##### 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 October 3, 2009
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 1-10689
 LIZ CLAIBORNE, INC.
  Delaware
    
    13-2842791(State or other jurisdiction of
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)
 Yes
þ No
o
 Yes
o No o
  Large accelerated filer  þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o
 Yes o No þ




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##### 



LIZ CLAIBORNE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
October 3, 2009
 PAGENUMBERPART I   FINANCIAL INFORMATIONItem 1. Financial Statements:Condensed Consolidated Balance Sheets as of October 3, 2009
(Unaudited), January 3, 2009 and October 4, 2008 (Unaudited)
    
    4Condensed Consolidated Statements of Operations for the Nine
and Three Month Periods Ended October 3, 2009 (Unaudited) and
October 4, 2008 (Unaudited)
    
    5Condensed Consolidated Statements of Cash Flows for the Nine
Month Periods Ended October 3, 2009 (Unaudited) and October 4,
2008 (Unaudited)
    
    6Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    7  34Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    35  59Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    59  60Item 4. Controls and Procedures
    
    60PART II   OTHER INFORMATIONItem 1. Legal Proceedings
    
    61Item 1A. Risk Factors
    
    61  72Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    72Item 5. Other Information
    
    72Item 6. Exhibits
    
    73SIGNATURES
    
    74Exhibit 31(a)Exhibit 31(b)Exhibit 32(a)Exhibit 32(b)




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STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
  
    
    our ability to continue to have the liquidity necessary, through cash flows from operations
and availability under our amended and extended credit facility, which may be adversely
impacted by a number of factors, including the level of our operating cash flows, our ability
to maintain established levels of availability under, and to comply with the financial and
other covenants included in our amended and extended credit facility and the borrowing base
requirement in our amended and extended credit facility that limits the amount of borrowings
we may make based on a formula of, among other things, eligible accounts receivable and
inventory,
the minimum availability covenant in our amended credit facility that requires us to
maintain availability in excess of an agreed upon level and whether holders of our
Convertible Notes issued in June 2009 will, if and when such notes become convertible,
elect to convert a substantial portion of such notes, the par value of which we must
currently settle in cash (based on stock performance in the third quarter of 2009, the Convertible Notes
are convertible in the fourth quarter of 2009);
 
    
    general economic conditions in the United States, Europe and other parts of the world;
 
    
    lower levels of consumer confidence, consumer spending and purchases of discretionary
items, including fashion apparel and related products, such as ours;
 
    
    continued restrictions in the credit and capital markets, which would impair our ability to
access additional sources of liquidity, if needed;
 
    
    changes in the cost of raw materials, labor, advertising and transportation;
 
    
    our dependence on a limited number of large US department store customers, and the risk of
consolidations, restructurings, bankruptcies, changes in our brand relationships and other
ownership changes in the retail industry and financial difficulties at our larger department
store customers;
 
    
    our ability to successfully implement our long-term strategic plans;
 
    
    our ability to effect a turnaround of our MEXX Europe business;
 
    
    our ability to respond to constantly changing consumer demands and tastes and fashion
trends, across multiple product lines, shopping channels and geographies;
 
    
    our ability to attract and retain talented, highly qualified executives, and maintain
satisfactory relationships with our employees, both union and non-union;
 
    
    our ability to adequately establish, defend and protect our trademarks and other
proprietary rights;
 
    
    our ability to successfully develop or acquire new product lines or enter new markets or
product categories, and risks related to such new lines, markets or categories;
 
    
    risks associated with the implementation of the licensing arrangements with J.C. Penney
Corporation, Inc. and QVC, Inc. discussed in this Report, including, without limitation, our
ability to efficiently change our operational model and infrastructure as a result of such
licensing arrangements, our ability to continue a good working
relationship with these
licensees and possible changes in our other brand relationships or relationships with other
retailers as a result;
 
    
    the impact of the highly competitive nature of the markets within which we operate, both
within the United States and abroad;
 
    
    our reliance on independent foreign manufacturers, including the risk of their failure to
comply with safety standards or our policies regarding labor practices;
 
    
    risks associated with our agreement with Li & Fung Limited, which results in a single
foreign buying agent for substantially all of our products, including
either the possible payment by the Company of additional amounts to compensate
Li & Fung Limited for any annual shortfall in minimum product volumes or
the possible repayment of
amounts received from Li & Fung Limited as a result of reduced sourcing volume resulting from
the licensing arrangements with J.C. Penney Corporation, Inc. and QVC, Inc;
 
    
    our international operations are subject to a variety of legal, regulatory, political and
economic risks, including risks relating to the importation and exportation of product;
 
    
    our ability to adapt to and compete effectively in the current quota environment in which
general quota has expired on apparel products but political activity seeking to re-impose
quota has been initiated or threatened;
 
    
    our exposure to domestic and
foreign currency fluctuations; and
 
    
    our ability to utilize our
deferred tax assets may be limited significantly if we experience an
ownership change.
   3




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
  October 3, 2009
    
    
    
    
    
    October 4, 2008(Unaudited)
    
    
    January 3, 2009
    
    
    (Unaudited)AssetsCurrent Assets:Cash and cash equivalents
    
    $
    25,173
    
    
    $
    25,431
    
    
    $
    50,342Accounts receivable  trade, net
    
    
    369,724
    
    
    
    339,158
    
    
    
    483,327Inventories, net
    
    
    409,964
    
    
    
    464,619
    
    
    
    549,270Deferred income taxes
    
    
    8,179
    
    
    
    6,816
    
    
    
    73,128Other current assets
    
    
    120,375
    
    
    
    223,379
    
    
    
    274,745Assets held for sale
    
    
    16,649
    
    
    
    
    
    
    
    10,267Total current assets
    
    
    950,064
    
    
    
    1,059,403
    
    
    
    1,441,079Property and Equipment, Net
    
    
    494,725
    
    
    
    572,428
    
    
    
    590,070Goodwill, Net
    
    
    
    
    
    
    
    
    
    
    676,753Intangibles, Net
    
    
    247,285
    
    
    
    251,267
    
    
    
    254,422Deferred Income Taxes
    
    
    2,474
    
    
    
    2,200
    
    
    
    31,297Other Assets
    
    
    31,066
    
    
    
    20,154
    
    
    
    20,773Total Assets
    
    $
    1,725,614
    
    
    $
    1,905,452
    
    
    $
    3,014,394Liabilities and Stockholders EquityCurrent Liabilities:Short-term borrowings
    
    $
    229,066
    
    
    $
    110,219
    
    
    $
    61,807Accounts payable
    
    
    188,335
    
    
    
    211,529
    
    
    
    238,566Accrued expenses
    
    
    250,053
    
    
    
    301,591
    
    
    
    304,456Income taxes payable
    
    
    6,439
    
    
    
    3,890
    
    
    
    7,101Deferred income taxes
    
    
    
    
    
    
    
    
    
    
    1,125Total current liabilities
    
    
    673,893
    
    
    
    627,229
    
    
    
    613,055Long-Term Debt
    
    
    599,520
    
    
    
    633,420
    
    
    
    912,046Other Non-Current Liabilities
    
    
    159,779
    
    
    
    98,786
    
    
    
    107,649Deferred Income Taxes
    
    
    39,765
    
    
    
    38,358
    
    
    
    363Commitments and Contingencies (Note 10)Stockholders Equity:Preferred stock, $.01 par value,
authorized shares  50,000,000, issued
shares  none
    
    
    
    
    
    
    
    
    
    
    Common stock, $1 par value, authorized
shares 
250,000,000, issued shares  176,437,234
    
    
    176,437
    
    
    
    176,437
    
    
    
    176,437Capital in excess of par value
    
    
    315,574
    
    
    
    292,144
    
    
    
    299,274Retained earnings
    
    
    1,711,028
    
    
    
    1,975,082
    
    
    
    2,809,150Accumulated other comprehensive loss
    
    
    (76,559
    )
    
    
    (66,716
    )
    
    
    (31,952
    )2,126,480
    
    
    
    2,376,947
    
    
    
    3,252,909Common stock in treasury, at cost
81,420,425, 81,316,925 and 81,658,019
shares
    
    
    (1,877,281
    )
    
    
    (1,873,300
    )
    
    
    (1,875,522
    )Total Liz Claiborne, Inc. stockholders
equity
    
    
    249,199
    
    
    
    503,647
    
    
    
    1,377,387Noncontrolling interest
    
    
    3,458
    
    
    
    4,012
    
    
    
    3,894Total stockholders equity
    
    
    252,657
    
    
    
    507,659
    
    
    
    1,381,281Total Liabilities and Stockholders Equity
    
    $
    1,725,614
    
    
    $
    1,905,452
    
    
    $
    3,014,394
   4




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##### Table of Contents



LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
   Nine Months Ended
    
    
    Three Months EndedOctober 3, 2009
    
    
    October 4, 2008
    
    
    October 3, 2009
    
    
    October 4, 2008(39 Weeks)
    
    
    (40 Weeks)
    
    
    (13 Weeks)
    
    
    (13 Weeks)Net Sales
    
    $
    2,233,054
    
    
    $
    3,073,773
    
    
    $
    769,619
    
    
    $
    1,014,969Cost of goods sold
    
    
    1,208,999
    
    
    
    1,586,358
    
    
    
    420,776
    
    
    
    514,615Gross Profit
    
    
    1,024,055
    
    
    
    1,487,415
    
    
    
    348,843
    
    
    
    500,354Selling, general & administrative expenses
    
    
    1,220,639
    
    
    
    1,495,280
    
    
    
    408,509
    
    
    
    474,115Trademark impairment
    
    
    
    
    
    
    10,046
    
    
    
    
    
    
    
    10,046Goodwill impairment
    
    
    2,785
    
    
    
    
    
    
    
    
    
    
    
    Operating (Loss) Income
    
    
    (199,369
    )
    
    
    (17,911
    )
    
    
    (59,666
    )
    
    
    16,193Other (expense) income, net
    
    
    (11,471
    )
    
    
    (2,741
    )
    
    
    (10,097
    )
    
    
    819Interest expense, net
    
    
    (46,862
    )
    
    
    (33,922
    )
    
    
    (17,410
    )
    
    
    (12,050
    )(Loss) Income Before (Benefit) Provision for
Income Taxes
    
    
    (257,702
    )
    
    
    (54,574
    )
    
    
    (87,173
    )
    
    
    4,962(Benefit) provision for income taxes
    
    
    (5,830
    )
    
    
    (23,692
    )
    
    
    621
    
    
    
    14,360Loss from Continuing Operations
    
    
    (251,872
    )
    
    
    (30,882
    )
    
    
    (87,794
    )
    
    
    (9,398
    )Discontinued operations, net of income
taxes
    
    
    (12,708
    )
    
    
    (91,893
    )
    
    
    (2,918
    )
    
    
    (59,306
    )Net Loss
    
    
    (264,580
    )
    
    
    (122,775
    )
    
    
    (90,712
    )
    
    
    (68,704
    )Net (loss) income attributable to the
noncontrolling interest
    
    
    (554
    )
    
    
    134
    
    
    
    (171
    )
    
    
    21Net Loss Attributable to Liz Claiborne, Inc.
    
