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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K/A

(Amendment No. 1)



ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934



For the Fiscal Year Ended November 28, 2004



Commission File Number 1-10226



THE ROWE COMPANIES

(Exact name of
registrant as specified in its charter)



|                                                              |  |                                       
|------------------------------------------------------------- |  | --------------------------------------
|Nevada                                                        |  | 54-0458563                            
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. EmployerIdentification Number)



|                                                  |  |           
|------------------------------------------------- |  | ----------
|1650 Tysons Boulevard, Suite 710,McLean, Virginia |  | 22102     
|(Address of principal executive offices)          |  | (Zip Code)



Registrants
telephone number, including area code: (703) 847-8670



Securities registered pursuant to Section 12(b) of the Act:



|                              |  |                                          
|----------------------------- |  | -----------------------------------------
|Title of Each Class           |  | Name of Each Exchange on Which Registered
|Common Stock, $1.00 par value |  | American Stock Exchange                  



Securities
registered pursuant to Section 12(g) of the Act: None



Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90 days.  YES  x    NO ̈.



Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x



Indicate by check mark whether Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

YES ̈NO  x.



The aggregate market value of the voting stock held by nonaffiliates of the registrant as of
May 30, 2004 (the exclusion from such amount of the market value of the shares owned by any person shall not be deemed to be an admission by the registrant that such person is an affiliate of the registrant) was $43,015,586.



As of February 10, 2005, there were issued and outstanding 13,285,798 shares of the
registrants Common Stock.



DOCUMENTS INCORPORATED BY
REFERENCE



|                                                                                   |  |                   
|---------------------------------------------------------------------------------- |  | ------------------
|Document                                                                           |  | Where Incorporated
|Portions of the Annual Report to Stockholders for the year ended November 28, 2004 |  | Part I            
|Portions of the Annual Proxy Statement for the 2005 Annual Meeting of Stockholders |  | Parts III and IV  



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EXPLANATORY NOTE



This Amendment to The Rowe Companies (the Company) Annual Report on Form 10-K for the fiscal year ended November
28, 2004 is being filed in order to correct its previously issued consolidated financial statements for fiscal 2002, 2003 and 2004. The corrections are to properly account for leasehold improvement allowances and construction periods in accordance
with generally accepted accounting principles in the United States of America. See Note 2 to the Companys audited consolidated financial statements in Item 8 for additional discussion.



PART I



|Item 1. | Business.
|------- | ---------



General



The Rowe Companies (the Company) operates two subsidiaries in the home furnishings industry: Rowe Furniture, Inc. (Rowe or the wholesale segment), a major manufacturer of quality
upholstered furniture serving the middle and upper middle market primarily throughout the United States through home furnishings retailers; and Storehouse, Inc. (Storehouse or the retail segment), a multi-channel, lifestyle
home furnishings business including 64 retail home furnishings stores. Storehouse makes good design accessible by selling an edited assortment of casual, contemporary home furnishings through its stores located in the Southeast, Southwest and
Mid-Atlantic markets, its catalog and over the Internet. Originally founded in 1946 as Rowe Furniture Corporation, the Company changed its name to The Rowe Companies in March 1999 to more appropriately reflect the expanded scope of the
Companys operations.



In January 1998, the Company
created a new subsidiary, The Wexford Collection, Inc., (Wexford), to acquire the assets and liabilities of J&M Designs, Ltd. In October 1998, the Company acquired The Mitchell Gold Co., (Mitchell Gold). In August 1999,
the Company acquired Storehouse. These companies joined Rowe and Home Elements, Inc., (Home Elements), the Companys internally grown retail furniture chain.



On November 10, 2000, the Company announced its intention to discontinue operations at Wexford. The transaction was
completed and all assets were sold in January 2001.



During
2002, the Company combined the operations of the Storehouse and Home Elements chains. The combined entity operates under the Storehouse name. The merger resulted in reduced administrative costs through the elimination of duplicate functions,
advertising and delivery efficiencies and improved purchasing power with certain vendors.



On April 4, 2003, the Company announced that it had sold the outstanding capital stock of Mitchell Gold and certain related intangible assets to an entity formed by Wafra Partners LLC, a New York based private equity
firm, and The Mitchell Gold Co. management for approximately $46 million in cash, subject to adjustments, effective as of the close of business April 2, 2003.



The Company operates in two segments of the home furnishings industry, the wholesale (manufacturing) home furnishings segment and the retail home
furnishings segment. The wholesale home furnishings segment includes the design and manufacture of upholstered furniture. Upholstered furniture includes sofas, loveseats and chairs, covered in fabric or leather. The retail home furnishings segment
sells upholstered furniture (primarily obtained from Rowe), leather furniture, case goods, dining sets, rugs and other home furnishing accessories through Company-owned stores in the Southeast, Southwest and Mid-Atlantic markets, its catalog and
over the Internet. Please refer to the segment information contained in Note 14 to the Companys consolidated financial statements under Item 8. Financial Statements and Supplementary Data.



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The Company is incorporated under the laws of Nevada. Its principal executive offices are located at 1650
Tysons Boulevard, McLean, Virginia 22102, and its telephone number is (703) 847-8670. The Companys Internet address is www.therowecompanies.com. Unless the context indicates otherwise, references herein to the Company include The
Rowe Companies, its predecessors, and its subsidiaries.



Executive Officers
Who Are Not Directors



Barry A. Birnbach, age 62, has been
in the service of the Company since 1968. He has served as the Companys Vice President of Corporate Development since March 1999. Prior to becoming Vice President of Corporate Development, he was Vice PresidentSpecial Account Sales at
Rowe. He is the brother of Gerald M. Birnbach, the Companys President and Chairman of the Board.



Timothy J. Fortune, age 53, has been in the service of the Company since 1997. He has served as the Companys Vice President of Human Resources and
Strategy since March 1999. Prior to joining the Company, Mr. Fortune was Human Resources Administrator of the Virginia Department of Transportation from 1993 until August 1997.



Gene S. Morphis, age 56, has been in the service of the Company since July 30, 2002. He has served as the Companys
Secretary/Treasurer, Chief Financial Officer since joining the Company. Prior to joining the Company, Mr. Morphis was Chief Financial Officer of ClientLogic from April 1999 to June 2001 and Chief Financial Officer of Modus Media International from
April 1995 to April 1999.



Forward-Looking Information



Information regarding forward-looking information is contained under Item
7Managements Discussion and Analysis of Financial Condition and Results of Operations and is incorporated by reference.



The Industry



The principal categories of manufactured furniture products include wood, upholstered and metal furniture products. Of these categories, wood furniture
and upholstered furniture each represent nearly half of total industry sales; metal and other products account for the balance. Within each category, furniture manufacturers generally focus on particular price ranges and styles.



The furniture industry historically has been cyclical, fluctuating with the
general economy. Management believes that the industry is significantly influenced by consumer behavior and confidence, personal disposable income, demographics, housing activity, interest rates, and credit availability. The upholstered segment of
the furniture industry generally has followed the same trends as the rest of the furniture industry. There can be no assurance that an economic downturn or change in any of the other factors affecting the furniture industry would not have a material
adverse effect on the Company.



Overview



Fiscal years 2001 and 2002 were difficult years, as the economy turned
downward and then struggled to recover. Storehouse experienced declining shipments over this period, while Rowe experienced the loss of several major customers and declining shipments to others.



As 2003 began, signs of improving economic conditions began to appear, and
strengthened as the year progressed. The Company completed the sale of Mitchell Gold in April 2003, and by reducing debt with the proceeds of the sale, substantially improved its financial position. Storehouse benefited from improvements in its
operations and the improving economic conditions to post eleven monthly same store sales increases during the year.



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During 2004, Storehouse continued the trend of monthly same store sales increases, with an overall same
store sales growth of 10.7 percent in 2004, slightly ahead of the 9.9 percent rate for 2003. At the same time, improvements in margins combined with increased sales resulted in substantially improved operating results at Storehouse, converting a
substantial operating loss in 2003 into a small but positive operating income for 2004.



At Rowe, 2004 was not as favorable. Rowe worked through the year to complete the implementation of its ERP system, while simultaneously working towards converting its operations to lean manufacturing
processes. Lean manufacturing is based on a collection of techniques designed to improve quality, reduce cost and manufacturing cycle time and train employees to perform multiple tasks. These techniques include just-in-time inventory management,
continuous improvement and waste reduction programs. The combination of these two major efforts strained the management team at Rowe, resulting in some disruption in operations and operating results through the first nine months of the year. The ERP
implementation went live early in the fourth quarter of 2004, and the impact on operations and operating results in the first few months has been much more substantial than anticipated, significantly impacting full year operating results (both
shipments and gross profit) for 2004.



During 2004, the Company
decided to sell two real estate investment properties. In December 2004, the Company closed the sale of the first of the properties, resulting in a gain, net of taxes, of approximately $2.7 million, or $0.20 per share. The Company continues to
pursue potential purchasers for the second property. The primary reasons for selling these properties was the desire to dispose of non-core assets, the avoidance of significant capital expenditures that will be required in coming years, absent a
disposition of these properties, and a reduction in the Companys outstanding indebtedness.



Wholesale Home Furnishings Segment - Rowe



Product Lines



Rowes products encompass a full line of upholstered furniture including sofas, loveseats, occasional and dining chairs, ottomans and sleep sofas,
covered in fabric, as well as selected pieces in leather. Rowes products are available in over 1,000 different fabrics. Styles offered include traditional, contemporary and transitional designs.



Rowes product strategy is to provide a wide choice of furniture styles
and fabrics while providing high quality at competitive prices. Rowe continually reviews and evaluates its designs, and primarily on a semi-annual basis, adds and discontinues designs as it deems appropriate. Rowe identifies trends in styles, colors
and patterns through independent research, contacts with Rowes customers and the occasional use of independent designers. Management also solicits opinions from its customers and manufacturing and marketing employees prior to final design
selection.



Marketing and Sales



Rowe has developed a broad and diverse national customer base. Rowe sells
its manufactured products primarily through commissioned sales personnel who are employees of Rowe, dedicated to marketing Rowes products exclusively. Management believes that this arrangement gives Rowe a competitive advantage over many of
its competitors, which sell their products through independent sales representatives who represent more than one manufacturer. Rowes products are sold to over 1,200 national, regional and local furniture retailers and the Companys
wholly-owned subsidiary, Storehouse. Approximately 3% of 2004, 2003 and 2002 segment sales were to customers located outside of the United States.



The general marketing practice in the furniture industry is to exhibit products at international and regional furniture markets. Rowe displays its product
lines and introduces new products in April and October of each year at an eight-day furniture market held in High Point, North Carolina. Rowe maintains one showroom totaling 33,420 square feet in the High Point market.



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Retail Distribution



Management believes there are ample opportunities to expand Rowes retail distribution network. Rowe strives to
maintain strong relationships with, and increase sales to its existing retailers. It also attempts to increase sales by adding new retailers, particularly in geographic regions where its products are not widely available, such as the Southwest and
the West. When adding retailers, Rowe seeks to sell to retailers that (1) it believes to be financially sound and (2) emphasize fashion and style in marketing to consumers rather than relying largely or exclusively on promoting discounted prices.



Key Customers.    Rowe sells its
products to over 1,200 accounts with normal credit terms being net 30 days. Shipments to its top three unaffiliated customers, as a percentage of consolidated net shipments were 7% in 2004, 7% in 2003 and 8% in 2002. Shipments to Rowes top ten
unaffiliated customers as a percent of consolidated net shipments amounted to 13% in 2004, 13% in 2003 and 14% in 2002. Shipments to Storehouse were $19,557,000 in 2004, $19,898,000 in 2003 and $19,056,000 in 2002.



Manufacturing and Distribution



Rowe manufactures its products in four production facilities, of which three
are owned and one is leased. Two facilities manufacture upholstered furniture. The remaining two facilities manufacture frames and wood components in addition to kiln-drying lumber for outside customers. Total manufacturing space is approximately
1.1 million square feet.



Manufacturing
Process.    Rowe utilizes a vertically integrated manufacturing process which includes kiln-drying of hardwood, wood milling, frame construction, fabric cutting, sewing, foam cutting and filling, upholstery and final assembly
of the upholstered product. Rowe utilizes computer-aided design patterns and CNC Routers (computerized plywood cutting machines) to manufacture frames for upholstered furniture and utilizes specialized machines in the fabric cutting process, which
facilitate design work, help maximize fabric yield, and increase the efficiency of the assembly process. The completed pieces of upholstered furniture are then cleaned, inspected and packed for shipping.



Manufacturing Efficiencies.    Management has
taken a number of steps to improve manufacturing efficiencies, including implementation of computerized systems in its manufacturing facilities to more effectively manage its inventories, purchasing, labor and manufacturing processes; changes in its
employee compensation program; and the establishment of new internal systems to control overhead and material usage. Management believes through a combination of increased efficiencies, improved product quality, accelerated deliveries and stable
pricing, Rowe will maintain a competitive advantage in marketing its products.



Throughout 2003 and 2004, Rowe has been working to implement the ERP system mentioned above. During the fourth quarter of 2004, the switch was made to the new system and problems were encountered beyond those
anticipated. The most significant impact was on Rowes ability to schedule orders for production. This dramatically affected Rowes ability to efficiently schedule, produce, ship and invoice customer orders during the last quarter of
fiscal 2004, resulting in lower shipments and higher costs.



In
addition to the major disruption caused by the ERP implementation, Rowe also worked during 2004 on converting to lean manufacturing practices. The combination of the ERP implementation effort and changes driven by evolution to lean practices had a
lesser, but not insignificant, impact on production costs in the time frame leading up to the ERP go-live date.



Rowe is now focused on stabilizing the ERP system and getting productivity back near historical levels. The evolution to lean practices is expected to
hold in place until the ERP system is operating effectively, and then continue to full implementation. Although no assurances can be given as to when it will occur, when fully complete, Rowe expects that the combination of lean practices and the
capabilities of the ERP system will substantially shorten the time between receipt of a customer order and delivery to that customer, targeting a



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10-day turnaround time as the ultimate goal. This would be substantially quicker than Rowes current 30 day standard turnaround time. Management
believes that the combination of make-to-order and quick turn-around will allow it to compete successfully against lower cost, foreign-sourced upholstery products, and that the addition of several new customers are early indicators of such success.



Product Quality and Value.    Rowe
is committed to providing high quality, value oriented furniture at competitive prices. Management believes that Rowe adheres to strict quality standards in all aspects of design and production, including material selection, frame design and
construction, workmanship, and appearance. Product quality improvements in recent years include better undercarriage construction, the use of higher quality cushioning materials and improved fabric matching. Rowe has been successful in providing
this quality while generally holding prices steady in recent years. Some modest price increases were taken during 2004, principally related to steel prices for sleep sofas and oil related cost increases.



Dedication to Customer Service.    Rowe is
dedicated to providing a high level of service to all its customers, and maintains close contact and communicates frequently with its customers in order to better identify, understand and meet their needs. Management believes the utilization of
company-dedicated sales persons enables it to better communicate with its customers.



Important aspects of Rowes service to certain customers include its automated order entry, bar coding and electronic data interchange systems. These systems give customers the ability to place orders directly,
and allows Rowe to monitor the status of orders and track inventory and sales activity. Rowe is in the process of enhancing the capabilities of these systems and increasing the number of customers who utilize them. In addition, Rowe has introduced
point-of-sale computer systems into Storehouse stores and other dealer locations that allow retailers to display for consumers full-color pictures of various combinations of furniture styles and fabric patterns. Rowe has established regional repair
service centers so that it can respond quickly to consumers needs.



Another special emphasis of Rowes customer service is the prompt delivery of its products, a significant portion of which are manufactured and shipped generally within 30 days of receipt of an order. Rowes
order entry, credit approval, manufacturing and shipping systems are all designed to provide prompt delivery to its customers. The ERP and lean manufacturing initiatives as previously discussed are intended to maintain Rowes leadership
position in prompt delivery.



Employee
Compensation.    At Rowe, employees are compensated primarily on hourly rates plus bonuses for productivity improvements and cost reductions on a facility-wide basis. Management believes that this program provides incentive
for employees to contribute to facility-wide efficiency, quality improvements and cost reductions.



Manufacturing Capacity.    Rowe operates its upholstery manufacturing facilities on a one-shift, five to six day per week
basis, with some departments working a partial second shift. The frame plants supporting them are working on a 24 hour, seven day per week basis. Rowe is pursuing the acquisition of additional CNC routers to increase frame production capacity. At
this time, the Company has no plans to construct or lease additional manufacturing facilities.



Backlog.    Rowe generally manufactures its products in response to actual customer orders and typically ships the finished product within 30 days following receipt of the related order,
depending upon fabric availability. Accordingly, the level of backlog at any particular time is limited, and is not necessarily indicative of the level of future shipments. Rowes backlog of unshipped orders was approximately $17.7 million as
of November 28, 2004 compared to $11.5 million as of November 30, 2003. Rowe anticipates that 100% of the backlog as of November 28, 2004 will be shipped in fiscal 2005.



Distribution.    Rowes products are primarily shipped to its customers through a dedicated
carriage service with a nationally recognized truck leasing company. Under this agreement, Rowes products are delivered in



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accordance with its specifications on a modern fleet of over-the-road tractors and trailers that prominently display the Rowe Furniture name. Management
believes that this agreement offers favorable terms, allows it to meet its delivery deadlines and improves Rowes name recognition. This agreement expires January 31, 2006. West Coast shipments are provided by what management believes to be a
favorable arrangement for carriage of Rowes products utilizing third-party distribution services. Transportation services are a combination of contract carrier agreements and intermodal transportation/distribution operations. Mode selection is
based on the volume of delivery into a geographic area as well as the required level of delivery service. International shipments of upholstered furniture are primarily shipped in full containers utilizing third-party freight forwarders.



Raw Materials



The raw materials used include fabrics, lumber, plywood, polyurethane foam,
metal components, mattresses and finishing materials. Other than lumber and fabric, all raw materials used by Rowe are generally available on an as needed basis. Rowe maintains what it believes to be an adequate supply of raw materials
in inventory.



Rowe currently obtains its raw materials from a
limited number of suppliers, and in the case of hardwood plywood, primarily from a single supplier. However, management does not believe that Rowe is dependent upon a single supplier for any of its materials, as substitute suppliers are available.
Management believes that its sources of raw materials are adequate. Management forms strong relationships with its suppliers and negotiates favorable prices for its raw materials.



To improve quality, maximize the opportunities to implement labor saving technology, hedge against the potential of rising
wood costs and free up kiln capacity, Rowe has substituted hardwood plywood for hardwood in certain aspects of the construction of its furniture frames. Because plywood construction is less labor-intensive, and in many respects more structurally
sound than hardwood construction, this method has improved product quality while helping to reduce overall cost.



Retail Operations



Retail Home Furnishings Segment - Storehouse



The retail home furnishings segment operates under the Storehouse brand name and consists of the combination of the Storehouse chain and the former Home
Elements chain (see below). Storehouse would be the largest customer of Rowe if it were an unaffiliated customer.



During 2002, the Company combined the operations of the Storehouse and Home Elements chains. The combined entity operates under the Storehouse name.
During 2002, the Company recorded charges totaling $2.6 million to effect the combination. Such costs included charges to shut down two stores, sublease Home Elements administrative office space, terminate employees in duplicate positions,
write-off certain assets without future value (such as Home Elements store signage and their computer system), and transition the Home Elements stores to the Storehouse computer system. Other costs, totaling $1.1 million, (included in the $2.6
million above) were incurred to convert Home Elements stores to Storehouses systems and signage. During 2003, an additional $225,000 charge was recorded based upon the final sublease terms for the former Home Elements administrative office
space.



Benefits realized from the merger included reduced
administrative costs (through the elimination of duplicated functions); increased efficiency of advertising efforts (through the elimination of essentially duplicate ads, and the ability to spread dollars spent in certain markets over an increased
number of stores); improved purchasing power through the increased size of the combined entity; and the implementation of a best of the best program to take the best selling items from each chain and add them to the other stores of the
other chain, while eliminating similar but weaker selling products in those stores.



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Subsequent to the combination, same store sales improved by 3.1% during the fourth quarter of the
Companys 2002 fiscal year, the first sustained positive growth in two years. Positive growth continued in 2003, with same store sales growth in eleven of the twelve months, totaling 9.9% overall for the year. This trend continued in 2004, with
positive same store sales growth for every month of the year, totaling 10.7% overall.



Storehouse operates 64 retail stores ranging in size from 4,000 to 18,000 square feet and three distribution centers averaging approximately 95,000 square feet each. All retail store locations and distribution centers
are leased. The stores are located in the Southeast, Southwest and Mid-Atlantic markets, particularly in the Atlanta, Georgia metropolitan area, Florida, Texas and the Washington, DC/Baltimore metropolitan area. These stores sell upholstered
furniture, most of which is provided by Rowe; leather furniture; case goods, such as tables, bedroom furniture, chairs and entertainment centers; and lamps, rugs and other accessories. Approximately 39% of Storehouses product purchases were
from foreign vendors in 2004, compared to 32% in 2003.



