Forward-Looking Statements
Our Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is provided in addition to the accompanying unaudited 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 II, Item 1A of this Form 10-Q. Overview
We are a world leader in designing, manufacturing, sourcing and retailing home furnishings. Furniture Brands markets products through a wide range of channels, including its own Thomasville retail stores and through interior designers, multi-line/independent retailers and mass merchant stores. Furniture Brands' portfolio includes some of the best known and most respected brands in the furniture industry, including Thomasville, Broyhill, Lane, Drexel Heritage, Henredon, Pearson, Hickory Chair, Lane Venture, Maitland-Smith and La Barge. Through these brands, we offer (i) case goods, consisting of bedroom, dining room, and living room wood 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 targets specific customers in relation to style and price point.
• Thomasville has both wood furniture and upholstered products in the mid- to upper-price ranges and also offers ready-to-assemble furniture under the Creative Interiors brand name, as well as case goods for the hospitality and contract markets.

• Broyhill offers 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.

• Drexel Heritage markets both casegoods and upholstered furniture in categories ranging from mid- to premium-priced.

• Henredon specializes in both wood furniture and upholstered products in the premium-price category.

• Pearson offers contemporary and traditional styles of finely tailored upholstered furniture in the premium-price category.

• Hickory Chair manufactures premium-priced wood and upholstered furniture, offering traditional and modern styles.

• Lane Venture markets a premium-priced outdoor line of wicker, rattan, bamboo, exposed aluminum, and teak furniture, as well as casual indoor home furnishings.

• 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.

Business Trends and Strategy
Sales decreased 3.6% in the first quarter of 2012 compared to the first quarter of 2011. Based on these comparative periods, sales for our brands that specialize in premium-priced offerings generally outperformed sales for our brands that focus more on mid-priced offerings and sales of upholstery products generally outperformed sales of case goods.
We believe sales continue to be depressed as a result of continued weak but improving retail conditions in the residential furniture industry. We believe these weak retail conditions are primarily the result of continued weakness in the housing market, wavering consumer confidence and a number of other ongoing factors in the global economy that have negatively impacted consumers'

discretionary spending. These other ongoing factors include lower home values, prolonged foreclosure activity throughout the country, persistent high levels of unemployment, and reduced access to consumer credit. These factors are outside of our control, but have a direct impact on our sales due to resulting weak levels of consumer confidence and reduced consumer spending.
We have been taking significant steps, some of which we began before the initial downturn in the economy, and we continue to take actions to reduce costs, preserve cash, and drive profitable sales. These actions have resulted in reduced selling, general and administrative expenses, improvements in gross margin, and lower levels of debt.
We have made tough cost elimination decisions to enable us to invest in new products and effective marketing as we focus on top-line sales for the future. We have consolidated our domestic operations with the closing and selling of excess manufacturing, warehouse, and office properties. We have completed investments to expand our manufacturing facilities in Indonesia and develop a new facility in Mexico, both of which we expect will deliver components and finished product at a lower cost than would otherwise be possible. We have reduced our manufacturing costs through the implementation of lean manufacturing methods and through strategic sourcing relationships with suppliers that leverage the company's scale. Through these actions we have embraced a lean culture that we believe will allow us to compete better in the future. Our entire organization is focused on bringing the best products to the market, increasing top-line sales, fueling efficiency in all of our processes, and strengthening our financial position for the future.
In 2012, we are introducing more product launches driven by a multi-stage product development process that blends the decades of experience of our designers, merchandisers, marketers and dealers with proven consumer research methodologies that are new to the furniture industry. Through this process we are focused on identifying the right consumer target for each brand and ensuring that each brand portfolio offers the correct balance of contemporary, updated-traditional, and traditional furniture styling. With an improved cost structure, we are also delivering more product introductions at lower price points.
While we believe that these initiatives will positively impact our financial performance, and particularly benefit our sales performance as economic conditions improve, we remain cautious about future sales as we cannot predict how long the residential furniture retail environment will remain weak.