    $
    (264,026
    )
    
    $
    (122,909
    )
    
    $
    (90,541
    )
    
    $
    (68,725
    )Earnings per Share:Basic and DilutedLoss from Continuing Operations Attributable to
Liz Claiborne, Inc.
    
    $
    (2.67
    )
    
    $
    (0.33
    )
    
    $
    (0.93
    )
    
    $
    (0.10
    )Net Loss Attributable to Liz Claiborne, Inc.
    
    $
    (2.81
    )
    
    $
    (1.31
    )
    
    $
    (0.96
    )
    
    $
    (0.73
    )Weighted Average Shares, Basic and Diluted
    
    
    93,855
    
    
    
    93,608
    
    
    
    93,908
    
    
    
    93,641
   5




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##### Table of Contents



LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
   Nine Months EndedOctober 3, 2009
    
    
    October 4, 2008(39 Weeks)
    
    
    (40 Weeks)Cash Flows from Operating Activities:Net loss
    
    $
    (264,580
    )
    
    $
    (122,775
    )Adjustments to arrive at loss from continuing operations
    
    
    12,708
    
    
    
    91,893Loss from continuing operations
    
    
    (251,872
    )
    
    
    (30,882
    )Adjustments to reconcile loss from continuing operations to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    120,632
    
    
    
    117,745Impairment of goodwill and trademark
    
    
    2,785
    
    
    
    10,046Loss on asset disposals and impairments, including streamlining
initiatives
    
    
    24,956
    
    
    
    17,796Share-based compensation
    
    
    6,689
    
    
    
    11,738Other, net
    
    
    101
    
    
    
    (85
    )Changes in assets and liabilities, exclusive of acquisitions:Increase in accounts receivable  trade, net
    
    
    (19,363
    )
    
    
    (60,460
    )Decrease (increase) in inventories, net
    
    
    56,003
    
    
    
    (37,338
    )Decrease (increase) in other current and non-current assets
    
    
    26,439
    
    
    
    (11,195
    )(Decrease) increase in accounts payable
    
    
    (20,885
    )
    
    
    19,912Increase (decrease) in accrued expenses and other non-current
liabilities
    
    
    843
    
    
    
    (67,254
    )Net change in income tax assets and liabilities
    
    
    94,615
    
    
    
    (61,053
    )Net cash used in operating activities of discontinued operations
    
    
    (13,962
    )
    
    
    (26,763
    )Net cash provided by (used in) operating activities
    
    
    26,981
    
    
    
    (117,793
    )Cash Flows from Investing Activities:Proceeds from disposition
    
    
    
    
    
    
    21,252Purchases of property and equipment
    
    
    (55,015
    )
    
    
    (141,681
    )Payments for purchases of businesses
    
    
    (8,755
    )
    
    
    (84,420
    )Payments for in-store merchandise shops
    
    
    (5,794
    )
    
    
    (5,793
    )Other, net
    
    
    (270
    )
    
    
    (211
    )Net cash provided by investing activities of discontinued operations
    
    
    
    
    
    
    64,769Net cash used in investing activities
    
    
    (69,834
    )
    
    
    (146,084
    )Cash Flows from Financing Activities:Short-term borrowings, net
    
    
    (9,541
    )
    
    
    122,408Proceeds from issuance of convertible senior notes
    
    
    90,000
    
    
    
    Principal payments under capital lease obligations
    
    
    (3,246
    )
    
    
    (3,128
    )Dividends paid
    
    
    
    
    
    
    (15,793
    )Payment of deferred financing fees
    
    
    (39,130
    )
    
    
    (2,304
    )Other
    
    
    
    
    
    
    70Net cash provided by financing activities
    
    
    38,083
    
    
    
    101,253Effect of Exchange Rate Changes on Cash and Cash Equivalents
    
    
    4,512
    
    
    
    7,565Net Change in Cash and Cash Equivalents
    
    
    (258
    )
    
    
    (155,059
    )Cash and Cash Equivalents at Beginning of Period
    
    
    25,431
    
    
    
    205,401Cash and Cash Equivalents at End of Period
    
    $
    25,173
    
    
    $
    50,342
   6




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LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
      
    
    Domestic-Based Direct Brands segment  consists of the specialty
retail, outlet, wholesale apparel, wholesale non-apparel (including accessories, jewelry,
and handbags), e-commerce and licensing operations of the Companys three domestic,
retail-based operating segments: JUICY COUTURE, KATE SPADE and LUCKY BRAND.
 
    
    International-Based Direct Brands segment  consists of the specialty
retail, outlet, concession, wholesale apparel, wholesale non-apparel (including
accessories, jewelry and handbags), e-commerce and licensing operations of MEXX, the
Companys international, retail-based operating segment.
 
    
    Partnered Brands segment  consists of one operating segment including
the wholesale apparel, wholesale non-apparel, specialty retail, outlet, e-commerce and
licensing operations of the Companys wholesale-based brands
including: AXCESS,
CLAIBORNE (mens), CONCEPTS BY CLAIBORNE, DANA BUCHMAN, KENSIE, LIZ & CO., LIZ CLAIBORNE,
MAC & JAC, MARVELLA, MONET, TRIFARI, and the Companys licensed DKNY® JEANS, DKNY® ACTIVE
and DKNY® MENS brands.
    7




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NATURE OF OPERATIONS
  PRINCIPLES OF CONSOLIDATION
  USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES
    8




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




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Goodwill and Intangibles, Net
         10




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Accrued Expenses
  Derivative Instruments
    11




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Share-Based Compensation
  OTHER SIGNIFICANT ACCOUNTING POLICIES
 Fair Value Measurements
   Level 1 
    
    Quoted market prices in active markets for identical assets or liabilities;Level 2 
    
    Inputs other than Level 1 inputs that are either directly or indirectly
observable; andLevel 3 
    
    Unobservable inputs developed using estimates and assumptions developed
by the Company, which reflect those that a market participant would use.
      12




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




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Advertising, Promotion and Marketing
  Shipping and Handling Costs
  Fiscal Year
  Subsequent Events
  RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
      14




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LIQUIDITY AND OTHER MATTERS
 Liquidity Enhancement and Cost Reduction
      15




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16




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Nine Months Ended
    
    
    Three Months EndedOctober 3, 2009
    
    
    October 4, 2008
    
    
    October 3, 2009
    
    
    October 4, 2008In thousands
    
    (39 Weeks)
    
    
    (40 Weeks)
    
    
    (13 Weeks)
    
    
    (13 Weeks)Net sales
    
    $
    115
    
    
    $
    71,021
    
    
    $
    (346
    )
    
    $
    6,268Loss before benefit for income taxes
    
    $
    (8,575
    )
    
    $
    (43,787
    )
    
    $
    (1,398
    )
    
    $
    (13,263
    )Benefit for income taxes
    
    
    
    
    
    
    (16,998
    )
    
    
    
    
    
    
    (5,164
    )Loss from discontinued operations,
net of income taxes
    
    $
    (8,575
    )
    
    $
    (26,789
    )
    
    $
    (1,398
    )
    
    $
    (8,099
    )Loss on disposal of discontinued
operations, net of income taxes
    
    $
    (4,133
    )
    
    $
    (65,104
    )
    
    $
    (1,520
    )
    
    $
    (51,207
    )
    CommonCapital in
    
    
    
    
    
    
    stock inexcess of par
    
    
    Retained
    
    
    treasury, at
    
    
    NoncontrollingIn thousands
    
    value
    
    
    earnings
    
    
    cost
    
    
    interestBalance as of January 3, 2009
    
    $
    292,144
    
    
    $
    1,975,082
    
    
    $
    (1,873,300
    )
    
    $
    4,012Net loss
    
    
    
    
    
    
    (264,026
    )
    
    
    
    
    
    
    (554
    )Issuance of convertible senior notes, net
    
    
    11,992
    
    
    
    
    
    
    
    
    
    
    
    Restricted shares issued, net of
cancellations and
shares withheld for taxes
    
    
    4,778
    
    
    
    
    
    
    
    (4,027
    )
    
    
    Share-based compensation
    
    
    6,689
    
    
    
    
    
    
    
    
    
    
    
    Dividend equivalent units vested
    
    
    (29
    )
    
    
    (28
    )
    
    
    46
    
    
    
    Balance as of October 3, 2009
    
    $
    315,574
    
    
    $
    1,711,028
    
    
    $
    (1,877,281
    )
    
    $
    3,458
  17




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CommonCapital in
    
    
    
    
    
    
    stock inexcess of par
    
    
    Retained
    
    
    treasury, at
    
    
    NoncontrollingIn thousands
    
    value
    
    
    earnings
    
    
    cost
    
    
    interestBalance as of December 29, 2007
    
    $
    296,158
    
    
    $
    2,948,085
    
    
    $
    (1,880,534
    )
    
    $
    3,760Net (loss) income
    
    
    
    
    
    
    (122,909
    )
    
    
    
    
    
    
    134Restricted shares issued, net of
cancellations and
shares withheld for taxes
    
    
    (6,674
    )
    
    
    
    
    
    
    4,977
    
    
    
    Share-based compensation
    
    
    11,806
    
    
    
    
    
    
    
    
    
    
    
    Stock options exercised
    
    
    35
    
    
    
    
    
    
    
    35
    
    
    
    Tax benefit on exercise of options
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    Tax deficiency related to
share-based compensation
    
    
    (2,058
    )
    
    
    
    
    
    
    
    
    
    
    Dividend equivalent units vested
    
    
    
    
    
    
    (233
    )
    
    
    
    
    
    
    Dividends declared
    
    
    
    
    
    
    (15,793
    )
    
    
    
    
    
    
    Balance as of October 4, 2008
    
    $
    299,274
    
    
    $
    2,809,150
    
    
    $
    (1,875,522
    )
    
    $
    3,894
  Nine Months Ended
    
    
    Three Months EndedOctober 3, 2009
    
    
    October 4, 2008
    
    
    October 3, 2009
    
    
    October 4, 2008In thousands
    
    (39 Weeks)
    
    
    (40 Weeks)
    
    
    (13 Weeks)
    
    
    (13 Weeks)Net loss
    
    $
    (264,580
    )
    
    $
    (122,775
    )
    
    $
    (90,712
    )
    
    $
    (68,704
    )Other comprehensive loss, net of income taxes:Change in cumulative translation adjustment
    
    
    (2,307
    )
    
    
    (29,863
    )
    
    
    (2,335
    )
    
    
    (37,865
    )Change in cumulative translation adjustment on
Eurobond and other instruments, net of income
taxes of $2,116, $10,570, $1,083 and $6,937,
respectively
    
    
    913
    
    
    
    14,954
    
    
    
    4,223
    
    
    
    46,996Changes in unrealized losses on
available-for-sale securities, net of income
taxes of $0, $91,
$0 and $41, respectively
    
    
    196
    
    
    
    (100
    )
    
    
    19
    
    
    
    (61
    )Changes in fair value of cash flow hedges, net
of income taxes of $(1,007), $(2,944), $(699)
and $(2,592), respectively
    
    
    (8,645
    )
    
    
    7,639
    
    
    
    (3,410
    )
    
    
    7,536Comprehensive loss
    
    
    (274,423
    )
    
    
    (130,145
    )
    
    
    (92,215
    )
    
    
    (52,098
    )Comprehensive loss (income) attributable to the
noncontrolling interest
    
    
    554
    
    
    
    (134
    )
    
    
    171
    
    
    
    (21
    )Comprehensive loss attributable to Liz Claiborne, Inc.
    
