• 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.
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 nine months ended October 4, 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 was 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, including recessions in the general economy. 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, including fashion apparel and related products, such as ours. The reduction in consumer spending 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 $75.0 million and 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 our 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. 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," "Item 1A. Risk Factors" and in our 2008 Annual Report on Form 10-K.
New Licensing Arrangements
On October 7, 2009, in an effort to revitalize our LIZ CLAIBORNE brand franchise, reduce working capital needs and increase earnings and profitability, we entered into licensing arrangements with J.C. Penney Corporation, Inc. ("JCPenney") and QVC, Inc. ("QVC") for such brands.
Our multi-year license agreement with JCPenney granted JCPenney an exclusive (subject to limited exceptions) right and license to use the LIZ CLAIBORNE, LIZ & CO., CLAIBORNE and CONCEPTS BY CLAIBORNE trademarks, including the worldwide manufacturing of the licensed products and the sale, marketing, merchandising, advertising and promotion of the licensed products in the US and Puerto Rico. The license agreement provides for the payment to us of royalties based on net sales of licensed products by JCPenney and a portion of the related gross profit when the gross profit percentage exceeds a specified rate, subject to a minimum annual payment.

We also entered into a multi-year license agreement with QVC, granting rights to certain of our trademarks and other intellectual property rights. QVC has the rights to use the LIZ CLAIBORNE NEW YORK brand with Isaac Mizrahi as creative director on any apparel, accessories, or home categories in its US and international markets. QVC will merchandise and source the product and we will provide brand management oversight. The agreement provides for the payment to us of a royalty based on net sales.
Our agreements with JCPenney and QVC are subject to other risks, which are described under Item 1A, "Risk Factors." Liquidity, Cost Reduction and Supply Chain Initiatives Following initiatives we initiated in 2007 and executed through 2008, which included: (i) creating and maintaining a more competitive cost structure through staff reductions, closing and consolidating distribution facilities and office space, expense cuts and other measures; (ii) working toward developing best-in-class retail capabilities and innovating our supply chain; (iii) narrowing our portfolio; (iv) committing the necessary resources to support growth in our brands and (v) entering 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, we have committed to other initiatives to reduce costs and enhance liquidity. We have also continued to seek to rationalize our sourcing and supply chain structure, which resulted in our decision to enter into buying agency arrangements with Li & Fung Limited ("Li & Fung"), as described below. Our cost reduction efforts have included tighter controls surrounding discretionary spending, a freeze in merit increases and the cessation of our quarterly dividend program. During the first quarter of 2009, we completed the closure of our Mt. Pocono, Pennsylvania distribution center. In January 2009, we completed an amendment and extension of our revolving credit facility and in May 2009 and November 2009, we completed additional amendments to such facility. In June of 2009, we issued $90.0 million of 6.0% Convertible Senior Notes due June 15, 2014 (the "Convertible Notes") (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 connection with the license agreements with JCPenney and QVC discussed above, we expect to further consolidate office space and reduce staff in certain support functions. As a result, we may incur further charges related to the reduction of leased space, impairments of property and equipment and other assets, severance and other restructuring costs. These actions are also 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, 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, with the exception of our jewelry product lines. Li & Fung will continue as the primary sourcing agent for MEXX. Pursuant to the agreement, we received a payment of $75.0 million at closing and an additional payment of $8.0 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. The recently announced licensing arrangements with JCPenney and QVC are expected to result in the removal of sourcing for LIZ CLAIBORNE branded products sold under these licenses from the Li & Fung sourcing arrangement. As a result, under our agreement with Li & Fung, we may be required to either pay additional amounts to compensate Li & Fung for any annual shortfall in minimum product volumes required to be sourced by us from Li & Fung or possibly refund a portion of the closing payment received from Li & Fung. We are currently in discussions with Li & Fung as to the impact of these transactions on our agreement. We do not currently anticipate that any payment that may be due to Li & Fung as a result of the JCPenney and QVC licenses would have a material adverse effect on our financial position, results of operations, liquidity or cash flows. 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 have been substantially integrated into the Li & Fung organization. Approximately 250 of our employees became employees of Li & Fung at closing and a total of 225 additional staff positions in our overseas offices were eliminated.