Results of Operations
As an aid to understanding our results of operations on a comparative basis, the
following table has been prepared to set forth certain statement of operations
and other data for the three months ended March 31, 2012 and 2011:
                                                    Three Months Ended March 31,
                                                 2012                          2011
                                                         % of                          % of
(in millions, except per share
data)                                    Dollars       Net Sales      Dollars       Net Sales
Net sales                             $     287.3         100.0 %   $    297.9         100.0  %
Cost of sales                               215.8          75.1          220.3          74.0
Gross profit                                 71.4          24.9           77.5          26.0
Selling, general, and
administrative expenses                      70.0          24.4           79.6          26.7
Operating earnings (loss)                     1.4           0.5           (2.1 )        (0.7 )
Interest expense                              0.8           0.3            0.8           0.3
Other income, net                             0.2           0.1            0.5           0.2
Earnings (loss) before income tax
expense                                       0.9           0.3           (2.3 )        (0.8 )
Income tax expense                            0.5           0.2            0.8           0.3
Net earnings (loss)                   $       0.4           0.1 %   $     (3.1 )        (1.0 )%
Net earnings (loss) per common
share - basic and diluted             $      0.01                   $    (0.06 )

Three Months Ended March 31, 2012 Compared to Three Months Ended March 31, 2011 Net sales for the three months ended March 31, 2012 were $287.3 million compared to $297.9 million in the three months ended March 31, 2011, a decrease of $10.6 million, or 3.6%. The decrease in net sales was primarily the result of continued weak retail conditions, resulting in lower sales volume. Gross profit for the three months ended March 31, 2012 was $71.4 million compared to $77.5 million in the three months ended March 31, 2011. The decrease in gross profit is primarily attributable to new product rollout and discounts associated with the clearance of older inventory ($10.3 million), partially offset by lower employee compensation and benefits driven by prior restructuring activities ($5.2 million). Gross margin for the three months ended March 31, 2012 decreased to 24.9% compared to 26.0% in the three months ended March 31, 2011. Gross margin decreased for the same reasons as the decrease in gross profit, offset further by gross margin improvement at our company-owned retail locations in the first quarter of 2012.
Selling, general, and administrative expenses decreased to $70.0 million in the three months ended March 31, 2012 compared to $79.6 million in the three months ended March 31, 2011 primarily due to lower non-working marketing and sales expenses ($5.5 million) and lower employee compensation and benefits driven by prior restructuring activities ($4.6 million).
Income tax expense for the three months ended March 31, 2012 totaled $0.5 million compared to income tax expense of $0.8 million in the three months ended March 31, 2011. Income tax expense in both periods reflects the effects of a valuation allowance maintained for federal and certain state deferred tax assets including net operating loss carry forwards.
Net earnings (loss) per common share was $0.01 and ($0.06) for the three months ended March 31, 2012 and 2011, respectively, on both a basic and diluted basis. Weighted average shares outstanding used in the calculation of net loss per common share on a diluted basis was 55.2 million for the three months ended March 31, 2012 and 54.8 million for the three months ended March 31, 2011.

Retail Results of Operations
Based on the structure of our operations and management as well as the
similarity of the economic environment in which our significant operations
compete, we have only one reportable segment. However, as a supplement to the
information required in this Form 10-Q, we have summarized the following results
of our company-owned Thomasville Home Furnishings Stores and all other
company-owned retail locations:
                                            Thomasville Stores (a)              All Other Retail Locations (b)
                                         Three Months Ended March 31,            Three Months Ended March 31,
(Dollars in millions)                       2012                2011               2012                  2011
Net sales                             $        27.5         $      29.0     $          8.0         $         10.0
Cost of sales                                  15.7                17.6                5.0                    6.7
Gross profit                                   11.8                11.4                3.0                    3.3
Selling, general and administrative
expenses - open stores                         14.9                15.6                3.9                    5.2
Operating loss - open stores (c)               (3.1 )              (4.3 )             (0.9 )                 (1.9 )
Selling, general and administrative
expenses - closed stores (d)                      -                   -                0.9                    1.4
Operating loss (c)                    $        (3.1 )       $      (4.3 )   $         (1.8 )       $         (3.3 )
Number of open stores and showrooms
at end of period                                 48                  47                 16                     18
Number of closed locations at end
of period                                         -                   -                 23                     27
Same-store-sales (e):
Percentage change                                 0 %                17 %              (f)                    (f)
Number of stores                                 44                  46


