• The Partnered Brands segment - consists of one operating segment including the wholesale apparel, wholesale non-apparel, specialty retail, outlet, e-commerce and licensing operations of our wholesale-based brands including:
AXCESS, CLAIBORNE (men's), CONCEPTS BY CLAIBORNE, DANA BUCHMAN, KENSIE, LIZ & CO., LIZ CLAIBORNE, MAC & JAC, MARVELLA, MONET, TRIFARI and our licensed DKNY® JEANS, DKNY® ACTIVE and DKNY® MENS brands.

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.
On October 7, 2008, we completed the sale of certain assets related to our interest in the NARCISO RODRIGUEZ brand and terminated certain agreements entered in connection with the acquisition of such brand in 2007 in exchange for a net fee of $5.3 million.
On October 20, 2008, we completed the sale of certain assets of our ENYCE brand in exchange for a $5.0 million note, plus contingent consideration of $1.0 million.
Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," certain assets related to the ENYCE and NARCISO RODRIGUEZ brands, as well as the assets associated with our closed distribution center, have been segregated and reported as held for sale as of

October 4, 2008. Also pursuant to SFAS No. 144, certain assets and liabilities of our former 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 and certain assets of our former EMMA JAMES, INTUITIONS, J.H. COLLECTIBLES and TAPEMEASURE brands have been segregated and reported as held for sale as of September 29, 2007. The activities of our former EMMA JAMES, INTUITIONS, J.H. COLLECTIBLES, TAPEMEASURE, C&C CALIFORNIA, LAUNDRY BY DESIGN, prAna, NARCISO RODRIGUEZ and ENYCE brands, the retail operations of our SIGRID OLSEN brand that were not converted to other brands and the retail operations 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 and DANA BUCHMAN operations 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. In connection with the transactions discussed above, we recognized total pre-tax charges of $83.5 million during the nine months ended October 4, 2008, including $10.6 million related to the Ellen Tracy transaction. We allocated $2.5 million of the ELLEN TRACY charge to the ELLEN TRACY retail operations, which is 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"). Market Environment / Global Economic Uncertainty Our business is dependent on, among other things, retailer and consumer demand for our products. We believe that significant economic uncertainty and a slowdown in the global macroeconomic environment continue to negatively impact the level of consumer spending for discretionary items. These economic challenges have adversely impacted our wholesale and retail operations. Worsening macroeconomic conditions and concerns about consumer credit will likely continue to have a negative impact on our results for the remainder of the current fiscal year and 2009.
Competitive Profile
We operate in global fashion markets that are intensely competitive and subject to, among other things, macroeconomic conditions and consumer demands, tastes and discretionary spending habits. As we anticipate that the global economic uncertainty will continue into the foreseeable future, we are focusing on carefully managing those factors within the Company's control, most importantly spending, including a reduction in our 2009 capital budget by over 50% from 2008 levels and maximizing inventory productivity through tightening assortments, SKU efficiencies and sharpening our price-points to maximize our inventory turns for both wholesale and retail operations. We will continue our streamlining efforts to drive cost out of our operations through supply-chain and overhead initiatives that are aimed at driving efficiencies as well as improvements in working capital and operating cash flows. We remain cautious about the near-term retail environment due to the slowdown in consumer spending, which reflects the recent deterioration in the macroeconomic environment in the US, as well as abroad.
In summary, the measure of our success in the future will depend on our ability to navigate through a difficult macroeconomic 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" and in our 2007 Annual Report on Form 10-K.
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 were 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.

• 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.

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

• We are in the process of implementing initiatives to accelerate the turnaround of the MEXX business in Europe. These initiatives will focus on enhancing the brand by improving product appeal, more closely linking the wholesale and retail presentations, strengthening retail operations and re-evaluating our supply chain model. To expedite this process, we have made key appointments to the MEXX Europe management team.