Overall Results for the Nine Months Ended October 3, 2009 Our financial results in the first nine months 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 nine months of 2009 were $2.233 billion, a decrease of $840.7 million, or 27.4%, when compared to net sales for the first nine months of 2008.
A total of 5.7% 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 $89.7 million (2.9%) and (ii) fluctuations in foreign currency exchange rates, which reduced net sales by $86.5 million (2.8%).
The remaining decrease in net sales of 21.7% reflects (i) sales declines in wholesale and retail operations of our International-Based Direct Brands segment and decreases in wholesale operations of our Domestic-Based Direct Brands segment and (ii) 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 45.9% in 2009 from 48.4% 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 $251.9 million in the first nine months of 2009, as compared to a loss from continuing operations of $30.9 million in 2008. The increased loss from continuing operations primarily reflects the impact of decreased sales and gross profits and a decrease in income tax benefits recognized in 2009, partially offset by a reduction in Selling, general and administrative expenses. Balance Sheet
We ended the first nine months of 2009 with a net debt position of $803.0 million as compared to $923.4 million at the end of the first nine months of 2008. Including the receipt of $136.9 million of net income tax refunds and $75.0 million related to our transaction with Li & Fung, we generated $336.2 million in cash from continuing operations over the past 12 months, which enabled us to fund $24.7 million of acquisition related payments and capital expenditures of $107.6 million, while decreasing our net debt by $120.4 million. The effect of changes in foreign currency exchange rates on our Eurobond increased our debt balance by $27.2 million at October 3, 2009 compared to October 4, 2008.
International Operations
In the first nine months of 2009, international sales represented 33.1% of our overall sales, as compared to 36.9% in the first nine 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 nine months of 2009 by $86.5 million. The period-over-period weakening of the euro and Canadian dollar against the US dollar 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.
NINE MONTHS ENDED OCTOBER 3, 2009 COMPARED TO NINE MONTHS ENDED OCTOBER 4, 2008 The following table sets forth our operating results for the nine months ended October 3, 2009 (comprised of 39 weeks) compared to the nine months ended October 4, 2008 (comprised of 40 weeks):

                                                  Nine Months Ended                          Variance
                                        October 3, 2009        October 4, 2008
Dollars in millions                       (39 Weeks)             (40 Weeks)              $              %

Net Sales                              $         2,233.1      $         3,073.8      $  (840.7 )        (27.4 )%

Gross Profit                                     1,024.1                1,487.4         (463.3 )        (31.1 )%

Selling, general & administrative
expenses                                         1,220.6                1,495.3         (274.7 )        (18.4 )%

Trademark impairment                                   -                   10.0          (10.0 )            *

Goodwill impairment                                  2.8                      -            2.8              *


Operating Loss                                    (199.3 )                (17.9 )       (181.4 )            *

Other expense, net                                 (11.5 )                 (2.8 )         (8.7 )            *

Interest expense, net                              (46.9 )                (33.9 )        (13.0 )        (38.3 )%

Benefit for income taxes                            (5.8 )                (23.7 )         17.9           75.5 %


Loss from Continuing Operations                   (251.9 )                (30.9 )       (221.0 )            *

Discontinued operations, net of
income taxes                                       (12.7 )                (91.9 )         79.2           86.2 %


Net Loss                                          (264.6 )               (122.8 )       (141.8 )            *

Net (loss) income attributable to
the noncontrolling interest                         (0.6 )                  0.1           (0.7 )            *


Net Loss Attributable to Liz
Claiborne, Inc.                        $          (264.0 )    $          (122.9 )    $  (141.1 )            *

* Not meaningful.

Net Sales
Net sales for the first nine months of 2009 were $2.233 billion, a decrease of $840.7 million, or 27.4%, when compared to the first nine months of 2008. This reduction reflects (i) sales declines in all of our segments; (ii) an $89.7 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 (iii) the impact of changes in foreign currency exchange rates in our international businesses, which decreased net sales by $86.5 million in the first nine months of 2009.

