##### 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 endedSeptember 29, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission
file number: 1-10689
 LIZ CLAIBORNE, INC.
  Delaware
    
    13-2842791(State or other 
jurisdiction of 
incorporation or 
organization)
    
    (I.R.S. Employer
Identification No.)1441 Broadway, New York, New York
    
    10018(Address of principal executive offices)
    
    (Zip Code)
 (212) 354-4900
 (Registrants telephone number, including area code)
 Not Applicable
 (Former name, former address and former fiscal year, if changed since last report)
 þ o
  þ o o
 o þ




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##### 



LIZ CLAIBORNE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
September 29, 2007
 PAGENUMBERPART I -
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements:Condensed Consolidated Balance Sheets as of September 29,
2007 (Unaudited), December 30, 2006 and September 30, 2006 (Unaudited)
    
    
    3Condensed Consolidated Statements of Income for the Nine
and Three Month Periods Ended September 29, 2007 (Unaudited) and
September 30, 2006 (Unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows for the
Nine Month Periods Ended September 29, 2007 (Unaudited) and September
30, 2006 (Unaudited)
    
    
    5-6Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    7-27Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    28-49Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    50-51Item 4.
    
    Controls and Procedures
    
    
    51PART II -
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    51Item 1A.
    
    Risk Factors
    
    
    52-54Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    54Item 5.
    
    Other Information
    
    
    55Item 6.
    
    Exhibits
    
    
    55SIGNATURES
    
    
    56EX-31.A: CERTIFICATIONEX-31.B: CERTIFICATIONEX-32.A: CERTIFICATIONEX-32.B: CERTIFICATION




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##### Table of Contents



3 
 PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
  (Unaudited)
    
    
    
    
    
    
    (Unaudited)September 29,
    
    
    December 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2006AssetsCurrent Assets:Cash and cash equivalents
    
    $
    111,634
    
    
    $
    185,645
    
    
    $
    99,940Marketable securities
    
    
    406
    
    
    
    9,451
    
    
    
    8,864Accounts receivable  trade, net
    
    
    663,197
    
    
    
    499,012
    
    
    
    735,387Inventories, net
    
    
    725,802
    
    
    
    593,445
    
    
    
    675,660Deferred income taxes
    
    
    91,396
    
    
    
    60,627
    
    
    
    67,393Other current assets
    
    
    155,165
    
    
    
    121,937
    
    
    
    130,951Assets held
for sale
    
    
    19,360
    
    
    
    
    
    
    
    Total current assets
    
    
    1,766,960
    
    
    
    1,470,117
    
    
    
    1,718,195Property and Equipment, Net
    
    
    583,343
    
    
    
    581,992
    
    
    
    521,641Goodwill, Net
    
    
    1,041,723
    
    
    
    1,007,859
    
    
    
    966,678Intangibles, Net
    
    
    411,858
    
    
    
    413,962
    
    
    
    343,548Other Assets
    
    
    21,890
    
    
    
    21,838
    
    
    
    12,637Total Assets
    
    $
    3,825,774
    
    
    $
    3,495,768
    
    
    $
    3,562,699Liabilities and Stockholders EquityCurrent Liabilities:Short term borrowings
    
    $
    455,852
    
    
    $
    22,266
    
    
    $
    55,935Accounts payable
    
    
    282,342
    
    
    
    281,413
    
    
    
    302,750Accrued expenses
    
    
    304,124
    
    
    
    336,773
    
    
    
    303,632Income taxes payable
    
    
    15,464
    
    
    
    33,470
    
    
    
    43,990Total current liabilities
    
    
    1,057,782
    
    
    
    673,922
    
    
    
    706,307Long-Term Debt
    
    
    520,749
    
    
    
    570,469
    
    
    
    677,171Other Non-Current Liabilities
    
    
    113,933
    
    
    
    63,565
    
    
    
    70,887Deferred Income Taxes
    
    
    71,821
    
    
    
    54,571
    
    
    
    63,809Commitments and Contingencies (Note 11)Minority Interest
    
    
    3,510
    
    
    
    3,260
    
    
    
    2,970Stockholders 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
    
    
    293,636
    
    
    
    249,573
    
    
    
    226,562Retained earnings
    
    
    3,389,225
    
    
    
    3,354,081
    
    
    
    3,286,615Accumulated other comprehensive loss
    
    
    (41,340
    )
    
    
    (56,156
    )
    
    
    (43,758
    )3,817,958
    
    
    
    3,723,935
    
    
    
    3,645,856Common stock in treasury, at cost 76,928,623,
73,281,103 and 74,346,643 shares
    
    
    (1,759,979
    )
    
    
    (1,593,954
    )
    
    
    (1,604,301
    )Total stockholders equity
    
    
    2,057,979
    
    
    
    2,129,981
    
    
    
    2,041,555Total Liabilities and Stockholders Equity
    
    $
    3,825,774
    
    
    $
    3,495,768
    
    
    $
    3,562,699




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##### Table of Contents



4 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
   Nine Months Ended
    
    
    Three Months Ended(39 Weeks)
    
    
    (39 Weeks)
    
    
    (13 Weeks)
    
    
    (13 Weeks)September 29,
    
    
    September 30,
    
    
    September 29,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net Sales
    
    $
    3,455,057
    
    
    $
    3,499,283
    
    
    $
    1,262,895
    
    
    $
    1,313,848Cost of goods sold
    
    
    1,790,491
    
    
    
    1,808,659
    
    
    
    652,804
    
    
    
    679,650Gross Profit
    
    
    1,664,566
    
    
    
    1,690,624
    
    
    
    610,091
    
    
    
    634,198Selling, general & administrative expenses
    
    
    1,521,559
    
    
    
    1,408,067
    
    
    
    528,058
    
    
    
    481,044Trademark impairment
    
    
    12,300
    
    
    
    
    
    
    
    12,300
    
    
    
    Operating Income
    
    
    130,707
    
    
    
    282,557
    
    
    
    69,733
    
    
    
    153,154Other income (expense), net
    
    
    (1,874
    )
    
    
    3,080
    
    
    
    (1,519
    )
    
    
    24Interest expense, net
    
    
    (30,126
    )
    
    
    (26,641
    )
    
    
    (11,739
    )
    
    
    (10,903
    )Income Before Provision for Income Taxes
    
    
    98,707
    
    
    
    258,996
    
    
    
    56,475
    
    
    
    142,275Provision for income taxes
    
    
    41,303
    
    
    
    96,225
    
    
    
    23,569
    
    
    
    51,907Income from Continuing Operations
    
    
    57,404
    
    
    
    162,771
    
    
    
    32,906
    
    
    
    90,368Income from discontinued operations, net of tax
    
    
    7,944
    
    
    
    18,751
    
    
    
    2,613
    
    
    
    4,802Loss on disposal of discontinued operations, net
of tax
    
    
    (2,468
    )
    
    
    
    
    
    
    (2,468
    )
    
    
    Net Income
    
    $
    62,880
    
    
    $
    181,522
    
    
    $
    33,051
    
    
    $
    95,170Earnings per Share:BasicIncome from Continuing Operations
    
    $
    0.57
    
    
    $
    1.59
    
    
    $
    0.33
    
    
    $
    0.90Net Income
    
    $
    0.62
    
    
    $
    1.77
    
    
    $
    0.33
    
    
    $
    0.94DilutedIncome from Continuing Operations
    
    $
    0.56
    
    
    $
    1.57
    
    
    $
    0.33
    
    
    $
    0.88Net Income
    
    $
    0.62
    
    
    $
    1.75
    
    
    $
    0.33
    
    
    $
    0.93Weighted Average Shares, Basic
    
    
    101,157
    
    
    
    102,277
    
    
    
    99,820
    
    
    
    100,868Weighted Average Shares, Diluted
    
    
    102,219
    
    
    
    103,726
    
    
    
    100,700
    
    
    
    102,384Dividends Paid per Common Share
    
    $
    0.17
    
    
    $
    0.17
    
    
    $
    0.06
    
    
    $
    0.06




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##### Table of Contents



5 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
   Nine Months Ended(39 Weeks)
    
    
    (39 Weeks)September 29,
    
    
    September 30,2007
    
    
    2006Cash Flows from Operating Activities:Net income
    
    $
    62,880
    
    
    $
    181,522Adjustments to arrive at income from continuing operations
    
    
    (5,476
    )
    
    
    (18,751
    )Income from continuing operations
    
    
    57,404
    
    
    
    162,771Adjustments to reconcile income from continuing operations to net
cash used in operating activities:Depreciation and amortization
    
    
    114,808
    
    
    
    100,915Trademark impairment
    
    
    12,300
    
    
    
    Streamlining initiatives; asset write-down
    
    
    19,052
    
    
    
    13,244Gain on sale of equity instrument
    
    
    (364
    )
    
    
    (3,583
    )Deferred income taxes
    
    
    9,478
    
    
    
    (8,504
    )Share-based compensation
    
    
    16,746
    
    
    
    19,192Tax benefit on exercise of stock options
    
    
    5,603
    
    
    
    4,532Other, net
    
    
    (495
    )
    
    
    (73
    )Change in assets and liabilities, exclusive of acquisitions:Increase in accounts receivable  trade, net
    
    
    (146,777
    )
    
    
    (302,224
    )Increase in inventories, net
    
    
    (131,810
    )
    
    
    (123,305
    )Increase in other current and non-current assets
    
    
    (6,421
    )
    
    
    (13,033
    )Increase in accounts payable
    
    
    5,543
    
    
    
    50,585(Decrease) increase in accrued expenses
    
    
    (43,513
    )
    
    
    19,032(Decrease) increase in income taxes payable
    
    
    (23,123
    )
    
    
    23,441Net cash provided by operating activities of discontinued operations
    
    
    5,702
    
    
    