During
2003, Storehouse implemented two initiatives, and planned for a third, that were expected to increase revenue in 2004 and beyond. First, Storehouses primary marketing tool, its advertising brochure that was generally published four or five
times annually, more than doubled in page count to 64 and was upgraded to a direct response catalog with more product and more product information. A call center was added and staffed to answer calls and take direct-from-consumer sales calls. The
catalog has continued its evolution and now is generally issued in a 96 page version, six times a year, and the call center staff has expanded to keep up with incoming call volume. Second, a textile program was developed to market a line of quality
window treatments and related products that coordinate with the other home furnishings available in the store. The textile program was rolled out as fiscal 2003 ended, and has grown during 2004. Finally, during early 2004, Storehouse rolled out its
internet sales program, building from the success of the catalog and the use of the call center. These initiatives were expected to add 3% to 5% to incremental sales in 2004. For 2004, textiles and the two distribution channel initiatives accounted
for just over 4% of total sales.



Storehouse added four new
stores in fiscal year 2004, while closing two smaller, unprofitable stores. In 2005, eight to ten stores are anticipated to open, while only one to three store closings are anticipated, depending upon market conditions.



Governmental Regulations and Environmental Considerations



The Companys operations are required to meet federal, state and local
regulatory standards in the areas of safety, health and environmental pollution controls. Historically, compliance with these standards has not had a material adverse effect on the Companys operations. Management believes that its facilities
are in compliance, in all material respects, with applicable federal, state and local laws and regulations concerned with safety, health and environmental protection.



The Company currently anticipates increased federal and state environmental and health and safety regulations affecting the
furniture industry, particularly regarding flammability standards, emissions from paint and finishing operations and wood dust levels in the manufacturing process. Any such additional regulations could affect Rowes upholstery, wood milling and
finishing operations. The industry and its suppliers are attempting to develop water-based finishing materials to replace commonly used organic-based finishes, which are a major source of regulated emissions. The Company cannot at this time estimate
the impact of any new regulations on the Companys operations or the costs of compliance.



Competition



The
furniture industry is highly competitive and includes a large number of manufacturers and retailers. The market in which the Company competes includes a large number of manufacturers of upholstered and wood furniture as well as a growing base of
traditional furniture stores and specialty furniture retailers. Certain of the Companys competitors have greater financial resources than the Company. Management believes that the high



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quality, design and competitive pricing of the Companys products, the Companys unique retail format, the Companys reputation among
retailers and customers and the Companys commitment to customer service have enabled the Company to compete successfully in this market.



Employees



As of November 28, 2004, the Company employed approximately 2,600 full-time employees, of whom approximately 700 are in management, supervisory and sales
positions. None of the Companys employees are covered under a collective bargaining agreement. The Company considers its employee relations to be good.



Trademarks



The Company, through a wholly-owned intellectual property holding company, has registered its Rowe, Rowe First in Fashion,
Regency Manor, Cover Ups, Comfortable Stuff, Comfortable Stuff by Rowe, Home Elements, Home Wear, J. L. D. Jami L. Designs Really Smart Furniture, Jami L.
Designs, Robin Bruce, Room Scenes, Room Sense, Rowe Furniture Rowe and Studiorowe trademarks with the United States Patent and Trademark Office. The Company, through a wholly-owned
operating subsidiary, has also registered with the United States Patent and Trademark Office the Storehouse trademark. Applications for registration of the Companys Earth & Elements trademark is pending before the
United States Patent and Trademark Office. In addition, the Company has certain of its trademarks registered in Australia, Brazil, Canada, Chile, the European Community, Germany and Mexico, and applications for registration of certain of the
Companys trademarks are pending in Brazil, the European Community and Mexico. Management believes that its trademark position is adequately protected in all markets in which the Company does business. Management also believes that the
Companys trade names are recognized by dealers and distributors and are associated with a high level of quality and value.



Insurance



The Company maintains what management believes is a comprehensive casualty, liability and property insurance program. Additionally, the Company maintains
self-insurance programs for that portion of health care and workers compensation costs not covered by insurance.



Financing



In May 2002, the Company refinanced its then-existing bank debt. The Company entered into a working capital revolving credit facility (currently with $35
million of total availability); a $5 million term loan; and two mortgage loans on real estate investment property, totaling $9.3 million. Proceeds from these loans were used to pay-off most of the prior loans. In addition, the operating lease
relating to the Elliston manufacturing facility converted to a capital lease due to changes in its terms.



The working capital revolving credit facility matures in May 2007; the term loan requires quarterly principal payments of $250,000 and matures in May
2007; and the mortgage loans require monthly principal payments for ten years, with the remaining balance then due.



The above agreements prohibit the Company from paying dividends, repurchasing stock or incurring additional debt (other than certain permitted debt)
without the lenders written consent and are collateralized by substantially all assets of the Company and its subsidiaries. Permitted debt generally includes: (i) certain existing debt and future obligations to the lenders; (ii) trade accounts
payable and accrued expenses, including accrued payroll, benefit plans, taxes, and other operating expenses, incurred in the ordinary course of business; (iii) rent obligations under leases; (iv) debt incurred for the purchase of fixed assets that
does not at any time exceed, in the aggregate, $500,000; (v) certain obligations which may arise as a result of any guaranty, indemnity or other assurance of payment or performance by others incurred in the ordinary course of business or under other
limited



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specified circumstances; (vi) debt incurred as a result of the refinancing of certain existing debt; and (vii) other debt not included above that does not at
any time exceed, in the aggregate, $500,000.



The agreements
also restrict the amount of capital expenditures and the Companys ability to sell certain assets. Each of these facilities contain, among other things, covenants with respect to a fixed charge coverage ratio (defined generally as the ratio of
consolidated earnings before interest, taxes, depreciation and amortization (EBITDA), reduced by capital expenditures and cash taxes, to consolidated debt service), maximum leverage ratio (defined generally as the ratio of consolidated
debt to consolidated EBITDA), and to maintain a minimum excess borrowing availability ($3.0 million), and minimum monthly EBITDA, minimum consolidated tangible net worth (defined generally as total equity reduced by goodwill). As of November 28,
2004, the Company was in compliance with the provisions of these agreements, as amended on April 15, 2005.



During 2003, using proceeds from the sale of its Mitchell Gold subsidiary in April 2003, the Company paid down approximately $22 million of long-term
debt, paying off the old revolving loan and paying down the working capital revolving loan and the Elliston lease.



In December 2003, the Company extended the term of its capital lease and modified the repayment terms and interest rate; its capital lease requires
monthly payments of $72,300 through November 2008, with the remaining unpaid balance due in December 2008.



In conjunction with the extension of the capital lease in December 2003, the Company entered into an interest rate swap agreement on $9 million notional
principal for a five-year term. Under this agreement, when 30 day LIBOR is below 3.65%, the Company pays the counterparty the difference between actual 30 day LIBOR and 3.65% (on $8,450,000 of notional principal as of November 28, 2004). The
notional principal decreases by $50,000 each month. If and when 30 day LIBOR exceeds 3.65%, the Company will receive the difference from the counterparty. This swap has been determined to be highly effective over its life, and as such will be
accounted for as a hedge, with changes in its fair value recorded as a component of comprehensive income (loss). As of November 28, 2004, 30 day LIBOR was 2.13%. The Company has recorded a current liability and a long-term asset for the present
value of the excess of payments under the swap contract. The fair value of the swap is reflected in other comprehensive income, net of taxes, as the Company has designated this contract as a cash flow hedge.



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|Item 6. | Selected Financial Data.
|------- | ------------------------



The following selected financial data are derived from the audited consolidated financial statements of the Company have been restated to reflect
adjustments that are further discussed in the Explanatory Note in the forepart of this Form 10-K/A and in Note 2; Restatement of Financial Statements in the Notes to Consolidated Financial Statements included in Item
8Financial Statements and Supplementary Data of this Form 10-K/A. The data set forth below should be read in conjunction with Item 7Managements Discussion and Analysis of Financial Condition and Results of
Operations, the section Forward-looking Statements of this Form 10-K/A and the Companys Consolidated Financial Statements and Notes thereto contained in Item 8 of this Form 10-K/A.



Five Year Summary



|                                                                                  |  |                                          |          |                |   |                |  |   |                |   |  |                |          |   |  |   |         
|--------------------------------------------------------------------------------- |  | ---------------------------------------- | -------- | -------------- | - | -------------- |  | - | -------------- | - |  | -------------- | -------- | - |  | - | --------
|                                                                                  |  | 2004(52 weeks)                           |          | 2003(52 weeks) |   | 2002(52 weeks) |  |   | 2001(52 weeks) |   |  | 2000(53 weeks)
|                                                                                  |  | (in thousands, except per share amounts)
|Net shipments                                                                     |  | $                                        | 295,203  |                | $ | 278,373        |  | $ | 269,146        |   |  | $              | 267,387  |   |  | $ | 305,596 
|Gross profit                                                                      |  |                                          | 103,559  |                |   | 100,125        |  |   | 95,683         |   |  |                | 88,822   |   |  |   | 105,926 
|Operating income (loss)                                                           |  |                                          | 3,183    |                |   | 4,896          |  |   | (525           | ) |  |                | (11,700  | ) |  |   | 11,230  
|Net earnings (loss) from continuingoperations (1) (2) (3)                         |  |                                          | 818      |                |   | 625            |  |   | (2,855         | ) |  |                | (9,004   | ) |  |   | 5,476   
|Net earnings (loss) (1) (2) (3)                                                   |  | $                                        | 890      |                | $ | 2,214          |  | $ | 1,959          |   |  | $              | (6,243   | ) |  | $ | 3,355   
|                                                                                  |  |                                          |          |                |  
|Working capital                                                                   |  | $                                        | 28,265   |                | $ | 24,947         |  | $ | 14,182         |   |  | $              | 33,066   |   |  | $ | 31,876  
|Total assets                                                                      |  |                                          | 139,121  |                |   | 131,850        |  |   | 177,223        |   |  |                | 157,273  |   |  |   | 166,537 
|Long-term debt                                                                    |  |                                          | 24,077   |                |   | 34,312         |  |   | 63,475         |   |  |                | 52,096   |   |  |   | 52,761  
|Stockholders equity                                                              |  | $                                        | 52,680   |                | $ | 51,036         |  | $ | 48,274         |   |  | $              | 46,208   |   |  | $ | 54,987  
|                                                                                  |  |                                          |          |                |  
|Ratio of current assets to current liabilities                                    |  |                                          | 1.7 to 1 |                |   | 1.6 to 1       |  |   | 1.3 to 1       |   |  |                | 1.7 to 1 |   |  |   | 1.6 to 1
|Ratio of cash and receivables to current liabilities                              |  |                                          | 0.5 to 1 |                |   | 0.6 to 1       |  |   | 0.4 to 1       |   |  |                | 0.7 to 1 |   |  |   | 0.7 to 1
|                                                                                  |  |                                          |          |                |  
|Net earnings (loss) from continuing operations per common sharebasic             |  | $                                        | 0.06     |                | $ | 0.05           |  | $ | (0.22          | ) |  | $              | (0.69    | ) |  | $ | 0.42    
|Net earnings (loss) per common sharebasic                                        |  | $                                        | 0.07     |                | $ | 0.17           |  | $ | 0.15           |   |  | $              | (0.48    | ) |  | $ | 0.26    
|Weighted average common shares                                                    |  |                                          | 13,198   |                |   | 13,167         |  |   | 13,152         |   |  |                | 13,135   |   |  |   | 13,152  
|                                                                                  |  |                                          |          |                |  
|Net earnings (loss) from continuing operations per common share assuming dilution |  | $                                        | 0.06     |                | $ | 0.05           |  | $ | (0.22          | ) |  | $              | (0.69    | ) |  | $ | 0.41    
|Net earnings (loss) per common share assuming dilution                            |  | $                                        | 0.07     |                | $ | 0.17           |  | $ | 0.15           |   |  | $              | (0.48    | ) |  | $ | 0.25    
|Weighted average common shares and equivalents                                    |  |                                          | 13,546   |                |   | 13,205         |  |   | 13,193         |   |  |                | 13,135   |   |  |   | 13,703  
|Cash dividends paid per share                                                     |  | $                                        |         |                | $ |               |  | $ |               |   |  | $              | 0.11     |   |  | $ | 0.14    

---

|(1) | The results of operations for 2003, 2002, 2001 and 2000 have been restated to reflect the discontinuation of certain real estate operations. See Note 3 of the Consolidated
Financial Statements.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The results of operations for 2001 include a loss, net of taxes, of approximately $2.7 million, or $0.20 per share, associated with the write-off of receivables and other
balances resulting from the bankruptcy of Homelife Furniture Corporation.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | The results of operations for 2002, 2001 and 2000 have been restated to reflect the discontinuation of operations at The Mitchell Gold Co. See Note 3 of the Consolidated
Financial Statements.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



11



---

|Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations.
|------- | --------------------------------------------------------------------------------------



RESTATEMENT OF FINANCIAL STATEMENTS



On February 7, 2005, the Office of the Chief Accountant of the Securities
and Exchange Commission (SEC) issued a letter to the American Institute of Certified Public Accountants expressing its views regarding certain operating lease accounting issues and their application under generally accepted accounting
principles in the United States of America (GAAP). In response to that letter, the Companys management initiated an internal review of its lease-related accounting and, in consultation with the Audit Committee of its Board of
Directors and its independent registered public accounting firm, determined that it should revise its accounting for leasehold improvements funded with landlord incentives or allowances under operating leases, and to revise the period over which
rent expense is incurred to include the time period that the leased space is under construction. As a result, the Company restated its consolidated financial statements for each of the fiscal years ended November 28, 2004, November 30, 2003 and
December 1, 2002, in this report.



The Company had historically
accounted for landlord allowances for leasehold improvements as reductions to the related leasehold improvement asset on the consolidated balance sheets and capital expenditures in investing activities on the consolidated statements of cash flows.
Management determined that the appropriate interpretation of FASB Technical Bulletin No. 88-1, Issues Relating to Accounting for Leases, requires these allowances to be recorded as deferred rent liabilities on the consolidated balance
sheets and as a component of operating activities on the consolidated statements of cash flows. This change has no impact on results of operations, as the increased amortization expense associated with the additional leasehold improvements is offset
by reductions in rent expense resulting from amortization of the deferred rent liability.



The Company had historically recognized rent expense on a straight-line basis over the lease term commencing with the date the leased store opened for business. Management re-evaluated FASB Technical Bulletin No.
85-3, Accounting for Operating Leases with Scheduled Rent Increases, and determined that the lease term should commence on the date the Company takes possession of the leased space for construction purposes, which is generally several
months prior to the store opening date. Excluding tax effects, the correction of this accounting requires the Company to record additional deferred rent and adjust retained earnings on the consolidated balance sheets, and record additional rent
expense in the consolidated statements of operations and comprehensive income (loss) for each of the three years in the period ending November 28, 2004.



In addition, in fiscal year 2003, the Company recorded an impairment charge relating to several unprofitable stores. The application of these restatements
resulted in additional leasehold improvements associated with two stores included in the impairment charge, and the impairment charge has been restated to reflect the write-off of the additional leasehold improvements as of that date.



The cumulative effect of these accounting changes, including tax effects, is
a reduction of retained earnings of $488,000 as of the beginning of fiscal 2002 and incremental decreases to retained earnings of $61,000, $332,000 and $142,000 for the fiscal years ended 2002, 2003 and 2004, respectively.



See Note 2 to the Consolidated Financial Statements of this report for a
summary of the effect of these changes on the Companys Consolidated Balance Sheet as of November 28, 2004 and November 30, 2003 as well as on the Companys Consolidated Statements of Operations and Comprehensive Income (Loss) and Cash
Flows for fiscal years 2004, 2003, and 2002. The accompanying Managements Discussion and Analysis gives effect to these corrections.



OVERVIEW



The Rowe Companies (the Company) operates through two subsidiaries in the home furnishings industry. Rowe Furniture, Inc. (Rowe or
the wholesale segment) manufactures quality, upholstered furniture serving the middle and upper middle market primarily throughout the United States. Storehouse, Inc. (Storehouse or the retail segment) is a
multi-channel lifestyle home furnishings retailer with 64 stores from Texas through the Southeast and Mid-Atlantic markets.



12



---

During 2004, the Company made significant progress in its retail segment towards achieving profitability,
with strong sales growth and improved margins significantly reducing the 2003 losses. On the wholesale side, 2004 was focused on the Enterprise Resource Planning (ERP) system implementation, combined with progress towards implementing
lean manufacturing processes. While certain phases of the ERP implementation were completed in the fourth quarter of 2004, disruptions were encountered along the way, and continued post-implementation, negatively impacting operating results.



There are varying estimates of the size and growth of the
residential home furnishings industry. For its planning purposes, the Company uses an estimate of sales of home furnishings at retail for the categories offered by its Storehouse subsidiary (including upholstered, dining and bedroom furniture,
window treatments, rugs, lighting, and accessories) of approximately $75 billion in 2004, an increase of about 9% from an estimated $69 billion in 2003. Given industry estimates of growing market share for foreign furniture manufacturers, notably
Asian manufacturers, the Company estimates that sales of home furnishings manufactured in the U.S. grew at a slower rate than the overall retail demand rate. The Company uses estimates of the wholesale market for upholstered furniture of $12-$13
billion.



As the Company enters 2005, the focus will be on
resolving issues with the ERP implementation, restoring manufacturing efficiencies to expected levels, and continuing the growth of our retail operations through new store openings and continued development of distribution channels entered into
during 2003 and 2004.



RESULTS OF OPERATIONS



Year Ended November 28, 2004 Versus Year Ended November 30, 2003



|                                                                                                   |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  
|-------------------------------------------------------------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | ---------- |  | - | ---------- | - |  | ----- | -
|                                                                                                   |  | 2004           |         |   | 2003 |   |         | $ Variance |  |   | % Variance |  
|                                                                                                   |  | (in thousands) |        
|Net shipments:                                                                                     |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  
|Manufacturing, total                                                                               |  | $              | 174,170 |   |      | $ | 175,303 |            |  | $ | (1,133     | ) |  | -0.6  | %
|Sales to retail segment                                                                            |  |                | (19,557 | ) |      |   | (19,898 | )          |  |   | 341        |   |  | -1.7  | %
|                                                                                                   |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  
|Manufacturing, net of eliminations                                                                 |  |                | 154,613 |   |      |   | 155,405 |            |  |   | (792       | ) |  | -0.5  | %
|Retail                                                                                             |  |                | 140,590 |   |      |   | 122,968 |            |  |   | 17,622     |   |  | 14.3  | %
|                                                                                                   |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  
|Consolidated net shipments                                                                         |  | $              | 295,203 |   |      | $ | 278,373 |            |  | $ | 16,830     |   |  | 6.0   | %
|                                                                                                   |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  
|Gross profit:                                                                                      |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  
|Manufacturing                                                                                      |  | $              | 32,548  |   |      | $ | 39,757  |            |  | $ | (7,209     | ) |  | -18.1 | %
|Retail                                                                                             |  |                | 71,011  |   |      |   | 60,368  |            |  |   | 10,643     |   |  | 17.6  | %
|                                                                                                   |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  
|Consolidated gross profit                                                                          |  | $              | 103,559 |   |      | $ | 100,125 |            |  | $ | 3,434      |   |  | 3.4   | %
|                                                                                                   |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  
|Gross margin:                                                                                      |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  
|Manufacturing                                                                                      |  |                | 21.1    | % |      |   | 25.6    | %          |  |   |            |   |  |       |  
|Retail                                                                                             |  |                | 50.5    | % |      |   | 49.1    | %          |  |   |            |   |  |       |  
|Consolidated gross margin                                                                          |  |                | 35.1    | % |      |   | 36.0    | %          |  |   |            |   |  |       |  
|                                                                                                   |  |                |         |  
|Selling and administrative expenses:                                                               |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  
|Manufacturing                                                                                      |  | $              | 23,804  |   |      | $ | 22,940  |            |  | $ | 864        |   |  | 3.8   | %
|Retail                                                                                             |  |                | 70,295  |   |      |   | 65,700  |            |  |   | 4,595      |   |  | 7.0   | %
|Other                                                                                              |  |                | 6,277   |   |      |   | 6,589   |            |  |   | (312       | ) |  | -4.7  | %
|                                                                                                   |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  
|Consolidated selling and administrative expenses, including retail restructuring and other charges |  | $              | 100,376 |   |      | $ | 95,229  |            |  | $ | 5,147      |   |  | 5.4   | %
|                                                                                                   |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  
|Operating income (loss):                                                                           |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  
|Manufacturing                                                                                      |  | $              | 8,744   |   |      | $ | 16,817  |            |  | $ | (8,073     | ) |  | -48.0 | %
|Retail                                                                                             |  |                | 716     |   |      |   | (5,332  | )          |  |   | 6,048      |   |  | nm    |  
|Other                                                                                              |  |                | (6,277  | ) |      |   | (6,589  | )          |  |   | 312        |   |  | -4.7  | %
|                                                                                                   |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  
|Consolidated operating income (loss)                                                               |  | $              | 3,183   |   |      | $ | 4,896   |            |  | $ | (1,713     | ) |  | -35.0 | %
|                                                                                                   |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  



13



---

Net Shipments



Net shipments increased 6.0% in 2004 over 2003, primarily from increased shipments in our retail segment. Manufacturing segment shipments declined
slightly from prior year levels.