As detailed below, sales and operating results for the first nine months 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 $780.9 million, a decrease of $76.2 million, or 8.9% (or 4.5% excluding the impact of licensing our fragrance operations in the second quarter of 2008). The decrease in net sales reflects the following:

- Net sales for JUICY COUTURE were $376.0 million, a 13.0% decrease compared to 2008, or a decrease of 5.4% excluding the impact of licensing our fragrance operations in the second quarter of 2008, which primarily reflects decreases in our wholesale apparel and non-apparel operations, partially offset by increases in specialty retail and outlet operations.

- We ended the first nine months of 2009 with 65 specialty stores and 33 outlet stores, reflecting the net addition over the last 12 months of 9 specialty stores and 4 outlet stores;

- Average retail square footage in the first nine months of 2009 was approximately 323 thousand square feet, a 47.1% increase compared to 2008;

- Sales productivity was $536 per average square foot as compared to $670 for the first nine months of 2008; and

- Comparable store net sales in our Company-owned stores decreased 18.3% in the first nine months of 2009.

- Net sales for LUCKY BRAND were $307.6 million, a 9.2% decrease compared to 2008, reflecting decreases in wholesale apparel and specialty retail operations, partially offset by an increase in outlet operations.

- We ended the first nine months of 2009 with 193 specialty stores and 46 outlet stores, reflecting the net addition over the last 12 months of 6 specialty stores and 11 outlet stores;

- Average retail square footage in the first nine months of 2009 was approximately 583 thousand square feet, a 17.1% increase compared to 2008;

- Sales productivity was $290 per average square foot as compared to $379 for the first nine months of 2008; and

- Comparable store net sales in our Company-owned stores decreased 18.7% in the first nine months of 2009.

- Net sales for KATE SPADE were $97.3 million, a 12.9% increase compared to 2008, primarily driven by increases in our outlet, wholesale and specialty retail operations.

- We ended the first nine months of 2009 with 47 specialty stores and 29 outlet stores, reflecting the net addition over the last 12 months of 6 specialty stores and 4 outlet stores;

- Average retail square footage in the first nine months of 2009 was approximately 154 thousand square feet, a 41.4% increase compared to 2008;

- Sales productivity was $331 per average square foot as compared to $425 for the first nine months of 2008; and

- Comparable store net sales in our Company-owned stores decreased 16.5% in the first nine months of 2009.

• International-Based Direct Brands, comprised of our MEXX retail-based lifestyle brand, net sales were $621.4 million, a decrease of $343.0 million or 35.6% compared to 2008. Excluding the impact of fluctuations in foreign currency exchange rates, net sales were $692.4 million, a 28.2% decrease as compared to 2008. The decrease in net sales is primarily due to decreases in our MEXX Europe and MEXX Canada wholesale and retail operations.

- We ended the first nine months of 2009 with 157 specialty stores, 100 outlet stores and 202 concessions, reflecting the net addition over the last 12 months of 24 specialty stores and 1 outlet store and the net closure of 32 concessions (inclusive of the conversion of 26 concessions to specialty retail formats);

- Average retail square footage in the first nine months of 2009 was approximately 1.497 million square feet, an 8.0% increase compared to 2008;

- Sales productivity was $221 per average square foot as compared to $302 for the first nine months of 2008;

- Comparable store net sales in our Company-owned stores decreased by 10.2% in the first nine months of 2009; and

- Fluctuations in foreign currency exchange rates in our European and Canadian businesses decreased net sales by $71.0 million.

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 20.0% or more increase/decrease in its selling square footage (effective at the start of the fiscal month when construction begins). The store becomes comparable again after 14 full fiscal months from the re-open date;

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

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

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 $830.7 million, a decrease of $421.5 million or 33.7% reflecting the following:

- A net $327.9 million, or 26.2%, decrease in sales of our ongoing wholesale operations as the operating environment continued to adversely affect our LIZ CLAIBORNE, CLAIBORNE, AXCESS and MONET brands;

- A $52.0 million, or 4.2%, decrease due to the divestiture, licensing or . . .