    18,982Net cash used in operating activities
    
    
    (105,867
    )
    
    
    (38,028
    )Cash Flows from Investing Activities:Purchase of investment instruments
    
    
    (40
    )
    
    
    (107
    )Sales of investment instruments
    
    
    9,616
    
    
    
    8,054Purchases of property and equipment
    
    
    (112,455
    )
    
    
    (112,612
    )Proceeds from sales of property and equipment
    
    
    1,410
    
    
    
    Purchases of new businesses and payment of related debt
    
    
    (49,512
    )
    
    
    (143,487
    )Payments for in-store merchandise shops
    
    
    (4,584
    )
    
    
    (8,914
    )Other, net
    
    
    512
    
    
    
    (465
    )Net cash used in investing activities of discontinued operations
    
    
    (3
    )
    
    
    (39
    )Net cash used in investing activities
    
    
    (155,056
    )
    
    
    (257,570
    )




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##### Table of Contents



6 LIZ CLAIBORNE, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTD)
   Cash Flows from Financing Activities:Short term borrowings, net
    
    
    432,144
    
    
    
    7,206Principal payments under capital lease obligations
    
    
    (4,288
    )
    
    
    (2,524
    )Commercial paper, net
    
    
    (82,075
    )
    
    
    232,466Proceeds from exercise of common stock options
    
    
    42,726
    
    
    
    35,136Purchase of common stock
    
    
    (181,616
    )
    
    
    (174,071
    )Dividends paid
    
    
    (17,102
    )
    
    
    (17,394
    )Excess tax benefits related to stock options
    
    
    2,410
    
    
    
    844Proceeds from issuance of 5% euro Notes
    
    
    
    
    
    
    445,099Repayment of 6.625% euro Notes
    
    
    
    
    
    
    (449,505
    )Other, net
    
    
    (1,076
    )
    
    
    323Net cash provided by financing activities
    
    
    191,123
    
    
    
    77,580Effect of exchange rate changes on cash and cash equivalents
    
    
    (4,211
    )
    
    
    (10,569
    )Net Change in Cash and Cash Equivalents
    
    
    (74,011
    )
    
    
    (228,587
    )Cash and Cash Equivalents at Beginning of Period
    
    
    185,645
    
    
    
    328,527Cash and Cash Equivalents at End of Period
    
    $
    111,634
    
    
    $
    99,940




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##### Table of Contents



7    
    
    The Direct Brands segment  consists of the specialty retail, outlet, wholesale
apparel, wholesale non-apparel (including accessories, jewelry, handbags and
fragrances), e-commerce and licensing operations of the Companys four retail-based brands:
JUICY COUTURE, KATE SPADE, LUCKY BRAND and MEXX; and
    
    The Partnered Brands segment  consists of the wholesale apparel, wholesale
non-apparel, outlet and specialty retail, e-commerce and licensing operations of the
Companys wholesale-based brands including: AXCESS, C & C CALIFORNIA, CLAIBORNE
(mens), CONCEPTS BY CLAIBORNE, DANA BUCHMAN, ELLEN TRACY, ENYCE, FIRST ISSUE, KENSIE,
KENSIEGIRL, LAUNDRY BY DESIGN, LIZ & CO., LIZ CLAIBORNE, MAC & JAC, MARVELLA, MONET,
NARCISO RODRIGUEZ, prAna, SIGRID OLSEN, STAMP 10, TINT, TRIFARI, VILLAGER, the Companys
licensed DKNY® JEANS and DKNY® ACTIVE brands as well as the Companys other non-Direct
Brands fragrances including: BORA BORA, CLAIBORNE, CURVE, ELLEN TRACY, LIZ CLAIBORNE, LIZ
WOMAN, MAMBO, REALITIES, SOUL and our licensed USHER fragrance.




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##### Table of Contents



8 SIGNIFICANT ACCOUNTING POLICIES
 NATURE OF OPERATIONS
  PRINCIPLES OF CONSOLIDATION
  USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES
 Use of Estimates
   Revenue Recognition
  Income Taxes




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9  Accounts Receivable  Trade, Net
  Inventories, Net
  Goodwill and Other Intangibles, Net




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10      Accrued Expenses
  Derivative Instruments




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##### Table of Contents



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




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




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13




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##### Table of Contents



September 29,2007Assets held
for sale:Inventories
    
    $
    15,691Intangible assets
    
    
    3,669Total assets held for sale
    
    $
    19,360
  Nine Months Ended
    
    
    Three Months Ended(39 Weeks)
    
    
    (39 Weeks)
    
    
    (13 Weeks)
    
    
    (13 Weeks)September 29,
    
    
    September 30,
    
    
    September 29,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net sales
    
    $
    132,347
    
    
    $
    166,467
    
    
    $
    40,828
    
    
    $
    55,662Income before provision for income taxes
    
    
    13,002
    
    
    
    30,591
    
    
    
    4,276
    
    
    
    7,836Provision for income taxes
    
    
    5,058
    
    
    
    11,840
    
    
    
    1,663
    
    
    
    3,034Income from discontinued operations, net of tax
    
    $
    7,944
    
    
    $
    18,751
    
    
    $
    2,613
    
    
    $
    4,802




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##### Table of Contents



15   Capital in
    
    
    
    
    
    
    Common stockexcess of par
    
    
    Retained
    
    
    in treasury, atIn thousands
    
    value
    
    
    earnings
    
    
    costBalance as of December 30, 2006
    
    $
    249,573
    
    
    $
    3,354,081
    
    
    $
    (1,593,954
    )Net income
    
    
    
    
    
    
    62,880
    
    
    
    Cumulative impact of change in accounting
for income tax uncertainty
    
    
    
    
    
    
    (10,494
    )
    
    
    Restricted shares issued, net of
cancellations and shares withheld for taxes
    
    
    (9,356
    )
    
    
    
    
    
    
    1,618Purchase of common stock
    
    
    
    
    
    
    
    
    
    
    (181,616
    )Stock options exercised
    
    
    28,660
    
    
    
    
    
    
    
    13,973Share-based compensation
    
    
    16,746
    
    
    
    
    
    
    
    Tax benefit on stock options exercised
    
    
    5,603
    
    
    
    
    
    
    
    Excess tax benefits related to stock options
    
    
    2,410
    
    
    
    
    
    
    
    Dividends declared
    
    
    
    
    
    
    (17,242
    )
    
    
    Balance as of September 29, 2007
    
    $
    293,636
    
    
    $
    3,389,225
    
    
    $
    (1,759,979
    )
  Nine Months Ended(39 Weeks)
    
    
    (39 Weeks)In thousands
    
    September 29, 2007
    
    
    September 30, 2006Net income
    
    $
    62,880
    
    
    $
    181,522Other comprehensive income (loss), net of tax:Change in cumulative translation adjustment
    
    
    55,082
    
    
    
    24,168Change in cumulative translation adjustment on Eurobonds
    
    
    (36,004
    )
    
    
    (33,303
    )Changes in unrealized gains on available-for-sale
securities, net of income tax provision of $(187) and
$(781), respectively
    
    
    325
    
    
    
    1,369Reclassification of holding gains on available-for-sale
securities, net of income tax provision of $133 and
$1,290, respectively
    
    
    (231
    )
    
    
    (2,293
    )Changes in fair value of cash flow hedges, net of
income tax benefit (provision) of $626 and $(40),
respectively
    
    
    (4,356
    )
    
    
    39Total comprehensive income, net of tax
    
    $
    77,696
    
    
    $
    171,502
  September 29,
    
    
    December 30,
    
    
    September 30,In thousands
    
    2007
    
    
    2006
    
    
    2006Cumulative translation adjustment
    
    $
    (36,193
    )
    
    $
    (55,271
    )
    
    $
    (43,684
    )Unrealized losses on available-for-sale
securities, net of taxes of $46, $99 and $264,
respectively
    
    
    (48
    )
    
    
    (142
    )
    
    
    (490
    )Unrealized losses on cash flow hedging
derivatives, net of taxes of $1,121, $495 and
$(247), respectively
    
    
    (5,099
    )
    
    
    (743
    )
    
    
    416Accumulated other comprehensive loss, net of tax
    
    $
    (41,340
    )
    
    $
    (56,156
    )
    
    $
    (43,758
    )




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16     Unrealized
    
    
    EstimatedIn thousands
    
    Cost
    
    
    Losses
    
    
    Fair ValueSeptember 29, 2007:
    
    Other investments
    
    $
    477
    
    
    $
    (71
    )
    
    $
    406Total
    
    $
    477
    
    
    $
    (71
    )
    
    $
    406December 30, 2006:
    
    Equity investments
    
    $
    9,212
    
    
    $
    (186
    )
    
    $
    9,026Other investments
    
    
    458
    
    
    
    (33
    )
    
    
    425Total
    
    $
    9,670
    
    
    $
    (219
    )
    
    $
    9,451September 30, 2006:
    
    Equity investments
    
    $
    9,166
    
    
    $
    (705
    )
    
    $
    8,461Other investments
    
    
    451
    
    
    
    (48
    )
    
    
    403Total
    
    $
    9,617
    
    
    $
    (753
    )
    
    $
    8,864
    September 29,
    
    
    December 30,
    
    
    September 30,In thousands
    
    2007
    
    
    2006
    
    
    2006Raw materials
    
    $
    35,734
    
    
    $
    34,521
    
    
    $
    30,342Work in process
    
    
    19,121
    
    
    
    13,566
    
    
    
    17,866Finished goods
    
    
    670,947
    
    
    
    545,358
    
    
    
    627,452Total inventories, net
    
    $
    725,802
    
    
    $
    593,445
    
    
    $
    675,660




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##### Table of Contents



17   September 29,
    
    
    December 30,
    
    
    September 30,In thousands
    
    2007
    
    
    2006
    
    
    2006Land and buildings
    
    $
    136,042
    
    
    $
    141,451
    
    
    $
    142,384Machinery and equipment
    
    
    442,148
    
    
    
