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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For
the quarterly period ended October 4, 2008
 or
 o
    
    TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from            to
 Commission file number: 1-10689
 LIZ CLAIBORNE, INC.
  Delaware
    
    13-2842791(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)1441 Broadway, New York, New York
    
    10018(Address of principal executive offices)
    
    (Zip Code)
 (212) 354-4900
 (Registrants telephone number, including area code)
 Not Applicable
 
  þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



LIZ CLAIBORNE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
October 4, 2008
 PAGENUMBERPART I 
    
FINANCIAL INFORMATIONItem 1.
    
    Financial Statements:Condensed Consolidated Balance Sheets as of October 4, 2008
(Unaudited), December 29, 2007 and September 29, 2007
(Unaudited)
    
    4Condensed Consolidated Statements of Operations for the Nine
and Three Month Periods Ended October 4, 2008 (Unaudited) and
September 29, 2007 (Unaudited)
    
    5Condensed Consolidated Statements of Cash Flows for the Nine
Month Periods Ended October 4, 2008 (Unaudited) and September
29, 2007 (Unaudited)
    
    6  7Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    8  30Item 2.
    
Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    31  52Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    52  53Item 4
    
Controls and Procedures
    
    54PART II 
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    54Item 1A.
    
  Risk Factors
    
    54  61Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    61Item 5.
    

    Other Information
    
    61Item 6.
    
    Exhibits
    
    62SIGNATURES
    
    63EX-31.A: CERTIFICATIONEX-31.B: CERTIFICATIONEX-32.A: CERTIFICATIONEX-32.B: CERTIFICATION




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STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
  
    
    Our long-term growth strategies;
    
    Anticipated results of operations or level of business for fiscal 2008, any fiscal
quarter of 2008 or any other future period;
    
    Our ability to continue to implement appropriate expense savings initiatives and
maintain a competitive cost structure;
    
    Our ability to develop our retail and supply chain capabilities;
    
    Our ability to expand internationally;
    
    Our ability to be able to commit the resources, structure and marketing investment
necessary to support and grow our brands;
    
    Our ability to navigate the difficult macroeconomic environment and challenges presented
in the wholesale and retail industries;
    
    Our ability to offer products that are acceptable to our department store customers and
consumers;
    
    Our ability to realize sufficient cash flows from operations and have access to
financing on favorable terms to enable us to fund our liquidity requirements; and
    
    Potential for further significant impairment charges of goodwill or other long-lived
assets that could result from a number of factors, including downward pressure on our share
price.




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4 
 PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (Unaudited)
    
    
    
    
    
    
    (Unaudited)October 4,
    
    
    December 29,
    
    
    September 29,2008
    
    
    2007
    
    
    2007AssetsCurrent Assets:Cash and cash equivalents
    
    $
    50,342
    
    
    $
    205,401
    
    
    $
    111,634Accounts receivable  trade, net
    
    
    483,327
    
    
    
    440,160
    
    
    
    663,197Inventories, net
    
    
    549,270
    
    
    
    540,807
    
    
    
    725,802Deferred income taxes
    
    
    73,128
    
    
    
    103,288
    
    
    
    91,396Other current assets
    
    
    274,745
    
    
    
    209,853
    
    
    
    155,571Assets held for sale
    
    
    10,267
    
    
    
    65,332
    
    
    
    19,360Total current assets
    
    
    1,441,079
    
    
    
    1,564,841
    
    
    
    1,766,960Property and Equipment, Net
    
    
    590,070
    
    
    
    580,733
    
    
    
    583,343Goodwill, Net
    
    
    676,753
    
    
    
    677,852
    
    
    
    1,041,723Intangibles, Net
    
    
    254,422
    
    
    
    347,119
    
    
    
    411,858Deferred Income Taxes
    
    
    31,297
    
    
    
    75,445
    
    
    
    Other Assets
    
    
    20,773
    
    
    
    22,477
    
    
    
    21,890Total Assets
    
    $
    3,014,394
    
    
    $
    3,268,467
    
    
    $
    3,825,774Liabilities and Stockholders EquityCurrent Liabilities:Short term borrowings
    
    $
    61,807
    
    
    $
    50,828
    
    
    $
    455,852Accounts payable
    
    
    238,566
    
    
    
    223,522
    
    
    
    282,342Accrued expenses
    
    
    304,456
    
    
    
    459,309
    
    
    
    304,124Income taxes payable
    
    
    7,101
    
    
    
    32,266
    
    
    
    15,464Deferred income taxes
    
    
    1,125
    
    
    
    497
    
    
    
    Liabilities held for sale
    
    
    
    
    
    
    3,963
    
    
    
    Total current liabilities
    
    
    613,055
    
    
    
    770,385
    
    
    
    1,057,782Long-Term Debt
    
    
    912,046
    
    
    
    836,883
    
    
    
    520,749Other Non-Current Liabilities
    
    
    107,649
    
    
    
    140,764
    
    
    
    113,933Deferred Income Taxes
    
    
    363
    
    
    
    1,111
    
    
    
    71,821Commitments and Contingencies (Note 9)Minority Interest
    
    
    3,894
    
    
    
    3,760
    
    
    
    3,510Stockholders 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
    
    
    299,274
    
    
    
    296,158
    
    
    
    293,636Retained earnings
    
    
    2,809,150
    
    
    
    2,948,085
    
    
    
    3,389,225Accumulated other comprehensive loss
    
    
    (31,952
    )
    
    
    (24,582
    )
    
    
    (41,340
    )3,252,909
    
    
    
    3,396,098
    
    
    
    3,817,958Common stock in treasury, at cost 81,658,019,
81,695,077 and 76,928,623 shares
    
    
    (1,875,522
    )
    
    
    (1,880,534
    )
    
    
    (1,759,979
    )Total stockholders equity
    
    
    1,377,387
    
    
    
    1,515,564
    
    
    
    2,057,979Total Liabilities and Stockholders Equity
    
    $
    3,014,394
    
    
    $
    3,268,467
    
    
    $
    3,825,774




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5 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
   Nine Months Ended
    
    
    Three Months EndedOctober 4,
    
    
    September 29,
    
    
    October 4,
    
    
    September 29,2008
    
    
    2007
    
    
    2008
    
    
    2007(40 Weeks)
    
    
    (39 Weeks)
    
    
    (13 Weeks)
    
    
    (13 Weeks)Net Sales
    
    $
    3,073,773
    
    
    $
    3,269,899
    
    
    $
    1,014,969
    
    
    $
    1,206,719Cost of goods sold
    
    
    1,586,358
    
    
    
    1,690,481
    
    
    
    514,615
    
    
    
    622,009Gross Profit
    
    
    1,487,415
    
    
    
    1,579,418
    
    
    
    500,354
    
    
    
    584,710Selling, general & administrative expenses
    
    
    1,495,280
    
    
    
    1,449,197
    
    
    
    474,115
    
    
    
    501,537Trademark impairment
    
    
    10,046
    
    
    
    12,300
    
    
    
    10,046
    
    
    
    12,300Operating (Loss) Income
    
    
    (17,911
    )
    
    
    117,921
    
    
    
    16,193
    
    
    
    70,873Other (expense) income, net
    
    
    (2,875
    )
    
    
    (1,874
    )
    
    
    798
    
    
    
    (1,519
    )Interest expense, net
    
    
    (33,922
    )
    
    
    (30,126
    )
    
    
    (12,050
    )
    
    
    (11,739
    )(Loss) Income Before (Benefit) Provision for
Income Taxes
    
    
    (54,708
    )
    
    
    85,921
    
    
    
    4,941
    
    
    
    57,615(Benefit) provision for income taxes
    
    
    (23,692
    )
    
    
    36,648
    
    
    
    14,360
    
    
    
    24,098(Loss) Income from Continuing Operations
    
    
    (31,016
    )
    
    
    49,273
    
    
    
    (9,419
    )
    
    
    33,517(Loss) income from discontinued
operations, net of tax
    
    
    (26,789
    )
    
    
    16,075
    
    
    
    (8,099
    )
    
    
    2,002Loss on disposal of discontinued
operations, net of tax
    
    
    (65,104
    )
    
    
    (2,468
    )
    
    
    (51,207
    )
    
    
    (2,468
    )Net (Loss) Income
    
    $
    (122,909
    )
    
    $
    62,880
    
    
    $
    (68,725
    )
    
    $
    33,051Earnings per Share:Basic(Loss) Income from Continuing Operations
    
    $
    (0.33
    )
    
    $
    0.48
    
    
    $
    (0.10
    )
    
    $
    0.33Net (Loss) Income
    
    $
    (1.31
    )
    
    $
    0.62
    
    
    $
    (0.73
    )
    
    $
    0.33Diluted(Loss) Income from Continuing Operations
    
    $
    (0.33
    )
    
    $
    0.48
    
    
    $
    (0.10
    )
    
    $
    0.33Net (Loss) Income
    
    $
    (1.31
    )
    
    $
    0.62
    
    
    $
    (0.73
    )
    
    $
    0.33Weighted Average Shares, Basic
    
    
    93,608
    
    
    
    101,157
    
    
    
    93,641
    
    
    
    99,820Weighted Average Shares, Diluted
    
    
    93,608
    
    
    
    102,219
    
    
    
    93,641
    
    
    
    100,700Dividends Paid per Common Share
    
    $
    0.17
    
    
    $
    0.17
    
    
    $
    0.06
    
    
    $
    0.06




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6 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
  Nine Months EndedOctober 4,
    
