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Article by DailyStocks_admin    (02-25-08 04:35 AM)

The Daily Magic Formula Stock for 02/23/2008 is Maidenform Brands Inc. According to the Magic Formula Investing Web Site, the ebit yield is 16% and the EBIT ROIC is 50-75 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


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BUSINESS OVERVIEW

OVERVIEW

Our company, Maidenform Brands, Inc., is a global intimate apparel company with a portfolio of established and well-known brands, top-selling products and an iconic heritage. We design, source and market an extensive range of intimate apparel products, including bras, panties and shapewear. We sell our products through multiple distribution channels, including department stores and national chain stores, mass merchants (including warehouse clubs), other (including specialty retailers, off-price retailers and licensing income), our company-operated outlet stores and our websites. During our 85-year history, we believe we have built strong equity for our brands and established a platform for growth through a combination of innovative, first-to-market designs and creative advertising campaigns focused on increasing brand awareness with generations of women. We sell our products under some of the most recognized brands in the intimate apparel industry, including Maidenform, Flexees, Lilyette, Sweet Nothings, Rendezvous, Subtract, Bodymates, and Self Expressions.

Our Maidenform, Flexees and Lilyette brands are broadly sold in department stores (such as Macy's, Lord & Taylor and Belk) and national chains (such as Kohl's and JCPenney). We also own brands for intimate apparel products that are distributed through select mass merchants. These brands carry our corporate endorsement and leverage our product technology, but are separate brands with distinctly different logos. For example, our Sweet Nothings branded products are sold in more than 3,100 Wal-Mart domestic stores and over 240 Wal-Mart stores in Canada; our Bodymates branded products are sold in Costco's 360 domestic and 125 international Costco stores; and our Self Expressions branded products are sold in more than 1,300 Target stores in the United States and 260 Zellers' stores in Canada. In addition to these brands, we selectively design and source private-label products for certain retailers.

In the last few years, we have achieved significant increases in our net sales and profitability. We have accomplished this by implementing key management changes, investing in marketing our brands, introducing innovative new products and expanding a multi-brand, multi-channel distribution model while significantly lowering our cost structure through financial and operational discipline and initiatives. For example, we have successfully transitioned from operating our own manufacturing facilities to become a global sourcing company with all of our products manufactured by third parties. As a result of these initiatives, our net sales have grown from $263.4 million in 2002 to $416.8 million in 2006, representing a compound annual growth rate of 12.2%.

On May 11, 2004, MF Acquisition Corporation acquired Maidenform, Inc. (the "Acquisition") through a merger of its wholly owned subsidiary into Maidenform, Inc. Stockholders of Maidenform, Inc. received either cash or stock of MF Acquisition Corporation in exchange for their shares of Maidenform, Inc. On April 5, 2005, MF Acquisition Corporation changed its name to Maidenform Brands, Inc.

OUR COMPETITIVE STRENGTHS

We attribute our market leadership and significant opportunities for continued growth to the following competitive strengths:

Portfolio of well-known brands with strong market position

During our 85-year history in the intimate apparel industry, we believe we have built strong equity for our brands through a combination of innovative, first-to-market designs and creative advertising campaigns. Our products have a well-earned reputation for "everyday comfort," which we define as excellent fit, affordability and beautiful styling and are marketed under some of the most long-standing, recognized brands in the industry, such as Maidenform, Flexees and Lilyette.

We have extended our addressable market by offering products at lower price points through the introduction of our other brands. These brands carry our corporate endorsement and leverage our product technology, but are separate brands with distinctly different logos. In addition, these products are similar in style to Maidenform products, but are typically produced with materials more appropriate for these price points.

Effective multi-brand, multi-channel distribution model

We offer a wide range of brands and products at various price points targeted at distinct distribution channels. This multi-channel strategy reduces our reliance on any single distribution channel, product, brand or price point. While the Maidenform, Flexees and Lilyette brands are generally sold in department stores and national chains, we market our other brands to other retailers in the national chain and mass merchant channels. Specifically, Sweet Nothings is sold at Wal-Mart stores, Rendezvous and Subtract are sold at Sears stores, Bodymates is sold at Costco stores and Self Expressions is sold at Target stores and Zellers' stores.

History of innovation and development of new products

Throughout our 85-year history, we have successfully developed and introduced new products. Some examples of our innovations include:

•
filing the patent for the modern seamed bra in 1926;

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filing the patent for the adjustable bra strap in 1942;

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introducing Customize It, a collection of bras with convertible straps and pads in 1999;

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being the first to introduce two-way stretch foam cup technology in the United States to create the Maidenform One Fabulous Fit bra in 2002 (two-way stretch foam offers both horizontal and vertical fabric flexibility to provide greater comfort and fit);

•
being the first to introduce two-way stretch foam technology in shapewear products in the United States in 2003;

•
introducing the Maidenform Dream bra, released in 2005, which offers a new combination of intimate apparel technologies, including two-way stretch foam and higher thread-count microfiber, to give excellent fit and soft feel on the body. This bra also has a clean, seamless front and fuller coverage, making it appealing to a wide range of women's style and size preferences;

•
introducing the Lite Bra collection, which launched in 2006; and

•
introducing the Smooth Fit collection, which launched in early 2007.

Our merchandising and design teams seek to incorporate both first-to-market technologies and unique and innovative combinations of existing technologies in our products. To assist these teams in this effort, we are operating a materials laboratory in Hong Kong, as well as employing full-time personnel who regularly meet with raw material producers and contract manufacturers and other component suppliers to review their latest product developments.

We typically introduce our most innovative products into the department stores and national chain stores channel first. Upon a successful launch, we often design a related product that modifies the design to permit value pricing under our other brands. In addition, we are focused on continually reducing our finished goods costs by sourcing our existing products from third parties, without compromising quality levels. We work closely with our sourcing partners, who enter into confidentiality agreements, to share best practices and keep abreast of new advances in design and technology.

Effective and compelling marketing strategies

Our creative advertising campaigns have been key to building brand equity for the Maidenform brand and for our other brands. In our advertising campaigns, we consistently strive to portray intelligent and confident women and to relate to women's aspirations. Notable campaigns we have used in the past to convey this image include the first Dream campaign ("I Dreamed..."), launched in 1949, and the 1970's launch of "The Maidenform Woman. You Never Know Where She'll Turn Up" campaign. More recently, we re-introduced a modern interpretation of the classic "I Dreamed..." campaign as part of a successful strategy to increase brand recognition with our core consumer and attract a younger, more contemporary consumer. This campaign has had substantial placement in print media. We also invest in point-of-sale advertising and cooperative advertising, which is our contribution to retailer-produced advertising. In all of our advertising, we strive to present a consistent image of the Maidenform brand. We place significant marketing emphasis on the Maidenform brand, as we believe consumers are driven to purchase our products not only for their product features, but also because of the image conveyed by the brand. Furthermore, development of Maidenform brand equity has additional positive effects on our other brands including Sweet Nothings, Rendezvous, Bodymates and Self Expressions.

The Flexees and Lilyette brands are supported more directly at point-of-sale as the consumer for these brands typically has more specialized needs and tends to be driven to purchase our products based on practical product features as well as brand image. Informative hangtags highlighting product benefits and features are the most effective means of communication to this consumer.

OUR GROWTH STRATEGIES

We intend to increase sales and profitability by strengthening our position in the intimate apparel industry through the following key strategic initiatives:

Continue to increase consumer identification with our brands

We plan to increase our focus on marketing, especially for the Maidenform brand. We currently use substantial print media and point-of-sale hang-tags on our products to reinforce our brand image. Going forward, we will look to increase our total number of advertising impressions in a variety of media and coordinate these images with our cooperative advertising, outdoor advertising and point-of-sale materials to ensure that all touchpoints with our consumers reinforce the brand image. At the same time, we will continue to monitor the media where our advertisements are placed to ensure we are as effective as possible in reaching our core consumer. We are also focused on promoting our other brands, including Sweet Nothings, Rendezvous, Bodymates and Self Expressions. For our Flexees and Lilyette brands, we will continue to focus our marketing efforts at the point-of-sale, with informative hang-tags on the product that explain product benefits, and will continue to provide cooperative advertising support for inclusion in retailer-produced advertising.

Continue to launch innovative products

We intend to build upon our past successes in innovation by continuing to be the first-to-market with new product features and designs. We plan to do this in a manner that expands our consumer base with limited impact on the sales of existing products. We expect that this will result in an increase in our inventory levels and the number of stock keeping units, or SKUs we carry. To further assist us in this effort, we are planning to increase the size of our merchandising and design teams, as well as our support operations in Asia.

Increase market share in department stores and national chains

We intend to increase market share in department and national chains by expanding and refreshing product offerings through innovative technology and design expertise within our core brands—Maidenform, Lilyette and Flexees. In addition, we will continue to support the advertising efforts of our retail partners through cooperative advertising programs and the aggressive pursuit of point-of-sale visual presentation that clearly represent our brands on the selling floors.

Expand presence in mass merchant channel

The mass merchant channel continues to provide opportunity for us. We intend to aggressively pursue increased sales through organic growth and the expansion of selling space through the placement of new product categories.

Our global sourcing strategy has enabled us to develop product offerings that are priced competitively in the mass merchant channel and has recently afforded us the opportunity to launch new product concepts concurrently in the mass merchant and department stores and national chains stores channels. Our value/price product strategy has proven successful with the mass market consumer.

Expand our international presence

Our products are currently distributed outside the United States in approximately 54 countries and territories, representing 6.8% of our net sales, the majority of which are generated in the United Kingdom and Canada. We intend to continue to focus our international selling efforts in markets with consumer preferences similar to those found in the United States.

Our European growth is focused within the United Kingdom, where the Maidenform and Flexees collections have gained momentum. In the United Kingdom, we launched the Maidenform brand at Debenhams in 2003 and, following successful tests, launched at the House of Fraser and John Lewis in 2004.

In Canada, in addition to aggressively expanding the door distribution for Maidenform, Flexees and Lilyette within department stores, sales have also benefited from the expanded placement of new categories of business such as the Maidenform One Fabulous Fit pant collection at The Bay, and Lilyette Minimizer bras and special occasion bras in department stores. Our Canadian business also expanded within the mass merchant channel of distribution through the sales of Sweet Nothings at Wal-Mart Canada, Bodymates at Costco in Canada and Self Expressions bras and shapewear at Zellers.

