• The Partnered Brands segment - consists of one operating segment including the wholesale apparel, wholesale non-apparel, outlet and specialty retail, e-commerce and licensing operations of our wholesale-based brands including:
AXCESS, CLAIBORNE (men's), CONCEPTS BY CLAIBORNE, DANA BUCHMAN (which, as previously announced, we have licensed to Kohl's Corporation ("Kohl's")), ENYCE, KENSIE, LIZ & CO., LIZ CLAIBORNE, MAC & JAC, MARVELLA, MONET, NARCISO
RODRIGUEZ, SIGRID OLSEN (which we have closed as of July 5, 2008), TRIFARI, VILLAGER and our licensed DKNY® JEANS, DKNY® ACTIVE and DKNY® MENS brands.

We also present our results on a geographic basis based on selling location:
• Domestic (wholesale customers, Company-owned specialty retail and outlet stores located in the United States and e-commerce sites); and

• International (wholesale customers and Company-owned specialty retail and outlet, as well as concession stores located outside of the United States).

We, as licensor, also license to third parties the right to produce and market products bearing certain Company-owned trademarks; the resulting royalty income is included within the results of the associated segment.
In July 2007, we announced our long-term strategic plan, which included a strategic review and potential divestiture or closure of 16 of our brands. On October 4, 2007, we completed the first phase of such review by finalizing the disposal of certain assets of our former EMMA JAMES, INTUITIONS, J.H. COLLECTIBLES and TAPEMEASURE brands in a single transaction. Also in 2007, we closed a distribution center and implemented a plan to sell the building, land and other assets associated with such facility. In January 2008, we entered into an exclusive license agreement with Kohl's, whereby Kohl's will source and sell products under the DANA BUCHMAN brand. We completed the second phase of such review by completing the disposition of certain assets and liabilities of our former C&C CALIFORNIA and LAUNDRY BY DESIGN brands on February 4, 2008, and substantially all of the assets and liabilities of our former prAna brand on April 4, 2008. On April 10, 2008, we disposed of substantially all of the assets and liabilities of our former ELLEN TRACY brand and completed our strategic review with the closure of our SIGRID OLSEN brand in the second quarter of 2008. The closure of the SIGRID OLSEN brand included the closure of its wholesale operations and closure or conversion of its retail locations.
Pursuant to Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"), certain assets and liabilities of the C&C CALIFORNIA, LAUNDRY BY DESIGN and prAna brands, as well as the assets associated with our closed distribution center, have been segregated and reported as held for sale as of December 29, 2007. Also pursuant to SFAS No. 144, the assets associated with our closed distribution center have been segregated and reported as held for sale as of July 5, 2008. The activities of our former EMMA JAMES, INTUITIONS, J.H. COLLECTIBLES, TAPEMEASURE, C&C CALIFORNIA, LAUNDRY BY DESIGN and prAna brands and the retail operations of our SIGRID OLSEN brand that were not converted to other brands and of our former ELLEN TRACY brand have been segregated and reported

as discontinued operations for all periods presented. The SIGRID OLSEN and ELLEN TRACY wholesale activities either do not represent operations and cash flows that can be clearly distinguished operationally and for financial reporting purposes from the remainder of the Company or retain continuing involvement with the Company and therefore have not been presented as discontinued operations. During the six months ended July 5, 2008, we recognized a pretax charge of $10.6 million on the ELLEN TRACY transaction, of which $2.5 million was allocated to the ELLEN TRACY retail operations and therefore recorded within discontinued operations. The remaining charge of $8.1 million was allocated to the ELLEN TRACY wholesale operations and has been recorded within Selling, general & administrative expenses ("SG&A"). Competitive Profile
We operate in global fashion markets that are intensely competitive. Our ability to continuously evaluate and respond to changing consumer demands and tastes across multiple markets, distribution channels and geographies is critical to our success. Although our brand portfolio approach is aimed at mitigating our risks in this regard, misjudging shifts in consumer preferences could have a negative effect on our results of operations. Other key aspects of competition include quality, brand image, market share, distribution methods, price, size and location of our retail stores and department store selling space, customer service and intellectual property protection. We believe that our size and global operating capabilities can enable us to compete successfully by positioning us to take advantage of synergies in product design, development, sourcing and distribution of our products throughout the world.
In November 2006, we initiated a review of our operations to assess options to best allocate our resources to those brands we believe have the maximum potential for sustainable growth in sales and earnings and to best evolve our brand-focused strategy on a going forward basis. On June 20, 2007, we announced the reconfiguration of our organization and on July 11, 2007, we announced the preliminary results of our review of our operations. The major elements of our strategy are as follows:
Reconfiguring our organization into two new reporting business segments:
• Direct Brands (comprised of our JUICY COUTURE, KATE SPADE, LUCKY BRAND and MEXX retail-based lifestyle brands); and