Retail segment net shipments
increased $17.6 million, or 14.3%, in 2004 over 2003. Every product category showed growth over 2003, particularly accessories (49%), chairs (32%), tables (31%), office and library walls (14%), and upholstery (5%). Upholstery represents nearly 50%
of total sales, and was impacted in 2004 as two key suppliers experienced disruptions due to system implementations. Textiles (primarily comprised of window treatments), introduced in the fourth quarter of 2003, increased over 200% for the year.
Accessory sales benefited from new direct marketing channels implemented or expanded during 2004, as well as from an improved process for merchandise replenishment, speeding the flow of product into the consumers hands. Overall, same store
sales increased 10.7% over 2003, while sales per square foot increased from $286 in 2003 to $325 per foot in 2004. The Company opened four new retail stores during 2004, while closing two. The Company plans to open eight to ten new stores in 2005.



Manufacturing segment net shipments decreased slightly in 2004
versus 2003, primarily as a result of disruptions in order processing, scheduling, and production following the ERP go-live during the fourth quarter of 2004. Incoming orders were about 2% higher than 2003 on both a piece and dollar basis. Backlog,
or unshipped orders, increased substantially in the last two months of the fiscal year as a result of the post ERP implementation issues, ending the year at $17.7 million or 47% higher than at the end of fiscal 2003.



Gross Profit



Gross profit increased in 2004 over 2003 as retail shipments and margin improvements were offset primarily by the costs of
production inefficiencies in the manufacturing segment, as well as some increases in certain costs. Gross margin, or gross profit as a percentage of net shipments, declined from 36.0% in 2003 to 35.1% in 2004, due to the decline in gross profit in
the manufacturing segment.



Retail segment gross profit
improved by $10.6 million, primarily as a result of increased shipments as described above. Retail gross margin also improved, due to a combination of higher margin categories accounting for a larger percentage of total sales, a price increase taken
during 2003, adding approximately 1% to gross profit, and improvements in the inventory management process, reducing the extent of markdowns needed to clear excess inventory.



Manufacturing segment gross profit and gross margin declined substantially in 2004 from 2003 levels. Increases in workers
compensation costs and the accelerated depreciation on certain computer software replaced in the ERP implementation contributed somewhat to the decline, but the primary cause was production inefficiencies during the year due to disruptions caused by
the ERP development, implementation of lean manufacturing processes, problems with fabric shortages, and the disruption in manufacturing operations following the ERP go-live. While full year net shipments were only slightly below 2003, for the
fourth quarter, net shipments were substantially below prior year and forecasted amounts, resulting in both inefficient labor usage and under-absorption of fixed overhead costs.



While the Company has made progress since go-live in many of the areas impacting the efficient scheduling and production
processes, negative impacts are expected to continue into fiscal 2005.



Selling and Administrative Expenses



Selling
and administrative expenses increased by 5.4% overall in 2004. Retail segment expenses accounted for most of the increase. As a percentage of net shipments, however, total selling and administrative expenses declined slightly in 2004.



14



---

Retail segment selling and administrative expenses increased in all categories, driven by costs (such as
commissions, credit card fees, and delivery costs) to sell and distribute substantially higher net shipments. Costs to support new distribution channels, both catalogue and e-commerce, are included in these totals. In addition, four new stores
opened during 2004, while only two were closed; the new stores have higher operating expenses than the old stores, being generally larger and carrying current market rental rates. These costs are expected to increase in 2005 with the opening of
eight to ten new stores. The retail segment also incurred costs to relocate its distribution center in Atlanta, Georgia, early in the year, also contributing to the increase in costs.



Manufacturing segment selling and administrative expenses increased 3.8% in 2004 over 2003. Expenses in 2003 included the
benefit of a recovery of $729,000 relating to certain reserves established in connection with a 2001 retail customer bankruptcy. Increases in advertising costs in 2004, supporting the segments StudioRowe Gallery program, were largely offset by
reduced international expenses due to the shutdown of an overseas office late in 2003.



Operating Earnings



Operating
earnings declined by $1.7 million, or 35%, in 2004 from 2003, as a result of manufacturing segment operating inefficiencies, certain increases in costs such as depreciation and workers compensation costs and retail segment selling and distribution
costs, offset by increased retail segment gross profit on higher net shipments, as discussed above.



Interest Expense



Interest expense decreased from $3,723,000 in 2003 to $2,611,000 in 2004. Reductions in outstanding balances during 2003, primarily resulting from the sale of the Mitchell Gold subsidiary, combined with savings from the expiration in 2004
of a derivative contract related to the Companys capital lease obligation, accounted for the majority of the reduction. In addition, improved operating results and ratios resulted in reductions in the spread over base indices on most of the
Companys variable rate debt, largely offsetting increases in the indices themselves.



Other income, net, increased $384,000 in 2004 over 2003, primarily due to rental income from additional short term rentals associated with an investment property.



Earnings from continuing operations before taxes increased from $625,000 in
2003 to $818,000 in 2004, reflecting the factors discussed above.



The effective tax rate in 2003 was higher than typical as the Company reserved for certain state tax benefits associated with operating losses at the retail segment. The impact in 2004 of continuing to reserve for state tax benefits was
significantly less as a result of the reduction in losses in this segment.



15



---

Year Ended November 30, 2003 Versus Year Ended December 1, 2002



|                                                                                                   |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  
|-------------------------------------------------------------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | ---------- |  | - | ---------- | - |  | ----- | -
|                                                                                                   |  | 2003           |         |   | 2002 |   |         | $ Variance |  |   | % Variance |  
|                                                                                                   |  | (in thousands) |        
|Net shipments:                                                                                     |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  
|Manufacturing, total                                                                               |  | $              | 175,303 |   |      | $ | 176,413 |            |  | $ | (1,110     | ) |  | -0.6  | %
|Sales to retail segment                                                                            |  |                | (19,898 | ) |      |   | (19,056 | )          |  |   | (842       | ) |  | 4.4   | %
|                                                                                                   |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  
|Manufacturing, net of eliminations                                                                 |  |                | 155,405 |   |      |   | 157,357 |            |  |   | (1,952     | ) |  | -1.2  | %
|Retail                                                                                             |  |                | 122,968 |   |      |   | 111,789 |            |  |   | 11,179     |   |  | 10.0  | %
|                                                                                                   |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  
|Consolidated net shipments                                                                         |  | $              | 278,373 |   |      | $ | 269,146 |            |  | $ | 9,227      |   |  | 3.4   | %
|                                                                                                   |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  
|Gross profit:                                                                                      |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  
|Manufacturing                                                                                      |  | $              | 39,757  |   |      | $ | 41,582  |            |  | $ | (1,825     | ) |  | -4.4  | %
|Retail                                                                                             |  |                | 60,368  |   |      |   | 54,101  |            |  |   | 6,267      |   |  | 11.6  | %
|                                                                                                   |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  
|Consolidated gross profit                                                                          |  | $              | 100,125 |   |      | $ | 95,683  |            |  | $ | 4,442      |   |  | 4.6   | %
|                                                                                                   |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  
|Gross margin:                                                                                      |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  
|Manufacturing                                                                                      |  |                | 25.6    | % |      |   | 26.4    | %          |  |   |            |   |  |       |  
|Retail                                                                                             |  |                | 49.1    | % |      |   | 48.4    | %          |  |   |            |   |  |       |  
|Consolidated gross margin                                                                          |  |                | 36.0    | % |      |   | 35.6    | %          |  |   |            |   |  |       |  
|Selling and administrative expenses:                                                               |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  
|Manufacturing                                                                                      |  | $              | 22,940  |   |      | $ | 24,068  |            |  | $ | (1,128     | ) |  | -4.7  | %
|Retail                                                                                             |  |                | 65,700  |   |      |   | 65,511  |            |  |   | 189        |   |  | 0.3   | %
|Other                                                                                              |  |                | 6,589   |   |      |   | 6,629   |            |  |   | (40        | ) |  | -0.6  | %
|                                                                                                   |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  
|Consolidated selling and administrative expenses, including retail restructuring and other charges |  | $              | 95,229  |   |      | $ | 96,208  |            |  | $ | (979       | ) |  | -1.0  | %
|                                                                                                   |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  
|Operating income (loss):                                                                           |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  
|Manufacturing                                                                                      |  | $              | 16,817  |   |      | $ | 17,514  |            |  | $ | (697       | ) |  | -4.0  | %
|Retail                                                                                             |  |                | (5,332  | ) |      |   | (11,410 | )          |  |   | 6,078      |   |  | -53.3 | %
|Other                                                                                              |  |                | (6,589  | ) |      |   | (6,629  | )          |  |   | 40         |   |  | -0.6  | %
|                                                                                                   |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  
|Consolidated operating income (loss)                                                               |  | $              | 4,896   |   |      | $ | (525    | )          |  | $ | 5,421      |   |  | nm    |  
|                                                                                                   |  |                |         |   |      |   |         |            |  |   |            |   |  |       |  



Net Shipments



Net shipments increased $9,227,000, or 3.4%, in 2003 from 2002. The increase
primarily resulted from increased shipments in our retail segment.



Retail segment net shipments increased 10.0%, in 2003 over 2002. Retail shipments benefited from management initiatives to improve promotional efficiency and selling effectiveness, and to strengthen performance of certain previously
underperforming merchandise categories. Same store sales increased 9.9% in 2003 over 2002, with eleven months of positive change during the year. Upholstery, wall units and bedroom were the categories with the largest dollar increases.



Manufacturing segment net shipments decreased 1.2% in 2003 from 2002. The
decrease was attributable to generally soft economic conditions, particularly in early 2003. The manufacturing segment also shipped $19.9 million to the retail segment, 4.4% over the amount shipped in 2002. These shipments have been eliminated in
consolidation.



Gross Profit



Gross profit increased $4,442,000, or 4.6%, from 2002 to 2003. Gross margin
improved from 35.6% in 2002 to 36.0% in 2003. These increases were due to increased retail margins and an increase in retail shipments as a percent of total shipments.



16



---

Retail segment gross profit improved by $6.3 million, primarily as a result of increased shipments.
Retail gross margin also improved, from 48.4% to 49.1%; improved inventory management, resulting in reduced inventory shrinkage, accounted for the increase in gross margin.



Manufacturing segment gross profit declined $1.8 million from 2002 to 2003. Gross margin declined from 26.4% in 2002 to
25.6% in 2003. Higher fuel costs early in 2003, combined with reduced shipments resulting in underabsorbed overhead early in the year, unfavorably impacted gross profit and gross margin.



Selling and Administrative Expenses



Selling and administrative expenses (including retail restructuring and other charges) decreased by $979,000, or 1.0%, from 2002 to 2003. Selling and
administrative expenses improved from 35.7% of net shipments in 2002 to 34.2% in 2003. Increases in on-going retail segment expenses were offset by decreases in manufacturing segment expenses and the absence in 2003 of significant restructuring
charges taken in 2002.



Retail segment selling and
administrative expenses increased $2.3 million, while retail restructuring and other charges decreased by $2.1 million, for a net increase of $189,000 in 2003 from 2002. Retail distribution costs (warehousing and home delivery) were impacted
unfavorably by costs incurred in consolidating two overlapping distribution center locations into one operation, as part of the retail consolidation undertaken in 2002. The Company also recorded $1,042,000 in impairment charges relating to leasehold
improvements in certain unprofitable retail stores in 2003, based on expected cash flows at those stores. This was offset by the elimination of goodwill amortization in 2003 under new accounting regulations. Other fluctuations included an increase
in salaries and wages of $511,000, largely related to higher shipments; and a reduction in advertising expenses by $1.6 million, due to savings from the consolidation, elimination of television advertising and increased advertising reimbursements
from vendors.



Manufacturing segment selling and administrative
expenses decreased 4.7% from 2002 to 2003. Most of this decrease represents a recovery of $729,000 recorded in 2003 relating to certain reserves established in connection with a 2001 retail customer bankruptcy combined with reduced sales commissions
on lower shipments.



Operating Earnings



Operating earnings were $4.9 million in 2003, compared to a loss of
$(525,000) in 2002, as a result of increased retail shipments and associated gross profit, lower retail restructuring and other charges, partially offset by reduced manufacturing segment shipments and gross profit and higher retail selling and
administrative expenses.



Interest Expense



Interest expense decreased from $3,940,000 in 2002 to $3,723,000 in 2003.
While interest rates declined from 2002 to 2003, and the outstanding balances also declined during 2003, the Company had reclassified an operating lease to a capital lease during 2002 (relating to the Elliston manufacturing facility), resulting in
six months of additional interest expense in 2003 compared to 2002, offsetting the reductions from declining rates and balances.



Other income, net, decreased $38,000 in 2003 from 2002, primarily due to reduced net rental income associated with an investment property.



Earnings from continuing operations before taxes improved to earnings of
$1,531,000 in 2003 from a loss of $(4,069,000) in 2002, reflecting the factors discussed above.



As the Company regained profitability in 2003, the effective tax rate was 59.2%. The effective rate exceeded the statutory rate due to state income taxes,
non-deductible items and other items, net. In 2002, the



17



---

Company recorded a tax benefit as a result of a loss from operations. The effective rate of the tax benefit was 29.8%. The 2002 effective tax benefit rate
was lower than the statutory rate as goodwill amortization, which is not a component of federal income tax, reduced the book loss, and other miscellaneous non-deductible items further reduced the potential recovery.



CRITICAL ACCOUNTING POLICIES



The Companys consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of America. The critical accounting policies are discussed with the Audit Committee. Certain estimates and assumptions have been made that affect the amounts and
disclosures reported in the consolidated financial statements and the related accompanying notes. Actual results could differ from these estimates and assumptions. Management uses its best judgment in valuing these estimates and may solicit external
advice. Estimates are based on current facts and circumstances, prior experience and other assumptions believed to be reasonable. Critical accounting policies that may affect the consolidated financial statements include self-insurance, long-lived
asset valuations and impairments, inventory reserves and goodwill.



Self-Insurance Reserves



The Company is
self-insured for substantial portions of its health care and workers compensation insurance programs. Reserves are established for such costs based on, among other factors, reported claims to date, prior history, and actuarial projections of claims
incurred but not reported and future medical cost increases likely to affect the total cost to settle claims. If actual results in any of these areas change from prior periods, adjustments to recorded reserves may be required.



Long-lived Asset Valuations and Impairments



The Company monitors the economic health of its facilities and operations
and makes determinations, using cash flow analyses, of the fair value of its assets, both tangible and intangible. When cash flow analysis indicates that the fair value of an asset is less than its book value, and such shortfall is not believed to
be temporary in nature, then an adjustment to reduce the asset to its fair value is made. As conditions change, additional adjustments of fair value may be required.



Inventory Reserves



The Company maintains its inventories at the lower of cost or market value. Cost is determined on a last-in, first-out (LIFO) basis for inventory held at
retail facilities, and on a first-in, first-out (FIFO) basis for inventory held at its manufacturing facilities. When conditions warrant (usually highlighted by slow-moving product, declining vendor prices on incoming product or a change in
merchandising), reserves are established to reduce the value of inventory to net realizable values. As conditions warrant, additional adjustments may be required.



Goodwill



In accordance with SFAS 142, Goodwill and Other Intangible Assets, which was adopted by the Company in 2003, goodwill and other intangible
assets are to be evaluated for impairment at the reporting unit level on an annual basis and between annual tests whenever events or circumstances indicate that the carrying value of a reporting unit may exceed its fair value. The Company conducts
its required annual impairment test during the second quarter of each fiscal year. The impairment test uses a discounted cash flow and projected profitability model to estimate the fair value of the reporting unit. This model requires the use of
long-term planning forecasts and assumptions regarding specific economic conditions that are outside the control of the Company.



18



---

LIQUIDITY AND SOURCE OF CAPITAL



Cash from Operations



Net cash provided by operating activities was $10,217,000, $11,611,000 and $21,369,000 in 2004, 2003 and 2002, respectively. Fluctuations in net cash
provided by operating activities are primarily the result of changes in operating income and changes in working capital accounts. Substantial changes between 2003 and 2004 included a decrease in accounts receivable late in 2004 due to reduced
shipments resulting from post-implementation issues with the ERP; an increase in inventories, largely offset by an increase in accounts payable, also largely relating to the ERP implementation; an increase in rent incentives received from landlords,
relating to new store openings at Storehouse; and an increase in prepaids and other balances, largely due to a change in the timing of insurance premium payments in 2004. Substantial changes from 2002 to 2003 included the decrease in inventory,
particularly leather, during the early part of 2002; the payout of the deferred compensation plan during 2002; and the collection of the 2001 tax refund in early 2002.



Cash from Investing Activities



Net cash provided by (used in) investing activities was $(5,994,000), $18,874,000 and $(4,583,000) in 2004, 2003 and 2002, respectively, primarily
reflecting cash receipts and payments related to the sale of the Mitchell Gold Company in 2003. Capital expenditures in all periods included routine information systems maintenance and upgrade projects, store remodeling activity and new retail
stores. Fiscal 2002 also included expenditures relating to the retail consolidation, including new signage and systems upgrades. Fiscal 2004 expenditures included approximately $650,000 in capitalized costs associated with the ERP implementation,
and approximately $450,000 for the new Atlanta distribution center. In addition, the Company utilized operating leases for $2.9 million of system costs in 2003 and 2004.



In 2005, capital expenditures are expected to increase over the level of recent years, as the pace of new store openings
increases and expenditures for inventory management and tracking software are incurred in the retail segment. These expenditures will be funded from cash from operations and available borrowing capacity.



Cash from Financing Activities



Net cash used in financing activities was $2,371,000, $27,051,000, and
$25,969,000 in 2004, 2003 and 2002, respectively. In 2002, the Company refinanced significant portions of its outstanding debt and re-paid approximately $24.0 million. During 2003, proceeds from the sale of Mitchell Gold were used to reduce
outstanding debt by approximately $22.0 million. The Company used other cash generated from operations to pay down debt by an additional approximately $5.0 million. In 2004, most of the reduction in long-term debt was associated with repayments
under the capital lease obligation secured by the Elliston manufacturing facility. The Company did not pay cash dividends on its common stock during 2004, 2003 or 2002.



As of November 28, 2004, the Company had $11.0 million available under its revolving bank loan. The Company believes it has
the financial resources (including available cash, expected cash flow from operations, and bank loans) needed to meet business requirements through the end of fiscal 2005, including capital expenditures and working capital. Cash flow from operations
is highly dependent on order rates and the Companys operating performance, and for the immediate future, improvements in the ratio of cash received from customers to cash paid to suppliers and employees as post-ERP implementation issues are
resolved.



19



---

Contractual Obligations



The following summarizes our significant contractual obligations as of November 28, 2004:



|                                                           |  |                    |        |          |   |          |  |              |        |       |   |        |  |   |        
|---------------------------------------------------------- |  | ------------------ | ------ | -------- | - | -------- |  | ------------ | ------ | ----- | - | ------ |  | - | -------
|                                                           |  | Payments by Period
|                                                           |  | Less Than1 Year    |        | 1-3Years |   | 3-5Years |  | After5 Years |        | Total
|                                                           |  | (in thousands)    
|Contractual Obligations:                                   |  |                    |        |          |   |          |  |              |        |       |   |        |  |   |        
|Operating leases                                           |  | $                  | 17,288 |          | $ | 25,418   |  | $            | 17,692 |       | $ | 25,244 |  | $ | 85,642 
|Capital lease                                              |  |                    | 867    |          |   | 1,733    |  |              | 9,606  |       |   |       |  |   | 12,206 
|Loans on life insurance                                    |  |                    |       |          |   |         |  |              |       |       |   | 2,427  |  |   | 2,427  
|Contractual maturities of long-term debt                   |  |                    | 1,000  |          |   | 12,738   |  |              |       |       |   |       |  |   | 13,738 
|Other long-term liabilities reflected on the balance sheet |  |                    | 168    |          |   | 248      |  |              | 225    |       |   | 271    |  |   | 912    
|                                                           |  |                    |        |          |   |          |  |              |        |       |   |        |  |   |        
|Total contractual cash obligations                         |  | $                  | 19,323 |          | $ | 40,137   |  | $            | 27,523 |       | $ | 27,942 |  | $ | 114,925
|                                                           |  |                    |        |          |   |          |  |              |        |       |   |        |  |   |        



The table above
excludes mortgages held for sale and other long-term liabilities where payments have not yet commenced and starting payment dates are not fixed.