In 2006, we experienced growth in Russia, the Benelux countries and Ireland and believe that there is a continuing opportunity to grow our brands and develop our presence in the international markets.

Continue to improve product sourcing

We employ a sourcing strategy that expedites our speed to market. We source our products from a network of quality manufacturers in China, Hong Kong, Indonesia, Macau, the Philippines and Thailand, among other countries. In most cases, we identify and mandate the raw materials and the sub-contractors we want these suppliers to use. In the future, we may source our products from Bangladesh, Cambodia, Egypt, India and other countries due to the easing of trade restrictions and the maturing of the infrastructure in those countries. In connection with this increase in products sourced from third-party manufacturers, we have significantly reduced our number of employees since 2001.

We are expanding the number of our sourcing partners in an effort to achieve efficient product supply to the marketplace and provide the appropriate balance of flexibility and diversity necessary to service the ever-changing needs of the retailer and the consumer. We intend to multi-source our largest selling items at various facilities and with diverse suppliers in order to improve service and pricing levels. We are upgrading and implementing new technologies that will enable us to better communicate with our sourcing partners for bidding, technical specification and to track product in production and in transit.

Make selective acquisitions

We plan to target select strategic acquisitions in order to grow our consumer base and we would utilize the acquired companies to complement the products, channels and geographic reach of our existing portfolio. We believe that acquisitions could enhance our product offering to retailers and provide potential growth. We believe we can leverage our core competencies such as product development, brand management, logistics and marketing to create significant value from the acquired businesses.

PRODUCTS AND BRANDS

We sell a broad range of intimate apparel products including bras, panties and shapewear under the following brands:

Maidenform®

We sell a collection of bras and panties under the Maidenform brand primarily at department stores, national chains and our company-operated outlet stores and websites. Maidenform branded bras are best described as "everyday comfort" bras with excellent fit, feminine styling and consumer-friendly technology, offering a woman the perfect combination of style and function. The target consumer for Maidenform branded products are women between the ages of 25 and 65 with a career or active lifestyle, a sense of style and who appreciate how a comfortable, fit-flexible bra can improve the way they look in clothes. Product lines under the Maidenform brand include:

•
One Fabulous Fit: Our signature Maidenform franchise. Product includes two-way stretch foam bras in a variety of silhouettes designed for the average figure consumer.

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One Fab Fit Pants: Everyday, comfortable pants designed in updated silhouettes and colors coordinated to the bra collection.

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Smooth Fit: Our newest franchise featuring seam-free technology. Designed for the average figure, this collection offers innovative technology for a customized fit. It is priced slightly above One Fabulous Fit.

•
Smooth Fit Pants: Innovative fusing technology provides a seam-free, smooth look under clothes with no visible panty lines. Color coordinated to the bra collection.

•
The Dream Collection: Priced slightly above One Fabulous Fit, this collection offers luxurious fabrics and stretch-to-fit comfort in a variety of silhouette shapes, appealing to a wider audience.

•
The Lite Bra: Two way stretch foam interpreted in a bra that is about 20% lighter in weight than the average; where every component is re-designed for less bulk to improve comfort without compromising fit.

•
Collection M: A better line of shapewear with limited distribution designed to compete with volume oriented designer businesses.

•
I Value Luxury: A collection of intimates designed for the value-conscious women who recognizes and appreciates branded product.

Flexees®

Flexees is a collection of shapewear products sold primarily in department stores and national chains and our company-operated outlet stores and websites. Shapewear products create a more slimmed and toned appearance. Examples of shapewear include high leg briefs, full briefs, waist nipper briefs, waist nippers, body briefers, control slips and control camisoles. Flexees products serve as an under layer for all types of clothing, offering a woman comfort and flexibility while slimming and shaping. Flexees is designed with shape defining properties to provide a range of control from firm to lighter control. The target consumers of our Flexees products are women between the ages of 25 and 65. The Flexees product is categorized by level of control. Product lines under the Flexees brand name include:

•
One Fabulous Body: A collection of lightweight everyday control shapewear for smoothing and toning. Made from luxurious fabrics, garments hug body for an incredibly comfortable fit. Designed to be worn as bodyliners for a sleeker, sexier shape under today's ready-to-wear.

•
Contemporary Shapers: These moderate and firm control silhouettes offer women the perfect balance of form, function and femininity. Styles provide superior shaping and comfort for a sleek look under clothes.

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Instant Slimmer: Firm and maximum control shapewear with added coverage featuring firm control slimming features that flatten the tummy, slim the hips and take inches off the waist for a smooth look under clothes.

Lilyette®

Lilyette is a collection of bras for the full-figured woman sold primarily in department stores and national chains and our company-operated outlet stores and website. Lilyette bras are targeted at larger-busted women between the ages of 25 and 65, and are typically offered in cup sizes of C and larger. The Lilyette brand represents higher quality luxury at a good value. The Lilyette collection is categorized by product feature:

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Minimizer: Beautiful, contemporary bras, designed to reduce the bust up to one cup size while offering a smoother, more balanced appearance under clothes.

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Full Support: Active bras designed for today's active women offering maximum uplift, support and comfortable shaping.

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Specialty: Clean, contemporary and functional full support bras designed for special occasion dressing.

Other Brands

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Sweet Nothings: A collection of bras, panties and shapewear sold at Wal-Mart.

•
Rendezvous: A collection of bras and panties sold at Sears in the United States.

•
Subtract: A collection of shapewear sold at Sears in the United States.

•
Bodymates: Multi-packs of intimate apparel sold at Costco.

•
Self Expressions: A collection of bras, panties and shapewear sold at Target in the United States and at Zellers in Canada.

•
Private label: We selectively sell bras and shapewear under private labels for certain of our customers.

DISTRIBUTION CHANNELS

Our Maidenform, Flexees and Lilyette brands are broadly sold in department stores (such as Macy's, Lord & Taylor and Belk) and national chains (such as Kohl's and JCPenney). Our Sweet Nothings branded products are sold in Wal-Mart stores, Rendezvous is sold in Sears stores, our Bodymates branded products are sold in Costco stores and our Self Expressions branded products are sold in Target stores and Zellers' stores in Canada. These brands carry our corporate endorsement and leverage our product technology but are separate brands with distinctly different logos. In addition to these brands, we selectively design, develop and source private-label products for certain specialty retailers and a mass merchant. We currently operate 76 outlets stores and our websites, www.maidenform.com and www.maidenform.co.uk, through which we primarily sell our branded products.

Our diversified brand and product portfolio allows us to target a variety of channels and price points without causing channel conflict. We operate in two segments, wholesale and retail. Our wholesale segment includes domestic wholesale distribution, international distribution and licensing. Our retail segment includes our company-operated outlet stores and our websites. In 2006, we derived approximately 87% of our net sales from our wholesale segment and approximately 13% of our net sales from our retail segment. We had two customers that each accounted for more than 10% of our net sales in 2006 and 2005, one customer that accounted for more than 10% of our net sales for the period May 11, 2004 through January 1, 2005 and two customers that each accounted for more than 10% of our net sales for the period December 28, 2003 through May 10, 2004.

Domestic wholesale distribution

We enjoy longstanding relationships with industry-leading customers in our wholesale channel. Our major wholesale customers include Federated, JCPenney, Kohl's, Mervyns, Sears, Target, Wal-Mart and Costco. In 2006, net sales from our ten largest customers totaled $287.0 million, or 68.9% of total net sales, and 79.6% of our total wholesale net sales.

Department Stores and National Chain Stores. The department stores and national chain stores are where we generally sell the Maidenform, Flexees and Lilyette brands. We plan to continue to invest in increasing our net sales with department store customers, which we believe is important to our long-term positioning in the channel. There has been a growing trend toward consolidation of department stores. We expect the rate of our future net sales growth with department stores to be moderated by the reduction in both the number of department store customers and the number of doors (distinct locations operated by a particular retailer) operated by those customers. We have grown both our market share and our net sales significantly in the past several years with national chain stores. We expect to see continued growth with national chain stores in the future as consumers continue to seek out value alternatives and as our customers in this channel continue to open new doors. We have customers located outside the United States that purchase our Maidenform, Flexees and Lilyette brands. The majority of these net sales to these customers are included in the department store and national chain store channel.

Mass Merchants. The mass merchant channel includes both mass merchants and warehouse clubs. We intend to improve our penetration in this channel through the use of Sweet Nothings, Bodymates and Self Expressions, as well as private brands. We have experienced significant growth in this channel over the past several years and expect to achieve growth in the future as we are able to increase both the floor space and number of doors at which our products are sold. We expect that both our net sales to this channel and our net sales to this channel as a percentage of our total net sales are likely to increase over time. The volume and mix of net sales of our brands and of private label in the mass merchants channel can vary from period to period based upon strategic changes that our customers may implement from time to time. Net sales to customers in the mass channel that are located outside the United States are included in this channel.

Other. Our net sales from this channel, which include sales to specialty retailers and to off-price retailers, have historically been a smaller component of our overall net sales. We participate in private brands in the specialty retailer area as opportunities present themselves. Because of fluctuations in opportunities in this channel, we continually reevaluate for growth opportunities. Our licensing income is included in this channel as well as sales to foreign distributors.

We will selectively target strategic acquisitions or a brand start-up to grow our consumer base and would utilize the acquired companies to complement the products, channels and geographic reach of our existing portfolio. We believe that acquisitions could enhance our product offerings to retailers and provide potential growth. We believe we can leverage our core competencies such as product development, brand management, logistics and marketing to create significant value from the acquired businesses. The opportunity to license designer brands is also a potential opportunity for us.

We also generate net sales from licensing our brand names to qualified partners for natural line extensions in the intimate apparel market such as sleepwear, teen bras and panties, bra accessories, socks and slippers. Licensing royalties have accounted for less than 1% of our total net sales. Our licensed products are sold at department stores, national chains and mass merchants, at our company-operated outlet stores and through our websites. We believe this gives us the opportunity to introduce our brands to new consumers at a relatively early age. We believe that we can potentially expand our licensing activities beyond our current offerings.

