##### 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 June 30, 2007
 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
    
    (I.R.S. Employerjurisdiction of
    
    Identification No.)incorporation ororganization)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
  þ o o
 o þ




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##### 



2  
 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
June 30, 2007
 PAGENUMBERPART I -
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements:Condensed Consolidated Balance Sheets as of June 30, 2007
(Unaudited), December 30, 2006 and July 1, 2006 (Unaudited)
    
    3Condensed Consolidated Statements of Income for the Six and
Three Month Periods Ended June 30, 2007 (Unaudited) and July 1,
2006 (Unaudited)
    
    4Condensed Consolidated Statements of Cash Flows for the Six
Month Periods Ended June 30, 2007 (Unaudited) and July 1, 2006
(Unaudited)
    
    5Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    6 - 27Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    28Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    48Item 4.
    
    Controls and Procedures
    
    49PART II -
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    49Item 1A.
    
    Risk Factors
    
    50Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    52Item 4.
    
    Submission Of Matters To A Vote of Security Holders
    
    53Item 5.
    
    Other Information
    
    53Item 6.
    
    Exhibits
    
    54SIGNATURES
    
    55EX-31.A: CERTIFICATIONEX-31.B: CERTIFICATIONEX-32.A: CERTIFICATIONEX-32.B: CERTIFICATION




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##### Table of Contents



3 
 PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
  (Unaudited)
    
    
    December 30,
    
    
    (Unaudited)June 30, 2007
    
    
    2006
    
    
    July 1, 2006AssetsCurrent Assets:Cash and cash equivalents
    
    $
    110,288
    
    
    $
    185,645
    
    
    $
    101,799Marketable securities
    
    
    423
    
    
    
    9,451
    
    
    
    8,367Accounts receivable  trade, net
    
    
    500,295
    
    
    
    499,012
    
    
    
    525,721Inventories, net
    
    
    671,850
    
    
    
    593,445
    
    
    
    597,867Deferred income taxes
    
    
    78,594
    
    
    
    60,627
    
    
    
    60,840Other current assets
    
    
    161,163
    
    
    
    121,937
    
    
    
    129,448Total current assets
    
    
    1,522,613
    
    
    
    1,470,117
    
    
    
    1,424,042Property and Equipment, Net
    
    
    567,869
    
    
    
    581,992
    
    
    
    515,366Goodwill, Net
    
    
    1,041,459
    
    
    
    1,007,859
    
    
    
    967,000Intangibles, Net
    
    
    418,625
    
    
    
    413,962
    
    
    
    340,842Other Assets
    
    
    21,382
    
    
    
    21,838
    
    
    
    11,732Total Assets
    
    $
    3,571,948
    
    
    $
    3,495,768
    
    
    $
    3,258,982Liabilities and Stockholders EquityCurrent Liabilities:Short term borrowings
    
    $
    34,554
    
    
    $
    22,266
    
    
    $
    32,971Accounts payable
    
    
    276,665
    
    
    
    281,413
    
    
    
    261,314Accrued expenses
    
    
    298,340
    
    
    
    336,773
    
    
    
    293,059Income taxes payable
    
    
    
    
    
    
    33,470
    
    
    
    16,024Total current liabilities
    
    
    609,559
    
    
    
    673,922
    
    
    
    603,368Long-Term Debt
    
    
    683,545
    
    
    
    570,469
    
    
    
    548,398Other Non-Current Liabilities
    
    
    104,131
    
    
    
    63,565
    
    
    
    64,729Deferred Income Taxes
    
    
    66,571
    
    
    
    54,571
    
    
    
    57,467Commitments and Contingencies (Note 10)Minority Interest
    
    
    3,489
    
    
    
    3,260
    
    
    
    2,915Stockholders 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
    
    
    278,059
    
    
    
    249,573
    
    
    
    214,950Retained earnings
    
    
    3,356,118
    
    
    
    3,354,081
    
    
    
    3,197,134Accumulated other comprehensive loss
    
    
    (46,537
    )
    
    
    (56,156
    )
    
    
    (43,283
    )3,764,077
    
    
    
    3,723,935
    
    
    
    3,545,238Common stock in treasury, at cost 74,174,641,
73,281,103 and 73,302,345 shares
    
    
    (1,659,424
    )
    
    
    (1,593,954
    )
    
    
    (1,563,133
    )Total stockholders equity
    
    
    2,104,653
    
    
    
    2,129,981
    
    
    
    1,982,105Total Liabilities and Stockholders Equity
    
    $
    3,571,948
    
    
    $
    3,495,768
    
    
    $
    3,258,982




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4 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
   Six Months Ended
    
    
    Three Months Ended(26 Weeks)
    
    
    (26 Weeks)
    
    
    (13 Weeks)
    
    
    (13 Weeks)June 30, 2007
    
    
    July 1, 2006
    
    
    June 30, 2007
    
    
    July 1, 2006Net Sales
    
    $
    2,283,681
    
    
    $
    2,296,240
    
    
    $
    1,130,702
    
    
    $
    1,125,038Cost of goods sold
    
    
    1,207,317
    
    
    
    1,203,731
    
    
    
    582,111
    
    
    
    576,542Gross Profit
    
    
    1,076,364
    
    
    
    1,092,509
    
    
    
    548,591
    
    
    
    548,496Selling, general & administrative expenses
    
    
    1,006,665
    
    
    
    940,351
    
    
    
    517,775
    
    
    
    473,469Operating Income
    
    
    69,699
    
    
    
    152,158
    
    
    
    30,816
    
    
    
    75,027Other income (expense), net
    
    
    (394
    )
    
    
    3,056
    
    
    
    335
    
    
    
    (257
    )Interest expense, net
    
    
    (18,348
    )
    
    
    (15,738
    )
    
    
    (9,816
    )
    
    
    (8,633
    )Income Before Provision for Income Taxes
    
    
    50,957
    
    
    
    139,476
    
    
    
    21,335
    
    
    
    66,137Provision for income taxes
    
    
    21,128
    
    
    
    53,124
    
    
    
    7,704
    
    
    
    26,722Net Income
    
    $
    29,829
    
    
    $
    86,352
    
    
    $
    13,631
    
    
    $
    39,415Net Income per Weighted Average Share, Basic
    
    $
    0.29
    
    
    $
    0.84
    
    
    $
    0.13
    
    
    $
    0.38Net Income per Weighted Average Share, Diluted
    
    $
    0.29
    
    
    $
    0.83
    
    
    $
    0.13
    
    
    $
    0.38Weighted Average Shares, Basic
    
    
    101,825
    
    
    
    102,981
    
    
    
    101,855
    
    
    
    102,541Weighted Average Shares, Diluted
    
    
    102,978
    
    
    
    104,397
    
    
    
    102,828
    
    
    
    103,925Dividends Paid per Common Share
    
    $
    0.11
    
    
    $
    0.11
    
    
    $
    0.06
    
    
    $
    0.06




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5 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
   Six Months Ended(26 Weeks)
    
    
    (26 Weeks)June 30, 2007
    
    
    July 1,2006Cash Flows from Operating Activities:Net income
    
    $
    29,829
    
    
    $
    86,352Adjustments to reconcile net income to net cash (used in) provided
by operating activities:Depreciation and amortization
    
    
    78,942
    
    
    
    66,534Streamlining initiatives; asset write-down
    
    
    9,898
    
    
    
    7,236Gain on sale of securities
    
    
    (364
    )
    
    
    (3,583
    )Deferred income taxes
    
    
    13,624
    
    
    
    (6,416
    )Share-based compensation
    
    
    10,439
    
    
    
    11,081Tax benefit on exercise of stock options
    
    
    4,615
    
    
    
    3,974Other, net
    
    
    (420
    )
    
    
    (12
    )Change in assets and liabilities, exclusive of acquisitions:Decrease (increase) in accounts receivable  trade, net
    
    
    3,577
    
    
    
    (92,271
    )Increase in inventories, net
    
    
    (70,930
    )
    
    
    (44,116
    )Increase in other current and non-current assets
    
    
    (9,379
    )
    
    
    (12,824
    )(Decrease) increase in accounts payable
    
    
    (2,513
    )
    
    
    7,887(Decrease) increase in accrued expenses
    
    
    (47,273
    )
    
    
    7,508Decrease in income taxes payable
    
    
    (42,868
    )
    
    
    (4,431
    )Net cash (used in) provided by operating activities
    
    
    (22,823
    )
    
    
    26,919Cash Flows from Investing Activities:Proceeds from sales of securities
    
    
    9,616
    
    
    
    8,054Purchases of property and equipment
    
    
    (67,765
    )
    