    407,511
    
    
    
    381,690Furniture and fixtures
    
    
    294,894
    
    
    
    276,685
    
    
    
    250,640Leasehold improvements
    
    
    519,423
    
    
    
    460,784
    
    
    
    443,1391,392,507
    
    
    
    1,286,431
    
    
    
    1,217,853Less: Accumulated depreciation and
amortization
    
    
    809,164
    
    
    
    704,439
    
    
    
    696,212Total property and equipment, net
    
    $
    583,343
    
    
    $
    581,992
    
    
    $
    521,641
    WeightedAverageAmortization
    
    September 29,
    
    
    December 30,
    
    
    September 30,In thousands
    
    Period
    
    2007
    
    
    2006
    
    
    2006Amortized intangible assets:Gross Carrying Amount:Licensed trademarks
    
    15 years
    
    $
    34,589
    
    
    $
    32,449
    
    
    $
    32,449Owned trademarks
    
    13 years
    
    
    16,501
    
    
    
    7,600
    
    
    
    7,600Customer relationships
    
    13 years
    
    
    52,637
    
    
    
    49,351
    
    
    
    46,082Merchandising rights
    
    4 years
    
    
    54,904
    
    
    
    57,695
    
    
    
    54,131Subtotal
    
    10 years
    
    
    158,631
    
    
    
    147,095
    
    
    
    140,262Accumulated Amortization:Licensed trademarks
    
    
    
    
    (16,343
    )
    
    
    (14,330
    )
    
    
    (13,484
    )Owned trademarks
    
    
    
    
    (1,503
    )
    
    
    (752
    )
    
    
    (657
    )Customer relationships
    
    
    
    
    (10,139
    )
    
    
    (6,800
    )
    
    
    (5,840
    )Merchandising rights
    
    
    
    
    (31,949
    )
    
    
    (29,563
    )
    
    
    (27,185
    )Subtotal
    
    
    
    
    (59,934
    )
    
    
    (51,445
    )
    
    
    (47,166
    )Net:Licensed trademarks
    
    
    
    
    18,246
    
    
    
    18,119
    
    
    
    18,965Owned trademarks
    
    
    
    
    14,998
    
    
    
    6,848
    
    
    
    6,943Customer relationships
    
    
    
    
    42,498
    
    
    
    42,551
    
    
    
    40,242Merchandising rights
    
    
    
    
    22,955
    
    
    
    28,132
    
    
    
    26,946Total amortized intangible assets, net
    
    
    
    
    98,697
    
    
    
    95,650
    
    
    
    93,096Unamortized intangible assets:Owned trademarks(a)
    
    
    
    
    313,161
    
    
    
    318,312
    
    
    
    250,452Total intangible assets
    
    
    
    $
    411,858
    
    
    $
    413,962
    
    
    $
    343,548
 
 (a)
    
    The balance at September 29, 2007 reflects a non-cash impairment charge of $12.3
million recorded within the Companys Partnered Brands segment (see Note 1  Basis of
Presentation).




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##### Table of Contents



18 
  (In millions)Fiscal Year
    
    Amortization Expense2007
    
    $
    20.62008
    
    
    19.12009
    
    
    16.22010
    
    
    11.42011
    
    
    9.4
  Direct
    
    
    PartneredIn thousands
    
    Brands
    
    
    Brands
    
    
    TotalBalance as of December 30, 2006
    
    $
    560,764
    
    
    $
    447,095
    
    
    $
    1,007,859Acquisition of Narciso Rodriguez
    
    
    
    
    
    
    4,940
    
    
    
    4,940Additional purchase price  Juicy Couture
    
    
    19,882
    
    
    
    
    
    
    
    19,882Additional purchase price  Lucky Brand
    
    
    4,087
    
    
    
    
    
    
    
    4,087Kate Spade working capital adjustment
    
    
    1,662
    
    
    
    
    
    
    
    1,662Kate Spade purchase price allocation
    
    
    (9,567
    )
    
    
    
    
    
    
    (9,567
    )Other
    
    
    
    
    
    
    (210
    )
    
    
    (210
    )Translation difference
    
    
    13,070
    
    
    
    
    
    
    
    13,070Balance as of September 29, 2007
    
    $
    589,898
    
    
    $
    451,825
    
    
    $
    1,041,723




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##### Table of Contents



19     September 29,
    
    
    December 30,
    
    
    September 30,In thousands
    
    2007
    
    
    2006
    
    
    20065% Notes
    
    $
    495,153
    
    
    $
    458,907
    
    
    $
    441,270Revolving credit facility and
commercial paper program
    
    
    394,600
    
    
    
    82,075
    
    
    
    232,466Capital lease obligations
    
    
    29,787
    
    
    
    32,284
    
    
    
    2,601Other (a)
    
    
    57,061
    
    
    
    19,469
    
    
    
    56,769Total debt
    
    
    976,601
    
    
    
    592,735
    
    
    
    733,106Less: current portion (b)
    
    
    455,852
    
    
    
    22,266
    
    
    
    55,935Long-term debt
    
    $
    520,749
    
    
    $
    570,469
    
    
    $
    677,171
 
 (a)
    
    At September 29, 2007, the balance consists primarily of amounts outstanding under
working capital lines of credit.(b)
    
    At September 29, 2007, the balance consists primarily of borrowings under the revolving credit
facility, working capital lines of credit and obligations under capital leases.




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##### Table of Contents



20   Outstanding
    
    
    Letters of Credit
    
    
    AvailableIn thousands
    
    Total Capacity
    
    
    Borrowings
    
    
    Issued
    
    
    CapacityRevolving credit facility and
commercial paper program
(a)
    
    $
    750,000
    
    
    $
    394,600
    
    
    $
    
    
    
    $
    355,400Letter of credit facility
    
    
    400,000
    
    
    
    
    
    
    
    245,936
    
    
    
    154,064Short-term borrowing facilities
    
    
    195,381
    
    
    
    56,112
    
    
    
    10,992
    
    
    
    128,277
 
 (a)
    
    The Companys $750 million revolving credit facility has a final maturity date of
October 2009 and contains the committed capacity to issue $250 million in letters of
credit.




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##### Table of Contents



21  C
     Nine Months Ended
    
    
    Three Months EndedSeptember 29,
    
    
    September 30,
    
    
    September 29,
    
    
    September 30,In thousands
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Direct Brands
    
    $
    13,810
    
    
    $
    15,132
    
    
    $
    7,910
    
    
    $
    7,370Partnered Brands
    
    
    34,991
    
    
    
    34,456
    
    
    
    13,707
    
    
    
    5,570Total
    
    $
    48,801
    
    
    $
    49,588
    
    
    $
    21,617
    
    
    $
    12,940
  LeasePayroll and
    
    
    Termination
    
    
    Fixed AssetIn thousands
    
    Related Costs
    
    
    Costs
    
    
    Write-Downs
    
    
    Other Costs
    
    
    TotalBalance at December 30, 2006
    
    $
    15,943
    
    
    $
    5,525
    
    
    $
    
    
    
    $
    111
    
    
    $
    21,5792007 provision
    
    
    24,174
    
    
    
    9,198
    
    
    
    13,760
    
    
    
    1,669
    
    
    
    48,8012007 fixed asset write-downs
    
    
    
    
    
    
    
    
    
    
    (13,760
    )
    
    
    
    
    
    
    (13,760
    )Translation difference
    
    
    408
    
    
    
    153
    
    
    
    
    
    
    
    17
    
    
    
    5782007 spending
    
    
    (31,742
    )
    
    
    (11,241
    )
    
    
    
    
    
    
    (1,797
    )
    
    
    (44,780
    )Balance at September 29, 2007
    
    $
    8,783
    
    
    $
    3,635
    
    
    $
    
    
    
    $
    
    
    
    $
    12,418




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##### Table of Contents



22   Nine Months Ended
    
    
    Three Months Ended(39 Weeks)
    
    
    (39 Weeks)
    
    
    (13 Weeks)
    
    
    (13 Weeks)September 29,
    
    
    September 30,
    
    
    September 29,
    
    
    September 30,In thousands
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006Income from continuing operations
    
    $
    57,404
    
    
    $
    162,771
    
    
    $
    32,906
    
    
    $
    90,368Income from discontinued operations, net of tax
    
    
    7,944
    
    
    
    18,751
    
    
    
    2,613
    
    
    
    4,802Loss on disposal of discontinued operations, net of tax
    
    
    (2,468
    )
    
    
    
    
    
    
    (2,468
    )
    
    
    Net income
    
    $
    62,880
    
    
    $
    181,522
    
    
    $
    33,051
    
    
    $
    95,170Basic weighted average shares outstanding
    
    
    101,157
    
    
    
    102,277
    
    
    
    99,820
    
    
    
    100,868Stock options and restricted stock grants(a)(b)
    
    
    1,062
    
    
    
    1,449
    
    
    
    880
    
    
    
    1,516Diluted weighted average shares outstanding
    
    
    102,219
    
    
    
    103,726
    
    
    
    100,700
    
    
    
    102,384Earnings per share:BasicIncome from continuing operations
    
    $
    0.57
    
    
    $
    1.59
    
    
    $
    0.33
    
    
    $
    0.90Income from discontinued operations
    
    
    0.07
    
    
    
    0.18
    
    
    
    0.02
    
    
    
    0.04Loss on disposal of discontinued operations
    
    
    (0.02
    )
    
    
    
    
    
    
    (0.02
    )
    
    
    Net income
    
    $
    0.62
    
    
    $
    1.77
    
    
    $
    0.33
    
    
    $
    0.94DilutedIncome from continuing operations
    
    $
    0.56
    
    
    $
    1.57
    
    
    $
    0.33
    
    
    $
    0.88Income from discontinued operations
    
    
    0.08
    
    
    
    0.18
    
    
    
    0.02
    
    
    
    0.05Loss on disposal of discontinued operations
    
    
    (0.02
    )
    
    
    
    
    
    
    (0.02
    )
    
    
    Net income
    
    $
    0.62
    
    
    $
    1.75
    
    
    $
    0.33
    
    
    $
    0.93
 
 (a)
    
    Options to purchase 3,321,661 and 2,472,503 shares of common stock were outstanding
as of September 29, 2007 and September 30, 2006, respectively, but were not included in the
computation of diluted EPS for the three and nine month periods then ended because such
options were anti-dilutive.(b)
    
    For 2007, excludes restricted stock for which the performance period has not yet
lapsed and criteria have not yet been achieved.