    
    September 29,2008
    
    
    2007(40 Weeks)
    
    
    (39 Weeks)Cash Flows from Operating Activities:Net (loss) income
    
    $
    (122,909
    )
    
    $
    62,880Adjustments to arrive at (loss) income from continuing operations
    
    
    91,893
    
    
    
    (13,607
    )(Loss) income from continuing operations
    
    
    (31,016
    )
    
    
    49,273Adjustments to reconcile (loss) income from continuing
operations to net cash used in operating activities:Depreciation and amortization
    
    
    117,745
    
    
    
    108,587Trademark impairment
    
    
    10,046
    
    
    
    12,300Streamlining initiatives; asset write-down
    
    
    2,805
    
    
    
    Loss on asset disposals
    
    
    14,991
    
    
    
    18,141Share-based compensation
    
    
    11,738
    
    
    
    16,171Tax benefit on exercise of stock options
    
    
    7
    
    
    
    5,603Other, net
    
    
    (92
    )
    
    
    (858
    )Change in assets and liabilities, exclusive of acquisitions:Increase in accounts receivable  trade, net
    
    
    (60,460
    )
    
    
    (146,777
    )Increase in inventories, net
    
    
    (37,338
    )
    
    
    (131,810
    )Increase in other current and non-current assets
    
    
    (11,195
    )
    
    
    (6,421
    )Increase in accounts payable
    
    
    19,912
    
    
    
    5,543Decrease in accrued expenses
    
    
    (67,120
    )
    
    
    (43,513
    )Net change in income tax assets and liabilities
    
    
    (61,053
    )
    
    
    (13,645
    )Net cash (used in) provided by operating activities of
discontinued operations
    
    
    (26,763
    )
    
    
    21,539Net cash used in operating activities
    
    
    (117,793
    )
    
    
    (105,867
    )Cash Flows from Investing Activities:Proceeds from disposition
    
    
    21,252
    
    
    
    Purchases of property and equipment
    
    
    (141,681
    )
    
    
    (111,645
    )Purchases of businesses and payment of related debt
    
    
    (84,420
    )
    
    
    (34,313
    )Payments for in-store merchandise shops
    
    
    (5,793
    )
    
    
    (4,012
    )Proceeds from sales of securities
    
    
    
    
    
    
    9,616Proceeds from sales of property and equipment
    
    
    
    
    
    
    1,410Other, net
    
    
    (211
    )
    
    
    472Net cash provided by (used in) investing activities of
discontinued operations
    
    
    64,769
    
    
    
    (16,584
    )Net cash used in investing activities
    
    
    (146,084
    )
    
    
    (155,056
    )




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7 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTD)
   Nine Months EndedOctober 4,
    
    
    September 29,2008
    
    
    2007(40 Weeks)
    
    
    (39 Weeks)Cash Flows from Financing Activities:Short term borrowings, net
    
    
    122,408
    
    
    
    432,144Principal payments under capital lease obligations
    
    
    (3,128
    )
    
    
    (4,288
    )Commercial paper, net
    
    
    
    
    
    
    (82,075
    )Proceeds from exercise of common stock options
    
    
    70
    
    
    
    42,726Purchase of common stock
    
    
    
    
    
    
    (181,616
    )Dividends paid
    
    
    (15,793
    )
    
    
    (17,102
    )Excess tax benefit related to share-based compensation
    
    
    
    
    
    
    2,410Other, net
    
    
    (2,304
    )
    
    
    (1,076
    )Net cash provided by financing activities
    
    
    101,253
    
    
    
    191,123Effect of exchange rate changes on cash and cash equivalents
    
    
    7,565
    
    
    
    (4,211
    )Net Change in Cash and Cash Equivalents
    
    
    (155,059
    )
    
    
    (74,011
    )Cash and Cash Equivalents at Beginning of Period
    
    
    205,401
    
    
    
    185,645Cash and Cash Equivalents at End of Period
    
    $
    50,342
    
    
    $
    111,634




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8 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
      
    
    The Direct Brands segment  consists of the specialty retail, outlet, wholesale
apparel, wholesale non-apparel (including accessories, jewelry and handbags), e-commerce
and licensing operations of the Companys four retail-based operating segments: JUICY
COUTURE, KATE SPADE, LUCKY BRAND and MEXX; and
    
    The Partnered Brands segment  consists of one operating segment including the
wholesale apparel, wholesale non-apparel, 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.




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




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10   Revenue Recognition
  Income Taxes
  Accounts Receivable  Trade, Net




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11 Inventories, Net
  Goodwill and Intangibles, Net




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12     Accrued Expenses
  Derivative Instruments




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13   Share-Based Compensation
  OTHER SIGNIFICANT ACCOUNTING POLICIES
 Fair Value of Financial Instruments
  Cash and Cash Equivalents
  Property and Equipment, Net




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14  Operating Leases
  Foreign Currency Translation
  Foreign Currency Transactions
  Cost of Goods Sold
  Advertising, Promotion and Marketing
  Shipping and Handling Costs
  Fiscal Year
  Cash Dividend and Common Stock Repurchase




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15 RECENTLY ADOPTED ACCOUNTING POLICIES
 Fair Value Measurements
  Level 1 -
    
    Quoted market prices in active markets for identical assets or liabilities;Level 2 -
    
    Inputs other than Level 1 inputs that are either directly or indirectly
observable; andLevel 3 -
    
    Unobservable inputs developed using estimates and assumptions developed by
us, which reflect
those that a market participant would use.
   In thousands
    
    Level 2Financial Assets:Derivatives
    
    $
    3,330Financial Liabilities:Derivatives
    
    $
    




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##### Table of Contents



16    October 4,
    
    
    December 29,
    
    
    September 29,In thousands
    
    2008
    
    
    2007
    
    
    2007Accounts receivable
    
    $
    
    
    
    $
    2,452
    
    
    $
    Inventories
    
    
    
    
    
    
    13,444
    
    
    
    15,691Property and equipment
    
    
    5,273
    
    
    
    7,349
    
    
    
    Intangible assets
    
    
    4,994
    
    
    
    41,786
    
    
    
    3,669Other assets
    
    
    
    
    
    
    301
    
    
    
    Total assets held for sale
    
    $
    10,267
    
    
    $
    65,332
    
    
    $
    19,360
   Nine Months Ended
    
    
    Three Months EndedOctober 4,
    
    
    September 29,
    
    
    October 4,
    
    
    September 29,2008
    
    
    2007
    
    
    2008
    
    
    2007(40 Weeks)
    
    
    (39 Weeks)
    
    
    (13 Weeks)
    
    
    (13 Weeks)Net sales
    
    $
    71,021
    
    
    $
    317,505
    
    
    $
    6,268
    
    
    $
    97,005(Loss) income before (benefit)
provision for income taxes
    
    $
    (43,787
    )
    
    $
    25,787
    
    
    $
    (13,263
    )
    
    $
    3,136(Benefit) provision for income taxes
    
    
    (16,998
    )
    
    
    9,712
    
    
    
    (5,164
    )
    
    
    1,134(Loss) income from discontinued
operations, net of tax
    
    $
    (26,789
    )
    
    $
    16,075
    
    
    $
    (8,099
    )
    
    $
    2,002




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17 
   Capital in
    
    
    
    
    
    
    Common stockexcess of par
    
    
    Retained
    
    
    in treasury, atIn thousands
    
    value
    
    
    earnings
    
    
    costBalance as of December 29, 2007
    
    $
    296,158
    
    
    $
    2,948,085
    
    
    $
    (1,880,534
    )Net loss
    
    
    
    
    
    
    (122,909
    )
    
    
    Restricted shares issued, net of cancellations
and shares withheld for taxes
    
    
    (6,674
    )
    
    
    
    
    
    
    4,977Stock options exercised
    
    
    35
    
    
    
    
    
    
    
    35Share-based compensation
    
    
    11,806
    
    
    
    
    
    
    
    Tax benefit on exercise of stock options
    
    
    7
    
    
    
    
    
    
    
    Tax deficiency related to share-based compensation
    
    
    (2,058
    )
    
    
    
    
    
    
    Dividend equivalent units vested
    
    
    
    
    
    
    (233
    )
    
    
    Dividends declared
    
    
    
    
    
    
    (15,793
    )
    
    
    Balance as of October 4, 2008
    
    $
    299,274
    
    
    $
    2,809,150
    
    
    $
    (1,875,522
    )
  Nine Months EndedOctober 4,
    
    
    September 29,2008
    
    
    2007In thousands
    
    (40 Weeks)
    
    
    (39 Weeks)Net (loss) income
    
    $
    (122,909
    )
    
    $
    62,880Other
comprehensive (loss) income:Change in cumulative translation adjustment
    
    
    (29,863
    )
    
    
    55,082Change in cumulative translation
adjustment on Eurobonds and other
instruments, net of income tax provision
of $10,570 in 2008
    
    
    14,954
    
    
    
    (36,004
    )Changes in unrealized losses on
available-for-sale securities, net of
income tax benefit (provision) of $91 and
$(187), respectively
    
    
    (100
    )
    
    
    325Reclassification of holding gains on
available-for-sale securities, net of
income tax provision of $133 in 2007
    
    
    
    
    
    
    (231
    )Changes in fair value of cash flow hedges,
net of income tax (provision) benefit of
$(2,944) and $626, respectively
    
    
    7,639
    
    
    