    
    (70,583
    )Proceeds from sales of property and equipment
    
    
    1,410
    
    
    
    Payments for acquisitions, net of cash acquired
    
    
    (48,262
    )
    
    
    (143,487
    )Payments for in-store merchandise shops
    
    
    (2,632
    )
    
    
    (6,816
    )Other, net
    
    
    153
    
    
    
    (1,230
    )Net cash used in investing activities
    
    
    (107,480
    )
    
    
    (214,062
    )Cash Flows from Financing Activities:Short term borrowings (repayments), net
    
    
    12,252
    
    
    
    (15,758
    )Principal payments under capital lease obligations
    
    
    (3,188
    )
    
    
    (1,896
    )Commercial paper, net
    
    
    104,313
    
    
    
    97,854Proceeds from exercise of common stock options
    
    
    35,286
    
    
    
    30,701Purchase of common stock
    
    
    (81,560
    )
    
    
    (131,513
    )Dividends paid
    
    
    (11,432
    )
    
    
    (11,705
    )Excess tax benefits related to stock options
    
    
    2,521
    
    
    
    946Other, net
    
    
    (747
    )
    
    
    188Net cash provided by (used in) financing activities
    
    
    57,445
    
    
    
    (31,183
    )Effect of Exchange Rate Changes on Cash and Cash Equivalents
    
    
    (2,499
    )
    
    
    (8,402
    )Net Change in Cash and Cash Equivalents
    
    
    (75,357
    )
    
    
    (226,728
    )Cash and Cash Equivalents at Beginning of Period
    
    
    185,645
    
    
    
    328,527Cash and Cash Equivalents at End of Period
    
    $
    110,288
    
    
    $
    101,799




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6 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, handbags and fragrances), 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 the wholesale apparel, wholesale
non-apparel, outlet and specialty retail, e-commerce and licensing operations of the
Companys wholesale-based brands including: AXCESS, C & C CALIFORNIA, CLAIBORNE
(mens), CONCEPTS BY CLAIBORNE, DANA BUCHMAN, ELLEN TRACY, EMMA JAMES, ENYCE, FIRST ISSUE,
INTUITIONS, J.H. COLLECTIBLES, KENSIE, KENSIEGIRL, LAUNDRY BY DESIGN, LIZ & CO., LIZ
CLAIBORNE, MAC & JAC, MARVELLA, MONET, NARCISO RODRIGUEZ, prAna, SIGRID OLSEN, STAMP 10,
TAPEMEASURE, TINT, TRIFARI, VILLAGER, the Companys licensed DKNY® JEANS and DKNY® ACTIVE
brands as well as the Companys other non-Direct Brands fragrances including: BORA BORA,
CLAIBORNE, CURVE, ELLEN TRACY, LIZ CLAIBORNE, LIZ WOMAN, MAMBO, REALITIES and SOUL.
  SIGNIFICANT ACCOUNTING POLICIES
 NATURE OF OPERATIONS
  PRINCIPLES OF CONSOLIDATION




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7 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES
 Use of Estimates
   Revenue Recognition
  Income Taxes




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8 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Accounts Receivable  Trade, Net
  Inventories, Net
  Goodwill and Other Intangibles, Net




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9 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    Accrued Expenses
  Derivative Instruments




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10 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Share-Based Compensation
  OTHER SIGNIFICANT ACCOUNTING POLICIES
 Fair Value of Financial Instruments
  Cash and Cash Equivalents
  Marketable Securities
  Property and Equipment, Net




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11 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Foreign Currency Translation
  Cost of Goods Sold
  Advertising, Promotion and Marketing
  Shipping and Handling Costs
  Fiscal Year
  Cash Dividend and Common Stock Repurchase




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12 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




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##### Table of Contents



13 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    Capital in
    
    
    
    
    
    
    Common stockexcess of par
    
    
    Retained
    
    
    in treasury, atIn thousands
    
    value
    
    
    earnings
    
    
    costBalance as of December 30, 2006
    
    $
    249,573
    
    
    $
    3,354,081
    
    
    $
    (1,593,954
    )Net income
    
    
    
    
    
    
    29,829
    
    
    
    Cumulative impact of change in accounting
for income tax uncertainty
    
    
    
    
    
    
    (10,494
    )
    
    
    Restricted shares issued, net of
cancellations and shares withheld for taxes
    
    
    (11,614
    )
    
    
    
    
    
    
    4,459Purchase of common stock
    
    
    
    
    
    
    
    
    
    
    (81,560
    )Stock options exercised
    
    
    23,655
    
    
    
    
    
    
    
    11,631Share-based compensation
    
    
    9,309
    
    
    
    
    
    
    
    Tax benefit on stock options exercised
    
    
    4,615
    
    
    
    
    
    
    
    Excess tax benefits related to stock options
    
    
    2,521
    
    
    
    
    
    
    
    Dividends declared
    
    
    
    
    
    
    (17,298
    )
    
    
    Balance as of June 30, 2007
    
    $
    278,059
    
    
    $
    3,356,118
    
    
    $
    (1,659,424
    )




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##### Table of Contents



14 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Six Months Ended(26 Weeks)
    
    
    (26 Weeks)In thousands
    
    June 30,2007
    
    
    July 1,2006Net income
    
    $
    29,829
    
    
    $
    86,352Other comprehensive income (loss), net of tax:Change in cumulative translation adjustment
    
    
    23,158
    
    
    
    26,960Change in cumulative translation adjustment on Eurobonds
    
    
    (12,059
    )
    
    
    (34,264
    )Changes in unrealized gains on available-for-sale
securities, net of income tax provision of $(195) and
$(617), respectively
    
    
    341
    
    
    
    1,085Reclassification of holding gains on available-for-sale
securities, net of income tax provision of $133 and
$1,290, respectively
    
    
    (231
    )
    
    
    (2,293
    )Changes in fair value of cash flow hedges, net of
income tax benefit of $319 and $577, respectively
    
    
    (1,590
    )
    
    
    (1,026
    )Total comprehensive income, net of tax
    
    $
    39,448
    
    
    $
    76,814
  June 30,
    
    
    December 30,
    
    
    July 1,In thousands
    
    2007
    
    
    2006
    
    
    2006Cumulative translation adjustment
    
    $
    (44,172
    )
    
    $
    (55,271
    )
    
    $
    (41,853
    )Unrealized losses on available-for-sale
securities, net of taxes of $37, $99 and $435,
respectively
    
    
    (32
    )
    
    
    (142
    )
    
    
    (781
    )Unrealized losses on cash flow hedging
derivatives, net of taxes of $814, $495 and
$290, respectively
    
    
    (2,333
    )
    
    
    (743
    )
    
    
    (649
    )Accumulated other comprehensive loss, net of tax
    
    $
    (46,537
    )
    
    $
    (56,156
    )
    
    $
    (43,283
    )




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LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Unrealized
    
    
    EstimatedIn thousands
    
    
    
    Cost
    
    
    Losses
    
    
    Fair ValueJune 30, 2007:
    
    Other investments
    
    $
    470
    
    
    $
    (47
    )
    
    $
    423Total
    
    $
    470
    
    
    $
    (47
    )
    
    $
    423December 30, 2006:
    
    Equity investments
    
    $
    9,212
    
    
    $
    (186
    )
    
    $
    9,026Other investments
    
    
    458
    
    
    
    (33
    )
    
    
    425Total
    
    $
    9,670
    
    
    $
    (219
    )
    
    $
    9,451July 1, 2006:
    
    Equity investments
    
    $
    9,128
    
    
    $
    (1,120
    )
    
    $
    8,008Other investments
    
    
    446
    
    
    
    (87
    )
    
    
    359Total
    
    $
    9,574
    
    
    $
    (1,207
    )
    
    $
    8,367
    June 30,
    
    
    December 30,
    
    
    July 1,In thousands
    
    2007
    
    
    2006
    
    
    2006Raw materials
    
    $
    38,301
    
    
    $
    34,521
    
    
    $
    35,139Work in process
    
    
    24,564
    
    
    
    13,566
    
    
    
    20,801Finished goods
    
    
    608,985
    
    
    
    545,358
    
    
    
    541,927Total
inventories, net
    
    $
    671,850
    
    
    $
    593,445
    
    
    $
    597,867
   June 30,
    
    
    December 30,
    
    
    July 1,In thousands
    
    2007
    
    
    2006
    
    
    2006Land and buildings
    
    $
    135,991
    
    
    $
    141,451
    
    
    $
    141,347Machinery and equipment
    
    
    430,383
    
    
    
    407,511
    
    
    