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##### Table of Contents



23  
    
    The Direct Brands segment  consists of the specialty retail, outlet, wholesale
apparel, wholesale non-apparel (including accessories, jewelry, handbags and fragrances),
e-commerce and licensing operations of the Companys four retail-based brands: JUICY
COUTURE, KATE SPADE, LUCKY BRAND and MEXX; and
    
    The Partnered Brands segment  consists of the wholesale apparel, wholesale
non-apparel, outlet and specialty retail, e-commerce and licensing operations of the
Companys wholesale-based brands including: AXCESS, C & C CALIFORNIA, CLAIBORNE
(mens), CONCEPTS BY CLAIBORNE, DANA BUCHMAN, ELLEN TRACY, ENYCE, FIRST ISSUE, KENSIE,
KENSIEGIRL, LAUNDRY BY DESIGN, LIZ & CO., LIZ CLAIBORNE, MAC & JAC, MARVELLA, MONET,
NARCISO RODRIGUEZ, prAna, SIGRID OLSEN, STAMP 10, TINT, TRIFARI, VILLAGER, the Companys
licensed DKNY® JEANS and DKNY® ACTIVE brands as well as the Companys other non-Direct
Brands fragrances including: BORA BORA, CLAIBORNE, CURVE, ELLEN TRACY, LIZ CLAIBORNE, LIZ
WOMAN, MAMBO, REALITIES, SOUL and our licensed USHER fragrance.
  C
  Nine Months EndedSeptember 29, 2007
    
    
    September 30, 2006Direct
    
    
    Partnered
    
    
    
    
    
    
    Direct
    
    
    PartneredIn thousands
    
    Brands
    
    
    Brands
    
    
    Total
    
    
    Brands
    
    
    Brands
    
    
    TotalTotal net sales
    
    $
    1,608,376
    
    
    $
    1,846,681
    
    
    $
    3,455,057
    
    
    $
    1,332,965
    
    
    $
    2,166,318
    
    
    $
    3,499,283% to total
    
    
    46.6
    %
    
    
    53.4
    %
    
    
    100.0
    %
    
    
    38.1
    %
    
    
    61.9
    %
    
    
    100.0
    %Total operating income(a)
    
    $
    166,871
    
    
    $
    (36,164
    )
    
    $
    130,707
    
    
    $
    141,752
    
    
    $
    140,805
    
    
    $
    282,557% of sales
    
    
    10.4
    %
    
    
    (2.0%
    )
    
    
    3.8
    %
    
    
    10.6
    %
    
    
    6.5
    %
    
    
    8.1
    %




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##### Table of Contents



24 Three Months EndedSeptember 29, 2007
    
    
    September 30, 2006Direct
    
    
    Partnered
    
    
    
    
    
    
    Direct
    
    
    PartneredIn thousands
    
    Brands
    
    
    Brands
    
    
    Total
    
    
    Brands
    
    
    Brands
    
    
    TotalTotal net sales
    
    $
    628,705
    
    
    $
    634,190
    
    
    $
    1,262,895
    
    
    $
    532,742
    
    
    $
    781,106
    
    
    $
    1,313,848% to total
    
    
    49.8
    %
    
    
    50.2
    %
    
    
    100.0
    %
    
    
    40.5
    %
    
    
    59.5
    %
    
    
    100.0
    %Total operating income(a)
    
    $
    87,046
    
    
    $
    (17,313
    )
    
    $
    69,733
    
    
    $
    82,772
    
    
    $
    70,382
    
    
    $
    153,154% of sales
    
    
    13.8
    %
    
    
    (2.7%
    )
    
    
    5.5
    %
    
    
    15.5
    %
    
    
    9.0
    %
    
    
    11.7
    %
 
 (a)
    
    The Partnered Brands operating loss includes a pre-tax, non-cash impairment charge
of $12.3 million related to the Companys Ellen Tracy trademark (see Note 1  Basis of
Presentation).  September 29,
    
    
    December 30,
    
    
    September 30,In thousands
    
    2007
    
    
    2006
    
    
    2006SEGMENT ASSETSDirect Brands
    
    $
    1,941,682
    
    
    $
    1,622,205
    
    
    $
    1,702,408Partnered Brands
    
    
    1,824,785
    
    
    
    1,810,077
    
    
    
    1,857,317Corporate
    
    
    39,947
    
    
    
    63,486
    
    
    
    2,974Assets of continuing operations
    
    
    3,806,414
    
    
    
    3,495,768
    
    
    
    3,562,699Assets of discontinued operations
    
    
    19,360
    
    
    
    
    
    
    
    Total Assets
    
    $
    3,825,774
    
    
    $
    3,495,768
    
    
    $
    3,562,699
  Nine Months Ended
    
    
    Three Months Ended(39 Weeks)
    
    
    (39 Weeks )
    
    
    (13 Weeks)
    
    
    (13 Weeks)September 29,
    
    
    September 30,
    
    
    September 29,
    
    
    September 30,In thousands
    
    2007
    
    
    2006
    
    
    2007
    
    
    2006NET SALES:Domestic
    
    $
    2,366,461
    
    
    $
    2,465,153
    
    
    $
    842,673
    
    
    $
    906,576International (including
MEXX sales of $917,636, $862,658, $365,451 and
$343,919, respectively)
    
    
    1,088,596
    
    
    
    1,034,130
    
    
    
    420,222
    
    
    
    407,272Total net sales
    
    $
    3,455,057
    
    
    $
    3,499,283
    
    
    $
    1,262,895
    
    
    $
    1,313,848OPERATING INCOME:Domestic
    
    $
    62,328
    
    
    $
    215,903
    
    
    $
    25,981
    
    
    $
    105,105International
    
    
    68,379
    
    
    
    66,654
    
    
    
    43,752
    
    
    
    48,049Total operating income
    
    $
    130,707
    
    
    $
    282,557
    
    
    $
    69,733
    
    
    $
    153,154




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##### Table of Contents



26   Nine Months EndedBinomial Lattice Valuation Assumptions:
    
    September 29, 2007
    
    September 30, 2006Weighted-average fair value of options granted
    
    $
    10.24
    
    
    $
    9.60Expected volatility
    
    25.3% to 37.6%
    
    23.1% to 39.5%Weighted-average volatility
    
    
    25.7
    %
    
    
    24.4
    %Expected term (in years)
    
    
    4.5
    
    
    
    4.4Dividend yield
    
    
    0.61
    %
    
    
    0.61
    %Risk-free rate
    
    4.8% to 5.2%
    
    4.4% to 4.8%Expected annual forfeiture
    
    
    10.19
    %
    
    
    7.05
    %
 Stock Options
  Weighted
    
    Weighted Average
    
    AggregateAverage Exercise
    
    Remaining
    
    Intrinsic ValueShares
    
    Price
    
    Contractual Term
    
    ($000)Outstanding at December 30, 2006
    
    
    5,889,216
    
    
    $
    32.58
    
    
    
    5.8
    
    
    $
    64,519Granted
    
    
    794,440
    
    
    
    37.14Exercised
    
    
    (1,534,237
    )
    
    
    27.79Cancelled
    
    
    (291,945
    )
    
    
    38.30Outstanding at September 29, 2007
    
    
    4,857,474
    
    
    
    34.49
    
    
    
    5.49
    
    
    $
    11,679Vested or expected to vest
at September 29, 2007
    
    
    4,641,237
    
    
    $
    34.33
    
    
    
    5.44
    
    
    $
    11,667Exercisable at September 29, 2007
    
    
    3,527,347
    
    
    $
    32.91
    
    
    
    5.20
    
    
    $
    11,645




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##### Table of Contents



27 Restricted Stock
  WeightedAverageShares
    
    
    Exercise PriceNonvested stock at December 30, 2006
    
    
    1,718,493
    
    
    $
    37.63Granted(a)
    
    
    762,652
    
    
    
    40.63Vested (b)
    
    
    (347,062
    )
    
    
    37.85Cancelled
    
    
    (337,795
    )
    
    
    38.10Nonvested stock at September 29, 2007
    
    
    1,796,288
    
    
    $
    38.77Expected to vest as of September 29, 2007
    
    
    1,432,413
    
    
    $
    38.76
 
 (a)
    
    In the third quarter of 2007, performance shares were granted to a group of key
executives. These shares are subject to certain service and performance conditions to be
measured as of the fiscal 2009 year-end. The ultimate amount of shares earned will be
determined by the extent of achievement of the performance criteria set forth in the
performance share agreements and will range from 0  150% of target.(b)
    
    Includes shares whose vesting was accelerated due to involuntary termination.