    $
    (273,869
    )
    
    $
    (130,279
    )
    
    $
    (92,044
    )
    
    $
    (52,119
    )
  18




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##### Table of Contents



In thousands
    
    October 3, 2009
    
    
    January 3, 2009
    
    
    October 4, 2008Cumulative translation adjustment, net of income taxes
of $15,999, $18,115 and $8,840, respectively
    
    $
    (64,416
    )
    
    $
    (63,022
    )
    
    $
    (33,181
    )Unrealized (losses) gains on cash flow hedging
derivatives, net of income taxes of $2,325, $1,318 and
$(623), respectively
    
    
    (11,792
    )
    
    
    (3,147
    )
    
    
    1,437Unrealized losses on available-for-sale securities, net
of income taxes of $0, $0 and $137, respectively
    
    
    (351
    )
    
    
    (547
    )
    
    
    (208
    )Accumulated other comprehensive loss, net of income taxes
    
    $
    (76,559
    )
    
    $
    (66,716
    )
    
    $
    (31,952
    )
   In thousands
    
    October 3, 2009
    
    
    January 3, 2009
    
    
    October 4, 2008Raw materials
    
    $
    10,964
    
    
    $
    25,778
    
    
    $
    26,168Work in process
    
    
    2,028
    
    
    
    2,975
    
    
    
    6,575Finished goods
    
    
    396,972
    
    
    
    435,866
    
    
    
    516,527Total inventories, net
    
    $
    409,964
    
    
    $
    464,619
    
    
    $
    549,270
   In thousands
    
    October 3, 2009
    
    
    January 3, 2009
    
    
    October 4, 2008Land and buildings
    
    $
    69,300
    
    
    $
    108,175
    
    
    $
    108,175Machinery and equipment
    
    
    334,147
    
    
    
    373,094
    
    
    
    394,117Furniture and fixtures
    
    
    291,107
    
    
    
    277,563
    
    
    
    284,786Leasehold improvements
    
    
    566,100
    
    
    
    545,516
    
    
    
    544,5881,260,654
    
    
    
    1,304,348
    
    
    
    1,331,666Less: Accumulated depreciation
and amortization
    
    
    765,929
    
    
    
    731,920
    
    
    
    741,596Total property and equipment, net
    
    $
    494,725
    
    
    $
    572,428
    
    
    $
    590,070
   19




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##### Table of Contents



WeightedAverageAmortizationIn thousands
    
    Period
    
    
    October 3, 2009
    
    
    January 3, 2009
    
    
    October 4, 2008Amortized
intangible assets:Gross carrying amount:Licensed trademarks
    
    15 years
    
    
    $
    32,154
    
    
    $
    32,154
    
    
    $
    32,449Owned trademarks
    
    5 years
    
    
    
    1,000
    
    
    
    1,000
    
    
    
    1,000Customer relationships
    
    12 years
    
    
    
    12,159
    
    
    
    11,955
    
    
    
    12,930Merchandising rights
    
    4 years
    
    
    
    48,024
    
    
    
    49,888
    
    
    
    48,541Other
    
    4 years
    
    
    
    2,322
    
    
    
    2,618
    
    
    
    2,618Subtotal
    
    9 years
    
    
    
    95,659
    
    
    
    97,615
    
    
    
    97,538Accumulated amortization:Licensed trademarks
    
    
    
    
    
    
    (22,125
    )
    
    
    (19,795
    )
    
    
    (18,699
    )Owned trademarks
    
    
    
    
    
    
    (466
    )
    
    
    (316
    )
    
    
    (267
    )Customer relationships
    
    
    
    
    
    
    (3,161
    )
    
    
    (2,375
    )
    
    
    (2,600
    )Merchandising rights
    
    
    
    
    
    
    (30,346
    )
    
    
    (30,019
    )
    
    
    (29,522
    )Other
    
    
    
    
    
    
    (1,419
    )
    
    
    (1,183
    )
    
    
    (1,064
    )Subtotal
    
    
    
    
    
    
    (57,517
    )
    
    
    (53,688
    )
    
    
    (52,152
    )Net:Licensed trademarks
    
    
    
    
    
    
    10,029
    
    
    
    12,359
    
    
    
    13,750Owned trademarks
    
    
    
    
    
    
    534
    
    
    
    684
    
    
    
    733Customer relationships
    
    
    
    
    
    
    8,998
    
    
    
    9,580
    
    
    
    10,330Merchandising rights
    
    
    
    
    
    
    17,678
    
    
    
    19,869
    
    
    
    19,019Other
    
    
    
    
    
    
    903
    
    
    
    1,435
    
    
    
    1,554Total amortized intangible assets, net
    
    
    
    
    
    
    38,142
    
    
    
    43,927
    
    
    
    45,386Unamortized intangible
assets:Owned trademarks
    
    
    
    
    
    
    209,143
    
    
    
    207,340
    
    
    
    209,036Total intangible assets, net
    
    
    
    
    
    $
    247,285
    
    
    $
    251,267
    
    
    $
    254,422
   (In millions)Fiscal Year
    
    Amortization Expense2009
    
    $
    15.42010
    
    
    11.42011
    
    
    9.42012
    
    
    7.82013
    
    
    1.4
   20




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##### Table of Contents



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




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##### Table of Contents



In thousands
    
    October 3, 2009
    
    
    January 3, 2009
    
    
    October 4, 20085.0% Notes, due July 2013(a)
    
    $
    510,182
    
    
    $
    485,582
    
    
    $
    482,6406.0% Convertible Senior Notes, due June 2014(b)
    
    
    70,323
    
    
    
    
    
    
    
    Revolving credit facility
    
    
    228,109
    
    
    
    234,400
    
    
    
    408,900Capital lease obligations
    
    
    19,729
    
    
    
    22,787
    
    
    
    23,776Other (c)
    
    
    243
    
    
    
    870
    
    
    
    58,537Total debt
    
    
    828,586
    
    
    
    743,639
    
    
    
    973,853Less: current portion (d)
    
    
    229,066
    
    
    
    110,219
    
    
    
    61,807Long-term debt
    
    $
    599,520
    
    
    $
    633,420
    
    
    $
    912,046
 
 (a)
    
    The change in the balance of these euro-denominated notes reflected the impact
of changes in foreign currency exchange rates.(b)
    
    The Companys 6.0% Convertible Senior Notes were issued during the second quarter of
2009. The October 3, 2009 amount represented principal of $90.0 million and an unamortized
debt discount of $19.7 million.(c)
    
    The decrease in the balance from the prior year reflected the repayment of
outstanding borrowings under working capital lines of credit.(d)
    
    At October 3, 2009, the balance consisted primarily of outstanding borrowings under
the Companys revolving credit facility and obligations under capital leases. Outstanding
revolver borrowings were reflected as a current liability due to the requirement to repay such
obligations with substantially all cash collected by the Company, in accordance with the
Amended Agreement. Such requirement does not affect future borrowing ability or the final
maturity date under the Amended Agreement. 5.0% Notes
  6.0% Convertible Senior Notes
    22




---



##### Table of Contents



Revolving Credit Facility
       23




---



##### Table of Contents



Total
    
    
    Borrowing
    
    
    Outstanding
    
    
    Letters of
    
    
    AvailableIn thousands
    
    Facility (a)
    
    
    Base (a)
    
    
    Borrowings
    
    
    Credit Issued
    
    
    CapacityRevolving credit facility (a)
    
    $
    600,000
    
    
    $
    466,863
    
    
    $
    228,109
    
    
    $
    35,634
    
    
    $
    203,120
 
 (a)
    
    Availability under the Amended Agreement is the lesser of $600.0 million or a
borrowing base comprised primarily of eligible
accounts receivable and inventory. Capital Lease
     Level 2In thousands
    
    October 3, 2009
    
    
    January 3, 2009
    
    
    October 4, 2008Financial Assets:Derivatives
    
    $
    2
    
    
    $
    2,424
    
    
    $
    3,330Financial Liabilities:Derivatives
    
    $
    (8,415
    )
    
    $
    (8,835
    )
    
    $
    
  Total LossesNet Carrying
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Nine Months
    
    
    Three MonthsValue as of
    
    
    Fair Value Measured and Recorded
    
    
    Ended
    
    
    EndedOctober 3,
    
    
    at Reporting Date Using:
    
    
    October 3,
    
    
    October 3,In thousands
    
    2009
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    2009
    
    
    2009Long-lived assets
held and used
    
    $
    1,835
    
    
    $
    
    
    
    $
    
    
    
    $
    1,835
    
    
    $
    14,957
    
    
    $
    9,767
   24




---



##### Table of Contents



October 3, 2009In thousands
    
    Fair Value
    
    
    Carrying Value5.0% Notes, due July 2013 (a)
    
    $
    356,619
    
    
    $
    510,1826.0% Convertible Senior Notes, due June 2014 (a)
    
    
    144,149
    
    
    
    70,323Revolving credit facility (b)
    
    
    228,109
    
    
    
    228,109
 
 (a)
    
    Carrying values include unamortized debt discount.(b)
    
    Borrowings under the revolving credit facility bear interest based on
market rates; accordingly, its fair value approximates
its carrying value.       25




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##### Table of Contents



2009 Actions
     2008 Actions
   26




---



##### Table of Contents



2007 Actions
  
    
    Realignment of its
organization to a brand-centric structure;
    
    Discontinuation or licensing
of fourteen of the Companys brands; and
    
    Implementation of a more competitive cost structure, including cost savings through
staff reductions, closing and consolidation of distribution facilities and office space,
discretionary expense cuts, process re-engineering and supply chain cost rationalization.
    Nine Months Ended
    
    
    Three Months EndedOctober 3, 2009
    
    
    October 4, 2008
    
    
    October 3, 2009
    
    
    October 4, 2008In thousands
    
    (39 Weeks)
    
    
    (40 Weeks)
    
    
    (13 Weeks)
    
    
    (13 Weeks)Domestic-Based Direct Brands
    
    $
    23,738
    
    
    $
    1,425
    
    
    $
    11,383
    
    
    $
    1,385International-Based Direct Brands
    
    
    18,315
    
    
    
    23,682
    
    
    
    3,892
    
    
    
    13,356Partnered Brands
    
    
    33,239
    
    
    
    57,505
    
    
    
    11,230
    
    
    
