4, 2009
    
    
    July 5, 2008In thousands
    
    (26 Weeks)
    
    
    (27 Weeks)
    
    
    (13 Weeks)
    
    
    (13 Weeks)Net sales
    
    $
    461
    
    
    $
    64,753
    
    
    $
    (335
    )
    
    $
    14,972Loss before benefit for income taxes
    
    $
    (7,177
    )
    
    $
    (30,524
    )
    
    $
    (4,156
    )
    
    $
    (12,487
    )Benefit for income taxes
    
    
    
    
    
    
    (11,833
    )
    
    
    
    
    
    
    (4,859
    )Loss from discontinued operations, net of tax
    
    $
    (7,177
    )
    
    $
    (18,691
    )
    
    $
    (4,156
    )
    
    $
    (7,628
    )Loss on disposal of discontinued operations,
net of tax
    
    $
    (2,613
    )
    
    $
    (13,896
    )
    
    $
    (1,219
    )
    
    $
    (1,694
    )
    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
  17




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CommonCapital in
    
    
    
    
    
    
    stock inexcess of par
    
    
    Retained
    
    
    treasury, at
    
    
    NoncontrollingIn thousands
    
    value
    
    
    earnings
    
    
    cost
    
    
    interestBalance as of December 29, 2007
    
    $
    296,158
    
    
    $
    2,948,085
    
    
    $
    (1,880,534
    )
    
    $
    3,760Net (loss) income
    
    
    
    
    
    
    (54,184
    )
    
    
    
    
    
    
    113Restricted shares issued, net of cancellations and
shares withheld for taxes
    
    
    (6,167
    )
    
    
    
    
    
    
    4,498
    
    
    
    Share-based compensation
    
    
    8,015
    
    
    
    
    
    
    
    
    
    
    
    Stock options exercised
    
    
    25
    
    
    
    
    
    
    
    26
    
    
    
    Tax benefit on exercise of options
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    Tax deficiency related to share-based compensation
    
    
    (2,058
    )
    
    
    
    
    
    
    
    
    
    
    Dividends declared
    
    
    
    
    
    
    (10,501
    )
    
    
    
    
    
    
    Balance as of July 5, 2008
    
    $
    295,980
    
    
    $
    2,883,400
    
    
    $
    (1,876,010
    )
    
    $
    3,873
  Six Months Ended
    
    
    Three Months EndedJuly 4, 2009
    
    
    July 5, 2008
    
    
    July 4, 2009
    
    
    July 5, 2008In thousands
    
    (26 Weeks)
    
    
    (27 Weeks)
    
    
    (13 Weeks)
    
    
    (13 Weeks)Net loss
    
    $
    (173,868
    )
    
    $
    (54,071
    )
    
    $
    (82,120
    )
    
    $
    (23,147
    )Other comprehensive (loss) income, net of tax:Change in cumulative translation adjustment
    
    
    28
    
    
    
    8,002
    
    
    
    18,978
    
    
    
    (50,905
    )Change in cumulative translation adjustment on
Eurobond and other instruments, net of income
taxes of $1,033, $3,633, $1,033 and $1,392,
respectively
    
    
    (3,310
    )
    
    
    (32,042
    )
    
    
    (20,880
    )
    
    
    37,765Changes in unrealized losses on
available-for-sale securities, net of income
taxes of $0, $50, $0 and $19, respectively
    
    
    177
    
    
    
    (39
    )
    
    
    253
    
    
    
    (29
    )Changes in fair value of cash flow hedges, net
of income taxes of $(640), $(352), $(474) and
$(874), respectively
    
    
    (5,235
    )
    
    
    103
    
    
    
    (8,503
    )
    
    
    2,433Comprehensive loss
    
    
    (182,208
    )
    
    
    (78,047
    )
    
    
    (92,272
    )
    
    
    (33,883
    )Comprehensive loss (income) attributable to the noncontrolling interest
    
    
    383
    
    
    
    (113
    )
    
    
    14
    
    
    
    (16
    )Comprehensive loss attributable to Liz Claiborne, Inc.
    
    $
    (181,825
    )
    
    $
    (78,160
    )
    
    $
    (92,258
    )
    
    $
    (33,899
    )
  18




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##### Table of Contents



In thousands
    
    July 4, 2009
    
    
    January 3, 2009
    
    
    July 5, 2008Cumulative translation adjustment, net of income taxes
of $17,082, $18,115 and $15,537, respectively
    
    $
    (66,304
    )
    
    $
    (63,022
    )
    
    $
    (42,312
    )Unrealized losses on cash flow hedging derivatives, net
of income taxes of $386, $1,318 and $1,969, respectively
    
    
    (8,382
    )
    
    
    (3,147
    )
    
    
    (6,099
    )Unrealized losses on available-for-sale securities, net
of income taxes of $0, $0 and $96, respectively
    
    
    (370
    )
    
    
    (547
    )
    
    
    (147
    )Accumulated other comprehensive loss, net of income taxes
    
    $
    (75,056
    )
    
    $
    (66,716
    )
    
    $
    (48,558
    )
   In thousands
    
    July 4, 2009
    
    
    January 3, 2009
    
    
    July 5, 2008Raw materials
    
    $
    17,600
    
    
    $
    25,778
    
    
    $
    16,342Work in process
    
    
    3,396
    
    
    
    2,975
    
    
    
    16,234Finished goods
    
    
    364,138
    
    
    
    435,866
    
    
    
    464,302Total inventories, net
    
    $
    385,134
    
    
    $
    464,619
    
    
    $
    496,878
   In thousands
    
    July 4, 2009
    
    
    January 3, 2009
    
    
    July 5, 2008Land and buildings
    
    $
    69,300
    
    
    $
    108,175
    
    
    $
    108,097Machinery and equipment
    
    
    337,790
    
    
    
    373,094
    
    
    
    396,736Furniture and fixtures
    
    
    277,895
    
    
    
    277,563
    
    
    
    309,965Leasehold improvements
    
    
    550,153
    
    
    
    545,516
    
    
    
    538,0311,235,138
    
    
    
    1,304,348
    
    
    
    1,352,829Less: Accumulated depreciation and
amortization
    
    
    724,974
    
    
    
    731,920
    
    
    
    757,010Total property and equipment, net
    
    $
    510,164
    
    
    $
    572,428
    
    
    $
    595,819
   19




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##### Table of Contents



WeightedAverageAmortizationIn thousands
    
    Period
    
    
    July 4, 2009
    
    
    January 3, 2009
    
    
    July 5, 2008Amortized intangible assets:Gross Carrying Amount:Licensed trademarks
    
    15 years
    
    $
    32,154
    
    
    $
    32,154
    
    
    $
    32,749Owned trademarks (a)
    
    5 years
    
    
    1,000
    
    
    
    1,000
    
    
    
    9,900Customer relationships (b)
    
    12 years
    
    
    12,041
    
    
    
    11,955
    
    
    
    30,639Merchandising rights
    
    4 years
    
    
    47,963
    
    
    
    49,888
    
    
    
    43,284Other
    
    4 years
    
    
    2,322
    
    
    
    2,618
    
    
    
    3,204Subtotal
    
    9 years
    
    
    95,480
    
    
    
    97,615
    
    
    
    119,776Accumulated Amortization:Licensed trademarks
    
    
    
    
    
    
    (21,207
    )
    
    
    (19,795
    )
    
    
    (18,104
    )Owned trademarks
    
    
    
    
    
    
    (417
    )
    
    
    (316
    )
    
    
    (1,636
    )Customer relationships
    
    
    
    
    
    
    (2,882
    )
    
    
    (2,375
    )
    
    
    (6,967
    )Merchandising rights
    
    
    
    
    
    
    (27,287
    )
    
    
    (30,019
    )
    
    
    (25,915
    )Other
    
    
    
    
    
    
    (1,312
    )
    
    
    (1,183
    )
    
    
    (1,033
    )Subtotal
    
    
    
    
    
    
    (53,105
    )
    
    
    (53,688
    )
    
    
    (53,655
    )Net:Licensed trademarks
    
    
    
    
    
    
    10,947
    
    
    
    12,359
    
    
    
    14,645Owned trademarks
    
    
    
    
    
    
    583
    
    
    
    684
    
    
    
    8,264Customer relationships
    
    
    
    
    
    
    9,159
    
    
    
    9,580
    
    
    
    23,672Merchandising rights
    
    
    
    
    
    
    20,676
    
    
    
    19,869
    
    
    
    17,369Other
    
    
    
    
    
    
    1,010
    
    
    
    1,435
    
    
    
