UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 001-00091
 Furniture Brands International, Inc.
  
 Delaware
(State or other jurisdiction of incorporation or organization)
    
    43-0337683
(I.R.S. Employer Identification No.)
 1 North Brentwood Blvd., St. Louis, Missouri
(Address of principal executive offices)
    
    63105
(Zip Code)
 
  
  þ o
  o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
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Furniture Brands International, Inc.
Table of Contents
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Financial Statements (unaudited):Consolidated Balance Sheets:
    
    
    3September 30, 2009December 31, 2008Consolidated Statements of Operations:
    
    
    4Three Months Ended September 30, 2009Three Months Ended September 30, 2008Nine Months Ended September 30, 2009Nine Months Ended September 30, 2008Consolidated Statements of Cash Flows:
    
    
    6Nine Months Ended September 30, 2009Nine Months Ended September 30, 2008Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    27PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    28Item 1A. Risk Factors
    
    
    28Item 6. Exhibits
    
    
    29EX-31.1EX-31.2EX-32.1EX-32.2
   2




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##### 



PART I  FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 
 September 30,
    
    
    December 31,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    76,490
    
    
    $
    106,580Receivables, less allowances of $23,287 ($34,372 at December 31, 2008)
    
    
    130,876
    
    
    
    178,590Income tax refund receivable
    
    
    2,282
    
    
    
    38,090Inventories
    
    
    282,734
    
    
    
    350,026Prepaid expenses and other current assets
    
    
    11,264
    
    
    
    12,592Total current assets
    
    
    503,646
    
    
    
    685,878Property, plant, and equipment, net
    
    
    140,855
    
    
    
    150,864Trade names
    
    
    127,300
    
    
    
    127,300Other assets
    
    
    33,286
    
    
    
    35,476Total assets
    
    $
    805,087
    
    
    $
    999,518LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    
    
    
    $
    30,000Accounts payable
    
    
    68,622
    
    
    
    85,206Accrued employee compensation
    
    
    13,686
    
    
    
    49,082Other accrued expenses
    
    
    60,408
    
    
    
    63,214Total current liabilities
    
    
    142,716
    
    
    
    227,502Long-term debt
    
    
    102,000
    
    
    
    160,000Deferred income taxes
    
    
    28,566
    
    
    
    27,917Pension liability
    
    
    138,135
    
    
    
    137,199Other long-term liabilities
    
    
    70,761
    
    
    
    80,406Shareholders equity:Preferred stock, 10,000,000 shares authorized, no par value  none issued
    
    
    
    
    
    
    Common stock, 200,000,000 shares authorized, $1.00 stated value 
56,482,541 shares issued at September 30, 2009 and December 31, 2008
    
    
    56,483
    
    
    
    56,483Paid-in capital
    
    
    223,312
    
    
    
    224,419Retained earnings
    
    
    332,810
    
    
    
    376,515Accumulated other comprehensive loss
    
    
    (115,887
    )
    
    
    (116,988
    )Treasury stock at cost, 7,780,586 shares at September 30, 2009 and
7,704,764 shares at December 31, 2008
    
    
    (173,809
    )
    
    
    (173,935
    )Total shareholders equity
    
    
    322,909
    
    
    
    366,494Total liabilities and shareholders equity
    
    $
    805,087
    
    
    $
    999,518
  3




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Three Months Ended September 30,2009
    
    
    2008Net sales
    
    $
    293,662
    
    
    $
    412,753Cost of sales
    
    
    225,920
    
    
    
    345,631Gross profit
    
    
    67,742
    
    
    
    67,122Selling, general, and administrative expenses
    
    
    89,172
    
    
    
    129,209Operating loss
    
    
    (21,430
    )
    
    
    (62,087
    )Interest expense
    
    
    1,036
    
    
    
    2,940Other income (expense), net
    
    
    (190
    )
    
    
    1,386Loss before income tax expense (benefit)
    
    
    (22,656
    )
    
    
    (63,641
    )Income tax expense (benefit)
    
    
    880
    
    
    
    (21,920
    )Net loss
    
    $
    (23,536
    )
    
    $
    (41,721
    )Net loss per common share  basic and diluted:
    
    $
    (0.48
    )
    
    $
    (0.86
    )Weighted average shares of common stock outstanding  basic and diluted
    
    
    48,706
    
    
    
    48,794
  4




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##### 



Nine Months Ended September 30,2009
    
    
    2008Net sales
    
    $
    938,796
    
    
    $
    1,339,823Cost of sales
    
    
    729,085
    
    
    
    1,061,332Gross profit
    
    
    209,711
    
    
    
    278,491Selling, general, and administrative expenses
    
    
    248,401
    
    
    
    363,169Operating loss
    
    
    (38,690
    )
    
    
    (84,678
    )Interest expense
    
    
    4,336
    
    
    
    9,885Other income, net
    
    
    1,497
    
    
    
    4,703Loss from continuing operations before income tax expense (benefit)
    
    
    (41,529
    )
    
    
    (89,860
    )Income tax expense (benefit)
    
    
    2,176
    
    
    
    (27,891
    )Net loss from continuing operations
    
    
    (43,705
    )
    
    
    (61,969
    )Net earnings from discontinued operations
    
    
    
    
    
    
    29,920Net loss
    
    $
    (43,705
    )
    
    $
    (32,049
    )Earnings (loss) per common share  basic and diluted:Loss from continuing operations
    
    $
    (0.90
    )
    
    $
    (1.27
    )Earnings from discontinued operations
    
    $
    
    
    
    $
    0.61Net loss
    
    $
    (0.90
    )
    
    $
    (0.66
    )Weighted average shares of common stock outstanding  basic and diluted
    
    
    48,728
    
    
    
    48,720
  5




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Nine Months Ended September 30,2009
    
    
    2008Cash flows from operating activities:Net loss
    
    $
    (43,705
    )
    
    $
    (32,049
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation
    
    
    15,455
    
    
    
    18,784Compensation expense related to stock option grants and restricted stock
awards
    
    
    (971
    )
    
    
    3,146Provision (benefit) for deferred income taxes
    
    
    892
    
    
    
    (15,837
    )Gain on sale of discontinued operations
    
    
    
    
    
    
    (48,109
    )Other, net
    
    
    (317
    )
    
    
    (2,318
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    45,727
    
    
    
    56,683Income tax refund receivable
    
    
    35,808
    
    
    
    403Inventories
    
    
    70,100
    
    
    
    22,253Prepaid expenses and other assets
    
    
    2,628
    
    
    
    2,371Accounts payable and other accrued expenses
    
    
    (55,940
    )
    
    
    21,167Other long-term liabilities
    
    
    (7,852
    )
    
    
    (30
    )Net cash provided by operating activities
    
    
    61,825
    
    
    
    26,464Cash flows from investing activities:Acquisition of stores, net of cash acquired
    
    
    
    
    
    
    (11,304
    )Proceeds from the sale of business, net of cash sold
    
    
    
    
    
    
    73,359Proceeds from the disposal of assets
    
    
    3,941
    
    
    
    3,338Additions to property, plant, and equipment
    
    
    (7,846
    )
    
    
    (14,329
    )Net cash provided (used) by investing activities
    
    
    (3,905
    )
    
    
    51,064Cash flows from financing activities:Payments of long-term debt
    
    
    (88,000
    )
    
