This Quarterly Report on Form 10-Q contains "forward-looking statements" as defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements include information concerning Lifetime Brands, Inc.'s (the "Company's") plans, objectives, goals, strategies, future events, future revenues, performance, capital expenditures, financing needs and other information that is not historical information. Many of these statements appear, in particular, in Management's Discussion and Analysis of Financial Condition and Results of Operations. When used in this Quarterly Report on Form 10-Q, the words "estimates," "expects," "anticipates," "projects," "plans," "intends," "believes" and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements, including, without limitation, the Company's examination of historical operating trends, are based upon the Company's current expectations and various assumptions. The Company believes there is a reasonable basis for its expectations and assumptions, but there can be no assurance that the Company will realize its expectations or that the Company's assumptions will prove correct.

There are a number of risks and uncertainties that could cause the Company's actual results to differ materially from the forward-looking statements contained in this Quarterly Report. Important factors that could cause the Company's actual results to differ materially from those expressed as forward-looking statements are set forth in the Company's 2008 Annual Report on Form 10-K in Part I, Item 1A under the heading Risk Factors. Such risks, uncertainties and other important factors include, among others:

• Risks associated with indebtedness;

• Changes in general economic and business conditions which could affect customer payment practices or consumer spending;

• Customer credit risks;

• The Company's dependence on third-party foreign sources of supply and foreign manufacturing;

• Changes in demand for the Company's products and the success of new products;

• Industry trends;

• The level of competition in the Company's industry;

• Fluctuations in costs of raw materials;

• Increases in costs relating to manufacturing and transportation of products;

• Complexities associated with a multi-channel and multi-brand business;

• The Company's relationship with key licensors;

• Encroachments on the Company's intellectual property;

• The Company's relationship with key customers;

• Product liability claims or product recalls;

• The timing of delivery of products to customers;

• Departure of key personnel;

• Internal development of products by the Company's customers;

• Noncompliance with applicable regulations including the Sarbanes-Oxley Act of 2002;

• Risks associated with the Company's diret-to-consumer operations;

• Future acquisitions and integration of acquired businesses;

• Technological risks;

• Network security risks; and

• The seasonal nature of the Company's business.

There may be other factors that may cause the Company's actual results to differ materially from the forward-looking statements. Except as may be required by law, the Company undertakes no obligation to publicly update or revise forward-looking statements which may be made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events.

The Company is one of North America's leading resources for nationally branded food preparation, tabletop and home décor products. The Company's three major product categories are Food Preparation, Tabletop and Home Décor. The Company markets several product lines within each of these product categories and under each of the Company's brands, primarily targeting moderate to premium price points, through every major level of trade. The Company's competitive advantage is based on availability and use of its brands, an emphasis on innovation and new product development and sourcing capabilities. The Company owns or licenses a number of the leading brands in its industry including Farberware®, KitchenAid®, Cuisinart®, Pfaltzgraff® and Mikasa®. Historically, the Company's sales growth has come from expanding product offerings within the Company's current categories by developing existing brands, and acquiring new brands and product categories. Key factors in the Company's growth strategy have been, and will continue to be, the selective use and management of the Company's brands, and the Company's ability to provide a stream of new products and designs. A significant element of this strategy is the Company's in-house design and development team that creates new products, packaging and merchandising concepts.