____________________________

b) This supplemental data includes all company-owned retail locations other than open Thomasville stores ("all other retail locations").

c) Operating loss does not include our wholesale profit on the above retail net sales.

d) Selling, general and administrative expenses - closed stores includes occupancy costs, lease termination costs, and costs associated with closed store lease liabilities. Closed stores have no net sales, cost of sales, or gross profit.

e) The Thomasville same-store sales percentage is based on sales from stores that have been in operation and company-owned for at least 15 months, including any stores that had been opened for at least 15 months but were closed during the period.

f) Same-store-sales information is not meaningful and is not presented for all other retail locations because results include retail store locations of multiple brands, including six Drexel Heritage stores, one Henredon store, one Broyhill store, and eight designer showrooms at March 31, 2012; and other than designer showrooms, it is not one of our long-term strategic initiatives to grow non-Thomasville brand company-owned retail locations.

In addition to the above company-owned stores, there were 62 and 64 Thomasville dealer-owned stores at March 31, 2012 and 2011, respectively.

Financial Condition and Liquidity
Liquidity
Cash and cash equivalents at March 31, 2012 totaled $15.4 million, compared to $25.4 million at December 31, 2011. Net cash used by operating activities totaled $8.6 million in the three months ended March 31, 2012 compared with $5.0 million in the three months ended March 31, 2011. The decrease in cash flow from operations in the three months ended March 31, 2012 compared to the three months ended March 31, 2011 was primarily driven by greater increases in accounts receivable due to higher sales later in the 2012 quarter, partially offset by more favorable reductions in inventory and improved earnings from operations. Net cash used in investing activities for the three months ended March 31, 2012 totaled $1.4 million compared with $6.1 million in the three months ended March 31, 2011. The decrease in cash used in investing activities is primarily the result of investments in our infrastructure in the first quarter of 2011 with greater additions to property, plant, equipment, and software. No significant

cash was used in financing activities in the three months ended March 31, 2012 or the three months ended March 31, 2011. Working capital was $235.0 million at March 31, 2012, compared to $231.9 million at December 31, 2011. We are managing our working capital to maximize liquidity and minimize borrowings under the ABL. Our efforts include actions to manage inventories to meet current demand, reduce expenses and capital expenditures, and extend payments to third parties and others through negotiated new terms or delayed payments, including the deferral of $2.5 million of discretionary incentive payments for non-executives to April 2012.
The primary items impacting our liquidity in the future are cash from operations, some of which include the effects of our cost reduction activities, our management of working capital, expiration or buyout of dark store leases, and pension funding requirements; and capital expenditures, acquisition of stores, sale of surplus assets, and borrowings or payments of debt.
We are focused on effective cash management and we believe our liquidity will be sufficient to support our operations for the foreseeable future. However, if we do not have sufficient cash reserves or sufficient cash flow from our operations or if our borrowing capacity under our asset-based loan ("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. If additional funds were to be needed, 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.
At March 31, 2012, we had $15.4 million of cash and cash equivalents and $77.0 million of debt outstanding, and subject to certain provisions as described in "Financing Arrangements" below, excess availability to borrow up to an additional $28.7 million under the ABL or up to $21.7 million without being subject to the cash dominion and weekly reporting covenants of the ABL agreement. The breach of any of these provisions could result in a default under the ABL and could trigger acceleration of repayment, which could have a significant adverse impact to our liquidity and our business. While we expect to comply with the provisions of the agreement for the foreseeable future, deterioration in the economy and our results could cause us to not be in compliance with our ABL agreement.
Financing Arrangements
Long-term debt consists of the following (in millions):

                          June 30,      December 31,
                            2011            2011
Asset-based loan         $     77.0    $         77.0
Less: current maturities          -                 -
Long-term debt           $     77.0    $         77.0

