##### Table of Contents



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 June 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
  o þ




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Furniture Brands International, Inc.
Table of Contents
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Financial Statements:Consolidated Balance Sheets:
    
    
    3June 30, 2009December 31, 2008Consolidated Statements of Operations:
    
    
    4Three Months Ended June 30, 2009Three Months Ended June 30, 2008Six Months Ended June 30, 2009Six Months Ended June 30, 2008Consolidated Statements of Cash Flows:
    
    
    6Six Months Ended June 30, 2009Six Months Ended June 30, 2008Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    26PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    27Item 4. Submission of Matters to a Vote of Security Holders
    
    
    28Item 6. Exhibits
    
    
    29EX-10.1EX-10.2EX-31.1EX-31.2EX-32.1EX-32.2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1.
    
    FINANCIAL STATEMENTS
 
 
 June 30,
    
    
    December 31,2009
    
    
    2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    77,263
    
    
    $
    106,580Receivables, less allowances of $26,853 ($34,372 at December 31, 2008)
    
    
    136,849
    
    
    
    178,590Income tax refund receivable
    
    
    2,282
    
    
    
    38,090Inventories
    
    
    306,844
    
    
    
    350,026Prepaid expenses and other current assets
    
    
    13,452
    
    
    
    12,592Total current assets
    
    
    536,690
    
    
    
    685,878Property, plant, and equipment, net
    
    
    144,680
    
    
    
    150,864Trade names
    
    
    127,300
    
    
    
    127,300Other assets
    
    
    34,827
    
    
    
    35,476Total assets
    
    $
    843,497
    
    
    $
    999,518LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Current maturities of long-term debt
    
    $
    19,000
    
    
    $
    30,000Accounts payable
    
    
    58,725
    
    
    
    85,206Accrued employee compensation
    
    
    16,962
    
    
    
    49,082Other accrued expenses
    
    
    59,477
    
    
    
    63,214Total current liabilities
    
    
    154,164
    
    
    
    227,502Long-term debt
    
    
    110,000
    
    
    
    160,000Deferred income taxes
    
    
    28,542
    
    
    
    27,917Pension liability
    
    
    134,780
    
    
    
    137,199Other long-term liabilities
    
    
    68,696
    
    
    
    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 June 30, 2009 and December 31, 2008
    
    
    56,483
    
    
    
    56,483Paid-in capital
    
    
    222,700
    
    
    
    224,419Retained earnings
    
    
    356,346
    
    
    
    376,515Accumulated other comprehensive loss
    
    
    (114,574
    )
    
    
    (116,988
    )Treasury stock at cost, 7,773,016 shares at June 30, 2009 and 7,704,764
shares at December 31, 2008
    
    
    (173,640
    )
    
    
    (173,935
    )Total shareholders equity
    
    
    347,315
    
    
    
    366,494Total liabilities and shareholders equity
    
    $
    843,497
    
    
    $
    999,518




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##### Table of Contents



Three Months Ended June 30,2009
    
    
    2008Net sales
    
    $
    288,263
    
    
    $
    449,870Cost of sales
    
    
    226,635
    
    
    
    349,520Gross profit
    
    
    61,628
    
    
    
    100,350Selling, general, and administrative expenses
    
    
    76,015
    
    
    
    131,979Operating loss
    
    
    (14,387
    )
    
    
    (31,629
    )Interest expense
    
    
    1,512
    
    
    
    2,802Other income, net
    
    
    761
    
    
    
    1,081Loss from continuing operations before income tax expense (benefit)
    
    
    (15,138
    )
    
    
    (33,350
    )Income tax expense (benefit)
    
    
    855
    
    
    
    (9,354
    )Net loss from continuing operations
    
    
    (15,993
    )
    
    
    (23,996
    )Net earnings from discontinued operations
    
    
    
    
    
    
    52Net loss
    
    $
    (15,993
    )
    
    $
    (23,944
    )Earnings (loss) per common share  basic and diluted:Loss from continuing operations
    
    $
    (0.33
    )
    
    $
    (0.49
    )Earnings from discontinued operations
    
    $
    
    
    
    $
    Net loss
    
    $
    (0.33
    )
    
    $
    (0.49
    )Weighted average shares of common stock outstanding  basic and diluted
    
    
    48,712
    
    
    
    48,806




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Six Months Ended June 30,2009
    
    
    2008Net sales
    
    $
    645,134
    
    
    $
    927,070Cost of sales
    
    
    503,165
    
    
    
    715,701Gross profit
    
    
    141,969
    
    
    