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##### Table of Contents



28 
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 OVERVIEW
 Business/Segments
  
    
    The Direct Brands segment  consists of the specialty retail, outlet, wholesale
apparel, wholesale non-apparel (including accessories, jewelry, handbags and fragrances),
e-commerce and licensing operations of our four retail-based brands: JUICY COUTURE, KATE
SPADE, LUCKY BRAND and MEXX; and
    
    The Partnered Brands segment  consists of the wholesale apparel, wholesale
non-apparel, outlet and specialty retail, e-commerce and licensing operations of our
wholesale-based brands including: AXCESS, C & C CALIFORNIA, CLAIBORNE (mens),
CONCEPTS BY CLAIBORNE, DANA BUCHMAN, ELLEN TRACY, ENYCE, FIRST ISSUE, KENSIE, KENSIEGIRL,
LAUNDRY BY DESIGN, LIZ & CO., LIZ CLAIBORNE, MAC & JAC, MARVELLA, MONET, NARCISO RODRIGUEZ,
prAna, SIGRID OLSEN, STAMP 10, TINT, TRIFARI, VILLAGER, our licensed DKNY® JEANS and DKNY®
ACTIVE brands as well as our other non-Direct Brands fragrances including: BORA BORA,
CLAIBORNE, CURVE, ELLEN TRACY, LIZ CLAIBORNE, LIZ WOMAN, MAMBO, REALITIES SOUL and our
licensed USHER fragrance.




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##### Table of Contents



29 Competitive Profile
     
    
    Reconfiguring our organization into two new reporting segments:
Direct Brands (comprised of our JUICY COUTURE, KATE SPADE, LUCKY BRAND
and MEXX retail-based lifestyle brands) and Partnered Brands
(comprised of LIZ CLAIBORNE and our other owned and licensed
wholesale-based brands). The strategic realignment reflects a
brand-focused approach, designed to optimize the operational
coordination and resource allocation of our businesses across multiple
functional areas including specialty retail, retail outlets, wholesale
apparel, wholesale non-apparel, e-commerce and licensing;
 
    
    Narrowing our portfolio to a select group that we believe we can fully
resource and develop into powerful, sustaining brands. On October 4,
2007, we completed the sale of our EMMA JAMES, INTUITIONS,
J.H. COLLECTIBLES AND TAPEMEASURE brands. We also announced
the consolidation of our TINT brand into LIZ & CO. and STAMP 10 brand
into AXCESS and the closure of our FIRST ISSUE brand, each of which is
anticipated to occur at the end of the fourth quarter of 2007 delivery
period.
 The remaining brands currently under review are: C & C CALIFORNIA,
DANA BUCHMAN, ELLEN TRACY, ENYCE, KENSIE, LAUNDRY BY DESIGN, MAC &
JAC, prAna, and SIGRID OLSEN;
 
    
    Implementing and maintaining a more competitive cost structure:
We have accelerated our structural realignment and other
initiatives and are currently anticipating annual cost savings of $150
million in 2008, an additional $70 million in 2009 and $45 million in
2010 totaling $265 million by the end of fiscal 2010. We anticipate that these savings will be realized through staff
reductions of approximately 800, consolidations of distribution
facilities and office space, discretionary expense cuts, process
re-engineering and supply chain cost rationalization;
 
    
    Committing the resources, structure and marketing investment
necessary to fully support and maximize the growth of our brands; and




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##### Table of Contents



30 
    
    Developing best-in-class retail capabilities, and initiating
investments to innovate our supply chain and accelerate the flow of
goods to our stores in both retail and wholesale formats.
   Overall Results for the Nine Months Ended September 29, 2007
 Net Sales
  Gross Profit and Income from Continuing Operations
  Balance Sheet
  International Operations
  Recent Acquisitions




---



##### Table of Contents



31




---



##### Table of Contents



32  RESULTS OF OPERATIONS
  
    
    The Direct Brands segment  consists of the specialty retail, outlet,
wholesale apparel, wholesale non-apparel (including accessories,
jewelry, handbags and fragrances), e-commerce and licensing operations
of our four retail-based brands: JUICY COUTURE, KATE SPADE, LUCKY
BRAND and MEXX; and
 
    
    The Partnered Brands segment  consists of the wholesale apparel,
wholesale non-apparel, outlet and specialty retail, e-commerce and
licensing operations of our wholesale-based brands including: AXCESS,
C & C CALIFORNIA, CLAIBORNE (mens), CONCEPTS BY CLAIBORNE, DANA
BUCHMAN, ELLEN TRACY, ENYCE, FIRST ISSUE, KENSIE, KENSIEGIRL, LAUNDRY
BY DESIGN, LIZ & CO., LIZ CLAIBORNE, MAC & JAC, MARVELLA, MONET,
NARCISO RODRIGUEZ, prAna, SIGRID OLSEN, STAMP 10, TINT, TRIFARI,
VILLAGER, our licensed DKNY® JEANS and DKNY® ACTIVE brands as well as
our other non-Direct Brands fragrances including: BORA BORA,
CLAIBORNE, CURVE, ELLEN TRACY, LIZ CLAIBORNE, LIZ WOMAN, MAMBO,
REALITIES, SOUL and licensed USHER fragrance.
  
    
    Domestic: wholesale customers, Company-owned specialty retail and
outlet stores located in the United States and our e-commerce sites;
and
 
    
    International: wholesale customers and Company-owned an operated
specialty retail, outlet and concession stores located outside of the
United States, primarily in our European and Canadian operations.




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##### Table of Contents



33 THREE MONTHS ENDED SEPTEMBER 29, 2007 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2006
  Three months ended
    
    
    VarianceSeptember 29,
    
    
    September 30,Dollars in millions
    
    2007
    
    
    2006
    
    
    $
    
    
    %Net Sales
    
    $
    1,262.9
    
    
    $
    1,313.8
    
    
    $
    (50.9
    )
    
    
    (3.9
    %)Gross Profit
    
    
    610.1
    
    
    
    634.2
    
    
    
    (24.1
    )
    
    
    (3.8
    %)Selling, general & administrative expenses
    
    
    528.1
    
    
    
    481.0
    
    
    
    47.1
    
    
    
    9.8
    %Trademark Impairment
    
    
    12.3
    
    
    
    
    
    
    
    12.3
    
    
    
    Operating Income
    
    
    69.7
    
    
    
    153.2
    
    
    
    (83.5
    )
    
    
    (54.5
    %)Other income (expense), net
    
    
    (1.5
    )
    
    
    
    
    
    
    (1.5
    )
    
    
    Interest expense, net
    
    
    (11.7
    )
    
    
    (10.9
    )
    
    
    (0.8
    )
    
    
    (7.3
    %)Provision for income taxes
    
    
    23.6
    
    
    
    51.9
    
    
    
    (28.3
    )
    
    
    (54.5
    %)Income from Continuing Operations
    
    
    32.9
    
    
    
    90.4
    
    
    
    (57.5
    )
    
    
    (63.6
    %)Income from discontinued
operations, net of tax
    
    
    2.6
    
    
    
    4.8
    
    
    
    (2.2
    )
    
    
    (45.8
    %)Loss on disposal of discontinued
operations, net of tax
    
    
    (2.5
    )
    
    
    
    
    
    
    (2.5
    )
    
    
    Net Income
    
    $
    33.0
    
    
    $
    95.2
    
    
    $
    (62.2
    )
    
    
    (65.3
    %)
 Net Sales
  
    
    Direct Brands net sales were $628.7 million increasing $96.0 million, or 18.0%, reflecting the following:
 -
    
    Net sales for MEXX were $365.4 million, a 6.3% increase compared to 2006. Excluding the
impact of foreign currency exchange rates, net sales for MEXX were $338.9 million, a 1.5%
decrease as compared to the third quarter of 2006, primarily due to decreases in our MEXX
Europe retail and wholesale businesses, partly offset by increases in our MEXX Canada
retail business.
 
    
    We ended the quarter with 137 specialty stores, 84 outlets and 306 concessions,
reflecting the net addition over the last 12 months of 10
specialty retail, 1 outlet
store and 18 concession stores;
    
    Average retail square footage in the third quarter was approximately 1.345 million
square feet, a 5.0% increase compared to 2006;
    
    Sales productivity was $102 per average square foot as compared to $106 for the third
quarter of fiscal 2006;
    
    Comparable store sales in our MEXX Company-owned stores decreased by 2.2% overall,
primarily the result of a decrease in our MEXX Europe business, partly offset by an
increase in our MEXX Canada business; and




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##### Table of Contents



34 
    
    A $26.6 million increase resulting from the impact of foreign currency exchange rates
in our European and Canadian businesses.
 -
    
    Net sales for LUCKY BRAND were $108.6 million, an 11.5% increase compared to 2006,
primarily driven by increases in retail and wholesale apparel;
 
    
    We ended the quarter with 159 specialty stores and 10 outlet stores, reflecting the net
addition over the last 12 months of 32 specialty stores and 3
outlet stores;
    
    Average retail square footage in the third quarter was approximately 384 thousand
square feet, a 27.4% increase compared to 2006;
    
    Sales productivity was $130 per average square foot as compared to $141 for the third
quarter of fiscal 2006; and
    
    Comparable store sales in our Company-owned stores decreased by 2.5% in the third
quarter.
 -
    
    Net sales for JUICY COUTURE were $135.1 million, a 47.7%
increase compared to 2006, primarily driven
by increases in retail, and wholesale non-apparel (including fragrance).
 
    
    We ended the quarter with 33 specialty stores and 13 outlet stores, reflecting the net
addition over the last 12 months of 21 specialty stores and 9 outlet stores;
    
    Average retail square footage in the third quarter was approximately 125 thousand
square feet, a 290.7% increase compared to 2006;
    
    Sales productivity was $267 per average square foot as compared to $328 for the third
quarter of fiscal 2006, as the brand has evolved from limited to broader
distribution; and
    
    Comparable store sales in our Company-owned stores increased by 17.7% in the third
quarter.
 -
    
    Net sales for KATE SPADE (acquired in December 2006) were $19.6 million.
 
