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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended April 5, 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  (Former name, former address and former fiscal year, if changed since last report)
 þ o
  Large accelerated filer þ

 

    Accelerated filer o

 

Non-accelerated filer   o
(Do not check if a smaller reporting company)

    

 Smaller reporting company o
 o þ




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##### 



LIZ CLAIBORNE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
April 5, 2008
 PAGENUMBERPART I  FINANCIAL INFORMATIONItem 1. Financial Statements:Condensed Consolidated Balance Sheets as of April 5, 2008
(Unaudited), December 29, 2007 and March 31, 2007 (Unaudited)
    
    4Condensed Consolidated Statements of Operations for the Three
Month Periods Ended April 5, 2008 (Unaudited) and March 31,
2007 (Unaudited)
    
    5Condensed Consolidated Statements of Cash Flows for the Three
Month Periods Ended April 5, 2008 (Unaudited) and March 31,
2007 (Unaudited)
    
    6  7Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    8  29Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    30  48Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    48  49Item 4. Controls and Procedures
    
    49PART II   OTHER INFORMATIONItem 1. Legal Proceedings
    
    50Item 1A. Risk Factors
    
    50  56Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    56Item 5. Other Information
    
    56Item 6. Exhibits
    
    57SIGNATURES
    
    58EX-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, including those contained in this Form 10-Q
under the heading Forward Outlook;
    
    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 successfully integrate the acquisitions of our KATE SPADE and NARCISO
RODRIGUEZ brands;
    
    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; and
    
    Our ability to realize sufficient cash flows from operations and to have access to
financing on acceptable terms to enable us to fund our liquidity requirements.




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4 
 PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
  (Unaudited)
    
    
    
    
    
    
    (Unaudited)April 5,
    
    
    December 29,
    
    
    March 31,2008
    
    
    2007
    
    
    2007AssetsCurrent Assets:Cash and cash equivalents
    
    $
    111,142
    
    
    $
    205,401
    
    
    $
    96,504Marketable securities
    
    
    295
    
    
    
    328
    
    
    
    9,485Accounts receivable  trade, net
    
    
    566,656
    
    
    
    440,160
    
    
    
    601,294Inventories, net
    
    
    526,052
    
    
    
    540,807
    
    
    
    644,180Deferred income taxes
    
    
    99,506
    
    
    
    103,288
    
    
    
    73,290Other current assets
    
    
    287,205
    
    
    
    209,525
    
    
    
    151,383Assets held for sale
    
    
    31,227
    
    
    
    65,332
    
    
    
    Total current assets
    
    
    1,622,083
    
    
    
    1,564,841
    
    
    
    1,576,136Property and Equipment, Net
    
    
    587,404
    
    
    
    580,733
    
    
    
    567,105Goodwill, Net
    
    
    676,238
    
    
    
    677,852
    
    
    
    1,010,122Intangibles, Net
    
    
    316,939
    
    
    
    347,119
    
    
    
    410,013Deferred Income Taxes
    
    
    20,417
    
    
    
    75,445
    
    
    
    Other Assets
    
    
    23,236
    
    
    
    22,477
    
    
    
    21,570Total Assets
    
    $
    3,246,317
    
    
    $
    3,268,467
    
    
    $
    3,584,946Liabilities and Stockholders EquityCurrent Liabilities:Short term borrowings
    
    $
    77,087
    
    
    $
    50,828
    
    
    $
    26,824Accounts payable
    
    
    225,425
    
    
    
    223,522
    
    
    
    238,533Accrued expenses
    
    
    416,730
    
    
    
    459,309
    
    
    
    284,578Income taxes payable
    
    
    34,045
    
    
    
    32,266
    
    
    
    Deferred income taxes
    
    
    497
    
    
    
    497
    
    
    
    Liabilities held for sale
    
    
    
    
    
    
    3,963
    
    
    
    Total current liabilities
    
    
    753,784
    
    
    
    770,385
    
    
    
    549,935Long-Term Debt
    
    
    912,025
    
    
    
    836,883
    
    
    
    715,950Other Non-Current Liabilities
    
    
    109,885
    
    
    
    140,764
    
    
    
    102,227Deferred Income Taxes
    
    
    1,157
    
    
    
    1,111
    
    
    
    65,445Commitments and Contingencies (Note 11)Minority Interest
    
    
    3,858
    
    
    
    3,760
    
    
    
    3,375Stockholders 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
    
    
    295,170
    
    
    
    296,158
    
    
    
    261,770Retained earnings
    
    
    2,911,835
    
    
    
    2,948,085
    
    
    
    3,353,919Accumulated other comprehensive loss
    
    
    (37,822
    )
    
    
    (24,582
    )
    
    
    (57,147
    )3,345,620
    
    
    
    3,396,098
    
    
    
    3,734,979Common stock in treasury, at cost 81,610,514,
81,695,077 and 72,382,307 shares
    
    
    (1,880,012
    )
    
    
    (1,880,534
    )
    
    
    (1,586,965
    )Total stockholders equity
    
    
    1,465,608
    
    
    
    1,515,564
    
    
    
    2,148,014Total Liabilities and Stockholders Equity
    
    $
    3,246,317
    
    
    $
    3,268,467
    
    
    $
    3,584,946




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5 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
   Three Months EndedApril 5,
    
    
    March 31,2008
    
    
    2007(14 Weeks)
    
    
    (13 Weeks)Net Sales
    
    $
    1,121,542
    
    
    $
    1,069,200Cost of goods sold
    
    
    590,615
    
    
    
    570,092Gross Profit
    
    
    530,927
    
    
    
    499,108Selling, general & administrative expenses
    
    
    554,904
    
    
    
    469,378Operating (Loss) Income
    
    
    (23,977
    )
    
    
    29,730Other expense, net
    
    
    (2,748
    )
    
    
    (729
    )Interest expense, net
    
    
    (12,103
    )
    
    
    (8,532
    )(Loss) Income before (Benefit) Provision for Income Taxes
    
    
    (38,828
    )
    
    
    20,469(Benefit) Provision for income taxes
    
    
    (23,984
    )
    
    
    9,987(Loss) Income from Continuing Operations
    
    
    (14,844
    )
    
    
    10,482(Loss) income from discontinued operations, net of tax
    
    
    (3,975
    )
    
    
    5,716Loss on disposal of discontinued operations, net of tax
    
    
    (12,202
    )
    
    
    Net (Loss) Income
    
    $
    (31,021
    )
    
    $
    16,198Earnings per Share:Basic(Loss) Income from Continuing Operations
    
    $
    (0.16
    )
    