• Partnered Brands (comprised of LIZ CLAIBORNE and our other owned and licensed wholesale-based brands).

The 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.
The completion of our strategic review of 16 specific brands in our portfolio in an effort to narrow our brand offerings to a select group that we believe we can fully resource and develop into powerful, sustaining brands:
• On October 4, 2007, we completed the sale of our former EMMA JAMES, INTUITIONS, J.H. COLLECTIBLES and TAPEMEASURE brands.

• We consolidated our TINT brand into LIZ & CO. and STAMP 10 brand into AXCESS and closed our FIRST ISSUE brand.

• On January 8, 2008, we announced the decision to retain the ENYCE brand.

• In January 2008, we entered into an exclusive license agreement with Kohl's, naming Kohl's as the exclusive retailer for our DANA BUCHMAN brand. As a result, we closed our former DANA BUCHMAN operations in the first half of 2008 and expect to launch the new DANA BUCHMAN line in Kohl's stores no later than the first quarter of 2009.

• On February 4, 2008, we completed the sale of our former C&C CALIFORNIA and LAUNDRY BY DESIGN brands.

• In the first quarter of 2008, we announced our decision to retain the KENSIE and MAC & JAC brands.

• On April 4, 2008, we completed the sale of our former prAna brand.

• On April 10, 2008, we completed the sale of our former ELLEN TRACY brand.

• During the second quarter of 2008, we completed the closure of our SIGRID OLSEN brand.

Implementing and maintaining a more competitive cost structure:
• We have accelerated our structural realignment and other initiatives to achieve targeted cost savings. Key actions taken include significant headcount reductions, the closing of three of our distribution centers, real estate rationalization and discretionary expense cuts.

• We anticipate additional cost reductions to be realized through further staff reductions, consolidations of distribution facilities and office space, discretionary expense cuts, process re-engineering and supply chain cost rationalization.

Committing the resources, structure and marketing investment necessary to fully support and maximize the growth of our brands:
• We have engaged two well regarded designers to reposition our LIZ CLAIBORNE and CLAIBORNE brands, with new collections debuting in spring of 2009.

• Acquired the license for DKNY® better men's apparel, debuting in Spring of 2009.

• We estimate committing approximately $195 million to capital expenditures, including approximately $125 million to open new stores primarily within our Direct Brands segment in 2008.

• We anticipate spending approximately $85 million in 2008 in marketing activities in support of our growth initiatives within our Direct Brands segment.