    8,881Total
    
    $
    75,292
    
    
    $
    82,612
    
    
    $
    26,505
    
    
    $
    23,622
  LeasePayroll and
    
    
    Termination
    
    
    Fixed AssetIn thousands
    
    Related Costs
    
    
    Costs
    
    
    Write-Downs
    
    
    Other Costs
    
    
    TotalBalance at January 3, 2009
    
    $
    11,452
    
    
    $
    15,359
    
    
    $
    
    
    
    $
    616
    
    
    $
    27,4272009 provision, net (a)
    
    
    34,240
    
    
    
    16,353
    
    
    
    19,514
    
    
    
    5,185
    
    
    
    75,2922009 fixed asset write-downs
    
    
    
    
    
    
    
    
    
    
    (19,514
    )
    
    
    
    
    
    
    (19,514
    )Translation difference
    
    
    (114
    )
    
    
    39
    
    
    
    
    
    
    
    73
    
    
    
    (2
    )2009 spending
    
    
    (41,058
    )
    
    
    (6,958
    )
    
    
    
    
    
    
    (5,874
    )
    
    
    (53,890
    )Balance at October 3, 2009
    
    $
    4,520
    
    
    $
    24,793
    
    
    $
    
    
    
    $
    
    
    
    $
    29,313
 
 (a)
    
    Net of the receipt of $8.0 million from Li & Fung.  27




---



##### Table of Contents



Nine Months Ended
    
    
    Three Months EndedOctober 3, 2009
    
    
    October 4, 2008
    
    
    October 3, 2009
    
    
    October 4, 2008In thousands
    
    (39 Weeks)
    
    
    (40 Weeks)
    
    
    (13 Weeks)
    
    
    (13 Weeks)Loss from continuing operations
    
    $
    (251,872
    )
    
    $
    (30,882
    )
    
    $
    (87,794
    )
    
    $
    (9,398
    )Net (loss) income attributable to the
noncontrolling interest
    
    
    (554
    )
    
    
    134
    
    
    
    (171
    )
    
    
    21Loss from continuing operations attributable to Liz
Claiborne, Inc.
    
    
    (251,318
    )
    
    
    (31,016
    )
    
    
    (87,623
    )
    
    
    (9,419
    )Loss from discontinued operations, net of income
taxes
    
    
    (12,708
    )
    
    
    (91,893
    )
    
    
    (2,918
    )
    
    
    (59,306
    )Net loss attributable to Liz Claiborne, Inc.
    
    $
    (264,026
    )
    
    $
    (122,909
    )
    
    $
    (90,541
    )
    
    $
    (68,725
    )Basic weighted average shares outstanding
    
    
    93,855
    
    
    
    93,608
    
    
    
    93,908
    
    
    
    93,641Stock
options and nonvested shares(a)(b)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Convertible
Notes(c)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted weighted average shares
outstanding
    
    
    93,855
    
    
    
    93,608
    
    
    
    93,908
    
    
    
    93,641Earnings per share:Basic and dilutedLoss from continuing operations attributable to
Liz Claiborne, Inc.
    
    $
    (2.67
    )
    
    $
    (0.33
    )
    
    $
    (0.93
    )
    
    $
    (0.10
    )Loss from discontinued operations
    
    $
    (0.14
    )
    
    $
    (0.98
    )
    
    $
    (0.03
    )
    
    $
    (0.63
    )Net loss attributable to Liz Claiborne, Inc.
    
    $
    (2.81
    )
    
    $
    (1.31
    )
    
    $
    (0.96
    )
    
    $
    (0.73
    )
 
 (a)
    
    Because the Company incurred a loss from continuing operations for the nine
and three months ended October 3, 2009 and October 4, 2008, all outstanding stock options
and nonvested shares were considered antidilutive for such periods. Accordingly, for the
nine and three months ended October 3, 2009 and October 4,
2008, approximately 6.9 million and 5.1 million
outstanding stock options, respectively, and approximately 1.1 million and
1.1 million outstanding nonvested
shares, respectively, were excluded from the computation of diluted loss per share.(b)
    
    Excludes approximately 0.4 million
and 0.8 million nonvested shares for the nine and three
months ended October 3, 2009 and October 4, 2008, respectively, for which the performance
criteria have not yet been achieved.(c)
    
    Because the Company incurred a loss from continuing operations for the
nine and three months ended October 3, 2009, approximately
0.7 million and 2.1 million potentially dilutive
shares issuable upon conversion of the Convertible Notes were considered antidilutive for
such periods, respectively, and were excluded from the computation of
diluted loss per share. The Company currently has the ability and
intent to settle the principal of the Convertible Notes in cash (see
Note 8  Debt and Lines of Credit).      28




---



##### Table of Contents




    
    Domestic-Based Direct Brands segment  consists of the specialty retail, outlet,
wholesale apparel, wholesale non-apparel (including accessories, jewelry and handbags),
e-commerce and licensing operations of the Companys three domestic, retail-based operating
segments: JUICY COUTURE, KATE SPADE and LUCKY BRAND.
 
    
    International-Based Direct Brands segment  consists of the specialty retail,
outlet, concession, wholesale apparel, wholesale non-apparel (including accessories,
jewelry and handbags), e-commerce and licensing operations of MEXX, the Companys
international, retail-based operating segment.
 
    
    Partnered Brands segment  consists of one operating segment including the
wholesale apparel, wholesale non-apparel, specialty retail, outlet, e-commerce and
licensing operations of the Companys wholesale-based brands including: AXCESS,
CLAIBORNE (mens), CONCEPTS BY CLAIBORNE, DANA BUCHMAN, KENSIE, LIZ & CO., LIZ CLAIBORNE,
MAC & JAC, MARVELLA, MONET, TRIFARI, and the Companys licensed DKNY® JEANS, DKNY® ACTIVE
and DKNY® MENS brands.
  Operating(Loss)Dollars in thousands
    
    Net sales
    
    

% to Total
    
    
    Income
    
    

% of SalesNine Months Ended October 3, 2009 (39 weeks)Domestic-Based Direct Brands
    
    $
    780,895
    
    
    
    35.0
    %
    
    $
    (37,659
    )
    
    
    (4.8
    )%International-Based Direct Brands
    
    
    621,449
    
    
    
    27.8
    %
    
    
    (69,471
    )
    
    
    (11.2
    )%Partnered Brands
    
    
    830,710
    
    
    
    37.2
    %
    
    
    (92,239
    )
    
    
    (11.1
    )%Totals
    
    $
    2,233,054
    
    
    
    100.0
    %
    
    $
    (199,369
    )
    
    
    (8.9
    )%Nine Months Ended October 4, 2008 (40 Weeks)Domestic-Based Direct Brands
    
    $
    857,078
    
    
    
    27.9
    %
    
    $
    35,942
    
    
    
    4.2
    %International-Based Direct Brands
    
    
    964,457
    
    
    
    31.4
    %
    
    
    39,042
    
    
    
    4.0
    %Partnered Brands
    
    
    1,252,238
    
    
    
    40.7
    %
    
    
    (92,895
    )
    
    
    (7.4
    )%Totals
    
    $
    3,073,773
    
    
    
    100.0
    %
    
    $
    (17,911
    )
    
    
    (0.6
    )%
  29




---



##### Table of Contents



Operating(Loss)Dollars in thousands
    
    Net sales
    
    

% to Total
    
    
    Income
    
    

% of SalesThree Months Ended October 3, 2009 (13 Weeks)Domestic-Based Direct Brands
    
    $
    270,496
    
    
    
    35.1
    %
    
    $
    (7,365
    )
    
    
    (2.7
    )%International-Based Direct Brands
    
    
    224,353
    
    
    
    29.2
    %
    
    
    (19,167
    )
    
    
    (8.5
    )%Partnered Brands
    
    
    274,770
    
    
    
    35.7
    %
    
    
    (33,134
    )
    
    
    (12.1
    )%Totals
    
    $
    769,619
    
    
    
    100.0
    %
    
    $
    (59,666
    )
    
    
    (7.8
    )%Three Months Ended October 4, 2008 (13 Weeks)Domestic-Based Direct Brands
    
    $
    284,204
    
    
    
    28.0
    %
    
    $
    12,692
    
    
    
    4.5
    %International-Based Direct Brands
    
    
    333,001
    
    
    
    32.8
    %
    
    
    22,268
    
    
    
    6.7
    %Partnered Brands
    
    
    397,764
    
    
    
    39.2
    %
    
    
    (18,767
    )
    
    
    (4.7
    )%Totals
    
    $
    1,014,969
    
    
    
    100.0
    %
    
    $
    16,193
    
    
    
    1.6
    %
  Operating(Loss)Dollars in thousands
    
    Net sales
    
    

% to Total
    
    
    Income
    
    

% of SalesNine Months Ended October 3, 2009 (39 Weeks)Domestic
    
    $
    1,493,520
    
    
    
    66.9
    %
    
    $
    (100,693
    )
    
    
    (6.7
    )%International
    
    
    739,534
    
    
    
    33.1
    %
    
    
    (98,676
    )
    
    
    (13.3
    )%Totals
    
    $
    2,233,054
    
    
    
    100.0
    %
    
    $
    (199,369
    )
    
    
    (8.9
    )%Nine Months Ended October 4, 2008 (40 weeks)Domestic
    
    $
    1,940,050
    
    
    
    63.1
    %
    
    $
    (54,821
    )
    
    
    (2.8
    )%International
    
    
    1,133,723
    
    
    
    36.9
    %
    
    
    36,910
    
    
    
    3.3
    %Totals
    
    $
    3,073,773
    
    
    
    100.0
    %
    
    $
    (17,911
    )
    
    
    (0.6
    )%
 Operating(Loss)Dollars in thousands
    
    Net sales
    
    

% to Total
    
    
    Income
    
    

% of SalesThree Months Ended October 3, 2009 (13 weeks)Domestic
    
    $
    507,933
    
    
    
    66.0
    %
    
    $
    (29,186
    )
    
    
    (5.7
    )%International
    
    
    261,686
    
    
    
    34.0
    %
    
    
    (30,480
    )
    
    
    (11.6
    )%Totals
    
    $
    769,619
    
    
    
    100.0
    %
    
    $
    (59,666
    )
    
    
    (7.8
    )%Three Months Ended October 4, 2008 (13 weeks)Domestic
    
    $
    625,989
    
    
    
    61.7
    %
    
    $
    (5,976
    )
    
    
    (1.0
    )%International
    
    
    388,980
    
    
    
    38.3
    %
    
    
    22,169
    
    
    
    5.7
    %Totals
    
    $
    1,014,969
    
    
    
    100.0
    %
    
    $
    16,193
    
    
    
    1.6
    %
     30




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##### Table of Contents



In thousands
    
    Foreign Currency Contracts Designated as Hedging InstrumentsAsset Derivatives
    
    
    Liability DerivativesBalance Sheet
    
    Notional
    
    
    
    
    
    
    Balance Sheet
    
    NotionalPeriod
    
    Location
    
    Amount
    
    
    Fair Value
    
    
    Location
    
    Amount
    
    
    Fair ValueOctober 3, 2009
    
    Other current assets
    
    $
    
    
    