    $
    0.10Net (Loss) Income
    
    $
    (0.33
    )
    
    $
    0.16Diluted(Loss) Income from Continuing Operations
    
    $
    (0.16
    )
    
    $
    0.10Net (Loss) Income
    
    $
    (0.33
    )
    
    $
    0.16Weighted Average Shares, Basic
    
    
    93,507
    
    
    
    101,796Weighted Average Shares, Diluted
    
    
    93,507
    
    
    
    103,127Dividends Paid per Common Share
    
    $
    0.06
    
    
    $
    0.06




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6 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
   Three Months EndedApril 5,
    
    
    March 31,2008
    
    
    2007(14 Weeks)
    
    
    (13 Weeks)Cash Flows from Operating Activities:Net (loss) income
    
    $
    (31,021
    )
    
    $
    16,198Adjustments to arrive at (loss) income from continuing operations
    
    
    16,177
    
    
    
    (5,716
    )(Loss) income from continuing operations
    
    
    (14,844
    )
    
    
    10,482Adjustments to reconcile (loss) income from continuing
operations to net cash used in operating activities:Depreciation and amortization
    
    
    40,860
    
    
    
    37,512Streamlining initiatives; asset write-down
    
    
    2,707
    
    
    
    4,692Loss on asset disposals
    
    
    14,152
    
    
    
    Share-based compensation
    
    
    3,391
    
    
    
    7,535Tax benefit on exercise of stock options
    
    
    7
    
    
    
    2,074Other, net
    
    
    17
    
    
    
    (329
    )Change in assets and liabilities, exclusive of acquisitions:Increase in accounts receivable  trade, net
    
    
    (117,060
    )
    
    
    (100,555
    )Decrease (increase) in inventories, net
    
    
    8,791
    
    
    
    (48,698
    )Decrease (increase) in other current and non-current assets
    
    
    47,038
    
    
    
    (22,622
    )Increase (decrease) in accounts payable
    
    
    1,911
    
    
    
    (30,860
    )Decrease in accrued expenses
    
    
    (49,697
    )
    
    
    (56,448
    )Decrease in deferred income taxes and income taxes payable
    
    
    (87,582
    )
    
    
    (5,831
    )Net cash (used in) provided by operating activities of
discontinued operations
    
    
    (4,043
    )
    
    
    6,867Net cash used in operating activities
    
    
    (154,352
    )
    
    
    (196,181
    )Cash Flows from Investing Activities:Purchases of property and equipment
    
    
    (46,105
    )
    
    
    (34,193
    )Proceeds from sales of property and equipment
    
    
    
    
    
    
    1,410Purchases of new businesses and payment of related debt
    
    
    (5,066
    )
    
    
    (13,431
    )Payments for in-store merchandise shops
    
    
    (1,632
    )
    
    
    (924
    )Other, net
    
    
    (392
    )
    
    
    (652
    )Net cash provided by (used in) investing activities of
discontinued operations
    
    
    60,344
    
    
    
    (238
    )Net cash provided by (used in) investing activities
    
    
    7,149
    
    
    
    (48,028
    )




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7 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTD)
   Three Months EndedApril 5,
    
    
    March 31,2008
    
    
    2007(14 Weeks)
    
    
    (13 Weeks)Cash Flows from Financing Activities:Short term borrowings, net
    
    
    61,698
    
    
    
    4,531Principal payments under capital lease obligations
    
    
    (1,075
    )
    
    
    (1,756
    )Commercial paper, net
    
    
    
    
    
    
    142,355Proceeds from exercise of common stock options
    
    
    51
    
    
    
    15,976Dividends paid
    
    
    (5,257
    )
    
    
    (5,726
    )Tax (deficiency) excess benefit related to share-based compensation
    
    
    (2,058
    )
    
    
    1,091Other, net
    
    
    (798
    )
    
    
    (330
    )Net cash provided by financing activities
    
    
    52,561
    
    
    
    156,141Effect of exchange rate changes on cash and cash equivalents
    
    
    383
    
    
    
    (1,073
    )Net Change in Cash and Cash Equivalents
    
    
    (94,259
    )
    
    
    (89,141
    )Cash and Cash Equivalents at Beginning of Period
    
    
    205,401
    
    
    
    185,645Cash and Cash Equivalents at End of Period
    
    $
    111,142
    
    
    $
    96,504




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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, handbags and fragrances),
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, outlet and specialty retail, e-commerce and
licensing operations of the Companys wholesale-based brands including: AXCESS,
CLAIBORNE (mens), CONCEPTS BY CLAIBORNE, DANA BUCHMAN, ENYCE, KENSIE, LIZ & CO., LIZ
CLAIBORNE, MAC & JAC, MARVELLA, MONET, NARCISO RODRIGUEZ, SIGRID OLSEN, TRIFARI, VILLAGER,
the Companys licensed DKNY® JEANS, DKNY® ACTIVE and DKNY® MENS brands as well as the
Companys other non-Direct Brands fragrances including: CLAIBORNE, CURVE, LIZ CLAIBORNE and
our licensed USHER fragrance.




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




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




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11       Accrued Expenses
  Derivative Instruments




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12    Share-Based
Compensation
  OTHER SIGNIFICANT ACCOUNTING POLICIES
 Fair Value of Financial Instruments
  Cash and Cash Equivalents
  Marketable Securities




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13 Property and Equipment, Net
    Operating Leases
  Foreign Currency Translation
  Foreign Currency Transactions
  Cost of Goods Sold




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14  Advertising, Promotion and Marketing
  Shipping and Handling Costs
  Fiscal Year
  Cash Dividend and Common Stock Repurchase
  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; and
 Level 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
    
    $
    457Financial
Liabilities:Derivatives
    
    $
    9,196




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15    ® ®




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16        April 5,
    
    
    December 29,In thousands
    

2008
    
    

2007Accounts receivable
    
    $
    
    
    
    $
    2,452Inventories
    
    
    8,904
    
    
    
    13,444Property and equipment
    
    
    5,881
    
    
    
    7,349Intangible assets
    
    
    16,442
    
    
    
    41,786Other assets
    
    
    
    
    
    
    301Total assets held for sale
    
    $
    31,227
    
    
    $
    65,332




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17   Three Months EndedApril 5,
    
    
    March 31,2008
    
    
    2007(14 Weeks)
    
    
    (13 Weeks)Net sales
    
    $
    23,613
    
    
    $
    83,779(Loss)
income before (benefit) provision for income taxes
    
    $
    (6,468
    )
    