Domestic retail distribution

We sell our products directly to consumers through our 76 company-operated outlet stores and our websites.

Company-Operated Outlet Stores. We currently operate 76 outlet stores through which we primarily sell our branded products. In addition, we sell products such as sleepwear, bra accessories and teen bras under the Maidenform label which we purchase from our licensees and other third-party vendors. We regularly review our real-estate portfolio in order to optimize our store base. Our company-operated outlet stores reduce our dependence on off-price retailers, to which excess merchandise is typically sold at or below cost, and increase brand awareness through direct-to-consumer sales of our products. Our retail stores also provide us with a unique opportunity to test consumer response to new products in an environment entirely within our control. Our company-operated outlet stores have an average footprint size of approximately 2,500 square feet.

Our Websites. Our websites, which we operate through wholly owned subsidiaries, are designed to heighten brand awareness and serve as a channel for our products to be sold directly to consumers. Online sales are expected to increase as a result of our more contemporary target audience and our increased market share.

MERCHANDISING AND DESIGN

We continue to focus on innovation across all product lines. Our new product designs are typically conceived by our merchandising teams, which are generally organized by channel (e.g., department stores and national chains or mass merchants) and brands.

These merchandising teams first work together to develop broad new product concepts that reflect women's changing tastes, new fabric improvements and manufacturing innovations. Subsequently, the merchandising team for each channel works independently to interpret the broad new product concepts into the price points specific to such channel. We also have research and development personnel who assist in this stage of development by working both to develop new technologies and also to meet with our manufacturers to review their new technologies. Once the new product concepts are created, our designers develop the detailing and work with our sourcing partners to generate a prototype. Our product and cost engineers work with these new products and sourcing partners to ensure product fit and quality that consistently meets our stringent specifications prior to manufacture, as well as to ensure products are made in a cost-efficient manner.

Our design personnel and research and development team operate as a shared resource available to all merchandising teams.

SALES AND MARKETING

Existing and potential customers view our latest product lines and place orders during marketing periods that take place twice a year, in the spring and fall. Throughout the year, our products are continuously ordered on a replenishment basis, typically at weekly intervals. In addition, most of our customers order new styles, products or colors in advance in order to ensure sufficient quantities.

Our marketing team operates as a shared resource across channels to maximize productivity and creativity. We focus our advertising and promotional spending on brand and/or product specific advertising, primarily through point-of-sale product displays, visuals and individual in-store promotions. We also spend a significant portion of our advertising budget on cooperative advertising, which constitutes contributions to the advertising cost of our products by retailers.

COMPETITION

The intimate apparel industry is highly competitive. We believe, however, that our combination of brand strength, size, design capability and operational expertise position us well against our competitors. Competition is generally based upon product quality, brand name recognition, price, selection, customer service and purchasing convenience. Our primary competitors include Aerie by American Eagle, Cupid Foundations, Inc., Gap Inc., Hanesbrands, Inc., Jockey International, Inc., the Lane Bryant division of Charming Shoppes, Inc., the Soma division of Chico's, Inc., Triumph International, VF Corporation, the Victoria's Secret division of Limited Brands, Inc., Wacoal Corp. and The Warnaco Group, Inc. Additionally, department stores and national chain stores, specialty retailers and other retailers, including our customers, have significant private label product offerings that compete with us. Because of the highly fragmented nature of the industry, we also compete with many small manufacturers and retailers. Some of our competitors are much larger than us and have greater resources than we do.

We offer a diversified portfolio of brands across a wide range of price points in several channels of distribution in an effort to appeal to a broad cross-section of consumers. We believe that our ability to serve multiple distribution channels with a diversified portfolio of products under widely recognized brand names is a competitive strength.

ENVIRONMENTAL MATTERS

We are subject to various federal, state and local laws and regulations that govern activities or operations that may have adverse environmental or health and safety effects. Noncompliance with these laws and regulations can result in significant liabilities, penalties and costs. Compliance with environmental laws and regulations has not had a material impact on our operations, but there can be no assurance that future compliance with such laws and regulations will not have a material adverse effect on our operations. While we believe that we do not face any environmental issues that would have a material adverse impact on our financial position, operations or results of operations, current environmental requirements may change or become more stringent, unforeseen environmental incidents may occur, or environmental conditions may be discovered on our properties or in connection with our operations, any of which could have a material adverse effect on our financial position, operations or results of operations.

TRADEMARKS, COPYRIGHTS AND LICENSING AGREEMENTS

We own a portfolio of highly recognized trademarks and trade names, including Maidenform, Flexees, Lilyette, Sweet Nothings, Rendezvous, Subtract, Bodymates and Self Expressions. We also own copyrights. These intellectual property rights are important to our marketing efforts. Our owned brands are protected by registration or otherwise in the United States and most other markets where our brands are sold. These intellectual property rights are enforced and protected from time to time by litigation.

Each trademark registration in the United States has a duration of ten years and is subject to an indefinite number of renewals for a like period upon appropriate application. The duration of proprietary rights in trademarks, service marks and trade names in the United States, whether registered or not, is predicated on our continued use. Trademarks registered outside of the United States have a duration of between seven and fourteen years depending upon the jurisdiction and are also generally subject to an indefinite number of renewals for a like period upon appropriate application. We are using all of our material marks. Maidenform, Flexees, Lilyette, Sweet Nothings and Self Expressions are some of the trademarks that we have registered with the U.S. Patent and Trademark Office and analogous agencies in a number of other markets where our brands are sold. We have renewed the registrations (or applied for variant forms of the registration, where appropriate, to assure continued protection) of our material registered trademarks. We plan to continue to use all of our material brand names and marks and to renew the registrations of all of our material registered trademarks so long as we continue to use them. We have granted licenses to other parties to manufacture and sell specified products under our trademarks in specified distribution channels and geographic areas. Some of these license agreements contain minimum annual licensing and advertising commitments. Some are for a short term and may not contain specific renewal options. We do not license from third parties any trademarks that are material to our business.

IMPORTS AND IMPORT RESTRICTIONS

Our operations are, or may become, subject to various existing and proposed international trade agreements and regulations such as the North American Free Trade Agreement, the Central American Free Trade Agreement and the Caribbean Basin Initiative, and the activities and regulations of the World Trade Organization, or WTO. Generally, these trade agreements benefit our business by reducing or eliminating the duties and/or quotas assessed on products manufactured in a particular country. However, trade agreements can also impose requirements that negatively affect our business, such as limiting the countries from which we can purchase raw materials and setting quantitative limits on products that may be imported from a particular country. We are exposed to these risks as we import goods from third party suppliers in Asia and Central America.

In general, previously existing quotas on the importation of fabrics and apparel were phased out over a ten-year period that ended on January 1, 2005. Such quotas were phased out in 1998 for cotton bras and in 2002 for bras of man-made fabrics. These phased-out quotas only applied to WTO-member countries. With China's accession to the WTO in 2001, the phase-out completed on January 1, 2005 was applicable to that country as well. Given this short time frame, however, a "safeguard" mechanism was established with respect to China only. The safeguard mechanism is a transition rule to protect against surges of imports from China that would disrupt the domestic market in such goods.

On December 24, 2003, the U.S. government imposed a safeguard quota on imports of bras and other foundation garments. This quota was filled as of November 28, 2004, resulting in no imports of bras and certain shapewear products from China from this date through December 23, 2004. The U.S. government self-initiated a safeguard inquiry with respect to panties and imposed a safeguard quota that resulted in an embargo on panties imported from China into the United States, which foreclosed any such imports through the end of the 2005 calendar year. A new petition to impose another safeguard quota on the importation of bras and certain shapewear from China was also filed. These and other safeguard actions led to the negotiation of a three-year bilateral arrangement with China that sets quantitative restrictions on the importation of certain products, including panties, bras and certain shapewear products, with planned and predictable increases to those limits over the three-year period ending December 31, 2008. If there is growth in imports from China which exceed the negotiated increases in the annual quotas, ensuing embargoes could have a disruptive effect on the regular flow of products to fill orders. In anticipation of this possibility, we have been sourcing from other countries in the Asia-Pacific region and should be able to shift production as necessary in order to reduce the risk of adverse consequences from an embargo. The safeguard mechanism will expire and it is likely that no safeguard actions will be invoked after December 31, 2008 with respect to China.

The European Union (EU) has entered into a trade agreement with China that established annual quantitative limitations on bras and other categories which resulted in an embargo on bras in 2005 and could result in an embargo on bras and other categories imported from China in 2007 and 2008.

Apart from safeguards with respect to China, there remain all of the normal General Agreement on Tariffs and Trade, or GATT, protections that might be invoked by the United States or any other country against China or any other trading party, such as anti-dumping petitions which could result in extra duty applied, anti-subsidy protections which could result in countervailing duties, and any action proving violation of WTO rules could lead to extra tariffs.

Management regularly monitors new developments and risks related to duties, tariffs, quantitative limits and other trade-related matters pending with the United States and foreign governments, for potential positive or negative effects on our operations. In response to the changing import environment resulting from the elimination of quotas, management has chosen to source 100% of our products. We limit our sourcing exposure through, among other measures, geographic diversification and shifts among countries and contractors. We will continue to manage our supply chain from a global perspective and adjust as needed to changes in the quota environment.

The United States and other countries in which our products are manufactured and sold may impose new duties, tariffs, change the classification of products or other restrictions. Any of these actions could impact our ability to import products at current or increased levels.

GOVERNMENT REGULATION

We are subject to federal, state and local laws and regulations affecting our business, including those promulgated under the Occupational Safety and Health Act, the Consumer Product Safety Act, the Flammable Fabrics Act, the Textile Fiber Product Identification Act, the rules and regulations of the Consumer Products Safety Commission and various environmental laws and regulations. Our international businesses are subject to similar regulations in the countries where they operate. Our operations are also subject to various international trade agreements and regulations. See "Imports and Import Restrictions" above. We believe that we are in compliance in all material respects with all applicable governmental regulations.