    2,171Total amortized intangible assets, net
    
    
    
    
    
    
    42,375
    
    
    
    43,927
    
    
    
    66,121Unamortized intangible assets:Owned trademarks(c)
    
    
    
    
    
    
    208,050
    
    
    
    207,340
    
    
    
    247,391Total intangible assets
    
    
    
    
    
    $
    250,425
    
    
    $
    251,267
    
    
    $
    313,512
 
 (a)
    
    The decrease in the balance compared to July 5, 2008 primarily reflects the
disposition of the Companys interest in the Narciso Rodriguez brand.(b)
    
    The change in the balance compared to July 5, 2008 reflects the impact of the
disposition of Enyce.(c)
    
    The change in the balance compared to July 5, 2008 reflects (i) a non-cash
impairment charge of $10.0 million recorded within the Companys Partnered Brands segment
related to the Villager, Crazy Horse and Russ trademark during the third quarter of 2008 and
(ii) the impact of the disposition of Enyce during 2008.   (In millions)Fiscal Year
    
    Amortization Expense2009
    
    $
    14.42010
    
    
    11.42011
    
    
    8.92012
    
    
    6.82013
    
    
    1.4
  20




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##### Table of Contents



In thousands
    
    Partnered BrandsBalance as of January 3, 2009
    
    $
    Additional purchase price  Mac & Jac
    
    
    2,785Impairment charge
    
    
    (2,785
    )Balance as of July 4, 2009
    
    
    
         21




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##### Table of Contents



In thousands
    
    July 4, 2009
    
    
    January 3, 2009
    
    
    July 5, 20085% Notes, due July 2013 (a)
    
    $
    488,892
    
    
    $
    485,582
    
    
    $
    547,9006% Convertible Senior Notes, due June 2014(b)
    
    
    69,508
    
    
    
    
    
    
    
    Revolving credit facility
    
    
    138,231
    
    
    
    234,400
    
    
    
    241,800Capital lease obligations
    
    
    20,764
    
    
    
    22,787
    
    
    
    24,750Other (c)
    
    
    232
    
    
    
    870
    
    
    
    83,942Total debt
    
    
    717,627
    
    
    
    743,639
    
    
    
    898,392Less: current portion (d)
    
    
    139,264
    
    
    
    110,219
    
    
    
    87,098Long-term debt
    
    $
    578,363
    
    
    $
    633,420
    
    
    $
    811,294
 
 (a)
    
    The change in the balance of these euro-denominated notes reflects the impact of
changes in foreign currency exchange rates.(b)
    
    The Companys 6% Convertible Senior Notes were issued during the second quarter of
2009. The amount represents principal of $90.0 million and an amortized debt discount of $20.5
million.(c)
    
    The decrease in the balance reflects the repayment of outstanding borrowings under
working capital lines of credit.(d)
    
    At July 4, 2009, the balance consists primarily of outstanding borrowings under the
Companys revolving credit facility and obligations under capital leases. Outstanding revolver
borrowings are reflected as a current liability due to the requirement to repay such
obligations with substantially all cash collected by the Company, in accordance with an
amendment to the Amended Agreement executed on May 12, 2009. Such requirement does not affect
future borrowing ability or the final maturity date under the Amended Agreement. 5% Notes
  6% Convertible Senior Notes
    22




---



##### Table of Contents



Revolving Credit Facility
     Total
    
    
    Borrowing
    
    
    Outstanding
    
    
    Letters of
    
    
    AvailableIn thousands
    
    Facility(a)
    
    
    Base(a)
    
    
    Borrowings
    
    
    Credit Issued
    
    
    CapacityRevolving credit facility (a)
    
    $
    600,000
    
    
    $
    387,428
    
    
    $
    138,231
    
    
    $
    34,583
    
    
    $
    214,614
 
 (a)
    
    Availability under the Amended Agreement is the lesser of $600 million or a
borrowing base comprised primarily of eligible accounts receivable and inventory.  23




---



##### Table of Contents



Capital Lease
     Level 2In thousands
    
    July 4, 2009
    
    
    January 3, 2009
    
    
    July 5, 2008Financial Assets:Derivatives
    
    $
    336
    
    
    $
    2,424
    
    
    $
    361Financial Liabilities:Derivatives
    
    $
    (8,179
    )
    
    $
    (8,835
    )
    
    $
    (6,684
    )
  Total LossesNet Carrying
    
    
    Fair Value Measured and Recorded at
    
    
    for SixValue as of
    
    
    Reporting Date Using:
    
    
    Months EndedIn thousands
    
    July 4, 2009
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    July 4, 2009Long-lived assets held and used
    
    $
    903
    
    
    
    
    
    
    
    
    
    
    $
    903
    
    
    $
    5,190
   July 4, 2009In thousands
    
    Fair Value
    
    
    Carrying Value5% Notes, due July 2013
    
    $
    333,716
    
    
    $
    488,8926% Convertible Senior Notes, due June 2014
    
    
    93,449
    
    
    
    69,508Revolving credit facility (a)
    
    
    138,231
    
    
    
    138,231
 
 (a)
    
    Borrowings under the
facility are variable and based on market rates; accordingly, its
fair value approximates its carrying value.     24




---



##### Table of Contents



25




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##### Table of Contents



2009 Actions
    2008 Actions
  2007 Actions
  
    
    Realignment of its organization to a brand-centric structure;
    
    Discontinuation or licensing of fourteen of the Companys brands;
    
    Implementation of a more competitive cost structure, including cost savings through
staff reductions, closing and consolidation of distribution facilities and office space,
discretionary expense cuts, process re-engineering and supply chain cost rationalization.
   Six Months Ended
    
    
    Three Months EndedJuly 4, 2009
    
    
    July 5, 2008
    
    
    July 4, 2009
    
    
    July 5, 2008In thousands
    
    (26 Weeks)
    
    
    (27 Weeks)
    
    
    (13 Weeks)
    
    
    (13 Weeks)Domestic-Based Direct Brands
    
    $
    12,355
    
    
    $
    40
    
    
    $
    1,775
    
    
    $
    (13
    )International-Based Direct Brands
    
    
    14,423
    
    
    
    10,326
    
    
    
    10,597
    
    
    
    3,951Partnered Brands
    
    
    22,009
    
    
    
    48,623
    
    
    
    3,074
    
    
    
    17,563Total
    
    $
    48,787
    
    
    $
    58,989
    
    
    $
    15,446
    
    
    $
    21,501
  26




---



##### Table of Contents



LeasePayroll and
    
    
    Termination
    
    
    Fixed AssetIn thousands
    
    Related Costs
    
    
    Costs
    
    
    Write-Downs
    
    
    Other Costs
    
    
    TotalBalance at January 3, 2009
    
    $
    11,452
    
    
    $
    15,359
    
    
    $
    
    
    
    $
    616
    
    
    $
    27,4272009 provision, net (a)
    
    
    24,586
    
    
    
    10,780
    
    
    
    9,041
    
    
    
    4,380
    
    
    
    48,7872009 fixed asset write-downs
    
    
    
    
    
    
    
    
    
    
    (9,041
    )
    
    
    
    
    
    
    (9,041
    )Translation difference
    
    
    (275
    )
    
    
    (83
    )
    
    
    
    
    
    
    24
    
    
    
    (334
    )2009 spending
    
    
    (33,131
    )
    
    
    (3,302
    )
    
    
    
    
    
    
    (5,020
    )
    
    
    (41,453
    )Balance at July 4, 2009
    
    $
    2,632
    
    
    $
    22,754
    
    
    $
    
    
    
    $
    
    
    
    $
    25,386
 
 (a)
    
    Net of the receipt of $8.0 million from Li & Fung.   Six Months Ended
    
    
    Three Months EndedJuly 4, 2009
    
    
    July 5, 2008
    
    
    July 4, 2009
    
    
    July 5, 2008In thousands
    
    (26 Weeks)
    
    
    (27 Weeks)
    
    
    (13 Weeks)
    
    
    (13 Weeks)Loss from continuing operations
    
    $
    (164,078
    )
    
    $
    (21,484
    )
    
    $
    (76,745
    )
    
    $
    (13,825
    )Net (loss) income attributable to the noncontrolling
interest
    
    
    (383
    )
    
    
    113
    
    
    
    (14
    )
    
    
    16Loss from continuing operations attributable to Liz
Claiborne, Inc.
    
    
    (163,695
    )
    
    
    (21,597
    )
    
    
    (76,731
    )
    
    
    (13,841
    )Loss from discontinued operations, net of tax
    
    
    (9,790
    )
    
    
    (32,587
    )
    
    
    (5,375
    )
    
    
    (9,322
    )Net loss attributable to Liz Claiborne, Inc.
    