EFFECTS OF THE CURRENT ECONOMIC ENVIRONMENT

The Company's financial performance in 2008 and 2009 has been negatively affected by unfavorable global economic conditions. Continued or further deteriorating economic conditions would likely have an adverse impact on the Company's sales volumes, pricing levels and profitability for the balance of 2009. As economic conditions change, trends in discretionary consumer spending also become unpredictable and subject to reductions due to uncertainties about the future. If consumers reduce discretionary spending, purchases of the Company's products may also decline. A general reduction in consumer discretionary spending due to the recession or uncertainties regarding future economic prospects could continue to have a material adverse effect on the Company's financial condition and results of operations. Further, due to the related credit crisis, the Company believes that available sources of liquidity to the Company are currently limited. However, the Company believes that availability under the Credit Facility and cash flows from operations will be sufficient to fund the Company's operations and that it will remain in compliance with the Credit Facility covenants. If circumstances were to adversely change, the Company would seek to improve its liquidity by taking actions such as to further lower its inventory and reduce expenses. Additionally, the Company may need to further amend or seek waivers under the Credit Facility and/or seek other sources of liquidity. However, there can be no assurance that any such efforts would be successful or that the results of any such efforts would be adequate. Finally, the combined effects of the economic downturn and credit crisis have had a significant impact on the Company's retail partners and in certain cases resulted in bankruptcies and eventual liquidation. The Company closely monitors the creditworthiness of its customers. Based upon the evaluation of changes in customers' creditworthiness, the Company may modify credit limits and/or terms of sale. The Company has not been materially affected by the bankruptcy or liquidation of any of its customers to date. However, notwithstanding the Company's efforts to monitor its customers' financial condition, the Company may be materially affected in the future.

2009 INFLUENZA OUTBREAK

In April 2009, public health authorities reported an outbreak of influenza that has the potential to become pandemic and in July 2009, a pandemic was officially declared. A severe and prolonged outbreak may have a significant negative effect on overall economic activity, including the demand for the Company's products. In response to such an outbreak, public health authorities may recommend that people stay at home or call for employers to close facilities. Significant absenteeism or closing the Company's facilities would have an adverse effect on the Company's business. The Company has not experienced any negative impact as a result of the pandemic during the six months ended June 30, 2009. However, the Company is unable to predict the effect the pandemic may have on the Company's business in the future.

BUSINESS SEGMENTS

The Company operates in two reportable business segments; the wholesale segment which is the Company's primary business that designs, markets and distributes its products to retailers and distributors, and the direct-to-consumer segment, through its Pfaltzgraff® and Mikasa® Internet websites and the Company's Pfaltzgraff® mail-order catalogs. During the 2008 period, the Company also operated retail stores utilizing the Pfaltzgraff® and Farberware® names that were included in the direct-to-consumer segment. However, the Company ceased operating these retail stores by December 31, 2008.

In June 2008, the Company acquired the business and certain assets of Mikasa, Inc. Net sales from Mikasa® during the three and six month periods ended June 30, 2009 were $9.8 million and $18.9 million, respectively.

INVESTMENT IN GRUPO VASCONIA, S.A.B.

The Company owns approximately 30% of the capital stock of Grupo Vasconia, S.A.B. ("Vasconia"), a manufacturer and distributor of aluminum disks, cookware and related items. Shares of Vasconia capital stock are traded on the Bolsa Mexicana de Valores, S.A. de C.V., the Mexico Stock Exchange, under the symbol VASCONI.MX. The Company accounts for its investment in Vasconia using the equity method of accounting and has recorded its proportionate share of Vasconia's net income for the three and six month periods ended June 30, 2009 and 2008, net of taxes, as equity in earnings of Grupo Vasconia, S.A.B.

RESTRUCTURING EXPENSES

During the three and six months ended June 30, 2009, the Company recognized restructuring and non-cash impairment charges of $(663,000) and $161,000, respectively, in connection with its restructuring plan that began in September 2008. The restructuring charges consisted of adjustments to reflect decisions by the Company not to vacate certain leased space that the Company had expected to vacate and not to terminate the employment of certain employees, whose employment the Company had expected to terminate, and additional charges, primarily for lease obligations, during the period. In addition, the Company adjusted certain impairment charges that were recognized in 2008 related to the restructuring plan as the result of the decision not to vacate certain leased space that Company had expected to vacate and recognized additional impairment charges related to certain space that was vacated during the quarter. The plan was commenced by the Company to exit its retail store business that was historically not profitable. All of the Company's retail stores were closed by the end of 2008.

GOODWILL, INTANGIBLE ASSETS AND OTHER LONG-LIVED ASSETS

In 2008, due primarily to the significant decline in the Company's market capitalization, the Company recognized non-cash impairment charges of $29.4 million in accordance with Statement of Financial Accounting Standards ("SFAS") No.142, Goodwill and Other Intangible Assets. As a result of the impairment, the Company wrote off the entire balance of goodwill and reduced the carrying amount of its indefinite-lived intangibles by $2.0 million. On a quarterly basis, due to the uncertain economic environment, the Company continues to assess all of its long-lived assets for impairment. The results of these quarterly assessments have not resulted in any additional impairment charges during the six months ended June 30, 2009.

