OVERVIEW
Business/Segments
Our segment reporting structure 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 three reportable segments described below represent our brand-based activities for which separate financial information is available and which is utilized on a regular basis by our chief operating decision maker ("CODM") to evaluate performance and allocate resources. In identifying our reportable segments, we consider economic characteristics, as well as products, customers, sales growth potential and long-term profitability. We aggregate our five operating segments to form reportable segments, where applicable. As such, we report our operations in three reportable segments as follows:
• Domestic-Based Direct Brands segment - consists of the specialty retail, outlet, wholesale apparel, wholesale non-apparel (including accessories, jewelry and handbags), e-commerce and licensing operations of our three domestic, retail-based operating segments: JUICY COUTURE, KATE SPADE and LUCKY BRAND.

• International-Based Direct Brands segment - consists of the specialty retail, outlet, concession, wholesale apparel, wholesale non-apparel (including accessories, jewelry and handbags), e-commerce and licensing operations of MEXX, our international, retail-based operating segment.

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

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

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

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 connection with actions initiated in July 2007, we disposed of certain assets and/or liabilities of our former Emma James, Intuitions, J.H. Collectibles, Tapemeasure, C&C California, Laundry by Design, prAna and Ellen Tracy brands and closed our SIGRID OLSEN brand, which included the closure of its wholesale operations and the closure or conversion of its retail locations and entered into an exclusive license agreement with Kohl's Corporation ("Kohl's"), whereby Kohl's sources and sells products under the DANA BUCHMAN brand.
We also sold 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 and disposed of certain assets of our former Enyce brand.
Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," certain assets associated with our closed Mt. Pocono, Pennsylvania distribution center have been segregated and reported as held for sale as of July 4, 2009. In addition, certain assets associated with our closed North Bergen, New Jersey distribution center have been segregated and reported as held for sale as of July 5, 2008. Such distribution center was sold during the fourth quarter of 2008.

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. During the six months ended July 5, 2008, we recognized a pre-tax 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"). Market Environment / Global Economic Uncertainty The industries in which we operate have historically been subject to cyclical variations, recessions in the general economy and future economic outlook. Our results are dependent on a number of factors impacting consumer spending including but not limited to, general economic and business conditions; consumer confidence; wages and employment levels; the housing market; consumer debt levels; availability of consumer credit; credit and interest rates; fluctuations in foreign currency exchange rates; fuel and energy costs; energy shortages; the level of the stock market; taxes; general political conditions, both domestic and abroad; and the level of customer traffic within department stores, malls and other shopping and selling environments.
The current depressed economic environment reflects declines in employment levels, disposable income and actual and/or perceived wealth, and has been characterized by a dramatic decline in consumer discretionary spending and has disproportionately affected retailers and sellers of consumer goods, particularly those whose goods are viewed as discretionary purchases, such as fashion apparel and related products, such as ours. The current downturn and uncertain outlook in the global economy will likely continue to have a material adverse impact on our business, financial condition and results of operations for the remainder of 2009 and beyond.
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 our control, most importantly spending, including a reduction in our 2009 capital expenditures to approximately $70 million, maximizing inventory productivity through tightening assortments to develop SKU efficiencies and sharpening our price-points to maximize inventory turns for both wholesale and retail operations. We will continue our streamlining efforts to drive cost out of our operations through initiatives that include continued rationalization of distribution centers and office space, store closures principally within its International-Based Direct Brands segment, staff reductions, including consolidation of certain support and production functions and outsourcing certain corporate functions. These initiatives 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 2008 Annual Report on Form 10-K.