    
    (100,800
    )Restricted cash used for payment of long-term debt
    
    
    
    
    
    
    20,000Payments of cash dividends
    
    
    
    
    
    
    (5,844
    )Other
    
    
    (10
    )
    
    
    (8
    )Net cash used by financing activities
    
    
    (88,010
    )
    
    
    (86,652
    )Net decrease in cash and cash equivalents
    
    
    (30,090
    )
    
    
    (9,124
    )Cash and cash equivalents at beginning of period
    
    
    106,580
    
    
    
    118,764Cash and cash equivalents at end of period
    
    $
    76,490
    
    
    $
    109,640Supplemental disclosure:Cash payments (refunds) for income taxes, net
    
    $
    (35,088
    )
    
    $
    7,958Cash payments for interest expense
    
    $
    4,500
    
    
    $
    10,747
  6




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FURNITURE BRANDS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share information)
(unaudited)
 (1)  BASIS OF PRESENTATIONThe accompanying unaudited consolidated financial
statements of Furniture Brands International, Inc. and
its subsidiaries (the Company) have been prepared in
accordance with accounting principles generally
accepted in the United States (U.S. GAAP) and such
principles are applied on a basis consistent with those
reflected in our 2008 Annual Report on Form-10K, filed
with the Securities and Exchange Commission. The year
end balance sheet data was derived from audited
financial statements. The accompanying unaudited
consolidated financial statements include all
adjustments (consisting of normal recurring adjustments
and accruals) which management considers necessary for
a fair presentation of the results of the periods
presented. These consolidated financial statements do
not include all information and footnotes normally
included in financial statements prepared in accordance
with U.S. GAAP. These consolidated financial statements
should be read in conjunction with the consolidated
financial statements and accompanying notes included in
our Annual Report on Form 10-K for the year ended
December 31, 2008. The consolidated financial
statements consist of the accounts of our company and
its subsidiaries. All intercompany balances and
transactions have been eliminated in consolidation. In
preparing these consolidated financial statements as of
September 30, 2009, we performed an evaluation of
subsequent events through November 6, 2009, the filing
date of this Form 10-Q. The results for the three and
nine months ended September 30, 2009 are not
necessarily indicative of the results which will occur
for the full fiscal year ending December 31, 2009.The preparation of financial statements in accordance
with U.S. GAAP requires us to make estimates,
judgments, and assumptions, which we believe to be
reasonable, based on the information available. These
estimates and assumptions affect the reported amounts
of assets, liabilities, revenues, expenses, and related
disclosure of contingent assets and liabilities. Actual
results could differ from those estimates.In the first quarter of 2008, we sold Hickory Business
Furniture, a wholly owned subsidiary that designs and
manufactures business furniture. As a result, this
business unit has been reflected as a discontinued
operation in all periods presented, in accordance with
the Financial Accounting Standards Board (FASB)
Accounting Standards Codification Section 205-20
Discontinued Operations.
 (2)  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTSIn September 2006, the FASB issued a new standard for
fair value measurements which defines fair value,
establishes a framework for measuring fair value in U.
S. GAAP, and expands the disclosure requirements
regarding fair value measurements. The standard does
not introduce new requirements mandating the use of
fair value. The standard defines fair value as the
price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction
between market participants at the measurement date.
The definition is based on an exit price rather than an
entry price, regardless of whether the entity plans to
hold or sell the asset. The standard is effective for
financial statements issued for fiscal years beginning
after November 15, 2007, and interim periods within
those fiscal years. The required transition date for
this standard was delayed until fiscal years beginning
after November 15, 2008 for non-financial assets and
liabilities, except for those that are recognized or
disclosed at fair value in the financial statements on
a recurring basis. The adoption on January 1, 2008 of
the portion of the standard that was not delayed until
fiscal years beginning after November 15, 2008 did not
have a material effect on our financial position or
results of operations. The adoption of the remaining
provisions of the standard on January 1, 2009 did not
have a material effect on our financial position or
results of operations.In December 2007, the FASB issued a new standard for
business combinations that requires an acquiring entity
to recognize all the assets acquired and liabilities
assumed in a transaction at the acquisition-date fair
value with limited exceptions. This standard applies
prospectively to business combinations for which the
acquisition date is on or after the beginning of the
first annual reporting period beginning on or after
December 15, 2008. We adopted the provisions of this
standard on January 1, 2009. The adoption of this
standard did not affect our financial position or
results of operations.
 7




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In December 2007, the FASB issued a new standard for
noncontrolling interests in consolidated financial
statements. This standard establishes new accounting
and reporting requirements for the noncontrolling
interest in a subsidiary and for the deconsolidation of
a subsidiary. This standard is effective for fiscal
years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. The adoption
of this standard on January 1, 2009 did not affect our
financial position or results of operations.In December 2008, the FASB issued a new standard on
employers disclosures about postretirement benefit
plan assets. This standard enhances the required
disclosures related to postretirement benefit plan
assets including disclosures concerning a companys
investment policies for benefit plan assets, categories
of plan assets, fair value measurements of plan assets,
and concentrations of risk within plan assets. The
adoption of this standard will not affect our financial
position or results of operations as it will only
impact the disclosures in our annual report for the
fiscal year ended December 31, 2009.In June 2009, the FASB issued Statement of Financial
Accounting Standards No. 168 (SFAS 168), The FASB
Accounting Standards Codificationand
the Hierarchy of Generally Accepted     Accounting
Principles, a replacement of FASB Statement
No. 162. SFAS 168 establishes the FASB Accounting
Standards Codification (the Codification) as the
source of authoritative U.S. GAAP recognized by the
FASB to be applied by nongovernmental entities. Rules
and interpretive releases of the Securities and
Exchange Commission (SEC) under authority of federal
securities laws are also sources of authoritative U.S.
GAAP for SEC registrants. The codification does not
replace or affect guidance issued by the SEC. The
adoption of SFAS 168 did not affect our financial
position or results of operations.
 (3)
    
    FAIR VALUE OF FINANCIAL INSTRUMENTSWe consider the carrying amounts of cash and cash
equivalents, receivables, and accounts payable to
approximate fair value because of the short maturity of
these financial instruments.We consider the carrying value of amounts outstanding
under the Companys asset based loan to approximate
fair value because these amounts outstanding accrue
interest at rates which generally fluctuate with
interest rate trends.
 (4)
    
    ACQUISITIONSDuring the three months ended September 30, 2008, we acquired 12 stores from
three of our dealers for total consideration of $1,799. During the three months
ended June 30, 2008, we acquired four stores from two of our dealers for total
consideration of $764. During the three months ended March 31, 2008, we
acquired 15 stores and a warehouse from five of our dealers for total
consideration of $8,741. The acquisitions in the nine months ended September
30, 2008 were asset purchases consisting mainly of inventories and fixed assets
and the assumption of certain liabilities, primarily customer
deposits.The Consolidated Statement of Operations includes the results of operations of
the acquired stores from the date of their acquisition. The pro forma impact of
the acquisitions on prior periods is not presented because the impact to
operations is not material.
 8




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(5)
    
