Welcome to the Lifetime Brands second quarter 2008 earnings conference call. (Operator Instructions) I would now like to turn the conference over to Harriet Fried, LHA.

Thank you for joining Lifetime Brands’ second quarter 2008 conference call. With us today from management are Jeff Siegel, Chairman, President and Chief Executive Officer, Larry Winoker, Senior Vice President and Chief Financial Officer, and Chris Kasper, Senior Vice President, Corporate Development. Before we begin I’ll read the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. The statements that are about to be made in this conference that are not historical factors are forward-looking statements and involve risks and uncertainties including but not limited to product demand and market acceptance risks, the effects of economic conditions, the impact of competitive products and pricing, product developments, commercialization, technological difficulties, capacity constraints or difficulties, the results of financing efforts, the effects of the company’s accounting policies, and other factors contained in the filings of the company with the SEC. The company undertakes no obligation to update these forward-looking statements. With that introduction, I’d like to turn the call over to Mr. Siegel.

As I mentioned in our last earnings call, the quarter ended March 31, 2008 was one of the most difficult periods that I can remember. In early April however, our order flow began to improve and sales results for the quarter ended June 30 improved compared to the first quarter. You’ll recall that in the first quarter Lifetime’s net wholesale sales were down almost 10% compared to the prior year. By contrast, in the second quarter net wholesale sales excluding Mikasa were just about on par with last year reflecting a good strength in our kitchenware and home décor businesses offset by lower sales elsewhere. The addition of Mikasa’s net wholesale sales for the last three weeks of June enabled us to report a 3.2% increase in total net wholesale sales over last year’s quarter. As I outlined in our last call, our strategy for these difficult times is to focus on innovation and to develop strong promotional offerings in all of our product categories. When consumer spending is constrained, retailers rely on those vendors who can offer great products at exceptional value. So we’re making very sure that Lifetime offers both the innovation and the promotions retailers need. With those overall comments on our approach and strategy, let me run through some of Lifetime’s key initiatives. First, we introduced a new line of durable environmentally friendly kitchenware products made from a bio-plastic blend that contains significantly less petroleum than ordinary plastics. Second, we’re continuing with our introduction of our good line of food prep products under the Vasconia brand which is targeted to the fast growing Hispanic consumer in this country. Third, we’ve introduced a line of large kitchen trash cans offering a great brand, exclusive design features, sleek styling, and competitive pricing. While each of these introductions is…

Net sales for the second quarter 2008 were $92.4 million, an increase of approximately 1% from the 2007 period. Net loss was $3.2 million or $0.27 per diluted share in 2008 compared to a loss of $2 million or $0.15 per diluted share in the 2007 period. For our wholesale segment net sales were $79.9 million for the second quarter of 2008, an increase of $2.5 million from the 2007 period. This increase resulted from the inclusion of Mikasa since it was acquired in early June. In addition strength in the kitchenware division and home décor categories were offset by lower volume from other food preparation divisions and the tabletop category. In the direct to consumer segment net sales were $12.5 million for the 2008 quarter versus $13.9 million in the 2007 period. However on a comparable basis, that is excluding the sales of the 30 stores closed earlier this year, 2008 period sales were up by approximately $1 million reflecting increased Internet and catalog sales which benefited from the earlier release in 2008 of the Spring/Summer catalog. On a consolidated basis, cost of sales for the second quarter 2008 was 59.8% of net sales compared to 56.8% in 2007. Our wholesale segment’s cost of sales was 63% in 2008 compared to 60.7% in 2007. What appears as a reduction of overall gross margin in fact was due to our continued effort to reduce inventory levels. In the direct to consumer segment cost of sales was 40% in 2008 compared to 35.3% in 2007. The increase as a percent of sales primarily resulted from lower margins from increased promotional activity and higher freight-in expense. Distribution expenses were 13.9% of sales in the 2008 quarter compared to 12.8% in 2007. In the wholesale segment distribution expenses increased to 12.6% versus 11.8%…