• We remain on track to complete approximately 125 store openings in our JUICY COUTURE, LUCKY BRAND and KATE SPADE brands in fiscal 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. 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.
In our continued effort to allocate resources dedicated to creating sustainable growth and evolving our brand-focused strategy, we completed the sale of certain assets related to the ENYCE and NARCISO RODRIGUEZ brands in October 2008. Overall Results for the Nine Months Ended October 4, 2008 Net Sales
Net sales for the first nine months of 2008 were approximately $3.074 billion, a decrease of $196.1 million, or 6.0%, when compared to net sales for the first nine months 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 $119.7 million. Gross Profit and (Loss) Income from Continuing Operations Gross profit as a percentage of net sales increased to 48.4% in 2008 from 48.3% in 2007, reflecting an increased proportion of sales from our Direct Brands segment, which operates at a higher gross profit rate than the Company average, partially offset by decreased gross profit rates in both our Direct and Partnered Brands segments. We recorded a loss from continuing operations of $31.0 million in the first nine months of 2008 as compared to income from continuing operations of $49.3 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 $22.4 million and an increase in other costs associated with brand-exiting activities. Balance Sheet
We ended the first nine months of 2008 with a net debt position of $923.5 million as compared to $864.6 million at the end of the first nine months of 2007. We generated $262.0 million in cash from operations over the past twelve months, which enabled us to fund share repurchases of $118.9 million and capital expenditures of $211.7 million, while increasing our net debt by $59.0 million. The effect of foreign currency translation on our Eurobond reduced our debt balance by $12.9 million at October 4, 2008 compared to September 29, 2007.
International Operations
In the first nine months of 2008, international sales represented 36.9% of our overall sales, as compared to 33.2% in the first nine 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 nine months of 2008 by $119.7 million. The strengthening of the euro and Canadian dollar against the US dollar throughout the first nine months of 2008 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.
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 included within this "Management's Discussion and Analysis of Financial Condition and Results of Operations" is presented after applicable inter-company eliminations.

NINE MONTHS ENDED OCTOBER 4, 2008 COMPARED TO NINE MONTHS ENDED SEPTEMBER 29, 2007
The following table sets forth our operating results for the nine months ended October 4, 2008 (comprised of 40 weeks) compared to the nine months ended September 29, 2007 (comprised of 39 weeks):

                                                         Nine Months Ended                        Variance
                                                 October 4,          September 29,
Dollars in millions                                 2008                 2007                 $               %

Net Sales                                       $    3,073.8        $       3,269.9        $ (196.1 )         (6.0 )%

Gross Profit                                         1,487.4                1,579.4           (92.0 )         (5.8 )%

Selling, general & administrative expenses           1,495.3                1,449.2            46.1            3.2 %

Trademark impairment                                    10.0                   12.3            (2.3 )        (18.7 )%


Operating (Loss) Income                                (17.9 )                117.9          (135.8 )            *

Other expense, net                                      (2.9 )                 (1.9 )          (1.0 )         52.6 %

Interest expense, net                                  (33.9 )                (30.1 )          (3.8 )         12.6 %

(Benefit) provision for income taxes                   (23.7 )                 36.6           (60.3 )            *


(Loss) Income from Continuing Operations               (31.0 )                 49.3           (80.3 )            *

Discontinued operations, net of tax                    (91.9 )                 13.6          (105.5 )            *


Net (Loss) Income                               $     (122.9 )      $          62.9        $ (185.8 )            *

* Not meaningful.

Net Sales
Net sales for the first nine months of 2008 were $3.074 billion, a decrease of $196.1 million, or 6.0%, when compared to the first nine months of 2007, inclusive of a $299.3 million decrease associated with brands or certain brand activities that have been licensed, closed or exited and have not been presented as part of discontinued operations and the impact of changes in foreign currency exchange rates in our international businesses, which increased net sales by $119.7 million in the first nine months of 2008. Net sales results for our segments are provided below:
• Direct Brands net sales were $1.822 billion, increasing $213.2 million, or 13.3%, reflecting the following:

- Net sales for MEXX were $964.5 million, a 5.1% increase compared to 2007. Excluding the impact of changes in foreign currency exchange rates, net sales for MEXX were $860.9 million, a 6.2% decrease, primarily due to decreases in our MEXX Europe wholesale and retail operations, partially offset by increased sales in our MEXX Canada retail and wholesale operations.

- We ended the first nine months of 2008 with 133 specialty retail stores, 99 outlets and 234 concessions, reflecting the net decrease over the last 12 months of 4 specialty retail stores and 72 concession stores, partially offset by the net addition of 15 outlet stores;

- Average retail square footage in the first nine months of 2008 was approximately 1.395 million square feet, a 5.7% increase compared to 2007;

- Sales productivity increased to $302 per average square foot as compared to $297 for the first nine months of fiscal 2007, primarily due to the impact of exchange rate fluctuations in our European and Canadian operations;

- Comparable store net sales in our MEXX Company-owned stores decreased by 9.2% overall, primarily the result of a decrease in our MEXX Europe retail and in our MEXX Canada retail operations; and

- Fluctuations in foreign currency exchange rates in our European and Canadian businesses increased net sales by $103.6 million.

- Net sales for JUICY COUTURE were $432.1 million, a 33.3% increase compared to 2007, or an increase of 35.3% excluding the impact of licensing our fragrance operations in the second quarter of 2008, primarily driven by increases in retail and wholesale non-apparel.