    RESTRUCTURING AND ASSET IMPAIRMENT CHARGESWe have been executing plans to reduce and consolidate our domestic
manufacturing capacity. Qualifying assets related to restructuring are included
in assets held for sale in Other Assets in the Consolidated Balance Sheets
until sold. Total assets held for sale were $10,075 at September 30, 2009 and
$10,017 at December 31, 2008. Included in the restructuring charges for the
three and nine months ended September 30, 2009 are expenses associated with our
29 closed retail store locations and severance costs which are primarily
associated with our manufacturing operations.Restructuring and asset
impairment charges were as follows:
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Restructuring charges:Facility costs to
shutdown, cleanup, and
vacate
    
    $
    
    
    
    $
    586
    
    
    $
    
    
    
    $
    586Termination benefits
    
    
    1,912
    
    
    
    1,713
    
    
    
    4,242
    
    
    
    1,787Closed store occupancy
and lease costs
    
    
    3,278
    
    
    
    9,929
    
    
    
    5,283
    
    
    
    23,349Loss (gain) on sale of
assets
    
    
    (208
    )
    
    
    768
    
    
    
    (383
    )
    
    
    (724
    )4,982
    
    
    
    12,996
    
    
    
    9142
    
    
    
    24,998Impairment charges
    
    
    628
    
    
    
    
    
    
    
    628
    
    
    
    267$
    5,610
    
    
    $
    12,996
    
    
    $
    9,770
    
    
    $
    25,265Statement of Operations
classification:Cost of sales
    
    $
    1,326
    
    
    $
    2,689
    
    
    $
    3,532
    
    
    $
    2,781Selling, general and
administrative
expenses
    
    
    4,284
    
    
    
    10,307
    
    
    
    6,238
    
    
    
    22,484$
    5,610
    
    
    $
    12,996
    
    
    $
    9,770
    
    
    $
    25,265
 Asset impairment charges were recorded to reduce the
carrying value of all idle facilities and related
machinery and equipment to their net realizable value.
The determination of the impairment charges were based
primarily upon (i) consultations with real estate
brokers, (ii) proceeds from recent sales of Company
facilities, and (iii) the market prices being obtained
for similar long-lived assets.Closed store occupancy and lease costs include
occupancy costs associated with closed retail
locations, early contract termination settlements for
retail leases during the period, and closed store lease
liabilities representing the present value of the
remaining lease rentals reduced by the current market
rate for sublease rentals of similar properties. This
liability is reviewed quarterly and adjusted, as
necessary, to reflect changes in estimated sublease
rentals.Activity in the accrual for closed store lease
liabilities during the three months ended September 30,
2009 was as follows:
 Accrual for closed store lease liabilities at beginning of period
    
    $
    21,519Cash payments
    
    
    (1,753
    )Charges to expense
    
    
    1,645Accrual for closed store lease liabilities at end of period
    
    $
    21,411
 At September 30, 2009, $5,750 of the accrual for closed store
lease liability is classified as current accrued expenses, with
the remaining balance in other long-term liabilities.
 9




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Remaining minimum lease payments under operating leases
for closed stores as of September 30, 2009 are as
follows:
 Minimum LeasePayments Year
    
    Closed Stores2009
    
    $
    2,9252010
    
    
    8,4812011
    
    
    7,6372012
    
    
    7,4292013
    
    
    7,3202014
    
    
    6,741Thereafter
    
    
    5,110$
    45,643
 Activity in the accrual for
termination benefits during the three months ended September 30,
2009 was as follows:
 Accrual for termination benefits at beginning of period
    
    $
    1,463Cash payments
    
    
    (1,305
    )Charges to expense
    
    
    1,912Accrual for termination benefits at end of period
    
    $
    2,070
 The accrual for termination
benefits at September 30, 2009 is classified as current accrued
expenses.
 (6)
    
    INVENTORIESInventories
are summarized as follows:
 September 30,
    
    
    December 31,2009
    
    
    2008Raw materials
    
    $
    74,574
    
    
    $
    89,713Work-in-process
    
    
    20,017
    
    
    
    21,405Finished products
    
    
    188,143
    
    
    
    238,908$
    282,734
    
    
    $
    350,026
 (7)
    
    PROPERTY, PLANT AND EQUIPMENTMajor
classes of property, plant and equipment consist of the
following:
 September 30,
    
    
    December 31,2009
    
    
    2008Land
    
    $
    15,025
    
    
    $
    16,027Buildings and improvements
    
    
    192,550
    
    
    
    198,836Machinery and equipment
    
    
    260,346
    
    
    
    270,597467,921
    
    
    
    485,460Less: accumulated depreciation
    
    
    327,066
    
    
    
    334,596$
    140,855
    
    
    $
    150,864
 Depreciation expense was $15,455 and $18,784 for the nine months
ended September 30, 2009 and 2008, respectively.
 10




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##### 



(8)
    
    LONG-TERM DEBTLong-term
debt consists of the following:
 September 30,
    
    
    December 31,2009
    
    
    2008Asset-based loan
    
    $
    102,000
    
    
    $
    190,000Less: current maturities
    
    
    
    
    
    
    30,000Long-term debt
    
    $
    102,000
    
    
    $
    160,000
 On August 9, 2007, we refinanced our revolving credit
facility with a group of financial institutions. The
facility is a five-year asset-based loan (ABL) with
commitments to lend up to $450,000. The facility is
secured by all of our accounts receivable, inventory
and cash and is guaranteed by all of our domestic
subsidiaries.The ABL provides for the issuance of letters of credit
and cash borrowings. The issuance of letters of credit
and cash borrowings are limited by the level of a
borrowing base consisting of eligible accounts
receivable and inventory. As of September 30, 2009,
there were $102,000 of cash borrowings and $17,342 in
letters of credit outstanding.The excess of the borrowing base over the current level
of letters of credit and cash borrowings outstanding
represents the additional borrowing availability under
the ABL. Certain covenants and restrictions, including
cash dominion, weekly borrowing base reporting, and a
fixed charge coverage ratio, would become effective if
excess availability fell below various thresholds. If
we fall below $75,000 of availability, we are subject
to cash dominion and weekly borrowing base reporting.
If we fall below $62,500 of availability, we are also
subject to the fixed charge coverage ratio, which we
currently do not meet. As of September 30, 2009, excess
availability was $83,266. Therefore, we have $8,266 of
availability without being subject to the cash dominion
and weekly reporting covenants of the agreement and
$20,766 of availability before we would be subject to
the fixed charge coverage ratio.We manage our excess availability to remain above the
$75,000 threshold, as we choose not to be subject to
the cash dominion and weekly reporting covenants. We do
not expect to be below the threshold for the remainder
of 2009. In addition to our borrowing capacity
described above, we had $76,490 of cash and cash
equivalents at September 30, 2009.The borrowing base is reported on the 25th day of each
month based on our financial position for the previous
month end. Our borrowing base calculations are subject
to periodic examinations by the financial institutions
which can result in adjustments to the borrowing base
and our availability under the ABL. These examinations
have not resulted in significant adjustments to our
borrowing base or availability in the past and are not
expected to result in material adjustments in the
future.Cash borrowings under the ABL will be at either (i) a
base rate (the greater of the prime rate or the Federal
Funds Effective Rate plus 1/2%) or (ii) an adjusted
Eurodollar rate plus an applicable margin, depending
upon the type of loan selected. The applicable margin
over the adjusted Eurodollar rate is 1.50% as of
September 30, 2009 and will fluctuate with excess
availability. As of September 30, 2009, loans
outstanding under the ABL consisted of $80,000 based on
the adjusted Eurodollar rate at a weighted average
interest rate of 2.11% and $22,000 based on the
adjusted prime rate at an interest rate of 3.25%. The
weighted average interest rate for all loans
outstanding as of September 30, 2009 was 2.36%.Under the terms of the ABL, we are required to comply
with certain operating covenants and provide certain
representations to the financial institutions,
including a representation after each annual report is
filed with the Securities and Exchange Commission that
our pension underfunded status does not exceed $50,000
for any plan. After the filing of our Form 10-K for the
year ended December 31, 2008, we would not have been in
compliance with this representation. However, we
obtained a waiver to this required representation until
the later of February 28, 2010 or such date, not to
exceed January 1, 2011, that the pension relief, under
the Worker, Retiree, and Employer Recovery Act of 2008,
signed into law on December 23, 2008, ceases to be
applicable to our plan. As consideration for the
waiver, we agreed to the modification of certain
administrative clauses in the ABL agreement, and as a
result we agreed to 1) submit condensed mid-month
borrowing base information and 2) increase the
frequency, from quarterly to monthly, at which we
submit certain financial information to the financial
institutions.
 11