EMPLOYEES

As of December 30, 2006, we had approximately 1,300 employees. We consider our relationships with our employees to be satisfactory and have not experienced any significant interruptions of operations due to labor disagreements since 1978. Our union employees are represented by UNITE-HERE and Local 153 of OPEIU. Our contract with UNITE-HERE, which covers approximately 235 employees at our Fayetteville and Bayonne locations, expires on September 30, 2009. Our union contract with OPEIU, which covers 20 clerical employees at our headquarters in Bayonne, New Jersey, expires on September 30, 2009.

CEO BACKGROUND

David B. Kaplan (39) has been Chairman of our Board of Directors since April 2005 and a director of Maidenform since May 2004. Mr. Kaplan has been a Senior Partner in the private equity group of Ares Management LLC, a Los Angeles based investment management firm. From 2000 through 2003, Mr. Kaplan was a Senior Principal of Shelter Capital Partners, LLC. From 1991 through 2000, Mr. Kaplan was affiliated with, and a Senior Partner of, Apollo Management, L.P., and its affiliates, where he served on various Boards of Directors including Allied Waste Industries, Inc., Dominick's Supermarkets Inc. and WMC Finance Co. Prior to that, Mr. Kaplan was an investment banker at Donaldson, Lufkin & Jenrette Securities Corp. Mr. Kaplan currently serves as the Chairman of the Board of Directors of Tinnerman Palnut Engineered Products, Inc., Co-Chairman of the Board of Directors of Orchard Supply Hardware Corporation and on the Boards of Directors of Kinetics Holdings LLC and Anchor Blue Retail Group, Inc. Mr. Kaplan also serves on the Board of Governors of Cedars-Sinai Hospital and the Board of Trustees of the Center for Early Education. Mr. Kaplan received a M.A. in Finance, graduating with High Distinction, Beta Gamma Sigma, from the University of Michigan School of Business Administration.

Thomas J. Ward (60) has been our Chief Executive Officer and a director since July 2001. He served as Chairman of the Board of Directors from May 11, 2004 until April 2005, at which time our Board of Directors determined that it would be preferable, in anticipation of becoming a publicly-traded company, to have a non-executive Chairman. Mr. Ward currently serves as our Vice Chairman of the Board of Directors. From July 2001 until May 2004, Mr. Ward was also President of Maidenform, Inc. Prior to joining us, Mr. Ward served as Chairman of Thomas Ward Associates, LLC, consulting with the Coles Group, one of Australia's largest retailers, from March 2001 to August 2001. Prior to that, Mr. Ward spent 31 years with Westpoint Stevens, Inc., where he held various positions including President and Chief Operating Officer from 1997 to 2000. Mr. Ward is a member of the Board of Trustees and Treasurer of Marist College, a member of the board of the education foundation for the fashion industries at Fashion Institute of Technology, State University of New York, and a director of the American Apparel and Footwear Association. Mr. Ward received a B.A. in Business from Marist College and attended Drexel University Business School.

Norman Axelrod (54) has been a director of Maidenform since September 2004. Mr. Axelrod, through his consulting entity, NAX 18, LLC, provides consulting services to certain entities related to Ares Management LLC. Mr. Axelrod was Chief Executive Officer and Chairman of the Board of Directors of Linens 'n Things, Inc. until its acquisition in February, 2006. Mr. Axelrod joined Linens 'n Things as Chief Executive Officer in 1988 and was elected to the additional position of Chairman of the Board in 1997. From 1976 to 1988, Mr. Axelrod held various management positions at Bloomingdale's, ending with Senior Vice President, General Merchandise Manager. Mr. Axelrod also serves on the Board of Directors of Reebok International Ltd. and Jaclyn, Inc. Mr. Axelrod received a B.S. in Management and Marketing from Lehigh University and an M.B.A. from New York University.

Harold F. Compton (59) has been a director of Maidenform since April 7, 2006. Mr. Compton most recently served as President and Chief Executive Officer, CompUSA Inc. He joined CompUSA in 1994 as Executive Vice President—Operations, becoming COO in January 1995 and President/CompUSA Stores in July 1996. In March 2000, he became President and Chief Executive Officer, CompUSA Inc. Prior to joining CompUSA, he served as President and COO of Central Electric Inc., (1993—1994). Previously, he served as Executive Vice President—Operations and Human Resources, and Director of Stores for HomeBase (1989—1993), Senior Vice President—Operations, and Director of Stores for Roses Discount Department Stores (1986—1989), and held various management positions including Store Manager, District Manager, Regional Vice President and Zone Vice President for Zayre Corporation for 21 years (1965—1986). Mr. Compton served on the Board of Directors of Linens 'N Things, Inc. until its acquisition in February, 2006. Mr. Compton was named to the Board of Directors for IceWeb, Inc. in June 2005. Mr. Compton was also Co-Chairman and a 25.5% owner of the Country Sampler Stores, LLC, which filed for bankruptcy under Chapter 7 of the Federal Bankruptcy Code in 2006.

Barbara Eisenberg (61) has been a director of Maidenform since February 2005. Ms. Eisenberg is currently Executive Vice President, General Counsel and Corporate Secretary of Ann Taylor Stores Corp. and a Member of the Ann Taylor Corporate Executive Committee. Before joining Ann Taylor, Ms. Eisenberg was Senior Vice President, General Counsel and Corporate Secretary of J. Crew Group, Inc. from 1999 to 2001 and was Vice President, General Counsel and Corporate Secretary from 1998 until then. Prior to that, Ms. Eisenberg was Vice President, Associate General Counsel and Corporate Secretary at Burlington Industries, Inc. Ms. Eisenberg currently serves as a Member of the Board of Visitors of Columbia University School of Law. Ms. Eisenberg received a B.A. in International Relations from Barnard College and a J.D. from Columbia University School of Law.

Karen Rose (58) has been a director of Maidenform since January 2005. Ms. Rose is currently a business consultant. Ms. Rose was Group Vice President and Chief Financial Officer of The Clorox Company from December 1997 until her retirement in October 2003. Prior to that, Ms. Rose held various management positions including Director of Finance, Household Products Company and Vice President and Treasurer since joining Clorox in 1978. Ms. Rose currently serves on the Board of Directors of Bare Escentuals, Inc., is a member of the Board of Trustees of the California College of the Arts and a member of the Board of Visitors of the Pathways to Learnings Project of the University of Wisconsin. Ms. Rose received a B.A. in History from the University of Wisconsin and an M.B.A. in Finance from The Wharton School at the University of Pennsylvania.

Adam L. Stein (31) has been a director of Maidenform since May 2004. Mr. Stein is a Principal in the private equity group of Ares Management LLC, a Los Angeles based investment management firm. In September 2000, Mr. Stein joined Ares Management LLC from Merrill Lynch & Co. At Merrill Lynch, Mr. Stein was an investment banker in the Global Leveraged Finance Group. Mr. Stein is a member of the boards of directors of Anchor Blue Retail Group, Inc. and Marietta Corporation. Mr. Stein received a B.B.A. in Business Administration with a concentration in Finance, graduating with distinction, from Emory University's Goizueta Business School.

SHARE OWNERSHIP

(1)
Reflects shares owned by Ares Corporate Opportunities Fund, L.P. ("ACOF"). The general partner of ACOF is ACOF Management, L.P., which is indirectly owned by Ares Management LLC, which, in turn, is directly and indirectly owned by Ares Partners Management Company LLC. Each of the foregoing entities (collectively, the "Ares Entities") and the partners, members and managers thereof, other than ACOF, disclaims beneficial ownership of the shares owned by ACOF, except to the extent of any pecuniary interest therein. The address of the Ares Entities is 1999 Avenue of the Stars, Suite 1900, Los Angeles, CA 90067.

(2)
Based solely on a Schedule 13G filed with the Securities and Exchange Commission on January 23, 2007, reporting beneficial ownership as of December 31, 2006 by Barclays Global Investors, NA. (1,338,442 shares in the aggregate, 1,274,743 shares of which it holds sole voting power) and Barclays Global Fund Advisors (215,154 shares). These entities report their ownership as a group and are, collectively, the beneficial owners of 1,553,596 shares of common stock. The address of both entities is 45 Fremont Street, San Francisco, CA 94105.

(3)
Based solely on information contained in a Schedule 13G filed with the SEC on February 13, 2007, Putnam, LLC
d/b/a Putnam Investments (PI), which is a wholly-owned subsidiary of Marsh & McLennan Companies, Inc. (M&MC), wholly owns two registered investment advisers: Putnam Investment Management, LLC. (PIM), which is the investment adviser to the Putnam family of mutual funds and The Putnam Advisory Company, LLC. (PAC), which is the investment adviser to Putnam's institutional clients. Both subsidiaries have dispository power over the shares as investment managers, but each of the mutual fund's trustees have voting power over the shares held by each fund, and The Putnam Advisory Company, LLC. has shared voting power over the shares held by the institutional clients. Pursuant to Rule 13d-4, M&MC and PI declare that the filing of this Schedule 13G shall not be deemed an admission by either or both of them that they are, for the purposes of Section 13(d) or 13(g) the beneficial owner of any securities covered by this Section 13G, and further state that neither of them have any power to vote or dispose of, or direct the voting or disposition of, any of the securities covered by this Schedule 13G. The address of PI, PIM and PAC is One Post Office Square, Boston, Massachusetts 02109. The address of M&MC is 1166 Avenue of the Americas, New York, NY 10036.

(4)
All of these shares are issuable upon the exercise of options. Excludes 433,954 shares issuable upon the exercise of options that do not vest within 60 days of April 5, 2007.

(5)
All of these shares are issuable upon the exercise of options. Of those reflected in the table, 85,721 are discount options that pursuant to an amendment to comply with Internal Revenue Code (IRC) Section 409A are not currently exercisable. Excludes 141,971 shares issuable upon the exercise of options that do not vest within 60 days of April 5, 2007.

(6)
5,600 shares are owned by Mr. Lively and the balance are issuable upon the exercise of options. Of those options reflected in the table, 42,860 are discount options that pursuant to an amendment to comply with IRC Section 409A are not currently exercisable. Excludes 123,221 shares issuable upon the exercise of options that do not vest within 60 days of April 5, 2007.