    $
    9,153(Benefit) provision for income taxes
    
    
    (2,493
    )
    
    
    3,437(Loss) income from discontinued operations, net of tax
    
    $
    (3,975
    )
    
    $
    5,716
   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
    
    
    
    
    
    
    (31,021
    )
    
    
    Restricted shares issued, net of cancellations and
shares withheld for taxes
    
    
    (2,353
    )
    
    
    
    
    
    
    496Stock options exercised
    
    
    25
    
    
    
    
    
    
    
    26Share-based compensation
    
    
    3,391
    
    
    
    
    
    
    
    Tax benefit on exercise of stock options
    
    
    7
    
    
    
    
    
    
    
    Tax deficiency related to share-based compensation
    
    
    (2,058
    )
    
    
    
    
    
    
    Dividends declared
    
    
    
    
    
    
    (5,229
    )
    
    
    Balance as of April 5, 2008
    
    $
    295,170
    
    
    $
    2,911,835
    
    
    $
    (1,880,012
    )
  Three Months EndedApril 5,
    
    
    March 31,2008
    
    
    2007In thousands
    
    (14 Weeks)
    
    
    (13 Weeks)Net (loss) income
    
    $
    (31,021
    )
    
    $
    16,198Other comprehensive (loss) income, net of tax:Change in cumulative translation adjustment
    
    
    25,752
    
    
    
    4,252Change in cumulative translation
adjustment on Eurobonds, net of income tax
benefit of $2,241.
    
    
    (36,652
    )
    
    
    (4,810
    )Changes in unrealized losses on
available-for-sale securities, net of
income tax benefit of $31 and $5,
respectively
    
    
    (10
    )
    
    
    (7
    )Changes in fair value of cash flow hedges,
net of income tax benefit of $522 and
$69, respectively
    
    
    (2,330
    )
    
    
    (426
    )Total comprehensive (loss) income, net of tax
    
    $
    (44,261
    )
    
    $
    15,207




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18  April 5,
    
    
    December 29,
    
    
    March 31,In thousands
    
    2008
    
    
    2007
    
    
    2007Cumulative translation adjustment
    
    $
    (29,172
    )
    
    $
    (18,272
    )
    
    $
    (55,829
    )Unrealized losses on cash flow hedging
derivatives, net of taxes of $2,843, $2,321 and
$426, respectively
    
    
    (8,532
    )
    
    
    (6,202
    )
    
    
    (1,169
    )Unrealized losses on available-for-sale
securities, net of taxes of $77, $46 and $94,
respectively
    
    
    (118
    )
    
    
    (108
    )
    
    
    (149
    )Accumulated other comprehensive loss, net of tax
    
    $
    (37,822
    )
    
    $
    (24,582
    )
    
    $
    (57,147
    )
     Unrealized
    
    
    EstimatedIn thousands
    
    
    
    Cost
    
    
    Losses
    
    
    Fair ValueApril 5, 2008:
    
    Other
investments
    
    $
    490
    
    
    $
    (195
    )
    
    $
    295Total
    
    $
    490
    
    
    $
    (195
    )
    
    $
    295December 29, 2007:
    
    Other
investments
    
    $
    483
    
    
    $
    (155
    )
    
    $
    328Total
    
    $
    483
    
    
    $
    (155
    )
    
    $
    328March 31, 2007:
    

Equity investments
    
    $
    9,252
    
    
    $
    (169
    )
    
    $
    9,083Other investments
    
    
    464
    
    
    
    (62
    )
    
    
    402Total
    
    $
    9,716
    
    
    $
    (231
    )
    
    $
    9,485
   April 5,
    
    
    December 29,
    
    
    March 31,In thousands
    
    2008
    
    
    2007
    
    
    2007Raw materials
    
    $
    29,780
    
    
    $
    28,743
    
    
    $
    31,728Work in process
    
    
    19,756
    
    
    
    13,143
    
    
    
    14,534Finished goods
    
    
    476,516
    
    
    
    498,921
    
    
    
    597,918Total inventories, net
    
    $
    526,052
    
    
    $
    540,807
    
    
    $
    644,180




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19   April 5,
    
    
    December 29,
    
    
    March 31,In thousands
    
    2008
    
    
    2007
    
    
    2007Land and buildings
    
    $
    108,099
    
    
    $
    108,097
    
    
    $
    135,291Machinery and equipment
    
    
    382,756
    
    
    
    385,294
    
    
    
    412,039Furniture and fixtures
    
    
    308,395
    
    
    
    304,411
    
    
    
    278,259Leasehold improvements
    
    
    543,649
    
    
    
    529,427
    
    
    
    464,6481,342,899
    
    
    
    1,327,229
    
    
    
    1,290,237Less: Accumulated depreciation and
amortization
    
    
    755,495
    
    
    
    746,496
    
    
    
    723,132Total property and equipment, net
    
    $
    587,404
    
    
    $
    580,733
    
    
    $
    567,105
    WeightedAverageAmortization
    
    
    April 5,
    
    
    December 29,
    
    
    March 31,In thousands
    
    Period
    
    
    2008
    
    
    2007
    
    
    2007Amortized intangible assets:Gross Carrying Amount:Licensed trademarks
    
    15 years
    
    $
    32,749
    
    
    $
    32,749
    
    
    $
    32,449Owned trademarks
    
    7 years
    
    
    9,900
    
    
    
    9,900
    
    
    
    7,600Customer
relationships(a)
    
    14 years
    
    
    30,671
    
    
    
    30,665
    
    
    
    49,367Merchandising
rights(b)
    
    4 years
    
    
    42,860
    
    
    
    57,023
    
    
    
    52,265Other(c)
    
    5 years
    
    
    3,235
    
    
    
    3,235
    
    
    
    Subtotal
    
    9 years
    
    
    119,415
    
    
    
    133,572
    
    
    
    141,681Accumulated Amortization:Licensed trademarks
    
    
    
    
    
    
    (17,373
    )
    
    
    (16,641
    )
    
    
    (14,982
    )Owned trademarks
    
    
    
    
    
    
    (1,269
    )
    
    
    (901
    )
    
    
    (847
    )Customer relationships
    
    
    
    
    
    
    (6,432
    )
    
    
    (5,875
    )
    
    
    (7,824
    )Merchandising rights
    
    
    
    
    
    
    (24,181
    )
    
    
    (34,246
    )
    
    
    (26,452
    )Other
    
    
    
    
    
    
    (860
    )
    
    
    (675
    )
    
    
    Subtotal
    
    
    
    
    
    
    (50,115
    )
    