---



##### 



(9)
    
    LIQUIDITYThe primary items impacting our liquidity in the future
are cash from operations, capital expenditures,
acquisition of stores, sale of surplus assets,
borrowings and payments under our ABL, and pension
funding requirements.At September 30, 2009, we had $76,490 of cash and cash
equivalents, $102,000 of debt outstanding, and excess
availability to borrow up to an additional $20,766
subject to certain provisions, including those
provisions described in Note 8. Long-Term Debt. The
breach of any of these provisions could result in a
default under the ABL and could trigger acceleration of
repayment, which would have a significant adverse
impact to our liquidity and our business. While we
expect to comply with the provisions of the agreement
throughout the remainder of 2009, further deterioration
in the economy and our results could cause us to not be
in compliance with our ABL agreement. While we would
attempt to obtain waivers for noncompliance, we may not
be able to obtain waivers, which could have a
significant adverse impact to our liquidity and our
business.In light of the deterioration of the global economy and
uncertainty about these conditions in the foreseeable
future, we are focused on effective cash management,
reducing costs, and preserving cash related to capital
expenditures and acquisition of stores. For example, we
review all capital projects and are committed to
execute only on those projects that are either
necessary for business operations or have an attractive
expected rate of return. Also, we will acquire stores
only if we are required as the prime tenant or
guarantor on the lease or if we expect a more than
adequate return on our investment. However, if we do
not have sufficient cash reserves, cash flow from our
operations, or our borrowing capacity under our ABL is
insufficient, we may need to raise additional funds
through equity or debt financings in the future in
order to meet our operating and capital needs.
Nevertheless, we may not be able to secure adequate
debt or equity financing on favorable terms, or at all,
at the time when we need such funding. In the event
that we are unable to raise additional funds, our
liquidity will be adversely impacted and our business
could suffer. If we are able to secure additional
financing, these funds could be costly to secure and
maintain, which could significantly impact our earnings
and our liquidity.
 (10)
    
    RETIREMENT PLANSThe
components of net periodic pension expense for Company-sponsored
defined benefit plans are as follows:
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Service cost
    
    $
    282
    
    
    $
    340
    
    
    $
    1,732
    
    
    $
    2,654Interest cost
    
    
    6,582
    
    
    
    6,137
    
    
    
    19,454
    
    
    
    19,305Expected return on plan assets
    
    
    (6,529
    )
    
    
    (6,918
    )
    
    
    (19,605
    )
    
    
    (20,707
    )Net amortization and deferral
    
    
    1,408
    
    
    
    144
    
    
    
    3,616
    
    
    
    2,134Net periodic pension cost
    
    $
    1,743
    
    
    $
    (297
    )
    
    $
    5,197
    
    
    $
    3,386
 We amended the defined benefit plans, freezing and
ceasing future benefits as of December 31, 2005.
Certain transitional benefits are being provided to
participants who had attained age 50 and had completed
10 years of service as of December 31, 2005.The projected benefit obligation of our defined benefit
plans exceeded the fair value of plan assets by
$140,852 at December 31, 2008, the measurement date for
our pension liability. In December 2008, the federal
government passed legislation that provides relief
through 2010 from the funding requirements under the
Pension Protection Act of 2006 due to the widespread
nature of disruption in financial markets. Due to this
legislation, we do not expect to make cash pension
contributions in 2009. However, if the relief provided
by the federal government is no longer applicable to
our pension plans, if there is continued downward
pressure on the asset values of these plans, if the
assets fail to recover in value, or if the present
value of the benefit obligation of the plan increases,
as would occur in the event of a decrease in the
discount rate used to measure the obligation, it could
necessitate significantly increased funding of our
plans in the future and negatively impact our
liquidity.
 12




---



##### 



We currently provide retirement benefits to our
employees through a defined contribution plan. Our
total costs of the defined benefit and defined
contribution plans for the three and nine months ended
September 30, 2009 were $3,106 and $10,819,
respectively, compared to $1,823 and $10,405 for the
three and nine months ended September 30, 2008,
respectively.
 (11)
    
    STOCK OPTIONS, RESTRICTED STOCK, AND RESTRICTED STOCK UNITSA summary
of option activity for the nine months ended September 30, 2009
is presented below:
 WeightedAverageExerciseShares
    
    PriceOutstanding at December 31, 2008
    
    
    3,610,692
    
    
    $
    20.54Granted
    
    
    359,500
    
    
    
    4.88Exercised
    
    
    
    
    
    
    Forfeited or expired
    
    
    (730,650
    )
    
    
    22.63Outstanding at September 30, 2009
    
    
    3,239,542
    
    
    $
    18.34
 The weighted average exercise price and the weighted average fair
value per share for stock options granted during the nine months
ended September 30, 2009 was $4.88 and $3.22, respectively. The
fair value of each stock option is estimated on the date of grant
using the Black-Scholes option pricing model. The following
weighted average assumptions were used in the valuation of these
options.
 Risk-free interest rate
    
    
    2.3
    %Expected volatility
    
    
    91.2
    %Expected life (in years)
    
    
    4.1Expected dividend yield
    
    
    0.0
    %
 The risk-free interest rate is based upon U.S. Treasury
Securities with a term similar to that of the expected
life of the grant. Expected volatility is calculated
based upon the historical volatility over a period
equal to the expected life of the grant. Expected life
is equal to the average expected term from the grant
date until exercise. The dividend yield is calculated
based upon the dividend rate on the date of grant.Non-vested restricted stock activity is
presented below:
 WeightedAverageGrant-DateShares
    
    Fair ValueOutstanding at December 31, 2008
    
    
    451,501
    
    
    $
    12.61Granted
    
    
    83,275
    
    
    
    3.81Vested
    
    
    (49,003
    )
    
    
    14.34Forfeited
    
    
    (77,653
    )
    
    
    13.16Outstanding at September 30, 2009
    
    
    408,120
    
    
    $
    10.50
 Included in the tables above are 419,000 shares of
stock options and 209,500 shares of restricted stock
which were granted on March 14, 2008 and vest on
December 31, 2009 if we achieve certain net earnings
performance measures for 2009. As of September 30,
2009, we do not believe it is probable that these
performance measures and vesting conditions will be
met.
 13