    211,369Selling, general, and administrative expenses
    
    
    159,229
    
    
    
    233,960Operating loss
    
    
    (17,260
    )
    
    
    (22,591
    )Interest expense
    
    
    3,300
    
    
    
    6,945Other income, net
    
    
    1,687
    
    
    
    3,317Loss from continuing operations before income tax expense (benefit)
    
    
    (18,873
    )
    
    
    (26,219
    )Income tax expense (benefit)
    
    
    1,296
    
    
    
    (5,971
    )Net loss from continuing operations
    
    
    (20,169
    )
    
    
    (20,248
    )Net earnings from discontinued operations
    
    
    
    
    
    
    29,920Net earnings (loss)
    
    $
    (20,169
    )
    
    $
    9,672Earnings (loss) per common share  basic and diluted:Loss from continuing operations
    
    $
    (0.41
    )
    
    $
    (0.42
    )Earnings from discontinued operations
    
    $
    
    
    
    $
    0.61Net earnings (loss)
    
    $
    (0.41
    )
    
    $
    0.20Weighted average shares of common stock outstanding  basic and diluted
    
    
    48,738
    
    
    
    48,683




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Six Months Ended June 30,2009
    
    
    2008Cash flows from operating activities:Net earnings (loss)
    
    $
    (20,169
    )
    
    $
    9,672Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:Depreciation
    
    
    10,834
    
    
    
    13,022Compensation expense (credit) related to stock
option grants and restricted stock awards
    
    
    (1,414
    )
    
    
    2,024Provision (benefit) for deferred income taxes
    
    
    717
    
    
    
    (6,134
    )Gain on sale of discontinued operations
    
    
    
    
    
    
    (48,109
    )Other, net
    
    
    (1,639
    )
    
    
    (2,349
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    40,947
    
    
    
    42,038Income tax refund receivable
    
    
    35,808
    
    
    
    4,173Inventories
    
    
    45,069
    
    
    
    17,843Prepaid expenses and other assets
    
    
    (686
    )
    
    
    316Accounts payable and other accrued expenses
    
    
    (62,771
    )
    
    
    10,325Other long-term liabilities
    
    
    (11,159
    )
    
    
    (3,206
    )Net cash provided by operating activities
    
    
    35,537
    
    
    
    39,615Cash flows from investing activities:Acquisition of stores, net of cash acquired
    
    
    
    
    
    
    (9,505
    )Proceeds from the sale of business, net of cash sold
    
    
    
    
    
    
    73,359Proceeds from the disposal of assets
    
    
    2,159
    
    
    
    3,297Additions to property, plant, and equipment
    
    
    (6,003
    )
    
    
    (9,025
    )Net cash provided (used) by investing activities
    
    
    (3,844
    )
    
    
    58,126Cash flows from financing activities:Payments of long-term debt
    
    
    (61,000
    )
    
    
    (100,800
    )Restricted cash used for payment of long-term debt
    
    
    
    
    
    
    20,000Payments of cash dividends
    
    
    
    
    
    
    (3,892
    )Other
    
    
    (10
    )
    
    
    (8
    )Net cash used by financing activities
    
    
    (61,010
    )
    
    
    (84,700
    )Net increase (decrease) in cash and cash equivalents
    
    
    (29,317
    )
    
    
    13,041Cash and cash equivalents at beginning of period
    
    
    106,580
    
    
    
    118,764Cash and cash equivalents at end of period
    
    $
    77,263
    
    
    $
    131,805Supplemental disclosure:Cash payments (refunds) for income taxes, net
    
    $
    (35,224
    )
    
    $
    7,269Cash payments for interest expense
    
    $
    3,686
    
    
    $
    8,539




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands except per share information)
(unaudited)
 (1)
    
    BASIS OF PRESENTATION
 The accompanying unaudited consolidated financial
statements of Furniture Brands International, Inc. and
its subsidiaries (the Company) have been prepared in
accordance with accounting principals generally
accepted in the United States (U.S. GAAP) and such
principals 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 period. 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 June 30, 2009,
we performed an evaluation of subsequent events through
the filing of this Form 10-Q in accordance with
Statement of Financial Accounting Standards No. 165,
Subsequent Events. The results for the six months ended
June 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, pursuant to the
provisions of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets.
 (2)
    
    RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 In September 2006, the FASB issued Statement of
Financial Accounting Standards No. 157 (SFAS 157),
Fair Value Measurements. SFAS 157 defines fair value,
establishes a framework for measuring fair value in U.
S. GAAP, and expands the disclosure requirements
regarding fair value measurements. The rule does not
introduce new requirements mandating the use of fair
value. SFAS 157 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. SFAS 157 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 SFAS 157
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 SFAS 157 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
SFAS 157 on January 1, 2009 did not have a material
effect on our financial position or results of
operations.In December 2007, the FASB issued Statement of
Financial Accounting Standards No. 141 (Revised 2007)
(SFAS 141R), Business Combinations. SFAS 141R
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. SFAS 141R 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 SFAS 141R on January 1, 2009.
The adoption of this statement did not effect our
financial position or results of operations.
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In December 2007, the FASB issued Statement of Financial Accounting
Standards No. 160 (SFAS 160), Noncontrolling Interests in
Consolidated Financial Statements  An Amendment of ARB No. 51.
SFAS 160 establishes new accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation
of a subsidiary. SFAS 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after
December 15, 2008. The adoption of SFAS 160 on January 1, 2009 did
not affect our financial position or results of operations.In December 2008, the FASB issued FASB Staff Position No.
FAS 132R-1 (FSP FAS 132R-1), Employers Disclosures
about Postretirement Benefit Plan Assets. FSP FAS 132R-1
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 statement will
not effect 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 CodificationTMand the
Hierarchy of Generally Accepted Accounting Principles, a
replacement of FASB Statement No. 162. SFAS 168 will
become 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. This Statement is effective for financial
statements issued for interim and annual periods ending
after September 15, 2009. This statement is not intended
to change existing U.S. GAAP.
 (3)
    
    FAIR VALUE OF FINANCIAL INSTRUMENTS
 We 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 asset based loan to approximate fair value
because they accrue interest at rates which generally
fluctuate with interest rate trends.
 (4)
    
    ACQUISITIONS
 During the three months ended June 30, 2008, we
acquired four stores from two of our dealers for total
consideration of $764. The acquisitions were asset
purchases consisting mainly of inventories and fixed
assets and the assumption of certain liabilities,
primarily customer deposits.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 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 as the
impact is not material to operations.
 (5)
    
    RESTRUCTURING AND ASSET IMPAIRMENT CHARGES
 We have been executing plans to reduce 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 $10,483 at June 30,
2009 and $10,017 at December 31, 2008. Included in the
restructuring charges for the three and six months ended
June 30, 2009 are expenses associated with our 26 closed
retail store locations and severance costs which are
primarily associated with our manufacturing operations.
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Restructuring and asset impairment charges were as follows: Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Restructuring charges (benefits):Termination benefits
    
    $
    1,912
    
    
    $
    74
    
    
    $
    2,330
    
    
    $
    74Closed store occupancy and lease cost
    
    
    610
    
    
    
    11,207
    
    
    
    2,005
    
    
    
    13,420Loss (gain) on sale of assets
    
    
    (175
    )
    
    
    18
    
    
    
    (175
    )
    
    
    (1,225
    )$
    2,347
    
    
    $
    11,299
    
    
    $
    4,160
    
    
    $
    12,269Statement of Operations classification:Cost of sales
    
    $
    1,788
    
    
    $
    92
    
    
    $
    2,206
    
    
    $
    92Selling, general and administrative expenses
    
    
    559
    
    
    
    11,207
    
    
    
    1,954
    
    
    
    12,177$
    2,347
    
    
    $
    11,299
    
    
    $
    4,160
    
    
    $
    12,269
 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 June 30, 2009 was as follows:
 Accrual for closed store lease liabilities at beginning of period
    
    $
    26,669Cash payments
    
    
    (3,648
    )Charges (credit) to expense
    
    
    (1,502
    )Accrual for closed store lease liabilities at end of period
    
    $
    21,519
 In the second quarter of 2009, we approved a plan to open two previously closed company-owned retail stores
during 2009. As a result of this decision, the closed store lease liability of $1,879 previously recorded
for these company-owned stores was reversed in the second
quarter.At June 30, 2009, $5,749 of the
accrual for closed store lease liability is classified as current accrued
expenses, with the remaining balance in other long-term
liabilities.Remaining minimum lease payments under operating leases for
closed stores as of June 30, 2009 are as follows:
 Minimum LeasePayments Year
    

Closed
Stores2009
    
    $
    5,1292010
    
    
    7,4032011
    
    
    6,9042012
    
    
7,0302013
    
    
6,9212014
    
    
6,641Thereafter
    
    
5,110$
    45,138
 Activity in the accrual for termination benefits during the three months ended June 30, 2009 was as follows:
 Accrual for termination benefits at beginning of period
    