    $
    
    
    
    Accrued expenses
    
    $
    116,669
    
    
    $
    7,827January 3, 2009
    
    Other current assets
    
    
    34,702
    
    
    
    2,313
    
    
    Accrued expenses
    
    
    134,109
    
    
    
    8,789October 4, 2008
    
    Other current assets
    
    
    48,392
    
    
    
    2,932
    
    
    Accrued expenses
    
    
    
    
    
    
    
 In thousands
    
    Foreign Currency Contracts Not Designated as Hedging InstrumentsAsset Derivatives
    
    
    Liability DerivativesBalance Sheet
    
    Notional
    
    
    
    
    
    
    Balance Sheet
    
    NotionalPeriod
    
    Location
    
    Amount
    
    
    Fair Value
    
    
    Location
    
    Amount
    
    
    Fair ValueOctober 3, 2009
    
    Other current assets
    
    $
    1,938
    
    
    $
    2
    
    
    Accrued expenses
    
    $
    11,979
    
    
    $
    588January 3, 2009
    
    Other current assets
    
    
    12,758
    
    
    
    111
    
    
    Accrued expenses
    
    
    3,701
    
    
    
    46October 4, 2008
    
    Other current assets
    
    
    6,038
    
    
    
    398
    
    
    Accrued expenses
    
    
    
    
    
    
    
  Amount of Gain
    
    
    Location of Gain oror (Loss)
    
    
    (Loss) Reclassified
    
    
    Amount of Gain or
    
    
    Amount of Gain orRecognized in
    
    
    from Accumulated
    
    
    (Loss) Reclassified
    
    
    (Loss) Recognized inAccumulated OCI
    
    
    OCI into Operations
    
    
    from Accumulated
    
    
    Operations onon Derivative
    
    
    (Effective and
    
    
    OCI into Operations
    
    
    DerivativeIn thousands
    
    (Effective Portion)
    
    
    Ineffective Portion)
    
    
    (Effective Portion)
    
    
    (Ineffective Portion)Nine months ended
October 3, 2009
    
    $
    (6,886
    )
    
    Cost of goods sold
    
    $
    2,766
    
    
    $
    (1,003
    )Nine months ended
October 4, 2008
    
    
    1,198
    
    
    Cost of goods sold
    
    
    (9,385
    )
    
    
    962Three months ended
October 3, 2009
    
    
    (7,246
    )
    
    Cost of goods sold
    
    
    (3,137
    )
    
    
    (879
    )Three months ended
October 4, 2008
    
    
    7,484
    
    
    Cost of goods sold
    
    
    (2,644
    )
    
    
    437
    31




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##### Table of Contents



Stock Options
  Nine Months EndedValuation Assumptions:
    
    October 3, 2009
    
    October 4, 2008Weighted-average fair value of options granted
    
    $2.06
    
    $4.94Expected volatility
    
    48.7% to 74.8%
    
    28.1% to 40.9%Weighted-average volatility
    
    65.9%
    
    28.9%Expected term (in years)
    
    5.2
    
    5.0Dividend yield
    
    
    
    1.19%Risk-free rate
    
    0.5%  to 5.0%
    
    1.5% to 5.2%Expected annual forfeiture
    
    11.8%
    
    12.8%
   32




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##### Table of Contents



Weighted
    
    
    Weighted Average
    
    
    AggregateAverage Exercise
    
    
    Remaining
    
    
    Intrinsic ValueShares
    
    
    Price
    
    
    Contractual Term
    
    
    (In thousands)Outstanding at January 3, 2009
    
    
    5,359,319
    
    
    $
    27.15
    
    
    
    4.5
    
    
    $
    819Granted
    
    
    2,071,500
    
    
    
    3.52Cancelled / Expired
    
    
    (579,575
    )
    
    
    22.99Outstanding at October 3, 2009
    
    
    6,851,244
    
    
    $
    20.36
    
    
    
    4.9
    
    
    $
    3,497Vested or expected to vest at October 3, 2009
    
    
    6,097,266
    
    
    $
    22.10
    
    
    
    4.7
    
    
    $
    2,619Exercisable at October 3, 2009
    
    
    3,118,297
    
    
    $
    32.69
    
    
    
    3.4
    
    
    $
    
   Restricted Stock
  WeightedAverage GrantShares
    
    
    Date Fair ValueNonvested stock at January 3, 2009 (a) (b)
    
    
    2,163,108
    
    
    $
    21.38Granted
    
    
    101,500
    
    
    
    3.08Vested
    
    
    (244,200
    )
    
    
    35.23Cancelled (b)
    
    
    (574,919
    )
    
    
    18.62Nonvested stock at October 3, 2009 (a) (b)
    
    
    1,445,489
    
    
    $
    18.86Expected to vest as of October 3, 2009
    
    
    857,302
    
    
    $
    17.74
 
 (a)
    
    During 2007, performance shares were granted to a group of key executives.
These shares are subject to certain service and performance conditions to be measured as of
the fiscal 2009 year-end. The ultimate amount of shares earned will be determined by the
extent of achievement of the performance criteria set forth in the performance share
agreements and will range from 0  150% of target.(b)
    
    During 2008, performance shares were granted to a group of key executives. These
shares are subject to certain service and performance conditions to be measured as of the
fiscal 2008 year-end and fiscal 2010 year-end. The ultimate amount of shares earned will be
determined by the extent of achievement of the performance criteria set forth in the
performance share agreements and will range from 0  200% of target. The shares which were
contingently issuable based on 2008 performance were deemed not earned and were cancelled.   33




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##### Table of Contents



34




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 OVERVIEW
 Business/Segments
  
    
    Domestic-Based Direct Brands segment  consists of the specialty retail, outlet,
wholesale apparel, wholesale non-apparel (including accessories, jewelry and handbags),
e-commerce and licensing operations of our three domestic, retail-based operating segments:
JUICY COUTURE, KATE SPADE and LUCKY BRAND.
 
    
    International-Based Direct Brands segment  consists of the specialty retail,
outlet, concession, wholesale apparel, wholesale non-apparel (including accessories,
jewelry and handbags), e-commerce and licensing operations of MEXX, our international,
retail-based operating segment.
 
    
    Partnered Brands segment  consists of one operating segment including the
wholesale apparel, wholesale non-apparel, specialty retail, outlet, e-commerce and
licensing operations of our wholesale-based brands including: AXCESS, CLAIBORNE
(mens), CONCEPTS BY CLAIBORNE, DANA BUCHMAN, KENSIE, LIZ & CO., LIZ CLAIBORNE, MAC & JAC,
MARVELLA, MONET, TRIFARI and our licensed DKNY® JEANS, DKNY® ACTIVE and DKNY® MENS brands.
  
    
    Domestic (wholesale customers, licensing, Company-owned specialty retail and
outlet stores located in the United States and e-commerce sites); and
 
    
    International (wholesale customers, licensing, Company-owned specialty retail
and outlet stores and concession stores located outside of the United States).
      35




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##### Table of Contents



Market Environment / Global Economic Uncertainty
   Competitive Profile
    New Licensing Arrangements
    36




---



##### Table of Contents



Liquidity, Cost Reduction and Supply Chain Initiatives
       37




---



##### Table of Contents



Overall Results for the Nine Months Ended October 3, 2009
  Net Sales
    Gross Profit and Loss from Continuing Operations
  Balance Sheet
  International Operations
   38




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##### Table of Contents



RESULTS OF OPERATIONS
  NINE MONTHS ENDED OCTOBER 3, 2009 COMPARED TO NINE MONTHS ENDED OCTOBER 4, 2008
  Nine Months Ended
    
    
    VarianceOctober 3, 2009
    
    
    October 4, 2008Dollars in millions
    
    (39 Weeks)
    
    
    (40 Weeks)
    
    
    $
    
    
    %Net Sales
    
    $
    2,233.1
    
    
    $
    3,073.8
    
    
    $
    (840.7
    )
    
    
    (27.4
    )%Gross Profit
    
    
    1,024.1
    
    
    
    1,487.4
    
    
    
    (463.3
    )
    
    
    (31.1
    )%Selling, general & administrative
expenses
    
    
    1,220.6
    
    
    
    1,495.3
    
    
    
    (274.7
    )
    
    
    (18.4
    )%Trademark impairment
    
    
    
    
    
    
    10.0
    
    
    
    (10.0
    )
    
    
    *Goodwill impairment
    
    
    2.8
    
    
    
    
    
    
    
    2.8
    
    
    
    *Operating Loss
    
    
    (199.3
    )
    
    
    (17.9
    )
    
    
    (181.4
    )
    
    
    *Other expense, net
    
    
    (11.5
    )
    
    
    (2.8
    )
    
    
    (8.7
    )
    
    
    *Interest expense, net
    
    
    (46.9
    )
    
    
    (33.9
    )
    
    
    (13.0
    )
    
    
    (38.3
    )%Benefit for income taxes
    
    
    (5.8
    )
    
    
    (23.7
    )
    
    
    17.9
    
    
    
    75.5
    %Loss from Continuing Operations
    
    
    (251.9
    )
    
    
    (30.9
    )
    
    
    (221.0
    )
    
    
    *Discontinued operations, net of
income taxes
    
    
    (12.7
    )
    
    
    (91.9
    )
    
    
    79.2
    
    
    
    86.2
    %Net Loss
    
    
    (264.6
    )
    
    
    (122.8
    )
    
    
    (141.8
    )
    
    
    *Net (loss) income attributable to the
noncontrolling interest
    
    
    (0.6
    )
    
    
    0.1
    
    
    
    (0.7
    )
    
    
    *Net Loss Attributable to Liz Claiborne,
Inc.
    
    $
    (264.0
    )
    
    $
    (122.9
    )
    
    $
    (141.1
    )
    
    
    *
 
 *
    
    Not meaningful. Net Sales
   39




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##### Table of Contents




    
    Domestic-Based Direct
Brands net sales were $780.9 million, a decrease
of $76.2 million, or 8.9% (or 4.5% excluding the impact of licensing
our fragrance operations in the second quarter of 2008). The decrease
in net sales reflects the following:
 
    
    Net sales for JUICY COUTURE were $376.0 million, a
13.0% decrease compared to 2008, or a decrease of 5.4%
excluding the impact of licensing our fragrance
operations in the second quarter of 2008, which primarily reflects decreases in our
wholesale apparel and non-apparel operations,
partially offset by increases in specialty retail and
outlet operations.
 
    
    We ended the first nine months of 2009 with 65
specialty stores and 33 outlet stores, reflecting the
net addition over the last 12 months of 9 specialty
stores and 4 outlet stores;
    
    Average retail square footage in the first nine
months of 2009 was approximately 323 thousand square
feet, a 47.1% increase compared to 2008;
    
    Sales productivity was $536 per average square foot
as compared to $670 for the first nine months of 2008;
and
    
    Comparable store net sales in our Company-owned
stores decreased 18.3% in the first nine months of
2009.
 