---



##### 



In December 2008, we awarded restricted stock units to
certain key employees and executive officers.
 The
awards are contingent on the achievement of both the
Companys share price objectives and service-based
retention periods. The
awards expire five years from the grant date and can vest at any time prior to expiration. If the trailing 10 day average of
our common stock reaches $6.26 per share, then 50% of
the units will vest, and the participant will be
entitled to receive a cash payment of $6.26 per vested
unit on the second anniversary of the grant date, or if
the vesting date occurs after the second anniversary of
the grant date, on the vesting date. The other 50% of
the units will vest if the trailing 10 day average of
our common stock reaches $9.39 per share, and following
vesting, the participant will be entitled to receive a
cash payment of $9.39 per vested unit on the third
anniversary of the grant date, or if the vesting date
occurs after the third anniversary of the grant date,
on the vesting date. The awards  are designed to reward participants
for increases in share price as well as encouraging the
long-term employment of the participants.A summary of restricted stock unit
activity for the nine months ended September 30, 2009 is
presented below:
 Units with
    
    Units withShare Price
    
    Share PriceObjective of
    
    Objective of$6.26
    
    $9.39Outstanding at December 31, 2008
    
    
    1,425,710
    
    
    
    1,425,710Granted
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Forfeited
    
    
    (199,680
    )
    
    
    (199,680
    )Outstanding at September 30, 2009
    
    
    1,226,030
    
    
    
    1,226,030
 Compensation expense of $2,808 was recorded in the nine
months ended September 30, 2009 for restricted stock
unit awards due to performance during the period and
increases in the estimated fair value of the awards,
partially offset by forfeiture activity.The fair value of the restricted stock unit awards is
estimated each quarter using binomial pricing models.
The fair value of the awards is recognized as
compensation expense ratably over the derived service
periods. The derived service periods are 2.6 and
3.1 years for the awards with $6.26 and $9.39 share
price objectives, respectively. The following
assumptions were used to determine the fair value of
the restricted stock units as of September 30, 2009:
 Risk-free interest rate
    
    
    2.0
    %Expected volatility
    
    
    83.1
    %Expected dividend yield
    
    
    0.0
    %
 The risk-free interest rate is based upon U.S. Treasury Securities with a term
similar to that of the remaining term of the grant. Expected volatility is
calculated based upon the historical volatility over a period equal to the
remaining term of the grant. The dividend yield is calculated based upon the
dividend rate at September 30, 2009.
 14




---



##### 



(12)  COMPREHENSIVE LOSSComprehensive
loss consists of the following:
 Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net loss
    
    $
    (23,536
    )
    
    $
    (41,721
    )
    
    $
    (43,705
    )
    
    $
    (32,049
    )Other comprehensive income, net of tax:Pension liability
    
    
    (2,459
    )
    
    
    576
    
    
    
    (306
    )
    
    
    1,728Foreign currency translation
    
    
    1,146
    
    
    
    (968
    )
    
    
    1,407
    
    
    
    (2,561
    )Other comprehensive income (loss)
    
    
    (1,313
    )
    
    
    (392
    )
    
    
    1,101
    
    
    
    (833
    )Total comprehensive loss
    
    $
    (24,849
    )
    
    $
    (42,113
    )
    
    $
    (42,604
    )
    
    $
    (32,882
    )
 The components of
accumulated other comprehensive loss, each presented net of tax, are
as follows:
 September 30,
    
    
    December 31,2009
    
    
    2008Pension liability
    
    $
    (117,076
    )
    
    $
    (116,770
    )Foreign currency translation
    
    
    1,189
    
    
    
    (218
    )Accumulated other comprehensive loss
    
    $
    (115,887
    )
    
    $
    (116,988
    )
 (13)  EARNINGS PER SHAREStock options have been excluded from the computation of diluted earnings per
common share because their inclusion would be antidilutive. Excluded stock
options were as follows:
 Three Months Ended September 30,
    
    Nine Months Ended September 30,2009
    
    2008
    
    2009
    
    2008Stock options
    
    
    3,239,542
    
    
    
    3,681,742
    
    
    
    3,239,542
    
    
    
    3,681,742Average exercise price
    
    $
    18.34
    
    
    $
    20.55
    
    
    $
    18.34
    
    
    $
    20.55
 (14)  STOCKHOLDERS RIGHTS AGREEMENTEffective August 3, 2009, our Board of Directors
adopted a Stockholders Rights Agreement (the Rights
Agreement) to reduce the risk of limitation of the
Companys net operating loss carryforwards and certain
other tax benefits or attributes under Section 382 of
the Internal Revenue Code. The Rights Agreement
replaces the Companys prior stockholders rights plan
and reduces the threshold percentage of beneficial
ownership of the Companys common stock by any person
or group that would trigger the rights under the Rights
Agreement from 15% to 4.75% (an Acquiring Person),
with the exception of stockholders that currently own
4.75% or more of the common stock would not be deemed
to be an Acquiring Person so long as they acquired no
more than an additional 0.5% of the common stock, up to
a maximum of 15%. In addition, in its discretion, the
Board may exempt certain transactions and certain
persons whose acquisition of securities is determined
by the Board not to jeopardize the Companys net
deferred tax assets and whose holdings following such
acquisition will not equal or exceed 15% of the
Companys outstanding common stock.In connection with the adoption of the Rights
Agreement, the Board of Directors declared a
distribution of one right (a Right) for each
outstanding share of Common Stock, no par value, of the
Company (the Common Stock) to the stockholders of
record as of the close of business on August 13, 2009,
and for each share of Common Stock issued by the
Company thereafter and prior to the distribution date.
Each Right entitles the holder, subject to the terms of
the Rights Agreement, to purchase from the Company one
one-thousandth of a share (a Unit) of Series B Junior
Participating Preferred Stock, no par value (Series B
Preferred Stock), at a purchase price of $20.00 per
Unit, subject to adjustment (the Purchase Price).
 15