    (4,356
    )Total comprehensive (loss) income, net of tax
    
    $
    (130,279
    )
    
    $
    77,696
  October 4,
    
    
    December 29,
    
    
    September 29,In thousands
    
    2008
    
    
    2007
    
    
    2007Cumulative translation adjustment, net of taxes
of $8,840, $19,410 and zero, respectively
    
    $
    (33,181
    )
    
    $
    (18,272
    )
    
    $
    (36,193
    )Unrealized gains (losses) on cash flow hedging
derivatives, net of taxes of $(623), $2,321 and
$1,121, respectively
    
    
    1,437
    
    
    
    (6,202
    )
    
    
    (5,099
    )Unrealized losses on available-for-sale
securities, net of taxes of $137, $46 and $46,
respectively
    
    
    (208
    )
    
    
    (108
    )
    
    
    (48
    )Accumulated other comprehensive loss, net of tax
    
    $
    (31,952
    )
    
    $
    (24,582
    )
    
    $
    (41,340
    )




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##### Table of Contents



18 
   October 4,
    
    
    December 29,
    
    
    September 29,In thousands
    
    2008
    
    
    2007
    
    
    2007Raw materials
    
    $
    26,168
    
    
    $
    28,743
    
    
    $
    35,734Work in process
    
    
    6,575
    
    
    
    13,143
    
    
    
    19,121Finished goods
    
    
    516,527
    
    
    
    498,921
    
    
    
    670,947Total inventories, net
    
    $
    549,270
    
    
    $
    540,807
    
    
    $
    725,802
   October 4,
    
    
    December 29,
    
    
    September 29,In thousands
    
    2008
    
    
    2007
    
    
    2007Land and buildings
    
    $
    108,175
    
    
    $
    108,097
    
    
    $
    136,042Machinery and equipment
    
    
    394,117
    
    
    
    385,294
    
    
    
    442,148Furniture and fixtures
    
    
    284,786
    
    
    
    304,411
    
    
    
    294,894Leasehold improvements
    
    
    544,588
    
    
    
    529,427
    
    
    
    519,4231,331,666
    
    
    
    1,327,229
    
    
    
    1,392,507Less: Accumulated depreciation and
amortization
    
    
    741,596
    
    
    
    746,496
    
    
    
    809,164Total property and equipment, net
    
    $
    590,070
    
    
    $
    580,733
    
    
    $
    583,343




---



##### Table of Contents



19   WeightedAverageAmortization
    
    
    October 4,
    
    
    December 29,
    
    
    September 29,In thousands
    
    Period
    
    
    2008
    
    
    2007
    
    
    2007Amortized intangible assets:Gross Carrying Amount:Licensed trademarks
    
    15 years
    
    $
    32,449
    
    
    $
    32,749
    
    
    $
    34,589Owned trademarks (a)
    
    5 years
    
    
    1,000
    
    
    
    9,900
    
    
    
    16,501Customer relationships (b)
    
    12 years
    
    
    12,930
    
    
    
    30,665
    
    
    
    52,637Merchandising rights (b)
    
    4 years
    
    
    48,541
    
    
    
    57,023
    
    
    
    54,904Other (c)
    
    4 years
    
    
    2,618
    
    
    
    3,235
    
    
    
    Subtotal
    
    10 years
    
    
    97,538
    
    
    
    133,572
    
    
    
    158,631Accumulated Amortization:Licensed trademarks
    
    
    
    
    
    
    (18,699
    )
    
    
    (16,641
    )
    
    
    (16,343
    )Owned trademarks
    
    
    
    
    
    
    (267
    )
    
    
    (901
    )
    
    
    (1,503
    )Customer relationships
    
    
    
    
    
    
    (2,600
    )
    
    
    (5,875
    )
    
    
    (10,139
    )Merchandising rights
    
    
    
    
    
    
    (29,522
    )
    
    
    (34,246
    )
    
    
    (31,949
    )Other
    
    
    
    
    
    
    (1,064
    )
    
    
    (675
    )
    
    
    Subtotal
    
    
    
    
    
    
    (52,152
    )
    
    
    (58,338
    )
    
    
    (59,934
    )Net:Licensed trademarks
    
    
    
    
    
    
    13,750
    
    
    
    16,108
    
    
    
    18,246Owned trademarks
    
    
    
    
    
    
    733
    
    
    
    8,999
    
    
    
    14,998Customer relationships
    
    
    
    
    
    
    10,330
    
    
    
    24,790
    
    
    
    42,498Merchandising rights
    
    
    
    
    
    
    19,019
    
    
    
    22,777
    
    
    
    22,955Other
    
    
    
    
    
    
    1,554
    
    
    
    2,560
    
    
    
    Total amortized intangible assets, net
    
    
    
    
    
    
    45,386
    
    
    
    75,234
    
    
    
    98,697Unamortized intangible assets:Owned trademarks(d)
    
    
    
    
    
    
    209,036
    
    
    
    271,885
    
    
    
    313,161Total intangible assets
    
    
    
    
    
    $
    254,422
    
    
    $
    347,119
    
    
    $
    411,858
 
 (a)
    
    The decrease in the balance compared to September 2007 reflects the impact of the
disposition of the C&C CALIFORNIA brand and the Companys interest in the NARCISO RODRIGUEZ
brands.(b)
    
    The change in the balance compared to September 29, 2007 primarily reflects the
impact of dispositions subsequent thereto.(c)
    
    Relates primarily to the Companys acquisition of Kate Spade.(d)
    
    The change in the balance compared to September 29, 2007 reflects (i) a non-cash
pre-tax impairment charges of $10.0 and $24.0 million recorded within the Companys Partnered
Brands segment related to the VILLAGER, CRAZY HORSE and RUSS and ELLEN TRACY trademarks,
respectively, and (ii) the impact of the disposition of prAna, ELLEN TRACY and ENYCE.   (In millions)Fiscal Year
    
    Amortization Expense2008
    
    $
    13.72009
    
    
    11.92010
    
    
    8.62011
    
    
    6.92012
    
    
    5.2




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##### Table of Contents



20  In thousandsBalance as of December 29, 2007
    
    $
    677,852Additional purchase price  JUICY COUTURE
    
    
    6,696Other
    
    
    (1,539
    )Translation difference
    
    
    (6,256
    )Balance as of October 4, 2008
    
    $
    676,753




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##### Table of Contents



21 8.
    
    DEBT AND LINES OF CREDIT
  October 4,
    
    
    December 29,
    
    
    September 29,In thousands
    
    2008
    
    
    2007
    
    
    20075% Notes, due July 2013 (a)
    
    $
    482,640
    
    
    $
    512,044
    
    
    $
    495,153Revolving credit facility and commercial paper program
    
    
    408,900
    
    
    
    301,200
    
    
    
    394,600Capital lease obligations
    
    
    23,776
    
    
    
    26,725
    
    
    
    29,787Other (b)
    
    
    58,537
    
    
    
    47,742
    
    
    
    57,061Total debt
    
    
    973,853
    
    
    
    887,711
    
    
    
    976,601Less: current portion (c)
    
    
    61,807
    
    
    
    50,828
    
    
    
    455,852Long-term debt
    
    $
    912,046
    
    
    $
    836,883
    
    
    $
    520,749
 
 (a)
    
    The change in the balance of these euro-denominated notes reflects the impact of
changes in foreign currency exchange rates.(b)
    
    At October 4, 2008, the balance consists principally of outstanding borrowings under
working capital lines of credit.(c)
    
    At October 4, 2008, the balance consists primarily of borrowings under working
capital lines of credit and obligations under capital leases.




---



##### Table of Contents



22    Outstanding
    
    Letters of
    
    AvailableIn thousands
    
    Total Capacity
    
    Borrowings
    
    Credit Issued
    
    CapacityRevolving credit facility and
commercial paper program
(a)
    
    $
    750,000
    
    
    $
    408,900
    
    
    $
    
    
    
    $
    341,100Letter of credit facility
    
    
    285,000
    
    
    
    
    
    
    
    124,437
    
    
    
    160,563Short-term borrowing facilities
    
    
    147,332
    
    
    
    57,699
    
    
    
    9,011
    
    
    
    80,622
 
 (a)
    
    The Companys $750 million revolving credit facility has a final maturity date of
October 2009 and contains the committed capacity to issue $250 million in letters of credit.




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##### Table of Contents



23    2008 Actions
  2007 Actions
  
    
    Realigning its organization into two new reporting segments: Direct Brands (comprised
of the Companys JUICY COUTURE, KATE SPADE, LUCKY BRAND and MEXX retail-based lifestyle
brands) and Partnered Brands (comprised of LIZ CLAIBORNE and other Company-owned and
licensed wholesale-based brands). The strategic realignment reflects a brand-focused
approach, designed to optimize the operational coordination and resource allocation of the
Companys businesses across multiple functional areas including specialty retail, retail
outlets, wholesale apparel, wholesale non-apparel, e-commerce and licensing;
    
    Conducting a review of strategic alternatives, including possible divestiture,
discontinuation or licensing of sixteen of the Companys brands:
 
    
    On October 4, 2007, the Company completed the sale of its former EMMA
JAMES, INTUITIONS, J.H. COLLECTIBLES and TAPEMEASURE brands. The Company also
consolidated its TINT brand into LIZ & CO. and STAMP 10 brand into AXCESS
and closed its FIRST ISSUE brand.
    