INVENTORY REDUCTION PLAN

The Company has had an inventory reduction plan in effect since 2007. The plan includes reducing the number of products offered for sale and to shorten the period between inventory procurement and sale to the customer. Consistent with this plan, the Company has been selling slower moving inventory at lower than regular gross margin levels. The plan was developed to increase efficiency by reducing the capital invested in inventory and substantially reducing third-party warehousing and related expenses. The plan has, in certain cases, negatively impacted the Company's gross margins and may negatively impact the Company's gross margins in the future. The Company believes this plan has been successful and it expects to continue its inventory reduction efforts for the foreseeable future.

SEASONALITY

The Company's business and working capital needs are highly seasonal, with a majority of sales occurring in the third and fourth quarters. In 2008, 2007 and 2006, net sales for the third and fourth quarters accounted for 61%, 61% and 65% of total annual net sales, respectively. In anticipation of the pre-holiday shipping season, inventory levels increase primarily in the June through October time period.

EFFECT OF ADOPTION OF ACCOUNTING PRINCIPLE

Effective January 1, 2009, the Company adopted the provisions of FASB Staff Position Accounting Principles Board ("APB") No. 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) ("FSP APB 14-1") on a retrospective basis. FSP APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash, or other assets, on conversion (including partial cash settlement), to separately account for the liability (debt) and equity (conversion option) components in a manner that reflects the issuer's non-convertible debt borrowing rate with the resulting debt discount amortized as additional non-cash interest expense over the life of the convertible debt. Accordingly, the accompanying December 31, 2008 condensed consolidated balance sheet and June 30, 2008 condensed consolidated statement of operations and cash flows have been adjusted to reflect the application of the provisions of FSP APB 14-1.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Other than the adoption of FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement), described in Notes A and F to the condensed consolidated financial statements, there have been no material changes to the Company's critical accounting policies and estimates from the information provided in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates included in the Company's Annual Report on Form 10-K dated December 31, 2008.

RESULTS OF OPERATIONS

The following table sets forth statement of operations data of the Company as a
percentage of net sales for the periods indicated:



                                                       Three Months Ended         Six Months Ended
                                                            June 30,                  June 30,
                                                       2009          2008        2009       2008
Net sales                                               100.0 %       100.0 %     100.0 %   100.0 %
Cost of sales                                            62.3          59.8        63.4      60.3
Distribution expenses                                    11.1          13.9        11.7      13.7
Selling, general and administrative expenses             25.8          33.8        25.9      32.7
Restructuring expenses                                   (0.8 )         0.1         0.1       1.6
Income (loss) from operations                             1.6          (7.6 )      (1.1 )    (8.3 )
Interest expense                                         (3.4 )        (2.9 )      (3.3 )    (2.8 )
Loss before income taxes and equity in earnings of
Grupo Vasconia, S.A.B.                                   (1.8 )       (10.5 )      (4.4 )   (11.1 )
Income tax benefit (provision)                           (0.4 )         5.7        (0.2 )     5.4
Equity in earnings of Grupo Vasconia, S.A.B., net
of taxes                                                  0.6           0.8         0.5       0.5
Net loss                                                 (1.6 ) %      (4.0 ) %    (4.1 ) %  (5.2 ) %

Net Sales

Net sales for the three months ended June 30, 2009 were $85.3 million, a decrease of 7.7% compared to net sales of $92.4 million for the 2008 period.