    $
    2,608Cash payments
    
    
    (3,057
    )Charges to expense
    
    
    1,912Accrual for termination benefits at end of period
    
    $
    1,463
 The accrual for termination benefits at June 30, 2009 is classified as current accrued expenses.
 (6)
    
    INVENTORIES
 Inventories are summarized as follows:
 June 30,
    
    
    December 31,2009
    
    
    2008Raw materials
    
    $
    86,181
    
    
    $
    89,713Work-in-process
    
    
    18,783
    
    
    
    21,405Finished products
    
    
    201,880
    
    
    
    238,908$
    306,844
    
    
    $
    350,026
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(7)
    
    PROPERTY, PLANT AND EQUIPMENT
 Major classes of property, plant and equipment consist of the following:
 June 30,
    
    
    December 31,2009
    
    
    2008Land
    
    $
    15,778
    
    
    $
    16,027Buildings and improvements
    
    
    197,329
    
    
    
    198,836Machinery and equipment
    
    
    270,393
    
    
    
    270,597483,500
    
    
    
    485,460Less: accumulated depreciation
    
    
    338,820
    
    
    
    334,596$
    144,680
    
    
    $
    150,864
 Depreciation expense was $10,834 and $13,022 for the six months ended June 30, 2009 and 2008, respectively.
 (8)
    
    LONG-TERM DEBT
 Long-term debt consists of the following:
 June 30,
    
    
    December 31,2009
    
    
    2008Asset-based loan
    
    $
    129,000
    
    
    $
    190,000Less: current maturities
    
    
    19,000
    
    
    
    30,000Long-term debt
    
    $
    110,000
    
    
    $
    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 June 30, 2009 there were $129,000 of
cash borrowings and $20,494 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 June 30, 2009, excess availability was
$75,566. Therefore, we have $566 of availability without
being subject to the cash dominion and weekly reporting
covenants of the agreement and $13,066 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 in 2009. In addition to
our borrowing capacity described above, we had $77,263 of
cash and cash equivalents at June 30, 2009. On July 27,
2009, we repaid $19,000 of our long-term debt, which we
have classified as current in our consolidated balance
sheet.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.
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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 June 30, 2009 and
will fluctuate with excess availability. As of June 30,
2009, loans outstanding under the ABL consisted of
$110,000 based on the adjusted Eurodollar rate at an
interest rate of 2.10% and $19,000 based on the adjusted
prime rate at an interest rate of 3.25%. The weighted
average interest rate for all loans outstanding as of
June 30, 2009 was 2.27%.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.
 (9)
    
    LIQUIDITY
 The 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, pension funding requirements,
and, in 2009, the receipt of income tax refunds.At June 30, 2009, we had $77,263 of cash and cash
equivalents, $129,000 of debt outstanding, and excess
availability to borrow up to an additional $13,066
subject to certain covenants as described in Note 8.
Long-Term Debt. Should we not comply with certain of the
provisions of our ABL agreement, the lenders can call the
debt, which could have a significantly adverse impact to
our liquidity and our business. While we expect to comply
with the provisions of the agreement throughout 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 significantly adverse impact to our
liquidity and our business.In light of the recent deterioration of the global
economy and uncertainty about these conditions in the
foreseeable future, we are focused on effective cash
management, controlling 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
adequate 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 an 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 PLANS
 The components of net periodic pension expense for Company-sponsored defined benefit plans are as follows:
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Service cost
    
    $
    725
    
    
    $
    1,157
    
    
    $
    1,450
    
    
    $
    2,314Interest cost
    
    
    6,436
    
    
    
    6,584
    
    
    
    12,872
    
    
    
    13,168Expected return on plan assets
    
    
    (6,538
    )
    
    
    (6,894
    )
    
    
    (13,076
    )
    
    
    (13,789
    )Net amortization and deferral
    
    
    1,104
    
    
    
    979
    
    
    
    2,208
    
    
    
    1,990Net periodic pension cost
    
    $
    1,727
    
    
    $
    1,826
    
    
    $
    3,454
    
    
    $
    3,683
 11




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##### Table of Contents



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 $137,281
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, or if the assets fail to
recover in value, it would necessitate significantly
increased funding of our plans in the future.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 six months ended June 30, 2009 were $4,005
and $7,713, respectively, compared to $4,339 and $8,582
for the three and six months ended June 30, 2008,
respectively.
 (11)
    
    STOCK OPTIONS, RESTRICTED STOCK, AND RESTRICTED STOCK UNITS
 A summary of option activity for the six months ended June 30, 2009 is presented below:
 WeightedAverageExerciseShares
    