    In January 2008, the Company entered into an exclusive license
agreement with Kohls, naming Kohls as the exclusive retailer for the DANA BUCHMAN
brand.
    
    On February 4, 2008, the Company completed the sale of its former C&C
CALIFORNIA and LAUNDRY BY DESIGN brands. The Company also announced retention of
ENYCE and closure of SIGRID OLSEN, completed in the first half of 2008.
    
    On April 4, 2008, the Company completed the sale of its former prAna
brand.




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##### Table of Contents



24 
 
    
    In the first quarter of 2008, the Company announced its decision to
retain the KENSIE and MAC & JAC brands.
    
    On April 10, 2008, the Company completed the sale of its former ELLEN TRACY brand.
 
    
    Implementing and maintaining a more competitive cost structure:
 
    
    The Company has accelerated its structural realignment and other
initiatives to achieve cost savings targets through staff reductions, closing and
consolidation of distribution facilities and office space, discretionary expense
cuts, process re-engineering and supply chain cost rationalization.
 2006 Actions
    Nine Months Ended
    
    
    Three Months EndedOctober 4,
    
    
    September 29,
    
    
    October 4,
    
    
    September 29,2008
    
    
    2007
    
    
    2008
    
    
    2007In thousands
    
    (40 weeks)
    
    
    (39 Weeks)
    
    
    (13 Weeks)
    
    
    (13 Weeks)Direct Brands
    
    $
    25,107
    
    
    $
    13,810
    
    
    $
    14,741
    
    
    $
    7,910Partnered Brands
    
    
    57,505
    
    
    
    34,888
    
    
    
    8,881
    
    
    
    13,418Total
    
    $
    82,612
    
    
    $
    48,698
    
    
    $
    23,622
    
    
    $
    21,328
  LeasePayroll and
    
    
    Termination
    
    
    Fixed AssetIn thousands
    
    Related Costs
    
    
    Costs
    
    
    Write-Downs
    
    
    Other Costs
    
    
    TotalBalance at December 29, 2007
    
    $
    18,567
    
    
    $
    11,823
    
    
    $
    
    
    
    $
    225
    
    
    $
    30,6152008 provision
    
    
    36,713
    
    
    
    28,171
    
    
    
    9,294
    
    
    
    8,434
    
    
    
    82,6122008 fixed asset write-downs
    
    
    
    
    
    
    
    
    
    
    (9,294
    )
    
    
    
    
    
    
    (9,294
    )Translation difference
    
    
    357
    
    
    
    (812
    )
    
    
    
    
    
    
    (225
    )
    
    
    (680
    )2008 spending
    
    
    (41,237
    )
    
    
    (23,189
    )
    
    
    
    
    
    
    (8,434
    )
    
    
    (72,860
    )Balance at October 4, 2008
    
    $
    14,400
    
    
    $
    15,993
    
    
    $
    
    
    
    $
    
    
    
    $
    30,393




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##### Table of Contents



25   Nine Months Ended
    
    
    Three Months EndedOctober 4,
    
    
    September 29,
    
    
    October 4,
    
    
    September 29,2008
    
    
    2007
    
    
    2008
    
    
    2007In thousands
    
    (40 Weeks)
    
    
    (39 Weeks)
    
    
    (13 Weeks)
    
    
    (13 Weeks)(Loss) income from continuing
operations
    
    $
    (31,016
    )
    
    $
    49,273
    
    
    $
    (9,419
    )
    
    $
    33,517(Loss) income from
discontinued operations, net
of tax
    
    
    (26,789
    )
    
    
    16,075
    
    
    
    (8,099
    )
    
    
    2,002Loss on disposal of
discontinued operations, net
of tax
    
    
    (65,104
    )
    
    
    (2,468
    )
    
    
    (51,207
    )
    
    
    (2,468
    )Net (Loss) Income
    
    $
    (122,909
    )
    
    $
    62,880
    
    
    $
    (68,725
    )
    
    $
    33,051Basic weighted average shares
outstanding(a)
    
    
    93,608
    
    
    
    101,157
    
    
    
    93,641
    
    
    
    99,820Stock options and restricted
stock
grants(a)(b)(c)
    
    
    
    
    
    
    1,062
    
    
    
    
    
    
    
    880Diluted weighted average
shares
outstanding(a)
    
    
    93,608
    
    
    
    102,219
    
    
    
    93,641
    
    
    
    100,700Earnings per share:Basic(Loss) Income from
Continuing Operations
    
    $
    (0.33
    )
    
    $
    0.48
    
    
    $
    (0.10
    )
    
    $
    0.33(Loss) income from
discontinued operations
    
    
    (0.29
    )
    
    
    0.16
    
    
    
    (0.08
    )
    
    
    0.02Loss on disposal of
discontinued operations
    
    
    (0.69
    )
    
    
    (0.02
    )
    
    
    (0.55
    )
    
    
    (0.02
    )Net (Loss) Income
    
    $
    (1.31
    )
    
    $
    0.62
    
    
    $
    (0.73
    )
    
    $
    0.33Diluted(Loss) income from
continuing operations
    
    $
    (0.33
    )
    
    $
    0.48
    
    
    $
    (0.10
    )
    
    $
    0.33(Loss) income from
discontinued operations
    
    
    (0.29
    )
    
    
    0.16
    
    
    
    (0.08
    )
    
    
    0.02Loss on disposal of
discontinued operations
    
    
    (0.69
    )
    
    
    (0.02
    )
    
    
    (0.55
    )
    
    
    (0.02
    )Net (loss) income
    
    $
    (1.31
    )
    
    $
    0.62
    
    
    $
    (0.73
    )
    
    $
    0.33
 
 (a)
    
    Because the Company incurred a loss from continuing operations in the nine and
three months ended October 4, 2008, outstanding stock options and restricted shares are
anti-dilutive. Accordingly, basic and diluted weighted average shares outstanding are equal
for such periods.(b)
    
    Options to purchase 3,321,661 shares of common stock were outstanding as of
September 29, 2007, but were not included in the computation of diluted EPS for the nine and
three month periods then ended because such options were anti-dilutive.(c)
    
    Excludes restricted stock for which the performance period has not yet lapsed and
criteria have not yet been achieved.




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##### Table of Contents



26    
    
    The Direct Brands segment  consists of the specialty retail, outlet, wholesale
apparel, wholesale non-apparel (including accessories, jewelry and handbags), e-commerce
and licensing operations of the Companys four retail-based brands: JUICY COUTURE, KATE
SPADE, LUCKY BRAND and MEXX; and
    
    The Partnered Brands segment  consists of one operating segment including the
wholesale apparel, wholesale non-apparel, 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.
  C
  Nine Months EndedOctober 4, 2008
    
    
    September 29, 2007(40 Weeks)
    
    
    (39 weeks)Direct
    
    
    Partnered
    
    
    
    
    
    
    Direct
    
    
    PartneredIn thousands
    
    Brands
    
    
    Brands
    
    
    Total
    
    
    Brands
    
    
    Brands
    
    
    TotalTotal net sales
    
    $
    1,821,535
    
    
    $
    1,252,238
    
    
    $
    3,073,773
    
    
    $
    1,608,376
    
    
    $
    1,661,523
    
    
    $
    3,269,899% to total
    
    
    59.3
    %
    
    
    40.7
    %
    
    
    100.0
    %
    
    
    49.2
    %
    
    
    50.8
    %
    
    
    100.0
    %Total operating
income (loss)
    
    $
    74,984
    
    
    $
    (92,895
    )
    
    $
    (17,911
    )
    
    $
    166,870
    
    
    $
    (48,949
    )
    
    $
    117,921% of sales
    
    
    4.1
    %
    
    
    (7.4
    )%
    
    
    (0.6
    )%
    
    
    10.4
    %
    
    
    (2.9
    )%
    
    
    3.6
    %




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##### Table of Contents



27 Three Months EndedOctober 4, 2008
    
    
    September 29, 2007(13 Weeks)
    
    
    (13 weeks)Direct
    
    
    Partnered
    
    
    
    
    
    
    Direct
    
    
    PartneredIn thousands
    
    Brands
    
    
    Brands
    
    
    Total
    
    
    Brands
    
    
    Brands
    
    
    TotalTotal net sales
    
    $
    617,205
    
    
    $
    397,764
    
    
    $
    1,014,969
    
    
    $
    628,705
    
    
    $
    578,014
    
    
    $
    1,206,719% to total
    
    
    60.8
    %
    
    
    39.2
    %
    
    
    100.0
    %
    
    
    52.1
    %
    
    
    47.9
    %
    
    
    100.0
    %Total operating
income (loss)
    
    $
    34,960
    
    
    $
    (18,767
    )
    
    $
    16,193
    
    
    $
    87,046
    
    
    $
    (16,173
    )
    
    $
    70,873% of sales
    
    
    5.7
    %
    
    
    (4.7
    )%
    
    
    1.6
    %
    
    
    13.8
    %
    
    
    (2.8
    )%
    
    
    5.9
    %
  Nine Months EndedOctober 4, 2008
    
    
    September 29, 2007(40 Weeks)
    
    
    (39 weeks)In thousands
    
    Domestic
    
    
    International
    
    
    Total
    
    
    Domestic
    
    
    International
    
    
    TotalTotal net sales(a)
    