My remarks today will focus on two areas: The Mikasa acquisition and DTC. First, turning to Mikasa. The entire Lifetime team is very excited about our recent acquisition of this business. As Jeff mentioned Mikasa is one of the best known and most respected brands in the home and commands a leadership position in better quality dinnerware and glassware. The business has very healthy gross profit margins and when combined with our existing tabletop businesses, we expect 2009 wholesale sales for the division to be in excess of $150 million. It also has a meaningful but still underdeveloped e-commerce business. The addition of the brand makes Lifetime one of the leading resources for tabletop products. We were pleased with the terms of the purchase and think our disciplined approach to valuation resulted in getting an excellent value. The purchase price totaled $20 million consisting of $12.3 million of cash paid at closing, the assumption of $2.7 million of accounts payable, and $5 million of cash subject to certain adjustments to be paid on December 15, 2008 as a nonrefundable advance against an additional payment in the amount equal to 5% of the annual net sales of Mikasa’s post closing business for 2009, 2010 and 2011. The purchase price included all of the intellectual property of the business and inventory valued at the seller’s cost of $26 million. Mikasa fits into our model of being a classic bolt on acquisition. With the exception of Mikasa’s Madison Avenue showroom, which is in a prime location, Lifetime did not acquire any long-term liabilities or facilities. As a result we entered into a transitional services agreement with the seller to provide both administrative and distribution services for a period of time. These services are not inexpensive but most of the administrative services ended in…

(Operator Instructions) Our first question comes from William Chappell - SunTrust Robinson Humphrey.

On the outlet stores, can you maybe give us a little more color on how your thinking’s changed just in the past three months and from that standpoint are we getting too late in the year to really do anything dramatic for the calendar 2008?

As Chris said, we’re in the process of evaluating it which we’re doing right now. We are not too late to take action to fix whatever is wrong in 2008. And I have to say that the stores were doing fairly well up through the end of May and actually through the first week of June, but since the first week in June traffic has been off, the outlet mall traffic as we’ve talked to a number of operators in outlet malls, the traffic is off, and our business is considerably worse. It was heading in the right track but now it’s not. I can’t say much more.

Any update in July?

It has stayed weak in July. It stayed weak in July and it’s continuing to stay weak.

With that in mind it sounds like you won’t get recoup the full benefit that you had hoped on that side of the business. What about on the bakeware/dinnerware business? How is that progressing for this year?

They’re two separate things. Bakeware is a separate division from dinnerware. I think you mean the dinnerware and glassware.

Exactly.

The dinnerware and glassware business is definitely making progress. It certainly will not, other than the Mikasa part of it, be profitable this year. It’s taken us longer than we thought, more than anything else because of the economy, but we believe we have the right team in place, we seem to be winning battles every day for getting placement next year which we’re working on now. We have very, very high hopes for that division. And putting the two together, the Mikasa business with the Pfalzgraff business and other brands makes it a very, very powerful division.

As you look to the fall with no longer having guidance, what can you do with the mindset that the consumer maybe or likely will be weak for the holiday season? Are you at a stage where you can cut back orders and hold the profitability or are you still kind of at the mercy of the retailers until we get to September/October?

We’re at the mercy of the consumer. It just flows through the retailers to us. Yes, we are as you know and you’ve seen, we’ve become very disciplined with inventories, we know how to manage inventories without hurting our fill rate which we’ve done. We’ve gotten I’d say very, very good at it a lot faster than I thought we would get. As far as doing more things, we continue to be working with retailers on promotions for the third and fourth quarter, primarily the fourth quarter at this point. The retailers still are somewhat optimistic but we’re less so. That’s why we felt we couldn’t give guidance. It’s like looking at this point into a crystal ball. It’s not something that I’ve seen before. I’ve been doing this for 41 years. I have never seen a retail climate quite as bad as this. As you saw in last quarter, we were holding our own in sales. But I have to tell you it’s a very, very difficult retail climate and there are unfortunately a number of retailers who are troubled - I mentioned a few - and we have to be very careful with the retailers that are troubled and therefore we’re a little concerned to say the least. We’re just being as careful as we can be. We’re certainly being very careful on expenses, being very careful on capital expenditures, trying to cut back wherever it won’t hurt the business, and we continue to run our business on the same model. We’re not going to have any fire sales or doing anything like that. That’s not in the plans.

Would that imply though that acquisitions are likely done for this year?

Yes, unless somebody wanted to give us a company. I don’t think we’ll be buying anything else for the rest of this year, no.

Our next question comes from Alvin C. Concepcion - Citigroup Global Markets.

You talked about DTC in July a little bit, but how did trends hold up in wholesale in July? It looked like there was an improvement sequentially in the second quarter.

For us it’s more difficult to see that. What’s happened as the retail economy has gotten weaker we’ve noticed very clearly that the retailers are ordering much closer to need. So our business is tending to shift later; later in the month, later in the quarter. So it’s very difficult for us to say how it will be for this quarter. We’re really having difficulty with it. Remember, our model is such that most of our orders come in with a very short window to ship, a week or two, actually less than that. For many customers it comes in with a window of three days, so we don’t have any - I shouldn’t say any - we have very few long-range orders which makes it a little more difficult for us to project.