    
    We ended the quarter with 23 specialty retail stores and 6 outlet stores;
    
    Average retail square footage in the third quarter was 57 thousand square feet; and
    
    Sales productivity was $162 per average square foot for the third quarter of 2007.
  
    
    New stores become comparable after 15 full months of operations;
    
    Closed stores become non-comparable when they begin final liquidation or no
longer receive new merchandise, usually 1-3 months before closure;
    
    A store that undergoes renovations and increases or decreases substantially in
size as the result of renovations becomes non-comparable;
    
    A store that is relocated stays the same size and has no interruption of selling
remains comparable. If, however, a location change causes a significant increase or
decrease in size, then the location becomes non-comparable; and
    
    Stores that are acquired are not considered comparable until they have been
reflected in our results for a period of 12 months.
  
    
    Partnered Brands net sales were $634.2 million, a decrease of $146.9 million or 18.8%, reflecting:
 -
    
    Our department store customers continued focus
on inventory productivity and product
differentiation to gain competitive market
share, improve margins and cash flows, as they
continue to execute their buying activities very
cautiously, while aggressively growing their
private label businesses. This operating
environment adversely affects our Partnered
Brand segment which is reflected in reduced
sales for the following brands: LIZ CLAIBORNE,
SIGRID OLSEN, CLAIBORNE, licensed DKNY® Jeans
FIRST ISSUE, MONET, DANA BUCHMAN and ENYCE. The
sales decline also reflects the elimination
of our CITY UNLTD. and CRAZY HORSE brands,
partially offset by the addition of our LIZ &
CO., CONCEPTS BY CLAIBORNE brands and the launch
of our licensed USHER fragrance; and-
    
    The impact of foreign currency exchange rates
increased sales by $3.7 million primarily
related to our LIZ CLAIBORNE operations in
Europe and Canada.




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##### Table of Contents



35 
 Domestic International
 Gross Profit
  Selling, General & Administrative Expenses
  
    
    The inclusion of $12.7 million of expenses from our acquisition KATE SPADE;
 
    
    A $14.1 million increase primarily resulting from the retail expansion in our Direct Brands segment;
 
    
    A $14.2 million increase due to the impact of foreign currency exchange rates in our international
operations;
 
    
    An increase of $19.6 million of expenses associated with the strategic review of our brand
portfolio and our year over year streamlining initiatives; and
 
    
    A net decrease of $13.5 associated with other SG&A items.
  Trademark Impairment
  Operating Income
  
    
    Direct Brands operating income was $87.0 million increasing $4.2
million, or 5.2%, as a result of growth in our JUICY COUTURE brand and
the impact of foreign currency exchange rates in our international
operations, partially offset by reduced income in our LUCKY BRAND
operations as a result of expenses associated with brand building and
reduced income in our MEXX Europe retail operations.
 
    
    The Partnered Brands operating loss in the third quarter was $17.3
million ((2.7) % of net sales), compared to operating income of $70.4
million (9.0% of net sales) in 2006, as a result of lower sales and
increased retailer support as well as an increase in expenses
associated with our streamlining initiatives.
 Domestic International




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##### Table of Contents



36 Other Income (Expense), Net
  Interest Expense, Net
  Provision for Income Taxes
  Income from Continuing Operations
  Income from Discontinued Operations, Net of Tax
  Loss on Disposal of Discontinued Operations, Net of Tax
  Net Income




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##### Table of Contents



37 NINE MONTHS ENDED SEPTEMBER 29, 2007 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2006
  Nine months ended
    
    
    VarianceSeptember 29,
    
    
    September 30,Dollars in millions
    
    2007
    
    
    2006
    
    
    $
    
    
    %Net Sales
    
    $
    3,455.1
    
    
    $
    3,499.3
    
    
    $
    (44.2
    )
    
    
    (1.3
    %)Gross Profit
    
    
    1,664.6
    
    
    
    1,690.6
    
    
    
    (26.0
    )
    
    
    (1.5
    %)Selling, general & administrative
expenses
    
    
    1,521.6
    
    
    
    1,408.0
    
    
    
    113.6
    
    
    
    8.1
    %Trademark Impairment
    
    
    12.3
    
    
    
    
    
    
    
    12.3
    
    
    
    Operating Income
    
    
    130.7
    
    
    
    282.6
    
    
    
    (151.9
    )
    
    
    (53.8
    %)Other income (expense), net
    
    
    (1.9
    )
    
    
    3.1
    
    
    
    (5.0
    )
    
    
    (161.3
    %)Interest expense, net
    
    
    (30.1
    )
    
    
    (26.6
    )
    
    
    (3.5
    )
    
    
    (13.2
    %)Provision for income taxes
    
    
    41.3
    
    
    
    96.3
    
    
    
    (55.0
    )
    
    
    (57.1
    %)Income from Continuing Operations
    
    
    57.4
    
    
    
    162.8
    
    
    
    (105.4
    )
    
    
    (64.7
    %)Income from discontinued
operations, net of tax
    
    
    8.0
    
    
    
    18.7
    
    
    
    (10.7
    )
    
    
    (57.2
    %)Loss on disposal of discontinued
operations, net of tax
    
    
    (2.5
    )
    
    
    
    
    
    
    (2.5
    )
    
    
    Net Income
    
    $
    62.9
    
    
    $
    181.5
    
    
    $
    (118.6
    )
    
    
    (65.3
    %)
 Net Sales
  
    
    Direct Brands net sales were $1.608 billion increasing $275.4 million, or 20.7%, reflecting the following:
 -
    
    Net sales for MEXX were $917.6 million, a 6.4%
increase compared to 2006. Excluding the impact of
foreign currency exchange rates, net sales for MEXX
were $855.2 million, a decline of $7.4 million as
compared to the first nine months of 2006, primarily
due to decreases in our MEXX Europe retail business,
mostly offset by increases in our MEXX Canada retail
business.
 
    
    Comparable store sales in our MEXX Company-owned
stores decreased by 1.4% overall, primarily the
result of a decrease in our MEXX Europe specialty
retail business, partly offset by an increase in our
MEXX Canada business;
    
    Average retail square footage in the first nine
months of 2007 was approximately 1.319 million
square feet, a 3.9% increase compared to 2006;
    
    Sales productivity was $297 per average square
foot as compared to $307 for the first nine months
of fiscal 2006; and
    
    A $62.4 million increase resulting from the impact
of foreign currency exchange rates in our European
and Canadian businesses.




---



##### Table of Contents



38 -
    
    Net sales for LUCKY BRAND were $307.2 million, a
19.7% increase compared to 2006, primarily driven by
increases in retail, wholesale apparel and wholesale
non-apparel (including fragrance).
 
    
    Average retail square footage in the first nine
months of 2007 was approximately 367 thousand square
feet, a 27.8% increase compared to 2006;
    
    Sales productivity was $409 per average square
foot as compared to $432 for the first nine months
of fiscal 2006; and
    
    Comparable store sales in our LUCKY BRAND
Company-owned stores increased by 0.1% in the first
nine months of 2007.
 -
    
    Net sales for JUICY COUTURE were $324.2 million, a 51.7%
increase compared to 2006, primarily driven by
increases in retail, wholesale apparel and non-apparel (including fragrance).
 
    
    Average retail square footage in the first nine months of 2007 was approximately 107 thousand
square feet, a 304.1% increase compared to 2006;
    
    Sales productivity was $743 per average square foot as compared to $783 for the first nine
months of fiscal 2006, as the brand has evolved from limited to broader
distribution; and
    
    Comparable store sales in our Company-owned stores increased by 20.7% in the first nine months
of 2007.
 -
    
    Net sales for KATE SPADE (acquired in December 2006) were $59.4 million.
 
    
    Average retail square footage in the first nine months of
2007 was 57 thousand square feet; and
    
    Sales productivity was $460 per average square foot for the first nine months of 2007.
 
    
    Partnered Brands net sales decreased $319.6 million, or 14.8%, to $1.847 billion reflecting:
 -
    
    Our department store customers continued
focus on inventory productivity and product
differentiation to gain competitive market
share, improve margins and cash flows, as
they continue to execute their buying
activities very cautiously, while
aggressively growing their private label
businesses. This operating environment
adversely affects our Partnered Brand segment
which is reflected in reduced sales for the
following brands: LIZ CLAIBORNE, SIGRID
OLSEN, CURVE fragrance, MONET, CLAIBORNE,
ELLEN TRACY, FIRST ISSUE, and LAUNDRY. The
sales decline also reflects the
elimination of our CITY UNLTD. and CRAZY
HORSE brands, partially offset by the
addition of our LIZ & CO., CONCEPTS BY
CLAIBORNE brands and the launch of our
licensed USHER fragrance; and-
    
    The impact of foreign currency exchange rates
increased sales by $8.6 million primarily
related to our LIZ CLAIBORNE operations in
Europe and Canada.
 Domestic International
 Gross Profit




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##### Table of Contents



39 Selling, General & Administrative Expenses
  
    
    The inclusion of $32.7 million of expenses from our acquisition of KATE SPADE;
 
    
    A $60.1 million increase primarily resulting from the retail expansion and
increased marketing expenses, including expenses associated with the
expansion of our fragrance businesses, in our Direct Brands segment;
 
    
    An increase of $19.7 million of expenses associated with the strategic review
of our brand portfolio and our year over year streamlining initiatives;
 
    
    A $36.4 million increase due to the impact of foreign currency exchange
rates in our international operations; and
 
    
    A net decrease of $35.3 million associated with other SG&A items.
  Trademark Impairment
  Operating Income
  
    
    Direct Brands operating income was $166.9 million increasing $25.1
million or 17.7%, as a result of growth in our JUICY COUTURE brand,
partially offset by additional expenses due to our retail expansion
activities, as well as reduced profits in our LUCKY BRAND operations
as a result of expenses associated with brand building.
 