    $
    (173,485
    )
    
    $
    (54,184
    )
    
    $
    (82,106
    )
    
    $
    (23,163
    )Basic weighted average shares outstanding
    
    
    93,828
    
    
    
    93,202
    
    
    
    93,885
    
    
    
    93,638Stock options and non-vested shares(a)(b)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Convertible Notes(c )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted weighted average shares outstanding(a)(b)
    
    
    93,828
    
    
    
    93,202
    
    
    
    93,885
    
    
    
    93,638Earnings per share:Basic and dilutedLoss from continuing operations attributable to Liz
Claiborne, Inc.
    
    $
    (1.75
    )
    
    $
    (0.23
    )
    
    $
    (0.82
    )
    
    $
    (0.15
    )Loss from discontinued operations attributable to Liz
Claiborne, Inc.
    
    $
    (0.10
    )
    
    $
    (0.35
    )
    
    $
    (0.05
    )
    
    $
    (0.10
    )Net loss attributable to Liz Claiborne, Inc.
    
    $
    (1.85
    )
    
    $
    (0.58
    )
    
    $
    (0.87
    )
    
    $
    (0.25
    )
 
 (a)
    
    Because the Company incurred a loss from continuing operations for the six and
three months ended July 4, 2009 and July 5, 2008, all outstanding stock options and nonvested
shares were considered antidilutive for such periods. Accordingly, for the six and three
months ended July 4, 2009 and July 5, 2008, 6,299,369 and 5,187,754 outstanding stock options,
respectively and 1,187,307 and 1,122,396 outstanding nonvested shares, respectively, were
excluded from the computation of diluted loss per share.(b)
    
    Excludes 372,460 and 732,990 nonvested shares for the six and three months
ended July 4, 2009 and July 5, 2008, respectively, for which the performance criteria have not
yet been achieved.(c)
    
    The Convertible Notes issued in June 2009 would be dilutive to the
extent the average market price of Company stock during the period the Convertible Notes were
outstanding was greater than $3.58. The Convertible Notes would only be dilutive for the
portion of the Convertible Notes that could be settled with the Companys stock. The average
market price of the Companys stock during the period the Convertible Notes were outstanding
was less than $3.58 and, as a result, the Convertible Notes are not dilutive for the three
months ended July 4, 2009.  27




---



##### Table of Contents




    
    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.
   28




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##### Table of Contents



Operating(Loss)Dollars in thousands
    
    Net sales
    
    
    % to total
    
    
    Income
    
    
    % of salesSix Months Ended July 4, 2009 (26 weeks)Domestic-Based Direct Brands
    
    $
    510,399
    
    
    
    34.9
    %
    
    $
    (30,294
    )
    
    
    (5.9
    )%International-Based Direct Brands
    
    
    397,096
    
    
    
    27.1
    %
    
    
    (50,304
    )
    
    
    (12.7
    )%Partnered Brands
    
    
    555,940
    
    
    
    38.0
    %
    
    
    (59,105
    )
    
    
    (10.6
    )%Totals
    
    $
    1,463,435
    
    
    
    100.0
    %
    
    $
    (139,703
    )
    
    
    (9.5
    )%Six Months Ended July 5, 2008 (27 Weeks)Domestic-Based Direct Brands
    
    $
    572,874
    
    
    
    27.8
    %
    
    $
    23,250
    
    
    
    4.1
    %International-Based Direct Brands
    
    
    631,455
    
    
    
    30.7
    %
    
    
    16,774
    
    
    
    2.7
    %Partnered Brands
    
    
    854,475
    
    
    
    41.5
    %
    
    
    (74,128
    )
    
    
    (8.7
    )%Totals
    
    $
    2,058,804
    
    
    
    100.0
    %
    
    $
    (34,104
    )
    
    
    (1.7
    )%
 Operating(Loss)Dollars in thousands
    
    Net sales
    
    
    % to total
    
    
    Income
    
    
    % of salesThree Months Ended July 4, 2009 (13 Weeks)Domestic-Based Direct Brands
    
    $
    250,863
    
    
    
    36.7
    %
    
    $
    (9,131
    )
    
    
    (3.6
    )%International-Based Direct Brands
    
    
    188,555
    
    
    
    27.6
    %
    
    
    (33,113
    )
    
    
    (17.6
    )%Partnered Brands
    
    
    244,352
    
    
    
    35.7
    %
    
    
    (19,355
    )
    
    
    (7.9
    )%Totals
    
    $
    683,770
    
    
    
    100.0
    %
    
    $
    (61,599
    )
    
    
    (9.0
    )%Three Months Ended July 5, 2008 (13 Weeks)Domestic-Based Direct Brands
    
    $
    294,959
    
    
    
    30.6
    %
    
    $
    9,998
    
    
    
    3.4
    %International-Based Direct Brands
    
    
    289,221
    
    
    
    30.0
    %
    
    
    2,652
    
    
    
    0.9
    %Partnered Brands
    
    
    379,250
    
    
    
    39.4
    %
    
    
    (34,347
    )
    
    
    (9.1
    )%Totals
    
    $
    963,430
    
    
    
    100.0
    %
    
    $
    (21,697
    )
    
    
    (2.3
    )%
  Operating(Loss)Dollars in thousands
    
    Net sales
    
    
    % to total
    
    
    Income
    
    
    % of salesSix Months Ended July 4, 2009 (26 Weeks)Domestic
    
    $
    985,587
    
    
    
    67.3
    %
    
    $
    (71,507
    )
    
    
    (7.3
    )%International
    
    
    477,848
    
    
    
    32.7
    %
    
    
    (68,196
    )
    
    
    (14.3
    )%Totals
    
    $
    1,463,435
    
    
    
    100.0
    %
    
    $
    (139,703
    )
    
    
    (9.5
    )%Six Months Ended July 5, 2008 (27 weeks)Domestic
    
    $
    1,314,060
    
    
    
    63.8
    %
    
    $
    (48,845
    )
    
    
    (3.7
    )%International
    
    
    744,744
    
    
    
    36.2
    %
    
    
    14,741
    
    
    
    2.0
    %Totals
    
    $
    2,058,804
    
    
    
    100.0
    %
    
    $
    (34,104
    )
    
    
    (1.7
    )%
  29




---



##### Table of Contents



Operating(Loss)Dollars in thousands
    
    Net sales
    
    
    % to total
    
    
    Income
    
    
    % of salesThree Months Ended July 4, 2009 (13 weeks)Domestic
    
    $
    455,832
    
    
    
    66.7
    %
    
    $
    (21,285
    )
    
    
    (4.7
    )%International
    
    
    227,938
    
    
    
    33.3
    %
    
    
    (40,314
    )
    
    
    (17.7
    )%Totals
    
    $
    683,770
    
    
    
    100.0
    %
    
    $
    (61,599
    )
    
    
    (9.0
    )%Three Months Ended July 5, 2008 (13 weeks)Domestic
    
    $
    617,582
    
    
    
    64.1
    %
    
    $
    (25,758
    )
    
    
    (4.2
    )%International
    
    
    345,848
    
    
    
    35.9
    %
    
    
    4,061
    
    
    
    1.2
    %Totals
    
    $
    963,430
    
    
    
    100.0
    %
    
    $
    (21,697
    )
    
    
    (2.3
    )%
     Foreign Currency Contracts Designated as Hedging Instruments Under SFAS No. 133Asset Derivatives
    
    
    Liability DerivativesBalance
    
    
    
    
    
    
    
    
    
    
    BalanceIn thousands
    
    Sheet
    
    
    Notional
    
    
    
    
    
    
    Sheet
    
    
    NotionalPeriod
    
    Location
    
    
    Amount
    
    
    Fair Value
    
    
    Location
    
    
    Amount
    
    
    Fair ValueJuly 4, 2009
    
    Other current assets
    
    $
    18,838
    
    
    $
    240
    
    
    Accrued expenses
    
    $
    135,169
    
    
    $
    7,940January 3, 2009
    
    Other current assets
    
    
    34,702
    
    
    
    2,313
    
    
    Accrued expenses
    
    
    134,109
    
    
    
    8,789July 5, 2008
    
    Other current assets
    
    
    14,671
    
    
    
    148
    
    
    Accrued expenses
    
    
    72,026
    
    
    
    6,666Foreign Currency Contracts Not Designated as Hedging Instruments Under SFAS No. 133Asset Derivatives
    
    
    Liability DerivativesBalance
    
    
    
    
    
    
    
    
    