    
    Net sales for LUCKY BRAND were $307.6 million, a 9.2%
decrease compared to 2008, reflecting decreases in
wholesale apparel and specialty retail operations,
partially offset by an increase in outlet operations.
 
    
    We ended the first nine months of 2009 with 193
specialty stores and 46 outlet stores, reflecting the
net addition over the last 12 months of 6 specialty
stores and 11 outlet stores;
    
    Average retail square footage in the first nine
months of 2009 was approximately 583 thousand square
feet, a 17.1% increase compared to 2008;
    
    Sales productivity was $290 per average square foot
as compared to $379 for the first nine months of 2008;
and
    
    Comparable store net sales in our Company-owned
stores decreased 18.7% in the first nine months of
2009.
 
    
    Net sales for KATE SPADE were $97.3 million, a 12.9%
increase compared to 2008, primarily driven by
increases in our outlet, wholesale and specialty
retail operations.
 
    
    We ended the first nine months of 2009 with 47
specialty stores and 29 outlet stores, reflecting the
net addition over the last 12 months of 6 specialty
stores and 4 outlet stores;
    
    Average retail square footage in the first nine
months of 2009 was approximately 154 thousand square
feet, a 41.4% increase compared to 2008;
    
    Sales productivity was $331 per average square foot
as compared to $425 for the first nine months of 2008;
and
    
    Comparable store net sales in our Company-owned
stores decreased 16.5% in the first nine months of
2009.
 
    
    International-Based Direct Brands, comprised of our MEXX retail-based
lifestyle brand, net sales were $621.4 million, a decrease of $343.0
million or 35.6% compared to 2008. Excluding the impact of
fluctuations in foreign currency exchange rates, net sales were $692.4
million, a 28.2% decrease as compared to 2008. The decrease in net
sales is primarily due to decreases in our MEXX Europe and MEXX Canada
wholesale and retail operations.
 
    
    We ended the first nine months of 2009 with 157
specialty stores, 100 outlet stores and 202
concessions, reflecting the net addition over the last
12 months of 24 specialty stores and 1 outlet store
and the net closure of 32 concessions (inclusive of
the conversion of 26 concessions to specialty retail
formats);
    
    Average retail square footage in the first nine months
of 2009 was approximately 1.497 million square feet,
an 8.0% increase compared to 2008;
  40




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##### Table of Contents




    
    Sales productivity was $221 per average square foot as
compared to $302 for the first nine months of 2008;
    
    Comparable store net sales in our Company-owned stores
decreased by 10.2% in the first nine months of 2009;
and
    
    Fluctuations in foreign currency exchange rates in our
European and Canadian businesses decreased net sales
by $71.0 million.
  
    
    New stores become comparable after 14 full fiscal months of operations
(on the 1st day of the 15th full fiscal month);
    
    Except in unusual circumstances, closing stores become non-comparable
one full fiscal month prior to the scheduled closing date;
    
    A remodeled store will be changed to non-comparable when there is a
20.0% or more increase/decrease in its selling square footage
(effective at the start of the fiscal month when construction begins).
The store becomes comparable again after 14 full fiscal months from
the re-open date;
    
    A store that relocates becomes non-comparable when the new location is
materially different from the original location (in respect to selling
square footage and/or traffic patterns); and
    
    Stores that are acquired are not comparable until they have been
reflected in our results for a period of 12 months.
  
    
    Partnered Brands net sales were $830.7 million, a decrease of $421.5 million or 33.7% reflecting the following:
 
    
    A net $327.9 million, or 26.2%, decrease in sales of our ongoing wholesale operations as the
operating environment continued to adversely affect our LIZ CLAIBORNE, CLAIBORNE, AXCESS and MONET
brands;
    
    A $52.0 million, or 4.2%, decrease due to the divestiture, licensing or exiting of the following
brands: SIGRID OLSEN (closed as of the second quarter of 2008), Cosmetics group of brands (due to the
exiting of certain brands and the license of the remaining brands to Elizabeth Arden effective June
10, 2008), Villager (closed in the third quarter of 2008), former Ellen Tracy brand (sold on April
10, 2008) and DANA BUCHMAN (licensed on an exclusive basis to Kohls in January 2008) with operations
closed in the second quarter of 2008;
    
    The impact of fluctuations in foreign currency exchange rates, primarily related to our LIZ CLAIBORNE
operations in Europe and Canada, decreased net sales by $14.1 million, or 1.1%; and
    
    A $27.5 million, or 2.2% decrease in sales of our outlet operations, reflecting the following:
 
    
    We ended the first nine months of 2009 with 158 outlet stores, reflecting the net closure over the
last 12 months of 17 outlet stores;
    
    Average retail square
footage in the first nine months of 2009 was approximately 1.019 million
square feet, an 8.0% increase compared to 2008;
    
    Sales productivity was $104
per average square foot as compared to $113 for the first nine months
of 2008; and
    
    Comparable store net sales in our Company-owned stores decreased 11.8% in the first nine months
of 2009.
 Domestic International
 Gross Profit
   41




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##### Table of Contents



Selling, General & Administrative Expenses
  
    
    A $112.0 million
decrease in Partnered Brands and corporate SG&A, inclusive of an $18.6
million decrease resulting from the licensing of our cosmetics brands;
    
    A $72.0 million decrease in the operations of our International-Based Direct Brands segment;
    
    A $58.6 million decrease due to the impact of fluctuations in foreign currency exchange
rates in our international operations;
    
    A $51.5 million decrease in expenses associated with our streamlining initiatives and
brand-exiting activities;
    
    A $40.2 million decrease in Domestic-Based Direct Brands, partially due to the licensing of
our cosmetics brands; and
    
    A $59.6 million year-over-year increase in our Domestic-Based Direct Brands segment
primarily resulting from retail expansion.
  Trademark Impairment
  Goodwill Impairment
  Operating Loss
  
    
    Domestic-Based Direct Brands operating loss was $37.6 million ((4.8)%
of net sales) in the first nine months of 2009, compared to operating
income of $36.0 million (4.2% of net sales) in 2008. The decrease
reflects the reduction in net sales discussed above and
increased restructuring charges principally associated with our LUCKY
KIDS stores and KATE SPADE stores, partially offset by decreases in
other SG&A.
    
    International-Based Direct Brands operating loss was $69.5 million
((11.2)% of net sales) in the first nine months of 2009, compared to
operating income of $39.0 million (4.0% of net sales) in 2008. The
decrease reflects reduced sales, partially offset by an $8.4 million
reduction to operating loss resulting from fluctuations in foreign currency exchange
rates.
    
    Partnered Brands operating loss was $92.2 million ((11.1)% of net
sales) in the first nine months of 2009, compared to an operating loss
of $92.9 million ((7.4)% of net sales) in 2008, as a result of lower
sales and reduced gross profit, offset by reduced SG&A.
 Domestic International
  42




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##### Table of Contents



Other Expense, Net
  Interest Expense, Net
  Benefit for Income Taxes
   Loss from Continuing Operations
  Discontinued Operations, Net of Income Taxes
  Net Loss Attributable to Liz Claiborne, Inc.
   43




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##### Table of Contents



THREE MONTHS ENDED OCTOBER 3, 2009 COMPARED TO THREE MONTHS ENDED OCTOBER 4, 2008
  Three Months Ended
    
    
    VarianceOctober 3, 2009
    
    
    October 4, 2008Dollars in millions
    
    (13 Weeks)
    
    
    (13 Weeks)
    
    
    $
    
    
    %Net Sales
    
    $
    769.6
    
    
    $
    1,015.0
    
    
    $
    (245.4
    )
    
    
    (24.2
    )%Gross Profit
    
    
    348.8
    
    
    
    500.4
    
    
    
    (151.6
    )
    
    
    (30.3
    )%Selling, general &
administrative expenses
    
    
    408.5
    
    
    
    474.2
    
    
    
    (65.7
    )
    
    
    (13.9
    )%Trademark impairment
    
    
    
    
    
    
    10.0
    
    
    
    (10.0
    )
    
    
    *Operating (Loss) Income
    
    
    (59.7
    )
    
    
    16.2
    
    
    
    (75.9
    )
    
    
    *Other (expense) income, net
    
    
    (10.1
    )
    
    
    0.8
    
    
    
    (10.9
    )
    
    
    *Interest expense, net
    
    
    (17.4
    )
    
    
    (12.0
    )
    
    
    (5.4
    )
    
    
    (45.0
    )%Provision for income taxes
    
    
    0.6
    
    
    
    14.4
    
    
    
    (13.8
    )
    
    
    (95.8
    )Loss from Continuing Operations
    
    
    (87.8
    )
    
    
    (9.4
    )
    
    
    (78.4
    )
    
    
    *Discontinued operations,
net of income taxes
    
    
    (2.9
    )
    
    
    (59.3
    )
    
    
    56.4
    
    
    
    95.1
    %Net Loss
    
    
    (90.7
    )
    
    
    (68.7
    )
    
    
    (22.0
    )
    
    
    (32.0
    )%Net loss attributable to the
noncontrolling interest
    
    
    (0.2
    )
    
    
    
    
    
    
    (0.2
    )
    
    
    *Net Loss Attributable to Liz
Claiborne, Inc.
    
    $
    (90.5
    )
    
    $
    (68.7
    )
    
    $
    (21.8
    )
    
    
    (31.7
    )%
 
 *
    
    Not meaningful. Net Sales
    
    
    Domestic-Based Direct Brands net sales were $270.5 million, a decrease
of $13.7 million, or 4.8%. The decrease in net sales reflects the
following:
 
    
    Net sales for JUICY COUTURE were $133.1 million, a
7.8% decrease compared to 2008, reflecting decreases
in wholesale apparel and non-apparel, partially offset
by increases in specialty retail and outlet operations
due to new store openings discussed above.
 
    
    Average retail square
footage in the third quarter of 2009
was approximately 325 thousand square feet, a 13.6%
increase compared to 2008;
    
    Sales productivity was $191 per average square foot
as compared to $193 for the third quarter of 2008; and
    
    Comparable store net sales in our Company-owned
stores decreased by 13.0% in the third quarter of
2009.
  44




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
    
    Net sales for LUCKY BRAND were $103.4 million, a 6.9%
decrease compared to 2008, reflecting decreases in
specialty retail and wholesale apparel operations,
partially offset by increases in outlet operations due to new store
openings discussed above.
 
    
    Average retail square
footage in the third quarter of 2009
was approximately 589 thousand square feet, an 11.4%
increase compared to 2008;
    
    Sales productivity was $95 per average square foot
as compared to $115 for the third quarter of 2008; and
    
    Comparable store net sales in our Company-owned
stores decreased 16.1% in the third quarter of
2009.
 
    
    Net sales for KATE SPADE were $34.0 million, an 18.0%
increase compared to 2008, primarily driven by
increases in our wholesale apparel and outlet
operations.
 
    
    Average retail square
footage in the third quarter of 2009
was approximately 155 thousand square feet, a 25.2%
increase compared to 2008;
    
    Sales productivity was $121 per average square foot
as compared to $132 for the third quarter of 2008; and
    
    Comparable store net sales in our Company-owned
stores decreased 2.7% in the third quarter of 2009.
 