    
    The Partnered Brands operating loss was $36.2 million, a $177.0
million decrease, as a result of lower sales, increased
retailer support and expenses associated with our streamlining
activities.
 Domestic International
 Other Income (Expense), Net
  Interest Expense, Net
  Provision for Income Taxes




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##### Table of Contents



40 Income from Continuing Operations
  Income from Discontinued Operations, Net of Tax
  Loss on Disposal of Discontinued Operations, Net of Tax
  Net Income
   FORWARD OUTLOOK
 Fiscal 2007
    FISCAL 2008 OUTLOOK
   FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
 Cash Requirements.




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##### Table of Contents



41  Sources of Cash.
 2007 vs. 2006
 Cash and Debt Balances.
 Accounts Receivable
 Inventories
 Borrowings
 Net cash used in operating activities




---



##### Table of Contents



42  Net cash used in investing activities
 Net cash provided by financing activities
 Commitments and Capital Expenditures
  
    
    The prAna acquisition agreement provides for contingent payments in
fiscal years 2008, 2009 and 2010 that will be based upon a multiple of
prAnas earnings in each year. We estimate that the aggregate
contingent payments will be in the range of approximately $20-25
million. The contingent payments will be accounted for as additional
purchase price when paid.
 
    
    On January 16, 2007 and January 17, 2006, we purchased 1.5 percent and
1.9 percent, respectively, of the remaining outstanding shares of
Lucky Brand for a payment of $10.0 million each. We will acquire 0.4%
in each of January of 2008, 2009 and 2010 of the equity interest
in Lucky for payments of $5 million each. The remaining 2.28% of the
original shares outstanding will be settled for an aggregate purchase
price composed of the following two installments: (i) the 2008 payment
will be based on a multiple of Lucky Brands 2007 earnings, which we
estimate will be in the range of $15-20 million and (ii) the 2011
payment will be based on a multiple of Lucky Brands 2010 earnings,
net of the 2008 payment which we estimate will be in the range of $3-7
million.
 
    
    The Juicy Couture acquisition agreement provides for a contingent
payment to be determined as a multiple of Juicy Coutures earnings for
one of the years ended 2005, 2006 or 2007. This payment will be made
in either cash or shares of our common stock at our option. In March
of 2005, the contingent payment agreement was amended to include an
advance option for the sellers provided that (i) if the 2005
measurement year is not selected, the sellers may elect to receive up
to 70 percent of the estimated contingent payment based upon 2005
results; and (ii) if the 2005 and 2006 measurement years are not
selected, the sellers may elect to receive up to 85 percent of the
estimated contingent payment based on the 2006 measurement year net of
any 2005 advances. In April 2006, the sellers elected to receive a 70
percent advance against the contingent purchase price and were paid
$80.3 million on April 20, 2006. In May of 2007, the sellers elected
to receive an 85 percent advance against the contingent purchase price
and were paid $19.9 million on May 23, 2007. These payments were
accounted for as additional purchase price and an increase to
goodwill. We estimate the remaining contingent payment would be
approximately $45-50 million. The contingent payment will be accounted
for as additional purchase price when paid.
 
    
    On January 26, 2006, we acquired 100 percent of the equity interests
of Westcoast Contempo Fashions Limited and Mac & Jac Holdings Limited
for an initial payment of 26.2 million Canadian dollars (or $22.7
million). The Mac & Jac acquisition agreement provides for contingent
payments in fiscal years 2006, 2008, 2009 and 2010 that will be based
upon a multiple of Mac & Jacs earnings in each year. There was no
contingent payment made based on 2006 fiscal year earnings. We
currently estimate that the aggregate of these contingent payments will be in the range
of approximately $10-12 million and will be
accounted for as additional purchase price when paid.




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##### Table of Contents



43 Financing Arrangements
  September 29,
    
    
    December 30,
    
    
    September 30,In thousands
    
    2007
    
    
    2006
    
    
    20065% Notes
    
    $
    495,153
    
    
    $
    458,907
    
    
    $
    441,270Revolving credit
facility and commercial
paper program
    
    
    394,600
    
    
    
    82,075
    
    
    
    232,466Capital lease obligations
    
    
    29,787
    
    
    
    32,284
    
    
    
    2,601Other (a)
    
    
    57,061
    
    
    
    19,469
    
    
    
    56,769Total debt
    
    $
    976,601
    
    
    $
    592,735
    
    
    $
    733,106
 
 (a)
    
    At September 29, 2007, the balance consists primarily of amounts outstanding under
working capital lines of credit.




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##### Table of Contents



44  Outstanding
    
    
    Letters of CreditIn thousands
    
    Total Capacity
    
    
    Borrowings
    
    
    Issued
    
    
    Available CapacityRevolving credit facility and
commercial paper program
(a)
    
    $
    750,000
    
    
    $
    394,600
    
    
    $
    
    
    
    $
    355,400Letter of credit facility
    
    
    400,000
    
    
    
    
    
    
    
    245,936
    
    
    
    154,064Short-term borrowing facilities
    
    
    195,381
    
    
    
    56,112
    
    
    
    10,992
    
    
    
    128,277
 
 (a)
    
    Our $750 million revolving credit facility has a final maturity date of October 2009
and contains the committed capacity to issue $250 million in letters of credit. Off-Balance Sheet Arrangements
  Hedging Activities




---



##### Table of Contents



USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES
  Use of Estimates




---



##### Table of Contents



46  Revenue Recognition
  Income Taxes
  Accounts Receivable  Trade, Net




---



##### Table of Contents



47 Inventories, Net
  Goodwill and Other Intangibles, Net




---



##### Table of Contents



48   Accrued Expenses
  Derivative Instruments




---



##### Table of Contents



49 Share-Based Compensation
  RECENT ACCOUNTING PRONOUNCEMENTS
   STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE




---



##### Table of Contents



50 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   Dollars in millions
    
    September 29, 2007
    
    December 30, 2006
    
    September 30, 2006Variable rate debt
    
    $
    450.7
    
    
    $
    100.6
    
    
    $
    289.0Average interest rate
    
    
    5.78
    %
    
    
    5.14
    %
    
    
    5.1
    %
      U.S. Dollar
    
    Hong Kong
    
    Contract
    
    UnrealizedCurrency in thousands
    
    Amount
    
    Dollar Amount
    
    Rate
    
    (Loss)Forward Contracts:Euro
    
    
    
    
    
    
    759,500
    
    
    
    0.0927 to 0.0996
    
    
    $
    (4,878
    )Canadian Dollars
    
    $
    8,799
    
    
    
    
    
    
    
    0.8721 to 0.9993
    
    
    
    Canadian Dollars
    
    
    
    
    
    
    95,505
    
    
    
    0.1335 to 0.1482
    
    
    
    (928
    )Foreign Exchange
Collar Contracts:Euro
    
    
    
    
    
    
    7,750
    
    
    
    0.0980 to 0.1003
    
    
    
    (83
    )Canadian Dollars
    
    $
    3,276
    
    
    
    
    
    
    
    0.8403 to 0.9970
    
    
    
    Canadian Dollars
    
    
    
    
    
    
    15,403
    
    
    
    0.1428 to 0.1527
    
    
    
    (231
    )




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51
  U.S. Dollar
    
    Hong Kong
    
    Contract
    
    UnrealizedCurrency in thousands
    
    Amount
    
    Dollar Amount
    
    Rate
    
    Gain (Loss)Forward Contracts:Euro
    
    
    
    
    
    
    589,000
    
    
    
    0.0973 to 0.1067
    
    
    $
    (1,368
    )Canadian Dollars
    
    $
    8,190
    
    
    
    
    
    
    
    0.8702 to 0.8728
    
    
    
    Canadian Dollars
    
    
    
    
    
    
    105,980
    
    
    
    0.1480 to 0.1482
    
    
    
    180Foreign Exchange Collar Contracts:Euro
    
    
    
    
    
    
    23,250
    
    
    
    0.0980 to 0.1007
    
    
    $
    (506
    )Canadian Dollars
    
    $
    8,659
    
    
    
    
    
    
    
    0.8547 to 0.8925
    
    
    
    Canadian Dollars
    
    
    
    
    
    
    45,345
    
    
    
    0.1454 to 0.1508
    
    
    
    107
  U.S. Dollar
    
    Hong Kong
    
    Contract
    
    UnrealizedCurrency in thousands
    
    Amount
    
    Dollar Amount
    
    Rate
    
    (Loss)Forward Contracts:Euro
    
    
    
    
    
    
    379,750
    
    
    
    0.0987 to 0.1067
    
    
    $
    442Canadian Dollars
    
    
    
    
    
    
    5,952
    
    
    
    0.1428 to 0.1428
    
    
    
    (1
    )Foreign Exchange Collar Contracts:Euro
    
    
    
    
    
    
    201,500
    
    
    
    0.0980 to 0.1143
    
    
    $
    39Canadian Dollars
    
    $
    5,322
    
    
    
    
    
    
    
    0.8403 to 0.8917
    
    
    
    Canadian Dollars
    
    
    
    
    
    
    24,921
    
    
    
    0.1442 to 0.1538
    
    
    
    (144
    )
 
 ITEM 4. CONTROLS AND PROCEDURES
 ,
 
 PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS




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52
  
 ITEM 1A. RISK FACTORS
  Risks Associated with Our Recently Announced Long-Term Strategic Plan
  
    
    Risks relating to the reorganization of the Company into two new
segments and the related realignment of the Companys
management structure;
    
    Our ability to attract and retain talented, highly qualified
executives and other key personnel to execute the plan;
    
    Our ability to successfully execute on the strategic review of the
brands we have designated for such review, including the risks
associated with our having designated the appropriate brands for such
review, the risks associated with retaining key personnel working for
such brands, and risks associated with appropriately valuing the
assets related to brands that may be identified for divestiture;
    