    $
    1,940,050
    
    
    $
    1,133,723
    
    
    $
    3,073,773
    
    
    $
    2,184,873
    
    
    $
    1,085,026
    
    
    $
    3,269,899% to total
    
    
    63.1
    %
    
    
    36.9
    %
    
    
    100.0
    %
    
    
    66.8
    %
    
    
    33.2
    %
    
    
    100.0
    %Total operating (loss) income
    
    $
    (54,821
    )
    
    $
    36,910
    
    
    $
    (17,911
    )
    
    $
    51,055
    
    
    $
    66,866
    
    
    $
    117,921% of sales
    
    
    (2.8
    )%
    
    
    3.3
    %
    
    
    (0.6
    )%
    
    
    2.3
    %
    
    
    6.2
    %
    
    
    3.6
    %
 
 (a)
    
    International sales include MEXX sales of $964,456 and $917,636, respectively. Three Months EndedOctober 4, 2008
    
    
    September 29, 2007(13 Weeks)
    
    
    (13 weeks)In thousands
    
    Domestic
    
    
    International
    
    
    Total
    
    
    Domestic
    
    
    International
    
    
    TotalTotal net sales(a)
    
    $
    625,989
    
    
    $
    388,980
    
    
    $
    1,014,969
    
    
    $
    788,058
    
    
    $
    418,661
    
    
    $
    1,206,719% to total
    
    
    61.7
    %
    
    
    38.3
    %
    
    
    100.0
    %
    
    
    65.3
    %
    
    
    34.7
    %
    
    
    100.0
    %Total operating (loss) income
    
    $
    (5,976
    )
    
    $
    22,169
    
    
    $
    16,193
    
    
    $
    27,793
    
    
    $
    43,080
    
    
    $
    70,873% of sales
    
    
    (1.0
    )%
    
    
    5.7
    %
    
    
    1.6
    %
    
    
    3.5
    %
    
    
    10.3
    %
    
    
    5.9
    %
 
 (a)




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##### Table of Contents



28         Stock Options
  Nine Months EndedValuation Assumptions:
    
    October 4, 2008
    
    September 29, 2007Weighted-average fair value of options granted
    
    $
    4.94
    
    
    $
    10.24Expected volatility
    
    28.1% to 40.9%
    
    25.3% to 37.6%Weighted-average volatility
    
    
    28.9
    %
    
    
    25.7
    %Expected term (in years)
    
    
    5.0
    
    
    
    4.5Dividend yield
    
    
    1.19
    %
    
    
    0.61
    %Risk-free rate
    
    1.5% to 5.2%
    
    4.8% to 5.2%Expected annual forfeiture
    
    
    12.8
    %
    
    
    10.2
    %




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##### Table of Contents



29   Weighted
    
    Weighted Average
    
    AggregateAverage Exercise
    
    Remaining
    
    Intrinsic ValueShares
    
    Price
    
    Contractual Term
    
    ($000)Outstanding at December 29, 2007
    
    
    4,636,409
    
    
    $
    34.33
    
    
    
    5.3
    
    
    $
    204Granted
    
    
    1,237,250
    
    
    
    18.95Exercised
    
    
    (4,100
    )
    
    
    16.92Cancelled
    
    
    (741,675
    )
    
    
    33.57Outstanding at October 4, 2008
    
    
    5,127,884
    
    
    $
    30.74
    
    
    
    5.0
    
    
    $
    Vested or expected to vest at October 4, 2008
    
    
    4,757,056
    
    
    $
    31.25
    
    
    
    4.9
    
    
    $
    Exercisable at October 4, 2008
    
    
    3,081,620
    
    
    $
    33.43
    
    
    
    4.3
    
    
    $
    
    Restricted Stock
  WeightedAverage GrantShares
    
    Date Fair ValueNonvested stock at December 29, 2007 (a)
    
    
    1,538,379
    
    
    $
    38.42Granted (b)
    
    
    1,105,062
    
    
    
    18.33Vested
    
    
    (314,670
    )
    
    
    35.83Cancelled
    
    
    (418,768
    )
    
    
    35.96Nonvested stock at October 4, 2008 (a)(b)
    
    
    1,910,003
    
    
    $
    27.76Expected to vest as of October 4, 2008
    
    
    1,518,983
    
    
    $
    28.98
 
 (a)
    
    In the third quarter of 2007, performance shares were granted to a group of key
executives. These shares are subject to certain service and performance conditions to be
measured as of the fiscal 2009 year-end. The ultimate amount of shares earned will be
determined by the extent of achievement of the performance criteria set forth in the
performance share agreements and will range from 0  150% of target.(b)
    
    In the second and third quarter of 2008, performance shares were granted to a group
of key executives. These shares are subject to certain service and performance conditions to
be measured as of the fiscal 2008 year-end and fiscal 2010 year-end. The ultimate amount of
shares earned will be determined by the extent of achievement of the performance criteria set
forth in the performance share agreements and will range from 0  200% of target.




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##### Table of Contents



30




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##### Table of Contents



31 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 OVERVIEW
 Business/Segments
  
    
    The Direct Brands segment  consists of the specialty retail, outlet, wholesale
apparel, wholesale non-apparel (including accessories, jewelry and handbags), e-commerce
and licensing operations of our four retail-based operating segments: JUICY COUTURE, KATE
SPADE, LUCKY BRAND and MEXX; and
    
    The Partnered Brands segment  consists of one operating segment including the
wholesale apparel, wholesale non-apparel, 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, Company-owned specialty retail and outlet stores
located in the United States and e-commerce sites); and
    
    International (wholesale customers and Company-owned specialty retail and
outlet, as well as concession stores located outside of the United States).




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##### Table of Contents



32    Market Environment / Global Economic Uncertainty
  Competitive Profile




---



##### Table of Contents



33 Reconfiguring our organization into two new reporting business segments:
 
    
    Direct Brands (comprised of our JUICY COUTURE, KATE SPADE, LUCKY BRAND and MEXX
retail-based lifestyle brands); and
    
    Partnered Brands (comprised of LIZ CLAIBORNE and our other owned and licensed
wholesale-based brands).
  The completion of our strategic review of 16 specific brands in our portfolio in an effort to
narrow our brand offerings to a select group that we believe we can fully resource and develop into
powerful, sustaining brands:
 
    
    On October 4, 2007, we completed the sale of our former EMMA JAMES, INTUITIONS, J.H.
COLLECTIBLES and TAPEMEASURE brands.
    
    We consolidated our TINT brand into LIZ & CO. and STAMP 10 brand into AXCESS and
closed our FIRST ISSUE brand.
    
    In January 2008, we entered into an exclusive license agreement with Kohls, naming
Kohls as the exclusive retailer for our DANA BUCHMAN brand. As a result, we closed our
former DANA BUCHMAN operations in the first half of 2008 and expect to launch the new DANA
BUCHMAN line in Kohls stores no later than the first quarter of 2009.
    
    On February 4, 2008, we completed the sale of our former C&C CALIFORNIA and LAUNDRY BY
DESIGN brands.
    
    In the first quarter of 2008, we announced our decision to retain the KENSIE and MAC &
JAC brands.
    
    On April 4, 2008, we completed the sale of our former prAna brand.
    
    On April 10, 2008, we completed the sale of our former ELLEN TRACY brand.
    
    During the second quarter of 2008, we completed the closure of our SIGRID OLSEN brand.
 Implementing and maintaining a more competitive cost structure:
 
    
    We have accelerated our structural realignment and other initiatives to achieve targeted
cost savings. Key actions taken include significant headcount reductions, the closing of
three of our distribution centers, real estate rationalization and discretionary expense
cuts.
    
    We anticipate additional cost reductions to be realized through further staff
reductions, consolidations of distribution facilities and office space, discretionary
expense cuts, process re-engineering and supply chain cost rationalization.
 Committing the resources, structure and marketing investment necessary to fully support and
maximize the growth of our brands:
 
    
    We have engaged two well regarded designers to reposition our LIZ CLAIBORNE and
CLAIBORNE brands, with new collections debuting in spring of 2009.
    
    We acquired the license for DKNY® better mens apparel, debuting in Spring of 2009.
    
    We are in the process of implementing initiatives to accelerate the turnaround of the
MEXX business in Europe. These initiatives will focus on enhancing the brand by improving
product appeal, more closely linking the wholesale and retail presentations, strengthening
retail operations and re-evaluating our supply chain model. To expedite this process, we
have made key appointments to the MEXX Europe management team.
    
    We remain on track to complete approximately 125 store openings in our JUICY COUTURE,
LUCKY BRAND and KATE SPADE brands in fiscal 2008.
    
    We anticipate spending approximately $85 million in 2008 in marketing activities in
support of our growth initiatives within our Direct Brands segment.
 Developing best-in-class, retail-centric capabilities and initiating investments to optimize
our supply chain activities and accelerate the flow of goods to stores in both retail and wholesale
formats.