---



##### 



In general, the Rights will become exercisable upon the
earlier of (i) 10 business days following a public
announcement that a person or group has become an
Acquiring Person or (ii) 10 business days following the
commencement of a tender offer or exchange offer that
would result in a person or group becoming an Acquiring
Person. In the event that a person or group becomes an
Acquiring Person, then each holder of a Right (other
than those held by the Acquiring Person) will have the
right to receive, upon exercise, shares of Common Stock
having a value equal to two times the exercise price of
the Right. The exercise price is the Purchase Price
multiplied by the number of Units of Series B Preferred
Stock issuable upon exercise of a Right prior to the
events described in this paragraph.The Rights will expire at the close of business on
July 30, 2011 unless earlier redeemed or exchanged by
the Company.
 (15)  INCOME TAXES
 We file income tax returns in the United States federal
jurisdiction and various state and foreign
jurisdictions. With few exceptions, we are no longer
subject to United States federal, state and local, or
non-U.S. income tax examinations by tax authorities for
years before 2004. The Internal Revenue Service (IRS)
commenced an examination of our United States income
tax return for 2005 in the first quarter of 2007,
limited scope examinations of our United States income
tax returns for 2006 and 2007 in the first quarter of
2009, and a limited scope examination of our United
States income tax return for 2008 in the third quarter
of 2009.As of September 30, 2009 and December 31, 2008, the
total amount of unrecognized tax benefits was $10,193
and $10,297, respectively. We recognize interest and
penalties related to unrecognized tax benefits as a
component of income tax expense. As of September 30,
2009 and December 31, 2008, the liability for
unrecognized tax benefits included accrued interest of
$3,981 and $3,182 and accrued penalties of $968 and
$804, respectively. We recognized interest expense of
$831 and $830 and penalty expense of $164 and $206
related to unrecognized tax benefits in the statement
of operations for the nine months ended September 30,
2009 and 2008, respectively. The total amount of
unrecognized tax benefits at September 30, 2009 that,
if recognized, would affect our effective tax rate is
$10,193.At December 31, 2008, we evaluated all significant
available positive and negative evidence, including the
existence of losses in recent years and our forecast of
future taxable income, and, as a result, determined it
was more likely than not that our federal and certain
state deferred tax assets, including benefits related
to net operating loss carryforwards, would not be
realized based on the measurement standards required
under the FASB Accounting Standards Codification
Section 740 Income Taxes.The valuation allowance was
increased $156,572 to $161,426 in 2008. In the three
and nine months ending September 30, 2009, the
valuation allowance was increased $22,283 and $21,285,
respectively, to $182,711 due to additional net
operating losses during the periods and increases in
net deferred tax assets requiring a valuation
allowance.The amount of the valuation allowance charged to income
tax expense was $15,385 and $3,000 in the nine months
ended September 30, 2009 and 2008, respectively. At
September 30, 2009, the value of the federal and state
net operating loss carryforwards available for future
tax benefit is $43,154 and $27,401, respectively,
before the valuation allowance. The federal losses
begin to expire in the year 2028. The state losses
generally start to expire in the year 2021. While we
have no other limitations on the use of our net
operating loss carryforwards, we are potentially
subject to limitations if a change in control occurs
pursuant to applicable statutory regulations.
 16




---



##### 



(16)
    
    CONTINGENT LIABILITIESWe are involved, from time to time, in litigation and
other legal proceedings incidental to our business.
Management believes that the outcome of current
litigation and legal proceedings will not have a
material adverse effect upon our results of operations
or financial condition. However, managements
assessment of our current litigation and other legal
proceedings could change in light of the discovery of
facts with respect to legal actions or other
proceedings pending against us not presently known to
us or determinations by judges, juries or other finders
of fact which are not in accordance with managements
evaluation of the probable liability or outcome of such
litigation or proceedings.We are also involved in various claims relating to
environmental matters at a number of current and former
plant sites. We engage or participate in remedial and
other environmental compliance activities at certain of
these sites. At other sites, we have been named as a
potentially responsible party under federal and state
environmental laws for site remediation. Management
analyzes each individual site, considering the number
of parties involved, the level of our potential
liability or contribution relative to the other
parties, the nature and magnitude of the hazardous
wastes involved, the method and extent of remediation,
the potential insurance coverage, the estimated legal
and consulting expense with respect to each site and
the time period over which any costs would likely be
incurred. Based on the above analysis, management
believes at the present time that any claims, penalties
or costs incurred in connection with known
environmental matters will not reasonably likely have a
material adverse effect upon our consolidated financial
position or results of operations. However,
managements assessment of our current claims could
change in light of the discovery of facts with respect
to environmental sites, which are not in accordance
with managements evaluation of the probable liability
or outcome of such claims.We are the prime tenant for operating leases and have
subleased certain premises to independent furniture
dealers. In addition, we guarantee certain leases of
company-brand stores operated by independent furniture
dealers. These leases and guarantees have remaining
terms ranging from one to twelve years and generally
require us to make lease payments in the event of
default by the dealer. In the event of default, we have
the right to assign or assume the lease. Total future
payments applicable to subleases and lease guarantees
were $38,839 as of September 30, 2009.
 (17)
    
    DISCONTINUED OPERATIONSOn October 16, 2007, we announced our intent to divest
Hickory Business Furniture (HBF), a wholly-owned
subsidiary that designs and manufactures business
furniture. This business unit was reflected as a
discontinued operation in accordance with the FASB
Accounting Standards Codification Section 205-20
Discontinued Operations.On March 29, 2008, we closed the sale of HBF for
$75,000 and recorded a gain of $28,868, which is net of
income tax expense of $19,247.The following table presents a condensed statement of
operations for the discontinued operation for both the
quarter ended March 31, 2008 and nine months ended
September 30, 2008:
 Net sales
    
    $
    15,348Earnings before income tax expense
    
    $
    1,734Net earnings
    
    $
    1,052
 (18)   SUBSEQUENT EVENTS
   17




---



##### 



Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 FORWARD-LOOKING STATEMENTS
  OVERVIEW
    
    
    Broyhill has collections of mid-priced furniture, including both wood furniture and upholstered
products, in a wide range of styles and product categories including bedroom, dining room, living
room, occasional, youth, home office, and home entertainment.
    
    Lane focuses primarily on mid-priced upholstered furniture, including motion and stationary
furniture with an emphasis on home entertainment and family rooms.
    
    Thomasville has both wood furniture and upholstered products in the mid- to upper-price ranges and
also manufactures and markets promotional-priced case goods and ready-to-assemble furniture.
    
    Drexel Heritage markets both case goods and upholstered furniture under the brand names Heritage,
Drexel, and dh, in categories ranging from mid- to premium-priced.
    
    Henredon specializes in both wood furniture and upholstered products in the premium-price category.
    
    Hickory Chair manufactures a premium-priced brand of wood and upholstered furniture, offering
traditional and modern styles.
    
    Pearson offers contemporary and traditional styles of finely tailored upholstered furniture in the
premium-price category.
    
    Laneventure markets a premium-priced outdoor line of wicker, rattan, bamboo, exposed aluminum, and
teak furniture.
    
    Maitland-Smith designs and manufactures premium hand crafted, antique-inspired furniture,
accessories, and lighting, utilizing a wide range of unique materials. Maitland-Smith markets
under both the Maitland-Smith and LaBarge brand names.
  18




---



##### 



BUSINESS TRENDS AND STRATEGY
    
    
    We incurred costs of $1.5 million and $7.2 million in
the three months and nine months ended September 30,
2009, respectively, and $4.2 million and $14.0 million
in the three and nine months ended September 30, 2008,
respectively, related to downtime in our factories.
    
    We incurred charges of $1.9 million and $4.2 million in
the three months and nine months ended September 30,
2009, respectively, and $1.7 million and $1.8 million
in the three and nine months ended September 30, 2008,
respectively, associated with severance actions, which
in 2009 related to reductions of approximately 700
employees. These reductions included direct labor
employees and indirect support employees in our
manufacturing costs and sales, general, and
administrative costs.
    
    We incurred expense of $3.3 million and $5.3 million in
the three months and nine months ended September 30,
2009, respectively, and $9.9 million and $23.3 million
in the three months and nine months ended September 30,
2008, respectively, associated with closed retail store
locations, which related primarily to occupancy costs,
lease termination costs, and lease liabilities.
   
    
    Increasing our e-commerce programs to help drive more consumer interest in our products and
create more demand for our retail partners.
    
    Offering products that are differentiated from our competition through pre-launch testing that
helps predict end-market acceptance.
    
    Conducting consumer segmentation analysis to assist retailers in allocating marketing resources.
    
    Growing a global supply chain that minimizes dealer inventory requirements.
    