    Risks associated with our operation and expansion of our specialty
retail business, including the ability to successfully expand the
specialty store base of our Direct Brands segment, the ability to
successfully find appropriate sites, negotiate favorable leases,
design and create appealing merchandise, appropriately manage
inventory levels, install and operate effective retail systems, apply
appropriate pricing strategies and integrate such stores into our
overall business mix;
    
    Risks associated with our ability to achieve greater collaboration
with our wholesale customers and to improve results of our
wholesale-based brands and the wholesale businesses of our Direct
Brands; and
    
    Our ability to achieve projected cost savings.
 Risks Associated with Competition and the Marketplace
  
    
    The continuing challenging retail and macroeconomic environment,
including the levels of consumer confidence and discretionary spending,
and levels of customer traffic within department stores, malls and
other shopping and selling environments, and a continuation of the
deflationary trend for apparel products;
    
    Our ability to successfully continue to evolve our supply chain system,
including our product development, sourcing, logistics and technology
functions, to reduce product cycle-time and costs and meet customer
demands and the requirements of the projected growth of our
retail-based Direct Brands segment;
    
    Our ability to effectively anticipate, gauge and respond to changing
consumer demands and tastes, across multiple product lines, shopping
channels and geographies;
    
    Our ability to translate market trends into appropriate, saleable
product offerings relatively far in advance, while minimizing excess
inventory positions, including our ability to correctly balance the
level of its fabric and/or merchandise commitments with actual customer
orders;
    
    Consumer and customer demand for, and acceptance and support of, our
products (especially by our largest customers) which are in turn
dependent, among other things, on product design, quality, value and
service;
    
    Risks associated with the possible failure of our unaffiliated
manufacturers to manufacture and deliver products in a timely manner,
to meet quality standards or to comply with our policies regarding
labor practices or applicable laws or regulations;
    
    Our ability to adapt to and compete effectively in the current quota
environment, including changes in sourcing patterns resulting from the
elimination of quota on apparel products, as well as lowered barrier to
entry;
    
    Risks associated with our dependence on sales to a limited number of
large United States department store customers, including risks related
to our ability to respond effectively to:
 -
    
    these customers buying patterns, including their
purchase and retail floor space commitments for apparel
in general (compared with other product categories they
sell) and our products specifically (compared with




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53
 products offered by our competitors, including with
respect to customer and consumer acceptance, pricing
and new product introductions);-
    
    these customers strategic and operational initiatives,
including their continued focus on further development
of their private label initiatives;-
    
    these customers desire to have us provide them with
exclusive and/or differentiated designs and product
mixes;-
    
    these customers requirements for vendor margin support;-
    
    any credit risks presented by these customers,
especially given the significant proportion of our
accounts receivable they represent; and-
    
    the effect that any potential consolidation among one
or more of these larger customers, such as the merger
between Federated Department Stores, Inc. and The May
Department Store Company, might have on the foregoing
and/or other risks;
 
    
    Risks associated with maintaining and enhancing favorable brand
recognition, which may be affected by consumer attitudes towards the
desirability of fashion products bearing a mega brand label and which
are widely available at a broad range of retail stores; and
    
    Risks associated with our operation and expansion of retail business,
including the ability to successfully find appropriate sites, negotiate
favorable leases, design and create appealing merchandise,
appropriately manage inventory levels, install and operate effective
retail systems, apply appropriate pricing strategies and integrate such
stores into our overall business mix.
 Management and Employee Risks
 
    
    Our ability to attract and retain talented, highly qualified executives and other key
personnel, including in the areas of design, merchandising, sales, supply chain,
marketing, production and systems;
 
    
    Our ability to hire and train qualified retail management and associates;
 
    
    Risks associated with any significant disruptions in our relationship with our employees,
including union employees and any work stoppages by our employees, including union
employees;
 
    
    Risks associated with providing for the succession of senior management; and
 
    
    Risks associated with realignment of responsibilities among the Companys management team.
 Economic, Social and Political Factors
  
    
    Risks associated with war, the threat of war and terrorist activities, including
reduced shopping activity as a result of public safety concerns and disruption in the
receipt and delivery of merchandise;
 
    
    Changes in national and global microeconomic and macroeconomic conditions in the
markets where we sell or source our products, including the levels of consumer
confidence and discretionary spending, consumer income growth, personal debt levels,
rising energy costs and energy shortages, fluctuations in foreign currency exchange
rates, interest rates and stock market volatility and currency devaluations in
countries in which we source product;
 
    
    Changes in social, political, legal and other conditions affecting foreign operations;
 
    
    Risks of increased sourcing costs, including costs for materials and labor, including
as a result of the elimination of quota on apparel products;
 
    
    Any significant disruption in our relationships with our suppliers, manufacturers as
well as work stoppages by any of our suppliers or service providers;
 
    
    The enactment of new legislation or the administration of current international trade
regulations, or executive action affecting international textile agreements,
including the United States reevaluation of the trading status of certain countries
and/or retaliatory duties, quotas or other trade sanctions, which, if enacted, would
increase the cost of products purchased from suppliers in such countries and the
January 1, 2005 elimination of quota, which may significantly impact sourcing
patterns; and
 
    
    Risks related to our ability to establish, defend and protect our trademarks and
other proprietary rights and other risks relating to managing intellectual property
issues.




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54
 Risks Associated with Acquisitions and New Product Lines and Markets
  
    
    Our ability to identify appropriate new product lines and markets, as well as acquisition candidates;
    
    Risks that the new product lines or market activities may require methods of operations and marketing
and financial strategies different from those employed in our other businesses, including risks
associated with acquisitions with significant foreign operations. In addition, these businesses may
involve buyers, store customers and/or competitors different from our historical buyers, store
customers and competitors;
    
    Risks associated with selling our Liz & Co. and Concepts by Claiborne brands outside of better
department stores;
    
    Possible difficulties, delays and/or unanticipated costs in integrating the business, operations,
personnel and/or systems of an acquired business;
    
    Risks that projected or satisfactory level of sales, profits and/or return on investment for a new
business will not be generated;
    
    Risks involving our ability to retain and appropriately motivate key personnel of an acquired business;
    
    Risks that expenditures required for capital items or working capital will be higher than anticipated;
    
    Risks associated with unanticipated events and unknown or uncertain liabilities;
    
    Uncertainties relating to our ability to successfully integrate acquired companies, maintain product
licenses, or successfully launch new products and lines;
    
    Certain new businesses may be lower margin businesses and may require us to achieve significant cost
efficiencies; and
    
    With respect to businesses where we act as licensee, the risks inherent in such transactions,
including compliance with terms set forth in the applicable license agreements, including among other
things the maintenance of certain levels of sales and the public perception and/or acceptance of the
licensors brands or other product lines, which are not within our control.
 
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  MaximumApproximate DollarTotal Number of
    
    Value of Shares thatTotal Number
    
    
    Average
    
    Shares Purchased as
    
    May Yet Beof Shares
    
    
    Price
    
    Part of Publicly
    
    Purchased Under thePurchased
    
    
    Paid Per
    
    Announced Plans or
    
    Plans or ProgramsPeriod
    
    (in thousands)
    
    
    Share
    
    Programs
    
    (in thousands) (2)December 31, 2006  January 27, 2007
    
    52.3
    (1)
    
    $
    44.08
    
    
    
    
    
    
    $
    229,237January 28, 2007  March 3, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    229,237March 4, 2007  March 31, 2007
    
    132.2
    (1)
    
    
    43.08
    
    
    
    
    
    
    
    229,237April 1, 2007  April 28, 2007
    
    0.1
    (1)
    
    
    43.80
    
    
    
    
    
    
    
    229,237April 29, 2007  June 2, 2007
    
    1,808.8
    (1)
    
    
    34.21
    
    
    
    1,808.7
    
    
    
    167,364June 3, 2007  June 30, 2007
    
    547.6
    (1)
    
    
    35.87
    
    
    
    547.5
    
    
    
    147,724July 1, 2007  July 28, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    147,724July 29, 2007  September 1, 2007
    
    1,769.9
    (1)
    
    
    33.95
    
    
    
    1,769.4
    
    
    
    87,661September 2, 2007  September 29, 2007
    
    1,216.4
    (1)
    
    
    32.84
    
    
    
    1,216.1
    
    
    
    47,728Total 39 weeks ended September 29, 2007
    
    5,527.3
    (1)
    
    $
    34.29
    
    
    
    5,341.7
    
    
    $
    47,728
 
 (1)
    
    Includes shares withheld to cover tax-withholding requirements
relating to the vesting of restricted stock issued to employees
pursuant to the Companys shareholder-approved stock incentive plans.(2)
    
    The Company initially announced the authorization of a share buyback
program in December 1989. Since its inception, the Companys Board of
Directors has authorized the purchase under the program of an
aggregate of $2.175 billion. As of September 29, 2007, the Company had
$47.7 million remaining in buyback authorization under its program.




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55
 
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 31(a)
    
    Certification of Chief Executive Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.31(b)
    
    Certification of Chief Financial Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.32(a)*
    
    Certification of Chief Executive Officer Pursuant to Section 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32(b)*
    
    Certification of Chief Financial Officer Pursuant to Section 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    A signed original of the written statement required by Section 906 has
been provided to the Company and will be retained by the Company and
forwarded to the S.E.C. or its staff upon request.




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##### Table of Contents



56
 
 SIGNATURES
   LIZ CLAIBORNE, INC.
    
    LIZ CLAIBORNE, INC.By:
    
    /s/ Andrew Warren
    
    By:
    
    /s/ Elaine H. GoodellANDREW WARREN
Chief Financial Officer
(Principal financial officer)
    
    
    
    ELAINE H. GOODELL
Vice President  Corporate Controller and
Chief Accounting Officer
(Principal accounting officer)