    
    International-Based Direct Brands, comprised of our MEXX retail-based lifestyle brand, net sales were $224.3
million, a decrease of $108.6 million or 32.6% compared to 2008. Excluding the impact of fluctuations in foreign
currency exchange rates, net sales were $234.6 million, a 29.5% decrease as compared to 2008. The decrease in net
sales is primarily due to decreases in our MEXX Europe and MEXX
Canada wholesale and retail operations.
 
    
    Average retail square footage in the third quarter of 2009 was approximately 1.515 million square feet, a
5.0% increase compared to 2008;
    
    Sales productivity was $72 per average square foot as compared to $90 for the third quarter of 2008;
    
    Comparable store net sales in our Company-owned stores decreased 12.7% in the third quarter of
2009; and
    
    Fluctuations in foreign currency exchange rates in our European and Canadian businesses decreased
net sales by $10.3 million.
 
    
    Partnered Brands net sales were $274.8 million, a decrease of $123.0 million or 30.9%, reflecting the following:
 
    
    A net $115.0 million, or 28.9%, decrease in sales of our ongoing wholesale operations as the
operating environment continued to adversely affect our LIZ CLAIBORNE, CLAIBORNE, AXCESS and MONET
brands; and
    
    A $6.4 million, or 1.6%, decrease in sales of our outlet operations, reflecting the following:
 
    
    Average retail square
footage in the third quarter of 2009 was approximately 1.066 million
square feet, a 14.3% increase compared to 2008;
    
    Sales productivity was $35 per average square foot as compared to $38 for the third quarter of
2008; and
    
    Comparable store net sales
in our Company-owned stores decreased 14.8% in the third quarter
of 2009.
 Domestic International
  45




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Gross Profit
  Selling, General & Administrative Expenses
  
    
    A $33.6 million decrease in Partnered Brands and corporate SG&A;
    
    A $26.4 million decrease in the operations of our International-Based Direct Brands segment;
    
    An $11.1 million decrease in Domestic-Based Direct Brands, partially due to the licensing
of our cosmetics brands;
    
    A $7.7 million decrease due to the impact of fluctuations in foreign currency exchange
rates in our international operations;
    
    A $2.1 million decrease in expenses associated with our streamlining initiatives and
brand-exiting activities; and
    
    A $15.2 million year-over-year increase in our Domestic-Based Direct Brands segment
primarily resulting from retail expansion.
  Trademark Impairment
  Operating (Loss) Income
  
    
    Domestic-Based Direct Brands operating loss was $7.4 million ((2.7)%
of net sales) in the third quarter of 2009, compared to operating
income of $12.7 million (4.5% of net sales) in 2008. The decrease
reflects the reduction in net sales discussed above and increased
restructuring charges principally associated with our KATE SPADE
stores, partially offset by decreases in other SG&A.
    
    International-Based Direct Brands operating loss was $19.2 million
((8.5)% of net sales) in the third quarter of 2009, compared to
operating income of $22.3 million (6.7% of net sales) in 2008. The
decrease reflects reduced sales, partially offset by a decrease in
streamlining and brand exiting activities and a $0.9 million
reduction to operating loss
resulting from fluctuations in foreign currency exchange rates.
    
    Partnered Brands operating loss in the third quarter of 2009 was $33.1
million ((12.1)% of net sales), compared an operating loss of $18.8
million ((4.7)% of net sales) in 2008. The increased operating loss
resulted from reduced gross margin, partially offset by reduced
restructuring expenses and reduced SG&A.
 Domestic International
 Other (Expense) Income, Net
   46




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Interest Expense, Net
  Provision for Income Taxes
   Loss from Continuing Operations
  Discontinued Operations, Net of Income Taxes
  Net Loss Attributable to Liz Claiborne, Inc.
  FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
 Cash
Requirements.
 Sources of Cash.
   47




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Cash and Debt Balances.
 Accounts Receivable
  48




---



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Inventories
 Borrowings
 Net cash provided by (used in) operating activities
 Net cash used in investing activities
 Net cash provided by financing activities
 Commitments and Capital Expenditures
   49




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
    
    On January 26, 2006, we acquired 100% of the equity of Westcoast Contempo Fashions
Limited and Mac & Jac Holdings Limited, which collectively design, market and sell the Mac
& Jac, Kensie and Kensiegirl apparel lines (Mac & Jac). The purchase price totaled 26.2
million Canadian dollars (or $22.7 million),
which included the retirement of debt at closing and fees, but excluded contingent payments
to be determined based upon a multiple of Mac & Jacs earnings in fiscal years 2006, 2008,
2009 and 2010. In May of 2009, we paid the former owners of Mac & Jac $3.8 million based on
2008 fiscal year earnings. We currently estimate that the aggregate of the remaining
contingent payments will be in the range of approximately $2.0-7.0 million, which will be
accounted for as additional purchase price when paid.
 
    
    On June 8, 1999, we acquired 85.0% of the equity of Lucky Brand Dungarees, Inc. (Lucky
Brand), whose core business consists of the Lucky Brand Dungarees line of women and mens
denim-based sportswear. The total purchase price consisted of a cash payment made at the
closing date of $85.0 million and a payment made in April 2003 of $28.5 million. An
additional payment of $12.7 million was made in 2000 for tax-related purchase price
adjustments. On January 16, 2009, January 16, 2008, January 16, 2007, January 17, 2006 and
January 28, 2005, we paid $5.0 million, $5.0 million, $10.0 million, $10.0 million and
$35.0 million, respectively, for 0.4%, 0.4%, 1.5%, 1.9% and 8.25%, respectively, of the
remaining equity of Lucky Brand. We will acquire 0.4% of the equity of Lucky Brand in
January of 2010 for a payment of $5.0 million. We recorded the present value of fixed
amounts owed of $4.9 million in Accrued expenses. The remaining 2.28% of the original
shares outstanding will be settled for an aggregate purchase price composed of the
following two installments: (i) a payment made in 2008 of $15.7 million that was based on a
multiple of Lucky Brands 2007 earnings and (ii) a 2011 payment that will be based on a
multiple of Lucky Brands 2010 earnings, net of the 2008 payment, which we estimate will be
in the range of approximately $0-5.0 million.
  Financing Arrangements
  In thousands
    
    October 3, 2009
    
    
    January 3, 2009
    
    
    October 4, 20085.0% Notes (a)
    
    $
    510,182
    
    
    $
    485,582
    
    
    $
    482,6406.0% Convertible Senior Notes (b)
    
    
    70,323
    
    
    
    
    
    
    
    Revolving credit facility
    
    
    228,109
    
    
    
    234,400
    
    
    
    408,900Capital lease obligations
    
    
    19,729
    
    
    
    22,787
    
    
    
    23,776Other (c)
    
    
    243
    
    
    
    870
    
    
    
    58,537Total debt
    
    $
    828,586
    
    
    $
    743,639
    
    
    $
    973,853
 
 (a)
    
    The change in the balance of these euro-denominated notes reflected the
impact of changes in foreign currency exchange rates.(b)
    
    Our 6.0% Convertible Senior Notes were issued during the second quarter of 2009.
The October 3, 2009 amount represented principal of $90.0 million and an unamortized debt
discount of $19.7 million.(c)
    
    The decrease in the balance from the prior year reflected the repayment of
outstanding borrowings under working capital lines of credit. 5.0% Notes
   50




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6.0% Convertible Senior Notes
    Revolving Credit Facility
    51




---



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Total
    
    
    Borrowing
    
    
    
    Outstanding
    
    
    Letters of
    
    
    AvailableIn thousands
    
    Facility (a)
    
    
    Base (a)
    
    
    Borrowings
    
    
    Credit Issued
    
    
    CapacityRevolving credit facility (a)
    
    $
    600,000
    
    
    $
    466,863
    
    
    $
    228,109
    
    
    $
    35,634
    
    
    $
    203,120
 
 (a)
    
    Availability under the Amended Agreement is the lesser of $600.0 million or a
borrowing base comprised primarily of eligible
accounts receivable and inventory. Capital Lease
  Off-Balance Sheet Arrangements
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Hedging Activities
   Foreign Currency Contracts Designated as Hedging InstrumentsIn thousands
    
    Asset Derivatives
    
    
    Liability DerivativesBalance
    
    
    
    
    
    
    
    
    
    BalanceSheet
    
    Notional
    
    
    
    
    
    Sheet
    
    NotionalPeriod
    
    Location
    
    Amount
    
    
    Fair Value
    
    
    Location
    
    Amount
    
    
    Fair ValueOctober 3, 2009
    
    Other current assets
    
    $
    
    
    
    $
    
    
    
    Accrued expenses
    
    $
    116,669
    
    
    $
    7,827January 3, 2009
    
    Other current assets
    
    
    34,702
    
    
    
    2,313
    
    
    Accrued expenses
    
    
    134,109
    
    
    
    8,789October 4, 2008
    
    Other current assets
    
    
    48,392
    
    
    
    2,932
    
    
    Accrued expenses
    
    
    
    
    
    
    
 Foreign Currency Contracts Not Designated as Hedging InstrumentsIn thousands
    
    Asset Derivatives
    
    
    Liability DerivativesBalance
    
    
    
    
    
    
    
    
    
    BalanceSheet
    
    
    Notional
    
    
    
    
    
    
    Sheet
    
    
    NotionalPeriod
    
    Location
    
    Amount
    
    
    Fair Value
    
    
    Location
    
    Amount
    
    
    Fair ValueOctober 3, 2009
    
    Other current assets
    
    $
    1,938
    
    
    $
    2
    
    
    Accrued expenses
    
    $
    11,979
    
    
    $
    588January 3, 2009
    
    Other current assets
    
    
    12,758
    
    
    
    111
    
    
    Accrued expenses
    
    
    3,701
    
    
    
    46October 4, 2008
    
    Other current assets
    
    
    6,038
    
    
    
    398
    
    
    Accrued expenses
    
    
    
    
    
    
    
  53




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Location of Gainor (Loss)
    
    
    Amount of Gain orAmount of Gain or
    
    
    Reclassified from
    
    
    (Loss) Reclassified
    
    
    Amount of Gain or(Loss) Recognized in
    
    
    Accumulated OCI
    
    
    from Accumulated
    
    
    (Loss) RecognizedAccumulated OCI on
    
    
    into Operations
    
    
    OCI into
    
    
    in Operations onDerivative
    
    
    (Effective and
    
    
    Operations
    
    
    DerivativeIn thousands
    
    (Effective Portion)
    
    
    Ineffective Portion)
    
    
    (Effective Portion)
    
    
    (Ineffective Portion)Nine months
ended October 3,
2009
    
    $
    (6,886
    )
    
    Cost of goods sold
    
    $
    2,766
    
    
    $
    (1,003
    )Nine months ended
October 4, 2008
    
    
    1,198
    
    
    Cost of goods sold
    
    
    (9,385
    )
    