    Improving product development and managing product inventory levels better to reflect consumer
demand through consumer testing.
  19




---



##### 



CONSOLIDATED RESULTS OF OPERATIONS
  Three Months Ended September 30,2009
    
    
    2008% of
    
    
    
    
    
    
    % of(in millions, except per share data)
    
    Dollars
    
    
    Net Sales
    
    
    Dollars
    
    
    Net SalesNet sales
    
    $
    293.7
    
    
    
    100.0
    %
    
    $
    412.8
    
    
    
    100.0
    %Cost of sales
    
    
    225.9
    
    
    
    76.9
    
    
    
    345.6
    
    
    
    83.7Gross profit
    
    
    67.7
    
    
    
    23.1
    
    
    
    67.1
    
    
    
    16.3Selling, general, and administrative expenses
    
    
    89.2
    
    
    
    30.4
    
    
    
    129.2
    
    
    
    31.3Loss from operations
    
    
    (21.4
    )
    
    
    (7.3
    )
    
    
    (62.1
    )
    
    
    (15.0
    )Interest expense
    
    
    1.0
    
    
    
    0.3
    
    
    
    2.9
    
    
    
    0.7Other income (expense), net
    
    
    (0.2
    )
    
    
    (0.1
    )
    
    
    1.4
    
    
    
    0.3Loss from continuing operations before
income tax expense (benefit)
    
    
    (22.7
    )
    
    
    (7.7
    )
    
    
    (63.6
    )
    
    
    (15.4
    )Income tax expense (benefit)
    
    
    0.9
    
    
    
    0.3
    
    
    
    (21.9
    )
    
    
    (5.3
    )0.3Net loss from continuing operations
    
    $
    (23.5
    )
    
    
    (8.0
    )%
    
    $
    (41.7
    )
    
    
    (10.1
    )%Net loss from continuing operations per
common share  basic and diluted
    
    $
    (0.48
    )
    
    
    
    
    
    $
    (0.86
    )
 Nine Months Ended September 30,2009
    
    
    2008% of
    
    
    
    
    
    
    % of(in millions, except per share data)
    
    Dollars
    
    
    Net Sales
    
    
    Dollars
    
    
    Net SalesNet sales
    
    $
    938.8
    
    
    
    100.0
    %
    
    $
    1,339.8
    
    
    
    100.0
    %Cost of sales
    
    
    729.1
    
    
    
    77.7
    
    
    
    1,061.3
    
    
    
    79.2Gross profit
    
    
    209.7
    
    
    
    22.3
    
    
    
    278.5
    
    
    
    20.8Selling, general, and administrative expenses
    
    
    248.4
    
    
    
    26.5
    
    
    
    363.2
    
    
    
    27.1Loss from operations
    
    
    (38.7
    )
    
    
    (4.1
    )
    
    
    (84.7
    )
    
    
    (6.3
    )Interest expense
    
    
    4.3
    
    
    
    0.5
    
    
    
    9.9
    
    
    
    0.7Other income, net
    
    
    1.5
    
    
    
    0.2
    
    
    
    4.7
    
    
    
    0.3Loss from continuing operations before
income tax expense (benefit)
    
    
    (41.5
    )
    
    
    (4.4
    )
    
    
    (89.9
    )
    
    
    (6.7
    )Income tax expense (benefit)
    
    
    2.2
    
    
    
    0.2
    
    
    
    (27.9
    )
    
    
    (2.1
    )Net loss from continuing operations
    
    $
    (43.7
    )
    
    
    (4.7
    )%
    
    $
    (62.0
    )
    
    
    (4.6
    )%Net loss from continuing operations per
common share  basic and diluted
    
    $
    (0.90
    )
    
    
    
    
    
    $
    (1.27
    )
   20




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##### 



Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Interest Income
    
    $
    0.3
    
    
    $
    1.6
    
    
    $
    1.6
    
    
    $
    4.8Other
    
    
    (0.5
    )
    
    
    (0.2
    )
    
    
    (0.1
    )
    
    
    (0.1
    )$
    (0.2
    )
    
    $
    1.4
    
    
    $
    1.5
    
    
    $
    4.7
     21




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##### 



RETAIL RESULTS OF OPERATIONS
  Thomasville Stores (a)
    
    
    All Other Retail Stores(b)Three Months Ended September 30,
    
    
    Three Months Ended September 30,(Dollars in millions)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales
    
    $
    21.2
    
    
    $
    14.3
    
    
    $
    11.6
    
    
    $
    18.1Cost of sales
    
    
    12.6
    
    
    
    8.5
    
    
    
    7.7
    
    
    
    10.6Gross profit
    
    
    8.6
    
    
    
    5.8
    
    
    
    3.9
    
    
    
    7.6Selling, general, and administrative expenses
    
    
    14.3
    
    
    
    8.6
    
    
    
    9.6
    
    
    
    18.2Operating loss(e)
    
    $
    (5.7
    )
    
    $
    (2.8
    )
    
    $
    (5.7
    )
    
    $
    (10.6
    )Number of stores at end of period
    
    
    48
    
    
    
    36
    
    
    
    16
    
    
    
    24Number of closed locations at end of period
    
    
    
    
    
    
    
    
    
    
    29
    
    
    
    17Same-store-sales(c):Quarterly percentage
    
    
    (18.4
    )%
    
    
    (d
    )
    
    
    (d
    )
    
    
    (d
    )Number of stores
    
    
    23
    
    
    
    (d
    )
    
    
    (d
    )
    
    
    (d
    )Thomasville Stores (a)
    
    
    All Other Retail Stores(b)Nine Months Ended September 30,
    
    
    Nine Months Ended September 30,(Dollars in millions)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales
    
    $
    60.3
    
    
    $
    39.9
    
    
    $
    32.1
    
    
    $
    53.5Cost of sales
    
    
    35.3
    
    
    
    22.8
    
    
    
    20.9
    
    
    
    32.9Gross profit
    
    
    24.9
    
    
    
    17.1
    
    
    
    11.2
    
    
    
    20.5Selling, general, and administrative expenses
    
    
    41.9
    
    
    
    22.9
    
    
    
    25.7
    
    
    
    51.5Operating loss(e)
    
    $
    (17.0
    )
    
    $
    (5.8
    )
    
    $
    (14.5
    )
    
    $
    (31.0
    )Same-store-sales(c):Nine months ended percentage
    
    
    (23.7
    )%
    
    
    (d
    )
    
    
    (d
    )
    
    
    (d
    )Number of stores
    
    
    23
    
    
    
    (d
    )
    
    
    (d
    )
    
    
    (d
    )
 
 a)
    
    This supplemental data includes only company-owned Thomasville retail store locations that were open at the end of the three and nine months ended September 30, 2009 and
2008.b)
    
    This supplemental data includes all company-owned retail stores other than open Thomasville stores. This data also includes costs of $3.3 million and $9.9 million in the
three months ended September 30, 2009 and 2008, respectively, and $5.3 million and $23.3 million in the nine months ended September 30, 2009 and 2008, respectively,
associated with closed retail locations which includes occupancy costs, lease termination costs, and costs associated with closed store lease liabilities, including credits
for the reversal of $1.9 million of previously accrued lease liability in the nine months ended September 30, 2009, which was associated with closed retail locations that we
now plan to reopen.c)
    
    Quarterly and nine months ended same-store-sales percentage is based on sales from stores that have been in operation and company-owned for at least 15 months.d)
    
    Not meaningful due to the small number of open stores in the same-store calculation.e)
    