Liquidity, Cost Reduction, Supply Chain and Portfolio Rationalization Initiatives
As a result of an assessment performed in 2007, we implemented strategic imperatives including (i) creating and maintaining a more competitive cost structure through staff reductions, closing and consolidating distribution facilities and office space, discretionary expense cuts, process re-engineering and supply chain rationalization; (ii) working toward developing best-in-class retail capabilities and innovating our supply chain; (iii) narrowing our portfolio to a select group of brands and (iv) committing the necessary resources to support growth in our brands.
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 our Company-owned fragrance brands. During the latter portion of 2008 and into 2009, we continued to seek to
(i) enhance liquidity and institute cost saving measures and (ii) rationalize our sourcing and supply chain structure, which resulted in our decision to enter into buying agency arrangements with Li & Fung Limited, as described below. Our cost reduction efforts have also included tighter controls surrounding discretionary spending, a freeze in merit increases, the cessation of our quarterly dividend program and the elimination of approximately 375 positions across the Company. During the first quarter of 2009, we completed the closure of our Mt. Pocono, Pennsylvania distribution center, including the elimination of an additional 350 positions. In January 2009, we completed an amendment and extension of our bank credit facility and in May 2009, we completed an additional amendment to such facility. We also issued $90.0 million of convertible debt in June 2009 (see Financial Position, Liquidity and Capital Resources). In August 2009, we initiated additional streamlining initiatives that will impact all of our reportable segments and include continued rationalization of distribution centers and office space, store closures principally within our International-Based Direct Brands segment, staff reductions, including consolidation of certain support and production functions and outsourcing certain corporate functions. These actions are expected to be completed in the second quarter of 2010. In 2008, we entered into an agreement with a wholly-owned subsidiary of Hong Kong-based, global consumer goods exporter Li & Fung Limited ("Li & Fung"), whereby Li & Fung acts as the primary global apparel sourcing agent for the MEXX brand and MEXX's existing buying agent offices were integrated into the Li & Fung organization. On March 31, 2009, we closed a long-term, exclusive buying agency agreement with Li & Fung, pursuant to which Li & Fung acts as the primary global apparel and accessories sourcing agent for all brands in our portfolio, including LUCKY BRAND, JUICY COUTURE, KATE SPADE, and Isaac Mizrahi designed LIZ CLAIBORNE NEW YORK, with the exception of the jewelry product lines. Li & Fung will continue as the primary sourcing agent for MEXX. Pursuant to the agreement, we received a payment of $75 million at closing and an additional payment of $8 million during the second quarter of 2009 to offset restructuring expenses associated with the transaction. Our agreement with Li & Fung provides for the refund of a portion of the closing payment in certain limited circumstances, including a change of control of the Company, the sale or discontinuation of any current brand or certain termination events. We pay to Li & Fung an agency commission based on the cost of product purchases using Li & Fung as our buying agent. Our buying agent offices in Hong Kong, India, Indonesia, Shanghai and Shenzhen are being integrated into the Li & Fung organization. Approximately 250 of our employees became employees of Li & Fung at closing and a total of 225 additional support positions in our overseas offices have been or will be eliminated. We also terminated our business relationship with Narciso Rodriguez and disposed our former Enyce brand. The completion of the Narciso Rodriguez and Enyce transactions removed loss generating operations from our portfolio and facilitates our brand-focused strategy and efforts to more effectively allocate resources to powerful brands with sustainable growth. Overall Results for the Six Months Ended July 4, 2009 Our financial results in the first half of 2009 reflect the continuing challenges of turning around underperforming businesses in the current recessionary environment as consumer spending and mall traffic, although not deteriorating further, remained at depressed levels compared to last year.

Net Sales
Net sales for the first half of 2009 were $1.463 billion, a decrease of $595.4 million, or 28.9%, when compared to net sales for the first half of 2008. A total of 12.7% of this decline in net sales is due to the impact of (i) brands or certain brand activities that have been licensed, closed or exited and have not been presented as part of discontinued operations, which reduced net sales by $149.8 million (7.3%) and (ii) fluctuations in foreign currency exchange rates, which reduced net sales by $110.4 million (5.4%).
The remaining decrease in net sales of 16.2% reflects (i) the inclusion of 26 weeks of sales in the six months ended July 4, 2009 compared to 27 weeks of sales in the six months ended July 5, 2008; (ii) sales declines in our International-Based Direct Brands and Domestic-Based Direct Brands segments due to decreases in wholesale and retail operations; and (iii) sales declines in our Partnered Brands segment principally due to decreased volume and increased promotional activity.
Gross Profit and Loss from Continuing Operations Gross profit as a percentage of net sales decreased to 46.1% in 2009 from 47.9% in 2008, reflecting increases in promotional activity across all three segments, partially offset by an increased proportion of sales from our Domestic-Based Direct Brands segment, which runs at a higher gross profit rate than the Company average. We recorded a loss from continuing operations of $164.1 million in the first six months of 2009, as compared to a loss from continuing operations of $21.5 million in 2008. The increased loss from continuing operations primarily reflects the impact of (i) decreased sales and gross profits; (ii) a decrease in income tax benefits recognized in 2009 and (iii) a reduction in Selling, general and administrative expenses.
Balance Sheet
We ended the first six months of 2009 with a net debt position of $664.3 million as compared to $798.0 million at the end of the first six months of 2008. Including the receipt of $136.7 million of net income tax refunds and $75.0 million related to our transaction with Li & Fung, we generated $381.3 million in cash from continuing operations over the past twelve months, which enabled us to fund $104.0 million of acquisition related payments and capital expenditures of $145.0 million, while decreasing our net debt by $133.7 million. The effect of foreign currency translation on our Eurobond decreased our debt balance by $59.5 million at July 4, 2009 compared to July 5, 2008.
International Operations
In the first six months of 2009, international sales represented 32.7% of our overall sales, as compared to 36.2% in the first six months of 2008. Accordingly, our overall results can be greatly impacted by changes in foreign currency exchange rates, which decreased net sales in the first six months of 2009 by $110.4 million. The weakening of the euro and Canadian dollar against the US dollar throughout the first six months of 2009 has negatively impacted sales 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 three 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.

