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. and its subsidiaries' (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," and "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 2011 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 related to:

• General economic factors and political conditions, including risks related to recent acquisitions and investments;

• Liquidity;

• Supply chain;

• Competition;

• Customers;

• Intellectual property;

• Personnel;

• Regulatory matters; and

• Technology.

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.

ABOUT THE COMPANY

The Company designs, sources and sells branded kitchenware, tabletop and other products used in the home. The Company's product categories include two categories of products that people use to prepare, serve and consume foods, Kitchenware (kitchen tools and gadgets, cutlery, cutting boards, bakeware and cookware) and Tabletop (dinnerware, flatware and glassware); and one category, Home Solutions, which comprises other products used in the home (food storage, pantryware, spices and home décor). Net sales of Kitchenware products and Tabletop products accounted for approximately 79% of the Company's net sales in 2011. Creative Tops, acquired in November 2011, is a UK-based company through which the Company will manage its European business. The Company markets several product lines within each of its product categories and under most of the Company's brands, primarily targeting moderate to premium price points through every major level of trade. The Company believes it possesses certain competitive advantages based on its brands, its emphasis on innovation and new product development and its sourcing capabilities. The Company owns or licenses a number of the leading brands in its industry including Farberware®, Mikasa®, KitchenAid®, Pfaltzgraff®, Elements ®, Cuisinart®, Melannco® and V&A ®. Historically, the Company's sales growth has come from expanding product offerings within its product categories, by developing existing brands, acquiring new brands and establishing new product categories. Key factors in the Company's growth strategy have been 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 teams that create new products, packaging and merchandising concepts.

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 Retail Direct segment in which the Company markets and sells a limited selection of its products to consumers through its Pfaltzgraff ®, Mikasa®, Housewares Deals™ and Lifetime Sterling™ Internet websites.

INVESTMENTS

The Company owns approximately 30% of the outstanding capital stock of Vasconia, a leading Mexican housewares company. 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, net of taxes, as equity in earnings in the Company's consolidated statements of operations. Pursuant to a Shares Subscription Agreement (the "Agreement"), the Company may designate four persons to be nominated as members of Vasconia's Board of Directors. The Agreement also provides a mechanism whereby, through December 2012, the Company is able to acquire from certain shareholders of Vasconia a controlling interest in Vasconia; subject to such shareholders electing not to sell their interest and, instead, acquiring the Company's shares or Vasconia repurchasing the Company's shares. Shares of Vasconia's capital stock are traded on the Bolsa Mexicana de Valores, the Mexican Stock Exchange (www.bmv.com.mx). The Quotation Key is VASCONI.

In December 2011, the Company acquired a 40% equity interest in GSI. GSI is a leading wholesale distributor of branded housewares products in Brazil. The company markets dinnerware, glassware, home décor, kitchenware and barware to customers including: major department stores, housewares retailers and independent shops throughout Brazil. The Company accounts for its investment in GSI using the equity method of accounting and has recorded its proportionate share of GSI's net income, net of taxes, as equity in earnings in the Company's consolidated statements of operations. Pursuant to a Shareholders' Agreement, the Company has the right to designate three persons (including one independent person, as defined) to be appointed as members of GSI's Board of Directors. GSI's Board of Directors is comprised of seven members (including two independent members).

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 2011 and 2010 net sales for the third and fourth quarters accounted for 59% and 60% 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.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no material changes to the Company's critical accounting policies and estimates discussed 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 for the year ended December 31, 2011.

RESULTS OF OPERATIONS

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



                                                              Three Months Ended
                                                                  March  31,
                                                              2012           2011
 Net sales                                                      100.0 %       100.0 %
 Cost of sales                                                   62.9          63.6

 Gross margin                                                    37.1          36.4
 Distribution expenses                                           10.8          11.9
 Selling, general and administrative expenses                    23.4          24.5

 Income from operations                                           2.9            -
 Interest expense                                                (1.6 )        (2.2 )

 Income (loss) before income taxes and equity in earnings         1.3          (2.2 )
 Income tax (provision) benefit                                  (0.5 )         0.6
 Equity in earnings, net of taxes                                 0.4           0.5

 Net income (loss)                                                1.2 %        (1.1 )%

Net Sales

Net sales for the three months ended March 31, 2012 were $109.0 million, an increase of $17.2 million, or 18.7%, as compared to net sales of $91.8 million for the corresponding period in 2011.