    
    PriceOutstanding at December 31, 2008
    
    
    3,610,692
    
    
    $
    20.54Granted
    
    
    36,000
    
    
    
    3.74Exercised
    
    
    
    
    
    
    Forfeited or expired
    
    
    (500,150
    )
    
    
    22.02Outstanding at June 30, 2009
    
    
    3,146,542
    
    
    $
    20.12
 The weighted average exercise price and the weighted average fair
value per share for stock options granted during the six months
ended June 30, 2009 was $3.74 and $2.42, 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
    
    
    2.1
    %Expected volatility
    
    
    80.1
    %Expected life (in years)
    
    
    5.0Expected 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. Expected life is equal to the remaining term of
the grant. The dividend yield is calculated based upon the dividend rate at
June 30, 2009.Non-vested restricted stock activity is presented below:
 WeightedAverageGrant-DateShares
    
    
    Fair ValueOutstanding at December 31, 2008
    
    
    451,501
    
    
    $
    12.61Granted
    
    
    83,275
    
    
    
    3.81Vested
    
    
    (42,351
    )
    
    
    14.79Forfeited
    
    
    (69,453
    )
    
    
    13.14Outstanding at June 30, 2009
    
    
    422,972
    
    
    $
    10.57
 12




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##### Table of Contents



Included in the tables above are 427,000 shares of stock options and 213,500 shares of restricted
stock which have performance criteria upon which vesting is dependent. These shares were granted on
March 14, 2008 and vest on December 31, 2009 if we achieve our 2009 performance measures for net
earnings. As of June 30, 2009, we do not believe it is probable that these performance measures and
vesting conditions will be met.In December 2008, we awarded restricted stock units to certain executive officers. The awards are
contingent on the achievement of both the Companys share price objectives and service-based
retention periods. If the trailing 10 day average of our common stock reaches $6.26 per share, then
50% of the units will vest, and the executive 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 fifty percent of the units will
vest if the trailing 10 day average of our common stock reaches $9.39 per share, and following
vesting, the executive 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 expire 5 years from the grant date and are designed to
reward executives for increases in share price as well as encouraging the long-term employment of the
executive officers.A summary of restricted stock unit activity for the six months ended June 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
    
    
    (151,755
    )
    
    
    (151,755
    )Outstanding at June 30, 2009
    
    
    1,273,955
    
    
    
    1,273,955
 Compensation expense of $854 was recorded in the six
months ended June 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 June 30, 2009:
 Risk-free interest rate
    
    
    2.3
    %Expected volatility
    
    
    78.67
    %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 June 30, 2009.
 (12)
    
    COMPREHENSIVE INCOME (LOSS)
 Comprehensive income (loss) consists of the following:
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net earnings (loss)
    
    $
    (15,993
    )
    
    $
    (23,944
    )
    
    $
    (20,169
    )
    
    $
    9,672Other comprehensive income, net of tax:Pension liability
    
    
    1,076
    
    
    
    576
    
    
    
    2,153
    
    
    
    1,152Foreign currency translation
    
    
    932
    
    
    
    (1,334
    )
    
    
    261
    
    
    
    (1,593
    )Other comprehensive income (loss)
    
    
    2,008
    
    
    
    (758
    )
    
    
    2,414
    
    
    
    (441
    )Total comprehensive income (loss)
    
    $
    (13,985
    )
    
    
    (24,702
    )
    
    $
    (17,755
    )
    
    $
    9,231
 13




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##### Table of Contents



The components of accumulated other comprehensive loss, each presented net of tax, are as follows:
 June 30,
    
    
    December 31,2009
    
    
    2008Pension liability
    
    $
    (114,617
    )
    
    $
    (116,770
    )Foreign currency translation
    
    
    43
    
    
    
    (218
    )Accumulated other comprehensive loss
    
    $
    (114,574
    )
    
    $
    (116,988
    )
 (13)
    
    EARNINGS PER SHARE
 Stock 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 June 30,
    
    Six Months Ended June 30,2009
    
    2008
    
    2009
    
    2008Stock options
    
    
    3,146,542
    
    
    
    3,764,092
    
    
    
    3,146,542
    
    
    
    3,764,092Average exercise price
    
    $
    20.12
    
    
    $
    20.57
    
    
    $
    20.12
    
    
    $
    20.57
 (14)
    