Net sales for the wholesale segment for the three months ended June 30, 2009 were $80.9 million, an increase of $1.0 million or 1.3% compared to net sales of $79.9 million for the 2008 period. On a comparable basis, adjusting 2009 net sales of Mikasa®, which was acquired on June 6, 2008, to reflect net sales only for the period after June 6, 2009, the same post acquisition period as 2008, net sales for the Company's wholesale segment were $74.6 million for the three months ended June 30, 2009, a decrease of $5.3 million or 6.6% compared to net sales for the 2008 period. Net sales for the Company's food preparation product category decreased approximately $0.8 million. The decrease was primarily attributable to lower sales volume due to the liquidation of a significant customer in 2008 and the planned effect of a change in the Company's relationship with Accent-Fairchild Group, a Canadian company that had previously served as the Company's distributor in Canada and now operates a portion of its business as Lifetime Brands Canada. The Company's share of the operating profit of Lifetime Brands Canada is included in net sales. Net sales in the Company's tabletop product category, excluding Mikasa®, decreased approximately $2.7 million, primarily as a result of lower inventory reduction plan volume. Net sales in the Company's home décor product category decreased approximately $1.4 million due to lower volume including the Company's elimination of certain low margin business. Net sales of other wholesale products declined by $0.4 million, primarily due to the disposal of a product line.

Net sales for the direct-to-consumer segment for the three months ended June 30, 2009 were $4.4 million compared to $12.5 million for the 2008 period. On a comparable basis, excluding (a) net sales related to Mikasa® of $0.6 million for the three months ended June 30, 2009, to reflect net sales for the same post acquisition period as 2008, and (b) 2008 period net sales from the Company's retail stores of $7.2 million that were closed by the end of 2008, net sales for the direct-to-consumer segment were $3.8 million for the three months ended June 30, 2009 compared to $5.3 million for the 2008 period. The Company attributes the decrease in net sales on a comparable basis for the direct-to-consumer segment to the weak retail sales environment.

Cost of sales

Cost of sales for the three months ended June 30, 2009 were $53.1 million compared to $55.3 million for the 2008 period. Cost of sales as a percentage of net sales was 62.3% for the three months ended June 30, 2009 compared to 59.8% for the 2008 period.

Cost of sales as a percentage of net sales for the wholesale segment was 64.0% for the three months ended June 30, 2009 compared to 63.0% for the 2008 period. The decrease in gross margin was primarily attributable to a shift in product mix.

Cost of sales as a percentage of net sales for the direct-to-consumer segment decreased to 29.2% for the three months ended June 30, 2009 from 40.0% for the 2008 period. The increase in gross margin was primarily due to the elimination of the retail outlet stores.

Distribution expenses for the three months ended June 30, 2009 were $9.5 million compared to $12.8 million for the 2008 period. Distribution expenses as a percentage of net sales were 11.1% for the three months ended June 30, 2009 and 13.9% for the 2008 period.

Distribution expenses as a percentage of net sales for the wholesale segment were 9.7% for the three months ended June 30, 2009 compared to 12.6% for the 2008 period. The decrease was primarily attributable to the closure of the Company's York, Pennsylvania distribution center in 2009, and the elimination of
(a) duplicative costs incurred while the Company consolidated its West Coast distribution centers in the 2008 period and (b) additional distribution costs incurred in the 2008 period as the Company transitioned the Mikasa® business, collectively which accounted for approximately 1.6% of the decrease in distribution expenses as a percentage of net sales, and improved labor efficiencies realized during the three months ended June 30, 2009 of approximately 1.3% as a percentage of net sales.

Distribution expenses as a percentage of net sales for the direct-to-consumer segment were approximately 37.9% for the three months ended June 30, 2009 compared to 21.6% for the 2008 period. The increase is primarily attributable to the effect of closing the Company's retail stores, which did not incur the high level of freight and labor costs associated with fulfilling individual orders incurred by the Company's Internet and catalog businesses.

Selling, general and administrative expenses

Selling, general and administrative expenses for the three months ended June 30, 2009 were $22.0 million, a decrease of 29.5% from $31.2 million for the 2008 period.

Selling, general and administrative expenses for the three months ended June 30, 2009 for the wholesale segment were $17.7 million, a decrease of $3.0 million or 14.5% from the $20.7 million for the 2008 period. As a percentage of net sales, selling, general and administrative expenses were 21.9% for the three months ended June 30, 2009 compared to 25.9% for the 2008 period. The decrease was primarily attributable to additional costs incurred in the 2008 period for transitional services related to Mikasa® of approximately $1.1 million with the balance due to the Company's expense reduction efforts.

Selling, general and administrative expenses for the three months ended June 30, 2009 for the direct-to-consumer segment were $2.0 million compared to $7.7 million for the 2008 period. The decrease was attributable to the elimination in the 2009 period of the costs associated with the Company's retail outlet stores which were $5.1 million in the 2008 period and a reduction in the number of catalogs mailed to consumers.