The Company is not a party to any long-term supply contracts with respect to lumber, fabric or other raw materials used in production, nor does the
Company enter into long-term purchase commitments with vendors utilized in the ordinary course of business.



Interest Rate Risk and Foreign Currency Exchange Rate Risk



Because the Companys obligations under its term loan, revolving loan and capital lease obligation bear interest at variable rates, the Company is
sensitive to changes in prevailing interest rates. A 10% fluctuation in market interest rates would not result in a material change in interest expense during the 2005 fiscal year. The Company is exposed to market risk from changes in the value of
foreign currencies because it imports a substantial portion of its retail inventory and some of its raw materials, from foreign sources. See Forward-Looking Statements below.



FORWARD-LOOKING STATEMENTS



When used in this Annual Report and in filings with the Securities and Exchange Commission, in press releases or other public shareholder communications,
or in oral statements made with the approval of an authorized executive officer, the words or phrases believe, will likely result, are expected to, will continue, is anticipated,
estimate, project, plans, or similar expressions, as well as the use of future dates, are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. These statements may relate to our future financial performance, strategic plans or objectives, revenues or earnings
projections, or other financial items. By their nature, these statements are subject to numerous uncertainties that could cause actual results to differ materially from those anticipated in the statements. Important factors that could cause actual
results to differ materially from the results anticipated or projected include, but are not limited to, the following: changes from anticipated levels of sales, whether due to future national or regional economic and competitive conditions, customer
acceptance of existing and new products, or otherwise; pending or future litigation; pricing pressures due to excess capacity; raw material cost increases; transportation cost increases; the inability of a major customer to meet its obligations;
loss of significant customers in connection with a merger, acquisition, redisposition, bankruptcy or otherwise; actions of current or new competitors; increased advertising costs associated with promotional efforts; change of tax rates; change of
interest rates; future business decisions and other uncertainties, all of which are difficult to predict and many of which are beyond the control of the Company.



20



---

Additional Risks Include



| |  |  | The furniture industry is highly competitive at both the manufacturing and the retail levels; loss of market share could adversely impact sales, earnings and cash flow.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our manufacturing and our retailing
subsidiaries face significant competition from numerous competitors, many of which are larger and better capitalized. Our subsidiaries may be at a competitive disadvantage as a result. If our subsidiaries lose market share to competitors, our
financial performance could be adversely affected.



| |  |  | We had difficulty with the implementation of our Enterprise Resource Planning (ERP) software.
| | - |  | -----------------------------------------------------------------------------------------------



Our manufacturing operations recently implemented a new ERP system that
includes accounting, order processing, materials purchasing and inventory management, human resources and payroll management and certain other functions. This was a complex, multi-step implementation. Various parts of the system have not performed
as planned, which has created problems in entering and processing customer orders, procuring and managing inventory, scheduling orders for production, shipping and invoicing finished product to customers. This has resulted in significant downtime in
the plant, inefficient production, delays in filling orders, and shortfalls in operating results.



Our production management personnel, assisted by experts provided by the software vendor, have been intensely focused on identifying the specific problems
and solutions to them. While progress has been made, there can be no assurance that operations and profitability will improve significantly in the immediate future.



| |  |  | Our retail operations may not become profitable.
| | - |  | ------------------------------------------------



Our retail operations are currently unprofitable, and there can be no assurance that profitability will be achieved.



| |  |  | Our retail operations are opening stores at a higher rate than in recent years.
| | - |  | -------------------------------------------------------------------------------



Our retail operation anticipates opening eight to ten new stores during the next twelve months. There are numerous risks
inherent in new store development which could result in unprofitable locations. Risk exposure areas include site selection, contractual commitment to rent expense, and successful execution of store selling and operations activities. There can be no
assurance that these new stores will achieve adequate levels of shipments or profitability.



| |  |  | The Company imports a substantial portion of its retail merchandise, and some of its raw materials, from foreign sources. Changes in exchange rates could impact the price the
Company pays for these goods, resulting in potentially higher retail prices and/or lower gross profit on these goods.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During fiscal 2004 and 2003, approximately 39% and 32%, respectively, of the Companys purchases of retail merchandise originated overseas, and the
Company also purchased some raw materials, particularly wood components, fabric, and leather chairs for re-sale, from overseas sources. Most of these purchases were denominated in US dollars. As exchange rates between the U.S. dollar and certain
other currencies have become unfavorable, the likelihood of price increases from our foreign vendors has increased. Such price increases, if they occur, could have one or more of the following impacts:



| |  |  | We could be forced to raise retail prices so high that we are unable to sell the products at current unit volumes;
| | - |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | If we are unable to raise retail prices commensurately with the cost increases, gross profit could be negatively impacted; or
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | We may be forced to find alternative sources of comparable product, which may be more expensive than the current product, of lower quality, or the vendor may be unable to meet our
requirements for quantities, delivery schedules or other key terms.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Similar impacts could be experienced in our manufacturing segment.



21



---

| |  |  | We may not be able to pay-off or refinance the debt obligations that mature in fiscal 2007 and 2008.
| | - |  | ----------------------------------------------------------------------------------------------------



The Company has substantial debt obligations that mature in 2007 and 2008.
At those times, the Company would be required to pay off or refinance these obligations. There can be no assurance that the Company will have sufficient cash to satisfy these obligations or that the Company will be successful in obtaining new
financing, or that, if obtained, the financing would be on favorable terms and conditions.



The terms of our credit facility contain various financial covenants. If we do not adhere to these covenants and our lenders do not agree to waive such a default, they will have the right to accelerate the maturity of
the debt which could have a material adverse affect on our results of operations and liquidity.



| |  |  | Our bad debts experience may differ materially from our estimates.
| | - |  | ------------------------------------------------------------------



Substantially all of the Companys trade accounts receivable are from retail furniture businesses. Management monitors payment status and
periodically performs credit evaluations of these customers. However, changes in creditworthiness can occur rapidly and unanticipated losses from trade accounts receivable could occur in excess of the outstanding allowance for losses. Therefore,
there can be no assurance that total losses from uncollectible accounts will not exceed the allowance.



| |  |  | Our revenue could be adversely affected by low-cost imported merchandise.
| | - |  | -------------------------------------------------------------------------



In certain merchandise categories, there has been a rapid expansion of imported home furnishings at lower manufacturing
costs, resulting in lower retail selling prices. This trend could reach the upholstery segment of the home furnishings market, resulting in our manufacturing operations facing low-cost foreign competition. This in turn could require us to reduce our
selling prices or could diminish demand for our products.



| |  |  | Our revenue could be adversely affected by a disruption in our supply chain.
| | - |  | ----------------------------------------------------------------------------



We are an importer of finished goods for our retail operations and components for our manufacturing operations. Disruptions
to our supply chain could result in late arrival or unavailability of components or finished goods for resale, causing manufacturing delays or negatively affecting retail sales due to increased out-of-stock merchandise.



We do not undertake any obligation to update any forward-looking statement to
reflect circumstances or events that occur after the date on which the forward-looking statement is made.





22



---

|Item 8. | Financial Statements and Supplementary Data.
|------- | --------------------------------------------



CONSOLIDATED BALANCE SHEETS



|                                                                                                          |  |                                     |          |   |            |   |         |  
|--------------------------------------------------------------------------------------------------------- |  | ----------------------------------- | -------- | - | ---------- | - | ------- | -
|                                                                                                          |  | 11/28/2004                          |          |   | 11/30/2003 |  
|                                                                                                          |  | (in thousands, exceptshare amounts) |         
|                                                                                                          |  | (as restated, see Note 2)           |         
|ASSETS (Notes 1, 3 and 6)                                                                                 |  |                                     |          |   |            |   |         |  
|CURRENT ASSETS                                                                                            |  |                                     |          |   |            |   |         |  
|Cash and cash equivalents                                                                                 |  | $                                   | 5,560    |   |            | $ | 3,708   |  
|Restricted cash collateralizing letters of credit                                                         |  |                                     | 3,564    |   |            |   | 4,034   |  
|Accounts receivable (net of allowance for losses of $800 in 2004 and $850 in 2003)                        |  |                                     | 16,522   |   |            |   | 19,529  |  
|Notes receivable                                                                                          |  |                                     |         |   |            |   | 100     |  
|Inventories (Note 4)                                                                                      |  |                                     | 37,781   |   |            |   | 32,387  |  
|Deferred income taxes (Note 12)                                                                           |  |                                     | 1,931    |   |            |   | 880     |  
|Prepaid expenses and other                                                                                |  |                                     | 5,500    |   |            |   | 2,711   |  
|                                                                                                          |  |                                     |          |   |            |   |         |  
|Total current assets                                                                                      |  |                                     | 70,858   |   |            |   | 63,349  |  
|                                                                                                          |  |                                     |          |   |            |   |         |  
|PROPERTY AND EQUIPMENT (Note 5)                                                                           |  |                                     | 43,846   |   |            |   | 44,448  |  
|                                                                                                          |  |                                     |          |   |            |   |         |  
|OTHER ASSETS                                                                                              |  |                                     |          |   |            |   |         |  
|Cash value of life insurance, net of loans of $2,427 in 2004 and $2,733 in 2003 (Note 7)                  |  |                                     | 1,494    |   |            |   | 1,427   |  
|Investment property (net of accumulated depreciation of $5,214 in 2004 and $7,406 in 2003)(Notes 3 and 9) |  |                                     | 766      |   |            |   | 8,198   |  
|Investment property held for sale (net of accumulated depreciation of $2,507) (Note 3)                    |  |                                     | 7,248    |   |            |   |        |  
|Goodwill                                                                                                  |  |                                     | 13,182   |   |            |   | 13,182  |  
|Miscellaneous                                                                                             |  |                                     | 1,727    |   |            |   | 1,246   |  
|                                                                                                          |  |                                     |          |   |            |   |         |  
|Total other assets                                                                                        |  |                                     | 24,417   |   |            |   | 24,053  |  
|                                                                                                          |  |                                     |          |   |            |   |         |  
|                                                                                                          |  |                                     | $139,121 |   |            | $ | 131,850 |  
|                                                                                                          |  |                                     |          |   |            |   |         |  
|LIABILITIES (Notes 1 and 3)                                                                               |  |                                     |          |   |            |   |         |  
|CURRENT LIABILITIES                                                                                       |  |                                     |          |   |            |   |         |  
|Current maturities of long-term debt (Note 6)                                                             |  | $                                   | 1,867    |   |            | $ | 3,314   |  
|Accounts payable                                                                                          |  |                                     | 16,379   |   |            |   | 11,744  |  
|Accrued expenses:                                                                                         |  |                                     |          |   |            |   |         |  
|Compensation                                                                                              |  |                                     | 4,510    |   |            |   | 4,067   |  
|Income taxes                                                                                              |  |                                     | 1,064    |   |            |   | 1,061   |  
|Other                                                                                                     |  |                                     | 4,268    |   |            |   | 4,544   |  
|Customer deposits                                                                                         |  |                                     | 14,296   |   |            |   | 13,512  |  
|Deferred compensationcurrent portion (Note 7)                                                            |  |                                     | 209      |   |            |   | 160     |  
|                                                                                                          |  |                                     |          |   |            |   |         |  
|Total current liabilities                                                                                 |  |                                     | 42,593   |   |            |   | 38,402  |  
|                                                                                                          |  |                                    
|LONG-TERM DEBT (Note 6)                                                                                   |  |                                     | 24,077   |   |            |   | 34,312  |  
|LONG-TERM DEBT ASSOCIATED WITH INVESTMENT PROPERTY HELD FOR SALE (Note 3)                                 |  |                                     | 8,968    |   |            |   |        |  
|DEFERRED RENT                                                                                             |  |                                     | 7,581    |   |            |   | 5,381   |  
|DEFERRED COMPENSATION AND OTHER LIABILITIES (Note 7)                                                      |  |                                     | 1,470    |   |            |   | 1,490   |  
|DEFERRED INCOME TAXES (Note 12)                                                                           |  |                                     | 1,752    |   |            |   | 1,229   |  
|                                                                                                          |  |                                     |          |   |            |   |         |  
|Total liabilities                                                                                         |  |                                     | 86,441   |   |            |   | 80,814  |  
|                                                                                                          |  |                                     |          |   |            |   |         |  
|COMMITMENTS AND CONTINGENCIES (Notes 3, 6, 7, 8, 9 and 10)                                                |  |                                     |          |   |            |   |         |  
|                                                                                                          |  |                                    
|STOCKHOLDERS EQUITY (Note 11)                                                                            |  |                                     |          |   |            |   |         |  
|COMMON STOCK, par value $1 per share, 50,000,000 authorized shares                                        |  |                                     | 16,675   |   |            |   | 16,587  |  
|CAPITAL IN EXCESS OF PAR VALUE                                                                            |  |                                     | 23,206   |   |            |   | 23,084  |  
|RETAINED EARNINGS                                                                                         |  |                                     | 34,779   |   |            |   | 33,889  |  
|ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Note 10)                                                   |  |                                     | 9        |   |            |   | (566    | )
|LESS TREASURY STOCK                                                                                       |  |                                     | (21,989  | ) |            |   | (21,958 | )
|                                                                                                          |  |                                     |          |   |            |   |         |  
|Total stockholders equity                                                                                |  |                                     | 52,680   |   |            |   | 51,036  |  
|                                                                                                          |  |                                     |          |   |            |   |         |  
|                                                                                                          |  | $                                   | 139,121  |   |            | $ | 131,850 |  
|                                                                                                          |  |                                     |          |   |            |   |         |  



See notes to
consolidated financial statements.



23



---

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)



|                                                                                                              |  |                                                                     |         |   |                      |   |         |                     |  |   |         |  
|------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------- | ------- | - | -------------------- | - | ------- | ------------------- |  | - | ------- | -
|                                                                                                              |  | Year Ended                                                          |        
|                                                                                                              |  | 11/28/2004(52 weeks)                                                |         |   | 11/30/2003(52 weeks) |   |         | 12/1/2002(52 weeks) | 
|                                                                                                              |  | (in thousands, except per share amounts) ( as restated, see Note 2) |        
|Net shipments (Notes 3 and 13)                                                                                |  | $                                                                   | 295,203 |   |                      | $ | 278,373 |                     |  | $ | 269,146 |  
|Cost of shipments                                                                                             |  |                                                                     | 191,644 |   |                      |   | 178,248 |                     |  |   | 173,463 |  
|                                                                                                              |  |                                                                     |         |   |                      |   |         |                     |  |   |         |  
|Gross profit                                                                                                  |  |                                                                     | 103,559 |   |                      |   | 100,125 |                     |  |   | 95,683  |  
|Selling and administrative expenses                                                                           |  |                                                                     | 100,376 |   |                      |   | 95,004  |                     |  |   | 93,857  |  
|Retail restructuring and other charges (Note 3)                                                               |  |                                                                     |        |   |                      |   | 225     |                     |  |   | 2,351   |  
|                                                                                                              |  |                                                                     |         |   |                      |   |         |                     |  |   |         |  
|Operating income (loss)                                                                                       |  |                                                                     | 3,183   |   |                      |   | 4,896   |                     |  |   | (525    | )
|Interest expense                                                                                              |  |                                                                     | (2,611  | ) |                      |   | (3,723  | )                   |  |   | (3,940  | )
|Other income, net (Note 9)                                                                                    |  |                                                                     | 742     |   |                      |   | 358     |                     |  |   | 396     |  
|                                                                                                              |  |                                                                     |         |   |                      |   |         |                     |  |   |         |  
|Earnings (loss) from continuing operations before taxes                                                       |  |                                                                     | 1,314   |   |                      |   | 1,531   |                     |  |   | (4,069  | )
|Tax expense (benefit) (Note 12)                                                                               |  |                                                                     | 496     |   |                      |   | 906     |                     |  |   | (1,214  | )
|                                                                                                              |  |                                                                     |         |   |                      |   |         |                     |  |   |         |  
|                                                                                                              |  |                                                                     |        
|Net earnings (loss) from continuing operations                                                                |  |                                                                     | 818     |   |                      |   | 625     |                     |  |   | (2,855  | )
|                                                                                                              |  |                                                                     |        
|Discontinued operations (Note 3):                                                                             |  |                                                                     |         |   |                      |   |         |                     |  |   |         |  
|Loss on contingencies associated with operations discontinued in prior years, net of tax benefit of $65       |  |                                                                     | (105    | ) |                      |   |        |                     |  |   |        |  
|Earnings from discontinued real estate operations, net of tax expense of$110, $27 and $288, respectively      |  |                                                                     | 177     |   |                      |   | 43      |                     |  |   | 459     |  
|Earnings from discontinued operations of Mitchell Gold, less tax expense of $0, $664 and $3,064, respectively |  |                                                                     |        |   |                      |   | 1,084   |                     |  |   | 4,355   |  
|Gain on disposal of Mitchell Gold, net of tax benefit of $1,473                                               |  |                                                                     |        |   |                      |   | 462     |                     |  |   |        |  
|                                                                                                              |  |                                                                     |         |   |                      |   |         |                     |  |   |         |  
|                                                                                                              |  |                                                                     |        
|Net earnings                                                                                                  |  | $                                                                   | 890     |   |                      | $ | 2,214   |                     |  | $ | 1,959   |  
|                                                                                                              |  |                                                                     |         |   |                      |   |         |                     |  |   |         |  
|                                                                                                              |  |                                                                     |        
|Other comprehensive income, net of tax:                                                                       |  |                                                                     |         |   |                      |   |         |                     |  |   |         |  
|Unrealized loss on derivatives (Notes 1 and 10)                                                               |  |                                                                     | (133    | ) |                      |   | (194    | )                   |  |   | (654    | )
|Payments transferred to expense                                                                               |  |                                                                     | 708     |   |                      |   | 741     |                     |  |   | 742     |  
|                                                                                                              |  |                                                                     |         |   |                      |   |         |                     |  |   |         |  
|                                                                                                              |  |                                                                     |        
|Comprehensive income                                                                                          |  | $                                                                   | 1,465   |   |                      | $ | 2,761   |                     |  | $ | 2,047   |  
|                                                                                                              |  |                                                                     |         |   |                      |   |         |                     |  |   |         |  
|                                                                                                              |  |                                                                     |        
|Net earnings (loss) from continuing operations per common share(Note 1)                                       |  | $                                                                   | 0.06    |   |                      | $ | 0.05    |                     |  | $ | (0.22   | )
|                                                                                                              |  |                                                                     |         |   |                      |   |         |                     |  |   |         |  
|                                                                                                              |  |                                                                     |        
|Net earnings per common share (Note 1)                                                                        |  | $                                                                   | 0.07    |   |                      | $ | 0.17    |                     |  | $ | 0.15    |  
|                                                                                                              |  |                                                                     |         |   |                      |   |         |                     |  |   |         |  
|Weighted average common shares                                                                                |  |                                                                     | 13,198  |   |                      |   | 13,167  |                     |  |   | 13,152  |  
|                                                                                                              |  |                                                                     |         |   |                      |   |         |                     |  |   |         |  
|                                                                                                              |  |                                                                     |        
|Net earnings (loss) from continuing operations per common share assuming dilution (Note 1)                    |  | $                                                                   | 0.06    |   |                      | $ | 0.05    |                     |  | $ | (0.22   | )
|                                                                                                              |  |                                                                     |         |   |                      |   |         |                     |  |   |         |  
|                                                                                                              |  |                                                                     |        
|Net earnings per common share assuming dilution (Note 1)                                                      |  | $                                                                   | 0.07    |   |                      | $ | 0.17    |                     |  | $ | 0.15    |  
|                                                                                                              |  |                                                                     |         |   |                      |   |         |                     |  |   |         |  
|Weighted average common shares and equivalents                                                                |  |                                                                     | 13,546  |   |                      |   | 13,205  |                     |  |   | 13,193  |  
|                                                                                                              |  |                                                                     |         |   |                      |   |         |                     |  |   |         |  



See notes to
consolidated financial statements.