On April 27, 2011, we refinanced our revolving credit facility with a group of financial institutions. The amended and restated facility is a five-year ABL with commitments to lend up to $250.0 million. The ABL provides for the issuance of letters of credit and cash borrowings, is secured by our accounts receivable, inventory and cash and is guaranteed by all of our domestic subsidiaries. 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. The amount of the borrowing base above the current level of letters of credit and cash borrowings outstanding represents the total borrowing availability. Certain covenants and restrictions, including cash dominion, weekly borrowing base reporting, and a fixed charge coverage ratio, would become effective if total availability fell below various thresholds. If total availability falls below $42.0 million, we are subject to cash dominion and weekly borrowing base reporting. If total availability falls below $35.0 million, we are also subject to the fixed charge coverage ratio, which we currently do not meet. The borrowing base is reported on the 25th day of each month based on our financial position at the end of the previous month. As of March 31, 2012, based on our February 25, 2012 financial position, we had $21.7 million of availability to borrow under our ABL. We also had availability to borrow an additional $7.0 million under our ABL at March 31, 2012 subject to the cash dominion and weekly reporting covenants of the agreement, for total availability to borrow of $28.7 million. We could have borrowed an additional $35.0 million under our ABL if we had met the fixed charge coverage ratio at March 31, 2012, which we did not.
We intend to continue to manage our availability to remain above the $42.0 million threshold, as we choose not to be subject to the cash dominion and weekly reporting covenants. 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. The interest rate on cash borrowings outstanding under the ABL is either (i) a base rate (the greatest of the prime rate, the Federal Funds Effective Rate plus 1/2%, and the adjusted LIBOR plus 1%) plus a margin ranging from 1.00% to 1.75% or (ii) LIBOR

plus a margin ranging from 2.25% to 3.00%. These margins fluctuate with average availability. As of March 31, 2012, loans outstanding were $77.0 million with a weighted average interest rate of 3.35%.
Under the terms of the ABL, we are required to comply with certain operating covenants, the most significant of which have been described above. We are currently in compliance with all of these covenants and expect to remain in compliance for the foreseeable future.
Funded Status of Qualified Defined Benefit Pension Plan The projected benefit obligation of our qualified defined benefit pension plan exceeded the fair value of plan assets by $165.4 million at December 31, 2011, the measurement date. The projected benefit obligation calculations are dependent on various assumptions, including discount rate. The discount rate is selected based on yields of high quality bonds (rated Aa by Moody's as of the measurement date) with cash flows matching the timing and amount of expected future benefit payments. We believe the assumptions to be reasonable; however, differences in assumptions would impact the calculated obligation. Additionally, changes in the yields of the underlying financial instruments from which the assumptions are derived may significantly impact the calculated obligation at future measurement dates. For example, at our December 31, 2011 measurement date, we used a discount rate of 5.00% to measure the projected benefit obligation. If we had used a discount rate of 5.25% or 4.75%, the projected benefit obligation and underfunded status of our pension plan would have decreased or increased by approximately $14.0 million, respectively. On June 25, 2010, the federal government passed the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 ("the act") which is designed to provide additional relief from the funding requirements of the Pension Protection Act of 2006. The act provides opportunities for plan sponsors to extend the time over which plan deficits may be funded, up to 15 years, subject to certain limitations including offsets for excess compensation and extraordinary dividends. With the benefit of the act, our remaining funding requirements for 2012 under the Employee Retirement Income Security Act of 1974 ("ERISA") are approximately $12 million as of March 31, 2012. If the relief provided by the federal government expires or is no longer applicable to our qualified pension plan, if there is downward pressure on the asset values of the plan, or if the present value of the projected benefit obligation of the plan increases, as would occur in the event of a decrease in the discount rate used to measure the obligation, it would necessitate significantly increased funding of the plan in the future. Contractual Obligations and Other Commitments Off-Balance Sheet Arrangements
We are the prime tenant on operating leases that we have subleased to independent furniture dealers. In addition, we guarantee leases which primarily relate to company-branded stores operated by independent furniture dealers. These subleases and guarantees have remaining terms ranging up to five years and generally require us to make lease payments in the event of default by the sublessor or independent party. In the event of default, we have the right to assign or assume the lease with certain restrictions. As of March 31, 2012, the total amounts remaining under lease guarantees were $6.5 million. Our estimate of probable future losses under these guaranteed leases is not material.

Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations is based upon the Consolidated Financial Statements and Notes to the Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). 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. The consolidated financial statements consist of the accounts of our company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
We have chosen accounting policies we believe are appropriate to accurately and fairly report our operating results and financial position, and we apply those accounting policies in a consistent manner. Accounting policies we consider most critical are described in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2011.