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##### Table of Contents



34   Overall Results for the Nine Months Ended October 4, 2008
 Net Sales
  Gross Profit and (Loss) Income from Continuing Operations
  Balance Sheet
  International Operations
  RESULTS OF OPERATIONS




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##### Table of Contents



NINE MONTHS ENDED OCTOBER 4, 2008 COMPARED TO NINE MONTHS ENDED SEPTEMBER 29, 2007
  Nine Months Ended
    
    
    VarianceOctober 4,
    
    
    September 29,Dollars in millions
    
    2008
    
    
    2007
    
    
    $
    
    
    %Net Sales
    
    $
    3,073.8
    
    
    $
    3,269.9
    
    
    $
    (196.1
    )
    
    
    (6.0
    )%Gross Profit
    
    
    1,487.4
    
    
    
    1,579.4
    
    
    
    (92.0
    )
    
    
    (5.8
    )%Selling, general & administrative
expenses
    
    
    1,495.3
    
    
    
    1,449.2
    
    
    
    46.1
    
    
    
    3.2
    %Trademark impairment
    
    
    10.0
    
    
    
    12.3
    
    
    
    (2.3
    )
    
    
    (18.7
    )%Operating (Loss) Income
    
    
    (17.9
    )
    
    
    117.9
    
    
    
    (135.8
    )
    
    
    *Other expense, net
    
    
    (2.9
    )
    
    
    (1.9
    )
    
    
    (1.0
    )
    
    
    52.6
    %Interest expense, net
    
    
    (33.9
    )
    
    
    (30.1
    )
    
    
    (3.8
    )
    
    
    12.6
    %(Benefit) provision for income taxes
    
    
    (23.7
    )
    
    
    36.6
    
    
    
    (60.3
    )
    
    
    *(Loss) Income from Continuing
Operations
    
    
    (31.0
    )
    
    
    49.3
    
    
    
    (80.3
    )
    
    
    *Discontinued operations, net of tax
    
    
    (91.9
    )
    
    
    13.6
    
    
    
    (105.5
    )
    
    
    *Net (Loss) Income
    
    $
    (122.9
    )
    
    $
    62.9
    
    
    $
    (185.8
    )
    
    
    *
 
 *
    
    Not meaningful. Net Sales
  
    
    Direct Brands net sales were $1.822 billion, increasing $213.2 million, or 13.3%, reflecting the following:
 
    
    Net sales for MEXX were $964.5 million, a 5.1%
increase compared to 2007. Excluding the impact of
changes in foreign currency exchange rates, net sales
for MEXX were $860.9 million, a 6.2% decrease,
primarily due to decreases in our MEXX Europe
wholesale and retail operations, partially offset by
increased sales in our MEXX Canada retail and
wholesale operations.
 
    
    We ended the first nine months of 2008 with 133
specialty retail stores, 99 outlets and 234
concessions, reflecting the net decrease over the
last 12 months of 4 specialty retail stores and 72
concession stores, partially offset by the net addition of
15 outlet stores;
    
    Average retail square footage in the first nine
months of 2008 was approximately 1.395 million square
feet, a 5.7% increase compared to 2007;
    
    Sales productivity increased to $302 per average
square foot as compared to $297 for the first nine
months of fiscal 2007, primarily due to the impact of
exchange rate fluctuations in our European and
Canadian operations;
    
    Comparable store net sales in our MEXX
Company-owned stores decreased by 9.2% overall,
primarily the result of a decrease in our MEXX Europe
retail and in our MEXX Canada retail operations; and




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##### Table of Contents



36 
    
    Fluctuations in foreign currency exchange rates in
our European and Canadian businesses increased net
sales by $103.6 million.
 
    
    Net sales for JUICY COUTURE were $432.1 million, a
33.3% increase compared to 2007, or an increase of 35.3% excluding the impact of
licensing our fragrance operations in the second quarter of 2008,
primarily driven by increases in retail and wholesale
non-apparel.
 
    
    We ended the first nine months of 2008 with 56
specialty retail stores and 29 outlet stores,
reflecting the net addition over the last 12 months
of 23 specialty retail stores and 16 outlet stores;
    
    Average retail square footage in the first nine
months of 2008 was approximately 221 thousand square
feet, a 106.5% increase compared to 2007;
    
    Sales productivity was $670 per average square foot
as compared to $743 for the first nine months of
fiscal 2007; and
    
    Comparable store net sales in our Company-owned
stores increased by 10.4% in the first nine months of
2008.
 
    
    Net sales for LUCKY BRAND were $338.8 million, a
10.3% increase  compared to 2007, or an increase of 16.9% excluding the impact of
licensing our fragrance operations in the second quarter of 2008, primarily driven by increases in our specialty retail
and outlet operations.
 
    
    We ended the first nine months of 2008 with 187
specialty retail stores and 35 outlet stores,
reflecting the net addition over the last 12 months
of 28 specialty retail stores and 25 outlet stores;
    
    Average retail square footage in the first nine
months of 2008 was approximately 498 thousand square
feet, a 35.7% increase compared to 2007;
    
    Sales productivity was $379 per average square foot
as compared to $409 for the first nine months of
fiscal 2007; and
    
    Comparable store net sales in our Company-owned
stores decreased by 1.3% in the first nine months of
2008.
 
    
    Net sales for KATE SPADE were $86.2 million, a 45.2%
increase compared to 2007, primarily driven by an
increased number of retail stores, as well as
increases on our wholesale operations.
 
    
    We ended the first nine months of 2008 with 41
specialty retail stores and 25 outlet stores,
reflecting the net addition over the last 12 months
of 18 specialty retail stores and 19 outlet stores;
    
    Average retail square footage in the first nine
months of 2008 was approximately 109 thousand square
feet, a 91.2% increase compared to 2007;
    
    Sales productivity was $425 per average square foot
as compared to $460 for the first nine months of
fiscal 2007; and
    
    Comparable store net sales in our Company-owned
stores decreased by 7.3% in the first nine months of
2008 due to a decrease in our full priced stores,
partially offset by an increase in our outlet stores.
  
    
    New stores become comparable after 14 full
fiscal months of operations (on the last 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 date of the fiscal month
when the construction begins). The store becomes
comparable again after 14 full fiscal months
from the re-open date;
    
    A store that relocates becomes non-comparable
when the new location is materially different
from the original location (in respect to
selling square footage and /or traffic
patterns); and
    
    Stores that are acquired are not comparable
until they have been reflected in our results
for a period of 12 months.
  
    
    Partnered Brands net sales were $1.252 billion, a decrease of $409.3 million or 24.6%, reflecting:
 
    
    A $288.4 million 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




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##### Table of Contents



37 brands and
the license of the remaining brands to Elizabeth
Arden effective June 10, 2008), FIRST ISSUE
(closed in early 2008), VILLAGER (closed in the
third quarter of 2008), former ELLEN TRACY brand
(sold on April 10, 2008), DANA BUCHMAN (licensed
on an exclusive basis to Kohls in January 2008)
with operations closed in the second quarter of
2008;
 
    
    A net $136.1 million decrease in sales of our
ongoing Partnered Brands business as the
operating environment continued to adversely
affect our LIZ CLAIBORNE and CLAIBORNE brands as
well as our MONET brand, partially offset by
increases in the LIZ & CO., licensed DKNY® Jeans and
KENSIE brands (due to increased department store
distribution); and
    
    The impact of fluctuations in foreign currency
exchange rates, which increased net sales by
$15.2 million primarily related to our LIZ
CLAIBORNE operations in Europe and Canada.
 Domestic International
 Gross Profit
  Selling, General & Administrative Expenses
  
    
    A $48.3 million increase in expenses associated with our streamlining initiatives and brand-exiting activities;
    
    A $35.2 million increase in Direct Brands SG&A;
    
    A $68.1 million increase due to the impact of fluctuations in foreign currency exchange rates in our
international operations;
    
    A $67.3 million increase primarily resulting from the retail expansion in our Direct Brands segment;
    
    The inclusion of an $8.1 million charge associated with the sale of our former ELLEN TRACY brand; and
    
    A $180.9 million decrease in Partnered Brands and corporate SG&A.
  Trademark Impairment




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##### Table of Contents



38 Operating (Loss) Income
  
    
    Direct Brands operating income was $75.0 million (4.1% of net sales),
decreasing $91.9 million, or 55.1%, as a result of reduced earnings in
our MEXX, JUICY COUTURE wholesale and LUCKY BRAND wholesale and retail
operations, as well as the impact of an increase in expenses
associated with our streamlining initiatives and brand-exiting
activities in our MEXX Europe operations, partially offset by a $2.7
million increase resulting from fluctuations in foreign currency
exchange rates in our international operations.
    
    Partnered Brands operating loss was $92.9 million ((7.4)% of net
sales), compared to an operating loss of $48.9 million ((2.9)% of net
sales) in 2007, as a result of lower sales and increased retailer
support, as well as an increase in expenses associated with our
streamlining initiatives and brand-exiting activities.
 Domestic International
 Other Expense, Net
  Interest Expense, Net
  (Benefit) Provision for Income Taxes
  (Loss) Income from Continuing Operations
  Discontinued Operations, Net of Tax
  Net (Loss) Income




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##### Table of Contents



39 THREE MONTHS ENDED OCTOBER 4, 2008 COMPARED TO THREE MONTHS ENDED SEPTEMBER 29, 2007
  Three Months Ended
    
    
    VarianceOctober 4,
    
    
    September 29,Dollars in millions
    
    2008
    
    
    2007
    
    
    $
    
    
    %Net Sales
    
    $
    1,015.0
    
    
    $
    1,206.7
    
    
    $
    (191.7
    )
    
    
    (15.9
    )%Gross Profit
    
    
    500.4
    
    
    
    584.7
    
    
    
    (84.3
    )
    
    
    (14.4
    )%Selling, general & administrative
expenses
    
    
    474.2
    
    
    
    501.5
    
    
    
    (27.3
    )
    
    
    (5.4
    )%Trademark impairment
    
    
    10.0
    
    
    
    12.3
    
    
    
    (2.3
    )
    