24



---

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY



|                                                                            |  |                                                                      |  |             |        |                             |                |                  |  |   |                 |   |      |           |                                      |   |        |  |   |        |  
|--------------------------------------------------------------------------- |  | -------------------------------------------------------------------- |  | ----------- | ------ | --------------------------- | -------------- | ---------------- |  | - | --------------- | - | ---- | --------- | ------------------------------------ | - | ------ |  | - | ------ | -
|                                                                            |  | Year Ended November 28, 2004, November 30, 2003 and December 1, 2002 | 
|                                                                            |  | Common Stock                                                         |  |             |        |                             | Treasury Stock |                  |  |  
|                                                                            |  | SharesIssued                                                         |  | $1 ParValue |        | Capitalin Excessof ParValue |                | RetainedEarnings |  |   | Number ofShares |   | Cost |           | AccumulatedComprehensiveIncome(Loss) |  
|                                                                            |  | (in thousands, except share and per share amounts)                   | 
|                                                                            |  | (as restated, see Note 2)                                            | 
|Balance at December 2, 2001 as previously reported                          |  | 16,547,715                                                           |  | $           | 16,548 |                             | $              | 23,082           |  | $ | 30,204          |   |      | 3,412,690 |                                      | $ | 21,937 |  | $ | (1,201 | )
|Cumulative effect of correction of error for leases                         |  |                                                                     |  |             |       |                             |                |                 |  |   | (488            | ) |      |          |                                      |   |       |  |   |       |  
|                                                                            |  |                                                                      |  |             |        |                             |                |                  |  |   |                 |   |      |           |                                      |   |        |  |   |        |  
|Balance at December 2, 2001 (as restated, see Note 2)                       |  | 16,547,715                                                           |  |             | 16,548 |                             |                | 23,082           |  |   | 29,716          |   |      | 3,412,690 |                                      |   | 21,937 |  |   | (1,201 | )
|Acquisition of treasury stock                                               |  |                                                                      |  |             |        |                             |                |                  |  |   |                 |   |      | 6,847     |                                      |   | 19     |  |   |        |  
|Exercise of stock options                                                   |  | 37,192                                                               |  |             | 37     |                             |                | 1                |  |   |                 |   |      |           |                                      |   |        |  |   |        |  
|Net change during the year related to cash flow hedge                       |  |                                                                      |  |             |        |                             |                |                  |  |   |                 |   |      |           |                                      |   |        |  |   | 88     |  
|Net earnings for the year ended December 1, 2002 (as restated, see Note 2)  |  |                                                                      |  |             |        |                             |                |                  |  |   | 1,959           |   |      |           |                                      |   |        |  |   |        |  
|                                                                            |  |                                                                      |  |             |        |                             |                |                  |  |   |                 |   |      |           |                                      |   |        |  |   |        |  
|Balance at December 1, 2002 (as restated, see Note 2)                       |  | 16,584,907                                                           |  |             | 16,585 |                             |                | 23,083           |  |   | 31,675          |   |      | 3,419,537 |                                      |   | 21,956 |  |   | (1,113 | )
|Acquisition of treasury stock                                               |  |                                                                      |  |             |        |                             |                |                  |  |   |                 |   |      | 1,271     |                                      |   | 2      |  |   |        |  
|Exercise of stock options                                                   |  | 2,500                                                                |  |             | 2      |                             |                | 1                |  |   |                 |   |      |           |                                      |   |        |  |   |        |  
|Net change during the year related to cash flow hedge                       |  |                                                                      |  |             |        |                             |                |                  |  |   |                 |   |      |           |                                      |   |        |  |   | 547    |  
|Net earnings for the year ended November 30, 2003 (as restated, see Note 2) |  |                                                                      |  |             |        |                             |                |                  |  |   | 2,214           |   |      |           |                                      |   |        |  |   |        |  
|                                                                            |  |                                                                      |  |             |        |                             |                |                  |  |   |                 |   |      |           |                                      |   |        |  |   |        |  
|Balance at November 30, 2003 (as restated, see Note 2)                      |  | 16,587,407                                                           |  |             | 16,587 |                             |                | 23,084           |  |   | 33,889          |   |      | 3,420,808 |                                      |   | 21,958 |  |   | (566   | )
|Acquisition of treasury stock                                               |  |                                                                      |  |             |        |                             |                |                  |  |   |                 |   |      | 6,024     |                                      |   | 31     |  |   |        |  
|Exercise of stock options                                                   |  | 87,246                                                               |  |             | 88     |                             |                | 122              |  |   |                 |   |      |           |                                      |   |        |  |   |        |  
|Net change during the year related to cash flow hedge                       |  |                                                                      |  |             |        |                             |                |                  |  |   |                 |   |      |           |                                      |   |        |  |   | 575    |  
|Net earnings for the year ended November 28, 2004 (as restated, see Note 2) |  |                                                                      |  |             |        |                             |                |                  |  |   | 890             |   |      |           |                                      |   |        |  |   |        |  
|                                                                            |  |                                                                      |  |             |        |                             |                |                  |  |   |                 |   |      |           |                                      |   |        |  |   |        |  
|Balance at November 28, 2004 (as restated, see Note 2)                      |  | 16,674,653                                                           |  | $           | 16,675 |                             | $              | 23,206           |  | $ | 34,779          |   |      | 3,426,832 |                                      | $ | 21,989 |  | $ | 9      |  
|                                                                            |  |                                                                      |  |             |        |                             |                |                  |  |   |                 |   |      |           |                                      |   |        |  |   |        |  



See notes to
consolidated financial statements.



25



---

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                              |  |                                          |          |   |                    |   |          |                   |  |   |          |  
|----------------------------------------------------------------------------- |  | ---------------------------------------- | -------- | - | ------------------ | - | -------- | ----------------- |  | - | -------- | -
|                                                                              |  | Year Ended                               |         
|                                                                              |  | 11/28/04(52 weeks)                       |          |   | 11/30/03(52 weeks) |   |          | 12/1/02(52 weeks) | 
|                                                                              |  | (in thousands) (as restated, see Note 2) |         
|Increase (Decrease) In Cash                                                   |  |                                          |          |   |                    |   |          |                   |  |   |          |  
|Cash flows from operating activities:                                         |  |                                          |          |   |                    |   |          |                   |  |   |          |  
|Cash received from customers                                                  |  | $                                        | 298,887  |   |                    | $ | 300,659  |                   |  | $ | 336,853  |  
|Cash paid to suppliers and employees                                          |  |                                          | (288,268 | ) |                    |   | (287,266 | )                 |  |   | (317,217 | )
|Income taxes received (paid), net                                             |  |                                          | (1,418   | ) |                    |   | 1,352    |                   |  |   | 2,839    |  
|Interest paid                                                                 |  |                                          | (3,343   | ) |                    |   | (5,225   | )                 |  |   | (4,028   | )
|Interest received                                                             |  |                                          | 102      |   |                    |   | 225      |                   |  |   | 347      |  
|Rent incentives received from landlords                                       |  |                                          | 2,543    |   |                    |   | 924      |                   |  |   | 1,235    |  
|Other receiptsnet                                                            |  |                                          | 1,714    |   |                    |   | 942      |                   |  |   | 1,340    |  
|                                                                              |  |                                          |          |   |                    |   |          |                   |  |   |          |  
|Net cash and cash equivalents provided by operating activities                |  |                                          | 10,217   |   |                    |   | 11,611   |                   |  |   | 21,369   |  
|                                                                              |  |                                          |          |   |                    |   |          |                   |  |   |          |  
|                                                                              |  |                                          |         
|Cash flows from investing activities:                                         |  |                                          |          |   |                    |   |          |                   |  |   |          |  
|Payments received on notes receivable                                         |  |                                          | 100      |   |                    |   | 100      |                   |  |   | 125      |  
|Increase in cash surrender value                                              |  |                                          | (131     | ) |                    |   | (121     | )                 |  |   | (150     | )
|Proceeds from life insurance policies                                         |  |                                          | 370      |   |                    |   |         |                   |  |   |         |  
|Proceeds from sale of Mitchell Gold                                           |  |                                          |         |   |                    |   | 39,573   |                   |  |   |         |  
|Capital expenditures                                                          |  |                                          | (6,333   | ) |                    |   | (4,919   | )                 |  |   | (4,558   | )
|Payments under earn-out and related obligations (Note 3)                      |  |                                          |         |   |                    |   | (15,759  | )                 |  |   |         |  
|                                                                              |  |                                          |          |   |                    |   |          |                   |  |   |          |  
|Net cash (used in) provided by investing activities                           |  |                                          | (5,994   | ) |                    |   | 18,874   |                   |  |   | (4,583   | )
|                                                                              |  |                                          |          |   |                    |   |          |                   |  |   |          |  
|                                                                              |  |                                          |         
|Cash flows from financing activities:                                         |  |                                          |          |   |                    |   |          |                   |  |   |          |  
|Restricted cash released from (deposited to) collateral for letters of credit |  |                                          | 470      |   |                    |   | (96      | )                 |  |   | (1,938   | )
|Net borrowings (repayments) under line of credit                              |  |                                          |         |   |                    |   |         |                   |  |   | (9,368   | )
|Draws under revolving loans                                                   |  |                                          | 8,798    |   |                    |   | 12,570   |                   |  |   | 3,994    |  
|Proceeds from issuance of long-term debt                                      |  |                                          |         |   |                    |   |         |                   |  |   | 39,442   |  
|Repayments under revolving loans                                              |  |                                          | (8,272   | ) |                    |   | (20,751  | )                 |  |   | (10,244  | )
|Payments to reduce long-term debt                                             |  |                                          | (3,240   | ) |                    |   | (18,759  | )                 |  |   | (47,874  | )
|Payments to reduce loans on cash surrender value                              |  |                                          | (306     | ) |                    |   | (16      | )                 |  |   |         |  
|Proceeds from issuance of common stock                                        |  |                                          | 210      |   |                    |   | 3        |                   |  |   | 38       |  
|Purchase of treasury stock                                                    |  |                                          | (31      | ) |                    |   | (2       | )                 |  |   | (19      | )
|                                                                              |  |                                          |          |   |                    |   |          |                   |  |   |          |  
|Net cash used in financing activities                                         |  |                                          | (2,371   | ) |                    |   | (27,051  | )                 |  |   | (25,969  | )
|                                                                              |  |                                          |          |   |                    |   |          |                   |  |   |          |  
|                                                                              |  |                                          |         
|Net increase (decrease) in cash and cash equivalents                          |  |                                          | 1,852    |   |                    |   | 3,434    |                   |  |   | (9,183   | )
|Cash at beginning of year                                                     |  |                                          | 3,708    |   |                    |   | 274      |                   |  |   | 9,457    |  
|                                                                              |  |                                          |          |   |                    |   |          |                   |  |   |          |  
|Cash at end of year                                                           |  | $                                        | 5,560    |   |                    | $ | 3,708    |                   |  | $ | 274      |  
|                                                                              |  |                                          |          |   |                    |   |          |                   |  |   |          |  



See notes to
consolidated financial statements.



26



---

RECONCILIATION OF NET EARNINGS TO NET CASH

PROVIDED BY (USED IN) OPERATING ACTIVITIES



|                                                                                                                    |  |                           |        |   |                    |   |        |                   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | ------ | - | ------------------ | - | ------ | ----------------- |  | - | ------ | -
|                                                                                                                    |  | Year Ended                |       
|                                                                                                                    |  | 11/28/04(52 weeks)        |        |   | 11/30/03(52 weeks) |   |        | 12/1/02(52 weeks) | 
|                                                                                                                    |  | (in thousands)            |       
|                                                                                                                    |  | (as restated, see Note 2) |       
|Net earnings                                                                                                        |  | $                         | 890    |   |                    | $ | 2,214  |                   |  | $ | 1,959  |  
|                                                                                                                    |  |                           |        |   |                    |   |        |                   |  |   |        |  
|Adjustments to reconcile net earnings to net cash provided by operating activities, net of disposition of business: |  |                           |        |   |                    |   |        |                   |  |   |        |  
|Pre-tax loss on disposition of Mitchell Gold assets                                                                 |  |                           |       |   |                    |   | 1,011  |                   |  |   |       |  
|Depreciation and amortization                                                                                       |  |                           | 7,079  |   |                    |   | 8,245  |                   |  |   | 9,352  |  
|Provision for deferred compensation                                                                                 |  |                           | 335    |   |                    |   | 170    |                   |  |   | 218    |  
|Payments made for deferred compensation                                                                             |  |                           | (306   | ) |                    |   | (241   | )                 |  |   | (2,802 | )
|Deferred income taxes                                                                                               |  |                           | (880   | ) |                    |   | 406    |                   |  |   | 1,000  |  
|Provision for losses on accounts receivable                                                                         |  |                           | 107    |   |                    |   | 376    |                   |  |   | 262    |  
|Loss on disposition of assets                                                                                       |  |                           | 55     |   |                    |   |       |                   |  |   | 640    |  
|                                                                                                                    |  |                           |       
|Change in operating assets and liabilities net of effects of disposition of business:                               |  |                           |        |   |                    |   |        |                   |  |   |        |  
|Decrease (increase) in accounts receivable                                                                          |  |                           | 2,900  |   |                    |   | (1,627 | )                 |  |   | (956   | )
|Decrease (increase) in inventories                                                                                  |  |                           | (5,394 | ) |                    |   | (1,644 | )                 |  |   | 3,863  |  
|Decrease (increase) in prepaid expenses and other                                                                   |  |                           | (2,789 | ) |                    |   | 272    |                   |  |   | (2,120 | )
|Decrease (increase) in other miscellaneous assets                                                                   |  |                           | (420   | ) |                    |   | 1,051  |                   |  |   | 1,381  |  
|Increase (decrease) in accounts payable                                                                             |  |                           | 4,635  |   |                    |   | (1,238 | )                 |  |   | (1,881 | )
|Increase (decrease) in income taxes payable                                                                         |  |                           | 3      |   |                    |   | 1,070  |                   |  |   | 3,978  |  
|Increase (decrease) in accrued expenses                                                                             |  |                           | 1,018  |   |                    |   | (1,875 | )                 |  |   | 2,006  |  
|Increase (decrease) in deferred rent                                                                                |  |                           | 2,200  |   |                    |   | 344    |                   |  |   | 1,145  |  
|Increase (decrease) in customer deposits                                                                            |  |                           | 784    |   |                    |   | 3,077  |                   |  |   | 3,324  |  
|                                                                                                                    |  |                           |        |   |                    |   |        |                   |  |   |        |  
|Total adjustments                                                                                                   |  |                           | 9,327  |   |                    |   | 9,397  |                   |  |   | 19,410 |  
|                                                                                                                    |  |                           |        |   |                    |   |        |                   |  |   |        |  
|Net cash provided by operating activities                                                                           |  | $                         | 10,217 |   |                    | $ | 11,611 |                   |  | $ | 21,369 |  
|                                                                                                                    |  |                           |        |   |                    |   |        |                   |  |   |        |  



Supplemental Disclosures of Cash Flow:



In May
2002, the Company modified terms of the lease for the Elliston facility, resulting in a change in the accounting for the lease from an operating to a capital lease. As a result, property and equipment and debt were increased by $25 million.



In November 2002, the Company recorded an obligation relating
to the long-term earn-out provisions of the Mitchell Gold purchase agreement. As a result, goodwill and current liabilities were increased by $12.8 million.



See notes to consolidated financial statements.



27



---

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Description of BusinessThe Rowe Companies (the Company) operates two subsidiaries in the home furnishings
industry: Rowe Furniture, Inc. (Rowe or the wholesale home furnishings segment), a major manufacturer of quality upholstered furniture serving the middle and upper middle market primarily throughout the United States, through
home furnishings retailers; and Storehouse, Inc. (Storehouse or the retail home furnishings segment), a multi-channel, lifestyle home furnishings business including 64 retail home furnishings stores. Storehouse makes good
design accessible by selling an edited assortment of casual, contemporary home furnishings through its stores located in the Southeast, Southwest and Mid-Atlantic markets, its catalog and over the Internet.



Principles of ConsolidationThe consolidated financial statements
include the accounts of the Company and its subsidiaries. All material intercompany transactions and balances have been eliminated.



Revenue RecognitionRowe recognizes sales when products are shipped and invoiced to customers. Storehouse recognizes sales when the goods are
delivered to the customer or services have been rendered. Customer deposits represent cash received for items not currently in inventory and items on hand but not yet delivered to the customer. Selling and administrative expenses include $5,788,000,
$5,150,000 and $4,501,000 of retail delivery expenses in 2004, 2003 and 2002, respectively.



Credit RiskAccounts receivable are customer obligations due under normal trade terms. Rowe sells its products to distributors and retailers in the residential home furnishings industry, including traditional
furniture retailers and specialty home furnishings stores. As of November 28, 2004, there was no concentration of credit risk, either individually or in the aggregate. Management performs continuing credit evaluations of its customers
financial condition and although generally does not require collateral, letters of credit may be required from customers in certain circumstances. Senior management reviews accounts receivable on a monthly basis to determine if any receivables will
potentially be uncollectible. Any accounts receivable balances that are determined to be uncollectible, along with a general reserve, are included in the overall allowance for doubtful accounts. After all attempts to collect a receivable have
failed, the receivable is written off against the allowance. Based on the information available, management believes the allowance for doubtful accounts as of November 28, 2004 was adequate. However, actual write-offs might exceed the recorded
allowance.



Use of EstimatesThe preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could
differ from those estimates.



InventoriesInventories are
valued at the lower of cost or market. Rowe utilizes the first-in, first-out (FIFO) method to compute cost, while Storehouse utilizes the last-in, first-out (LIFO) method.



Property, Equipment and DepreciationProperty and equipment are stated at cost. For financial reporting purposes,
depreciation, which includes amortization of assets under capital leases, is computed over the estimated useful lives of the assets using primarily the straight-line method. Accelerated methods are used for income tax purposes. Assets are
depreciated for financial reporting purposes based on estimated useful lives as follows: buildings and improvements (5 to 45 years); machinery and equipment (3 to 10 years); and leasehold improvements (terms of leases).



Operating LeasesThe Company leases retail stores, office space and
distribution facilities under operating leases. Most lease agreements contain tenant improvement allowances, rent holidays, rent escalation clauses and/or contingent rent provisions. For purposes of recognizing incentives and minimum rental expenses
on a straight-line basis over the accounting terms of the leases, the Company uses the date of initial possession to begin



28



---

amortization, which is generally when the Company enters the space and begins to make improvements in preparation for intended use.



For tenant improvement allowances and rent holidays, the Company records a
deferred rent liability on the consolidated balance sheets and amortizes the deferred rent over the accounting terms of the leases as reductions to rent expense in the consolidated statements of operations and comprehensive income (loss).



For scheduled rent escalation clauses during the lease terms
or for rental payments commencing at a date other than the date of initial occupancy, the Company records minimum rental expenses on a straight-line basis over the terms of the leases in the consolidated statements of operations and comprehensive
income (loss).



Certain leases provide for contingent rents,
which are generally determined as a percentage of gross sales in excess of specified levels. The Company records a contingent rent liability in deferred rent on the consolidated balance sheets and the corresponding rent expense when specified levels
have been achieved or when management determines that achieving the specified levels during the fiscal year is probable.



Long-Lived AssetsLong-lived assets, such as property and equipment, are evaluated for impairment when events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows from the use of these assets. When any such impairment exists, the related assets are written down to fair value. No impairment
charges were recorded during 2004. During 2003, the Company performed an evaluation of Storehouses assets, including its store portfolio, and concluded that certain store locations were not generating sufficient cash flow to support their
fixed depreciation charges. The Company recorded a non-cash impairment charge of approximately $1,042,000 to write-down the value of the fixed assets at those locations. As further disclosed in Note 3, the Company also recognized impairment losses
relating to the retail restructuring charges in 2002.



Fair
Value of Financial InstrumentsFinancial instruments of the Company include long-term debt agreements. Based upon the current borrowing rates available to the Company, estimated fair values of these financial instruments approximate their
recorded carrying amounts. The Company also holds an interest rate swap contract. See Note 10 for information concerning the fair value of this financial instrument.



GoodwillIn June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets, which was
effective as of the beginning of fiscal 2003 for the Company. SFAS No. 142 represents a change in accounting for goodwill. SFAS No. 142 requires that goodwill no longer be amortized, and that goodwill be tested for impairment at the reporting unit
level by comparing the reporting units carrying value to its fair value as of the beginning of the fiscal year. SFAS 142 also requires that, at least annually, goodwill be retested for impairment. Using a discounted cash flow model, management
has determined that there has been no impairment of the goodwill recorded in its financial statements. Goodwill is included in the total assets of the wholesale segment in the Companys segment reporting. The following table highlights the
impact of goodwill amortization on the Companys reported net earnings and basic and diluted earnings per share:



|                               |  |                |      |      |   |       |  |   |      
|------------------------------ |  | -------------- | ---- | ---- | - | ----- |  | - | -----
|                               |  | 2004           |      | 2003 |   | 2002 
|                               |  | (in thousands)
|Net earnings                   |  | $              | 890  |      | $ | 2,214 |  | $ | 1,959
|Goodwill amortization          |  |                |     |      |   |      |  |   | 1,296
|                               |  |                |      |      |   |       |  |   |      
|Adjusted net earnings          |  | $              | 890  |      | $ | 2,214 |  | $ | 3,255
|                               |  |                |      |      |   |       |  |   |      
|                               |  |                |     
|Reported basic and diluted EPS |  | $              | 0.07 |      | $ | 0.17  |  | $ | 0.15 
|Goodwill amortization          |  |                |     |      |   |      |  |   | 0.10 
|                               |  |                |      |      |   |       |  |   |      
|Adjusted basic and diluted EPS |  | $              | 0.07 |      | $ | 0.17  |  | $ | 0.25 
|                               |  |                |      |      |   |       |  |   |      



29



---

Advertising CostsCosts incurred for advertising are expensed as incurred. Costs incurred under
cooperative advertising programs are recognized when the related revenues are recognized. In accordance with the FASBs Emerging Issues Task Force Issue No. 01-9, the cooperative advertising costs are classified as a reduction of net shipments
for all periods presented. Charges to selling and administrative expenses for advertising were $9,832,000, $8,738,000 and $8,836,000 in 2004, 2003 and 2002, respectively.