(7)
All of these shares are issuable upon the exercise of options. Of those reflected in the table, 22,859 are discount options that pursuant to an amendment to comply with IRC Section 409A are not currently exercisable. Excludes 45,359 shares issuable upon the exercise of options that do not vest within 60 days of April 5, 2007.

(8)
Mr. Kaplan is associated with the private equity group of Ares Management LLC and is a member of Ares Partners Management Company LLC, both of which are affiliates of ACOF. Mr. Kaplan disclaims beneficial ownership of the shares owned by ACOF, except to the extent of any pecuniary interest therein.

(9)
All of these shares are issuable upon the exercise of options. Of those reflected in the table, 12,190 are discount options that pursuant to an amendment to comply with IRC Section 409A are not currently exercisable. Excludes 12,192 shares issuable upon the exercise of options that do not vest within 60 days of April 5, 2007.

(10)
All of these shares are issuable upon the exercise of options. Excludes 24,382 shares issuable upon the exercise of options that do not vest within 60 days of April 5, 2007.

(11)
All of these shares are issuable upon the exercise of options. All of the options reflected in the table are discount options that pursuant to an amendment to comply with IRC Section 409A are not currently exercisable. Excludes 12,192 shares issuable upon the exercise of options that do not vest within 60 days of April 5, 2007.

(12)
2,000 shares are indirectly beneficially owned by Ms. Rose by means of a trust for the benefit of Ms. Rose and her family. The balance are issuable upon the exercise of options. All of the options reflected in the table are discount options that pursuant to an amendment to comply with IRC Section 409A are not currently exercisable. Excludes 12,192 shares issuable upon the exercise of options that do not vest within 60 days of April 5, 2007.

MANAGEMENT DISCUSSION FROM LATEST 10K

MANAGEMENT OVERVIEW

We are a global intimate apparel company with a portfolio of established, well-known brands, top-selling products and an iconic heritage. We design, source and market an extensive range of intimate apparel products, including bras, panties and shapewear. We sell through multiple distribution channels, including department stores and national chain stores, mass merchants (including warehouse clubs), other (including specialty retailers, off-price retailers and licensing income), our company-operated outlet stores and our websites.

We sell our products under some of the most recognized brands in the intimate apparel industry, including Maidenform, Flexees, Lilyette, Sweet Nothings, Rendezvous, Subtract, Bodymates and Self Expressions. Our Maidenform, Flexees and Lilyette brands are broadly sold in department stores and national chain stores. Our other brands are distributed through national chain stores and selected mass merchants. These other brands leverage our product technology, but are separate brands with distinctly different logos. In addition to our owned brands, we also supply private brand products to selected retailers.

Trends in our business

We operate in two segments, wholesale and retail. Our wholesale segment includes both our domestic and international wholesale markets. Our retail segment includes our company-operated outlet stores and our websites.

We have identified many near-term opportunities for growth and operational improvements, as well as challenges to our business. In particular, management believes that there are many factors influencing the intimate apparel industry, including but not limited to: consistent demand for foundation garments, consumer demand for product innovation and leading brands, sourcing and supply chain efficiencies, continued growth of the mass merchant channel, pressure from retailers brought about by the consolidation in the retail industry, increases in the cost of the raw materials used in intimate apparel products and uncertainty surrounding import restrictions. We believe we are well-positioned to capitalize on or address these trends by, among other things:

•
increasing consumer identification with our brands through further marketing investments;

•
continuing to launch innovative products;

•
increasing our presence in department stores and national chain stores through the use of Maidenform, Flexees, Lilyette, Rendezvous, Subtract and private brands;

•
increasing our presence in the mass merchant channel through the use of our Sweet Nothings, Bodymates, Self Expressions and private brands;

•
expanding our international presence;

•
being a marketer of our brands, rather than a manufacturer, of intimate apparel;

•
making selective acquisitions, entering into licenses, and developing products and marketing that will complement our existing products or distribution channels; and

•
merchandising, marketing and selling private brand product for selected retailers.

Wholesale Segment

The following trends are among the key variables that will affect our wholesale segment:

Department Stores and National Chain Stores. The department stores and national chain stores are where we generally sell the Maidenform, Flexees and Lilyette brands. We plan to continue to invest in increasing our net sales with department store customers, which we believe is important to our long-term positioning in the channel. There has been a trend toward consolidation of department stores. We expect the rate of our future net sales growth with department stores to be moderated by the reduction in both the number of department store customers and the number of doors (distinct locations operated by a particular retailer) operated by those customers. We have grown both our market share and our net sales significantly in the past several years with national chain stores. We expect to see continued growth with national chain stores in the future as consumers continue to seek out value alternatives and as our customers in this channel continue to open new doors. We have customers located outside the United States that purchase our Maidenform, Flexees and Lilyette brands. The majority of these net sales are included in the department store and national chain store channel.

Mass Merchants. The mass merchant channel includes both mass merchants and warehouse clubs. We intend to improve our penetration with mass merchants through the use of our brands Sweet Nothings, Bodymates, and Self Expressions as well as private brands. We have experienced significant growth in this channel over the past several years and expect to achieve significant growth in the future as we are able to increase both the floor space and number of doors at which our products are sold. We expect that both our net sales to this channel and our net sales to this channel as a percentage of our total net sales is likely to increase over time. The volume and mix of net sales of our brands and of private label in the mass merchants channel can vary from period-to-period based upon strategic changes that our customers may implement from time-to-time. Net sales to customers in the mass channel that are located outside the United States are included in this channel.

Other. Our net sales from this channel, which include sales to specialty retailers and to off-price retailers, have historically been a relatively small component of our overall net sales. We participate in private brands in the specialty retailer area as opportunities present themselves.

We continually evaluate this channel for opportunities. Licensing income is included in this channel as well as our sales to foreign distributors.

We will selectively target strategic acquisitions or a brand start-up to grow our consumer base and would utilize the acquired companies to complement the products, channels and geographic reach of our existing portfolio. We believe that acquisitions could enhance our product offerings to retailers and provide potential growth. We believe we can leverage our core competencies such as product development, brand management, logistics and marketing to create significant value from the acquired businesses. The opportunity to license designer brands is also a potential opportunity for us.

Retail Segment

We believe our retail sales volume is driven by our ability to service our existing consumers and obtain new consumers, as well as overall general economic conditions, such as the general retail environment, that can affect our consumers and ultimately their levels of overall spending. Additionally, identifying optimal retail outlet locations, favorable leasing arrangements, and improving our store productivity are factors important to growing our retail segment's net sales. We also sell our products through our websites, www.maidenform.com and www.maidenform.co.uk. Although we currently do not generate a significant amount of net sales through these sites, we do expect it to continue to grow.

Our objectives in our retail segment are to continue to increase the productivity of our portfolio of stores through effective merchandising and focused advertising, as well as selectively closing less productive locations and potentially opening new stores in more productive locations. Even in those situations where we selectively close less productive outlet stores and do not open a new store in that region, we believe those consumers still purchase many of our Maidenform brands from our other outlet stores, our websites or our wholesale segment customers that carry these brands. Historically, we have primarily sold excess and, to a lesser extent, obsolete inventories through our outlet stores at a higher margin than that achieved through other liquidation alternatives.

Definitions

In reviewing our operating performance, we evaluate both the wholesale and retail segments by focusing on each segment's operating income, cash flows from operations and inventory turns.

Net Sales. Our net sales are derived from two operating segments, wholesale and retail. Our net sales in the wholesale segment are sales recorded net of cooperative advertising allowances, sales returns, sales discounts, and markdown allowances provided to our customers. Net sales in our retail segment are recognized at the time the customer takes possession of the merchandise at the point-of-sale in our stores and for our internet sales, net sales are recognized when the products are shipped and title passes to the customer.

Cost of Sales. We outsource all manufacturing of the products we sell and, therefore the principal elements of our cost of sales are for finished goods inventories purchased from our sourced vendors. Included in cost of sales and affecting our overall gross margins are freight expenses from the manufacturers to our distribution centers in situations where such expenses are charged separately. Also included in cost of sales is the cost of warehousing, labor and overhead related to receiving and warehousing at our distribution centers, and depreciation of assets related to our receiving and warehousing in our distribution centers. Direct labor, cost of fabrics, as well as raw materials for fabrics, are the primary components driving the overall cost of our sourced finished goods inventories from our sourcing vendors.

Selling, General and Administrative Expenses (SG&A). Our SG&A include all of our marketing, selling, distribution and general and administrative expenses for both the wholesale and retail segments (which include our retail outlet store payroll and related benefits), and rent expense. General and administrative expenses include management payroll, benefits, travel, information systems, accounting, insurance and legal. Additionally, depreciation related to the shipping function in our distribution centers and our corporate office assets such as furniture, fixtures, and equipment, as well as amortization of intellectual property, is included in SG&A.

Income Taxes. We account for income taxes using the liability method, which recognizes the amount of income tax payable or refundable for the current year and recognizes deferred tax liabilities and assets for the future tax consequences of the events that have been recognized in the financial statements or tax returns. We routinely evaluate all deferred tax assets to determine the likelihood of their realization and record a valuation allowance if it is more likely than not that a deferred tax asset will not be realized. For more information, see notes to the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Net operating loss carryforwards (NOLs) enable a company to apply net operating losses incurred during a current period against a future period's profits in order to reduce cash tax liabilities in those future periods. In periods when a company is generating operating losses, its NOLs will increase. The tax effect of the NOLs is recorded as a deferred tax asset. If the company does not believe that it is more likely than not that it will be able to utilize the NOLs, it records a valuation allowance against the deferred tax asset. Additionally, Section 382 imposes limitations on a corporation's ability to utilize its NOLs if it experiences an "ownership change." In general terms, an ownership change results from transactions increasing the ownership of certain existing stockholders and, or, new stockholders in the stock of a corporation by more than 50 percentage points during a three year testing period. Any unused annual limitation may be carried over to later years, and the amount of the limitation may, under certain circumstances, be increased to reflect both recognized and deemed recognized "built-in gains" that occur during the 60-month period after the ownership change. Upon emergence from bankruptcy in 1999, our NOLs were subject to Section 382 limitations. As a result of the Acquisition (defined below) in 2004, we experienced a change in control as defined by Section 382. As a result of this ownership change, the utilization of our NOLs were subject to a new annual limitation under Section 382. Subsequent to the Acquisition, sales of our shares by others, including the initial public offering in July 2005, have resulted in additional changes in control for the purpose of Section 382; however, the annual limitation of our NOLs has not changed. Based on fair values of certain assets as determined in connection with the Acquisition, we had approximately $66.7 million of deemed built-in gains that are anticipated to be recognized or deemed recognized during the aforementioned 60-month period. At December 30, 2006, we had approximately $62.8 million of federal and state NOLs available for utilization in the years from 2007 through 2023.