Net sales for the Wholesale segment for the three months ended March 31, 2012 were $103.3 million, an increase of $18.4 million or 21.7%, as compared to net sales of $84.9 million for the corresponding period in 2011. Net sales for the Company's Kitchenware product category were $55.6 million for the three months ended March 31, 2012, an increase of $11.7 million, or 26.7%, as compared to $43.9 million for the corresponding period in 2011. The increase in the Company's Kitchenware product category was primarily attributable to successful new programs during the period as compared to the corresponding period in 2011. Net sales for the Company's Tabletop product category were $23.4 million for the three months ended March 31, 2012, a decrease of $3.9 million, or 14.3%, as compared to $27.3 million for the corresponding period in 2011. The Tabletop product category sales decrease was primarily attributable to the absence, in the 2012 quarter, of sales of excess sterling silver finished goods inventory and a major rollout of dinnerware each of which occurred in the 2011 quarter. Net sales for the Company's Home Solutions product category were $13.0 million for the three months ended March 31, 2012, a decrease of $0.7 million, or 5.1%, as compared to $13.7 million for the corresponding period in 2011. The decrease in sales for the Company's Home Solutions product category was due to the continued category weakness. Net sales in the 2012 quarter also include $11.3 million from Creative Tops, which was acquired in November 2011.

Net sales for the Retail Direct segment for the three months ended March 31, 2012 were $5.7 million, a decrease of $1.2 million, or 17.4%, as compared to $6.9 million for the corresponding period in 2011. The decrease was primarily attributable to the Company's decision to terminate its consumer print catalog during the second quarter of 2011 and a reduction in promotional activities.

Gross margin

Gross margin for the three months ended March 31, 2012 was $40.5 million, or 37.1%, as compared to $33.4 million, 36.4%, for the corresponding period in 2011.

Gross margin for the Wholesale segment was 35.4% for the three months ended March 31, 2011 as compared to 34.0% for the corresponding period in 2011. The increase in gross margin primarily reflects changes in product mix and the absence of sales of excess sterling silver finished goods inventory.

Gross margin for the Retail Direct segment was 68.6% for the three months ended March 31, 2012 as compared to 66.4% for the corresponding period in 2011. The increase in gross margin reflects less promotional activities.

Distribution expenses

Distribution expenses for the three months ended March 31, 2012 were $11.7 million as compared to $10.9 million for the corresponding period in 2011. Distribution expenses as a percentage of net sales were 10.8% for the three months ended March 31, 2012 as compared to 11.9% for the corresponding period in 2011.

Distribution expenses as a percentage of sales for the Wholesale segment shipped from the Company's warehouse located in the United States were 9.8% as compared to 10.9% for the corresponding period in 2011. The improvement resulted from an increase in sales from warehouses, improved labor management and lower facility expense, especially for our New Jersey facility which benefited from the mild winter weather.

Distribution expenses as a percentage of net sales for the Retail Direct segment were approximately 30.6% for the three months ended March 31, 2012 as compared to 28.7% for the corresponding period in 2011. A substantial portion of distribution expenses are fixed and, therefore, cannot be reduced to offset a reduction in sales volumes.

Selling, general and administrative expenses

Selling, general and administrative expenses for the three months ended March 31, 2012 were $25.5 million, an increase of 13.3%, as compared to $22.5 million for the corresponding period in 2011. Excluding the expenses of Creative Tops, SG&A increased $0.6 million.

Selling, general and administrative expenses for the three months ended March 31, 2012 for the Wholesale segment were $20.4 million, an increase of $3.4 million, or 20.0%, from $17.0 million for the corresponding period in 2011. The increase was primarily due to the inclusion of Creative Tops. As a percentage of net sales, selling, general and administrative expenses improved to 19.7% for the three months ended March 31, 2012 compared to 20.0% for the corresponding period in 2011.

Selling, general and administrative expenses for the three months ended March 31, 2012 for the Retail Direct segment were $2.2 million as compared to $2.7 million for the corresponding period in 2011. The decrease was primarily attributable to lower expenses related to the consumer print catalog and, to a less extent, lower sales.

Unallocated corporate expenses for the three months ended March 31, 2012 and 2011 were $2.9 million and $2.8 million, respectively. The increase was primarily attributable to employee related expenses.

Interest expense

Interest expense for the three months ended March 31, 2012 was $1.7 million as compared to $2.0 million for the corresponding period in 2011. While borrowings were higher in the current quarter due to recent acquisitions, they were more than offset by lower average interest rates, reflecting the retirement of the Company's Convertible Notes in July 2011.

Income tax provision

The income tax provision for the three months ended March 31, 2012 was $0.6 million as compared to a $0.6 million benefit for the corresponding period in 2011. The Company's effective tax rate for the three months ended March 31, 2012 was 38.3% as compared to a benefit of 29.4% for the loss in the 2011 period. In the 2011 period, the reduced benefit rate was due to losses in certain jurisdictions for which no benefit could be recorded for financial reporting purposes.

Equity in earnings

Equity in the earnings of Vasconia, net of taxes, was $0.5 million for the three months ended March 31, 2012 and 2011. Vasconia reported income from operations for the three months ended March 31, 2012 and 2011 of $3.3 million and net income of $2.0 million for the three months ended March 31, 2012 as compared to $2.1 million for the three months ended March 31, 2011.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal sources of cash to fund liquidity needs are: (i) cash provided by operating activities and (ii) borrowings available under its revolving credit facility. The Company's primary uses of funds consist of working capital requirements, capital expenditures and payments of principal and interest on its debt.