    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 and limited scope
examinations of our United States income tax returns for
2006 and 2007 in the first quarter of 2009.As of June 30, 2009 and December 31, 2008, the total
amount of unrecognized tax benefits was $10,278 and
$10,297, respectively. We recognize interest and
penalties related to unrecognized tax benefits as a
component of income tax expense. As of June 30, 2009 and
December 31, 2008, the liability for unrecognized tax
benefits included accrued interest of $3,714 and $3,182
and accrued penalties of $968 and $804, respectively. We
recognized interest expense of $559 and $267 and penalty
expense of $163 and $206 related to unrecognized tax
benefits in the statement of operations for the six
months ended June 30, 2009 and 2008, respectively. The
total amount of unrecognized tax benefits at June 30,
2009 that, if recognized, would affect our effective tax
rate is $10,278.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
Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes. The valuation allowance was
increased $156,572 to $161,426 in 2008. In the three and
six months ending June 30, 2009, the valuation allowance
was decreased $1,716 and $999, respectively, to $160,427
due to a reduction in net deferred tax assets requiring a
valuation allowance, partially offset by additional net
operating losses during the periods.The amount of the valuation allowance charged to
income tax expense was $7,207 and $917 in the six
months ended June 30, 2009 and 2008, respectively. At
June 30, 2009, the value of the federal and state net
operating loss carryforwards available for future tax
benefit is $25,894 and $20,102, respectively, before
the valuation allowance. The federal losses 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.
 14




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##### Table of Contents



(15)
    
    CONTINGENT LIABILITIES
 We 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 the 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 $43,937 as of June 30, 2009.
 (16)
    
    DISCONTINUED OPERATIONS
 On 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 pursuant to the provisions of
Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of
Long-Lived AssetsOn 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 six months ended June
30, 2008:
 Net sales
    
    $
    15,348Earnings before income tax expense
    
    $
    1,734Net earnings
    
    $
    1,052
 15




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##### Table of Contents



(17)
    
    SUBSEQUENT EVENTS
 Effective 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).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.The Rights Agreement and Certificate of Designation of
Series B Junior Participating Preferred Stock are
incorporated herein by reference to our Report on Form 8-K,
filed with the Securities and Exchange Commission on August
4, 2009.
 16




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##### Table of Contents



Item 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
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.
  17




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##### Table of Contents



BUSINESS TRENDS AND STRATEGY
    
    
    We incurred costs of $3.4 million and $5.7 million in the
three months and six months ended June 30, 2009,
respectively, and $7.5 million and $9.8 million in the
three and six months ended June 30, 2008, respectively,
related to unproductive downtime in our factories.
    
    We incurred charges of $1.9 million and $2.3 million in
the three months and six months ended June 30, 2009,
respectively, and $0.1 million in the three and six
months ended June 30, 2008 associated with severance
actions, which in 2009 related primarily to reductions of
approximately 300 employees in our domestic manufacturing
operations.
    
    We incurred expense of $0.6 million and $2.0 million in
the three months and six months ended June 30, 2009,
respectively, and $11.2 million and $13.4 million in the
three months and six months ended June 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.
    
    Leveraging our size and scale by offering products that are differentiated from our
competition through pre-launch testing that helps predict end-market acceptance, and by
conducting consumer segmentation analysis to assist retailers in allocating marketing
resources; and by 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.
  18




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##### Table of Contents



CONSOLIDATED RESULTS OF OPERATIONS
  Three Months Ended June 30,2009
    
    
    2008% of
    
    
    
    
    
    
    % of(in millions except share and per share data)
    
    Dollars
    
    
    Net Sales
    
    
    Dollars
    
    
    Net SalesNet sales
    
    $
    288.3
    
    
    
    100.0
    %
    
    $
    449.9
    
    
    
    100.0
    %Cost of sales
    
    
    226.7
    
    
    
    78.6
    
    
    
    349.5
    
    
    
    77.7Gross profit
    
    
    61.6
    
    
    
    21.4
    
    
    
    100.4
    
    
    
    22.3Selling, general, and administrative expenses
    
    
    76.0
    
    
    
    26.4
    
    
    
    132.0
    
    
    
    29.3Loss from operations
    
    
    (14.4
    )
    
    
    (5.0
    )
    
    
    (31.6
    )
    
    
    (7.0
    )Interest expense
    
    
    1.5
    
    
    
    0.5
    
    
    
    2.8
    
    
    
    0.6Other income, net
    
    
    0.8
    
    
    
    0.3
    
    
    
    1.1
    
    
    
    0.2Loss from continuing operations before
income tax expense (benefit)
    
    
    (15.1
    )
    
    
    (5.3
    )
    
    
    (33.3
    )
    
    
    (7.4
    )Income tax expense (benefit)
    
    
    0.9
    
    
    
    0.3
    
    
    
    (9.3
    )
    