Acquisition-Related Charges. On May 11, 2004, MF Acquisition Corporation acquired 100% of Maidenform, Inc. (the "Acquisition") through a merger of its wholly owned subsidiary into Maidenform, Inc. Stockholders of Maidenform, Inc. received either cash or stock of MF Acquisition Corporation in exchange for their shares of Maidenform, Inc. On April 5, 2005, MF Acquisition Corporation changed its name to Maidenform Brands, Inc. Our capitalization structure changed significantly as a result of the Acquisition. Financing for the Acquisition totaled $237.3 million and was provided by a first lien term loan of $100.0 million, revolver borrowings of $12.5 million, a second lien term loan of $50.0 million and $74.8 million of cash and capital invested by MF Acquisition Corporation and other investors, including rollover equity by certain members of management of $2.8 million and continuing stockholders of $15.0 million.

he Acquisition was accounted for as a purchase in accordance with Statement of Financial Accounting Standards (SFAS) No. 141, "Business Combinations," and Emerging Issues Task Force (EITF) No. 88-16, "Basis In Leveraged Buyout Transactions." Accordingly, the retained interest of the continuing stockholders (the 23.8% retained by certain members of management and continuing stockholders) was recorded at carryover basis. The remainder of the investment in the assets and liabilities acquired (the 76.2% acquired by new stockholders) was recorded at fair value. The excess of the purchase price over carryover basis of net assets acquired, treated as a deemed dividend of $21.5 million to continuing stockholders, was recognized as a reduction of stockholders' equity (deficit). As a result, the total purchase price of $205.2 million was allocated to the assets and liabilities based on their estimated fair values at the Acquisition date, after taking into account carryover basis as discussed above. The estimated fair values were determined by valuation reports provided by independent third-party appraisals.

RESULTS OF OPERATIONS

For discussion purposes only, our 2004 results discussed below represent the mathematical addition of the historical results for the Predecessor period from December 28, 2003 through May 10, 2004 and the Successor period from May 11, 2004 through January 1, 2005. This approach is not consistent with generally accepted accounting principles and yields results that are not comparable on a period-to-period basis due to the new basis of accounting established at the Acquisition date. However, we believe it is the most meaningful way to comment on the results of operations for 2004 compared to those of 2006 and 2005 because a discussion of the partial period from December 28, 2003 through May 10, 2004 (Predecessor) separately from the period from May 11, 2004 through January 1, 2005 (Successor) compared to the period from January 1, 2006 through December 30, 2006 and the period from January 2, 2005 through December 31, 2005 would not be meaningful.

Fiscal 2004 includes the periods from December 28, 2003 through May 10, 2004 (Predecessor) and May 11, 2004 through January 1, 2005 (Successor). The combined 2004 consisted of 53 weeks. Although 2004 had 53 weeks compared to only 52 weeks in 2006 and 2005, 2004 had only one more shipping day for our wholesale segment. Therefore, the financial results for the three years are comparable

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Management Overview

We are a global intimate apparel company with a portfolio of established, well-known brands, top-selling products and an iconic heritage. We design, source and market an extensive range of intimate apparel products, including bras, panties and shapewear. We sell through multiple distribution channels, including department stores and national chain stores, mass merchants (including warehouse clubs), other (including specialty retailers, off-price retailers and licensing income), our company-operated outlet stores and our websites.

We sell our products under some of the most recognized brands in the intimate apparel industry, including Maidenform ® , Flexees ® , Lilyette ® , Sweet Nothings ® , Rendezvous ® , Subtract ® , Bodymates ® and Self Expressions ® . Our Maidenform ® , Flexees ® and Lilyette ® brands are broadly sold in department stores and national chain stores. Our other brands are distributed through national chain stores and selected mass merchants. These other brands carry our corporate endorsement and leverage our product technology, but are separate brands with distinctly different logos. In addition to our owned brands, we also supply private brand products to selected retailers.

Trends in Our Business

We operate in two segments, wholesale and retail. Our wholesale segment includes both our domestic and international wholesale markets. Our retail segment includes our company-operated outlet stores and our websites.

We have identified many near-term opportunities for growth and operational improvements, as well as challenges to our business. In particular, management believes that there are many factors influencing the intimate apparel industry, including but not limited to: consistent demand for foundation garments, consumer demand for product innovation and leading brands, sourcing and supply chain efficiencies, continued growth of the mass merchant channel, pressure from retailers caused by the ongoing consolidation in the retail industry, increases in the cost of the raw materials used in intimate apparel products and uncertainty surrounding import restrictions.

We believe we are well-positioned to capitalize on or address these trends by, among other things:

•
increasing consumer identification with our brands through further marketing investments;
•
continuing to launch innovative products;
•
increasing our presence in department stores and national chain stores through the use of Maidenform ® , Flexees ® and Lilyette ® ;
•
increasing our presence in the mass merchant channel through the use of our Sweet Nothings ® , Bodymates ® , Self Expressions ® and private brands;
•
expanding our international presence;
•
marketing our brands of intimate apparel;
•
making selective acquisitions, entering into licenses, and developing products and marketing that will complement our existing products or distribution channels; and
•
merchandising, marketing and selling private brand products to selected retailers.

Wholesale Segment

The following trends are among the key variables that will affect our wholesale segment:

Department Stores and National Chain Stores. The department stores and national chain stores are where we generally sell the Maidenform ® , Flexees ® and Lilyette ® brands. We plan to continue to invest in increasing our net sales with department store customers, which we believe is important to our long-term positioning in the channel. There has been a growing trend toward consolidation of department stores. We expect the rate of our future net sales growth with department stores to be moderated by the reduction in both the number of department store customers and the number of doors (distinct locations operated by a particular retailer) operated by those customers. We have grown both our market share and our net sales significantly in the past several years with national chain stores. We expect to see continued growth with national chain stores in the future as consumers continue to seek out value alternatives and as our customers in this channel continue to open new doors. We have customers located outside the United States that purchase our Maidenform ® , Flexees ® and Lilyette ® brands. The majority of the net sales to these customers are included in the department stores and national chain stores channel.

Mass Merchants. The mass merchant channel includes both mass merchants and warehouse clubs. We intend to improve our penetration with mass merchants through the use of our brands Sweet Nothings ® , Bodymates ® , and Self Expressions ® as well as private brands. We have experienced significant growth in this channel over the past several years and expect to achieve growth in the future as we are able to increase both the floor space and number of doors in which our products are sold. We expect that both our net sales to this channel and our net sales to this channel as a percentage of our total net sales is likely to increase over time. The volume and mix of net sales of our brands and of private label in the mass merchant channel can vary from period to period based upon strategic changes that our customers may implement from time to time. Net sales to customers in the mass channel that are located outside the United States are included in this channel.

Other. Our net sales from this channel, which include sales to specialty retailers and to off-price retailers, have historically been a relatively small component of our overall net sales. We participate in private brands in the specialty retailer area as opportunities present themselves. We continually evaluate this channel for opportunities. Licensing income, as well as sales to foreign distributors, are included in this channel.

We will selectively target strategic acquisitions or a brand start-up to grow our consumer base and would utilize the acquired companies to complement the products, channels and geographic reach of our existing portfolio. We believe that acquisitions could enhance our product offerings to retailers and provide potential growth. We believe we can leverage our core competencies such as product development, brand management, logistics and marketing to create significant value from the acquired businesses. The opportunity to license designer brands is also a potential opportunity for us.

Retail Segment

We believe our retail sales volume is driven by our ability to service our existing consumers and obtain new consumers, as well as overall general economic conditions, such as the general retail environment, that can affect our consumers and ultimately their levels of overall spending. Additionally, identifying optimal retail outlet locations, favorable leasing arrangements, and improving our store productivity are factors important to growing our retail segment’s net sales. We also sell our products through our websites, www.maidenform.com and www.maidenform.co.uk . Although we currently do not generate a significant amount of net sales through these sites, we do expect it to continue to grow.

Our objectives in our retail segment are to continue to increase the productivity of our portfolio of stores through effective merchandising and focused advertising, as well as selectively closing less productive locations and potentially opening new stores in more productive locations. Even in those situations where we selectively close less productive outlet stores and do not open a new location in that region, we believe those consumers still purchase many of our Maidenform brands from our other outlet stores, our websites or our wholesale segment customers that carry these brands. Historically, we have primarily sold excess and, to a lesser extent, obsolete inventories through our outlet stores at a higher margin than that achieved through other liquidation alternatives.

Definitions

In reviewing our operating performance, we evaluate both the wholesale and retail segments by focusing on each segment’s operating income, cash flows from operations and inventory turns.

Net Sales . Our net sales are derived from two operating segments, wholesale and retail. Our net sales in the wholesale segment are recorded net of cooperative advertising allowances, sales returns, sales discounts, and markdown allowances provided to our customers. Net sales in our retail segment are recognized at the time the customer takes possession of the merchandise at the point-of-sale in our stores and for our internet sales, net sales are recognized when the products are shipped and title passes to the customer.

Cost of Sales . We outsource all manufacturing of the products we sell and, therefore the principal elements of our cost of sales are for finished goods inventories purchased from our sourced vendors. Included in cost of sales and affecting our overall gross margins are freight expenses from the manufacturers to our distribution centers and duty and related expenses in situations where such expenses are charged separately. Also included in cost of sales is the cost of warehousing, labor and overhead related to receiving and warehousing at our distribution centers, and depreciation of assets related to our receiving and warehousing in our distribution centers. Direct labor, cost of fabrics, as well as raw materials for fabrics, are the primary components driving the overall cost of our sourced finished goods inventories from our sourcing vendors.

