Summary of CHROMCRAFT REVINGTON INC

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview
The furniture industry has rapidly shifted to a global supply chain and foreign manufacturers have used substantially lower labor costs and somewhat lower material costs to achieve a competitive advantage over U.S. based manufacturers. The Company's residential furniture business is being negatively impacted by low-cost competition overseas, a weak retail furniture market reflecting the effects of the current economic recession, and restructuring activities. The Company's commercial furniture business has recently been impacted by the industry-wide reduced spending on contract and institutional projects as a result of the economic recession.
Beginning in 2006, the Company, in response to competitive business conditions in the residential furniture market, began reducing its furniture manufacturing operations and shifting the products manufactured at these domestic facilities to overseas suppliers, primarily located in China. As a result, the Company has incurred asset impairment and restructuring charges for plant shutdowns and consolidation, exit and disposal activities, termination benefits and inventory write-downs since 2006. At the same time, the Company centralized sales, marketing, product development, and supply chain management and added new senior management and supporting salaried personnel and overhead expenses. In 2008, the Company incurred asset impairment and restructuring charges of $8,977,000 in connection with the shutdown of two furniture manufacturing operations, the consolidation of warehousing and distribution operations and a management reorganization. The Company reorganized its management in 2008 by replacing its CEO and senior managers in sales, marketing, product development, operations and supply chain, and eliminated various salaried positions. Severance related costs in connection with the management reorganization are included in restructuring expenses as one-time termination benefits.

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The Company expects to incur total asset impairment and restructuring expenses of $9,534,000 for the restructuring activities implemented in 2008, of which $557,000 is expected in 2009. A portion of these charges and expenses, resulting in total expected cash expenditures of approximately $2,615,000, do not include cash proceeds of $4,121,000 received in 2008 from asset sales arising from the restructuring and approximately $484,000 of cash that was received in the first quarter of 2009.
Additional transition costs, reduced revenue, restructuring charges and asset impairments may occur as the Company continues its transition. Continued outsourcing of domestically made products and development of an optimized distribution and logistics capability will result in additional transition costs in 2009 and beyond. The Company is also subject to market, competitive and other risks as more fully described in Part I, Item 1 under the caption "Certain Risks," which is incorporated herein by reference. The Company believes that the shift in its business model will provide a more competitive business model of import and U.S. customization capabilities. Also, the new business model is expected to have a more variable cost structure, which the Company anticipates will provide greater flexibility in competing in the furniture industry. After completing the 2008 restructuring activities, the Company will be manufacturing and distributing dining room and commercial furniture from its Senatobia, Mississippi facility; warehousing and distributing occasional furniture from its Delphi, Indiana facility; operating a product quality and sourcing office in Dongguan, China; and performing administrative and finance functions at its corporate headquarters office in West Lafayette, Indiana. Due to competitive market conditions, the transition of its business model, unsuccessful product introductions, a weak retail environment reflecting the effects of the current economic recession, and other factors, the Company has reported operating losses and lower sales for the last several years. For 2008, the Company used cash of $7,906,000 for operating, investing and financing activities as compared to $367,000 of cash generated in 2007. Net cash used in 2008 has a number of one-time cash items including asset sales, tax refunds, severance and other restructuring costs and may not be representative of future cash flow.
The Company has several sources of cash to complete its business model transition and fund its short term operating activities.
• At December 31, 2008 the Company had cash of $879,000.

• Under a revolving bank credit facility, the Company had no borrowings and unused borrowing capacity of approximately $15,000,000 at December 31, 2008.

• The Company has implemented spending controls and overhead expense reductions in personnel.

• The Company plans to reduce excess inventory levels to generate cash in 2009.

• Future capital spending for information technology upgrades will be delayed to 2010.

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                                                                  Adjusted(1)
                                                     2008            2007
      Sales                                           100.0 %            100.0 %
      Cost of sales                                    99.5               87.9

      Gross margin                                      0.5               12.1
      Selling, general and administrative expense      26.6               24.5

      Operating loss                                  (26.1 )            (12.4 )
      Interest expense, net                            (0.4 )                -

      Loss before income tax benefit (expense)        (26.5 )            (12.4 )
      Income tax benefit (expense)                     (0.2 )              1.6

      Net loss                                        (26.7 )%           (10.8 )%

(1) Certain prior year amounts have been adjusted to reflect the change in method of accounting for inventory from last-in, first-out ("LIFO") to first-in, first-out ("FIFO").