Developing best-in-class, retail-centric capabilities and initiating investments to optimize our supply chain activities and accelerate the flow of goods to stores in both retail and wholesale formats.
On June 10, 2008, we entered into an exclusive long-term global licensing agreement with Elizabeth Arden Inc. ("Elizabeth Arden") for the manufacture, distribution and marketing of the Company-owned fragrance brands. Our fragrance brands consist of many well-known and highly-ranked products, including JUICY COUTURE, CURVE BY LIZ CLAIBORNE, LUCKY BRAND and the LIZ, REALITIES, BORA BORA and MAMBO fragrances. We also assigned all of our rights and obligations under our USHER fragrance license to Elizabeth Arden as of the effective date. We believe that the licensing of our fragrance business will afford us the opportunity to realize consistently profitable results while continuing to sharpen our focus on our core competencies in apparel and accessories. Through this arrangement, we believe that we can continue to successfully develop and market brand-enhancing fragrances in a capital efficient manner, leveraging our strength in brand building with Elizabeth Arden's expertise in developing and growing fragrance businesses.
Market Environment
Consumers have migrated, and are continuing to migrate, away from traditional department stores, turning instead to specialty retailers, national chains and off-price retailers. This factor, combined with the complexities and impacts of the ongoing retail industry consolidation and changes in the domestic department store business model, including the continued increase in their emphasis on private label offerings, has presented a multitude of challenges for us in the sector for a number of years. As our larger department store customers have been focusing on inventory productivity and product differentiation to gain competitive market share, improve natural margins, reduce their dependency on vendor margin support and improve cash flows, they have executed, and we believe will continue to execute, their buying activities very cautiously and conservatively, while aggressively growing their private label businesses. Over the past few years, this operating environment has adversely affected the results of our wholesale-based brands.
Apparel and non-apparel retailers, in general, including many of our major customers, have recently reported disappointing comparable store sales. Accordingly, we remain cautious about the near-term retail environment as evidenced by the slowdown in consumer spending, which reflects the recent deterioration in the macro-economic environment in the US, as well as abroad. This uncertain environment was a driver in the acceleration of our strategic reviews of the brands mentioned above and the ultimate outcomes for those brands, as well as in the acceleration of our streamlining initiatives. In summary, the measure of our success in the future will depend on our ability to navigate through a difficult macro-economic environment and challenging market conditions, execute on our strategic vision, including attracting and retaining the management talent necessary for such execution,