    
    (2.1
    )Net loss from continuing operations
    
    $
    (16.0
    )
    
    
    (5.5
    )%
    
    $
    (24.0
    )
    
    
    (5.3
    )%Net loss from continuing operations per
common share  basic and diluted
    
    $
    (0.33
    )
    
    
    
    
    
    $
    (0.49
    )
 Six Months Ended June 30,2009
    
    
    2008% of
    
    
    
    
    
    
    % of(in millions except share and per share data)
    
    Dollars
    
    
    Net Sales
    
    
    Dollars
    
    
    Net SalesNet sales
    
    $
    645.1
    
    
    
    100.0
    %
    
    $
    927.1
    
    
    
    100.0
    %Cost of sales
    
    
    503.2
    
    
    
    78.0
    
    
    
    715.7
    
    
    
    77.2Gross profit
    
    
    142.0
    
    
    
    22.0
    
    
    
    211.4
    
    
    
    22.8Selling, general, and administrative expenses
    
    
    159.2
    
    
    
    24.7
    
    
    
    234.0
    
    
    
    25.2Loss from operations
    
    
    (17.3
    )
    
    
    (2.7
    )
    
    
    (22.6
    )
    
    
    (2.4
    )Interest expense
    
    
    3.3
    
    
    
    0.5
    
    
    
    6.9
    
    
    
    0.8Other income, net
    
    
    1.7
    
    
    
    0.3
    
    
    
    3.3
    
    
    
    0.4Loss from continuing operations before
income tax expense (benefit)
    
    
    (18.9
    )
    
    
    (2.9
    )
    
    
    (26.2
    )
    
    
    (2.8
    )Income tax expense (benefit)
    
    
    1.3
    
    
    
    0.2
    
    
    
    (6.0
    )
    
    
    (0.6
    )Net loss from continuing operations
    
    $
    (20.2
    )
    
    
    (3.1
    )%
    
    $
    (20.2
    )
    
    
    (2.2
    )%Net loss from continuing operations per
common share  basic and diluted
    
    $
    (0.41
    )
    
    
    
    
    
    $
    (0.42
    )
   19




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##### Table of Contents



Three Months Ended June 30,
    
    
    Six Months Ended June 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Interest Income
    
    $
    0.6
    
    
    $
    1.5
    
    
    $
    1.3
    
    
    $
    3.2Other
    
    
    0.2
    
    
    
    (0.4
    )
    
    
    0.4
    
    
    
    0.1$
    0.8
    
    
    $
    1.1
    
    
    $
    1.7
    
    
    $
    3.3
     20




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##### Table of Contents



RETAIL RESULTS OF OPERATIONS
  Thomasville Stores (a)
    
    
    All Other Retail Stores(b)Three Months Ended June 30,
    
    
    Three Months Ended June 30,(Dollars in millions)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales
    
    $
    19.5
    
    
    $
    14.8
    
    
    $
    10.3
    
    
    $
    19.6Cost of sales
    
    
    11.4
    
    
    
    8.1
    
    
    
    6.7
    
    
    
    12.7Gross profit
    
    
    8.2
    
    
    
    6.7
    
    
    
    3.5
    
    
    
    7.0Selling, general, and administrative expenses
    
    
    13.9
    
    
    
    8.1
    
    
    
    7.6
    
    
    
    22.1Operating loss
    
    $
    (5.7
    )
    
    $
    (1.4
    )
    
    $
    (4.1
    )
    
    $
    (15.1
    )Number of stores at end of period
    
    
    46
    
    
    
    24
    
    
    
    16
    
    
    
    24Number of closed locations at end of period
    
    
    
    
    
    
    
    
    
    
    26
    
    
    
    20Same-store-sales(c):Quarterly percentage
    
    
    (31.5
    )%
    
    
    
    (d)
    
    
    
    (d)
    
    
    
    (d)Number of stores
    
    
    20
    
    
    
    
    (d)
    
    
    
    (d)
    
    
    
    (d)Thomasville Stores (a)
    
    
    All Other Retail Stores(b)Six Months Ended June 30,
    
    
    Six Months Ended June 30,(Dollars in millions)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales
    
    $
    39.1
    
    
    $
    25.7
    
    
    $
    20.5
    
    
    $
    35.3Cost of sales
    
    
    22.8
    
    
    
    14.3
    
    
    
    13.2
    
    
    
    22.3Gross profit
    
    
    16.3
    
    
    
    11.4
    
    
    
    7.3
    
    
    
    13.0Selling, general, and administrative expenses
    
    
    27.6
    
    
    
    14.3
    
    
    