    
    (58,338
    )
    
    
    (50,105
    )Net:Licensed trademarks
    
    
    
    
    
    
    15,376
    
    
    
    16,108
    
    
    
    17,467Owned trademarks
    
    
    
    
    
    
    8,631
    
    
    
    8,999
    
    
    
    6,753Customer relationships
    
    
    
    
    
    
    24,239
    
    
    
    24,790
    
    
    
    41,543Merchandising rights
    
    
    
    
    
    
    18,679
    
    
    
    22,777
    
    
    
    25,813Other
    
    
    
    
    
    
    2,375
    
    
    
    2,560
    
    
    
    Total amortized intangible assets, net
    
    
    
    
    
    
    69,300
    
    
    
    75,234
    
    
    
    91,576Unamortized intangible assets:Owned trademarks(d)
    
    
    
    
    
    
    247,639
    
    
    
    271,885
    
    
    
    318,437Total intangible assets
    
    
    
    
    
    $
    316,939
    
    
    $
    347,119
    
    
    $
    410,013




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##### Table of Contents



20 
 (a)
    
    The change in the balance compared to March 31, 2007 primarily reflects the impact
of dispositions, partially offset by the impact of acquisitions, each subsequent to March 31,
2007.(b)
    
    The change in the balance compared to March 31, 2007 primarily reflects the impact
of dispositions subsequent thereto.(c)
    
    Relates to the Companys acquisition of Kate Spade and Narciso Rodriguez.(d)
    
    The change in the balance compared to March 31, 2007 reflects (i) the inclusion of
$24.0 million within Assets held for sale on the accompanying Condensed Consolidated Balance
Sheet at April 5, 2008, (ii) a non-cash impairment charge of $36.3 million recorded within the
Companys Partnered Brands segment in the second half of 2007 related to the ELLEN TRACY
trademark and (iii) the impact of dispositions subsequent to March 31, 2007, partially offset
by the impact of acquisitions subsequent to March 31, 2007.   (In millions)Fiscal Year
    
    Amortization Expense2008
    
    $
    15.12009
    
    
    13.02010
    
    
    9.62011
    
    
    8.02012
    
    
    7.0
  In thousandsBalance as of December 29, 2007
    
    $
    677,852Other
    
    
    (52
    )Translation difference
    
    
    (1,562
    )Balance as of April 5, 2008
    
    $
    676,238




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21    April 5,
    
    
    December 29,
    
    
    March 31,In thousands
    
    2008
    
    
    2007
    
    
    20075% Notes, due July 2013
    
    $
    548,786
    
    
    $
    512,044
    
    
    $
    463,793Revolving credit facility and
commercial paper program
    
    
    340,600
    
    
    
    301,200
    
    
    
    224,430Capital lease obligations
    
    
    25,710
    
    
    
    26,725
    
    
    
    30,509Other (a)
    
    
    74,016
    
    
    
    47,742
    
    
    
    24,042Total debt
    
    
    989,112
    
    
    
    887,711
    
    
    
    742,774Less: current portion (b)
    
    
    77,087
    
    
    
    50,828
    
    
    
    26,824Long-term debt
    
    $
    912,025
    
    
    $
    836,883
    
    
    $
    715,950
 
 (a)
    
    At April 5, 2008, the balance includes
$73.1 million of outstanding borrowings under
working capital lines of credit.(b)
    
    At April 5, 2008, the balance consists primarily of borrowings under working capital
lines of credit and obligations under capital leases.




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##### Table of Contents



22    Outstanding
    
    Letters of
    
    AvailableIn thousands
    
    Total Capacity
    
    Borrowings
    
    Credit Issued
    
    CapacityRevolving credit facility and
commercial paper program
(a)
    
    $
    750,000
    
    
    $
    340,600
    
    
    $
    
    
    
    $
    409,400Letter of credit facility
    
    
    400,000
    
    
    
    
    
    
    
    159,129
    
    
    
    240,871Short-term borrowing facilities
    
    
    174,058
    
    
    
    73,069
    
    
    
    11,509
    
    
    
    89,480
 
 (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.     2007 Actions
 
    
    Realigning its 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 other Company-owned and licensed
wholesale-based brands).




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##### Table of Contents



23 
 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 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.
    
    On January 17, 2008, the Company announced 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 C & C
CALIFORNIA and LAUNDRY BY DESIGN brands. The Company also announced retention of
ENYCE and closure of SIGRID OLSEN, expected to be completed in the second quarter
of 2008.
    
    On April 4, 2008, the Company completed the sale of its prAna brand.
    
    In the first quarter of 2008, the Company also announced its decision
to retain the KENSIE and MAC & JAC brands.
    
    On April 10, 2008, the Company completed the sale of its 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
    Three Months EndedApril 5,
    
    
    March 31,2008
    
    
    2007In thousands
    
    (14 Weeks)
    
    
    (13 Weeks)Direct Brands
    
    $
    6,428
    
    
    $
    2Partnered Brands
    
    
    33,027
    
    
    
    6,974Total
    
    $
    39,455
    
    
    $
    6,976




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##### Table of Contents



24  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
    
    
    15,283
    
    
    
    12,853
    
    
    
    7,697
    
    
    
    3,622
    
    
    
    39,4552008 fixed asset write-downs
    
    
    
    
    
    
    
    
    
    
    (7,697
    )
    
    
    
    
    
    
    (7,697
    )Translation difference
    
    
    571
    
    
    
    242
    
    
    
    
    
    
    
    20
    
    
    
    8332008 spending
    
    
    (20,232
    )
    
    
    (7,023
    )
    
    
    
    
    
    
    (3,236
    )
    
    
    (30,491
    )Balance at April 5, 2008
    
    $
    14,189
    
    
    $
    17,895
    
    
    $
    
    
    
    $
    631
    
    
    $
    32,715
   Three Months EndedApril 5,
    
    
    March 31,2008
    
    
    2007In thousands
    
    (14 Weeks)
    
    
    (13 Weeks)(Loss) income from continuing operations
    
    $
    (14,844
    )
    
    $
    10,482(Loss) income from discontinued operations, net of tax
    
    
    (3,975
    )
    
    
    5,716Loss on disposal of discontinued operations, net of tax
    
    
    (12,202
    )
    
    
    Net (loss) income
    
    $
    (31,021
    )
    
    $
    16,198Basic weighted average shares outstanding(a)
    
    
    93,507
    
    
    
    101,796Stock options and restricted stock grants(a)(b)(c)
    
    
    
    
    
    
    1,331Diluted weighted average shares outstanding(a)
    