How would you guys measure your market share at the retail level and also how comfortable are you with inventory levels at retail?

Our market share is increasing. If it wasn’t increasing, I think we would be severely negative in business, in sales. It’s increased this year. Our shelf space is increasing quite a bit it looks like for next year starting in the spring on top of that. So market share-wise we seem to be gaining. Inventory levels, we’re very comfortable with where our inventory levels are now and with the way we run our process and the way our systems are handling inventory, I’m pretty confident that we’ll bring the inventory down further by the end of the year. I think we’re managing this well.

Have you seen a benefit from the rebate checks or anything like that?

In my opinion, and this is strictly speculation on my part, it was very beneficial to the retailers we deal with in May and June. I think the benefit is going to fall off pretty quick. That’s opinion. I’m not an expert in this.

With the weak economy, are you seeing consumers trading down or just delaying purchases?

Yes, we have. We’ve seen consumers definitely trading down. Every level of consumer seems to be trading down to some degree. I guess the good part is that we cover every level of consumer. So if somebody wants to trade down from one of our brands to a little bit lower price point, we usually have the brand with a lower price point as well. But there’s no question in my mind that there is a trade-down happening out there with consumers.

Our next question comes from Derek W. Leckow - Barrington Research.

Mikasa, that’s quite an acquisition there. $20 million for $150 million in revenue.

No, no, that’s not the number.

Clarify that for me then.

Let me correct that. We haven’t given out Mikasa numbers so I can’t do that now. But it’s not $150 million. Our tabletop business in total is $150 million in sales.

What was the $150 million you referred to earlier? Was that for the whole category then?

$150 million is putting all of our tabletop businesses together.

That’s the whole tabletop. Okay.

Derek, for competitive reasons we’re reluctant to give specific brand level sales information. What we tried to do to give folks an order of magnitude for the size of the business was to combine the Mikasa business with the rest of our tabletop business including our Pfalzgraff wholesale business as well as our dinnerware and glassware under some of our other brands. And that all combined together for 2009 we’re expecting to be in excess of $150 million in sales.

Thanks for clarifying that. That makes much more sense now. And then, I want to get to the SG&A expenses because that’s something that we can control and we know what they are compared to the revenue expectations that you don’t really have much of a visibility on at this point. You guys have obviously consolidated the distribution, so as we look at the rest of the year on expenses did you say expect that to be down by about $1 million per quarter or what was the information you gave there?

I think you’re referring to the information we gave regarding our distribution consolidation in southern California where going from three distribution centers 24 months ago, in those two years we’ve eliminated the three that we had, opened up a new one in Fontana, consolidated all of our distribution in southern California in that facility, still have extra space, and have a $1 million per annum savings starting basically now in the third quarter. In the past two quarters, I should just point out that our distribution expenses as a percentage of sales were higher as a result of the transition going from those multiple facilities into the new Fontana facility because basically we’re paying double rent and having transitional expenses. So starting in the third quarter of this year, the current quarter, we expect to have that $1 million annual savings going forward.

[Inaudible] analyzed compared to last year, right? Not compared to the first half?

Yes. That’s correct.

Let me add one thing. What we’re doing is looking at the different pockets of SG&A within the company and we’ve identified other areas where we believe that we could have considerable savings that we’re working on both for this fall and for next year.

Also in the distribution area or what department?

In several areas and a lot of it has to do with our new-found ability to properly control inventories.

Getting to the inventory issue, the gross margin rate we saw through the first six months of the year I guess reflects some of that effort. Do you think we’ll see that gross margin rate go back up especially with all the new products you’re launching in Q4? What’s the directional guidance you can provide on gross margin from here forward?

I think it’s tough for us to do for this year. We are still liquidating some inventories that we feel we want to get ourselves into really proper shape in every one of our divisions, so that’s a little difficult to give you right now. Maybe at the next call we can give you a little more.

But is it fair to say that the new products, which is I guess going to be a record, that’s going to be a positive influence on the wholesale side.

New products for us always are at a slightly higher margin than our old products. It’s just the nature of things. They’re easier. It’s a lot easier to introduce a new product versus trying to raise the price on an old one although today retailers are pretty comfortable raising prices because materials have gone up so much and costs have gone up. But we’re finding that, and it’s always been the history of the company, new products are always for the most part at a higher gross margin level than old products.

On the direct to consumer, how telling is the first half of the year typically? In my view the first half of the year is kind of meaningless in those sorts of retail categories when you have so much more of your revenue shifted from seasonality into the back half of the year. So what do these trends really tell you right now?