    373,848Furniture and fixtures
    
    
    281,925
    
    
    
    276,685
    
    
    
    240,263Leasehold improvements
    
    
    495,065
    
    
    
    460,784
    
    
    
    431,6811,343,364
    
    
    
    1,286,431
    
    
    
    1,187,139Less: Accumulated depreciation and
amortization
    
    
    775,495
    
    
    
    704,439
    
    
    
    671,773Total property and equipment, net
    
    $
    567,869
    
    
    $
    581,992
    
    
    $
    515,366




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16 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    WeightedAverageAmortization
    
    
    June 30,
    
    
    December 30,
    
    
    July 1,In thousands
    
    Period
    
    
    2007
    
    
    2006
    
    
    2006Amortized intangible assets:Gross Carrying Amount:Licensed trademarks
    
    15 years
    
    $
    33,339
    
    
    $
    32,449
    
    
    $
    32,449Owned trademarks
    
    13 years
    
    
    16,501
    
    
    
    7,600
    
    
    
    7,600Customer relationships
    
    13 years
    
    
    49,511
    
    
    
    49,351
    
    
    
    49,959Merchandising rights
    
    4 years
    
    
    53,881
    
    
    
    57,695
    
    
    
    52,875Subtotal
    
    10 years
    
    
    153,232
    
    
    
    147,095
    
    
    
    142,883Accumulated Amortization:Licensed trademarks
    
    
    
    
    
    
    (15,649
    )
    
    
    (14,330
    )
    
    
    (12,888
    )Owned trademarks
    
    
    
    
    
    
    (1,090
    )
    
    
    (752
    )
    
    
    (562
    )Customer relationships
    
    
    
    
    
    
    (8,851
    )
    
    
    (6,800
    )
    
    
    (5,088
    )Merchandising rights
    
    
    
    
    
    
    (29,704
    )
    
    
    (29,563
    )
    
    
    (24,712
    )Subtotal
    
    
    
    
    
    
    (55,294
    )
    
    
    (51,445
    )
    
    
    (43,250
    )Net:Licensed trademarks
    
    
    
    
    
    
    17,690
    
    
    
    18,119
    
    
    
    19,561Owned trademarks
    
    
    
    
    
    
    15,411
    
    
    
    6,848
    
    
    
    7,038Customer relationships
    
    
    
    
    
    
    40,660
    
    
    
    42,551
    
    
    
    44,871Merchandising rights
    
    
    
    
    
    
    24,177
    
    
    
    28,132
    
    
    
    28,163Total amortized intangible assets, net
    
    
    
    
    
    
    97,938
    
    
    
    95,650
    
    
    
    99,633Unamortized intangible assets:Owned trademarks
    
    
    
    
    
    
    320,687
    
    
    
    318,312
    
    
    
    241,209Total intangible assets
    
    
    
    
    
    $
    418,625
    
    
    $
    413,962
    
    
    $
    340,842
  (In millions)Fiscal Year
    
    Amortization Expense2007
    
    $
    20.02008
    
    
    18.22009
    
    
    15.32010
    
    
    11.02011
    
    
    9.1




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17 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Direct
    
    
    PartneredIn thousands
    
    Brands
    
    
    Brands
    
    
    TotalBalance as of December 30, 2006
    
    $
    688,147
    
    
    $
    319,712
    
    
    $
    1,007,859Kate Spade working capital adjustment
    
    
    1,879
    
    
    
    
    
    
    
    1,879Acquisition of Narciso Rodriguez
    
    
    
    
    
    
    4,940
    
    
    
    4,940Additional purchase price  Juicy Couture
    
    
    19,882
    
    
    
    
    
    
    
    19,882Other
    
    
    (217
    )
    
    
    (209
    )
    
    
    (426
    )Translation difference
    
    
    7,325
    
    
    
    
    
    
    
    7,325Balance as of June 30, 2007
    
    $
    717,016
    
    
    $
    324,443
    
    
    $
    1,041,459




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18 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   June 30,
    
    
    December 30,
    
    
    July 1,In thousands
    
    2007
    
    
    2006
    
    
    20066.625% Notes
    
    $
    
    
    
    $
    
    
    
    $
    446,4425% Notes
    
    
    471,121
    
    
    
    458,907
    
    
    
    Commercial paper borrowings
    
    
    186,388
    
    
    
    82,075
    
    
    
    97,854Capital lease obligations
    
    
    28,821
    
    
    
    32,284
    
    
    
    3,277Other
    
    
    31,769
    
    
    
    19,469
    
    
    
    33,796Total debt
    
    
    718,099
    
    
    
    592,735
    
    
    
    581,369Less: current portion (a)
    
    
    34,554
    
    
    
    22,266
    
    
    
    32,971Long-term debt
    
    $
    683,545
    
    
    $
    570,469
    
    
    $
    548,398
 
 (a)
    
    At June 30, 2007, consists primarily of foreign working capital lines of
credit and obligation under capital leases.




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19 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Outstanding
    
    Letters of CreditIn thousands
    
    Total Capacity
    
    Borrowings
    
    Issued
    
    Available CapacityRevolving credit facility and
commercial paper program
(a)
    
    $
    750,000
    
    
    $
    186,800
    
    
    $
    
    
    
    $
    563,200Letter of credit facility
    
    
    400,000
    
    
    
    
    
    
    
    295,700
    
    
    
    104,300Short-term borrowing facilities
    
    
    186,800
    
    
    
    30,800
    
    
    
    14,500
    
    
    
    141,500
 
 (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. Outstanding borrowings consist of commercial paper.




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20 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
     Six Month Ended
    
    
    Three Months EndedIn thousands
    
    June 30, 2007
    
    
    July 1, 2006
    
    
    June 30, 2007
    
    
    July 1, 2006Direct Brands
    
    $
    5,899
    
    
    $
    7,761
    
    
    $
    5,899
    
    
    $
    1,936Partnered Brands
    
    
    21,285
    
    
    
    28,887
    
    
    
    14,374
    
    
    
    9,609Total
    
    $
    27,184
    
    
    $
    36,648
    
    
    $
    20,273
    
    
    $
    11,545
  LeasePayroll and
    
    
    Termination
    
    
    Fixed AssetIn thousands
    
    Related Costs
    
    
    Costs
    
    
    Write-Downs
    
    
    Other Costs
    
    
    TotalBalance at December 30, 2006
    
    $
    15,943
    
    
    $
    5,525
    
    
    $
    
    
    
    $
    111
    
    
    $
    21,5792007 provision
    
    
    11,793
    
    
    
    4,459
    
    
    
    10,001
    
    
    
    931
    
    
    
    27,1842007 fixed asset write-downs
    
    
    
    
    
    
    
    
    
    
    (10,001
    )
    
    
    
    
    
    
    (10,001
    )Translation difference
    
    
    272
    
    
    
    47
    
    
    
    
    
    
    
    14
    
    
    
    3332007 spending
    
    
    (18,135
    )
    
    
    (7,494
    )
    
    
    
    
    
    
    (1,056
    )
    
    
    (26,685
    )Balance at June 30, 2007
    
    $
    9,873
    
    
    $
    2,537
    
    
    $
    
    
    
    $
    
    
    
    $
    12,410




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LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   Six Months EndedJune 30, 2007
    
    
    July 1, 2006Weighted
    
    
    Net Income
    
    
    
    
    
    
    Weighted
    
    
    Net IncomeIn thousands, except per
    
    
    
    
    
    Average
    
    
    per Common
    
    
    
    
    
    
    Average
    
    
    per Commoncommon share data
    
    Net Income
    
    
    Shares
    
    
    Share
    
    
    Net Income
    
    
    Shares
    
    
    ShareBasic
    
    $
    29,829
    
    
    
    101,825
    
    
    $
    0.29
    
    
    $
    86,352
    
    
    
    102,981
    
    
    $
    0.84Effect of dilutive
securities:Stock options and
restricted stock grants
    
    
    
    
    
    
    1,153
    
    
    
    
    
    
    
    
    
    
    
    1,416
    
    
    
    (0.01
    )Diluted
    
    $
    29,829
    
    
    
    102,978
    
    
    $
    0.29
    
    
    $
    86,352
    
    
    
    104,397
    
    
    $
    0.83
 Three Months EndedJune 30, 2007
    
    
    July 1, 2006Weighted
    
    
    Net Income
    
    
    
    
    
    
    Weighted
    
    
    Net IncomeIn thousands, except per
    
    
    
    
    
    Average
    
    
    per Common
    
    
    
    
    