Selling, General and Administrative Expenses (SG&A). Our SG&A includes all of our marketing, selling, distribution and general and administrative expenses for both the wholesale and retail segments (which include our retail outlet store payroll and related benefits), and rent expense. General and administrative expenses include management payroll, benefits, travel, information systems, accounting, insurance and legal. Additionally, depreciation related to the shipping function in our distribution centers and our corporate office assets such as furniture, fixtures, and equipment, as well as amortization of intellectual property, is included in SG&A.

Income Taxes. We account for income taxes using the liability method, which recognizes the amount of income tax payable or refundable for the current year and recognizes deferred tax liabilities and assets for the future tax consequences of the events that have been recognized in the financial statements or tax returns. We routinely evaluate all deferred tax assets to determine the likelihood of their realization and record a valuation allowance if it is more likely than not that a deferred tax asset will not be realized. For more information, see notes to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Net operating loss carryforwards (NOLs) enable a company to apply net operating losses incurred during a current period against a future period's profits in order to reduce cash tax liabilities in those future periods. In periods when a company is generating operating losses, its NOLs will increase. The tax effect of the NOLs is recorded as a deferred tax asset. If the company does not believe that it is more likely than not that it will be able to utilize the NOLs, it records a valuation allowance against the deferred tax asset. Additionally, Section 382 of the Internal Revenue Code ("Section 382") imposes limitations on a corporation's ability to utilize its NOLs if it experiences an "ownership change." In general terms, an ownership change results from transactions increasing the ownership of certain existing stockholders and, or, new stockholders in the stock of a corporation by more than 50 percentage points during a three year testing period. Any unused annual limitation may be carried over to later years, and the amount of the limitation may, under certain circumstances, be increased to reflect both recognized and deemed recognized "built-in gains" that occur during the 60-month period after the ownership change. Upon emergence from bankruptcy in 1999, our NOLs were subject to Section 382 limitations. As a result of the acquisition in 2004, we experienced a change in control as defined by Section 382. As a result of this ownership change, the utilization of our NOLs were subject to a new annual limitation under Section 382. Subsequent to the acquisition, sales of our shares have resulted in additional changes in control for the purpose of Section 382; however, the annual limitation of our NOLs has not changed. At December 30, 2006, we had approximately $62.8 million of book NOLs available for utilization in the years from 2007 through 2023.

Net Sales

Consolidated net sales decreased by $13.6 million, or 12.0%, from $113.8 million for the three months ended September 30, 2006 to $100.2 million for the three months ended September 29, 2007. Consolidated net sales decreased by $5.4 million, or 1.6%, from $331.8 million for the nine months ended September 30, 2006 to $326.4 million for the nine months ended September 29, 2007.

Wholesale segment net sales decreased by $14.0 million, or 14.5%, from $96.5 million for the three months ended September 30, 2006 to $82.5 million for the three months ended September 29, 2007. Total international sales, which are included in the wholesale segment, increased by $2.1 million, or 26.9%, from $7.8 million for the three months ended September 30, 2006 to $9.9 million for the three months ended September 29, 2007, primarily from product assortment expansion in countries such as Mexico, Canada and Germany. Our department stores and national chain stores channel net sales decreased by $6.5 million, or 11.1%, from $58.3 million for the three months ended September 30, 2006 to $51.8 million for the three months ended September 29, 2007. Solid performance in our new shapewear brand, Control It TM , did not offset the unfavorable sales environment which affected certain product replenishment orders from customers in this channel. Our mass merchant channel net sales decreased by $5.0 million, or 19.7%, from $25.4 million for the three months ended September 30, 2006 to $20.4 million for the three months ended September 29, 2007 reflecting the continued transition throughout 2007 of re-intensifying our Self Expressions ® brand from a private brand with one mass customer. Additionally, we had fewer sales from a warehouse club customer in the third quarter of 2007, largely reflecting the timing of a program launch that occurred in the comparable year-ago period. Partially offsetting the net decrease in the mass merchant channel was continued expansion of our Sweet Nothings ® brand with one mass customer both domestically and internationally, particularly in full-figure bras and shapewear. Other channel net sales, which include sales to specialty retailers, off-price retailers and licensing income, decreased by $2.5 million, or 19.5%, from $12.8 million for the three months ended September 30, 2006 to $10.3 million for the three months ended September 29, 2007. This decrease was due to a non-recurring private brand program with a specialty retailer in the year-ago period, although partially offset by an increase in licensing income and liquidation sales.

Net sales in our wholesale segment decreased by $4.8 million, or 1.7%, from $289.5 million for the nine months ended September 30, 2006 to $284.7 million for the nine months ended September 29, 2007. International sales increased $5.4 million, or 24.5%, from $22.0 million for the nine months ended September 30, 2006 to $27.4 million for the nine months ended September 29, 2007. The growth in international sales was largely driven by strong sales in countries such as Mexico, Canada and the U.K. Of the $4.8 million decrease in wholesale segment net sales during the nine months ended September 29, 2007, $3.7 million was from decreased sales in the department stores and national chain stores channel driven by the unfavorable sales environment that affected certain product replenishment orders from customers, partially offset by solid performance from our Lilyette ® brand and our new shapewear brand, Control It TM . An additional $1.0 million decrease came from mass merchants, primarily as a result of lower sales of private label with the re-intensification of our Self Expressions ® brand. Additionally, we had fewer sales from a warehouse club customer in the third quarter of 2007, largely reflecting the timing of a program launch that occurred during the third quarter 2006. Partially offsetting the decrease is the continued expansion of our Sweet Nothings ® brand with one customer, particularly in full-figure bras and shapewear.

Net sales in our retail segment increased $0.4 million, or 2.3%, from $17.3 million for the three months ended September 30, 2006 to $17.7 million for the three months ended September 29, 2007. Net sales in our retail segment decreased $0.6 million, or 1.4%, from $42.3 million for the nine months ended September 30, 2006 to $41.7 million for the nine months ended September 29, 2007. We had 78 outlet stores as of September 29, 2007 compared to 77 outlet stores as of September 30, 2006. Same stores sales, defined as sales from stores open for more than one year, for the three-month period ended September 29, 2007 increased 2.2% due to higher sales in Lilyette ® and Maidenform ® bras, in addition to focused product promotions. For the nine-month period ended September 29, 2007, same stores sales decreased 2.2%. Our internet sales decreased by $0.1 million from $1.1 million for the three months ended September 30, 2006 to $1.0 million for the three months ended September 29, 2007. Our internet sales increased by $0.3 million from $2.6 million for the nine months ended September 30, 2006 to $2.9 million for the nine months ended September 29, 2007.

Gross Profit

Consolidated gross profit decreased by $2.4 million, or 5.6%, from $42.8 million for the three months ended September 30, 2006 to $40.4 million for the three months ended September 29, 2007. However, as a percentage of net sales, consolidated gross margins increased by 270 basis points from 37.6% for the three months ended September 30, 2006 to 40.3% for the three months ended September 29, 2007. Consolidated gross profit increased by $1.9 million, or 1.5%, from $124.9 million during the nine months ended September 30, 2006 to $126.8 million for the nine months ended September 29, 2007. As a percentage of net sales, gross profit increased by 120 basis points from 37.6% for the nine months ended September 30, 2006 to 38.8% for the nine months ended September 29, 2007.

Gross profit as a percentage of net sales for the wholesale segment increased 260 basis points from 34.1% for the three months ended September 30, 2006 to 36.7% for the three months ended September 29, 2007. This increase was a result of both customer and product mix, including a higher percentage of net sales from our department stores and national chain stores channel, as well as cost improvements in gross margin from our sourcing initiatives. Gross profit as a percentage of net sales for the wholesale segment was 34.8% for the nine months ended September 30, 2006 as compared to 36.2% for the nine months ended September 29, 2007. This increase of 140 basis points is primarily a result of the reasons mentioned above.

Gross profit for the retail segment was 57.2% for the three months ended September 30, 2006 as compared to 57.1% for the three months ended September 29, 2007, and 57.0% for the nine months ended September 30, 2006 as compared to 56.6% for the nine months ended September 29, 2007. This decrease for the nine months ended September 29, 2007 was largely driven by a change in the overall product mix and was partially offset by cost improvements from our sourcing initiatives.

Selling, General and Administrative Expenses (SG&A)

Consolidated SG&A increased by $0.1 million, or 0.4%, from $25.7 million for the three months ended September 30, 2006 to $25.8 million for the three months ended September 29, 2007. As a percentage of net sales, SG&A increased from 22.6% for the three months ended September 30, 2006 to 25.7% for the three months ended September 29, 2007.

SG&A for our wholesale segment, which includes corporate-related expenses, increased by $0.1 million, or 0.5%, from $18.3 million for the three months ended September 30, 2006 to $18.4 million for the three months ended September 29, 2007. As a percentage of net sales, wholesale segment SG&A increased from 19.0% for the three months ended September 30, 2006 to 22.3% for the three months ended September 29, 2007. The increase of $0.1 million is a result of increased workers’ compensation and medical expenses of $0.9 million associated with increased claims in 2007 and increased other expenses of $0.6 million. Partially offsetting these increases were a decrease in advertising expense of $0.7 million due to decreased media spending in the period as we retained a new advertising agency and will launch a new campaign scheduled for spring 2008, and decreased pension expense of $0.7 million associated with the pension plan freeze. Retail SG&A for the three months ended September 29, 2007 remained unchanged when compared to the same period last year.

Consolidated SG&A decreased by $5.6 million, or 7.3%, from $77.1 million for the nine months ended September 30, 2006 to $71.5 million for the nine months ended September 29, 2007. As a percentage of net sales, SG&A decreased from 23.2% for the nine months ended September 30, 2006 to 21.9% for the nine months ended September 29, 2007. Consolidated SG&A for the nine months ended September 29, 2007 included a non-cash pension curtailment gain of $6.1 million as discussed below.