Unallocated corporate expenses for the three months ended June 30, 2009 and 2008 were $2.3 million and $2.8 million, respectively. The decrease was primarily attributable to a decrease in professional fees and stock option expenses.

Restructuring expenses

During the three months ended June 30, 2009, the Company recorded restructuring expenses and non-cash impairment charges related to the Company's restructuring initiative that commenced in the third quarter of 2008 totaling $(663,000), consisting principally of: (a) adjustments to reflect decisions by the Company not to vacate certain leased space that the Company had expected to vacate and not to terminate the employment of certain employees, whose employment the Company had expected to terminate, offset in part by additional charges, primarily for lease obligations recognized during the three months ended June 30, 2009, (b) adjustments to certain impairment charges that were recognized in 2008 as the result of the decision not to vacate certain leased space that Company had expected to vacate and offset in part by impairment charges related to space that was vacated during the three months ended June 30, 2009.

Interest expense for the three months ended June 30, 2009 was $2.9 million compared to $2.7 million for the 2008 period. The increase in interest expense was attributable to higher interest rates during the three months ended June 30, 2009, primarily as the result of an increase in the applicable margin rates under the Company's Credit Facility due to the March 2009 amendment. The increase was offset in part by lower average borrowings during the three months ended June 30, 2009 compared to the 2008 period.

Income tax benefit (provision)

The income tax provision for the three months ended June 30, 2009 was $0.3 million compared to an income tax benefit of $5.3 million for the 2008 period. The Company's effective tax rate in the 2009 period reflects a reduction in the valuation allowance recoverable against certain deferred tax assets and a provision for minimum state taxes.

Net Sales

Net sales for the six months ended June 30, 2009 were $175.5 million, a decrease of 7.9% compared to net sales of $190.6 million for the 2008 period.

Net sales for the wholesale segment for the six months ended June 30, 2009 were $164.5 million, an increase of $4.3 million or 2.7% compared to net sales of $160.2 million for the 2008 period. On a comparable basis, adjusting 2009 net sales of Mikasa®, which was acquired on June 6, 2008, to reflect net sales only for the period after June 6, 2009, the same post acquisition period as 2008, net sales for the wholesale segment were $149.9 million for the six months ended June 30, 2009, a decrease of $10.3 million or 6.4% compared to the 2008 period. Net sales for the Company's food preparation product category decreased approximately $5.9 million. The decrease was primarily attributable to lower sales volume due to the liquidation of a significant customer in 2008 and the planned effect of a change in the Company's relationship with Accent-Fairchild Group, a Canadian company that had previously served as the Company's distributor in Canada and now operates a portion of its business as Lifetime Brands Canada. The Company's share of the operating profit of Lifetime Brands Canada is included in net sales. Net sales in the Company's tabletop product category, excluding Mikasa®, decreased approximately $2.4 million primarily as the result of lower sales of luxury tabletop items, which management attributes to the weak economy and its impact on consumer spending. Net sales in the Company's home décor product category decreased approximately $1.3 million due primarily to the Company's elimination of certain low margin business. Net sales of other wholesale products declined by $0.7 million, primarily due to the disposal of a product line.

Net sales for the direct-to-consumer segment for the six months ended June 30, 2009 were $11.0 million compared to $30.4 million for the 2008 period. Excluding 2008 period net sales attributable to the retail stores that the Company closed by the end of 2008 of $18.9 million and sales related to Mikasa® of $1.4 million, to reflect net sales for the same post acquisition period as 2008, sales for the direct-to-consumer segment for the six months ended June 30, 2009 were $9.6 million compared to $11.5 million in the 2008 period. The Company attributes the decrease in net sales on a comparable basis for the direct-to-consumer segment to the weak retail sales environment.

Cost of sales for the six months ended June 30, 2009 were $111.3 million compared to $114.9 million for the 2008 period. Cost of sales as a percentage of net sales was 63.4% for the six months ended June 30, 2009 compared to 60.3% for the 2008 period.

Cost of sales as a percentage of net sales for the wholesale segment was 65.5% . . .