    
    Average
    
    
    per Commoncommon share data
    
    Net Income
    
    
    Shares
    
    
    Share
    
    
    Net Income
    
    
    Shares
    
    
    ShareBasic
    
    $
    13,631
    
    
    
    101,855
    
    
    $
    0.13
    
    
    $
    39,415
    
    
    
    102,541
    
    
    $
    0.38Effect of dilutive
securities:Stock options and
restricted stock grants
    
    
    
    
    
    
    973
    
    
    
    
    
    
    
    
    
    
    
    1,384
    
    
    
    Diluted
    
    $
    13,631
    
    
    
    102,828
    
    
    $
    0.13
    
    
    $
    39,415
    
    
    
    103,925
    
    
    $
    0.38




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22 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, handbags and fragrances),
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 the wholesale apparel, wholesale
non-apparel, outlet and specialty retail, e-commerce and licensing operations of the
Companys wholesale-based brands including: AXCESS, C & C CALIFORNIA, CLAIBORNE
(mens), CONCEPTS BY CLAIBORNE, DANA BUCHMAN, ELLEN TRACY, EMMA JAMES, ENYCE, FIRST ISSUE,
INTUITIONS, J.H. COLLECTIBLES, KENSIE, KENSIEGIRL, LAUNDRY BY DESIGN, LIZ & CO., LIZ
CLAIBORNE, MAC & JAC, MARVELLA, MONET, NARCISO RODRIGUEZ, prAna, SIGRID OLSEN, STAMP 10,
TAPEMEASURE, TINT, TRIFARI, VILLAGER, the Companys licensed DKNY® JEANS and DKNY® ACTIVE
brands as well as the Companys other non-Direct Brands fragrances including: BORA BORA,
CLAIBORNE, CURVE, ELLEN TRACY, LIZ CLAIBORNE, LIZ WOMAN, MAMBO, REALITIES and SOUL.
  Six Months Ended June 30, 2007Direct
    
    
    PartneredIn thousands
    
    Brands
    
    
    Brands
    
    
    TotalTotal net sales
    
    $
    979,671
    
    
    $
    1,304,010
    
    
    $
    2,283,681% to total
    
    
    42.9
    %
    
    
    57.1
    %
    
    
    100.0
    %Total operating income
    
    $
    79,984
    
    
    $
    (10,285
    )
    
    $
    69,699% of sales
    
    
    8.2
    %
    
    
    (0.8
    )%
    
    
    3.1
    %
 Six Months Ended July 1, 2006Direct
    
    
    PartneredIn thousands
    
    Brands
    
    
    Brands
    
    
    TotalTotal net sales
    
    $
    800,225
    
    
    $
    1,496,015
    
    
    $
    2,296,240% to total
    
    
    34.8
    %
    
    
    65.2
    %
    
    
    100.0
    %Total operating income
    
    $
    58,981
    
    
    $
    93,177
    
    
    $
    152,158% of sales
    
    
    7.4
    %
    
    
    6.2
    %
    
    
    6.6
    %




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23 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Three Months Ended June 30, 2007Direct
    
    
    PartneredIn thousands
    
    Brands
    
    
    Brands
    
    
    TotalTotal net sales
    
    $
    494,066
    
    
    $
    636,636
    
    
    $
    1,130,702% to total
    
    
    43.7
    %
    
    
    56.3
    %
    
    
    100.0
    %Total operating income
    
    $
    29,934
    
    
    $
    882
    
    
    $
    30,816% of sales
    
    
    6.1
    %
    
    
    0.1
    %
    
    
    2.7
    %
 Three Months Ended July 1, 2006Direct
    
    
    PartneredIn thousands
    
    Brands
    
    
    Brands
    
    
    TotalTotal net sales
    
    $
    393,710
    
    
    $
    731,328
    
    
    $
    1,125,038% to total
    
    
    35.0
    %
    
    
    65.0
    %
    
    
    100.0
    %Total operating income
    
    $
    26,346
    
    
    $
    48,681
    
    
    $
    75,027% of sales
    
    
    6.7
    %
    
    
    6.7
    %
    
    
    6.7
    %
  June 30,
    
    
    December 30,
    
    
    July 1,In thousands
    
    2007
    
    
    2006
    
    
    2006SEGMENT ASSETSDirect Brands
    
    $
    1,905,474
    
    
    $
    1,749,588
    
    
    $
    1,545,960Partnered Brands
    
    
    1,621,630
    
    
    
    1,682,694
    
    
    
    1,706,177Corporate
    
    
    44,844
    
    
    
    63,486
    
    
    
    6,845Total assets
    
    $
    3,571,948
    
    
    $
    3,495,768
    
    
    $
    3,258,982
  Six Months Ended
    
    
    Three Months Ended(26 Weeks)
    
    
    (26 Weeks)
    
    
    (13 Weeks)
    
    
    (13 Weeks)In thousands
    
    June 30, 2007
    
    
    July 1, 2006
    
    
    June 30, 2007
    
    
    July 1, 2006NET SALES:Domestic
    
    $
    1,620,159
    
    
    $
    1,669,381
    
    
    $
    811,647
    
    
    $
    819,613International (including
MEXX sales of $552,185,
$518,739, $265,723, and
$250,344, respectively)
    
    
    663,522
    
    
    
    626,859
    
    
    
    319,055
    
    
    
    305,425Total net sales
    
    $
    2,283,681
    
    
    $
    2,296,240
    
    
    $
    1,130,702
    
    
    $
    1,125,038OPERATING INCOME:Domestic
    
    $
    45,073
    
    
    $
    133,552
    
    
    $
    18,913
    
    
    $
    61,023International
    
    
    24,626
    
    
    
    18,606
    
    
    
    11,903
    
    
    
    14,004Total operating income
    
    $
    69,699
    
    
    $
    152,158
    
    
    $
    30,816
    
    
    $
    75,027




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24 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




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25 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
      Six Months EndedBinomial Lattice Valuation Assumptions:
    
    June 30, 2007
    
    July 1, 2006Weighted-average fair value of options granted
    
    $
    11.51
    
    
    $
    9.56Expected volatility
    
    23.1% to 39.5%
    
    23.1% to 39.5%Weighted-average volatility
    
    
    24.0
    %
    
    
    24.4
    %Expected term (in years)
    
    
    4.7
    
    
    
    4.4Dividend yield
    
    
    0.52
    %
    
    
    0.61
    %Risk-free rate
    
    4.4% to 4.8%
    
    4.4% to 4.8%Expected annual forfeiture
    
    
    12.0
    %
    
    
    6.9
    %




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26 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Stock Options
  Weighted
    
    Weighted Average
    
    AggregateAverage Exercise
    
    Remaining
    
    Intrinsic ValueShares
    
    Price
    
    Contractual Term
    
    ($000)Outstanding at December 30, 2006
    
    
    5,889,216
    
    
    $
    32.58
    
    
    
    5.8
    
    
    $
    64,519Granted
    
    
    74,000
    
    
    
    43.59Exercised
    
    
    (1,255,951
    )
    
    
    28.02Cancelled
    
    
    (152,505
    )
    
    
    38.31Outstanding at June 30, 2007
    
    
    4,554,760
    
    
    
    33.82
    
    
    
    5.5
    
    
    $
    19,663Vested or expected to vest at June 30, 2007
    
    
    4,458,091
    
    
    $
    33.66
    
    
    
    5.4
    
    
    $
    19,655Exercisable at June 30, 2007
    
    
    3,895,463
    
    
    $
    32.58
    
    
    
    5.3
    
    
    $
    19,562
    Restricted Stock
  Weighted AverageShares
    
    Exercise PriceNonvested stock at December 30, 2006
    
    
    1,718,493
    
    
    $
    37.63Granted
    
    
    462,245
    
    
    
    43.63Vested
    
    
    (344,784
    )
    
    
    37.84Cancelled
    
    
    (193,862
    )
    
    
    37.72Nonvested stock at June 30, 2007
    
    
    1,642,092
    
    
    $
    39.26Expected to vest as of June 30, 2007
    
    
    1,152,394
    
    
    $
    39.35




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27 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
     STREAMLINING
  STOCK AWARDS




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28 
 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, handbags and fragrances),
e-commerce and licensing operations of our four retail-based brands: JUICY COUTURE, KATE
SPADE, LUCKY BRAND and MEXX; and
    