    
    93,507
    
    
    
    103,127Earnings per share:Basic(Loss) income from continuing operations
    
    $
    (0.16
    )
    
    $
    0.10(Loss) income from discontinued operations
    
    
    (0.04
    )
    
    
    0.06Loss on disposal of discontinued operations
    
    
    (0.13
    )
    
    
    Net (loss) income
    
    $
    (0.33
    )
    
    $
    0.16Diluted(Loss) income from continuing operations
    
    $
    (0.16
    )
    
    $
    0.10(Loss) income from discontinued operations
    
    
    (0.04
    )
    
    
    0.06Loss on disposal of discontinued operations
    
    
    (0.13
    )
    
    
    Net (loss) income
    
    $
    (0.33
    )
    
    $
    0.16
 
 (a)
    
    Because the Company incurred a loss from continuing operations in the first quarter
of 2008, outstanding stock options and restricted shares are anti-dilutive. Accordingly, basic
and diluted weighted average shares outstanding are equal for such period.(b)
    
    Options to purchase 63,000 shares of common stock were outstanding as of March 31,
2007 but were not included in the computation of diluted EPS for the three month period 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



25   
    
    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, CLAIBORNE (mens), CONCEPTS BY
CLAIBORNE, DANA BUCHMAN, ENYCE, KENSIE, LIZ & CO., LIZ CLAIBORNE, MAC & JAC, MARVELLA,
MONET, NARCISO RODRIGUEZ, SIGRID OLSEN, TRIFARI, VILLAGER, the Companys licensed DKNY®
JEANS, DKNY® ACTIVE and DKNY® MENS brands as well as the Companys other non-Direct Brands
fragrances including: CLAIBORNE, CURVE, LIZ CLAIBORNE and our licensed USHER fragrance.
  C




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26 Three Months EndedApril 5, 2008
    
    
    March 31, 2007(14 Weeks)
    
    
    (13 weeks)Direct
    
    
    Partnered
    
    
    
    
    
    
    Direct
    
    
    PartneredIn thousands
    
    Brands
    
    
    Brands
    
    
    Total
    
    
    Brands
    
    
    Brands
    
    
    TotalTotal net sales
    
    $
    620,150
    
    
    $
    501,392
    
    
    $
    1,121,542
    
    
    $
    483,623
    
    
    $
    585,577
    
    
    $
    1,069,200% to total
    
    
    55.3
    %
    
    
    44.7
    %
    
    
    100.0
    %
    
    
    45.2
    %
    
    
    54.8
    %
    
    
    100.0
    %Total operating
income
(loss)
    
    $
    27,374
    
    
    $
    (51,351
    )
    
    $
    (23,977
    )
    
    $
    50,050
    
    
    $
    (20,320
    )
    
    $
    29,730% of sales
    
    
    4.4
    %
    
    
    (10.2
    )%
    
    
    (2.1
    )%
    
    
    10.3
    %
    
    
    (3.5
    )%
    
    
    2.8
    %
  Three Months EndedApril 5, 2008
    
    
    March 31, 2007(14 Weeks)
    
    
    (13 weeks)In thousands
    
    Domestic
    
    
    International
    
    
    Total
    
    
    Domestic
    
    
    International
    
    
    TotalTotal net sales(a)
    
    $
    722,646
    
    
    $
    398,896
    
    
    $
    1,121,542
    
    
    $
    724,734
    
    
    $
    344,466
    
    
    $
    1,069,200% to total
    
    
    64.4
    %
    
    
    35.6
    %
    
    
    100.0
    %
    
    
    67.8
    %
    
    
    32.2
    %
    
    
    100.0
    %Total operating income
(loss)
    
    $
    (34,657
    )
    
    $
    10,680
    
    
    $
    (23,977
    )
    
    $
    17,009
    
    
    $
    12,721
    
    
    $
    29,730% of sales
    
    
    (4.8
    )%
    
    
    2.7
    %
    
    
    (2.1
    )%
    
    
    2.3
    %
    
    
    3.7
    %
    
    
    2.8
    %
 
 (a)
    
    International sales include MEXX sales of $342,234 and $281,481, respectively.




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##### Table of Contents



27      Stock Options
 Valuation Assumptions:
    
    April 5, 2008
    
    March 31, 2007Weighted-average fair value of options granted
    
    $
    5.02
    
    
    $
    11.51Expected volatility
    
    25.3% to 37.6%
    
    23.1% to 39.5%Weighted-average volatility
    
    
    25.7
    %
    
    
    24.0
    %Expected term (in years)
    
    
    4.5
    
    
    
    4.7Dividend yield
    
    
    1.24
    %
    
    
    0.52
    %Risk-free rate
    
    4.8% to 5.2%
    
    4.4% to 4.8%Expected annual forfeiture
    
    
    10.0
    %
    
    
    12.0
    %




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##### Table of Contents



28  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
    
    
    122,250
    
    
    
    18.12Exercised
    
    
    (3,100
    )
    
    
    16.60Cancelled
    
    
    (291,575
    )
    
    
    33.73Outstanding at April 5, 2008
    
    
    4,463,984
    
    
    $
    33.93
    
    
    
    5.1
    
    
    $
    230Vested or expected to vest at April 5, 2008
    
    
    4,284,762
    
    
    $
    33.91
    
    
    
    5.0
    
    
    $
    208Exercisable at April 5, 2008
    
    
    3,271,371
    
    
    $
    33.30
    
    
    
    4.7
    
    
    $
    111
    Restricted Stock
  WeightedAverageShares
    
    
    Exercise PriceNonvested stock at December 29, 2007 (a)
    
    
    1,538,379
    
    
    $
    38.42Granted
    
    
    341,509
    
    
    
    18.34Vested
    
    
    (306,962
    )
    
    
    35.73Cancelled
    
    
    (182,377
    )
    
    
    38.41Nonvested stock at April 5, 2008 (a)
    
    
    1,390,549
    
    
    $
    34.09Expected to vest as of April 5, 2008
    
    
    1,107,513
    
    
    $
    35.00
 
 (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.




---



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29




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##### Table of Contents



30 
 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 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, outlet and specialty retail, e-commerce and
licensing operations of our wholesale-based brands including: AXCESS, CLAIBORNE
(mens), CONCEPTS BY CLAIBORNE, DANA BUCHMAN, ENYCE, KENSIE, LIZ & CO., LIZ CLAIBORNE, MAC
& JAC, MARVELLA, MONET, NARCISO RODRIGUEZ, SIGRID OLSEN, TRIFARI, VILLAGER, the Companys
licensed DKNY® JEANS, DKNY® ACTIVE and DKNY® MENS brands as well as our other non-Direct
Brands fragrances including: CLAIBORNE, CURVE, LIZ CLAIBORNE and our licensed USHER
fragrance.