2008 Compared to 2007
Consolidated sales in 2008 were $99,014,000, a 19.7% decrease from sales of $123,373,000 in 2007. Sales in 2008 were lower than the prior year primarily due to a decrease in residential furniture shipments. Sales of residential furniture in 2008 were lower in all product categories primarily due to a weak retail environment reflecting the effects of the economic recession, competitive pressures from imports, unsuccessful product introductions, the transition of the Company's business model and the impact of restructuring activities. In addition, the Company realigned its sales force in 2007 which caused a decrease in sales due to customer disruptions. Commercial furniture shipments were slightly lower in 2008 as compared to the prior year primarily due to lower shipments of public area seating products. Consolidated shipments of imported finished furniture represented 38% and 26% of consolidated sales for the year ended December 31, 2008 and 2007, respectively. The consolidated sales decrease for 2008 was primarily due to lower unit volume.

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Gross margin in 2008 was $547,000 as compared to $14,919,000 in 2007. Asset impairment and restructuring charges reduced gross margin by $7,004,000 in 2008 as compared to $1,403,000 in 2007. The Company recorded non-cash pretax inventory write-downs, in addition to those classified as restructuring expenses in 2008, of $5,383,000 in 2008 as compared to $5,369,000 in 2007. Inventory write-downs were recorded to reflect anticipated net realizable value on disposition. The inventory write-downs were primarily due to the disposition of slow moving and unprofitable items and excess inventory levels. In addition to the higher asset impairment and restructuring charge, gross margin was lower in 2008 as compared to 2007 due to the lower sales volume, competitive pressures from the globalization of the residential furniture market, and manufacturing inefficiencies and unabsorbed fixed overhead during plant shutdowns. Selling, general and administrative expenses were $26,399,000 or 26.6% as a percentage of sales as compared to $30,255,000 or 24.5% of sales in 2007. The higher cost percentage in 2008 was primarily due to fixed selling and administrative costs spread over a lower sales volume. The decrease of $3,856,000 in selling, general and administrative expenses was primarily due to lower compensation and selling related expenses.
Net interest expense for 2008 was $401,000 as compared to $48,000 in 2007. Net interest expense for 2008 was higher than the prior year primarily due to borrowings under the Company's bank revolving loan facility, which began in the third quarter of 2008.
At December 31, 2008 and 2007, the Company established a full valuation allowance against the entire net deferred income tax balance after considering relevant factors, including recent operating results, the likelihood of the utilization of net operating loss tax carryforwards, and the ability to generate future taxable income.
In 2008, the Company filed its 2007 federal income tax return and determined that the refundable portion of its 2007 tax loss should be reduced by $202,000 and characterized as an NOL carryforward. As a result, the Company recorded income tax expense of $202,000 in 2008 to increase its valuation allowance on deferred income taxes.
The income tax benefit of $1,999,000 for 2007 includes a benefit of $1,369,000 to reflect the tax effect of the Company's change in its method of accounting for inventory from LIFO to FIFO, as described in Note 1. Change in Accounting Method to the Notes to Consolidated Financial Statements. Liquidity and Capital Resources
Operating activities of the Company used $10,392,000 of cash in 2008 as compared to $3,049,000 of cash used in 2007. The decrease in cash flow from operating activities in 2008 was primarily due to the higher cash operating loss and an increase in net working capital assets, partially offset by the collection of refundable income taxes. Inventories increased $1,608,000 in 2008 as compared to an increase of $1,275,000 in 2007 primarily due to an increase in imported furniture. Accounts payable decreased at the end of 2008 primarily due to reduced inventory purchases at the end of 2008. The Company expects to generate operating cash in 2009 by reducing its excess inventory level at December 31, 2008.