    The Partnered Brands segment  consists of the wholesale apparel, wholesale
non-apparel, outlet and specialty retail, e-commerce and licensing operations of our
wholesale-based brands including: AXCESS, C & C CALIFORNIA, CLAIBORNE (mens),
CONCEPTS BY CLAIBORNE, DANA BUCHMAN, ELLEN TRACY, EMMA JAMES, ENYCE, FIRST ISSUE,
INTUITIONS, J.H. COLLECTIBLES, KENSIE, KENSIEGIRL, LAUNDRY BY DESIGN, LIZ & CO., LIZ
CLAIBORNE, MAC & JAC, MARVELLA, MONET, NARCISO RODRIGUEZ, prAna, SIGRID OLSEN, STAMP 10,
TAPEMEASURE, TINT, TRIFARI, VILLAGER, our licensed DKNY® JEANS and DKNY® ACTIVE brands as
well as our other non-Direct Brands fragrances including: BORA BORA, CLAIBORNE, CURVE,
ELLEN TRACY, LIZ CLAIBORNE, LIZ WOMAN, MAMBO, REALITIES and SOUL.
  Competitive Profile




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##### Table of Contents



29    
    
    Reconfiguring our organization into two new reporting 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 strategic realignment reflects a
brand-focused approach, designed to optimize the operational
coordination and resource allocation of our businesses across multiple
functional areas including specialty retail, retail outlets, wholesale
apparel, wholesale non-apparel, e-commerce and licensing;
    
    Narrowing our portfolio to a select group that we believe we can fully
resource and develop into powerful, sustaining brands. As we have
announced, we are conducting a review of strategic alternatives,
including possible divestitures, discontinuation, or licensing, for
the following brands: C & C CALIFORNIA, DANA BUCHMAN, ELLEN TRACY,
EMMA JAMES, ENYCE, FIRST ISSUE, INTUITIONS, J.H. COLLECTIBLES, KENSIE,
LAUNDRY BY DESIGN, MAC & JAC, prAna, SIGRID OLSEN, STAMP 10,
TAPEMEASURE and TINT;
    
    Implementing and maintaining a more competitive cost structure: As we
have announced, we expect that our structural realignment and other
initiatives will yield annual cost savings of $100 million in 2008,
and an additional $45 million in each of 2009 and 2010, totaling
annual cost savings of $190 million by the end of fiscal 2010. We
anticipate that these savings will be realized through the
streamlining of corporate management, consolidation of organizational
structures and fewer management layers in our Partnered Brands
segment, cost rationalization in our supply chain and reduction in
corporate overhead throughout the Company. As part of these efforts,
in June 2007, we announced the elimination of various senior executive
positions including our Group Presidents;
    
    Committing the resources, structure and marketing investment
necessary to fully support and maximize the growth of our brands; and
    
    Developing best-in-class retail capabilities, and initiating
investments to innovate our supply chain and accelerate the flow of
goods to our stores in both retail and wholesale formats.
   Overall Results for the Six Months Ended June 30, 2007
 Net Sales




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30  Gross Profit and Net Income
  Balance Sheet
  International Operations
  Recent Acquisitions




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31




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32 RESULTS OF OPERATIONS
  
    
    The Direct Brands segment  consists of the specialty retail, outlet,
wholesale apparel, wholesale non-apparel (including accessories,
jewelry, handbags and fragrances), e-commerce and licensing operations
of our four retail-based brands: JUICY COUTURE, KATE SPADE, LUCKY
BRAND and MEXX; and
    
    The Partnered Brands segment  consists of the wholesale apparel,
wholesale non-apparel, outlet and specialty retail, e-commerce and
licensing operations of our wholesale-based brands including: AXCESS,
C & C CALIFORNIA, CLAIBORNE (mens), CONCEPTS BY CLAIBORNE, DANA
BUCHMAN, ELLEN TRACY, EMMA JAMES, ENYCE, FIRST ISSUE, INTUITIONS, J.H.
COLLECTIBLES, KENSIE, KENSIEGIRL, LAUNDRY BY DESIGN, LIZ & CO., LIZ
CLAIBORNE, MAC & JAC, MARVELLA, MONET, NARCISO RODRIGUEZ, prAna,
SIGRID OLSEN, STAMP 10, TAPEMEASURE, TINT, TRIFARI, VILLAGER, our
licensed DKNY® JEANS and DKNY® ACTIVE brands as well as our other
non-Direct Brands fragrances including: BORA BORA, CLAIBORNE, CURVE,
ELLEN TRACY, LIZ CLAIBORNE, LIZ WOMAN, MAMBO, REALITIES and SOUL.
  
    
    Domestic: wholesale customers, Company-owned specialty retail and
outlet stores located in the United States and our e-commerce sites;
and
    
    International: wholesale customers and Company-owned an operated
specialty retail, outlet and concession stores located outside of the
United States, primarily in our European and Canadian operations.
  THREE MONTHS ENDED JUNE 30, 2007 COMPARED TO THREE MONTHS ENDED JULY 1, 2006
  Three months ended
    
    VarianceJune 30,
    
    July 1,Dollars in millions
    
    2007
    
    2006
    
    $
    
    %Net Sales
    
    $
    1,130.7
    
    
    $
    1,125.0
    
    
    $
    5.7
    
    
    
    0.5
    %Gross Profit
    
    
    548.6
    
    
    
    548.5
    
    
    
    0.1
    
    
    
    0.02
    %Selling, general & administrative
expenses
    
    
    517.8
    
    
    
    473.5
    
    
    
    44.3
    
    
    
    9.4
    %Operating Income
    
    
    30.8
    
    
    
    75.0
    
    
    
    (44.2
    )
    
    
    (58.9
    %)Other income (expense), net
    
    
    0.3
    
    
    
    (0.3
    )
    
    
    0.6
    
    
    
    200.0
    %Interest expense, net
    
    
    (9.8
    )
    
    
    (8.6
    )
    
    
    (1.2
    )
    
    
    (14.0
    %)Provision for income taxes
    
    
    7.7
    
    
    
    26.7
    
    
    
    (19.0
    )
    
    
    (71.2
    %)Net Income
    
    $
    13.6
    
    
    $
    39.4
    
    
    $
    (25.8
    )
    
    
    (65.5
    %)




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##### Table of Contents



33 Net Sales
  
    
    Direct Brands net sales were $494.1 million increasing $100.4 million, or 25.5%, reflecting the following:
 
    
    Net sales for MEXX were $265.7 million, a 6.1% increase compared to 2006. Excluding the
impact of foreign currency exchange rates, net sales for MEXX were $250.0 million, or flat
as compared to the second quarter of 2006, primarily due to decreases in our MEXX Europe
retail business, mostly offset by increases in our MEXX Canada retail business.
 
    
    We ended the quarter with 135 specialty stores, 85 outlets and 306 concessions,
reflecting the net addition over the last 12 months of 6 specialty retail, 3 outlet stores
in Canada and 3 concession stores;
    
    Average retail square footage in the second quarter was approximately 1.321 million
square feet, a 4.2% increase compared to 2006;
    
    Sales productivity was $108 per average square foot as compared to $113 for the second
quarter of fiscal 2006;
    
    Comparable store sales in our MEXX Company-owned stores
decreased by 2.9% overall,
primarily the result of a decrease in our MEXX Europe business, partly offset by an
increase in our MEXX Canada business; and
    
    A $15.7 million increase resulting from the impact of foreign currency exchange rates in
our European and Canadian businesses.
 
    
    Net sales for LUCKY BRAND were $107.6 million, a 26.2% increase compared to 2006,
primarily driven by increases in retail, wholesale apparel and wholesale non-apparel
(including fragrance).
 
    
    We ended the quarter with 147 specialty stores and 7 outlet stores, reflecting the net
addition over the last 12 months of 31 specialty stores;
    
    Average retail square footage in the second quarter was approximately 355 thousand
square feet, a 28.0% increase compared to 2006;
    
    Sales productivity was $145 per average square foot as compared to $153 for the second
quarter of fiscal 2006; and
    
    Comparable store sales in our Company-owned stores increased by 1.6% in the second
quarter.
 
    
    Net sales for JUICY COUTURE were $100.2 million, 72.4% compared to 2006, primarily driven
by increases in retail, wholesale apparel and non-apparel (including fragrance).
 
    
    We ended the quarter with 26 specialty stores and 13 outlet stores, reflecting the net
addition over the last 12 months of 20 specialty stores and 9 outlet stores;
    
    Average retail square footage in the second quarter was approximately 104 thousand
square feet, a 457.0% increase compared to 2006;
    
    Sales productivity was $246 per average square foot as compared to $326 for the second
quarter of fiscal 2006 as the brand has evolved from a limited distribution to broader
distribution; and
    
    Comparable store sales in our Company-owned stores increased by 23.9% in the second quarter.
 
    
    Net sales for KATE SPADE (acquired in December 2006) were $20.6 million.
 