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##### Table of Contents



31  
    
    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 and concession stores located outside of the United
States).
  Competitive Profile
    Reconfiguring our organization into two new 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 also consolidated our TINT brand into LIZ & CO. and STAMP 10 brand into
AXCESS and closed our FIRST ISSUE brand.
    
    On January 8, 2008, we also announced the decision to retain the ENYCE brand and to
close our SIGRID OLSEN brand. We expect such closure to be completed in the second
quarter of 2008.
    
    On January 17, 2008, we announced that 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 expect to close




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##### Table of Contents



32 our current DANA BUCHMAN operations in the first half of 2008 and that the launch of the
DANA BUCHMAN line in Kohls stores will occur 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.
    
    On April 4, 2008, we completed the sale of our prAna brand.
    
    In the first quarter of 2008, we also announced our decision to retain the KENSIE and
MAC & JAC brands.
    
    On April 10, 2008, we completed the sale of our ELLEN TRACY brand.
 Implementing and maintaining a more competitive cost structure:
 
    
    We have accelerated our structural realignment and other initiatives to achieve cost
savings targets. Key actions taken included 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 estimate committing approximately $210 million to capital expenditures, including
approximately $140 million to open new stores primarily within our Direct Brands segment in
2008;
    
    We are honing our organizational structure to better support the unique opportunities
within our reporting units; and
    
    We anticipate spending approximately $100 million in 2008 in marketing activities in
support of our growth initiatives.
 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.
 Market Environment




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##### Table of Contents



33 Overall Results for the Three Months Ended April 5, 2008
 Net Sales
 th
 Gross Profit and (Loss) Income from Continuing Operations
  Balance Sheet
  International Operations
  Acquisitions
  ® ®




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34




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35 RESULTS OF OPERATIONS
  THREE MONTHS ENDED APRIL 5, 2008 COMPARED TO THREE MONTHS ENDED MARCH 31, 2007
  Three
Months Ended
    
    
    VarianceApril 5,
    
    
    March 31,Dollars in millions
    
    2008
    
    
    2007
    
    
    $
    
    
    %Net Sales
    
    $
    1,121.5
    
    
    $
    1,069.2
    
    
    $
    52.3
    
    
    
    4.9
    %Gross Profit
    
    
    530.9
    
    
    
    499.1
    
    
    
    31.8
    
    
    
    6.4
    %Selling, general & administrative
expenses
    
    
    554.9
    
    
    
    469.4
    
    
    
    85.5
    
    
    
    18.2
    %Operating (Loss) Income
    
    
    (24.0
    )
    
    
    29.7
    
    
    
    (53.7
    )
    
    
    *Other expense, net
    
    
    (2.7
    )
    
    
    (0.7
    )
    
    
    (2.0
    )
    
    
    (285.7
    )%Interest expense, net
    
    
    (12.1
    )
    
    
    (8.5
    )
    
    
    (3.6
    )
    
    
    (42.4
    )%(Benefit) provision for income taxes
    
    
    (24.0
    )
    
    
    10.0
    
    
    
    (34.0
    )
    
    
    *(Loss) Income from Continuing
Operations
    
    
    (14.8
    )
    
    
    10.5
    
    
    
    (25.3
    )
    
    
    *(Loss) income from discontinued
operations, net of tax
    
    
    (4.0
    )
    
    
    5.7
    
    
    
    (9.7
    )
    
    
    *Loss on disposal of discontinued
operations, net of tax
    
    
    (12.2
    )
    
    
    
    
    
    
    (12.2
    )
    
    
    *Net (Loss) Income
    
    $
    (31.0
    )
    
    $
    16.2
    
    
    $
    (47.2
    )
    
    
    *
 
 *
    
    Not meaningful.




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##### Table of Contents



36 Net Sales
 th
 
    
    Direct Brands net sales were $620.2 million, increasing $136.5 million, or 28.2%, reflecting the following:
 
    
    Net sales for MEXX were $342.2 million, a 20.3% increase
compared to 2007, primarily due to the impact of the extra week in the
quarter, as well as the impact of changes in foreign currency exchange rates of $44.7 million,
partially offset by decreases in our MEXX Europe retail operations.
 
    
    We ended the quarter with 134 specialty retail stores, 90 outlets and 292 concessions,
reflecting the net addition over the last 12 months of 4 specialty retail stores and 8 outlet
stores and the net closure of 9 concession stores;
    
    Average retail square footage in the first quarter was approximately 1.387 million square feet,
a 7.0% increase compared to 2007;
    
    Sales productivity was $91 per average square foot as compared to $110 for the first quarter of
fiscal 2007;
    
    Comparable store sales in our MEXX Company-owned stores decreased by 13.2% overall, primarily
the result of a decrease in our MEXX Europe and MEXX Canada specialty retail businesses; and
    
    A $44.7 million increase resulting from the impact of fluctuations in foreign currency exchange
rates in our European and Canadian businesses.
 
    
    Net sales for LUCKY BRAND were $110.1 million, a 21.1% increase compared to 2007, primarily
driven by increases in retail and wholesale apparel. 
    
    We ended the quarter with 173 specialty stores and 20 outlet stores, reflecting the net
addition over the last 12 months of 35 specialty stores and 13 outlet stores;
    
    Average retail square footage in the first quarter was approximately 461 thousand square feet,
a 37.6% increase compared to 2007;
    
    Sales productivity was $133 per average square foot as compared to $158 for the first quarter
of fiscal 2007; and
    
    Comparable store sales in our Company-owned stores decreased by 5.0% in the first quarter.



    
    Net sales for JUICY COUTURE were $140.2 million, a 57.5% increase compared to 2007, primarily
driven by increases in retail, and wholesale non-apparel (including fragrance).



    
    We ended the quarter with 40 specialty stores and 18 outlet stores, reflecting the net addition
over the last 12 months of 18 specialty stores and 7 outlet stores;
    
    Average retail square footage in the first quarter was approximately 169 thousand square feet,
a 100.5% increase compared to 2007;
    
    Sales productivity was $263 per average square foot as compared to $265 for the first quarter
of fiscal 2007; and
    
    Comparable store sales in our Company-owned stores increased by 15.9% in the first quarter.



    
    Net sales for KATE SPADE were $27.7 million a 44.0% increase compared to 2007, primarily driven
by an increased number of retail stores, as well as increases in our
wholesale operations.