- We ended the first nine months of 2008 with 56 specialty retail stores and 29 outlet stores, reflecting the net addition over the last 12 months of 23 specialty retail stores and 16 outlet stores;

- Average retail square footage in the first nine months of 2008 was approximately 221 thousand square feet, a 106.5% increase compared to 2007;

- Sales productivity was $670 per average square foot as compared to $743 for the first nine months of fiscal 2007; and

- Comparable store net sales in our Company-owned stores increased by 10.4% in the first nine months of 2008.

- Net sales for LUCKY BRAND were $338.8 million, a 10.3% increase compared to 2007, or an increase of 16.9% excluding the impact of licensing our fragrance operations in the second quarter of 2008, primarily driven by increases in our specialty retail and outlet operations.

- We ended the first nine months of 2008 with 187 specialty retail stores and 35 outlet stores, reflecting the net addition over the last 12 months of 28 specialty retail stores and 25 outlet stores;

- Average retail square footage in the first nine months of 2008 was approximately 498 thousand square feet, a 35.7% increase compared to 2007;

- Sales productivity was $379 per average square foot as compared to $409 for the first nine months of fiscal 2007; and

- Comparable store net sales in our Company-owned stores decreased by 1.3% in the first nine months of 2008.

- Net sales for KATE SPADE were $86.2 million, a 45.2% 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 nine months of 2008 with 41 specialty retail stores and 25 outlet stores, reflecting the net addition over the last 12 months of 18 specialty retail stores and 19 outlet stores;

- Average retail square footage in the first nine months of 2008 was approximately 109 thousand square feet, a 91.2% increase compared to 2007;

- Sales productivity was $425 per average square foot as compared to $460 for the first nine months of fiscal 2007; and

- Comparable store net sales in our Company-owned stores decreased by 7.3% in the first nine months of 2008 due to a decrease in our full priced stores, partially offset by an increase in our outlet stores.

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

- Except in unusual circumstances, closing stores become non-comparable one full fiscal month prior to the scheduled closing date;

- A remodeled store will be changed to non-comparable when there is a 20% or more increase/decrease in its selling square footage (effective at the start date of the fiscal month when the construction begins). The store becomes comparable again after 14 full fiscal months from the re-open date;

- A store that relocates becomes non-comparable when the new location is materially different from the original location (in respect to selling square footage and /or traffic patterns); and

- Stores that are acquired are not comparable until they have been reflected in our results for a period of 12 months.

Net sales per average square foot are defined as net sales divided by the average of beginning and end of period gross square feet.
• Partnered Brands net sales were $1.252 billion, a decrease of $409.3 million or 24.6%, reflecting:

- A $288.4 million decrease due to the divestiture, licensing or exiting of the following brands: SIGRID OLSEN (closed as of the second quarter of 2008), Cosmetics group of brands (due to the exiting of certain

brands and the license of the remaining brands to Elizabeth Arden effective June 10, 2008), FIRST ISSUE (closed in early 2008), VILLAGER (closed in the third quarter of 2008), former ELLEN TRACY brand (sold on April 10, 2008), DANA BUCHMAN (licensed on an exclusive basis to Kohl's in January 2008) with operations closed in the second quarter of 2008;

- A net $136.1 million decrease in sales of our ongoing Partnered Brands business as the operating environment continued to adversely affect our LIZ CLAIBORNE and CLAIBORNE brands as well as our MONET brand, partially offset by increases in the LIZ & CO., licensed DKNY® Jeans and KENSIE brands (due to increased department store distribution); and

- The impact of fluctuations in foreign currency exchange rates, which increased net sales by $15.2 million primarily related to our LIZ CLAIBORNE operations in Europe and Canada.

Viewed on a geographic basis, Domestic net sales decreased by $244.8 million, or 11.2%, to $1.940 billion, reflecting the decrease in our Partnered Brands segment, partially offset by increases in our Direct Brands segment. International net sales increased by $48.7 million, or 4.5%, to $1.134 billion primarily due to the $119.7 million impact of changes in currency exchange rates on international sales, partially offset by declines in our MEXX operations. Gross Profit
Gross profit in the first nine months of 2008 was $1.487 billion, a $92.0 million decrease as compared to the first nine months of 2007 primarily resulting from declines in our Partnered Brands segment due to the impact of brands that have been sold, closed or licensed, but not treated as discontinued operations, as well as price reductions 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 gross profit by $70.8 million. Gross profit as a percentage of net sales increased to 48.4% in 2008 from 48.3% in 2007, . . .