We can still, probably easier in that business than any other, project where things are going to end up. And you’re right. Certainly we never expected to make money in the first half of the year with DTC but we expected the losses to be considerably less than they are.

I think Derek we have good visibility into what the back half of the year might look like for the DTC division, certainly much more than we do for the wholesale business; enough visibility for us based on year-to-date results and based on the plan that we have in place and how we’re tracking to that to be very clear about what we need to do to address the challenges in that division.

We really just need to worry about the wholesale business and sort of be conservative there. That’s kind of the message I’m hearing.

Yes, and the interesting thing about the wholesale business is the food prep businesses are more than holding their own in this economy, which is something I’ve experienced in the past in a recessionary period. Consumers buy basics. If they need a can opener, they’ll buy a can opener. If they need a knife, they’ll buy a knife. They tend to hold off on discretionary purchases and some of our businesses are more discretionary than others. So the ones that are less discretionary and are basic needs are doing much better than the ones that are more discretionary right now.

Just to follow up on the free cash flow, you guys are going from I think $19 million in cap ex last year to about $10 million. What’s the depreciation and amortization expectation for the year?

I would say it’s probably at the same run rate as year to date, so I would say it’s probably around $10 million.

Our next question comes from Quinton Maynard - Morehead Capital.

I wanted to visit the wholesale business a little bit more. As you’re talking about sales being up a little bit with the acquisition and you’re kind of feeling good about sales levels for the quarter and then to come through the quarter and have the wholesale division netting negative, I wanted to get a little more clarification on what expectations should be and if the reality is that the actual business for your wholesale products going forward is going to be smaller because we’re in a much longer period of conservative consumer spending, can this business be right sized such that on lower levels of revenue you’re able to still be profitable?

Yes. The short answer is yes. And that’s what we’re focusing on. We’re making sure that with anticipation on the economy not improving, not this year, not next year, we have to make sure that the company is profitable so that we are doing everything we can to make sure that we control or reduce our SG&A and certainly control our capital spending. We intend to do that. And keep in mind that Mikasa is accretive; it’ll be accretive this year and more so next year. We bought a business and took only 18 employees for that business and we’re not going to be using anything other than a showroom as far as facilities. Otherwise everything else is going into our showroom and being absorbed by our current infrastructure. So we’re doing whatever we can to optimize our current infrastructure and to make sure that the company is profitable.

It’s probably also worth pointing out, and we alluded to it in our prepared marks, that the Mikasa business even though we owned it for about a month in our second quarter results, we incurred very significant expenses associated with that in the form of distribution expenses as well as transitional service expenses basically to have the seller continue to operate the business for us until we could sort through the employees and do what needs to be done integrative. That’s now certainly from an administrative perspective behind us and so when you look at second quarter SG&A results they were impacted in a not insignificant way by the additional SG&A expense that is not going to be part of our go-forward business but was just a result of that transition.

The other thing I’m just trying to get my arms around are kind of some absolutes around the DTC business. I feel like this is I believe the fourth or fifth conference call where we’ve talked about the DTC business needing something different to come out of it. And I remember last year the conversation being that “We’re going to be able to give you some clarity by the end of the year. This is what’s going to happen with the business and it’s either going to be profitable or it’s going to be gone.” As the year ended it was not profitable or gone. You closed the stores that were not profitable at the store level and now we’re still not getting real positive view of what the expectations for this year are going to be in that business. Any clarity about, can you give us “It’s going to do X or it will be gone” even if that means we just close the stores? Just to have some confidence about exactly what’s going to happen there would really help us I think as investors.

That’s really not something we can discuss at this time. We want to do things in a proper manner and that would not allow us to do things in a proper manner. We’d be shooting ourselves in the head. We can’t discuss that at this point.

Our next question comes from [Gary Gibblon - Goldsmith & Harris]. [Gary Gibblon - Goldsmith & Harris]: How is business going outside the crummy US economy, i.e., Grupo Vasconia in Mexico and Canada as it develops for you?