    
    (18.7
    )%Operating Income
    
    
    16.2
    
    
    
    70.9
    
    
    
    (54.7
    )
    
    
    (77.2
    )%Other income (expense), net
    
    
    0.8
    
    
    
    (1.5
    )
    
    
    2.3
    
    
    
    *Interest expense, net
    
    
    (12.0
    )
    
    
    (11.7
    )
    
    
    (0.3
    )
    
    
    2.6
    %Provision for income taxes
    
    
    14.4
    
    
    
    24.1
    
    
    
    (9.7
    )
    
    
    (40.2
    )%(Loss) Income from Continuing
Operations
    
    
    (9.4
    )
    
    
    33.6
    
    
    
    (43.0
    )
    
    
    *Discontinued operations, net of tax
    
    
    (59.3
    )
    
    
    (0.5
    )
    
    
    (58.8
    )
    
    
    *Net (Loss) Income
    
    $
    (68.7
    )
    
    $
    33.1
    
    
    $
    (101.8
    )
    
    
    *
 
 *
    
    Not meaningful. Net Sales
  
    
    Direct Brands net sales were $617.2 million, decreasing $11.5 million,
or 1.8% or an increase of $10.5 million, or 1.7%, excluding the impact
of licensing our fragrance operations in the second quarter of 2008,
reflecting the following:
 
    
    Net sales for MEXX were $333.0 million, an 8.9%
decrease compared to 2007. Excluding the impact of
changes in foreign currency exchange rates, net sales
for MEXX were $310.5 million, a 15.0% decrease
compared to last year, primarily due to decreased
sales in our MEXX Europe operations.
 
    
    Average retail square footage in the third quarter
was approximately 1.450 million square feet, an 8.0%
increase compared to 2007;
    
    Sales productivity decreased to $90 per average
square foot as compared to $102 for the third quarter
of fiscal 2007;
    
    Comparable store net sales in our MEXX Company-owned
stores decreased by 13.5% overall, primarily the
result of a decrease in our MEXX Europe operations;
and
    
    Fluctuations in foreign currency exchange rates in
our European and Canadian businesses increased net
sales by $22.5 million.




---



##### Table of Contents



40 
    
    Net sales for JUICY COUTURE were $144.3 million, a
6.8% increase compared to 2007, or an increase of 20.1% excluding the
impact of licensing our fragrance operations in the
second quarter of 2008, primarily
driven by increases in specialty retail as well as growth in our
domestic outlet operations.
 
    
    Average retail square footage in the third quarter
was approximately 287 thousand square feet, a 129.6%
increase compared to 2007;
    
    Sales productivity was $193 per average square foot
as compared to $267 for the third quarter of fiscal
2007; and
    
    Comparable store net sales in our Company-owned
stores increased by 4.9% in the third quarter.
 
    
    Net sales for LUCKY BRAND were $111.1 million, a 2.3%
increase compared to 2007, or an increase of 9.7% excluding the impact
of licensing our fragrance operations in the second
quarter of 2008, primarily driven by
increases in outlet and retail operations, partially
offset by declines in wholesale apparel and
non-apparel operations.
 
    
    Average retail square footage in the third quarter
was approximately 528 thousand square feet, a 37.5%
increase compared to 2007;
    
    Sales productivity was $115 per average square foot
as compared to $130 for the third quarter of fiscal
2007; and
    
    Comparable store net sales in our Company-owned
stores decreased by 3.5% in the third quarter.
 
    
    Net sales for KATE SPADE were $28.8 million, a 47.0%
increase compared to 2007, primarily driven by an
increased number of retail and outlet  stores.
 
    
    Average retail square footage in the third quarter
was approximately 124 thousand square feet, a 117.5%
increase compared to 2007;
    
    Sales productivity was $132 per average square foot
as compared to $162 for the third quarter of fiscal
2007; and
    
    Comparable store net sales in our Company-owned
stores decreased by 13.4% in the third quarter due to
a decrease in our full priced stores, partially offset
by an increase in our outlet stores.
 
    
    Partnered Brands net sales were $397.8 million, a decrease of $180.2 million or (31.2)%, reflecting:
 
    
    A $159.1 million 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), FIRST ISSUE (closed in early
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 $23.1 million decrease in sales of our
ongoing Partnered Brands business as the
operating environment continued to adversely
affect our LIZ CLAIBORNE and CLAIBORNE brands as
well as our MONET brand, partially offset by
increases in the LIZ & CO., licensed DKNY® Jeans and
KENSIE brands (due to increased department store
distribution); and
    
    The impact of fluctuations in foreign currency
exchange rates, which increased net sales by $2.0
million primarily related to our LIZ CLAIBORNE
operations in Europe and Canada.
 Domestic International
 Gross Profit




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##### Table of Contents



41 Selling, General & Administrative Expenses
  
    
    A $1.5 million increase in expenses associated with our streamlining initiatives and brand-exiting activities;
    
    A $3.9 million increase in Direct Brands SG&A;
    
    A $13.1 million increase due to the impact of fluctuations in foreign currency exchange rates in our
international operations;
    
    A $27.4 million increase primarily resulting from the retail expansion in our Direct Brands segment; and
    
    A $73.2 million decrease in Partnered Brands and corporate SG&A.
  Trademark Impairment
  Operating Income
  
    
    Direct Brands operating income was $35.0 million (5.7% of net sales),
decreasing $52.1 million, or 59.8%, as a result of reduced earnings in
our MEXX Europe operations, including the impact of an increase in
expenses associated with our streamlining initiatives and increased retailer support in wholesale
operations of our JUICY COUTURE brand and LUCKY BRAND operations.
    
    Partnered Brands operating loss in the third quarter was $18.8 million
((4.7)% of net sales), compared to an operating loss of $16.2 million
((2.8)% of net sales) in 2007, as a result of lower sales and reduced
gross profit.
 Domestic International
 Other Income (Expense), Net
  Interest Expense, Net
  Provision for Income Taxes




---



##### Table of Contents



42 (Loss) Income from Continuing Operations
  Discontinued Operations, Net of Tax
  Net (Loss) Income
  FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
 Cash Requirements
 Sources of Cash.




---



##### Table of Contents



43  2008 vs. 2007
 Cash and Debt Balances.
 Accounts Receivable
 Inventories
 Borrowings
 Net cash used in operating activities
 Net cash used in investing activities
  Net cash provided by financing activities




---



##### Table of Contents



44  Commitments and Capital Expenditures




---



##### Table of Contents



45 Financing Arrangements
  October 4,
    
    
    December 29,
    
    
    September 29,In thousands
    
    2008
    
    
    2007
    
    
    20075% Notes (a)
    
    $
    482,640
    
    
    $
    512,044
    
    
    $
    495,153Revolving credit
facility and commercial
paper program
    
    
    408,900
    
    
    
    301,200
    
    
    
    394,600Capital lease obligations
    
    
    23,776
    
    
    
    26,725
    
    
    
    29,787Other (b)
    
    
    58,537
    
    
    
    47,742
    
    
    
    57,061Total debt
    
    $
    973,853
    
    
    $
    887,711
    
    
    $
    976,601
 
 (a)
    
    The change in the balance of these euro-denominated notes at October 4, 2008
reflects the impact of changes in foreign currency exchange rates.(b)
    
    At October 4, 2008, the balance consists principally of outstanding borrowings under
working capital lines of credit.




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46  Outstanding
    
    Letters of Credit
    
    AvailableIn thousands
    
    Total Capacity
    
    Borrowings
    
    Issued
    
    CapacityRevolving credit facility and
commercial paper program (a)
    
    $
    750,000
    
    
    $
    408,900
    
    
    $
    
    
    
    $
    341,100Letter of credit facility (b)
    
    
    285,000
    
    
    
    
    
    
    
    124,437
    
    
    
    160,563Short-term borrowing facilities
    
    
    147,332
    
    
    
    57,699
    
    
    
    9,011
    
    
    
    80,622
 
 (a)
    
    Our $750 million revolving credit facility has a final maturity date of October 2009
and contains the committed capacity to issue $250 million in letters of credit.(b)
    
    Because many of our international vendors have moved to open account terms, we have
been able to reduce our reliance on our letter of credit facility. As a result, we have chosen
to decrease capacity under this facility to $285 million, which we believe is adequate for our
current and future letter of credit requirements. Off-Balance Sheet Arrangements
  Hedging Activities




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47  USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES
     Revenue Recognition




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48  Income Taxes
  Accounts Receivable  Trade, Net
  Inventories, Net
  Goodwill and Intangibles, Net




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49




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50   Accrued Expenses
  Derivative Instruments




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51 Share-Based Compensation
  RECENTLY ADOPTED ACCOUNTING POLICIES
  Level 1 
    
    Quoted market prices in active markets for identical assets or liabilities;Level 2 
    
    Inputs other than Level 1 inputs that are either directly or indirectly observable; andLevel 3 
    
    Unobservable inputs developed using estimates and assumptions developed by us, which
reflect those that a market participant would use.
   In thousands
    
    Level 2Financial Assets:Derivatives
    
    $
    3,330Financial Liabilities:Derivatives
    
    $
    
  RECENT ACCOUNTING PRONOUNCEMENTS




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52    
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   In millions
    