designing and delivering products that are acceptable to the marketplaces that we serve, sourcing the manufacture and distribution of our products on a competitive and efficient basis and evolving our retail capabilities. Reference is also made to the other economic, competitive, governmental and technological factors affecting our operations, markets, products, services and prices as are set forth in this report, including, without limitation, under "Statement Regarding Forward - Looking Statements" and "Item 1A. Risk Factors", in our 2007 Annual Report on Form 10-K.
Overall Results for the Six Months Ended July 5, 2008 Net Sales
Net sales for the first half of 2008 were $2.088 billion, a decrease of $24.4 million, or 1.2%, when compared to net sales for the first half of 2007, primarily due to reduced sales in our Partnered Brands segment, partially offset by increased sales in our Direct Brands segment and the impact of fluctuations in foreign currency exchange rates in our international businesses, which increased net sales by $95.1 million.
Gross Profit and (Loss) Income from Continuing Operations Gross profit as a percentage of net sales decreased to 47.4% in 2008 from 47.9% in 2007, reflecting decreased gross profit rates in our Partnered Brands and Direct Brands segments partially offset by an increased proportion of sales from our Direct Brands segment, which operates at a higher gross profit rate than the Company average. We recorded a loss from continuing operations of $29.6 million in the first half of 2008 as compared to income from continuing operations of $20.9 million in 2007. This decrease primarily reflects the impact of decreased sales in our Partnered Brands segment and a period-over-period increase in after-tax expenses associated with our streamlining initiatives of $20.0 million and an increase in other costs associated with brand-exiting activities. Balance Sheet
We ended the first half of 2008 with a net debt position of $798.0 million as compared to $607.4 million at the end of the first half of 2007. We generated $240.8 million in cash from operations over the past twelve months, which enabled us to fund share repurchases of $218.9 million and capital expenditures of $200.8 million, while increasing our net debt by $190.6 million. The effect of foreign currency translation on our Eurobond increased our debt balance by $76.7 million.
International Operations
In the first half of 2008, international sales represented 35.7% of our overall sales, as compared to 31.4% in the first six months of 2007. Accordingly, our overall results can be greatly impacted by changes in foreign currency exchange rates, which increased net sales in the first half of 2008 by $95.1 million. The strengthening of the euro and Canadian dollar against the US dollar has positively impacted the results in our European and Canadian businesses. Although we use foreign currency forward contracts and options to hedge against our exposure to exchange rate fluctuations affecting the actual cash flows of our international operations, unanticipated shifts in exchange rates could have an impact on our financial results.
Acquisitions
On May 18, 2007, we acquired 50 percent ownership of the entity that owns the rights to the NARCISO RODRIGUEZ name and trademarks, entered into an exclusive license to operate the NARCISO RODRIGUEZ business worldwide and formed a new company to operate the license and develop the NARCISO RODRIGUEZ brand worldwide. The purchase price totaled $13.9 million, which includes closing fees and certain post-closing adjustments. We allocated $8.9 million of purchase price to the value of trademarks and tradenames associated with the business, $0.3 million to the value of a non-compete agreement, $0.6 million to the value of a beneficial lease and $5.0 million to goodwill. The $5.0 million of goodwill that was included in the Partnered Brands Segment was subsequently written off as part of our fourth quarter 2007 non-cash impairment charge. The value of trademarks and tradenames, the non-compete agreement and the beneficial lease are being amortized over 7 years, 3 years and 5 years, respectively. As we maintain control over the assets and activities of the NARCISO RODRIGUEZ brand, the related financial results have been consolidated from the date of acquisition.
On January 26, 2006, we acquired 100 percent 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"), a privately held fashion apparel company. The purchase price totaled 26.2 million Canadian dollars (or $22.7 million), which includes the retirement of debt at closing and fees, but excludes contingent payments to be determined based upon a multiple of Mac & Jac's earnings in fiscal years 2006, 2008, 2009 and 2010. There was no contingent payment made based on 2006 fiscal year earnings. We currently estimate that the aggregate of the contingent payments will be in the range of approximately $20-29 million, which will be accounted for as additional purchase price when paid.
On April 7, 2003, we acquired 100 percent of the equity of Juicy Couture, Inc. (formerly, Travis Jeans, Inc.) ("Juicy Couture"), a privately held fashion apparel company. The total purchase price consisted of: (i) a payment, including the assumption of debt and fees of $53.1 million and (ii) a contingent payment to be determined by Juicy Couture's future earnings. Through July 5, 2008, we made $100.2 million of such contingent payments, which have been accounted for as additional purchase price and increases to goodwill. We made the final contingent payment of $79.6 million on July 8, 2008, which was accounted for as additional purchase price and an increase to goodwill.
On June 8, 1999, we acquired 85.0 percent 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 approximately $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, 2008, January 16, 2007, January 17, 2006 and January 28, 2005, we paid $5.0 million, $10.0 million, $10.0 million and $35.0 million, respectively, for 0.4%, 1.5%, 1.9% and 8.25%, respectively, of the remaining equity of Lucky Brand. On September 20, 2007, we entered into an agreement to acquire the remaining shares that were owned by the sellers of Lucky Brand, amending an agreement signed on January 28, 2005. We will acquire 0.4% of the equity of Lucky Brand in each of January of 2009 and 2010 for payments of $5.0 million each. We recorded the present value of fixed amounts owed of $9.3 million in Accrued expenses and Other Non-Current Liabilities. As of July 5, 2008, the excess of the liability recorded over the related amount of minority interest has been recorded as goodwill. 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 2008 payment of approximately $14.4 million based on a multiple of Lucky Brand's 2007 earnings, which we have accounted for as additional purchase price 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 $9-12 million.

RESULTS OF OPERATIONS
As discussed in the Overview section above, our segment reporting structure reflects the brand-focused approach of our businesses and internal reporting. We report our operations in two reportable segments as well as on a geographic basis based on selling location. All data and discussion with respect to our segments included within this "Management's Discussion and Analysis of Financial Condition and Results of Operations" is presented after applicable inter-company eliminations.

SIX MONTHS ENDED JULY 5, 2008 COMPARED TO SIX MONTHS ENDED JUNE 30, 2007
The following table sets forth our operating results for the six months ended
July 5, 2008 (comprised of 27 weeks) compared to the six months ended June 30,
2007 (comprised of 26 weeks):

                                                     Six Months Ended                    Variance
                                                 July 5,         June 30,
Dollars in millions                               2008             2007              $               %

Net Sales                                       $ 2,088.3        $ 2,112.7        $  (24.4 )         (1.2 )%
Gross Profit                                        989.5          1,012.7           (23.2 )         (2.3 )%
Selling, general & administrative expenses        1,036.6            957.3            79.3            8.3 %

Operating (Loss) Income                             (47.1 )           55.4          (102.5 )            *
Other expense, net                                   (3.7 )           (0.4 )          (3.3 )            *
Interest expense, net                               (21.9 )          (18.4 )          (3.5 )        (19.0 )%
(Benefit) provision for income taxes                (43.1 )           15.7           (58.8 )            *

(Loss) Income from Continuing Operations            (29.6 )           20.9           (50.5 )            *
Discontinued operations, net of tax                 (24.6 )            8.9           (33.5 )            *

Net (Loss) Income                               $   (54.2 )      $    29.8        $  (84.0 )            *

* Not meaningful.