SIX MONTHS ENDED JULY 4, 2009 COMPARED TO SIX MONTHS ENDED JULY 5, 2008
The following table sets forth our operating results for the six months ended
July 4, 2009 (comprised of 26 weeks) compared to the six months ended July 5,
2008 (comprised of 27 weeks):

                                                Six Months Ended
                                        July 4, 2009        July 5, 2008               Variance
Dollars in millions                      (26 Weeks)          (27 Weeks)            $              %

Net Sales                              $      1,463.4      $      2,058.8      $  (595.4 )        (28.9 )%

Gross Profit                                    675.2               987.1         (311.9 )        (31.6 )%

Selling, general & administrative
expenses                                        812.1             1,021.2         (209.1 )        (20.5 )%

Goodwill impairment                               2.8                   -            2.8              *


Operating Loss                                 (139.7 )             (34.1 )       (105.6 )            *

Other expense, net                               (1.4 )              (3.6 )          2.2           61.1 %

Interest expense, net                           (29.5 )             (21.9 )         (7.6 )        (34.7 )%

Benefit for income taxes                         (6.5 )             (38.1 )         31.6           82.9 %


Loss from Continuing Operations                (164.1 )             (21.5 )       (142.6 )            *

Discontinued operations, net of tax              (9.8 )             (32.6 )         22.8           69.9 %


Net Loss                                       (173.9 )             (54.1 )       (119.8 )            *

Net (loss) income attributable to
the noncontrolling interest                      (0.4 )               0.1           (0.5 )            *


Net Loss Attributable to Liz
Claiborne, Inc.                        $       (173.5 )    $        (54.2 )    $  (119.3 )            *

* Not meaningful.

Net Sales
Net sales for the first half of 2009 were $1.463 billion, a decrease of $595.4 million, or 28.9%, when compared to the first half of 2008. This reduction reflects sales declines in all of our segments as well as a $149.8 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, the impact of the inclusion of a 27th week of sales in 2008 and the impact of changes in foreign currency exchange rates in our international businesses, which decreased net sales by $110.4 million in the first half of 2009.
As detailed below, sales and operating results for the first half of 2009 in our specialty retail stores were adversely affected by reduced mall traffic and generally lower spending levels per purchase as we reduced unit prices to compensate for lower demand, which is reflected in reduced sales productivity and decreased comparable store sales.

Net sales results for our segments are provided below:
• Domestic-Based Direct Brands net sales were $510.4 million, decreasing $62.5 million, or 10.9% (or 4.7% excluding the impact of licensing our fragrance operations in the second quarter of 2008); the decrease in net sales reflects the following:

- Net sales for JUICY COUTURE were $242.9 million, a 15.6% decrease compared to 2008, or a decrease of 3.8% excluding the impact of licensing our fragrance operations, which primarily reflects decreases in our wholesale operations.

- We ended the first half of 2009 with 63 specialty stores and 33 outlet stores, reflecting the net addition over the last 12 months of 15 specialty stores and 8 outlet stores;

- Average retail square footage in the first half of 2009 was approximately 320 thousand square feet, a 41.9% increase compared to 2008;

- Sales productivity was $348 per average square foot as compared to $410 for the first half of fiscal 2008; and

- Comparable store net sales in our Company-owned stores decreased by 19.7% in the first half of 2009.

- Net sales for LUCKY BRAND were $204.2 million, a 10.3% decrease compared to 2008, reflecting decreases in wholesale apparel and specialty retail, partially offset by increases in outlet operations.