    October 4, 2008
    
    December 29, 2007
    
    September 29, 2007Variable rate debt
    
    $
    466.6
    
    
    $
    348.0
    
    
    $
    450.7Average interest rate
    
    
    4.47
    %
    
    
    5.65
    %
    
    
    5.78
    %




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53   US Dollar
    
    Hong Kong
    
    Contract
    
    UnrealizedCurrency in thousands
    
    Amount
    
    Dollar Amount
    
    Rate
    
    GainsForward Contracts:Euro
    
    
    
    
    
    
    128,625
    
    
    
    0.0836 to 0.0935
    
    
    $
    381Canadian Dollars
    
    $
    6,038
    
    
    
    
    
    
    
    0.9371 to 1.0219
    
    
    
    Canadian Dollars
    
    
    
    
    
    
    46,533
    
    
    
    0.1286 to 0.1352
    
    
    
    378Euro
    
    $
    24,700
    
    
    
    
    
    
    0.6347 to 0.6861
    
    
    2,109Foreign Exchange Collar Contracts:Canadian Dollars
    
    
    
    
    
    
    8,928
    
    
    
    0.1328 to 0.1344
    
    
    
    54
  US Dollar
    
    Hong Kong
    
    Contract
    
    UnrealizedCurrency in thousands
    
    Amount
    
    Dollar Amount
    
    Rate
    
    LossesForward Contracts:Euro
    
    
    
    
    
    
    736,250
    
    
    
    0.0877 to 0.0991
    
    
    $
    (6,179
    )Canadian Dollars
    
    $
    14,279
    
    
    
    
    
    
    
    0.9393 to 1.0234
    
    
    
    Canadian Dollars
    
    
    
    
    
    
    185,082
    
    
    
    0.1272 to 0.1367
    
    
    
    (894
    )Foreign Exchange Collar Contracts:Canadian Dollars
    
    $
    7,505
    
    
    
    
    
    
    
    0.9174 to 1.0417
    
    
    
    
  US Dollar
    
    Hong Kong
    
    Contract
    
    UnrealizedCurrency in thousands
    
    Amount
    
    Dollar Amount
    
    Rate
    
    LossesForward Contracts:Euro
    
    
    
    
    
    
    759,500
    
    
    
    0.0927 to 0.0996
    
    
    $
    (4,878
    )Canadian Dollars
    
    $
    8,799
    
    
    
    
    
    
    
    0.8721 to 0.9993
    
    
    
    Canadian Dollars
    
    
    
    
    
    
    95,505
    
    
    
    0.1335 to 0.1482
    
    
    
    (928
    )Foreign Exchange Collar Contracts:Euro
    
    
    
    
    
    
    7,750
    
    
    
    0.0980 to 0.1003
    
    
    $
    (83
    )Canadian Dollars
    
    $
    3,276
    
    
    
    
    
    
    
    0.8403 to 0.9970
    
    
    
    Canadian Dollars
    
    
    
    
    
    
    15,403
    
    
    
    0.1428 to 0.1527
    
    
    
    (231
    )




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##### Table of Contents



ITEM 4. CONTROLS AND PROCEDURES
   
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   
 ITEM 1A. RISK FACTORS
  Risks Related to Our Business and Our Long-Term Growth Strategy
 Our ability to continue to have the liquidity necessary, through cash flow from operations and
financing on favorable terms, may be adversely impacted by a number of factors, including a continuation of the
difficult conditions in the credit and financial markets which could limit the availability and
increase the cost of financing. A deterioration of our results of operations and cash flow
resulting from continued decreases in consumer spending, which would, among other things, impact
our ability to comply with financial covenants in our existing credit facility, and further
downgrade our credit rating.




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55      If our goodwill or amortizable intangible assets become impaired we may be required to record a
significant charge to earnings.




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




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




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58 Our success will depend on our ability to successfully develop or acquire new product lines or
enter new markets or product categories.
  
    
    Our ability to identify appropriate business development
opportunities, including new product lines and markets.
 
    
    New businesses, product lines or market activities may require methods
of operations, investments and marketing and financial strategies
different from those employed in our other businesses, and may also
involve buyers, store customers and/or competitors different from our
historical buyers, store customers and competitors.
 
    
    We may not be able to generate projected or satisfactory level of
sales, profits and/or return on investment for a new business or
product line, and may also encounter unanticipated events and unknown
or uncertain liabilities that could materially impact our business.
 
    
    We may experience possible difficulties, delays and/or unanticipated
costs in integrating the business, operations, personnel and/or
systems of an acquired business and may also not be able to retain and
appropriately motivate key personnel of an acquired business.
 
    
    We may not be able to maintain product licenses, which are subject to
agreement with a variety of terms and conditions, or to enter into new
licenses to enable us to launch new products and lines.
 
    
    With respect to a business where we act as licensee, such as our
licensed DKNY® JEANS, DKNY® ACTIVE and DKNY® MENS brands, 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.
 Risks Associated With Competition and the Marketplace
 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.
  Our wholesale business is largely dependent on sales to a limited number of large US department
store customers, and our business could suffer as a result of consolidations, restructurings and
other ownership changes in the retail industry.




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59    Our reliance on independent manufacturers could cause delay and loss and damage our reputation and
customer relationships.




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60 Economic, Social, Political and Regulatory Risks
 General economic conditions, including a continued weakening of the economy, restricted credit
markets and decline in consumer spending, can affect consumer purchases of discretionary items and
fashion and retail products, which could adversely affect our sales, results of operations and
liquidity.
    Our business is exposed to domestic and foreign currency fluctuations.
  Our international operations, including manufacturing, are subject to a variety of legal,
regulatory, political and economic risks, including risks relating to the importation and
exportation of product.
  
    
    Quotas imposed by bilateral textile agreements with China and non-WTO countries.
These agreements limit the amount and type of goods that may be imported annually
from these countries;
 
    
    Changes in social, political, legal and economic conditions or terrorist acts that
could result in the disruption of trade from the countries in which our
manufacturers or suppliers are located;
 
    
    The imposition of additional regulations relating to imports or exports;
 
    
    The imposition of additional duties, taxes and other charges on imports or exports;
 
    
    Risks of increased sourcing costs, including costs for materials and labor,
including as a result of the elimination




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61 of quota on apparel products;
 
    
    Our ability to adapt to and compete effectively in the current quota environment,
including changes in sourcing patterns resulting from the elimination of quota on
apparel products, as well as lowered barriers to entry;
 
    
    Significant delays in the delivery of cargo due to security considerations;
 
    
    The imposition of antidumping or countervailing duty proceedings resulting in the
potential assessment of special antidumping or countervailing duties; and
 
    
    The enactment of new legislation or the administration of current international
trade regulations, or executive action affecting international textile agreements,
including the United States reevaluation of the trading status of certain
countries and/or retaliatory duties, quotas or other trade sanctions, which, if
enacted, would increase the cost of products purchased from suppliers in such
countries, and the January 1, 2005 elimination of quota, which may significantly
impact sourcing patterns (although China has agreed to safeguard quota on certain
classes of apparel products through 2008 as a result of a surge in exports to the
United States, political pressure will likely continue for restraint on
importation of apparel).
   
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  MaximumApproximateDollar Value ofShares thatTotal Number of
    
    
    May Yet BeTotal Number
    
    
    
    
    
    
    Shares Purchased as
    
    
    Purchasedof Shares
    
    
    
    
    
    
    Part of Publicly
    
    
    Under thePurchased
    
    
    Average Price
    
    
    Announced Plans or
    
    
    Plans or ProgramsPeriod
    
    (in thousands)
    
    
    Paid Per Share
    
    
    Programs
    
    
    (in thousands) (2)July 6, 2008 - August 2, 2008
    
    
    0.8
    (1)
    
    $
    11.44
    
    
    
    
    
    
    $
    28,749August 3, 2008 - September 6, 2008
    
    
    0.2
    (1)
    
    
    15.25
    
    
    
    
    
    
    
    28,749September 7, 2008 - October 4, 2008
    
    
    1.0
    (1)
    
    
    16.48
    
    
    
    
    
    
    
    28,749Total 13 Weeks Ended October 4, 2008
    
    
    2.0
    (1)
    
    $
    14.30
    
    
    
    
    
    
    $
    28,749
 
 (1)
    
    Includes shares withheld to cover tax-withholding
requirements relating to the vesting of restricted stock
issued to employees pursuant to the Companys
shareholder-approved stock incentive plans.(2)
    
    The Company initially announced the authorization of a
share buyback program in December 1989. Since its
inception, the Companys Board of Directors has authorized
the purchase under the program of an aggregate of $2.275
billion of the Companys stock. As of October 31, 2008, the
Company had $28.7 million remaining in buyback
authorization under its program. 
 ITEM 5. OTHER INFORMATION




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62 
 ITEM 6. EXHIBITS
 31(a)
    
    Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.31(b)
    
    Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32(a)*
    
    Certification of Chief Executive Officer Pursuant to Section 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32(b)*
    
    Certification of Chief Financial Officer Pursuant to Section 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    A signed original of the written statement required by Section 906 has
been provided to the Company and will be retained by the Company and
forwarded to the S.E.C. or its staff upon request.




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63 
 SIGNATURES
   LIZ CLAIBORNE, INC.
    
    LIZ CLAIBORNE, INC.By:
    
    /s/ Andrew Warren
    
    By:
    
    /s/ Elaine H. GoodellANDREW WARREN
    
    
    
    ELAINE H. GOODELLChief Financial Officer
    
    
    
    Vice President  Corporate Controller and(Principal financial officer)
    
    
    
    Chief Accounting Officer(Principal accounting officer)