    
    We ended the quarter with 20 specialty retail stores, 4 outlet stores and our e-commerce
direct sales business;
    
    Average retail square footage in the second quarter was 52 thousand square feet; and
    
    Sales productivity was $178 per average square foot for the second quarter of 2007.
  
    
    New stores become comparable after 15 full months of operations;
    
    Closed stores become non-comparable when they begin final liquidation or no
longer receive new merchandise, usually 1-3 months before closure;
    
    A store that undergoes renovations and increases or decreases substantially in
size as the result of renovations becomes non-comparable;




---



##### Table of Contents



34 
    
    A store that is relocated, stays the same size and has no interruption of
selling remains comparable. If, however, a location change causes a significant increase or
decrease in size, then the location becomes non-comparable; and
    
    Stores that are acquired are not considered comparable until they have been
reflected in our results for a period of 12 months.
  
    
    Partnered Brands net sales were $636.6 million, a decrease of $94.7 million, or 12.9%, reflecting:
 -
    
    Our department store customers continued focus
on inventory productivity and product
differentiation to gain competitive market
share, improve margins and cash flows, as they
continue to execute their buying activities very
cautiously, while aggressively growing their
private label businesses. This operating
environment adversely affects our Partnered
Brand segment which is reflected in reduced
sales for the following brands: CURVE fragrance,
LIZ CLAIBORNE, SIGRID OLSEN, FIRST ISSUE,
LAUNDRY, ELLEN TRACY, VILLAGER and MONET. The
sales decline also reflects the discontinuance
of our CITY UNLTD. and CRAZY HORSE brands,
partially offset by the addition of our LIZ &
CO. and CONCEPTS BY CLAIBORNE brands; and-
    
    The impact of foreign currency exchange rates
increased sales by $2.4 million primarily
related to our LIZ CLAIBORNE operations in
Europe and Canada.
 Domestic International
 Gross Profit
  Selling, General & Administrative Expenses
  
    
    The inclusion of $10.5 million of expenses from our acquisition KATE SPADE;
 
    
    A $25.5 million increase primarily resulting from the retail expansion and marketing expenses including
expenses associated with the expansion of our fragrance businesses, in our Direct Brands segment;
 
    
    An $11.1 million increase due to the impact of foreign currency exchange rates in our international
operations;
 
    
    An increase of $11.3 million of expenses associated with our year over year streamlining initiatives; and
 
    
    A net decrease of $14.1 associated with other SG&A items.




---



##### Table of Contents



35 Operating Income
  
    
    Direct Brands operating income was $29.9 million increasing $3.6
million, or 13.6%, as a result of growth in our JUICY COUTURE brand
and expense control initiatives in our MEXX wholesale operations,
partially offset by reduced income in our LUCKY BRAND operations as a
result of expenses associated with brand building.
    
    The Partnered Brands operating income was $0.9 million, a $47.8
million earnings decrease, or 98.2%, as a result of lower sales and
increased retailer support as well as an increase in expenses
associated with our streamlining initiatives.
 Domestic International
 Other Income (Expense), Net
  Interest Expense, Net
  Provision for Income Taxes
  Net Income




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##### Table of Contents



36 SIX MONTHS ENDED JUNE 30, 2007 COMPARED TO SIX MONTHS ENDED JULY 1, 2006
  Six months ended
    
    VarianceJune 30,
    
    July 1,Dollars in millions
    
    2007
    
    2006
    
    $
    
    %Net Sales
    
    $
    2,283.7
    
    
    $
    2,296.2
    
    
    $
    (12.5
    )
    
    
    (0.5
    %)Gross Profit
    
    
    1,076.4
    
    
    
    1,092.5
    
    
    
    (16.1
    )
    
    
    (1.5
    %)Selling, general & administrative
expenses
    
    
    1,006.7
    
    
    
    940.4
    
    
    
    66.3
    
    
    
    7.1
    %Operating Income
    
    
    69.7
    
    
    
    152.1
    
    
    
    (82.4
    )
    
    
    (54.2
    %)Other income (expense), net
    
    
    (0.4
    )
    
    
    3.1
    
    
    
    (3.5
    )
    
    
    (112.9
    %)Interest expense, net
    
    
    (18.4
    )
    
    
    (15.7
    )
    
    
    (2.7
    )
    
    
    (17.2
    %)Provision for income taxes
    
    
    21.1
    
    
    
    53.1
    
    
    
    (32.0
    )
    
    
    (60.3
    %)Net Income
    
    $
    29.8
    
    
    $
    86.4
    
    
    $
    (56.6
    )
    
    
    (65.5
    %)
 Net Sales
  
    
    Direct Brands net sales were $979.7 million increasing $179.5 million, or 22.4%, reflecting the following:
 -
    
    Net sales for MEXX were $552.2 million, a 6.4%
increase compared to 2006. Excluding the impact of
foreign currency exchange rates, net sales for MEXX
were $516.3 million, a decline of $2.4 million as
compared to the first half of 2006, primarily due to
decreases in our MEXX Europe retail business, mostly
offset by increases in our MEXX Canada retail
business.
 
    
    Comparable store sales in our MEXX
Company-owned stores decreased by 1.5% overall,
primarily the result of a decrease in our MEXX
Europe business, partly offset by an increase in our
MEXX Canada business;
    
    Average retail square footage in the first half of
2007 was approximately 1.308 million
square feet, a 2.9% increase compared to 2006;
    
    Sales productivity was $195 per average square
foot as compared to $199 for the first half of
fiscal 2006; and
    
    A $35.9 million increase resulting from the impact
of foreign currency exchange rates in our European
and Canadian businesses.
 
    
    Net sales for LUCKY BRAND were $198.5 million, a
24.7% increase compared to 2006, primarily driven by
increases in retail, wholesale apparel and wholesale
non-apparel (including fragrance).
 
    
    Average retail square footage in the first half of
2007 was approximately 351 thousand square feet, a
27.9% increase compared to 2006;
    
    Sales productivity was $286 per average square
foot as compared to $298 for the first half of
fiscal 2006; and
    
    Comparable store sales in our LUCKY BRAND
Company-owned stores increased by 1.9% in the
first half of 2007.




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##### Table of Contents



37 
 -
    
    Net sales for JUICY COUTURE were $189.2 million, 54.8% compared to 2006, primarily driven by
increases in retail, wholesale apparel and non-apparel (including fragrance).
 
    
    Average retail square footage in the first half of 2007 was approximately 94 thousand
square feet, a 433.6% increase compared to 2006;
    
    Sales productivity was $489 per average square foot as compared to $579 for the first half
of fiscal 2006 as the brand has evolved from a limited distribution to broader distribution;
and
    
    Comparable store sales in our Company-owned stores increased by 22.9% in the first half of 2007.
 -
    
    Net sales for KATE SPADE (acquired in December 2006) were $39.8 million.
 
    
    Average retail square footage in the first half of 2007 was 51.6 thousand square feet.
    
    Sales productivity was $327 per average square foot for the first half of 2007.
 
    
    Partnered Brands net sales decreased $192.0 million, or 12.8%, to $1.304 billion reflecting:
 -
    
    Our department store customers continued
focus on inventory productivity and product
differentiation to gain competitive market
share, improve margins and cash flows, as
they continue to execute their buying
activities very cautiously, while
aggressively growing their private label
businesses. This operating environment
adversely affects our Partnered Brand segment
which is reflected in reduced sales for the
following brands: CURVE fragrance, LIZ
CLAIBORNE, SIGRID OLSEN, ELLEN TRACY and
MONET. The sales decline also reflects the
discontinuance of our CITY UNLTD. and CRAZY
HORSE brands, partially offset by the
addition of our LIZ & CO. and CONCEPTS BY
CLAIBORNE brands; and-
    
    The impact of foreign currency exchange rates
increased sales by $4.5 million primarily
related to our LIZ CLAIBORNE operations in
Europe and Canada.
 Domestic International
 Gross Profit
  Selling, General & Administrative Expenses
  
    
    The inclusion of $20.1 million of expenses from our acquisition of KATE SPADE;
    
    A $46.0 million increase primarily resulting from the retail expansion and
increased marketing expenses, including expenses associated with the
expansion of our fragrance businesses, in our Direct Brands segment;
    
    A $22.6 million increase due to the impact of foreign currency exchange
rates, in our international operations; and
    
    A net decrease of $22.4 associated with other SG&A items.