DerivativesThe Company utilizes derivative financial instruments to reduce interest rate risks. The Company does not
hold or issue derivative financial instruments for trading purposes. Financial Accounting Standard No. 133, Accounting for Derivative Instruments and Hedging Activities, which was amended in June 2000 by SFAS No. 138, established
accounting and reporting standards for derivative instruments and hedging activities. They require that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. Changes in
the fair value of those instruments will be reported in earnings or other comprehensive income depending on the use of the derivative and whether it qualifies for hedge accounting. The accounting for gains and losses associated with changes in the
fair value of the derivative and the effect on the consolidated financial statements will depend on its hedge designation and whether the hedge is highly effective in achieving offsetting changes in the fair value of cash flows of the asset or
liability hedged. The Companys derivative instruments were considered highly effective under SFAS No. 133 and, as a result, changes in fair value of the agreements were recorded to accumulated other comprehensive income (loss) in
stockholders equity. Hedge ineffectiveness was not material during fiscal years 2004 and 2003. See Note 10.



Income TaxesIncome taxes are calculated using the liability method specified by SFAS No. 109, Accounting For Income Taxes.



Stock OptionsSee Note 11.



Comprehensive Income (Loss)The Company has reported the components of
comprehensive income in the Consolidated Statement of Stockholders Equity. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner
sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. For the Company, other comprehensive income (loss) consists of changes in the fair market value of derivatives.



Earnings Per ShareThe Company computes basic earnings
per share based upon the weighted average shares outstanding during the period. Outstanding stock options which are dilutive are treated as common stock equivalents for purposes of computing diluted earnings per share.



|                                                                     |  |                |        |      |   |        |  |   |       
|-------------------------------------------------------------------- |  | -------------- | ------ | ---- | - | ------ |  | - | ------
|                                                                     |  | 2004           |        | 2003 |   | 2002  
|                                                                     |  | (in thousands)
|Net earnings available to basic and diluted shares                   |  | $              | 890    |      | $ | 2,214  |  | $ | 1,959 
|                                                                     |  |                |        |      |   |        |  |   |       
|Weighted average common shares outstanding (Basic)                   |  |                | 13,198 |      |   | 13,167 |  |   | 13,152
|Effect of dilutive stock options                                     |  |                | 348    |      |   | 38     |  |   | 41    
|                                                                     |  |                |        |      |   |        |  |   |       
|Weighted average common shares and equivalents outstanding (Diluted) |  |                | 13,546 |      |   | 13,205 |  |   | 13,193
|                                                                     |  |                |        |      |   |        |  |   |       



As of November 28,
2004, November 30, 2003 and December 1, 2002, there were 897,631, 1,415,937 and 1,783,702 outstanding options, respectively, whose exercise price was equal to or greater than the average market price of the Companys common stock for the twelve
months ended thereon, respectively. These options are excluded from the computation of the effect of dilutive stock options shown in the table above.



Statement of Cash FlowsFor purposes of the Statement of Cash Flows, the Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.



30



---

Fiscal YearThe Companys accounting fiscal year end is the Sunday of each year closest to
November 30. Fiscal years 2004, 2003 and 2002 each contained 52 weeks.



ReclassificationsCertain prior year amounts have been reclassified to conform to current year presentation. The reclassifications have no effect on the results of operations previously reported.



NOTE 2RESTATEMENT OF FINANCIAL STATEMENTS



On February 7, 2005, the Office of the Chief Accountant of the Securities
and Exchange Commission (SEC) issued a letter to the American Institute of Certified Public Accountants expressing its views regarding certain operating lease accounting issues and their application under generally accepted accounting
principles in the United States of America (GAAP). In response to that letter, the Companys management initiated an internal review of its lease-related accounting and, in consultation with the Audit Committee of its Board of
Directors and its independent registered public accounting firm, determined that it should revise its accounting for leasehold improvements funded with landlord incentives or allowances under operating leases, and to revise the period over which
rent expense is incurred to include the time period that the leased space is under construction. As a result, the Company restated its consolidated financial statements for each of the fiscal years ended November 28, 2004, November 30, 2003 and
December 1, 2002, in this report.



The Company had historically
accounted for landlord allowances for leasehold improvements as reductions to the related leasehold improvement asset on the consolidated balance sheets and capital expenditures in investing activities on the consolidated statements of cash flows.
Management determined that the appropriate interpretation of FASB Technical Bulletin No. 88-1, Issues Relating to Accounting for Leases, requires these allowances to be recorded as deferred rent liabilities on the consolidated balance
sheets and as a component of operating activities on the consolidated statements of cash flows. This change has no impact on results of operations, as the increased amortization expense associated with the additional leasehold improvements is offset
by reductions in rent expense resulting from amortization of the deferred rent liability.



The Company had historically recognized rent expense on a straight-line basis over the lease term commencing with the date the leased store opened for business. Management re-evaluated FASB Technical Bulletin No.
85-3, Accounting for Operating Leases with Scheduled Rent Increases, and determined that the lease term should commence on the date the Company takes possession of the leased space for construction purposes, which is generally several
months prior to the store opening date. Excluding tax effects, the correction of this accounting requires the Company to record additional deferred rent and adjust retained earnings on the consolidated balance sheets, and record additional rent
expense in the consolidated statements of operations and comprehensive income (loss) for each of the three years in the period ending November 28, 2004.



In addition, in fiscal year 2003, the Company recorded an impairment charge relating to several unprofitable stores. The application of these restatements
resulted in additional leasehold improvements associated with two stores included in the impairment charge, and the impairment charge has been restated to reflect the write-off of the additional leasehold improvements as of that date.



The cumulative effect of these accounting changes, including tax effects, is
a reduction of retained earnings of $488,000 as of the beginning of fiscal 2002 and incremental decreases to retained earnings of $61,000, $332,000 and $142,000 for the fiscal years ended 2002, 2003 and 2004, respectively.



31



---

Following is a summary of the effects of these changes on the Companys consolidated balance sheets
as of November 28, 2004 and November 30, 2003, as well as the effects of these changes on the Companys consolidated statements of operations and comprehensive income(loss) and cash flows for fiscal years 2004, 2003 and 2002:



Consolidated Statements of Operations and Comprehensive Income (Loss)



|                                                                                  |  |                                      |         |   |             |   |       |            |  |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------------------ | ------- | - | ----------- | - | ----- | ---------- |  | - | ------- | -
|                                                                                  |  | AsPreviouslyReported                 |         |   | Adjustments |   |       | AsRestated | 
|                                                                                  |  | (in thousands except per share data) |        
|Fiscal year ended November 28, 2004                                               |  |                                      |         |   |             |   |       |            |  |   |         |  
|Selling and administrative expenses                                               |  | $                                    | 100,161 |   |             | $ | 215   |            |  | $ | 100,376 |  
|Operating income (loss)                                                           |  |                                      | 3,398   |   |             |   | (215  | )          |  |   | 3,183   |  
|Earnings (loss) from continuing operations before taxes                           |  |                                      | 1,529   |   |             |   | (215  | )          |  |   | 1,314   |  
|Tax expense (benefit)                                                             |  |                                      | 569     |   |             |   | (73   | )          |  |   | 496     |  
|Net earnings (loss) from continuing operations                                    |  |                                      | 960     |   |             |   | (142  | )          |  |   | 818     |  
|Net earnings                                                                      |  |                                      | 1,032   |   |             |   | (142  | )          |  |   | 890     |  
|Comprehensive income                                                              |  |                                      | 1,607   |   |             |   | (142  | )          |  |   | 1,465   |  
|Net earnings (loss) from continuing operations per common share                   |  | $                                    | 0.07    |   |             | $ | (0.01 | )          |  | $ | 0.06    |  
|Net earnings per common share                                                     |  | $                                    | 0.08    |   |             | $ | (0.01 | )          |  | $ | 0.07    |  
|Net earnings (loss) from continuing operations per common share assuming dilution |  | $                                    | 0.07    |   |             | $ | (0.01 | )          |  | $ | 0.06    |  
|Net earnings per common share assuming dilution                                   |  | $                                    | 0.08    |   |             | $ | (0.01 | )          |  | $ | 0.07    |  
|                                                                                  |  |                                      |        
|Fiscal year ended November 30, 2003                                               |  |                                      |         |   |             |   |       |            |  |   |         |  
|Selling and administrative expenses                                               |  | $                                    | 94,501  |   |             | $ | 503   |            |  | $ | 95,004  |  
|Operating income (loss)                                                           |  |                                      | 5,399   |   |             |   | (503  | )          |  |   | 4,896   |  
|Earnings (loss) from continuing operations before taxes                           |  |                                      | 2,034   |   |             |   | (503  | )          |  |   | 1,531   |  
|Tax expense (benefit)                                                             |  |                                      | 1,077   |   |             |   | (171  | )          |  |   | 906     |  
|Net earnings (loss) from continuing operations                                    |  |                                      | 957     |   |             |   | (332  | )          |  |   | 625     |  
|Net earnings                                                                      |  |                                      | 2,546   |   |             |   | (332  | )          |  |   | 2,214   |  
|Comprehensive income                                                              |  |                                      | 3,093   |   |             |   | (332  | )          |  |   | 2,761   |  
|Net earnings (loss) from continuing operations per common share                   |  | $                                    | 0.07    |   |             | $ | (0.02 | )          |  | $ | 0.05    |  
|Net earnings per common share                                                     |  | $                                    | 0.19    |   |             | $ | (0.02 | )          |  | $ | 0.17    |  
|Net earnings (loss) from continuing operations per common share assuming dilution |  | $                                    | 0.07    |   |             | $ | (0.02 | )          |  | $ | 0.05    |  
|Net earnings per common share assuming dilution                                   |  | $                                    | 0.19    |   |             | $ | (0.02 | )          |  | $ | 0.17    |  
|                                                                                  |  |                                      |        
|Fiscal year ended December 1, 2002                                                |  |                                      |         |   |             |   |       |            |  |   |         |  
|Selling and administrative expenses                                               |  | $                                    | 93,765  |   |             | $ | 92    |            |  | $ | 93,857  |  
|Operating income (loss)                                                           |  |                                      | (433    | ) |             |   | (92   | )          |  |   | (525    | )
|Earnings (loss) from continuing operations before taxes                           |  |                                      | (3,977  | ) |             |   | (92   | )          |  |   | (4,069  | )
|Tax expense (benefit)                                                             |  |                                      | (1,183  | ) |             |   | (31   | )          |  |   | (1,214  | )
|Net earnings (loss) from continuing operations                                    |  |                                      | (2,794  | ) |             |   | (61   | )          |  |   | (2,855  | )
|Net earnings                                                                      |  |                                      | 2,020   |   |             |   | (61   | )          |  |   | 1,959   |  
|Comprehensive income                                                              |  |                                      | 2,108   |   |             |   | (61   | )          |  |   | 2,047   |  
|Net earnings (loss) from continuing operations per common share                   |  | $                                    | (0.21   | ) |             | $ | (0.01 | )          |  | $ | (0.22   | )
|Net earnings per common share                                                     |  | $                                    | 0.15    |   |             | $ |      |            |  | $ | 0.15    |  
|Net earnings (loss) from continuing operations per common share assuming dilution |  | $                                    | (0.21   | ) |             | $ | (0.01 | )          |  | $ | (0.22   | )
|Net earnings per common share assuming dilution                                   |  | $                                    | 0.15    |   |             | $ |      |            |  | $ | 0.15    |  



32



---

Consolidated Balance Sheets



|                                                               |  |                       |         |   |             |   |        |             |  |   |         |  
|-------------------------------------------------------------- |  | --------------------- | ------- | - | ----------- | - | ------ | ----------- |  | - | ------- | -
|                                                               |  | As PreviouslyReported |         |   | Adjustments |   |        | As Restated | 
|                                                               |  | (in thousands)        |        
|November 28, 2004                                              |  |                       |         |   |             |   |        |             |  |   |         |  
|Property and equipment                                         |  | $                     | 39,000  |   |             | $ | 4,846  |             |  | $ | 43,846  |  
|Total assets                                                   |  |                       | 134,275 |   |             |   | 4,846  |             |  |   | 139,121 |  
|Other accrued expenses                                         |  |                       | 5,399   |   |             |   | (1,131 | )           |  |   | 4,268   |  
|Total current liabilities                                      |  |                       | 43,724  |   |             |   | (1,131 | )           |  |   | 42,593  |  
|Deferred rent                                                  |  |                       |        |   |             |   | 7,581  |             |  |   | 7,581   |  
|Deferred income taxes (liability)                              |  |                       | 2,333   |   |             |   | (581   | )           |  |   | 1,752   |  
|Total liabilities                                              |  |                       | 80,572  |   |             |   | 5,869  |             |  |   | 86,441  |  
|Retained earnings                                              |  |                       | 35,802  |   |             |   | (1,023 | )           |  |   | 34,779  |  
|Total stockholders equity                                     |  |                       | 53,703  |   |             |   | (1,023 | )           |  |   | 52,680  |  
|Total liabilities and stockholders equity                     |  | $                     | 134,275 |   |             | $ | 4,846  |             |  | $ | 139,121 |  
|                                                               |  |                       |        
|November 30, 2003                                              |  |                       |         |   |             |   |        |             |  |   |         |  
|Property and equipment                                         |  | $                     | 41,624  |   |             | $ | 2,824  |             |  | $ | 44,448  |  
|Total assets                                                   |  |                       | 129,026 |   |             |   | 2,824  |             |  |   | 131,850 |  
|Other accrued expenses                                         |  |                       | 5,712   |   |             |   | (1,168 | )           |  |   | 4,544   |  
|Total current liabilities                                      |  |                       | 39,570  |   |             |   | (1,168 | )           |  |   | 38,402  |  
|Deferred rent                                                  |  |                       |        |   |             |   | 5,381  |             |  |   | 5,381   |  
|Deferred income taxes (liability)                              |  |                       | 1,737   |   |             |   | (508   | )           |  |   | 1,229   |  
|Total liabilities                                              |  |                       | 77,109  |   |             |   | 3,705  |             |  |   | 80,814  |  
|Retained earnings                                              |  |                       | 34,770  |   |             |   | (881   | )           |  |   | 33,889  |  
|Total stockholders equity                                     |  |                       | 51,917  |   |             |   | (881   | )           |  |   | 51,036  |  
|Total liabilities and stockholders equity                     |  | $                     | 129,026 |   |             | $ | 2,824  |             |  | $ | 131,850 |  
|                                                               |  |                       |        
|Consolidated Statements of Cash Flows                          |  |                       |         |   |             |   |        |             |  |   |         |  
|                                                               |  |                       |        
|                                                               |  | As PreviouslyReported |         |   | Adjustments |   |        | As Restated | 
|                                                               |  | (in thousands)        |        
|Fiscal year ended November 28, 2004                            |  |                       |         |   |             |   |        |             |  |   |         |  
|Net cash and cash equivalents provided by operating activities |  | $                     | 7,674   |   |             | $ | 2,543  |             |  | $ | 10,217  |  
|Net cash provided by (used in) investing activities            |  |                       | (3,451  | ) |             |   | (2,543 | )           |  |   | (5,994  | )
|                                                               |  |                       |        
|Fiscal year ended November 30, 2003                            |  |                       |         |   |             |   |        |             |  |   |         |  
|Net cash and cash equivalents provided by operating activities |  | $                     | 10,687  |   |             | $ | 924    |             |  | $ | 11,611  |  
|Net cash provided by (used in) investing activities            |  |                       | 19,798  |   |             |   | (924   | )           |  |   | 18,874  |  
|                                                               |  |                       |        
|Fiscal year ended December 1, 2002                             |  |                       |         |   |             |   |        |             |  |   |         |  
|Net cash and cash equivalents provided by operating activities |  | $                     | 20,134  |   |             | $ | 1,235  |             |  | $ | 21,369  |  
|Net cash provided by (used in) investing activities            |  |                       | (3,348  | ) |             |   | (1,235 | )           |  |   | (4,583  | )
|                                                               |  |                       |        
|Consolidated Statements of Shareholders Equity                |  |                       |         |   |             |   |        |             |  |   |         |  
|                                                               |  |                       |        
|                                                               |  | As PreviouslyReported |         |   | Adjustments |   |        | As Restated | 
|                                                               |  | (in thousands)        |        
|As of December 2, 2001                                         |  |                       |         |   |             |   |        |             |  |   |         |  
|Retained earnings                                              |  | $                     | 30,204  |   |             | $ | (488   | )           |  | $ | 29,716  |  



33



---

NOTE 3ACQUISITIONS, DISPOSALS AND RESTRUCTURING



On October 31, 1998, the Company acquired all of the issued and outstanding
common stock of Mitchell Gold, a privately owned furniture manufacturing company located in North Carolina. During April 2003, the Company sold Mitchell Gold. At the time of the sale, Mitchell Golds financial statements included total assets
of $47,116,000 and liabilities of $10,051,000, consisting of the following major classes of assets (amounts in thousands):



|                                      |  |   |       
|------------------------------------- |  | - | ------
|Accounts receivable                   |  | $ | 6,065 
|Inventory                             |  |   | 6,488 
|Fixed assets                          |  |   | 7,003 
|Goodwill                              |  |   | 26,342
|Other assets                          |  |   | 1,218 
|                                      |  |   |       
|Total assets                          |  | $ | 47,116
|                                      |  |   |       
|Accounts payable and accrued expenses |  | $ | 5,196 
|Long-term debt                        |  |   | 4,855 
|                                      |  |   |       
|Total liabilities                     |  | $ | 10,051
|                                      |  |   |       



Proceeds from the
sale, net of liabilities assumed, were approximately $39.6 million. The sale resulted in a gain, after taxes, of $462,000 or $0.04 per share ($0.03 per diluted share). The Company utilized the net proceeds to reduce outstanding debt by approximately
$22.1 million, pay expenses of the sale of approximately $4 million, and settle obligations under the long-term earn-out provisions of the original purchase agreement for Mitchell Gold. Interest allocated to Mitchell Gold was calculated based on
borrowings used to acquire and support Mitchell Golds activities at the Companys average borrowing rate. Included in earnings from discontinued operations in the Companys consolidated statements of operations were the following
amounts associated with Mitchell Gold:



|                                                |  |                |   |      |   |        |  |   |       
|----------------------------------------------- |  | -------------- | - | ---- | - | ------ |  | - | ------
|                                                |  | 2004           |   | 2003 |   | 2002  
|                                                |  | (in thousands)
|Net shipments                                   |  | $              |  |      | $ | 20,226 |  | $ | 65,794
|Interest expense                                |  | $              |  |      | $ | 415    |  | $ | 1,665 
|Earnings before taxes                           |  | $              |  |      | $ | 1,748  |  | $ | 7,419 
|Net earnings per common share                   |  | $              |  |      | $ | 0.08   |  | $ | 0.33  
|Net earnings per common share assuming dilution |  | $              |  |      | $ | 0.08   |  | $ | 0.33  



During 2004, the
Companys Board of Directors approved managements plans to sell two investment real estate properties. The Company subsequently executed a contract to dispose of one of these properties, and this transaction was completed in December
2004. The Company continues to pursue potential avenues to dispose of the second property. See Note 17.



Income and expense items associated with these properties have been classified as discontinued operations, and all prior periods have been restated to
conform to the current presentation. Included in earnings from discontinued operations in the Companys consolidated statements of operations were the following amounts associated with these investment properties:



|                                                |  |                |       |      |   |      |  |   |      
|----------------------------------------------- |  | -------------- | ----- | ---- | - | ---- |  | - | -----
|                                                |  | 2004           |       | 2003 |   | 2002
|                                                |  | (in thousands)
|Other income, net                               |  | $              | 1,019 |      | $ | 809  |  | $ | 1,123
|Interest expense                                |  | $              | 732   |      | $ | 739  |  | $ | 376  
|Earnings before taxes                           |  | $              | 287   |      | $ | 70   |  | $ | 747  
|Net earnings per common share                   |  | $              | 0.01  |      | $ | 0.00 |  | $ | 0.03 
|Net earnings per common share assuming dilution |  | $              | 0.01  |      | $ | 0.00 |  | $ | 0.03 



34



---

As of November 28, 2004, assets and liabilities held for sale consisted of the following (amounts in
thousands):



|                                                     |  |   |      
|---------------------------------------------------- |  | - | -----
|Investment property, net of accumulated amortization |  | $ | 7,248
|Mortgage loans                                       |  | $ | 8,968



The mortgage loans are
expected to be either assumed by the purchaser or repaid from the proceeds of the sale of the property. The mortgage loans bear interest at 7.75%, and require monthly payments of principal and interest based on a 25 year term, with a balloon payment
due in 2012. Principal amortization in 2005 will be approximately $153,000, increasing slightly in each of the future years until 2012.