    
    We ended the quarter with 26 specialty retail stores and 16 outlet stores reflecting the net
addition over the last 12 months of 6 specialty stores and 12 outlet stores;
    
    Average retail square footage in the first quarter was approximately 87 thousand square feet, a
68.2% increase compared to 2007;
    
    Sales productivity was $155 per average square foot as compared to $166 for the first quarter
of fiscal 2007; and
    
    Comparable store sales in our Company-owned stores decreased by 2.5% in the first quarter.





    
    New stores become comparable after 14 full fiscal months of operations (on the
1st day of the 15th full fiscal month);




---



##### Table of Contents



37 
 
    
    Except in unusual circumstances, closing stores become non-comparable one full
fiscal month prior to the scheduled closing date;
    
    A remodeled store will be changed to non-comparable when there is a 20% or more
increase/decrease in its selling square footage (effective at the start of the
fiscal month when construction begins).  The store becomes comparable again after
14 full fiscal months from the re-open date;
    
    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 $501.4 million, a decrease of $84.2 million or 14.4%, reflecting:
 
    
    Our department store customers continued focus
on inventory productivity and product
differentiation to gain competitive market share
and improve margins and cash flows as discussed
above. This operating environment continued to
adversely affect our Partnered Brands segment,
and contributed to reduced sales in the
following brands: LIZ CLAIBORNE, CLAIBORNE, and
ENYCE brands. Sales also declined in the
following brands; SIGRID OLSEN (closing in the
second quarter of 2008), Cosmetics (due to the
closure of certain brands), FIRST ISSUE (which
closed in early 2008), ELLEN TRACY (which was
sold on April 10, 2008), DANA BUCHMAN (licensed
on an exclusive basis to Kohls in January 2008,
with current operations expected to close in the
first half of 2008 and the licensed offering
expected to be launched no later than the first
quarter of 2009), partially offset by increases
in our LIZ & CO. and CONCEPTS BY CLAIBORNE,
licensed
DKNY®
Jeans, KENSIE (due to
increased department store distribution),
licensed USHER fragrance (launched in the third
quarter of 2007) and the inclusion of sales from
NARCISO RODRIGUEZ (acquired in May of 2007); and
    
    The impact of foreign currency exchange rates
increased sales by $7.1 million primarily
related to our LIZ CLAIBORNE operations in
Europe and Canada.
 Domestic International
 Gross Profit
  Selling, General & Administrative Expenses
  
    
    The inclusion of $11.0 million of expenses associated
with our NARCISO RODRIGUEZ brand (acquired in
May 2007) and the addition of our licensed USHER fragrance;
 
    
    A $32.5 million increase in expenses associated with our streamlining initiatives;
 
    
    A $23.4 million decrease in Partnered Brands SG&A and marketing expenses;
 
    
    A $15.0 million increase in Direct Brands SG&A;
 
    
    A $28.6 million increase due to the impact of fluctuations in foreign currency exchange rates in our
international operations;




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38 
 
    
    A $23.0 million increase primarily resulting from the retail expansion in our Direct Brands segment;
 
    
    The inclusion of a $7.7 million charge associated with the sale of our former ELLEN TRACY brand; and
 
    
    An $8.9 million decrease in corporate SG&A.
  Operating (Loss) Income
  
    
    Direct Brands operating income was $27.4 million, decreasing $22.7
million, or 45.3%, as a result of reduced earnings in our JUICY
COUTURE and LUCKY BRAND operations as a result of expenses associated
with brand building and reduced income in our MEXX Europe operations,
partially offset by the $1.6 million impact of foreign currency
exchange rates in our international operations.
 
    
    Partnered Brands operating loss in the first quarter was $51.4 million
((10.2)% of net sales), compared to operating loss of $20.3 million
((3.5)% 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.
 Domestic International
 Other Expense, Net
  Interest Expense, Net
  (Benefit) Provision for Income Taxes
  (Loss) Income from Continuing Operations
  (Loss) Income from Discontinued Operations, Net of Tax




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39 Loss on Disposal of Discontinued Operations, Net of Tax
  Net (Loss) Income
  FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
 Cash Requirements
 Sources of Cash.
 2008 vs. 2007
 Cash and Debt Balances.
 Accounts Receivable




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##### Table of Contents



40  Inventories
 Borrowings
 Net cash used in operating activities
 Net cash provided by (used in) investing activities
 Net cash provided by financing activities
 Commitments and Capital Expenditures
  
    
    On January 16, 2008, January 16, 2007 and January 17, 2006, we
purchased 0.4 percent, 1.5 percent and 1.9 percent, respectively, of
the remaining outstanding shares of LUCKY BRAND for payments of $5.0
million, $10.0 million and $10 million, respectively. We will acquire
0.4% of the equity of Lucky Brand in each of January of 2009 and 2010
for payments of $5.0 million each. The remaining 2.28% of the original
shares outstanding will be settled for an aggregate purchase price
composed of the following two installments: (i) the 2008 payment of
$14.4 million will be made in the first half of 2008 based on a
multiple of LUCKY BRANDs 2007 earnings and (ii) the 2011 payment will
be based on a multiple of LUCKY BRANDs 2010 earnings, net of the 2008
payment which we estimate will be in the range of $9-12 million.
 
    
    The Juicy Couture acquisition agreement provides for a contingent
payment to the former owners of Juicy Couture 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




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##### Table of Contents



41 million on May 23, 2007. These payments were accounted for as
additional purchase price and increases to goodwill. The 2008 payment
of $72.9 million will be made in the second quarter of 2008 based on a
multiple of Juicy Coutures 2007 earnings, which we have accounted for
as additional purchase price and an increase to goodwill.
 
    
    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
currently estimate that the aggregate of these contingent payments
will be in the range of approximately $20-29 million and will be
accounted for as additional purchase price when paid.
 Financing Arrangements
  April 5,
    
    
    December 29,
    
    
    March 31,In thousands
    
    2008
    
    
    2007
    
    
    20075% Notes
    
    $
    548,786
    
    
    $
    512,044
    
    
    $
    463,793Revolving credit
facility and commercial
paper program
    
    
    340,600
    
    
    
    301,200
    
    
    
    224,430Capital lease obligations
    
    
    25,710
    
    
    
    26,725
    
    
    
    30,509Other (a)
    
    
    74,016
    
    
    
    47,742
    
    
    
    24,042Total debt
    
    $
    989,112
    
    
    $
    887,711
    
    
    $
    742,774
 
 (a)
    
    At April 5, 2008, the balance includes $73.1 million of
outstanding borrowings under
working capital lines of credit.