    
    BalanceIn thousands
    
    Sheet
    
    
    Notional
    
    
    
    
    
    
    Sheet
    
    
    NotionalPeriod
    
    Location
    
    
    Amount
    
    
    Fair Value
    
    
    Location
    
    
    Amount
    
    
    Fair ValueJuly 4, 2009
    
    Other current assets
    
    $
    5,488
    
    
    $
    96
    
    
    Accrued expenses
    
    $
    6,227
    
    
    $
    239January 3, 2009
    
    Other current assets
    
    
    12,758
    
    
    
    111
    
    
    Accrued expenses
    
    
    3,701
    
    
    
    46July 5, 2008
    
    Other current assets
    
    
    8,219
    
    
    
    213
    
    
    Accrued expenses
    
    
    5,109
    
    
    
    18
  30




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##### Table of Contents



Three Months Ended July 4, 2009Location of Gainor (Loss)Amount of Gain or
    
    
    Reclassified from
    
    
    Amount of Gain or
    
    
    Amount of Gain or(Loss) Recognized
    
    
    Accumulated OCI
    
    
    (Loss) Reclassified
    
    
    (Loss) Recognizedin OCI on
    
    
    into Income
    
    
    from Accumulated
    
    
    in Income onIn thousands
    
    Derivative
    
    
    (Effective and
    
    
    OCI into Income
    
    
    DerivativeInstrument
    
    (Effective Portion)
    
    
    Ineffective Portion)
    
    
    (Effective Portion)
    
    
    (Ineffective Portion)Foreign Exchange
Contracts
    
    $
    (5,146
    )
    
    Cost of goods sold
    
    $
    (3,831
    )
    
    $
    (503
    )
 Three Months Ended July 5, 2008Location of Gainor (Loss)Amount of Gain or
    
    
    Reclassified from
    
    
    Amount of Gain or
    
    
    Amount of Gain or(Loss) Recognized
    
    
    Accumulated OCI
    
    
    (Loss) Reclassified
    
    
    (Loss) Recognizedin OCI on
    
    
    into Income
    
    
    from Accumulated
    
    
    in Income onIn thousands
    
    Derivative
    
    
    (Effective and
    
    
    OCI into Income
    
    
    DerivativeInstrument
    
    (Effective Portion)
    
    
    Ineffective Portion)
    
    
    (Effective Portion)
    
    
    (Ineffective Portion)Foreign Exchange
Contracts
    
    $
    (338
    )
    
    Cost of goods sold
    
    $
    3,645
    
    
    $
    79
         31




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##### Table of Contents



Stock Options
  Six Months EndedValuation Assumptions:
    
    July 4, 2009
    
    
    July 5, 2008Weighted-average fair value of options granted
    
    $ 1.84

    
    
    $5.02Expected volatility
    
    48.7% to 74.8%
    
    
    28.1% to 40.9%Weighted-average volatility
    
    61.9%

    
    
    28.9%Expected term (in years)
    
    5.1

    
    
    5.0Dividend yield
    
    

    
    
    1.17%Risk-free rate
    
    0.5% to 5.0%
    
    
    1.5% to 5.2%Expected annual forfeiture
    
    12.0%

    
    
    12.8%
   Weighted
    
    
    Weighted Average
    
    
    AggregateAverage Exercise
    
    
    Remaining
    
    
    Intrinsic ValueShares
    
    
    Price
    
    
    Contractual Term
    
    
    ($000)Outstanding at January 3, 2009
    
    
    5,359,319
    
    
    $
    27.15
    
    
    
    4.5
    
    
    $
    819Granted
    
    
    1,406,500
    
    
    
    3.25Cancelled / Expired
    
    
    (466,450
    )
    
    
    24.27Outstanding at July 4, 2009
    
    
    6,299,369
    
    
    $
    22.03
    
    
    
    5.0
    
    
    $
    1,204Vested or expected to vest at July 4, 2009
    
    
    5,598,741
    
    
    $
    23.85
    
    
    
    4.8
    
    
    $
    870Exercisable at July 4, 2009
    
    
    3,031,426
    
    
    $
    32.63
    
    
    
    3.7
    
    
    $
    
    32




---



##### Table of Contents



Restricted Stock
  WeightedAverage GrantShares
    
    
    Date Fair ValueNonvested stock at January 3, 2009 (a) (b)
    
    
    2,163,108
    
    
    $
    21.38Granted
    
    
    61,000
    
    
    
    3.15Vested
    
    
    (184,075
    )
    
    
    39.51Cancelled (b)
    
    
    (480,266
    )
    
    
    19.41Nonvested stock at July 4, 2009 (a) (b)
    
    
    1,559,767
    
    
    $
    19.14Expected to vest as of July 4, 2009
    
    
    927,202
    
    
    $
    18.60
 
 (a)
    
    During 2007, performance shares were granted to a group of key executives.
These shares are subject to certain service and performance conditions to be measured as of
the fiscal 2009 year-end. The ultimate amount of shares earned will be determined by the
extent of achievement of the performance criteria set forth in the performance share
agreements and will range from 0  150% of target.(b)
    
    During 2008, performance shares were granted to a group of key executives. These
shares are subject to certain service and performance conditions to be measured as of the
fiscal 2008 year-end and fiscal 2010 year-end. The ultimate amount of shares earned will be
determined by the extent of achievement of the performance criteria set forth in the
performance share agreements and will range from 0  200% of target. The shares which were
contingently issuable based on 2008 performance were deemed not
earned and were cancelled.         33




---



##### 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 United States and e-commerce sites); and
    
    International (wholesale customers, licensing, Company-owned specialty retail
and outlet stores and concession stores located outside of the United States).
      34




---



##### Table of Contents



Market Environment / Global Economic Uncertainty
   Competitive Profile
     35




---



##### Table of Contents



Liquidity, Cost Reduction, Supply Chain and Portfolio Rationalization Initiatives
        Overall Results for the Six Months Ended July 4, 2009
   36




---



##### Table of Contents



Net Sales
    Gross Profit and Loss from Continuing Operations
  Balance Sheet
  International Operations
  RESULTS OF OPERATIONS
   37




---



##### Table of Contents



SIX MONTHS ENDED JULY 4, 2009 COMPARED TO SIX MONTHS ENDED JULY 5, 2008
  Six Months EndedJuly 4, 2009
    
    
    July 5, 2008
    
    
    VarianceDollars in millions
    
    (26 Weeks)
    
    
    (27 Weeks)
    
    
    $
    
    
    %Net Sales
    
    $
    1,463.4
    
    
    $
    2,058.8
    
    
    $
    (595.4
    )
    
    
    (28.9
    )%Gross Profit
    
    
    675.2
    
    
    
    987.1
    
    
    
    (311.9
    )
    
    
    (31.6
    )%Selling, general & administrative
expenses
    
    
    812.1
    
    
    
    1,021.2
    
    
    
    (209.1
    )
    
    
    (20.5
    )%Goodwill impairment
    
    
    2.8
    
    
    
    
    
    
    
    2.8
    
    
    
    *Operating Loss
    
    
    (139.7
    )
    
    
    (34.1
    )
    
    
    (105.6
    )
    
    
    *Other expense, net
    
    
    (1.4
    )
    
    
    (3.6
    )
    
    
    2.2
    
    
    
    61.1
    %Interest expense, net
    
    
    (29.5
    )
    
    
    (21.9
    )
    
    
    (7.6
    )
    
    
    (34.7
    )%Benefit for income taxes
    
    
    (6.5
    )
    
    
    (38.1
    )
    
    
    31.6
    
    
    
    82.9
    %Loss from Continuing Operations
    
    
    (164.1
    )
    
    
    (21.5
    )
    
    
    (142.6
    )
    
    
    *Discontinued operations, net of tax
    
    
    (9.8
    )
    
    
    (32.6
    )
    
    
    22.8
    
    
    
    69.9
    %Net Loss
    
    
    (173.9
    )
    
    
    (54.1
    )
    
    
    (119.8
    )
    
    
    *Net (loss) income attributable to the
noncontrolling interest
    
    
    (0.4
    )
    
    
    0.1
    
    
    
    (0.5
    )
    
    
    *Net Loss Attributable to Liz Claiborne,
Inc.
    