Net Sales
Net sales for the first half of 2008 were $2.088 billion, a decrease of $24.4 million, or 1.2%, when compared to the first half of 2007, primarily due to reduced sales in our Partnered Brands segment, partially offset by increased sales in our Direct Brands segment and the impact of changes in foreign currency exchange rates in our international businesses, which increased net sales by $95.1 million in the first half of 2008. Net sales results for our segments are provided below:
• Direct Brands net sales were $1.204 billion, increasing $224.7 million, or 22.9%, reflecting the following:

• Net sales for MEXX were $631.4 million, a 14.4% increase compared to 2007. Excluding the impact of changes in foreign currency exchange rates, net sales for MEXX were $550.4 million, a 0.3% increase, primarily due to increased sales in our MEXX Canada retail operations, partially offset by decreases in our MEXX Europe retail operations.

• We ended the first half of 2008 with 133 specialty retail stores, 95 outlets and 284 concessions, reflecting the net addition over the last 12 months of 10 outlet stores and the net closure of 22 concession stores;

• Average retail square footage in the first half of 2008 was approximately 1.413 million square feet, an 8.0% increase compared to 2007;

• Sales productivity increased to $207 per average square foot as compared to $195 for the first half of fiscal 2007, primarily due to the impact of exchange rate fluctuations

• Comparable store net sales in our MEXX Company-owned stores decreased by 7.2% overall, primarily the result of a decrease in our MEXX Europe retail operations partially offset by increased sales in our MEXX Canada specialty retail business; and

• An $81.1 million increase resulting from the impact of fluctuations in foreign currency exchange rates in our European and Canadian businesses.

• Net sales for JUICY COUTURE were $287.8 million, a 52.2% increase compared to 2007, primarily driven by increases in retail, and wholesale non-apparel (including fragrance).

• We ended the first half of 2008 with 48 specialty retail stores and 25 outlet stores, reflecting the net addition over the last 12 months of 22 specialty retail stores and 12 outlet stores;

• Average retail square footage in the first half of 2008 was approximately 226 thousand square feet, a 139.4% increase compared to 2007;

• Sales productivity was $410 per average square foot as compared to $489 for the first half fiscal 2007; and

• Comparable store net sales in our Company-owned stores increased by 13.5% in the first half of 2008.

• Net sales for LUCKY BRAND were $227.7 million, a 14.7% increase compared to 2007, primarily driven by increases in retail and wholesale apparel.

• We ended the first half of 2008 with 179 specialty retail stores and 29 outlet stores, reflecting the net addition over the last 12 months of 32 specialty retail stores and 22 outlet stores;

• Average retail square footage in the first half of 2008 was approximately 448 thousand square feet, a 28.6% increase compared to 2007;

• Sales productivity was $287 per average square foot as compared to $286 for the first half of fiscal 2007; and

• Comparable store net sales in our Company-owned stores decreased by 0.3% in the first half of 2008.

• Net sales for KATE SPADE were $57.4 million, a 44.3% increase compared to 2007, primarily driven by an increased number of retail stores, as well as increases on our wholesale operations.

• We ended the first half of 2008 with 33 specialty retail stores and 23 outlet stores, reflecting the net addition over the last 12 months of 13 specialty retail stores and 19 outlet stores;

• Average retail square footage in the first half of 2008 was approximately 99 thousand square feet, a 91.8% increase compared to 2007;

• Sales productivity was $303 per average square foot as compared to $327 for the first half of fiscal 2007; and

• Comparable store net sales in our Company-owned stores decreased by 4.5% in the first half of 2008.

Comparable Company-owned store sales are calculated as follows:
• New stores become comparable after 14 full fiscal months of operations (on the 1st day of the 15th full fiscal month);

. . .