    16.2
    
    
    
    33.3Operating loss
    
    $
    (11.3
    )
    
    $
    (2.9
    )
    
    $
    (8.9
    )
    
    $
    (20.3
    )Same-store-sales(c):Six months ended percentage
    
    
    (27.5
    )%
    
    
    
    (d)
    
    
    
    (d)
    
    
    
    (d)Number of stores
    
    
    20
    
    
    
    
    (d)
    
    
    
    (d)
    
    
    
    (d)
 
 a)
    
    This supplemental data includes only Thomasville retail store locations that were
open at the end of the three and six months ended June 30, 2009
and 2008.b)
    
    This supplemental data includes all retail stores other than open Thomasville
stores. This data also includes costs of $0.6 million and $11.2 million in the
three months ended June 30, 2009 and 2008, respectively, and $2.0 million and $13.4
million in the six months ended June 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 three
months ended June 30, 2009, which was associated with closed retail locations that
we now plan to reopen.c)
    
    Quarterly and six 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.
  21




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##### Table of Contents



FINANCIAL CONDITION
 Liquidity
      Financing Arrangements
  June 30,
    
    
    December 31,2009
    
    
    2008Asset-based loan
    
    $
    129.0
    
    
    $
    190.0Less: current maturities
    
    
    19.0
    
    
    
    30.0Long-term debt
    
    $
    110.0
    
    
    $
    160.0
 22




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##### Table of Contents



CONTRACTUAL OBLIGATIONS AND OTHER COMMITMENTS
 Off-Balance Sheet Arrangements
  Funded Status of the Defined Benefit Pension Plan
  23




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES
   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 Fair Value Measurements
 Business Combinations
 Noncontrolling Interests in Consolidated Financial Statements  An Amendment of ARB No. 51. SFAS
160
 Employers
Disclosures about Postretirement Benefit Plan Assets
 The
FASB Accounting Standards CodificationTM and the Hierarchy of Generally Accepted Accounting
Principles, a replacement of FASB Statement No. 162
 24




---



##### Table of Contents



SUBSEQUENT EVENTS
      25




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##### Table of Contents



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 March 31, 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. 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 have been
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 ReportingIn 2009, as part of our planned consolidation of
certain administrative and support functions, we
implemented a new centralized payroll system to reduce
complexity and lower costs. As a result, we updated
our internal controls to reflect the changes to our
business processes and financial reporting procedures.
Other than the changes related to the payroll system
implementation and the changes discussed in (a) above,
there has not been any other changes in our internal
control over financial reporting during the quarter
ended June 30, 2009 that has materially affected, or
is reasonably likely to materially affect, our
internal control over financial reporting.
 26




---



##### Table of Contents



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.
  27




---



##### Table of Contents



Item 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   For
    
    Against
    
    AbstainWilbert G. Holliman
    
    
    28,143,304
    
    
    
    9,004,768
    
    
    
    7,248,807John R. Jordan, Jr.
    
    
    23,104,132
    
    
    
    14,045,138
    
    
    
    7,247,609Ira D. Kaplan
    
    
    28,104,630
    
    
    
    9,013,388
    
    
    
    7,278,860Bobby L. Martin
    
    
    23,119,880
    
    
    
    14,029,602
    
    
    
    7,247,399Maureen A. McGuire
    
    
    33,687,775
    
    
    
    3,460,022
    
    
    
    7,249,083Aubrey B. Patterson
    
    
    21,697,406
    
    
    
    15,451,637
    
    
    
    7,247,838Alan G. Schwartz
    
    
    28,219,382
    
    
    
    8,928,477
    
    
    
    7,249,019Ralph P. Scozzafava
    
    
    28,273,667
    
    
    
    8,873,567
    
    
    
    7,249,646
  For
    
    Against
    
    Abstain
    
    Broker Non-Votes19,562,834
    
    21,436,906
    
    88,282
    
    3,308,861
  For
    
    Against
    
    Abstain44,315,070
    
    57,948
    
    23,862
 28




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##### Table of Contents



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
    
    
    4.110.1
    
    Form of
Indemnification
Agreement with
Directors, as
amended
    
    X10.2
    
    Amended and
Restated Restricted
Stock Plan for
Outside Directors
    
    X31.1
    
    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




---



##### Table of Contents



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: August 7, 2009 30




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##### Table of Contents



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
    
    
    4.110.1
    
    Form of
Indemnification
Agreement with
Directors, as
amended
    
    X10.2
    
    Amended and
Restated Restricted
Stock Plan for
Outside Directors
    
    X31.1
    
    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