    $
    (173.5
    )
    
    $
    (54.2
    )
    
    $
    (119.3
    )
    
    
    *
 
 *
    
    Not meaningful. Net Sales
 th
   38




---



##### Table of Contents




    
    Domestic-Based Direct Brands net sales were $510.4 million, decreasing
$62.5 million, or 10.9% (or 4.7% excluding the impact of licensing our
fragrance operations in the second quarter of 2008); the decrease in
net sales reflects the following:
 -
    
    Net sales for JUICY COUTURE were $242.9 million, a
15.6% decrease compared to 2008, or a decrease of 3.8%
excluding the impact of licensing our fragrance
operations, which primarily reflects decreases in our
wholesale operations.
 -
    
    We ended the first half of 2009 with 63 specialty
stores and 33 outlet stores, reflecting the net
addition over the last 12 months of 15 specialty
stores and 8 outlet stores;-
    
    Average retail square footage in the first half of
2009 was approximately 320 thousand square feet, a
41.9% increase compared to 2008;-
    
    Sales productivity was $348 per average square foot
as compared to $410 for the first half of fiscal 2008;
and-
    
    Comparable store net sales in our Company-owned
stores decreased by 19.7% in the first half of 2009.
 -
    
    Net sales for LUCKY BRAND were $204.2 million, a 10.3%
decrease compared to 2008, reflecting decreases in
wholesale apparel and specialty retail, partially
offset by increases in outlet operations.
 -
    
    We ended the first half of 2009 with 194 specialty
stores and 41 outlet stores, reflecting the net
addition over the last 12 months of 15 specialty
stores and 11 outlet stores;-
    
    Average retail square footage in the first half of
2009 was approximately 575 thousand square feet, a
19.5% increase compared to 2008;-
    
    Sales productivity was $196 per average square foot
as compared to $287 for the first half of fiscal 2008; and-
    
    Comparable store net sales in our Company-owned
stores decreased by 20.4% in the first half of 2009.
 -
    
    Net sales for KATE SPADE were $63.3 million, a 10.3%
increase compared to 2008, primarily driven by
increases in our wholesale and outlet operations
partially offset by declines in specialty retail.
 -
    
    We ended the first half of 2009 with 48 specialty
stores and 29 outlet stores, reflecting the net
addition over the last 12 months of 15 specialty
stores and 6 outlet stores;-
    
    Average retail square footage in the first half of
2009 was approximately 156 thousand square feet, a
57.5% increase compared to 2008;-
    
    Sales productivity was $208 per average square foot
as compared to $303 for the first half of fiscal 2008;
and-
    
    Comparable store net sales in our Company-owned
stores decreased by 20.4% in the first half of 2009.
 
    
    International-Based Direct Brands, comprised of our MEXX retail-based lifestyle brand, net sales were $397.1
million, a decrease of $234.4 million or 37.1% compared to 2008. Excluding the impact of fluctuations in foreign
currency exchange rates, net sales were $457.9 million, a 27.5%
decrease as compared to 2008. The decrease in net sales is primarily due to
decreases in our MEXX Europe and MEXX Canada wholesale and retail
operations, reflecting the following:
 -
    
    We ended the first half of 2009 with 137 specialty stores, 99 outlet stores and 232 concessions,
reflecting the net addition over the last 12 months of 3 specialty stores and 4 outlet stores and
the net closure of 56 concessions;-
    
    Average retail square footage in the first half of 2009 was approximately 1,471.0 million square
feet, a 4.1% increase compared to 2008;-
    
    Sales productivity was $151
per average square foot as compared to $207 for the first half of
2008;-
    
    Comparable store net sales in our Company-owned stores decreased by 10.0% in the first half of
2009 and-
    
    Fluctuations in foreign currency exchange rates in our European and Canadian businesses decreased
net sales by $60.8 million.
  -
    
    New stores become comparable after 14 full fiscal months of operations
(on the 1st day of the 15th full fiscal month);-
    
    Except in unusual circumstances, closing stores become non-comparable
one full fiscal month prior to the scheduled closing date;-
    
    A remodeled store will be changed to non-comparable when there is a
20% or more increase/decrease in its selling square footage (effective
at the start of the fiscal month when construction begins). The store
becomes comparable again after 14 full fiscal months from the re-open
date;
  39




---



##### Table of Contents



-
    
    A store that relocates becomes non-comparable when the new location is
materially different from the original location (in respect to selling
square footage and/or traffic patterns); and-
    
    Stores that are acquired are not comparable until they have been
reflected in our results for a period of 12 months.
  
    
    Partnered Brands net sales
were $555.9 million, a decrease of $298.5 million or 34.9%,
reflecting:
 -
    
    A $112.0 million, or 13.1%, decrease due to the
divestiture, licensing or exiting of the
following brands: SIGRID OLSEN (closed as of the
second quarter of 2008), Cosmetics group of
brands (due to the exiting of certain brands and
the license of the remaining brands to Elizabeth
Arden effective June 10, 2008), Villager (closed
in the third quarter of 2008), former Ellen
Tracy brand (sold on April 10, 2008) and DANA
BUCHMAN (licensed on an exclusive basis to
Kohls in January 2008) with operations closed
in the second quarter of 2008;-
    
    A net $137.9 million, or 16.1%, decrease in
sales of our ongoing Partnered Brands business
as the operating environment continued to
adversely affect our LIZ CLAIBORNE, CLAIBORNE,
AXCESS and MONET brands; and-
    
    The impact of fluctuations in foreign currency
exchange rates, which decreased net sales by
$48.6 million, or 5.7%, primarily related to our
LIZ CLAIBORNE operations in Europe and Canada.
 Domestic International
 Gross Profit
  Selling, General & Administrative Expenses
  
    
    A $78.4 million decrease in Partnered Brands and corporate SG&A, inclusive of a $17.4
million decrease resulting from the licensing of our cosmetics
brands;
    
    A $50.9 million decrease due to the impact of fluctuations in foreign currency exchange
rates in our international operations;
    
    A $49.5 million decrease in expenses associated with our streamlining initiatives and
brand-exiting activities;
    
    A $45.7 million
decrease in the operations of our International-Based Direct Brands
segment;
    
    A $29.0 million decrease in Domestic-Based Direct Brands, partially due to the licensing of
our cosmetics brands; and
    
    A $44.4 million year-over-year increase in our Domestic-Based Direct Brands segment
primarily resulting from retail expansion in the second half of 2008.
   40




---



##### Table of Contents



Goodwill Impairment
  Operating Loss
  
    
    Domestic-Based Direct Brands operating loss was $30.3 million ((5.9)%
of net sales) in the first half of 2009, compared to operating income
of $23.2 million (4.1% of net sales) in 2008. The decrease reflects
losses in our JUICY COUTURE, KATE SPADE and LUCKY BRAND operations, as
well as restructuring charges principally associated with our LUCKY
KIDS stores.
    
    International-Based Direct Brands operating loss was $50.3 million
((12.7)% of net sales) in the first half of 2009, compared to
operating income of $16.8 million (2.7% of net sales) in 2008. The
decrease reflects reduced sales, partially offset by a $7.6 million
increase resulting from fluctuations in foreign currency exchange
rates.
    
    Partnered Brands operating loss decreased to $59.1 million
((10.6)% of net sales) in the first half of 2009, from an
operating loss of $74.1 million ((8.7)% of net sales) in 2008, as a
result of reduced restructuring expenses, partially offset by lower
sales and reduced gross profit.
 Domestic International
 Other Expense, Net
  Interest Expense, Net
  Benefit for Income Taxes
    41




---



##### Table of Contents



Loss from Continuing Operations
  Discontinued Operations, Net of Tax
  Net
Loss Attributable to Liz Claiborne, Inc.
  THREE MONTHS ENDED JULY 4, 2009 COMPARED TO THREE MONTHS ENDED JULY 5, 2008
  Three Months EndedJuly 4, 2009
    
    
    July 5, 2008
    
    
    VarianceDollars in millions
    
    (13 Weeks)
    
    
    (13 Weeks)
    
    
    $
    
    
    %Net Sales
    
    $
    683.7
    
    
    $
    963.4
    
    
    $
    (279.7
    )
    
    
    (29.0
    )%Gross Profit
    
    
    326.4
    
    
    
    460.0
    
    
    
    (133.6
    )
    
    
    (29.0
    )%Selling, general & administrative
expenses
    
    
    387.1
    
    
    
    481.7
    
    
    
    (94.6
    )
    
    
    (19.6
    )%Goodwill impairment
    
    
    0.9
    
    
    
    
    
    
    
    0.9
    
    
    
    *Operating Loss
    
    
    (61.6
    )
    
    
    (21.7
    )
    
    
    (39.9
    )
    
    
    *Other expense, net
    
    
    (7.3
    )
    
    
    (1.0
    )
    
    
    (6.3
    )
    
    
    *Interest expense, net
    
    
    (15.5
    )
    
    
    (9.8
    )
    
    
    (5.7
    )
    
    
    (58.2
    )%Benefit for income taxes
    
    
    (7.7
    )
    
    
    (18.6
    )
    
    
    10.9
    
    
    
    58.6
    %Loss from Continuing Operations
    
    
    (76.7
    )
    
    
    (13.9
    )
    
    
    (62.8
    )
    
    
    *Discontinued operations, net of tax
    
    
    (5.4
    )
    
    
    (9.3
    )
    
    
    3.9
    
    
    
    41.9
    %Net Loss
    
    
    (82.1
    )
    
    
    (23.2
    )
    
    
    (58.9
    )
    
    
    *Net (loss) income attributable to the
noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    *Net Loss Attributable to Liz Claiborne,
Inc.
    