The mortgage loans were secured by the investment properties located in California and Maryland. Rental income at these two properties totaled $1,403,000,
$1,574,000 and $1,560,000 in 2004, 2003 and 2002, respectively. Minimum lease commitments at November 28, 2004 under long-term operating leases at these two properties are expected to be $675,000 in 2005, $532,000 in 2006, $441,000 in 2007, $22,000
in 2008 and $141,000 in 2009.



During February 2004, the
Company recorded certain adjustments relating to workers compensation insurance reserves for policy years 1999 and 2000. These adjustments included amounts associated with its discontinued operations, totaling $170,000 on a pre-tax basis, or $0.01
per share. These charges have also been included in discontinued operations.



On August 1, 1999, the Company completed the acquisition of Storehouse, a privately owned, 43 store chain of retail furniture stores headquartered in Atlanta, Georgia. Storehouse has operations from Texas through the
Southeast and Mid-Atlantic markets.



As previously reported,
the Company restructured its retail operations by combining the former Home Elements subsidiary into Storehouse, to operate under the Storehouse name. During 2002, the Company recorded restructuring, store closing and other charges relating to the
restructuring; $2,319,000 in the second quarter (of which $230,000 was reported in selling and administrative expenses), and an additional $262,000 in the fourth quarter, for a total of $2,581,000. Of this total, $2,062,000 was utilized during 2002,
with the remaining $519,000 reserve available for future lease termination costs. Through November 30, 2003, $409,000 was expended in monthly lease payments and costs to sublease space. During 2003, the Company entered into a sublease for certain
space previously utilized by Home Elements. Based upon the terms of the sublease, the Company recorded an additional $225,000 charge for lease termination costs. Through November 28, 2004, $64,000 has been expended in monthly lease payments, net of
sublease income received. The estimates of lease termination costs, particularly in regards to subleased space, included estimates of cost increases to be recognized in the future, such as incremental increases in base rent and charges for operating
expenses. Actual increases may vary from those assumed at the time these costs were determined. As such increases are realized, revisions to the recorded costs to sublease certain space may be required, and will be recorded as they become known. The
following tables outline the components of the restructuring and related charges and the balance of the reserve account at the indicated dates:



|                        |  |                          |     |           |   |             |  |                          |     |  |   |    
|----------------------- |  | ------------------------ | --- | --------- | - | ----------- |  | ------------------------ | --- |  | - | ---
|                        |  | 11/30/2003ReserveBalance |     | Revisions |   | PaidTo Date |  | 11/28/2004ReserveBalance
|                        |  | (in thousands)          
|Lease termination costs |  | $                        | 335 |           |   |            |  | $                        | 64  |  | $ | 271
|                        |  |                          |     |           |   |             |  |                          |     |  |   |    
|                        |  |                          |     |          
|                        |  | 12/1/2002ReserveBalance  |     | Revisions |   | Paid ToDate |  | 11/30/2003ReserveBalance
|                        |  | (in thousands)          
|Lease termination costs |  | $                        | 519 |           | $ | 225         |  | $                        | 409 |  | $ | 335
|                        |  |                          |     |           |   |             |  |                          |     |  |   |    



35



---

|                                                             |  |                 |       |                     |   |                                 |  |   |             |   |                         |   |       |  |   |    
|------------------------------------------------------------ |  | --------------- | ----- | ------------------- | - | ------------------------------- |  | - | ----------- | - | ----------------------- | - | ----- |  | - | ---
|                                                             |  | OriginalCharges |       | Non-CashWrite-downs |   | Revisionsand FixedAsset Charges |  |   | Paid ToDate |   | 12/1/2002ReserveBalance
|                                                             |  | (in thousands) 
|Non-cash write-downs of fixed assets to net realizable value |  | $               | 494   |                     | $ | 494                             |  | $ | (494        | ) |                         | $ |      |  | $ |   
|Employee termination benefits(20 administrative personnel)   |  |                 | 359   |                     |   |                                |  |   | (99         | ) |                         |   | 260   |  |   |   
|Lease termination costs                                      |  |                 | 720   |                     |   |                                |  |   | 262         |   |                         |   | 463   |  |   | 519
|Moving and relocation costs                                  |  |                 | 130   |                     |   |                                |  |   | (43         | ) |                         |   | 87    |  |   |   
|Other costs                                                  |  |                 | 616   |                     |   |                                |  |   | 210         |   |                         |   | 826   |  |   |   
|                                                             |  |                 |       |                     |   |                                 |  |   |             |   |                         |   |       |  |   |    
|                                                             |  | $               | 2,319 |                     | $ | 494                             |  | $ | (164        | ) |                         | $ | 1,636 |  | $ | 519
|                                                             |  |                 |       |                     |   |                                 |  |   |             |   |                         |   |       |  |   |    



NOTE 4INVENTORIES



Inventory components are as follows:



|                   |  |                |        |      |   |       
|------------------ |  | -------------- | ------ | ---- | - | ------
|                   |  | 2004           |        | 2003
|                   |  | (in thousands)
|Retail merchandise |  | $              | 21,103 |      | $ | 19,149
|Finished goods     |  |                | 2,376  |      |   | 2,036 
|Work-in-process    |  |                | 3,507  |      |   | 3,208 
|Raw materials      |  |                | 10,795 |      |   | 7,994 
|                   |  |                |        |      |   |       
|Total inventories  |  | $              | 37,781 |      | $ | 32,387
|                   |  |                |        |      |   |       



Retail merchandise is
valued by Storehouse using the LIFO method to determine cost. Had this inventory been valued using FIFO, retail merchandise and total inventories would have increased by $754,000 and $535,000, respectively, over the amounts shown above.



NOTE 5PROPERTY AND EQUIPMENT



Property and equipment consist of the following:



|                              |  |                |        |      |   |       
|----------------------------- |  | -------------- | ------ | ---- | - | ------
|                              |  | 2004           |        | 2003
|                              |  | (in thousands)
|Land                          |  | $              | 405    |      | $ | 405   
|Buildings and improvements    |  |                | 32,578 |      |   | 32,515
|Leasehold improvements        |  |                | 18,906 |      |   | 15,471
|Machinery and equipment       |  |                | 44,035 |      |   | 43,337
|Projects-in process           |  |                | 444    |      |   | 1,849 
|                              |  |                |        |      |   |       
|                              |  | $              | 96,368 |      | $ | 93,577
|Less accumulated depreciation |  |                | 52,522 |      |   | 49,129
|                              |  |                |        |      |   |       
|Net property and equipment    |  | $              | 43,846 |      | $ | 44,448
|                              |  |                |        |      |   |       



36



---

Assets recorded under capital leases that are included in the above property and equipment are as
follows:



|                              |  |                |        |      |   |       
|----------------------------- |  | -------------- | ------ | ---- | - | ------
|                              |  | 2004           |        | 2003
|                              |  | (in thousands)
|Land                          |  | $              | 198    |      | $ | 198   
|Buildings and improvements    |  |                | 18,572 |      |   | 18,572
|Machinery and equipment       |  |                | 6,230  |      |   | 6,230 
|                              |  |                |        |      |   |       
|                              |  |                | 25,000 |      |   | 25,000
|Less accumulated amortization |  |                | 2,454  |      |   | 1,627 
|                              |  |                |        |      |   |       
|Net property and equipment    |  | $              | 22,546 |      | $ | 23,373
|                              |  |                |        |      |   |       



NOTE 6LONG-TERM DEBT AND
CAPITAL LEASES



Long-term debt and capital leases consist
of the following:



|                         |  |                |        |      |   |       
|------------------------ |  | -------------- | ------ | ---- | - | ------
|                         |  | 2004           |        | 2003
|                         |  | (in thousands)
|Capital lease obligation |  | $              | 12,206 |      | $ | 14,304
|Revolving bank loan      |  |                | 11,238 |      |   | 10,711
|Term loan                |  |                | 2,500  |      |   | 3,500 
|Mortgage loans           |  |                |       |      |   | 9,111 
|                         |  |                |        |      |   |       
|                         |  |                | 25,944 |      |   | 37,626
|Less current maturities  |  |                | 1,867  |      |   | 3,314 
|                         |  |                |        |      |   |       
|Total long-term debt     |  | $              | 24,077 |      | $ | 34,312
|                         |  |                |        |      |   |       



As of November 28,
2004, the Companys mortgage debt was classified as debt associated with investment property for sale. See Note 3 for information about the mortgage debt.



Capital Lease Obligation



The term of the capital lease obligation was extended in December 2003 and various provisions of the agreement were modified. The capital lease obligation
is repayable in monthly installments of $72,300 plus interest at 30 day LIBOR plus a spread of 3%, currently approximately 4.99%. A balloon payment of approximately $8.7 million is due in December 2008. The Company also elected to hedge the variable
interest rate risk associated with this debt. See Note 10 for additional details about this hedge contract.



Revolving Bank Loan



The revolving bank loan bears interest at 30 day LIBOR plus a spread of 2%, currently approximately 4.13%. Up to $35 million may be advanced to the Company under the terms of this loan, subject to availability. Availability is based upon
certain percentages of outstanding receivables and inventory, as defined in the loan agreement. The revolving bank loan expires in May 2007.



Term Loan



The term loan bears interest at 30 day LIBOR plus a spread of 2.25%, currently approximately 4.38%. The term loan is repayable in quarterly installments
of $250,000 through May 2007.



The Company has the option to
use 30, 60 or 90 day LIBOR as the base rate for the term and revolving bank loans. Should the revolving bank loan balance increase after locking in a base rate, interest on the increased principal is based on prime plus 1%.



37



---

Covenants



The capital lease obligation, revolving bank loan and term loan agreements prohibit the Company from paying dividends, repurchasing stock or incurring
additional debt (other than certain permitted debt) without the lenders written consent and are collateralized by substantially all assets of the Company and its subsidiaries. Permitted debt generally includes: (i) certain existing debt and
future obligations to the lenders; (ii) trade accounts payable and accrued expenses, including accrued payroll, benefit plans, taxes, and other operating expenses, incurred in the ordinary course of business; (iii) rent obligations under leases;
(iv) debt incurred for the purchase of fixed assets that does not at any time exceed, in the aggregate, $500,000, (v) certain obligations which may arise as a result of any guaranty, indemnity or other assurance of payment or performance by others
incurred in the ordinary course of business or under other limited specified circumstances; (vi) debt incurred as a result of the refinancing of certain existing debt; and (vii) other debt not included above that does not at any time exceed, in the
aggregate, $500,000.



The agreements also restrict the amount
of capital expenditures and the Companys ability to sell certain assets. Each of these facilities contain, among other things, covenants with respect to a fixed charge coverage ratio (defined generally as the ratio of consolidated earnings
before interest, taxes, depreciation and amortization (EBITDA), reduced by capital expenditures and cash taxes, to consolidated debt service), maximum leverage ratio (defined generally as the ratio of consolidated debt to consolidated
EBITDA), and to maintain a minimum monthly EBITDA, minimum excess borrowing availability ($3.0 million) and minimum consolidated tangible net worth (defined generally as total equity reduced by goodwill) . As of November 28, 2004, the Company was in
compliance with the provisions of these agreements as amended on April 15, 2005.



Minimum Debt Service Requirements



Minimum
required debt service payments (including obligations under the capital lease) for each of the five fiscal years subsequent to November 28, 2004, are approximately $1,867,000 in 2005; $1,867,000 in 2006; $12,605,000 in 2007; $866,000 in 2008; and
$8,739,000 in 2009.



NOTE 7DEFERRED COMPENSATION PLANS



Effective December 1, 1986, as amended in 1991, the Company established
deferred compensation contracts for certain officers of the Company. The contracts fixed a minimum level for retirement benefits to be paid to participants based on age at retirement with the Company. The contracts are not funded. Charges to expense
were $49,000 in 2004, $53,000 in 2003 and $63,000 in 2002.



The
Company also has deferred compensation agreements with key employees. Vesting is based upon age and years of service. Life insurance contracts have been purchased which may be used to fund these agreements. The charges to expense were $163,000 in
2004, $118,000 in 2003 and $167,000 in 2002.



NOTE 8EMPLOYEE BENEFIT
PLANS



The Company maintains 401(k) and savings plans that
cover substantially all employees. Contributions to the plans were $848,000 in 2004, $836,000 in 2003 and $683,000 in 2002.



NOTE 9COMMITMENTS AND CONTINGENCIES



Operating Leases



The Company is obligated under long-term real estate leases for offices, warehouses, showrooms and retail locations expiring at various dates through 2017
with certain renewal options. Certain of the lease agreements for store locations have, in addition to base rental, contingent rentals based on sales volume and payments based on a pro-rata distribution of the expenses associated with common areas.
Rental payments charged to expense were $14,938,000 in 2004, $13,977,000 in 2003 and $15,488,000 in 2002.



38



---

The Company is a lessor of its investment properties (those not held for sale) primarily under long-term
operating leases. The lease arrangements have initial terms of one to five years and some contain provisions to increase the monthly rentals at specific intervals. Rental income, net of commissions, was $578,000 in 2004, $453,000 in 2003 and
$387,000 in 2002 and is included in other income in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss).



Minimum lease commitments at November 28, 2004, under long-term operating leases are as follows:



|           |  |                |        |             |   |    
|---------- |  | -------------- | ------ | ----------- | - | ---
|           |  | LeaseExpense   |        | LeaseIncome
|           |  | (in thousands)
|2005       |  | $              | 17,288 |             | $ | 170
|2006       |  |                | 14,310 |             |   | 39 
|2007       |  |                | 11,108 |             |   | 40 
|2008       |  |                | 9,651  |             |   | 7  
|2009       |  |                | 8,041  |             |   |   
|Thereafter |  |                | 25,244 |             |   |   
|           |  |                |        |             |   |    
|           |  | $              | 85,642 |             | $ | 256
|           |  |                |        |             |   |    



In addition, the
Company is obligated through a dedicated contract carriage agreement for delivery services through January 2006. Current monthly expense is $219,000 plus a variable mileage charge.



Health Insurance Plan



The Company and its subsidiaries maintain self-insurance programs for that portion of health care costs not covered by insurance. The Company is liable
for claims from $75,000 up to $100,000 per person annually. Self-insurance costs are accrued based upon the aggregate of the liability for reported claims and an estimated liability for claims incurred but not reported.



Workers Compensation Insurance Plan



The Company is responsible for workers compensation claims up to $250,000
per incident. The Company maintains insurance for claims exceeding $250,000 and has stop loss coverage starting at $4,200,000 in aggregate for fiscal year 2005. The Company accrues its estimated claims based upon actuarial estimates as determined by
its claim administrator.



Employment Agreements



The Company has employment agreements with certain employees of the Company,
which provide for salary continuation of two years in the event of termination of employment without cause. In addition, the Company has an agreement with an officer, which provides a minimum annual salary of $792,000, adjusted for changes in the
consumer price index, through November 30, 2009. Payments under this agreement were $922,000 in 2004, $888,000 in 2003 and $822,000 in 2002.



Litigation



The Company has been named as a defendant in various lawsuits arising in the ordinary course of business. It is not possible at the present time to
estimate the ultimate outcome of these actions; however, management believes that the resulting liability, if any, will not be material based on the Companys previous experience with lawsuits of these types.



NOTE 10INTEREST RATE HEDGING



In connection with the Companys capital lease agreements for the
Elliston facility, the Company has been required to maintain interest rate protection agreements. In December 2003, in conjunction with the extension of



39



---

the capital lease term and other modifications of provisions, the Company entered into an interest rate swap with a third party for a notional principal
amount of $9 million, declining by $50,000 per month, through November 2008. While 30 day LIBOR is below 3.65%, the Company pays the counterparty the difference in interest between 3.65% and actual LIBOR. If and when 30 day LIBOR exceeds 3.65%, then
the counterparty will pay the Company the difference.



In
connection with the original Elliston lease agreement, the Company had entered into two interest rate hedging contracts. One contract, for $5 million notional principal, expired in April 2003. The second contract, for $20 million notional principal,
expired in August 2004. The second contract effectively fixed interest on the original 30 day LIBOR floating rate at 6.805%.



The Company accounts for its interest rate agreements as cash flow hedges whereby the fair value of the contracts are reflected in other liabilities (or
other assets, as the case may be) in the accompanying consolidated balance sheet with the offset, net of income taxes, recorded as accumulated other comprehensive income (loss). The fair value of the swap contract at November 28, 2004, as determined
by quoted market prices, was an asset of $9,000, net of taxes of $5,000. This net asset was composed of a long-term asset of $48,000 and a current liability of $39,000, both net of taxes, based upon expected interest rates over the term of the
agreement.



As of November 30, 2003, the fair value of the swap
in place at that time was a current liability of $566,000, net of taxes approximating $347,000.



NOTE 11STOCK OPTION PLANS



The Company has two stock option plans as described below. The Company applies APB Opinion 25, Accounting for Stock Issued to Employees, and related Interpretation in accounting for the plans. Under APB Opinion 25, because the
exercise price of the Companys employee stock options equals the market price of the underlying stock on the date of grant, no compensation cost is recognized. Substantially all of the options granted during the three-year period ended
November 28, 2004 were fully vested at the grant date.



Under
the 1993 stock option plan, as amended, 3,264,937 shares of unissued common stock or treasury stock were available for grants. These options were granted at market value on the date of grant, have been adjusted for stock splits and dividends, and
are generally exercisable for a term of ten years from the date of grant. Effective February 1, 2003, no further options may be granted under this plan.



Under the 2003 stock option plan, 1,300,000 shares of unissued common stock or treasury stock have been made available for grants. These options are
generally exercisable for a term of ten years from the date of grant. These options are granted at market value on the date of grant.



SFAS 123, Accounting for Stock-Based Compensation, as amended by SFAS 148, requires the Company to provide pro forma information regarding net
income and earnings per share as if compensation costs for the Companys stock option plans had been determined in accordance with the fair value based method prescribed in SFAS 123. The Company uses the intrinsic value method to account for
stock-based employee compensation. As the Companys awards of stock options carry an exercise price equal to the fair market value of the stock on the date of grant, no accounting cost is reflected in the Companys Consolidated Statements
of Operations. The Company estimated the fair value of each stock option at the grant date by using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 2004, 2003 and 2002, respectively; dividend
yields of 0%; expected volatility of 67.1%, 54.5%, and 123.1%; risk-free interest rates of 4.0%; and expected lives of 4 years.