- We ended the first half of 2009 with 194 specialty stores and 41 outlet stores, reflecting the net addition over the last 12 months of 15 specialty stores and 11 outlet stores;

- Average retail square footage in the first half of 2009 was approximately 575 thousand square feet, a 19.5% increase compared to 2008;

- Sales productivity was $196 per average square foot as compared to $287 for the first half of fiscal 2008; and

- Comparable store net sales in our Company-owned stores decreased by 20.4% in the first half of 2009.

- Net sales for KATE SPADE were $63.3 million, a 10.3% increase compared to 2008, primarily driven by increases in our wholesale and outlet operations partially offset by declines in specialty retail.

- We ended the first half of 2009 with 48 specialty stores and 29 outlet stores, reflecting the net addition over the last 12 months of 15 specialty stores and 6 outlet stores;

- Average retail square footage in the first half of 2009 was approximately 156 thousand square feet, a 57.5% increase compared to 2008;

- Sales productivity was $208 per average square foot as compared to $303 for the first half of fiscal 2008; and

- Comparable store net sales in our Company-owned stores decreased by 20.4% in the first half of 2009.

• International-Based Direct Brands, comprised of our MEXX retail-based lifestyle brand, net sales were $397.1 million, a decrease of $234.4 million or 37.1% compared to 2008. Excluding the impact of fluctuations in foreign currency exchange rates, net sales were $457.9 million, a 27.5% decrease as compared to 2008. The decrease in net sales is primarily due to decreases in our MEXX Europe and MEXX Canada wholesale and retail operations, reflecting the following:

- We ended the first half of 2009 with 137 specialty stores, 99 outlet stores and 232 concessions, reflecting the net addition over the last 12 months of 3 specialty stores and 4 outlet stores and the net closure of 56 concessions;

- Average retail square footage in the first half of 2009 was approximately 1,471.0 million square feet, a 4.1% increase compared to 2008;

- Sales productivity was $151 per average square foot as compared to $207 for the first half of 2008;

- Comparable store net sales in our Company-owned stores decreased by 10.0% in the first half of 2009 and

- Fluctuations in foreign currency exchange rates in our European and Canadian businesses decreased net sales by $60.8 million.

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);

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

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

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

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

Net sales per average square foot is defined as net sales divided by the average of beginning and end of period gross square feet.
• Partnered Brands net sales were $555.9 million, a decrease of $298.5 million or 34.9%, reflecting:

- A $112.0 million, or 13.1%, decrease due to the divestiture, licensing or exiting of the following brands: SIGRID OLSEN (closed as of the second quarter of 2008), Cosmetics group of brands (due to the exiting of certain brands and the license of the remaining brands to Elizabeth Arden effective June 10, 2008), Villager (closed in the third quarter of 2008), former Ellen Tracy brand (sold on April 10, 2008) and DANA BUCHMAN (licensed on an exclusive basis to Kohl's in January 2008) with operations closed in the second quarter of 2008;

- A net $137.9 million, or 16.1%, decrease in sales of our ongoing Partnered Brands business as the operating environment continued to adversely affect our LIZ CLAIBORNE, CLAIBORNE, AXCESS and MONET brands; and

- The impact of fluctuations in foreign currency exchange rates, which decreased net sales by $48.6 million, or 5.7%, primarily related to our LIZ CLAIBORNE operations in Europe and Canada.

Viewed on a geographic basis, Domestic net sales decreased by $328.5 million, or 25.0%, to $985.6 million, reflecting the declines within JUICY wholesale and LUCKY retail and wholesale as well as in our domestic Partnered Brands Segment. International net sales decreased by $266.9 million, or 35.8%, to $477.8 million primarily due to declines in our MEXX Europe and MEXX Canada operations, and the $110.4 million impact of fluctuations in foreign currency exchange rates on international sales.
Gross Profit
Gross profit in the first half of 2009 was $675.2 million (46.1% of net sales), compared to $987.1 million (47.9% of net sales) in the first half of 2008. These decreases are primarily due to reduced sales as well as the impact of decreased gross profit rates in our International-Based Direct Brands, offset by an increased proportion of sales from retail operations in our Domestic-Based Direct Brands segment, which runs at a higher gross profit rate than the Company average, as well as the impact of fluctuations in foreign currency exchange rates in our international businesses, which decreased gross profit by $39.7 million.
Selling, General & Administrative Expenses SG&A decreased $209.1 million or 20.5%, to $812.1 million in the first half of . . .