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Investing activities generated cash of $2,664,000 for 2008 as compared to $3,456,000 of cash generated in 2007. Investing activities include cash received from the sale of assets from restructuring activities of $4,121,000 during 2008 as compared to $4,493,000 in 2007. The proceeds from the sales of assets in 2008 included the sale of two buildings and idled machinery and equipment. The Company used cash of $1,457,000 for capital expenditures during 2008, as compared to $1,037,000 spent in the prior year. In 2009, the Company expects to spend approximately $400,000 for capital expenditures.
Financing activities used $178,000 of cash in 2008, primarily to purchase Company common stock from the former Chairman and CEO. At December 31, 2008, the Company had cash and cash equivalents of $879,000 and approximately $15,000,000 in availability under a revolving credit facility with a bank ("Bank Facility"). Interest rates under the Bank Facility are determined at the time of borrowing based, at the Company's option, on either the bank's prime rate or the London Interbank Offered Rate (LIBOR). The Bank Facility contains one restrictive financial covenant, which is applicable when availability under the Bank Facility is below $5,000,000. The Bank Facility is secured by substantially all of the assets of Chromcraft Revington. The Bank Facility expires in 2012 and there were no borrowings outstanding at December 31, 2008.
The Company's ability to borrow under the Bank Facility is dependent upon a borrowing base calculation consisting of our eligible accounts receivable and inventory, as well as our compliance with the terms of the loan agreement. While the Company expects to comply with the loan agreement, in the event that the Company is in default under the loan agreement, the bank could declare all obligations then outstanding to be immediately due, terminate the Bank Facility extended to the Company and take certain other actions as a secured party, which could adversely affect our liquidity and our business. Among the provisions of the loan agreement that the bank may consider in determining if the Company is in default under the loan agreement is whether any change in the Company's condition could reasonably be expected to have a material adverse effect on the business, operations, condition (financial or otherwise) or prospects of the Company or the value of any material collateral, or whether any event or circumstance impairs the ability of the Company to repay any obligations owed under the Bank Facility. If a default occurs, the Company could attempt to obtain a waiver from the bank, but there is no assurance that the bank would grant such a waiver.
In addition, certain covenants and restrictions, including a fixed charge coverage ratio as defined in the loan agreement, will become effective if availability under the Bank Facility is less than $5,000,000. The Company did not comply with the fixed charge coverage ratio at December 31, 2008; however, the Company's availability under the Bank Facility exceeded $5,000,000 at December 31, 2008 and, accordingly, the covenant regarding this ratio did not apply at year-end. The Company expects to have availability under the Bank Facility in excess of $5,000,000 during 2009.
For 2008, the Company used cash of $7,906,000 for operating, investing and financing activities as compared to $367,000 of cash generated in 2007. Net cash used in 2008 has a number of one-time cash items including asset sales, tax refunds, severance and other restructuring costs and may not be representative of future cash flow.
The Company has several sources of cash to complete its business model transition and fund its short term operating activities.
• At December 31, 2008 the Company had cash of $879,000.

• Under a Bank Facility, the Company had no borrowings and unused borrowing capacity of approximately $15,000,000 at December 31, 2008.

• The Company has implemented spending controls and overhead expense reductions in personnel.

• The Company plans to reduce excess inventory levels to generate cash in 2009.

• Future capital spending for information technology upgrades will be delayed to 2010.

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The Company believes that these cash resources will be adequate to meet its short term liquidity requirements. The Company will need to generate cash flow from operations in future periods in order to meet its long term liquidity needs. In the absence of adequate cash flow from operations in the future, the Company may need to further restrict expenditures, sell assets, or seek additional business funding.
Looking forward, at the end of the first quarter of 2009 the Company had no borrowings under its Bank Facility and its cash position improved to approximately $5,000,000. Cash flow was generated primarily from a reduction in working capital assets due, in part, to the disposition of slow moving and unprofitable products.
Critical Accounting Policies
The preparation of consolidated financial statements of the Company requires management to make estimates and judgments that affect the amounts reported in the financial statements and the related footnotes. Chromcraft Revington considers the following accounting policies to be most significantly impacted by the estimates and judgments used in the preparation of its consolidated financial statements.
Revenue Recognition
The Company recognizes revenue when products are shipped and the customer takes ownership and assumes risk of loss, collection of the related receivable is probable, persuasive evidence of an arrangement exists, and the sales price is fixed or determinable.
Allowance for Doubtful Accounts
The Company provides for an allowance for doubtful accounts based on expected collectability of trade receivables. The allowance for doubtful accounts is determined based on the Company's analysis of customer credit-worthiness, historical loss experience and general economic conditions and trends. Inventories
Inventories are valued at the lower of cost or market using the first-in, first-out ("FIFO") method. The Company evaluates its inventories for excess or slow moving items based on sales order activity and expected market changes. If circumstances indicate the cost of inventories exceeds their recoverable value, inventories are reduced to net realizable value.
The Company changed its method of accounting from the last-in, first-out ("LIFO") method to the FIFO method in 2008. The Company's management believes the new method of accounting for inventory is preferable because the FIFO method better reflects the current value of inventories on the Consolidated Balance Sheet; provides better matching of revenue and expense under the Company's business model; and provides uniformity across our operations with respect to the method of inventory accounting for both financial reporting and income tax purposes.