    $
    (82.1
    )
    
    $
    (23.2
    )
    
    $
    (58.9
    )
    
    
    *
 
 *
    
    Not meaningful.  42




---



##### Table of Contents



Net Sales
    
    
    Domestic-Based Direct Brands net sales were $250.9 million, decreasing
$44.1 million, or 14.9% (or 8.3% excluding the impact of licensing our
fragrance operations in the second quarter of 2008); the decrease in
net sales reflects the following:
 
    
    Net sales for JUICY COUTURE were $110.3 million, a
25.3% decrease compared to 2008, or a decrease of
13.4% excluding the impact of licensing our fragrance
operations, reflecting decreases in wholesale apparel
and non-apparel, partially offset by increases in
specialty retail and outlet operations due to new
store openings discussed above.
 
    
    Average retail square footage in the second quarter
was approximately 322 thousand square feet, a 37.2%
increase compared to 2008;
    
    Sales productivity was $177 per average square foot
as compared to $198 for the second quarter of fiscal
2008; and
    
    Comparable store net sales in our Company-owned
stores decreased by 17.4% in the second quarter of
2009.
 
    
    Net sales for LUCKY BRAND were $107.2 million, an 8.8%
decrease compared to 2008, reflecting decreases in
wholesale apparel and specialty retail, partially
offset by increases in outlet operations.
 
    
    Average retail square footage in the second quarter
was approximately 574 thousand square feet, a 17.0%
increase compared to 2008;
    
    Sales productivity was $102 per average square foot
as compared to $146 for the second quarter of fiscal
2008; and
    
    Comparable store net sales in our Company-owned
stores decreased by 22.5% in the second quarter of
2009.
 
    
    Net sales for KATE SPADE were $33.4 million, a 12.1%
increase compared to 2008, primarily driven by
increases in our wholesale and outlet operations,
partially offset by declines in specialty retail.
 
    
    Average retail square footage in the second quarter
was approximately 155 thousand square feet, a 52.2%
increase compared to 2008;
    
    Sales productivity was $119 per average square foot
as compared to $163 for the second quarter of 2008;
and
    
    Comparable store net sales in our Company-owned
stores decreased by 15.2% in the second quarter of
2009.
 
    
    International-Based Direct Brands, comprised of our MEXX retail-based lifestyle brand, net sales were $188.5 million,
a decrease of $100.7 million or 34.8% compared to 2008. Excluding the impact of fluctuations in foreign currency
exchange rates, net sales were $216.0 million, a 25.3% decrease
as compared to 2008. The decrease in net sales is primarily due to decreases in
our MEXX Europe and MEXX Canada wholesale and retail operations,
reflecting the following:
 
    
    Average retail square footage in the second quarter was approximately 1,482.0 million square feet, a
2.5% increase compared to 2008;
    
    Sales productivity was $87
per average square foot as compared to $115 for the second quarter of
2008;
    
    Comparable store net sales in our Company-owned stores decreased by 11.8% in the second quarter of
2009; and
    
    Fluctuations in foreign currency exchange rates in our European and Canadian businesses decreased net
sales by $27.5 million.
  43




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
    
    Partnered Brands net sales
were $244.3 million, a decrease of $134.9 million or 35.6%,
reflecting:
 
    
    A $40.4 million, or 10.7%, decrease due to the
divestiture, licensing or exiting of the
following brands: SIGRID OLSEN (closed as of the
second quarter of 2008), Cosmetics group of
brands (due to the exiting of certain brands and
the license of the remaining brands to Elizabeth
Arden effective June 10, 2008), Villager (closed
in the third quarter of 2008), former Ellen
Tracy brand (sold on April 10, 2008) and DANA
BUCHMAN (licensed on an exclusive basis to
Kohls in January 2008) with operations closed
in the second quarter of 2008;
    
    A net $89.2 million, or 23.5%, decrease in sales
of our ongoing Partnered Brands business as the
operating environment continued to adversely
affect our LIZ CLAIBORNE, CLAIBORNE, AXCESS and
MONET brands; and
    
    The impact of fluctuations in foreign currency
exchange rates, which decreased net sales by
$5.3 million, or 1.4%, primarily related to our
LIZ CLAIBORNE operations in Europe and Canada.
 Domestic International
 Gross Profit
  Selling, General & Administrative Expenses
  
    
    A $35.8 million decrease in Partnered Brands and corporate SG&A, inclusive of an $8.5 million
decrease resulting from the licensing of our cosmetics brands;
    
    A $24.4 million decrease due to the impact of fluctuations in foreign currency exchange rates
in our international operations;
    
    A $24.2 million decrease in expenses associated with our streamlining initiatives and
brand-exiting activities;
    
    A $22.6 million decrease in Domestic-Based Direct Brands, partially due to the licensing of our
cosmetics brands;
    
    A $16.2 million
decrease in the operations of our International-Based Direct Brands
segment; and
    
    A $28.6 million year-over-year increase in our Domestic-Based Direct Brands segment primarily
resulting from retail expansion in the second half of 2008.
  Goodwill Impairment
   44




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Operating Loss
  
    
    Domestic-Based Direct Brands operating loss was $9.1 million ((3.6)%
of net sales) in the second quarter of 2009, compared to operating
income of $10.0 million (3.4% of net sales) in 2008. The decrease
reflects losses in our JUICY COUTURE retail operations, losses in our
KATE SPADE wholesale and retail operations and losses in our LUCKY
BRAND retail operations, partially offset by income in our JUICY and
LUCKY BRAND wholesale operations.
    
    International-Based Direct Brands operating loss was $33.1 million
((17.6)% of net sales) in the second quarter of 2009, compared to
operating income of $2.6 million (0.9% of net sales) in 2008. The
decrease reflects reduced sales and an increase in streamlining and
brand exiting activities, partially offset by a $4.7 million
increase resulting from fluctuations in foreign currency exchange
rates.
    
    Partnered Brands operating loss in the second quarter
of 2009 decreased to $19.4 million ((7.9)% of net sales), from an operating loss of
$34.3 million ((9.1)% of net sales) in 2008, as a result of reduced
restructuring expenses and reduced SG&A, mostly offset by reduced
gross margin.
 Domestic International
 Other Expense, Net
  Interest Expense, Net
  Benefit for Income Taxes
   Loss from Continuing Operations
   45




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##### Table of Contents



Discontinued Operations, Net of Tax
  Net Loss Attributable to Liz Claiborne, Inc.
  FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
 Cash Requirements
 Sources of Cash.
     46




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Cash and Debt Balances.
 Accounts Receivable
  47




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Inventories
 Borrowings
 Net cash provided by (used in) 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 percent 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 $3-8 million, which will be accounted for as additional purchase
price when paid.
  48




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
    
    On June 8, 1999, we acquired 85.0 percent 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 a cash payment made
at the closing date of $85.0 million and a payment made in April 2003 of $28.5 million. An
additional payment of $12.7 million was made in 2000 for tax-related purchase price
adjustments. On January 16, 2009, January 16, 2008, January 16, 2007, January 17, 2006 and
January 28, 2005, we paid $5.0 million, $5.0 million, $10.0 million, $10.0 million and
$35.0 million, respectively, for 0.4%, 0.4%, 1.5%, 1.9% and 8.25%, respectively, of the
remaining equity of Lucky Brand. We will acquire 0.4% of the equity of Lucky Brand in
January of 2010 for a payment of $5.0 million. We recorded the present value of fixed
amounts owed of $4.9 million in Accrued expenses and Other Non-Current Liabilities. The
remaining 2.28% of the original shares outstanding will be settled for an aggregate
purchase price composed of the following two installments: (i) a 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 million.
  Financing Arrangements
  In thousands
    
    July 4, 2009
    
    
    January 3, 2009
    
    
    July 5, 20085% Notes (a)
    