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##### Table of Contents



38 Operating Income
  
    
    Direct Brands operating income was $80.0 million increasing $21.0
million, or 35.6%, as a result of growth in our JUICY COUTURE brand
and expense control initiatives in our MEXX wholesale operations,
partially offset by additional expenses due to our retail expansion
activities, as well as reduced profits in our LUCKY BRAND operations
as a result of expenses associated with brand building.
    
    The Partnered Brands operating loss was $10.3 million, a $103.4
million earnings decrease, as a result of lower sales and increased
retailer support.
 Domestic International
 Other Income (Expense), Net
  Interest Expense, Net
  Provision for Income Taxes
  Net Income
   FORWARD OUTLOOK
 Fiscal 2007




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##### Table of Contents



39   FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
 Cash Requirements.
 Sources of Cash.
 2007 vs. 2006
 Cash and Debt Balances.
 Accounts Receivable
 Inventories




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##### Table of Contents



40  Borrowings
 Net cash used in operating activities
 Net cash used in investing activities
 Net cash provided by financing activities
 Commitments and Capital Expenditures
  
    
    The prAna acquisition agreement provides for contingent payments in
fiscal years 2008, 2009 and 2010 that will be based upon a multiple of
prAnas earnings in each year. We estimate that the aggregate
contingent payments will be in the range of approximately $20-25
million. The contingent payments will be accounted for as additional
purchase price when paid.
 
    
    On January 16, 2007 and January 17, 2006, we purchased 1.5 percent and
1.9 percent, respectively, of the remaining outstanding shares of
Lucky Brand for a payment of $10.0 million each. The remaining 3.35
percent will be purchased as follows: 1.1 percent in January 2008 for
$10.0 million and the final 2.25 percent in June 2008 at a price equal
to the value of the sellers Lucky Brand shares based on a multiple of
Lucky Brands 2007 earnings. We estimate that this final payment will
be $18-22 million.




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##### Table of Contents



41 
 
    
    The Juicy Couture acquisition agreement provides for a contingent
payment to be determined as a multiple of Juicy Coutures
earnings for one of the years ended 2005, 2006 or 2007. This
payment will be made in either cash or shares of our common stock
at our option. In March of 2005, the contingent payment agreement
was amended to include an advance option for the sellers provided
that (i) if the 2005 measurement year is not selected, the
sellers may elect to receive up to 70 percent of the estimated
contingent payment based upon 2005 results; and (ii) if the 2005
and 2006 measurement years are not selected, the sellers may
elect to receive up to 85 percent of the estimated contingent
payment based on the 2006 measurement year net of any 2005
advances. In April 2006, the sellers elected to receive a 70
percent advance against the contingent purchase price and were
paid $80.3 million on April 20, 2006. In May of 2007 the sellers
elected to receive an 85 percent advance against the contingent
purchase price and were paid $19.9 million on May 23, 2007. These
payments were accounted for as additional purchase price and an
increase to goodwill. We estimate the remaining contingent
payment would be approximately $31-36 million. The contingent
payment will be accounted for as additional purchase price when
paid.
 
    
    On January 26, 2006, we acquired 100 percent of the equity
interests of Westcoast Contempo Fashions Limited and Mac & Jac
Holdings Limited for an initial payment of 26.2 million Canadian
dollars (or $22.7 million). The Mac & Jac acquisition agreement
provides for contingent payments in fiscal years 2006, 2008, 2009
and 2010 that will be based upon a multiple of Mac & Jacs
earnings in each year. There was no contingent payment made
based on 2006 fiscal year earnings. We estimate that the
aggregate contingent payments will be in the range of
approximately $10-12 million. The contingent payments will be
accounted for as additional purchase price when paid.
 Financing Arrangements
  June 30,
    
    
    December 30,
    
    
    July 1,In thousands
    
    2007
    
    
    2006
    
    
    20066.625% Notes
    
    $
    
    
    
    $
    
    
    
    $
    446,4425% Notes
    
    
    471,121
    
    
    
    458,907
    
    
    
    Commercial paper borrowings
    
    
    186,388
    
    
    
    82,075
    
    
    
    97,854Capital lease obligations
    
    
    28,821
    
    
    
    32,284
    
    
    
    3,277Other
    
    
    31,769
    
    
    
    19,469
    
    
    
    33,796Total debt
    
    $
    718,099
    
    
    $
    592,735
    
    
    $
    581,369




---



##### Table of Contents



42    Outstanding
    
    Letters of Credit
    
    AvailableIn thousands
    
    Total Capacity
    
    Borrowings
    
    Issued
    
    CapacityRevolving credit facility and
commercial paper program
(a)
    
    $
    750,000
    
    
    $
    186,800
    
    
    $
    
    
    
    $
    563,200Letter of credit facility
    
    
    400,000
    
    
    
    
    
    
    
    295,700
    
    
    
    104,300Short-term borrowing facilities
    
    
    186,800
    
    
    
    30,800
    
    
    
    14,500
    
    
    
    141,500
 
 (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. Outstanding borrowings consist of commercial
paper. Off-Balance Sheet Arrangements
  Hedging Activities




---



##### Table of Contents



43      USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES
  Use of Estimates




---



##### Table of Contents



44  Revenue Recognition
  Income Taxes
  Accounts Receivable  Trade, Net




---



##### Table of Contents



45  Inventories, Net
  Goodwill and Other Intangibles, Net




---



##### Table of Contents



46   Accrued Expenses
  Derivative Instruments
      Share-Based Compensation




---



##### Table of Contents



47  RECENT ACCOUNTING PRONOUNCEMENTS
    STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE




---



##### Table of Contents



48 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   Dollars in millions
    
    June 30, 2007
    
    December 30, 2006
    
    July 1, 2006Variable rate debt
    
    $
    217.6
    
    
    $
    100.6
    
    
    $
    130.7Average interest rate
    
    
    5.30
    %
    
    
    5.14
    %
    
    
    5.0
    %
     
 U.S. Dollar
    
    Hong Kong
    
    Contract
    
    UnrealizedCurrency in thousands
    
    Amount
    
    Dollar Amount
    
    Rate
    
    (Loss)Forward Contracts:Euro
    
    
    
    
    
    
    577,376
    
    
    0.0939 to 0.0996
    
    $
    (2,246
    )Canadian Dollars
    
    $
    14,194
    
    
    
    
    
    
    0.8702 to 0.9400
    
    
    Canadian Dollars
    
    
    
    
    
    
    111,171
    
    
    0.1367 to 0.1482
    
    
    (858
    )Foreign Exchange Collar Contracts:Euro
    
    
    
    
    
    
    15,500
    
    
    0.0980 to 0.1007
    
    
    (69
    )Canadian Dollars
    
    $
    1,232
    
    
    
    
    
    
    0.8403 to 0.8799
    
    
    Canadian Dollars
    
    
    
    
    
    
    15,403
    
    
    0.1428 to 0.1527
    
    
    (100
    )




---



##### Table of Contents



49  U.S. Dollar
    
    Hong Kong
    
    Contract
    
    UnrealizedCurrency in thousands
    
    Amount
    
    Dollar Amount
    
    Rate
    
    Gain (Loss)Forward Contracts:Euro
    
    
    
    
    
    
    589,000
    
    
    0.0973 to 0.1067
    
    $
    (1,368
    )Canadian Dollars
    
    $
    8,190
    
    
    
    
    
    
    0.8702 to 0.8728
    
    
    Canadian Dollars
    
    
    
    
    
    
    105,980
    
    
    0.1480 to 0.1482
    
    
    180Foreign Exchange Collar Contracts:Euro
    
    
    
    
    
    
    23,250
    
    
    0.0980 to 0.1007
    
    $
    (506
    )Canadian Dollars
    
    $
    8,659
    
    
    
    
    
    
    0.8547 to 0.8925
    
    
    Canadian Dollars
    
    
    
    
    
    
    45,345
    
    
    0.1454 to 0.1508
    
    
    107
  U.S. Dollar
    
    Hong Kong
    
    Contract
    
    UnrealizedCurrency in thousands
    
    Amount
    
    Dollar Amount
    
    Rate
    
    (Loss)Forward Contracts:Euro
    
    
    
    
    
    
    178,250
    
    
    0.0987 to 0.1084
    
    $
    (361
    )Canadian Dollars
    
    $
    7,727
    
    
    
    
    
    
    0.8579 to 0.8592
    
    
    Canadian Dollars
    
    
    
    
    
    
    50,021
    
    
    0.1493 to 0.1502
    
    
    Foreign Exchange Collar Contracts:Euro
    
    
    
    
    
    
    372,000
    
    
    0.0991 to 0.1143
    
    $
    (1,353
    )Canadian Dollars
    
    $
    7,533
    
    
    