    
    962Three months ended
October 3, 2009
    
    
    (7,246
    )
    
    Cost of goods sold
    
    
    (3,137
    )
    
    
    (879
    )Three months ended
October 4, 2008
    
    
    7,484
    
    
    Cost of goods sold
    
    
    (2,644
    )
    
    
    437
    USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES
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Revenue Recognition
  Income Taxes
   55




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Accounts Receivable  Trade, Net
  Inventories, Net
  Goodwill and Intangibles, Net
      56




---



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Accrued Expenses
  Derivative Instruments
   57




---



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Share-Based Compensation
  RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
    58




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RECENT ACCOUNTING PRONOUNCEMENTS
   
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   Dollars in millions
    
    October 3, 2009
    
    
    January 3, 2009
    
    
    October 4, 2008Variable rate debt
    
    $
    228.1
    
    
    $
    234.4
    
    
    $
    466.6Average interest rate
    
    
    6.85
    %
    
    
    3.90
    %
    
    
    4.47
    %
   59




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ITEM 4. CONTROLS AND PROCEDURES
    60




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PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
 Angela Tyler (individually and on behalf of all others
similarly situated) v. Liz Claiborne, Inc, Trudy F. Sullivan and William L. McComb
   
 ITEM 1A. RISK FACTORS
  Our ability to continue to have the liquidity necessary, through cash flows from operations and
availability under our amended credit facility, may be adversely impacted by a number of factors,
including the level of our operating cash flows, our ability to comply with the financial and other
covenants included in our amended credit facility, the borrowing base requirement in our amended
credit facility that limits the amount of borrowings we may make based on a formula of, among other
things, eligible accounts receivable and inventory, the minimum availability covenant in our
amended credit facility that requires us to maintain availability in excess of an agreed upon
level
and whether holders of our Convertible Notes issued in June 2009 will, if and when such
notes become convertible, elect to convert a substantial portion of such notes, the par
value of which we must currently settle in cash.
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General economic conditions in the United States, Europe and other parts of the world, including a
continued weakening of such economies, restricted credit markets and lower levels of consumer
spending, can affect consumer confidence and consumer purchases of discretionary items, including
fashion apparel and related products, such as ours.
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The
wholesale businesses in our Direct Brands and Partnered Brands segments are dependent to a
significant degree on sales to a limited number of large US department store customers, and our
business could suffer as a result of consolidations, restructurings, bankruptcies and other
ownership changes in the retail industry, financial difficulties at our large department store
customers and negative reaction to our recently announced licensing arrangements with JCPenney and
QVC.
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We may not be able to effect a turnaround of our MEXX Europe business.
  We cannot assure the successful implementation and results of our long-term strategic plans.
  
    
    Our strategic plan contemplated a significant expansion of our specialty retail business
in our Domestic-Based Direct Brands and International-Based Direct Brands segments. The
successful operation and expansion of our specialty retail business in our Direct Brands
segments is subject to, among other things: (i) our ability to successfully expand the
specialty store base of our Direct Brands segments; (ii) our ability to successfully find
appropriate sites; (iii) negotiate favorable leases, design and create appealing
merchandise; (iv) manage inventory levels; (v) install and operate effective retail
systems; (vi) apply appropriate pricing strategies; and (vii) integrate such stores into
our overall business mix. There can be no assurances that we can be successful in this
regard, and our inability to successfully expand our specialty retail business would have a
material adverse effect on our business, financial condition, liquidity and results of
operations. In addition, in light of the current economic conditions and the dramatic
decline in consumer spending especially for fashion apparel and related products such as
ours, we have greatly limited our capital expenditure budget for 2009 and are planning on
opening 16 to 18 new specialty and outlet stores in 2009.
 
    
    In 2007, we announced a number of initiatives designed to achieve greater collaboration
with our wholesale customers and to improve results of our wholesale-based Partnered
Brands. These initiatives include design agreements with Isaac Mizrahi with respect to our
LIZ CLAIBORNE brand and with John Bartlett with respect to our CLAIBORNE (mens) brand. Our
wholesale customers had been seeking differentiated products, and we believed that these
design agreements would enable us to distinguish our product offering. Over time, we
realized that these arrangements and the traditional wholesale business model would not be
the solution to improving results for our LIZ CLAIBORNE brands. In October 2009, we changed
the business model for our LIZ CLAIBORNE brands from a wholesale model selling to
department stores, to a license model where we will not be sourcing or selling products,
but instead will be receiving a royalty based on net sales by our license partner and, in
the case of our JCPenney license agreement, a share in gross profits over agreed upon
levels. There can be no assurances that we will successfully implement this
new model, and our failure to successfully implement this new model, including as a result
of any terminations of these new licensing arrangements, will have a material adverse effect
on our business and results.
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The successful implementation and execution of the licensing arrangements with JCPenney and QVC
presents risks, including, without limitation, our ability to efficiently change our operational
model and infrastructure as a result of such licensing arrangements, our ability to continue a good
working relationship with those licensees and possible changes in our other brand relationships or
relationships with other retailers as a result.
    66




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The success of our business depends on our ability to anticipate and respond to constantly changing
consumer demands and tastes and fashion trends, across multiple product lines, shopping channels
and geographies.
   67




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We cannot assure that we can attract and retain talented highly qualified executives, or maintain
satisfactory relationships with our employees, both union and non-union.
   Our business could suffer if we cannot adequately establish, defend and protect our trademarks and
other proprietary rights.
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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, business models, product lines or market activities may require methods
of operations, investments and marketing and financial strategies different from those
employed in our other businesses, and may also involve buyers, store customers and/or
competitors different from our historical buyers, store customers and competitors;
 
    
    Consumer acceptance of the new products or lines;
 
    
    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; and
 
    
    With respect to a business where we act as licensee, such as our licensed DKNY® JEANS,
DKNY® ACTIVE and DKNY® MENS brands, there are a number of inherent risks, including,
without limitation, compliance with terms set forth in the applicable license agreements,
including among other things the maintenance of certain levels of sales and the public
perception and/or acceptance of the licensors brands or other product lines, which are not
within our control.
 The markets in which we operate are highly competitive, both within the United States and abroad.
  
    
    Anticipating and responding to changing consumer demands in a timely manner;
 
    
    Establishing and maintaining favorable brand name and recognition;
 
    
    Product quality;
 
    
    Maintaining and growing market share;
 
    
    Developing quality and differentiated products that appeal to consumers;
 
    
    Establishing and maintaining acceptable relationships with our retail customers;
 
    
    Pricing products appropriately;
 
    
    Providing appropriate service and support to retailers;
 
    
    Optimizing our retail and supply chain capabilities;
 
    
    Size and location of our retail stores and department store selling space; and
 
    
    Protecting intellectual property.
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Our reliance on independent foreign manufacturers could cause delay and loss and damage our
reputation and customer relationships. Also, there are risks associated with our agreement with Li
& Fung, which results in a single foreign buying agent for substantially all of our products.
      70




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Our international operations are subject to a variety of legal, regulatory, political and economic
risks, including risks relating to the importation and exportation of product.
  
    
    The potential reimposition of quotas, which could limit the amount and type of goods
that may be imported annually from a given country, in the context of a trade retaliatory
case;
 
    
    Changes in social, political, legal and economic conditions or terrorist acts that could
result in the disruption of trade from the countries in which our manufacturers or
suppliers are located;
 
    
    The imposition of additional regulations, or the administration of existing regulations,
relating to products which are imported, exported or otherwise distributed;
 
    
    The imposition of additional duties, taxes and other charges on imports or exports;
 
    
    Risks of increased sourcing costs, including costs for materials and labor, including
potentially as a result of the elimination of quota on apparel products;
 
    
    Our ability to adapt to and compete effectively in the current quota environment in
which general quota has expired on apparel products, resulting in changing in sourcing
patterns and lowered barriers to entry, but political activities which could result in the
reimposition of quotas or other restrictive measures have been initiated or threatened;
 
    
    Significant delays in the delivery of cargo due to security considerations;
 
    
    The imposition of antidumping or countervailing duty proceedings resulting in the
potential assessment of special antidumping or countervailing duties; and
 
    
    The enactment of new legislation or the administration of current international trade
regulations, or executive action affecting international textile agreements, including the
United States reevaluation of the trading status of certain countries and/or retaliatory
duties, quotas or other trade sanctions, which, if enacted, would increase the cost of
products purchased from suppliers in such countries.
   Our business and balance sheets are exposed to domestic and foreign currency fluctuations,
including with respect to the outstanding euro-denominated notes.
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Our ability to utilize our deferred tax assets
may be limited significantly if we experience an
ownership change.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  MaximumApproximateDollar Value ofTotal Number of
    
    
    Shares that MayTotal Number
    
    
    
    
    
    
    Shares Purchased as
    
    
    Yet Be Purchasedof Shares
    
    
    
    
    
    
    Part of Publicly
    
    
    Under the Plans orPurchased
    
    
    Average Price
    
    
    Announced Plans or
    
    
    ProgramsPeriod
    
    (in thousands)
    
    
    Paid Per Share
    
    
    Programs
    
    
    (in thousands) (b)July 5, 2009 - August 1, 2009
    
    
    4.3
    (a)
    
    $
    2.62
    
    
    
    
    
    
    $
    28,749August 2, 2009 - September 5, 2009
    
    
    16.7
    (a)
    
    
    4.07
    
    
    
    
    
    
    
    28,749September 6, 2009 - October 3, 2009
    
    
    0.1
    (a)
    
    
    5.31
    
    
    
    
    
    
    
    28,749Total - 13 Weeks Ended October 3,
2009
    
    
    21.1
    (a)
    
    $
    3.78
    
    
    
    
    
    
    $
    28,749
 
 (a)
    
    Includes shares withheld to cover tax-withholding
requirements relating to the vesting of restricted stock
issued to employees pursuant to the Companys
shareholder-approved stock incentive plans.(b)
    
    The Company initially announced the authorization of a
share buyback program in December 1989. Since its
inception, the Companys Board of Directors has authorized
the purchase under the program of an aggregate of $2.275
billion of the Companys stock. The Companys revolving
credit agreement currently restricts its ability to
repurchase stock. 
 ITEM 5. OTHER INFORMATION
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ITEM 6. EXHIBITS
 31
    (a)
    Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.31
    (b)
    Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32
    (a)*
    Certification of Chief Executive Officer Pursuant to Section 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32
    (b)*
    Certification of Chief Financial Officer Pursuant to Section 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 *
    
    A signed original of the written statement required by Section 906 has
been provided to the Company and will be retained by the Company and
forwarded to the SEC or its staff upon request.  73




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##### Table of Contents



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)
  74




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNo.
    
    Description31
    (a)
    
    Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.31
    (b)
    
    Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.32
    (a)*
    
    Certification of Chief Executive Officer Pursuant to
Section 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32
    (b)*
    
    Certification of Chief Financial Officer Pursuant to
Section 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 *
    
    A signed original of the written statement required by Section 906 has
been provided to the Company and will be retained by the Company and
forwarded to the SEC or its staff upon request.  75