Revolving Credit Facility

The Company has a $150.0 million secured credit agreement (the "Revolving Credit Facility"), which matures on October 28, 2016, with a bank group led by JPMorgan Chase Bank, N.A.

At March 31, 2012, borrowings outstanding under the Revolving Credit Facility were $56.5 million and open letters of credit were $1.2 million.

Borrowings under the Revolving Credit Facility bear interest, at the Company's option, at one of the following rates: (i) the Alternate Base Rate, defined as the greater of the Prime Rate, Federal Funds Rate plus 0.5% or the Adjusted LIBOR rate plus 1.0%, plus a margin of 1.0% to 1.75%, or (ii) the Eurodollar Rate, defined as the Adjusted LIBOR Rate plus a margin of 2.0% to 2.75%. The respective margins are based upon availability. Interest rates on outstanding borrowings at March 31, 2012 ranged from 2.75% to 4.75%. In addition, the Company pays a commitment fee of 0.375% to 0.50% on the unused portion of the Revolving Credit Facility. Availability under the Revolving Credit Facility was approximately $72.1 million, or 48%, of the total loan commitment at March 31, 2012.

The Company classified a portion of the Revolving Credit Facility as a current liability based on the Company's intent and ability to repay the loan from cash flows from operations for within the year. Repayments and borrowings under the facility can vary significantly from planned levels based on cash flow needs and general economic conditions. The Company expects that it will continue to borrow and repay funds, subject to availability, under the facility based on working capital and other corporate needs.

Term Loan

The Company has a $40.0 million second lien credit agreement (the "Term Loan"), which matures on June 8, 2015, with Citibank, N.A.

The Term Loan bears interest, at the Company's option, at one of the following rates: (i) the Alternate Base Rate, defined as the greater of the corporate rate published by the lender and the Federal Funds Rate plus 0.50% provided that such calculated rate is a minimum of 2.50%, plus a margin of 7.50%, or (ii) the Adjusted LIBOR rate which shall be a minimum of 1.50%, plus a margin of 8.50%. The interest rate on the outstanding borrowings at March 31, 2012 was 10.0%.

The Term Loan requires the Company to have EBITDA, as defined, of not less than $31.0 million for the trailing four fiscal quarters through March 31, 2012 and limits capital expenditures to $8.0 million for the year ended December 31, 2012. The Company was in compliance with these financial covenants at March 31, 2012.

The Company's Consolidated EBITDA for the four quarters ended March 31, 2012 was $41.6 million, as follows:

Consolidated EBITDA for the four quarters ended

                                  March 31, 2012
                                  (in thousands)
                Three months ended March 31, 2012         $  6,222
                Three months ended December 31, 2011        14,342
                Three months ended September 30, 2011       13,524
                Three months ended June 30, 2011             7,512

                Total for the four quarters               $ 41,600

Capital expenditures for the three months ended March 31, 2012 were $0.5 million.

Non-GAAP financial measure

Consolidated EBITDA is a non-GAAP financial measure within the meaning of Regulation G promulgated by the U.S. Securities and Exchange Commission. The following is a reconciliation of the net income (loss) as reported to Consolidated EBITDA for the three months ended March 31, 2012 and 2011:

                                                     Three Months Ended
                                                         March  31,
                                                     2012           2011
                                                       (in thousands)
          Net income (loss) as reported            $   1,344       $  (949 )
          Subtract out:
          Undistributed equity earnings, net            (398 )        (465 )
          Add back:
          Income tax provision (benefit)                 588          (588 )
          Interest expense                             1,698         1,979
          Depreciation and amortization                2,207         1,995
          Stock compensation expense                     698           748
          Permitted acquisition related expenses          85            -

          Consolidated EBITDA                      $   6,222       $ 2,720

Operating activities

Cash provided by operating activities was $3.3 million for the three months ended March 31, 2012 as compared to cash used in operating activities of $3.7 million for the corresponding period in 2011. The increase was primarily attributable to an increase in net income and a reduction from the timing of income tax and other payments in the three months ended March 31, 2012 as compared to the corresponding period in 2011.

Investing activities

Cash used in investing activities was $0.5 million for the three months ended March 31, 2012 as compared to $1.0 million for the corresponding period in 2011. The decrease in investing activities related to equipment purchases for the Company's distribution facilities and certain product development technology enhancements in 2011 which did not recur in 2012.

Financing activities

Cash used in financing activities was $1.4 million for the three months ended March 31, 2012 as compared to $2.9 million provided by financing activities for the 2011 period. The Company used cash flows from operations to repay $1.1 million of debt in the 2012 period compared to incurring debt of $2.9 million in the corresponding period in 2011. The Company also paid a dividend of $0.3 million in the three months ended March 31, 2012.