Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS
Our Management's Discussion and Analysis of Financial Condition and Results of Operation ("MD&A") is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. The various sections of this MD&A contain a number of forward-looking statements. Words such as "expects," "goals," "plans," "believes," "continues," "may," and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this and previous filings and particularly in the "Risk Factors" in Part I, Item 1A of our Form 10-K for the year ended December 31, 2008.
OVERVIEW
We are one of the nation's leading designers, manufacturers, sourcers, and retailers of home furnishings. We market through a wide range of retail channels, from mass merchant stores to single-branded and independent dealers to specialized interior designers. We serve our customers through some of the best known and most respected brands in the furniture industry, including Broyhill, Lane, Thomasville, Drexel Heritage, Henredon, Hickory Chair, Pearson, Laneventure, and Maitland-Smith.
Through these brands, we design, manufacture, source, market, and distribute
(i) case goods, consisting of bedroom, dining room, and living room furniture,
(ii) stationary upholstery products, consisting of sofas, loveseats, sectionals, and chairs, (iii) motion upholstered furniture, consisting of recliners and sleep sofas, (iv) occasional furniture, consisting of wood, metal and glass tables, accent pieces, home entertainment centers, and home office furniture, and (v) decorative accessories and accent pieces. Our brands are featured in nearly every price and product category in the residential furniture industry. Each of our brands designs, manufactures, sources, and markets home furnishings, targeting specific customers in relation to style and price point.
• 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.

In the first quarter of 2008, we sold Hickory Business Furniture, a wholly owned subsidiary that designs and manufactures business furniture. As a result, this business unit has been reflected as a discontinued operation in all periods presented in this Form 10-Q.
BUSINESS TRENDS AND STRATEGY
In the first quarter of 2009, we continued to experience declining sales. We believe that the decline in sales was primarily caused by a number of ongoing factors in the global economies that have negatively impacted consumers' discretionary spending. These economic factors included lower home values, increased foreclosure activity throughout the country,

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rising levels of unemployment and personal debt, and reduced access to consumer credit. These developments combined with recent and ongoing unprecedented shocks to the global financial system and capital markets have all added to declines in consumer confidence and curtailed consumer spending.
In order to offset the impact of these economic conditions, we took several steps in 2008 and continue to take steps in 2009 to control costs and preserve cash, while also looking forward and investing in opportunities for future growth. The more significant actions taken by us include:
• Closing four domestic manufacturing facilities in 2008 and consolidating or reconfiguring other facilities in 2008 and 2009.

• Reducing our domestic workforce by approximately 1,400 employees in December 2008;

• Consolidating our administrative and support functions and implementing a shared services organization in 2008 and 2009;

• Exiting unprofitable retail stores in 2008 and 2009;

• Investing in pre-market product consumer testing, innovative product development, consumer insights, and more effective marketing to increase sales in order to assist us in regaining market share in the future; and

• Creating a wholly-owned subsidiary in Asia in 2008 to gain full control of our overseas manufacturing, sourcing and logistics activities.

As a result of the continuing weak economy and our initiatives to counteract this environment, the following charges and costs are included in our results of operations:
• We incurred costs of $2.3 million in the first quarter of 2009 and $2.3 million in the first quarter of 2008 related to unproductive downtime in our factories.

• We incurred charges of $0.4 million in the first quarter of 2009 associated with severance actions, which related primarily to reductions in our manufacturing operations.

• We incurred expense of $1.4 million in the first quarter of 2009 and $2.2 million in the first quarter of 2008 associated with closed retail store locations, which related primarily to occupancy costs, lease termination costs, and lease liabilities.

These charges and costs contributed to our loss from continuing operations of $4.2 million for the first quarter of 2009.
While we continue to look forward and invest in growth initiatives, we remain cautious about future sales. We expect a weak consumer retail environment to continue in 2009 and, as a company that is dependent upon consumer discretionary spending, we expect to face a challenging year. In anticipation of this, we continue to focus on the following key areas in 2009:
• Continuing to leverage the power of our brands through innovative marketing;

• Increasing our e-commerce initiatives to help drive more consumer interest in our products and create more demand for our retail partners;

• Continuing to leverage our size and scale by offering products that are differentiated from our competition through pre-launch testing that helps predict end-market acceptance, by conducting consumer segmentation analysis to assist retailers in allocating marketing resources, and by growing a global supply chain that minimizes dealer inventory requirements;

• Continuing to manage our working capital through improved product development that will reduce the number of products that we bring to market; and

• Continuing to improve our operational efficiency through centralized management of our global manufacturing, planning, sourcing, and logistics functions.

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