We’re very happy with the results of our affiliates and equity interest in Grupo Vasconia in Mexico. The Mexican economy is in better shape than the US economy and that business is benefiting significantly as a result of the new products, brands and expertise that they are receiving from Lifetime and through our strategic alliance and using that as a platform for real significant growth in that market. So we’re very happy with them. We were just down there a couple weeks ago for the board meeting and they continue to perform consistent and above expectations, and we’re very pleased with the progress we’ve made there. The Canadian venture is still quite new. It’s just a couple of months old. We have been pleased with the progress that they have made in terms of ramping up that infrastructure and the activity to handle the brands and the product portfolios that they’re going to take to market in Canada. We are very optimistic that they can dramatically increase the sales that Lifetime had previously done in the Canadian market through our strategic alliance to really expand the opportunity there. So while that’s still in the early stages, we’ve gotten some good indications and they’ve made some good progress to date. [Gary Gibblon - Goldsmith & Harris]: Back in the US, is there any general destocking going on that affects you because of retailers being hard-pressed to cut costs and cut inventory?

Inventories are low. They’re the lowest I’ve ever seen them at retail. I guess it could be a good thing. There could be a lot of upside but I guess the consumer still has to go into the store and buy things. The weeks on hand and the retailers that we have more clarity and insight into and see what they have is considerably lower at this period than it was last year. [Gary Gibblon - Goldsmith & Harris]: Any push back from retailers to hold you up for more allowances or lower prices?

Definitely not lower prices. As everyone knows costs have gone up, raw materials have gone up considerably, labor, the exchange rate between the US dollar and the Chinese currency has changed. Retailers understand that. They want to remain margin neutral, as we do, and they work with their vendors. Otherwise they won’t have any vendors. So it’s something we work with them. It’s something that we work closely with our customers to make sure that the adjustments are made in an appropriate way that won’t hurt sales. [Gary Gibblon - Goldsmith & Harris]: At this point would you say retailers have given up on a good Christmas or could there be some renewed optimism that could then translate to a little order fluff?

I don’t see that they’ve given up. I’m sure you’ve seen the retail results that were announced this morning. There are some retailers who are doing very well and others who are not. And predictably, our business is growing faster with those that are doing well and it’s weaker with those that are not doing well. So I think some retailers are going to have an excellent year and others are going to have a very challenged year. The good thing is that Lifetime does business with every level of trade and I guess that could be a bad thing at times also. [Gary Gibblon - Goldsmith & Harris]: Do your results pretty much mirror the results that we see where the more discount oriented retailer is where the better sales are or does that translate necessarily to your category?

To a large degree, yes. Not 100% but to a large degree yes. The retailers that are doing well are buying more from us and we’re doing more business with those retailers. We’ve always done business with just about everyone who sells our categories and that’s not changing. The emphasis and the growth is coming in different places. And it’s also, as I mentioned earlier, it’s in different parts of our business. Certain parts of our business are not really affected by a recession. They’re really a function of need; the basic products. And we do well with them. Others that are more discretionary are a little more difficult. Consumers are putting off discretionary purchases.

Our next question comes from [Rick Federman - Federman Investment]. [Rick Federman - Federman Investment]: Can you tell me in, if there is such a thing as normal times, what percentage of accounts receivable are generally questionable or likely to be written off? They’re currently running close to 25%.

I don’t know if you’re reading that correctly. That amount you see on the balance sheet relates to customer deductions that they’re entitled to per agreement, cost advertising and the like. Our bad debt expense is very low. Obviously it’s been a little higher this year because of a couple of retailers that filed, but that amount that you see on the balance sheet relates to customer deductions. Valid customer deductions does not relate to bad debt. [Rick Federman - Federman Investment]: For those bankruptcies that we’re all familiar with, have those write-offs already been taken?

Yes. [Rick Federman - Federman Investment]: I didn’t see it, but what is the operating cash flow for the first half of the year?

The operating cash flow we’ll be reporting is a use of $11 million compared to $19 million use for last year. [Rick Federman - Federman Investment]: Are you currently in compliance with all your lending agreements?

Yes. [Rick Federman - Federman Investment]: I’m looking for reasons for maybe more confidence than I have right now, but it seems like there’s not a lot of cash on hand which is not unusual but the accounts receivable which will be coming in pretty much equal short-term debt from accounts payable, costs are increasing both in dollar terms as well as a percent of revenue, while revenues are flat at best. I’m just having a hard time figuring out where the money’s going to come from, operating money going let’s say six months from now, nine months from now assuming nothing wonderful happens in the economy?

Remember our cash generation period begins in the fourth quarter and goes into the first quarter 2009. So our outstanding borrowings declined significantly during that period. And that’s what you’re driving at. Obviously the business needs to improve but that’s when we should see that benefit and that number should come down substantially.

There are no further questions at this time.

Thanks for joining us on today’s call. As I described, our strategy is to focus on innovation and to offer strong promotional offerings in all our product categories. We think new branded product offerings at the right price and quality will drive our growth and the growth of our business. We’ll touch base with you again in another three months. Thank you.