    $
    488,892
    
    
    $
    485,582
    
    
    $
    547,9006% Convertible Senior Notes (b)
    
    
    69,508
    
    
    
    
    
    
    
    Revolving credit facility
    
    
    138,231
    
    
    
    234,400
    
    
    
    241,800Capital lease obligations
    
    
    20,764
    
    
    
    22,787
    
    
    
    24,750Other (c)
    
    
    232
    
    
    
    870
    
    
    
    83,942Total debt
    
    $
    717,627
    
    
    $
    743,639
    
    
    $
    898,392
 
 (a)
    
    The change in the balance of these euro-denominated notes reflects the impact of
changes in foreign currency exchange
rates.(b)
    
    Our 6% Convertible Senior Notes were issued during the second quarter of 2009.
The amount represents principal of $90.0
million and an amortized debt discount of $20.5 million.(c)
    
    The decrease in the balance
reflects the repayment of outstanding borrowings under working
capital lines of credit. 5% Notes
  6% Convertible Senior Notes
   49




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Revolving Credit Facility
     Total
    
    
    Borrowing
    
    
    Outstanding
    
    
    Letters of
    
    
    AvailableIn thousands
    
    Facility (a)
    
    
    Base (a)
    
    
    Borrowings
    
    
    Credit Issued
    
    
    CapacityRevolving credit facility (a)
    
    $
    600,000
    
    
    $
    387,428
    
    
    $
    138,231
    
    
    $
    34,583
    
    
    $
    214,614
 
 (a)
    
    Availability under the Amended Agreement is the lesser of $600 million or a
borrowing base comprised primarily of eligible
accounts receivable and inventory.  50




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Capital Lease
  Off-Balance Sheet Arrangements
   Hedging Activities
   Foreign Currency Contracts Designated as Hedging Instruments Under SFAS No. 133Asset Derivatives
    
    
    Liability DerivativesBalance
    
    
    
    
    
    
    
    
    
    BalanceIn
thousands
    
    Sheet
    
    Notional
    
    
    
    
    
    
    Sheet
    
    NotionalPeriod
    
    Location
    
    Amount
    
    
    Fair Value
    
    
    Location
    
    Amount
    
    
    Fair ValueJuly 4, 2009
    
    Other current assets
    
    $
    18,838
    
    
    $
    240
    
    
    Accrued expenses
    
    $
    135,169
    
    
    $
    7,940January 3, 2009
    
    Other current assets
    
    
    34,702
    
    
    
    2,313
    
    
    Accrued expenses
    
    
    134,109
    
    
    
    8,789July 5, 2008
    
    Other current assets
    
    
    14,671
    
    
    
    148
    
    
    Accrued expenses
    
    
    72,026
    
    
    
    6,666
  51




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Foreign Currency Contracts Not Designated as Hedging Instruments Under SFAS No. 133Asset Derivatives
    
    
    Liability DerivativesBalance
    
    
    
    
    
    
    
    
    
    BalanceIn thousands
    
    Sheet
    
    Notional
    
    
    
    
    
    
    Sheet
    
    NotionalPeriod
    
    Location
    
    Amount
    
    
    Fair Value
    
    
    Location
    
    Amount
    
    
    Fair ValueJuly 4, 2009
    
    Other current assets
    
    $
    5,488
    
    
    $
    96
    
    
    Accrued expenses
    
    $
    6,227
    
    
    $
    239January 3, 2009
    
    Other current assets
    
    
    12,758
    
    
    
    111
    
    
    Accrued expenses
    
    
    3,701
    
    
    
    46July 5, 2008
    
    Other current assets
    
    
    8,219
    
    
    
    213
    
    
    Accrued expenses
    
    
    5,109
    
    
    
    18
  Three Months Ended July 4, 2009Location of GainAmount of Gain or
    
    
    or (Loss) Reclassified from
    
    
    Amount of Gain or
    
    
    Amount of Gain or(Loss) Recognized
    
    
    Accumulated OCI
    
    
    (Loss) Reclassified
    
    
    (Loss) Recognizedin OCI on
    
    
    into Income
    
    
    from Accumulated
    
    
    in Income onIn thousands
    
    Derivative
    
    
    (Effective and
    
    
    OCI into Income
    
    
    DerivativeInstrument
    
    (Effective Portion)
    
    
    Ineffective Portion)
    
    
    (Effective Portion)
    
    
    (Ineffective Portion)Foreign
ExchangeContracts
    
    $
    (5,146
    )
    
    Cost of goods sold
    
    $
    (3,831
    )
    
    $
    (503
    )Three Months Ended July 5, 2008Location of Gainor (Loss)Amount of Gain or
    
    
    Reclassified from
    
    
    Amount of Gain or
    
    
    Amount of Gain or(Loss) Recognized
    
    
    Accumulated OCI
    
    
    (Loss) Reclassified
    
    
    (Loss) Recognizedin OCI on
    
    
    into Income
    
    
    from Accumulated
    
    
    in Income onIn thousands
    
    Derivative
    
    
    (Effective and
    
    
    OCI into Income
    
    
    DerivativeInstrument
    
    (Effective Portion)
    
    
    Ineffective Portion)
    
    
    (Effective Portion)
    
    
    (Ineffective Portion)Foreign
ExchangeContracts
    
    $
    (338
    )
    
    Cost of goods sold
    
    $
    3,645
    
    
    $
    79
    USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES
   52




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Revenue Recognition
   53




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Income Taxes
  Accounts Receivable  Trade, Net
  Inventories, Net
  Goodwill and Intangibles, Net
    54




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55




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Accrued Expenses
  Derivative Instruments
      Share-Based Compensation
   56




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RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
       RECENT ACCOUNTING PRONOUNCEMENTS
   57




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ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   In millions
    
    July 4, 2009
    
    
    January 3, 2009
    
    
    July 5, 2008Variable rate debt
    
    $
    138.2
    
    
    $
    234.4
    
    
    $
    324.8Average interest rate
    
    
    6.39
    %
    
    
    3.90
    %
    
    
    3.50
    %
       58




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##### Table of Contents



ITEM 4.
    
    CONTROLS AND PROCEDURES
   
 PART II  OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
 Angela Tyler (individually and on behalf of all others
similarly situated) v. Liz Claiborne, Inc, Trudy F. Sullivan and William L. McComb
    59




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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 amended credit facility, may be adversely impacted by a number of factors,
including the level of our operating cash flows, our ability to comply with the financial and other
covenants included in our amended credit facility, the borrowing base requirement in our amended
credit facility that limits the amount of borrowings we may make based on a formula of, among other
things, eligible accounts receivable and inventory, and the minimum availability covenant in our
amended credit facility that requires us to maintain availability in excess of an agreed upon
level.
    60




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61




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General economic conditions in the United States, Europe and other parts of the world, including a
continued weakening of such economies, restricted credit markets and lower levels of consumer
spending, can affect consumer confidence and consumer purchases of discretionary items, including
fashion apparel and related products, such as ours.
    Our business is dependent to a significant degree on sales to a limited number of large U.S.
department store customers, and our business could suffer as a result of consolidations,
restructurings, bankruptcies and other ownership changes in the retail industry, and financial
difficulties at our large department store customers.
    62




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We may not be able to effect a turnaround of our MEXX Europe business.
  We cannot assure the successful implementation and results of our long-term strategic plans.
  
    
    Our strategic plan contemplated a significant expansion of our specialty retail
business in our Domestic-Based Direct Brands and International-Based Direct Brands
segments. The successful operation and expansion of our specialty retail business in our
Direct Brands segments is subject to, among other things, our ability to successfully
expand the specialty store base of our Direct Brands segments, our ability to successfully find appropriate sites, negotiate favorable
leases, design and create appealing merchandise, manage inventory levels, install and
operate effective retail systems, apply appropriate pricing strategies and integrate such
stores into our overall business mix. There can be no assurances that we can be successful
in this regard, and our inability to successfully expand our specialty retail business
would have a material adverse effect on our business, financial condition, liquidity and
results of operations. In addition, in light of the current economic conditions and the
dramatic decline in consumer spending especially for fashion apparel and related products
such as ours, we have greatly limited our capital expenditure budget for 2009 and are
planning on opening 16 to 18 new specialty and outlet stores in 2009.
    