    Operating loss does not include our wholesale profit on the above retail net sales.  22




---



##### 



FINANCIAL CONDITION
 Liquidity
      23




---



##### 



Financing Arrangements
  September 30,
    
    
    December 31,2009
    
    
    2008Asset-based loan
    
    $
    102.0
    
    
    $
    190.0Less: current maturities
    
    
    
    
    
    
    30.0Long-term debt
    
    $
    102.0
    
    
    $
    160.0
         24




---



##### 



CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
 Off-Balance Sheet Arrangements
  Funded Status of the Defined Benefit Pension Plan
  CRITICAL ACCOUNTING POLICIES
   Trade names and impairment testing
    25




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##### 



RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
     The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB
Statement No. 162
 26




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##### 



Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 4 CONTROLS AND PROCEDURES
 (a)
    
    Evaluation of Disclosure Controls and ProceduresUnder the supervision and with the participation of
our management, including our Chief Executive Officer
and Chief Financial Officer, we conducted an
evaluation of the effectiveness of our disclosure
controls and procedures, as such terms are defined in
Rules 13a-15(e) and 15d-15(e) promulgated under the
Securities Exchange Act of 1934 (the Exchange Act),
as of September 30, 2009, the end of the period
covered by this Quarterly Report on Form 10-Q.Disclosure controls and procedures are controls and
procedures designed to ensure that information
required to be disclosed in our reports filed under
the Exchange Act, such as this report, is recorded,
processed, summarized and reported within the time
periods specified in the SECs rules and forms.
Disclosure controls are also designed to ensure that
such information is accumulated and communicated to
our management, including our Chief Executive Officer
and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.As previously reported in our Annual Report on Form
10-K filed with the SEC on March 2, 2009, management
concluded that our company did not maintain effective
internal control over financial reporting as of
December 31, 2008, based on the criteria established
in the Committee of Sponsoring Organizations of the
Treadway Commission (COSOs) Internal Control 
Integrated Framework as a result of a material
weakness in our accounting for income taxes. Solely as
a result of this material weakness, our management,
including our Chief Executive Officer and Chief
Financial Officer, concluded that our disclosure
controls and procedures were not effective as of
September 30, 2009.We have designed procedures we believe will remediate
this material weakness and begun implementation of
these procedures. Certain of these procedures are
performed on a quarterly basis while others are
performed only on an annual basis. The quarterly
procedures were fully implemented in the second
quarter of fiscal 2009 and the annual procedures will
be fully implemented by the end of fiscal 2009. In
order to evaluate whether the material weakness has
been remediated, we must successfully test the
effectiveness of the new procedures over this period
of time. Therefore, we expect that the material
weakness will be remediated by the end of fiscal 2009.Notwithstanding the material weakness described above,
management concluded that our consolidated financial
statements for the periods covered by and included in
this Quarterly Report on Form 10-Q are fairly stated
in all material respects in accordance with accounting
principles generally accepted in the United States for
each of the periods presented herein.(b)
    
    Changes in Internal Control over Financial ReportingThere have not been any changes in our internal
control over financial reporting during the quarter
ended September 30, 2009 that have materially
affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
 27




---



##### 



PART II  OTHER INFORMATION
 
 Item 1. LEGAL PROCEEDINGS
   
 Item 1A. RISK FACTORS
  A change in control could limit the use of our net operating loss carryforwards and decrease a
potential acquirers valuation of our businesses.
  28




---



##### 



Item 6. EXHIBITS
 Exhibit
    
    
    
    Filed
    
    Incorporated by ReferenceIndex
    
    
    
    with this
    
    
    
    Filing DateNo.
    
    Exhibit Description
    
    Form 10-Q
    
    Form
    
    with the SEC
    
    Exhibit No.3.1
    
    Restated Certificate of Incorporation of the Company, as amended
    
    
    
    10-Q
    
    May 14, 2002
    
    
    33.2
    
    By-Laws of the Company, as amended effective as of August 7, 2008
    
    
    
    8-K
    
    August 13, 2008
    
    
    3.13.3
    
    Certificate of Designation of Series B Junior Participating Preferred Stock
    
    
    
    8-K
    
    August 4, 2009
    
    
    3.14.1
    
    Stockholders Rights Agreement, dated as of August 3, 2009, between the Company and American Stock Transfer and Trust Company, LLC, as Rights Agent
    
    
    
    8-K
    
    August 4, 2009
    
    
    4.131.1
    
    Certification of Ralph P. Scozzafava, Chairman of the Board and Chief Executive Officer of the Company, Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
    
    X31.2
    
    Certification of Steven G. Rolls, Chief Financial Officer (Principal Financial Officer) of the Company, Pursuant to Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
    
    X32.1
    
    Certification of Ralph P. Scozzafava, Chairman of the Board and Chief Executive Officer of the Company, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
    
    X32.2
    
    Certification of Steven G. Rolls, Chief Financial Officer (Principal Financial Officer) of the Company, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
    
    X
 29




---



##### 



Furniture Brands International, Inc.(Registrant)By:
    
    /s/ Steven G. RollsSteven G. RollsChief Financial Officer

(On behalf of the registrant and as Principal
Financial Officer)Date: November 6, 2009
 30




---



##### 



Exhibit
    
    
    
    Filed
    
    Incorporated by ReferenceIndex
    
    
    
    with this
    
    
    
    Filing DateNo.
    
    Exhibit Description
    
    Form 10-Q
    
    Form
    
    with the SEC
    
    Exhibit No.3.1
    
    Restated
Certificate of
Incorporation of
the Company, as
amended
    
    
    
    10-Q
    
    May 14, 2002
    
    
    33.2
    
    By-Laws of the
Company, as amended
effective as of
August 7, 2008
    
    
    
    8-K
    
    August 13, 2008
    
    
    3.13.3
    
    Certificate of
Designation of
Series B Junior
Participating
Preferred Stock
    
    
    
    8-K
    
    August 4, 2009
    
    
    3.14.1
    
    Stockholders Rights
Agreement, dated as
of August 3, 2009,
between the Company
and American Stock
Transfer and Trust
Company, LLC, as
Rights Agent
    
    
    
    8-K
    
    August 4, 2009
    
    
    4.131.1
    
    Certification of
Ralph P.
Scozzafava,
Chairman of the
Board and Chief
Executive Officer
of the Company,
Pursuant to Rule
13a-14(a)/15d-14(a),
as Adopted
Pursuant to Section
302 of the
Sarbanes-Oxley Act
of 2002
    
    X31.2
    
    Certification of
Steven G. Rolls,
Chief Financial
Officer (Principal
Financial Officer)
of the Company,
Pursuant to Rule
13a-14(a)/15d-14(a),
as Adopted
Pursuant to Section
302 of the
Sarbanes-Oxley Act
of 2002
    
    X32.1
    
    Certification of
Ralph P.
Scozzafava,
Chairman of the
Board and Chief
Executive Officer
of the Company,
Pursuant to 18
U.S.C. Section
1350, as Adopted
Pursuant to Section
906 of the
Sarbanes-Oxley Act
of 2002
    
    X32.2
    
    Certification of
Steven G. Rolls,
Chief Financial
Officer (Principal
Financial Officer)
of the Company,
Pursuant to 18
U.S.C. Section
1350, as Adopted
Pursuant to Section
906 of the
Sarbanes-Oxley Act
of 2002
    
    X
 31