    
    
    
    0.8403 to 0.8917
    
    
    Canadian Dollars
    
    
    
    
    
    
    5,443
    
    
    0.1468 to 0.1538
    
    
    
 
 ITEM 4. CONTROLS AND PROCEDURES
 ,
 
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS




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##### Table of Contents



50  
 ITEM 1A. RISK FACTORS
  Risks Associated with Our Recently Announced Long-Term Strategic Plan
  
    
    Risks relating to the reorganization of the Company into two new
segments and the related realignment of the Companys
management structure;
 
    
    Our ability to attract and retain talented, highly qualified
executives and other key personnel to execute the plan;
 
    
    Our ability to successfully execute on the strategic review of the
brands we have designated for such review, including the risks
associated with our having designated the appropriate brands for such
review, the risks associated with retaining key personnel working for
such brands, and risks associated with appropriately valuing the
assets related to brands that may be identified for divestiture;
 
    
    Risks associated with our operation and expansion of our specialty
retail business, including the ability to successfully expand the
specialty store base of our Direct Brands segment, the 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;
 
    
    Risks associated with our ability to achieve greater collaboration
with our wholesale customers and to improve results of our
wholesale-based brands and the wholesale businesses of our Direct
Brands; and
 
    
    Our ability to achieve projected cost savings.
 Risks Associated with Competition and the Marketplace
  
    
    The continuing challenging retail and macroeconomic environment,
including the levels of consumer confidence and discretionary spending,
and levels of customer traffic within department stores, malls and
other shopping and selling environments, and a continuation of the
deflationary trend for apparel products;
 
    
    Our ability to successfully continue 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;
 
    
    Our ability to effectively anticipate, gauge and respond to changing
consumer demands and tastes, across multiple product lines, shopping
channels and geographies;
 
    
    Our ability to translate market trends into appropriate, saleable
product offerings relatively far in advance, while minimizing excess
inventory positions, including our ability to correctly balance the
level of its fabric and/or merchandise commitments with actual customer
orders;
 
    
    Consumer and customer demand for, and acceptance and support of, our
products (especially by our largest customers) which are in turn
dependent, among other things, on product design, quality, value and
service;
 
    
    Risks associated with the possible failure of our unaffiliated
manufacturers to manufacture and deliver products in a timely manner,
to meet quality standards or to comply with our policies regarding
labor practices or applicable laws or regulations;
 
    
    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 barrier to
entry;
 
    
    Risks associated with our dependence on sales to a limited number of
large United States department store customers, including risks related
to our ability to respond effectively to:




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51 
 -
    
    these customers buying patterns, including their
purchase and retail floor space commitments for apparel
in general (compared with other product categories they
sell) and our products specifically (compared with
products offered by our competitors, including with
respect to customer and consumer acceptance, pricing
and new product introductions);-
    
    these customers strategic and operational initiatives,
including their continued focus on further development
of their private label initiatives;-
    
    these customers desire to have us provide them with
exclusive and/or differentiated designs and product
mixes;-
    
    these customers requirements for vendor margin support;-
    
    any credit risks presented by these customers,
especially given the significant proportion of our
accounts receivable they represent; and-
    
    the effect that any potential consolidation among one
or more of these larger customers, such as the merger
between Federated Department Stores, Inc. and The May
Department Store Company, might have on the foregoing
and/or other risks;
 
    
    Risks associated with maintaining and enhancing favorable brand
recognition, which may be affected by consumer attitudes towards the
desirability of fashion products bearing a mega brand label and which
are widely available at a broad range of retail stores; and
 
    
    Risks associated with our operation and expansion of retail business,
including the 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.
 Management and Employee Risks
 
    
    Our ability to attract and retain talented, highly qualified executives and other key
personnel, including in the areas of design, merchandising, sales, supply chain,
marketing, production and systems;
 
    
    Our ability to hire and train qualified retail management and associates;
 
    
    Risks associated with any significant disruptions in our relationship with our employees,
including union employees and any work stoppages by our employees, including union
employees;
 
    
    Risks associated with providing for the succession of senior management; and
 
    
    Risks associated with realignment of responsibilities among the Companys management team.
 Economic, Social and Political Factors
  
    
    Risks associated with war, the threat of war and terrorist activities, including
reduced shopping activity as a result of public safety concerns and disruption in the
receipt and delivery of merchandise;
 
    
    Changes in national and global microeconomic and macroeconomic conditions in the
markets where we sell or source our products, including the levels of consumer
confidence and discretionary spending, consumer income growth, personal debt levels,
rising energy costs and energy shortages, fluctuations in foreign currency exchange
rates, interest rates and stock market volatility and currency devaluations in
countries in which we source product;
 
    
    Changes in social, political, legal and other conditions affecting foreign operations;
 
    
    Risks of increased sourcing costs, including costs for materials and labor, including
as a result of the elimination of quota on apparel products;
 
    
    Any significant disruption in our relationships with our suppliers, manufacturers as
well as work stoppages by any of our suppliers or service providers;
 
    
    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; and
 
    
    Risks related to our ability to establish, defend and protect our trademarks and
other proprietary rights and other risks relating to managing intellectual property
issues.




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52 
 Risks Associated with Acquisitions and New Product Lines and Markets
  
    
    Our ability to identify appropriate new product lines and markets, as well as acquisition candidates;
 
    
    Risks that the new product lines or market activities may require methods of operations and marketing
and financial strategies different from those employed in our other businesses, including risks
associated with acquisitions with significant foreign operations. In addition, these businesses may
involve buyers, store customers and/or competitors different from our historical buyers, store
customers and competitors;
 
    
    Risks associated with selling our Liz & Co. and Concepts by Claiborne brands outside of better
department stores;
 
    
    Possible difficulties, delays and/or unanticipated costs in integrating the business, operations,
personnel and/or systems of an acquired business;
 
    
    Risks that projected or satisfactory level of sales, profits and/or return on investment for a new
business will not be generated;
 
    
    Risks involving our ability to retain and appropriately motivate key personnel of an acquired business;
 
    
    Risks that expenditures required for capital items or working capital will be higher than anticipated;
 
    
    Risks associated with unanticipated events and unknown or uncertain liabilities;
 
    
    Uncertainties relating to our ability to successfully integrate acquired companies, maintain product
licenses, or successfully launch new products and lines;
 
    
    Certain new businesses may be lower margin businesses and may require us to achieve significant cost
efficiencies; and
 
    
    With respect to businesses where we act as licensee, the risks inherent in such transactions,
including 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.
 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  MaximumApproximate DollarTotal Number of
    
    
    Value of Shares thatTotal Number
    
    
     Average

    
    
    Shares Purchased as
    
    
    May Yet Beof Shares
    
    
    Price
    
    
    Part of Publicly
    
    
    Purchased Under thePurchased
    
    
    Paid Per
    
    
    Announced Plans or
    
    
    Plans or ProgramsPeriod
    
    (in thousands)
    
    
    Share
    
    
    Programs
    
    
    (in thousands) (2)December 31, 2006 - January 27, 2007
    
    
    52.3
    (1)
    
    $
    44.08
    
    
    
    
    
    
    $
    229,237January 28, 2007 - March 3, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    229,237March 4, 2007 - March 31, 2007
    
    
    132.2
    (1)
    
    
    43.08
    
    
    
    
    
    
    
    229,237April 1, 2007  April 28, 2007
    
    
    0.1
    (1)
    
    
    43.80
    
    
    
    
    
    
    
    229,237April 29, 2007  June 2, 2007
    
    
    1,808.8
    (1)
    
    
    34.21
    
    
    
    1,808.7
    
    
    
    167,364June 3, 2007  June 30, 2007
    
    
    547.6
    (1)
    
    
    35.87
    
    
    
    547.5
    
    
    
    147,724Total 26 weeks ended June 30, 2007
    
    
    2,541.0
    
    
    $
    35.23
    
    
    
    2,356.2
    
    
    $
    147,724
 
 (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 $2.175 billion. As of June 30, 2007, the Company had
$147.7 million remaining in buyback authorization under its program.




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53 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  VotesNominee
    
    For
    
    WithheldRaul J. Fernandez
    
    
    72,090,971
    
    
    
    19,416,448Kenneth P. Kopelman
    
    
    72,406,671
    
    
    
    19,100,748Arthur C. Martinez
    
    
    75,033,755
    
    
    
    16,473,664
  
 ITEM 5. OTHER INFORMATION




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54 
 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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##### Table of Contents



55 
 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(Principal financial officer)
    
    
    
    Controller and
Chief Accounting Officer(Principal accounting officer)