    We have announced a number of initiatives designed to achieve greater collaboration
with our wholesale customers and to improve results of our wholesale-based Partnered
Brands. These initiatives include design agreements with Isaac Mizrahi with respect to
our Liz Claiborne brand and with John Bartlett with respect to our Claiborne (mens)
brand. Our wholesale customers have been seeking differentiated product and we believe
that these design agreements will enable us to distinguish our product offering. However,
there can be no assurances that these arrangements will result in improved product or that
the resulting products will be acceptable to our wholesale customers or consumers.
  63




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The success of our business depends on our ability to anticipate and respond to constantly changing
consumer demands and tastes and fashion trends, across multiple product lines, shopping channels
and geographies.
    64




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##### Table of Contents



We cannot assure that we can attract and retain talented highly qualified executives, or maintain
satisfactory relationships with our employees, both union and non-union.
   Our
business could suffer if we cannot adequately establish, defend and protect our trademarks and other proprietary rights.
  Our success will depend on our ability to successfully develop or acquire new product lines or
enter new markets or product categories.
  
    
    Our ability to identify appropriate business development opportunities, including new
product lines and markets.
    
    New businesses, product lines or market activities may require methods of operations,
investments and marketing and financial strategies different from those employed in our
other businesses, and may also involve buyers, store customers and/or competitors
different from our historical buyers, store customers and competitors.
    
    Consumer acceptance of the new products or lines.
  65




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
    
    We may not be able to generate projected or satisfactory level of sales, profits and/or
return on investment for a new business or product line, and may also encounter
unanticipated events and unknown or uncertain liabilities that could materially impact our
business.
    
    We may experience possible difficulties, delays and/or unanticipated costs in
integrating the business, operations, personnel and/or systems of an acquired business and
may also not be able to retain and appropriately motivate key personnel of an acquired
business.
    
    We may not be able to maintain product licenses, which are subject to agreement with a
variety of terms and conditions, or to enter into new licenses to enable us to launch new
products and lines.
    
    With respect to a business where we act
as licensee, such as our licensed DKNY® JEANS,
DKNY® ACTIVE and DKNY® MENS brands, there are a number of inherent risks, including, without
limitation, compliance with terms set forth in the applicable license agreements,
including among other things the maintenance of certain levels of sales and the public
perception and/or acceptance of the licensors brands or other product lines, which are
not within our control.
 The markets in which we operate are highly competitive, both within the United States and abroad.
  
    
    Anticipating and responding to changing consumer demands in a timely manner;
    
    Establishing and maintaining favorable brand name and recognition;
    
    Product quality;
    
    Maintaining and growing market share;
    
    Developing quality and differentiated products that appeal to consumers;
    
    Establishing and maintaining acceptable relationships with our retail customers;
    
    Pricing products appropriately;
    
    Providing appropriate service and support to retailers;
    
    Optimizing our retail and supply chain capabilities;
    
    Size and location of our retail stores and department store selling space; and
    
    Protecting intellectual property.
  66




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Our reliance on independent foreign manufacturers could cause delay and loss and damage our
reputation and customer relationships. Also, there are risks associated with our agreement with Li
& Fung, which results in a single foreign buying agent for substantially all of our products.
    
  67




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Our international operations are subject to a variety of legal, regulatory, political and economic
risks, including risks relating to the importation and exportation of product.
  
    
    The potential reimposition of quotas, which could limit the amount and type of goods
that may be imported annually from a given country, in the context of a trade retaliatory
case;
    
    Changes in social, political, legal and economic conditions or terrorist acts that
could result in the disruption of trade from the countries in which our manufacturers or
suppliers are located;
    
    The imposition of additional regulations, or the administration of existing
regulations, relating to products which are imported, exported or otherwise distributed;
    
    The imposition of additional duties, taxes and other charges on imports or exports;
    
    Risks of increased sourcing costs, including costs for materials and labor, including
potentially as a result of the elimination of quota on apparel products;
    
    Our ability to adapt to and compete effectively in the current quota environment in
which general quota has expired on apparel products, resulting in changing in sourcing
patterns and lowered barriers to entry, but political activities which could result in the
reimposition of quotas or other restrictive measures have been initiated or threatened;
    
    Significant delays in the delivery of cargo due to security considerations;
    
    The imposition of antidumping or countervailing duty proceedings resulting in the
potential assessment of special antidumping or countervailing duties; and
    
    The enactment of new legislation or the administration of current international trade
regulations, or executive action affecting international textile agreements, including the
United States reevaluation of the trading status of certain countries and/or retaliatory
duties, quotas or other trade sanctions, which, if enacted, would increase the cost of
products purchased from suppliers in such countries.
    68




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Our business and balance sheets are exposed to domestic and foreign currency fluctuations,
including with respect to the outstanding euro-denominated notes.
  Our ability to utilize our deferred tax assets may be limited significantly if we experience an
ownership change.
  
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  MaximumApproximateDollar Value ofTotal Number of
    
    
    Shares that MayTotal Number
    
    
    
    
    
    
    Shares Purchased as
    
    
    Yet Be Purchasedof Shares
    
    
    
    
    
    
    Part of Publicly
    
    
    Under the Plans orPurchased
    
    
    Average Price
    
    
    Announced Plans or
    
    
    ProgramsPeriod
    
    (in thousands)
    
    
    Paid Per Share
    
    
    Programs
    
    
    (in thousands) (b)April 5, 2009  May 2, 2009
    
    
    
    (a)
    
    $
    
    
    
    
    
    
    
    $
    28,749May 3, 2009  June 6, 2009
    
    
    3.5
    (a)
    
    
    3.45
    
    
    
    
    
    
    
    28,749June 7, 2009  July 4, 2009
    
    
    0.2
    (a)
    
    
    4.63
    
    
    
    
    
    
    
    28,749Total  13 Weeks Ended July 4, 2009
    
    
    3.7
    (a)
    
    $
    3.50
    
    
    
    
    
    
    $
    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.  69




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##### Table of Contents



ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  VotesNominee
    
    For
    
    
    Withheld
    
    
    AbstainBernard W. Aronson
    
    
    56,002,565
    
    
    
    22,265,623
    
    
    
    182,334Kenneth B. Gilman
    
    
    56,526,050
    
    
    
    21,718,479
    
    
    
    205,993Nancy J. Karch
    
    
    55,840,965
    
    
    
    22,415,038
    
    
    
    194,519
  
 ITEM 5.
    
    OTHER INFORMATION
   70




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ITEM 6. EXHIBITS
 4.1
    
    Indenture, dated as of June 24, 2009, by and between the Company
and The Bank of New York Mellon, as Trustee.10.3
    
    Executive Termination Benefits Agreement, by and between the
Company and William L. McComb, dated July 14, 2009 (incorporated
herein by reference to Exhibit 10.3 to Registrants Current Report
on Form 8-K, dated July 15, 2009 (the July 15,
2009 Form 8-K)).10.4
    
    Severance Benefits Agreement, by and between the Company and
William L. McComb, dated July 14, 2009 (incorporated herein by
reference to Exhibit 10.4 of the July 15, 2009 Form 8-K).10.5
    
    Purchase Agreement, dated
June 18, 2009, for the Companys 6% Convertible Senior
Notes due June 2014, by and among the Company and J.P. Morgan
Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated as Representatives of Several Initial Purchasers.31(a)
    
    Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.31(b)
    
    Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32(a)*
    
    Certification of Chief Executive Officer Pursuant to Section 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32(b)*
    
    Certification of Chief Financial Officer Pursuant to Section 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 *
    
    A signed original of the written statement required by Section 906 has
been provided to the Company and will be retained by the Company and
forwarded to the S.E.C. or its staff upon request.  71




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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)
  72




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EXHIBIT INDEX
 4.1
    
    Indenture, dated as of June 24, 2009, by and between the Company
and The Bank of New York Mellon, as Trustee.10.3
    
    Executive Termination Benefits Agreement, by and between the
Company and William L. McComb, dated July 14, 2009 (incorporated
herein by reference to Exhibit 10.3 to Registrants Current Report
on Form 8-K, dated July 15, 2009 (the July 15,
2009 Form 8-K)).10.4
    
    Severance Benefits Agreement, by and between the Company and
William L. McComb, dated July 14, 2009 (incorporated herein by
reference to Exhibit 10.4 of the July 15, 2009 Form 8-K).10.5
    
    Purchase Agreement, dated
June 18, 2009, for the Companys 6% Convertible Senior
Notes due June 2014, by and among the Company and J.P. Morgan
Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated as Representatives of Several Initial Purchasers.31(a)
    
    Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.31(b)
    
    Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32(a)*
    
    Certification of Chief Executive Officer Pursuant to Section 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32(b)*
    
    Certification of Chief Financial Officer Pursuant to Section 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 *
    
    A signed original of the written statement required by Section 906 has
been provided to the Company and will be retained by the Company and
forwarded to the S.E.C. or its staff upon request.  73