SG&A for our wholesale segment, which includes corporate-related expenses and the pension curtailment gain, decreased by $5.9 million, or 10.4%, from $56.5 million for the nine months ended September 30, 2006 to $50.6 million for the nine months ended September 29, 2007. Our pension plan was frozen effective January 1, 2007 for current employee participants and closed to new entrants. In connection with this freeze, we recognized a non-cash curtailment gain of $6.1 million and reported in our wholesale segment SG&A. Wholesale segment SG&A, excluding this curtailment gain, increased slightly by $0.2 million, or 0.4%, to $56.7 million for the nine months ended September 29, 2007. A s a percentage of net sales, excluding this curtailment gain, wholesale segment SG&A increased from 19.5% for the nine months ended September 30, 2006 to 19.9% for the nine months ended September 29, 2007. The increase of $0.2 million is a result of increased workers’ compensation and medical expenses of $2.6 million associated with increased claims in 2007 and increased other expenses of $1.1 million. Partially offsetting these increases were decreased pension expense of $1.8 million associated with the pension plan freeze, decreased advertising expense of $1.1 million due to decreased media spending as discussed above, and decreased fees of $0.6 million associated with Sarbanes-Oxley compliance. Retail SG&A increased by $0.3 million, or 1.5%, from $20.6 million for the nine months ended September 30, 2006 to $20.9 million for the three months ended September 29, 2007 as a result of one additional outlet store.

Operating Income

Our consolidated operating income decreased by $2.5 million, or 14.6%, from $17.1 million for the three months ended September 30, 2006 to $14.6 million for the three months ended September 29, 2007. Our consolidated operating income increased by $7.5 million, or 15.7%, from $47.8 million for the nine months ended September 30, 2006 to $55.3 million for the nine months ended September 29, 2007. Excluding the curtailment gain mentioned above, operating income for the nine months ended September 29, 2007 increased $1.4 million, or 2.9%, to $49.2 million.

For the foregoing reasons, operating income for the wholesale segment decreased by $2.7 million, or 18.5%, from $14.6 million for the three months ended September 30, 2006 to $11.9 million for the three months ended September 29, 2007. Operating income for the wholesale segment increased by $8.3 million, or 18.7%, from $44.3 million during the nine months ended September 30, 2006 to $52.6 million during the nine months ended September 29, 2007. Excluding the curtailment gain mentioned above, operating income for the nine months ended September 29, 2007 increased $2.2 million, or 5.0%, to $46.5 million.

Also, for the reasons discussed above, operating income for the retail segment increased by $0.2 million, or 8.0%, from $2.5 million for the three months ended September 30, 2006 to $2.7 million for the three months ended September 29, 2007. The retail segment’s operating income decreased by $0.8 million from $3.5 million during the nine months ended September 30, 2006 to $2.7 million for the nine months ended September 29, 2007.

Interest Expense, Net

Interest expense, net, decreased by $0.8 million, or 36.4%, from $2.2 million for the three months ended September 30, 2006 to $1.4 million for the three months ended September 29, 2007 reflecting the benefit of lower average debt outstanding and a lower average interest rate for the current quarter when compared to the same period last year. The average balance of total debt outstanding decreased from $122.9 million for the three months ended September 30, 2006 to $92.1 million for the three months ended September 29, 2007, and the average interest rate during the three months ended September 30, 2006 was 6.8% as compared to an average interest rate of 6.6% during the three months ended September 29, 2007.

Interest expense, net, increased $1.3 million, or 20.3%, from $6.4 million for the nine months ended September 30, 2006 to $7.7 million for the nine months ended September 29, 2007. The increase was a result of expensing deferred financing costs of $2.4 million as a result of refinancing our credit facility on June 15, 2007, as discussed below. This increase was partially offset by reduced interest expense resulting from lower average debt outstanding for the nine-month period ending September 29, 2007 compared to the nine-month period ending September 30, 2006. The average balance of total debt outstanding decreased from $130.1 million for the nine months ended September 30, 2006 to $103.2 million for the nine months ended September 29, 2007. The average interest rate during the nine months ended September 30, 2006 was 6.4% as compared to a an average interest rate of 6.7% during the nine months ended September 29, 2007.

Income Tax Expense

We review our annual effective tax rate on a quarterly basis and we make necessary changes if information or events warrant such changes. The annual effective tax rate is forecasted quarterly using actual historical information and forward-looking estimates. The estimated annual effective tax rate may fluctuate due to changes in forecasted annual operating income; changes to the valuation allowance for deferred tax assets (such changes would be recorded discretely in the quarter in which they occurred); changes to actual or forecasted permanent book to tax differences; impacts from future tax settlements with state, federal or foreign tax authorities (such changes would be recorded discretely in the quarter in which they occurred); or impacts from tax law changes (to the extent such changes affect our deferred tax assets/liabilities, these changes would generally be recorded discretely in the quarter in which they occurred). Our effective income tax rate for the three and nine-month periods ended September 29, 2007 was 40.9% and 41.5%, respectively, as compared to an effective income tax rate for the three and nine-month periods ended September 30, 2006 of 40.4% and 40.7%, respectively. This increase in the effective income tax rate was primarily the result of Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN No. 48), “Accounting for Uncertainty in Income Taxes.”

Because of significant net operating loss carryforwards (NOLs) available to offset income taxes payable, our cash income taxes to be paid will be at a rate lower than our effective income tax rate.

Net Income

For the foregoing reasons, our net income decreased by $1.1 million from $8.9 million for the three months ended September 30, 2006 to $7.8 million for the three months ended September 29, 2007. Our net income increased by $3.4 million from $24.5 million for the nine months ended September 30, 2006 to $27.9 million for the nine months ended September 29, 2007. Excluding the curtailment gain and the expensing of the deferred financing costs mentioned above, net income for the nine-month period ended September 29, 2007 increased $1.2 million, or 4.9%, when compared to the same period last year.

Liquidity and Capital Resources

Operating activities. Cash flows provided by operating activities were $32.3 million for the nine months ended September 29, 2007 compared to $12.4 million for the nine months ended September 30, 2006. This increase was primarily driven by changes in working capital. Accounts receivable for the nine months ended September 29, 2007 increased $8.7 million compared to an increase of $22.6 million for the nine months ended September 30, 2006, the change of which was a result of the timing of cash collections and lower wholesale net sales during the third quarter of 2007. Accounts payable for the nine months ended September 29, 2007 increased $15.0 million compared to an increase of $7.3 million for the nine months ended September 30, 2006 and was primarily a result of supply chain and sourcing initiatives. Income tax payable for the nine months ended September 29, 2007 decreased $0.5 million compared to an increase of $5.1 million for the nine months ended September 30, 2006, and was primarily due to higher required estimated tax payments in the current year.

Investing activities. Cash flows used in investing activities were $4.5 million for the nine months ended September 29, 2007 compared to $1.7 million for the nine months ended September 30, 2006. Capital expenditures for the nine months ended September 29, 2007 increased by $2.8 million when compared to the nine months ended September 30, 2006 due primarily to information technology upgrades and construction expenditures related to the relocation of our company headquarters.

Financing activities. Cash flows used in financing activities were $27.6 million for the nine months ended September 29, 2007 compared to $25.2 million for the nine months ended September 30, 2006. The increase in cash flows used in financing activities was primarily due to the prepayments on our long term debt.

On June 15, 2007, we entered into a credit agreement, consisting of a 7-year, $100.0 million amortizing first lien term loan (the “Term Loan”) and a 5-year, $50.0 million revolving loan facility (the “Revolving Loan,” and together with the Term Loan, the “Credit Facility”). The Revolving Loan provides for direct borrowings and issuance of stand-by letters of credit on our behalf. We use the letters of credit as collateral for our workers’ compensation insurance programs and bonds issued on our behalf to secure our obligation to pay customs duties. Borrowings are limited by the borrowing base, which consists of 85.0% of eligible accounts receivable and 50.0% of eligible inventory. We used the proceeds from the borrowings, together with available cash on hand, to repay all amounts due under our existing credit facility.
Additional fees are payable under the Credit Facility including (i) a fee on outstanding letters of credit equal to the margin over LIBOR applicable to the Revolving Loan, (ii) a letter of credit fronting fee equal to 0.25% per annum on the daily amount available to be drawn under outstanding letters of credit and (iii) an unused line fee on the maximum principle amount undrawn under the Revolving Loan ranging from 0.15% to 0.35% determined quarterly based on our leverage ratio for the preceding four fiscal quarters.

At September 29, 2007, we had $89.7 million outstanding under our Term Loan, and $0 outstanding under our Revolving Loan with $47.7 million available for borrowings under the Revolving Loan, after giving effect to $2.3 million of outstanding letters of credit. Principal payments on the Term Loan are payable in quarterly installments of $0.3 million commencing on September 28, 2007, with all remaining amounts due on the maturity date. We are permitted to voluntarily prepay all or part of the principal balance of the Term Loan with such prepayments applied to scheduled principal payments in inverse order of their maturity. The borrowings and other obligations under the Credit Facility and the guarantees are collateralized by a first priority perfected lien, subject to certain permitted liens, on substantially all of the personal property assets and certain real property of the borrower and guarantors. We were in compliance with all debt covenants at September 29, 2007.

In connection with the Credit Facility, we paid fees of $1.1 million. For the three and nine-month periods ended September 29, 2007, amortization of financing costs included in interest expense was $0.1 million and $2.9 million, respectively, which includes the write-off of deferred financing costs of $2.4 million as a result of refinancing our Credit Facility.

On August 7, 2007, the Board of Directors increased our stock repurchase program by an additional $12.6 million. As a result of this increase, we are currently authorized to repurchase up to $25.0 million of common stock. Through September 29, 2007, we repurchased $7.0 million of common stock at an average price per share of $16.67, and subsequent to that date we repurchased an additional $3.3 million of common stock leaving $14.7 million of common stock authorized to be repurchased. The stock repurchase program, which is open ended, will allow us to repurchase our shares on the open market, depending on market conditions and other corporate considerations, from available cash flow and borrowings under the Revolving Loan. All shares will be purchased at prevailing market prices. Prior to the new authorization on August 7, 2007, we had purchased a total of $7.6 million of our common stock under the stock repurchase program.

We believe that our existing cash balances and available borrowings under our Revolving Loan, along with our future cash flow from operations, will enable us to meet our liquidity needs and capital expenditure requirements for at least the next 12 months.

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