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The change in accounting method from LIFO to FIFO was completed in accordance with Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections. The Company applied this change in accounting principle by retrospectively restating the financial statements of all prior periods presented. The change is further described in Note 1. Change in Accounting Method to the Notes to Consolidated Financial Statements, included in Item 8. As a result of the accounting change discussed above, the discussions included in Item 7. reflect the Company's results adjusted for the accounting change. Employee Related Benefits
Accounting for self-insured health care and workers' compensation liabilities involves assumptions of expected claims based on past experience and a review of individual claims. The Company establishes a liability based on claim information supplied by insurance and third party administrators. Actual claim expense could differ from the estimates made by the Company. Property, Plant and Equipment
The Company reviews long-lived assets for impairment whenever events or changes in facts and circumstances indicate the possibility that the carrying value may not be recoverable. Factors that may trigger an impairment evaluation include under-performance relative to historical or projected future operating results and significant negative industry or economic trends. If the forecast of undiscounted future cash flows is less than the carrying amount of the assets, an impairment charge would be recognized to reduce the carrying value of the assets to fair value.
Deferred Income Taxes
Deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and include net operating loss tax carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company reviews relevant factors, including recent operating results, the likelihood of the utilization of net operating loss tax carryforwards and the ability to generate future taxable income to determine if deferred income taxes are recoverable and if a valuation reserve is required. Recently Issued Accounting Standards
Effective January 1, 2008, the Company adopted Financial Accounting Standards Board ("FASB") Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115, which permits entities to choose to measure many financial instruments and certain other items at fair value, and FASB Statement No. 157, Fair Value Measurements ("FAS 157"), which provides a single authoritative definition of fair value, a framework for measuring fair value, and requires additional disclosure about fair value measurements. Neither of these statements had an impact on results for the year ended December 31, 2008. In February 2008, the FASB issued FASB Staff Position FAS 157-2, Effective Date of FASB Statement No. 157, which delayed the effective date of FAS 157 for all non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis, until January 1, 2009. We have not yet determined the impact that the implementation of FAS 157 will have on our non-financial assets and liabilities, which are not recognized on a recurring basis; however, we do not anticipate it will significantly impact our consolidated financial statements.

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In December 2007, FASB issued Statement of Financial Accounting Standards No. 141 (Revised 2007), Business Combinations ("FAS 141R"), which applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning after December 15, 2008. Earlier adoption is prohibited. FAS 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. Although the Company has not completed its analysis of FAS 141R, any impact will be limited to business combinations occurring on or after January 1, 2009. In December 2007, FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements - An Amendment of ARB No. 51 ("FAS 160"), which is effective for fiscal years beginning after December 15, 2008. Earlier adoption is prohibited. FAS 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Although the Company has not completed its analysis of FAS 160, it is not expected to have a material impact.
In May 2008, FASB issued Statement of Financial Accounting Standards No. 162, The Hierarchy of Generally Accepted Accounting Principles ("FAS 162"), which is effective 60 days following the Securities and Exchange Commission's ("SEC's") approval of the Public Company Accounting Oversight Board ("PCAOB") Auditing amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. FAS 162 is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles ("GAAP") for nongovernmental entities. Prior to the issuance of FAS 162, the GAAP hierarchy was defined in the American Institute of Certified Public Accountants ("AICPA") Statement on Auditing Standards ("SAS") No. 69, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. Although the Company has not completed its analysis of FAS 162, it is not expected to have a material impact. Forward-Looking Statements
Certain information and statements contained in this report, including, without limitation, in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations," are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be generally identified as such because they include future tense or dates, or are not historical or current facts, or include words such as "believes," "may," "expects," "intends," "plans," "anticipates," or words of similar import. Forward-looking statements are not guarantees of performance or outcomes and are subject to certain risks and uncertainties that could cause actual results or outcomes to differ materially from those reported, expected, or anticipated as of the date of this report.

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Among such risks and uncertainties that could cause actual results or outcomes to differ materially from those reported, expected or anticipated are general economic conditions, including the weak retail environment; current difficult general economic conditions; import and domestic competition in the furniture industry; ability of the Company to execute its business strategies, implement its new business model and successfully complete its business transition; supply disruptions with products manufactured in China; market interest rates; consumer confidence levels; cyclical nature of the furniture industry; consumer and business spending; changes in relationships with customers; customer acceptance of existing and new products; new and existing home sales; financial viability of the Company's customers and their ability to continue or increase product orders; loss of key management employees; other factors that generally affect business; and the risks identified in Item 1. of this Form 10-K under the caption "Certain Risks."
The Company does not undertake any obligation to update or revise publicly any forward-looking statements to reflect information, events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events or circumstances.
Item 8. Financial Statements
The financial statements are listed in Part IV, Items 15(a) 1. and 2. and are filed as part of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A (T). Controls and Procedures
Evaluation of Disclosure Controls and Procedures . . .