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##### Table of Contents



42    Outstanding
    
    Letters of Credit
    
    AvailableIn thousands
    
    Total Capacity
    
    Borrowings
    
    Issued
    
    CapacityRevolving credit facility and
commercial paper program
(a)
    
    $
    750,000
    
    
    $
    340,600
    
    
    $
    
    
    
    $
    409,400Letter of credit facility
    
    
    400,000
    
    
    
    
    
    
    
    159,129
    
    
    
    240,871Short-term borrowing facilities
    
    
    174,058
    
    
    
    73,069
    
    
    
    11,509
    
    
    
    89,480
 
 (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. Off-Balance Sheet Arrangements
  Hedging Activities




---



##### Table of Contents



43   USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES
     Revenue Recognition




---



##### Table of Contents



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




---



##### Table of Contents



45




---



##### Table of Contents



46  Accrued Expenses
  Derivative Instruments
      Share-Based Compensation




---



##### Table of Contents



47 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
    
    $
    457Financial
Liabilities:Derivatives
    
    $
    9,196
  RECENT ACCOUNTING PRONOUNCEMENTS




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##### Table of Contents



48   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   In millions
    
    April 5, 2008
    
    December 29, 2007
    
    March 31, 2007Variable rate debt
    
    $
    413.7
    
    
    $
    348.0
    
    
    $
    247.9Average interest rate
    
    
    4.31
    %
    
    
    5.65
    %
    
    
    5.23
    %




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##### Table of Contents



49   U.S. Dollar
    
    Hong Kong
    
    Contract
    
    UnrealizedCurrency in thousands
    
    Amount
    
    Dollar Amount
    
    Rate
    
    Gain (Loss)Forward Contracts:Euro
    
    
    
    
    
    
    544,875
    
    
    
    0.0835 to 0.0991
    
    
    $
    (8,383
    )Canadian Dollars
    
    $
    13,797
    
    
    
    
    
    
    
    0.9746 to 1.0234
    
    
    
    Canadian Dollars
    
    
    
    
    
    
    154,524
    
    
    
    0.1272 to 0.1322
    
    
    
    116Euro
    
    $
    18,500
    
    
    
    
    
    
    
    0.6510 to 0.6837
    
    
    
    (675
    )Foreign Exchange Collar Contracts:Canadian Dollars
    
    $
    5,549
    
    
    
    
    
    
    
    0.9709 to 1.0417
    
    
    
    
  U.S. Dollar
    
    Hong Kong
    
    Contract
    
    UnrealizedCurrency in thousands
    
    Amount
    
    Dollar Amount
    
    Rate
    
    LossForward 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
    
    
    
    
  U.S. Dollar
    
    Hong Kong
    
    Contract
    
    UnrealizedCurrency in thousands
    
    Amount
    
    Dollar Amount
    
    Rate
    
    LossForward Contracts:Euro
    
    
    
    
    
    
    565,751
    
    
    
    0.0968 to 0.0998
    
    
    $
    (2,064
    )Canadian Dollars
    
    $
    8,190
    
    
    
    
    
    
    
    0.8702 to 0.8728
    
    
    
    Canadian Dollars
    
    
    
    
    
    
    74,229
    
    
    
    0.1482 to 1.1482
    
    
    
    (24
    )Foreign Exchange Collar Contracts:Euro
    
    
    
    
    
    
    23,250
    
    
    
    0.0980 to 0.1007
    
    
    $
    (78
    )Canadian Dollars
    
    $
    7,363
    
    
    
    
    
    
    
    0.8403 to 0.8925
    
    
    
    Canadian Dollars
    
    
    
    
    
    $
    61,764
    
    
    
    0.1428 to 0.1527
    
    
    
    (11
    )
 
 ITEM 4. CONTROLS AND PROCEDURES




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##### Table of Contents



50  
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
   
 ITEM 1A. RISK FACTORS
  Risks Related to Our Business and Our Long-Term Growth Strategy
 We cannot assure the successful implementation and results of the long-term strategic plan that we
announced in July 2007.
  
    
    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 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




---



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51 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 as announced on June 20, 2007.
 
    
    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 will have a
material adverse impact on our ability to achieve the growth we
project in our Direct Brands segment.
 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.
   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.




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##### Table of Contents



52  Our business could suffer if we cannot adequately establish, defend and protect our trademarks and
other proprietary rights.
  Our success will depend on our ability to successfully develop or acquire new product lines or
enter new markets or product categories.
  
    
    Our ability to identify appropriate business development
opportunities, including new product lines and markets.
 
    
    New businesses, product lines or market activities may require methods
of operations, investments and marketing and financial strategies
different from those employed in our other businesses, and may also
involve buyers, store customers and/or competitors different from our
historical buyers, store customers and competitors.
 
    
    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 and our
NARCISO RODRIGUEZ brand, 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.
 Our ability to continue to have the liquidity necessary, through cash flow from operations and
financing, may be adversely impacted by a number of factors, including the downgrading of our
credit rating.




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##### Table of Contents



53     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 U. S. department
store customers, and our business could suffer as a result of consolidations, restructurings and
other ownership changes in the retail industry.




---



##### Table of Contents



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




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##### Table of Contents



55 Economic, Social, Political and Regulatory Risks
 General
economic conditions, including continued weakening of the economy, may affect consumer purchases of
discretionary items and fashion and retail products, which could adversely affect our sales.
    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 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




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56 
 
    
    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
  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 30, 2007 - February 2, 2008
    
    
    10.3
    (1)
    
    $
    20.35
    
    
    
    
    
    
    $
    28,749February 3, 2008 - March 8, 2008
    
    
    98.6
    (1)
    
    
    18.01
    
    
    
    
    
    
    
    28,749March 9, 2008 - April 5, 2008
    
    
    3.1
    (1)
    
    
    19.12
    
    
    
    
    
    
    
    28,749Total 14 weeks ended April 5, 2008
    
    
    112.0
    (1)
    
    $
    18.25
    
    
    
    
    
    
    $
    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 May 2, 2008, the
Company had $28.7 million remaining in buyback
authorization under its program. 
 ITEM 5. OTHER INFORMATION




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##### Table of Contents



57 
 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



58 
 SIGNATURES
   LIZ CLAIBORNE, INC.
    
    
    
    LIZ CLAIBORNE, INC.By:
    
    /s/ Andrew Warren

ANDREW WARREN
    
    
    
    By:
    
    /s/ Elaine H. Goodell

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