40



---

Had the Company utilized the fair value based method of accounting for stock-based employee compensation,
the impact on earnings and earnings per share would have been as follows:



|                                                                                                                                                            |  |                                         |      |      |   |       |  |   |      
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------- | ---- | ---- | - | ----- |  | - | -----
|                                                                                                                                                            |  | 2004                                    |      | 2003 |   | 2002 
|                                                                                                                                                            |  | (in thousands, exceptper share amounts)
|Net earnings, as reported                                                                                                                                   |  | $                                       | 890  |      | $ | 2,214 |  | $ | 1,959
|Earnings per share, basic, as reported                                                                                                                      |  | $                                       | 0.07 |      | $ | 0.17  |  | $ | 0.15 
|Earnings per share, diluted, as reported                                                                                                                    |  | $                                       | 0.07 |      | $ | 0.17  |  | $ | 0.15 
|                                                                                                                                                            |  |                                         |     
|Stock-based employee compensation cost, net of related taxes, included in net earnings as reported                                                          |  |                                         |     |      |   |      |  |   |     
|                                                                                                                                                            |  |                                         |     
|Stock-based employee compensation cost, net of related taxes, that would have been included in net earnings if the fair value based method had
been applied |  | $                                       | 363  |      | $ | 159   |  | $ | 95   
|                                                                                                                                                            |  |                                         |     
|Pro forma net earnings, including the impact of applying the fair value based method                                                                        |  | $                                       | 527  |      | $ | 2,055 |  | $ | 1,864
|                                                                                                                                                            |  |                                         |     
|Pro forma earnings per share, basic                                                                                                                         |  | $                                       | 0.04 |      | $ | 0.16  |  | $ | 0.14 
|Pro forma earnings per share, diluted                                                                                                                       |  | $                                       | 0.04 |      | $ | 0.16  |  | $ | 0.14 



A summary of the
status of the Companys two fixed stock option plans, as of the balance sheet date and changes during the years ending on those dates, is presented below:



|                                                               |  |                   |           |                   |                              |                  |        |  |   |                              |   |        |   |      |                              |   |           |   |  |   |     
|-------------------------------------------------------------- |  | ----------------- | --------- | ----------------- | ---------------------------- | ---------------- | ------ |  | - | ---------------------------- | - | ------ | - | ---- | ---------------------------- | - | --------- | - |  | - | ----
|                                                               |  | November 28, 2004 |           | November 30, 2003 |                              | December 1, 2002
|                                                               |  | Shares            |           |                   | WeightedAverageExercisePrice |                  | Shares |  |   | WeightedAverageExercisePrice |   | Shares |   |      | WeightedAverageExercisePrice
|Outstanding at beginning of year                               |  |                   | 1,769,937 |                   |                              | $                | 5.86   |  |   | 1,845,202                    |   |        | $ | 6.62 |                              |   | 1,982,787 |   |  | $ | 6.82
|Granted                                                        |  |                   | 310,000   |                   |                              |                  | 3.22   |  |   | 290,500                      |   |        |   | 2.13 |                              |   | 102,500   |   |  |   | 1.83
|Exercised                                                      |  |                   | (87,246   | )                 |                              |                  | 2.40   |  |   | (2,500                       | ) |        |   | 1.25 |                              |   | (37,192   | ) |  |   | 1.04
|Forfeited                                                      |  |                   | (233,819  | )                 |                              |                  | 5.76   |  |   | (363,265                     | ) |        |   | 6.78 |                              |   | (202,893  | ) |  |   | 7.13
|                                                               |  |                   |           |                   |                              |                  |        |  |   |                              |   |        |   |      |                              |   |           |   |  |   |     
|Outstanding at end of year                                     |  |                   | 1,758,872 |                   |                              | $                | 5.58   |  |   | 1,769,937                    |   |        | $ | 5.86 |                              |   | 1,845,202 |   |  | $ | 6.62
|                                                               |  |                   |           |                   |                              |                  |        |  |   |                              |   |        |   |      |                              |   |           |   |  |   |     
|Exercisable at end of year                                     |  |                   | 1,595,430 |                   |                              | $                | 5.58   |  |   | 1,530,656                    |   |        | $ | 6.12 |                              |   | 1,798,231 |   |  | $ | 6.58
|Weighted average fair value of options granted during the year |  | $                 | 1.78      |                   |                              |                  |        |  | $ | 1.14                         |   |        |   |      |                              | $ | 1.46      |   |  |   |     



The following table
summarizes information about fixed stock options outstanding at November 28, 2004.



|                         |  |                                       |  |                                                  |  |                              |      |                                       |           |                              |   |     
|------------------------ |  | ------------------------------------- |  | ------------------------------------------------ |  | ---------------------------- | ---- | ------------------------------------- | --------- | ---------------------------- | - | ----
|                         |  | Options Outstanding                   |  | Options Exercisable                             
|Range of Exercise Prices |  | NumberOutstanding atNovember 28, 2004 |  | WeightedAverage RemainingContractual Life(Years) |  | WeightedAverageExercisePrice |      | NumberExercisable atNovember 28, 2004 |           | WeightedAverageExercisePrice
|$1.25  $ 2.15           |  | 296,752                               |  | 8                                                |  | $                            | 1.98 |                                       | 214,908   |                              | $ | 1.93
|3.00  4.95              |  | 564,489                               |  | 6                                                |  |                              | 3.52 |                                       | 557,823   |                              |   | 3.50
|5.10  6.93              |  | 335,282                               |  | 3                                                |  |                              | 6.52 |                                       | 321,950   |                              |   | 6.57
|7.39  8.38              |  | 173,400                               |  | 4                                                |  |                              | 8.16 |                                       | 173,400   |                              |   | 8.16
|9.00  10.28             |  | 388,949                               |  | 4                                                |  |                              | 9.35 |                                       | 327,349   |                              |   | 9.18
|                         |  |                                       |  |                                                  |  |                              |      |                                       |           |                              |   |     
|                         |  | 1,758,872                             |  |                                                  |  | $                            | 5.58 |                                       | 1,595,430 |                              | $ | 5.58
|                         |  |                                       |  |                                                  |  |                              |      |                                       |           |                              |   |     



41



---

NOTE 12TAXES ON INCOME



Provisions for income taxes in the Consolidated Statements of Operations and Comprehensive Income (Loss) consisted of the
following components:



|                                |  |                |     |   |      |   |      |  |   |        |  
|------------------------------- |  | -------------- | --- | - | ---- | - | ---- |  | - | ------ | -
|                                |  | 2004           |     |   | 2003 |   | 2002 | 
|                                |  | (in thousands) |    
|Current                         |  | $              | (64 | ) |      | $ | 744  |  | $ | (2,144 | )
|Deferred                        |  |                | 560 |   |      |   | 162  |  |   | 930    |  
|                                |  |                |     |   |      |   |      |  |   |        |  
|Total taxes on income (benefit) |  | $              | 496 |   |      | $ | 906  |  | $ | (1,214 | )
|                                |  |                |     |   |      |   |      |  |   |        |  



Deferred income taxes
reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The source of the temporary differences and their effects
on deferred taxes are as follows:



|                                       |  |                |        |   |      |   |        |  
|-------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | -
|                                       |  | 2004           |        |   | 2003 |  
|                                       |  | (in thousands) |       
|Deferred compensation                  |  | $              | 700    |   |      | $ | 726    |  
|Receivables                            |  |                | 416    |   |      |   | 514    |  
|Deferred rent                          |  |                | 2,765  |   |      |   | 1,982  |  
|Cash flow hedge                        |  |                |       |   |      |   | 347    |  
|Restructuring                          |  |                | 103    |   |      |   | 127    |  
|Capital loss carryforward              |  |                | 1,473  |   |      |   |       |  
|State net operating loss carryforwards |  |                | 1,379  |   |      |   | 1,291  |  
|Tax credits                            |  |                | 24     |   |      |   |       |  
|Other                                  |  |                | 716    |   |      |   | 438    |  
|                                       |  |                |        |   |      |   |        |  
|Gross deferred tax assets              |  |                | 7,576  |   |      |   | 5,425  |  
|Less valuation allowance               |  |                | (1,379 | ) |      |   | (1,291 | )
|                                       |  |                |        |   |      |   |        |  
|Net deferred tax asset                 |  |                | 6,197  |   |      |   | 4,134  |  
|                                       |  |                |        |   |      |   |        |  
|Property and equipment                 |  |                | 3,206  |   |      |   | 1,974  |  
|Investment property                    |  |                | 1,809  |   |      |   | 1,796  |  
|Inventories                            |  |                | 699    |   |      |   | 713    |  
|Cash flow hedge                        |  |                | 5      |   |      |   |       |  
|Other                                  |  |                | 299    |   |      |   |       |  
|                                       |  |                |        |   |      |   |        |  
|Gross deferred tax liability           |  |                | 6,018  |   |      |   | 4,483  |  
|                                       |  |                |        |   |      |   |        |  
|Net deferred tax asset (liability)     |  | $              | 179    |   |      | $ | (349   | )
|                                       |  |                |        |   |      |   |        |  
|Included in balance sheet:             |  |                |        |   |      |   |        |  
|Deferred income tax asset              |  | $              | 1,931  |   |      | $ | 880    |  
|Deferred income tax liability          |  |                | (1,752 | ) |      |   | (1,229 | )
|                                       |  |                |        |   |      |   |        |  
|Net deferred tax asset (liability)     |  | $              | 179    |   |      | $ | (349   | )
|                                       |  |                |        |   |      |   |        |  



A valuation allowance
has been provided for the state net operating loss carryforwards for certain states in which the retail operations have sustained losses that may not be able to be utilized in the future. The net operating loss carryforwards are limited to use in
varying amounts through 2023.



In 2004, due to an examination
by the Internal Revenue Service, certain losses were determined to be capital losses and have been reclassified as a current liability and a deferred tax asset.



42



---

The following summary reconciles taxes at the federal statutory tax rate with the actual taxes:



|                                                             |  |                |     |   |      |   |     |      |  |   |        |  
|------------------------------------------------------------ |  | -------------- | --- | - | ---- | - | --- | ---- |  | - | ------ | -
|                                                             |  | 2004           |     |   | 2003 |   |     | 2002 | 
|                                                             |  | (in thousands) |    
|Income tax expense (benefit), computed at the statutory rate |  | $              | 447 |   |      | $ | 520 |      |  | $ | (1,382 | )
|State income taxes, net of federal income tax benefit        |  |                | (27 | ) |      |   | 103 |      |  |   | 61     |  
|Goodwill                                                     |  |                |    |   |      |   |    |      |  |   | 249    |  
|Life insurance transactions                                  |  |                | (71 | ) |      |   | (88 | )    |  |   | (104   | )
|Other items, net                                             |  |                | 147 |   |      |   | 371 |      |  |   | (38    | )
|                                                             |  |                |     |   |      |   |     |      |  |   |        |  
|Total taxes on income (benefit)                              |  | $              | 496 |   |      | $ | 906 |      |  | $ | (1,214 | )
|                                                             |  |                |     |   |      |   |     |      |  |   |        |  



NOTE 13MAJOR CUSTOMER
INFORMATION



Shipments to the Companys top three
customers as a percent of net shipments were 7% in 2004, 7% in 2003 and 8% in 2002. Shipments to the Companys top ten customers, as a percent of net shipments, amounted to 13% in 2004, 13% in 2003 and 14% in 2002.



43



---

NOTE 14SEGMENT REPORTING



The Companys operations are classified into two business segments: wholesale and retail home furnishings. The
wholesale home furnishings segment manufactures upholstered furniture. Upholstered furniture includes sofas, loveseats, occasional chairs and sleep sofas, covered with fabric. The retail home furnishings segment sells home furnishings and
accessories to customers through Company-owned stores. These products consist of upholstered furniture (largely obtained from the wholesale home furnishings segment), case goods and home accessories. The other category is comprised of additional
subsidiaries reviewed by management including parent company expenses.



|                                                        |  |                                 |         |   |                              |   |         |       |  |   |                           |   |  |              |         |   |  |   |         |  
|------------------------------------------------------- |  | ------------------------------- | ------- | - | ---------------------------- | - | ------- | ----- |  | - | ------------------------- | - |  | ------------ | ------- | - |  | - | ------- | -
|                                                        |  | WholesaleHomeFurnishingsSegment |         |   | RetailHomeFurnishingsSegment |   |         | Other |  |   | Inter-segmentEliminations |   |  | Consolidated |        
|                                                        |  | (in thousands)                  |        
|2004                                                    |  |                                 |         |   |                              |   |         |       |  |   |                           |   |  |              |         |   |  |   |         |  
|Net shipments                                           |  | $                               | 174,170 |   |                              | $ | 140,590 |       |  | $ |                          |   |  | $            | (19,557 | ) |  | $ | 295,203 |  
|Operating income (loss)                                 |  |                                 | 8,642   |   |                              |   | 716     |       |  |   | (6,277                    | ) |  |              | 102     |   |  |   | 3,183   |  
|Interest expense                                        |  |                                 | (1,786  | ) |                              |   | (648    | )     |  |   | (177                      | ) |  |              |        |   |  |   | (2,611  | )
|Other income, net                                       |  |                                 | (2,805  | ) |                              |   | (1,027  | )     |  |   | 4,574                     |   |  |              |        |   |  |   | 742     |  
|Earnings (loss) from continuing operations before taxes |  |                                 | 4,051   |   |                              |   | (959    | )     |  |   | (1,880                    | ) |  |              | 102     |   |  |   | 1,314   |  
|Depreciation and amortization                           |  |                                 | 4,130   |   |                              |   | 2,528   |       |  |   | 421                       |   |  |              |        |   |  |   | 7,079   |  
|Capital expenditures                                    |  |                                 | 1,747   |   |                              |   | 4,410   |       |  |   | 176                       |   |  |              |        |   |  |   | 6,333   |  
|Total assets                                            |  |                                 | 114,983 |   |                              |   | 38,370  |       |  |   | 46,238                    |   |  |              | (60,470 | ) |  |   | 139,121 |  
|                                                        |  |                                 |         |   |                             
|2003                                                    |  |                                 |         |   |                              |   |         |       |  |   |                           |   |  |              |         |   |  |   |         |  
|Net shipments                                           |  | $                               | 175,303 |   |                              | $ | 122,968 |       |  | $ |                          |   |  | $            | (19,898 | ) |  | $ | 278,373 |  
|Operating income (loss)                                 |  |                                 | 16,695  |   |                              |   | (5,332  | )     |  |   | (6,589                    | ) |  |              | 122     |   |  |   | 4,896   |  
|Interest expense                                        |  |                                 | (2,448  | ) |                              |   | (1,219  | )     |  |   | (56                       | ) |  |              |        |   |  |   | (3,723  | )
|Other income, net                                       |  |                                 | (3,054  | ) |                              |   | (877    | )     |  |   | 4,289                     |   |  |              |        |   |  |   | 358     |  
|Earnings (loss) from continuing operations before taxes |  |                                 | 11,193  |   |                              |   | (7,428  | )     |  |   | (2,356                    | ) |  |              | 122     |   |  |   | 1,531   |  
|Depreciation and amortization                           |  |                                 | 4,045   |   |                              |   | 3,497   |       |  |   | 410                       |   |  |              |        |   |  |   | 7,952   |  
|Capital expenditures                                    |  |                                 | 2,412   |   |                              |   | 2,210   |       |  |   | 214                       |   |  |              |        |   |  |   | 4,836   |  
|Total assets                                            |  |                                 | 117,174 |   |                              |   | 48,818  |       |  |   | 44,688                    |   |  |              | (78,830 | ) |  |   | 131,850 |  
|                                                        |  |                                 |         |   |                             
|2002                                                    |  |                                 |         |   |                              |   |         |       |  |   |                           |   |  |              |         |   |  |   |         |  
|Net shipments                                           |  | $                               | 176,413 |   |                              | $ | 111,789 |       |  | $ |                          |   |  | $            | (19,056 | ) |  | $ | 269,146 |  
|Operating income (loss)                                 |  |                                 | 17,811  |   |                              |   | (11,410 | )     |  |   | (6,629                    | ) |  |              | (297    | ) |  |   | (525    | )
|Interest expense                                        |  |                                 | (1,623  | ) |                              |   | (1,762  | )     |  |   | (555                      | ) |  |              |        |   |  |   | (3,940  | )
|Other income, net                                       |  |                                 | (3,155  | ) |                              |   | (657    | )     |  |   | 4,208                     |   |  |              |        |   |  |   | 396     |  
|Earnings(loss) from continuing operations before taxes  |  |                                 | 13,033  |   |                              |   | (13,827 | )     |  |   | (2,978                    | ) |  |              | (297    | ) |  |   | (4,069  | )
|Depreciation and amortization                           |  |                                 | 3,974   |   |                              |   | 3,514   |       |  |   | 424                       |   |  |              |        |   |  |   | 7,912   |  
|Capital expenditures                                    |  |                                 | 1,111   |   |                              |   | 2,714   |       |  |   | 523                       |   |  |              |        |   |  |   | 4,348   |  
|Total assets                                            |  |                                 | 121,205 |   |                              |   | 46,582  |       |  |   | 39,457                    |   |  |              | (79,917 | ) |  |   | 127,327 |  



The consolidated
amounts shown above for capital expenditures and total assets exclude amounts for the discontinued Mitchell Gold segment. Excluded capital expenditures were $83,000 and $214,000 for 2003 and 2002, respectively and total assets of $49,896,000 were
excluded for 2002. Capital expenditures associated with the discontinued investment real estate properties were $42,000, $207,000 and $495,000 in 2004, 2003 and 2002, respectively, and are included in the other category.



44



---

NOTE 15QUARTERLY FINANCIAL INFORMATION



|                                                                                                |  |       |                                          |   |        |   |        |       |  |   |        |   |  |   |        |  
|----------------------------------------------------------------------------------------------- |  | ----- | ---------------------------------------- | - | ------ | - | ------ | ----- |  | - | ------ | - |  | - | ------ | -
|Quarter                                                                                         |  | First |                                          |   | Second |   |        | Third |  |   | Fourth |  
|                                                                                                |  |       | (in thousands, except per share amounts) |  
|2004                                                                                            |  |       |                                          |   |        |   |        |       |  |   |        |   |  |   |        |  
|Net shipments                                                                                   |  | $     | 70,422                                   |   |        | $ | 75,560 |       |  | $ | 76,149 |   |  | $ | 73,072 |  
|Gross profit                                                                                    |  |       | 24,778                                   |   |        |   | 27,053 |       |  |   | 26,556 |   |  |   | 25,172 |  
|Net earnings (loss) from continuing operations (as restated)                                    |  |       | 179                                      |   |        |   | 717    |       |  |   | 441    |   |  |   | (519   | )
|Net earnings (loss) from continuing operations (as reported)                                    |  |       | 151                                      |   |        |   | 705    |       |  |   | 458    |   |  |   | (354   | )
|Net earnings (loss) (as restated)                                                               |  |       | 71                                       |   |        |   | 729    |       |  |   | 490    |   |  |   | (400   | )
|Net earnings (loss) (as reported)                                                               |  |       | 43                                       |   |        |   | 717    |       |  |   | 507    |   |  |   | (235   | )
|Net earnings (loss) from continuing operations per common share (as restated)                   |  |       | 0.01                                     |   |        |   | 0.05   |       |  |   | 0.03   |   |  |   | (0.04  | )
|Net earnings (loss) from continuing operations per common share (as reported)                   |  |       | 0.01                                     |   |        |   | 0.05   |       |  |   | 0.03   |   |  |   | (0.03  | )
|Net earnings (loss) per common share (as restated)                                              |  |       | 0.01                                     |   |        |   | 0.06   |       |  |   | 0.04   |   |  |   | (0.03  | )
|Net earnings (loss) per common share (as reported)                                              |  |       | 0.00                                     |   |        |   | 0.05   |       |  |   | 0.04   |   |  |   | (0.02  | )
|Net earnings (loss) from continuing operations per common share assuming dilution (as restated) |  |       | 0.01                                     |   |        |   | 0.05   |       |  |   | 0.03   |   |  |   | (0.04  | )
|Net earnings (loss) from continuing operations per common share assuming dilution (as reported) |  |       | 0.01                                     |   |        |   | 0.05   |       |  |   | 0.03   |   |  |   | (0.03  | )
|Net earnings (loss) per common share assuming dilution (as restated)                            |  |       | 0.01                                     |   |        |   | 0.05   |       |  |   | 0.04   |   |  |   | (0.03  | )
|Net earnings (loss) per common share assuming dilution (as reported)                            |  |       | 0.00                                     |   |        |   | 0.05   |       |  |   | 0.04   |   |  |   | (0.02  | )
|                                                                                                |  |       |                                          |  
|2003                                                                                            |  |       |                                          |   |        |   |        |       |  |   |        |   |  |   |        |  
|Net shipments                                                                                   |  | $     | 63,395                                   |   |        | $ | 67,702 |       |  | $ | 69,955 |   |  | $ | 77,321 |  
|Gross profit                                                                                    |  |       | 22,019                                   |   |        |   | 23,606 |       |  |   | 25,254 |   |  |   | 29,246 |  
|Net earnings (loss) from continuing operations (as restated)                                    |  |       | (826                                     | ) |        |   | (648   | )     |  |   | (485   | ) |  |   | 2,584  |  
|Net earnings (loss) from continuing operations (as reported)                                    |  |       | (853                                     | ) |        |   | (674   | )     |  |   | (102   | ) |  |   | 2,586  |  
|Net earnings (loss) (as restated)                                                               |  |       | 30                                       |   |        |   | 115    |       |  |   | (561   | ) |  |   | 2,630  |  
|Net earnings (loss) (as reported)                                                               |  |       | 3                                        |   |        |   | 89     |       |  |   | (178   | ) |  |   | 2,632  |  
|Net earnings (loss) from continuing operations per common share (as restated)                   |  |       | (0.06                                    | ) |        |   | (0.05  | )     |  |   | (0.04  | ) |  |   | 0.20   |  
|Net earnings (loss) from continuing operations per common share (as reported)                   |  |       | (0.06                                    | ) |        |   | (0.05  | )     |  |   | (0.01  | ) |  |   | 0.20   |  
|Net earnings (loss) per common share (as restated)                                              |  |       | 0.00                                     |   |        |   | 0.01   |       |  |   | (0.04  | ) |  |   | 0.20   |  
|Net earnings (loss) per common share (as reported)                                              |  |       | 0.00                                     |   |        |   | 0.01   |       |  |   | (0.01  | ) |  |   | 0.20   |  
|Net earnings (loss) from continuing operations per common share assuming dilution (as restated) |  |       | (0.06                                    | ) |        |   | (0.05  | )     |  |   | (0.04  | ) |  |   | 0.20   |  
|Net earnings (loss) from continuing operations per common share assuming dilution (as reported) |  |       | (0.06                                    | ) |        |   | (0.05  | )     |  |   | (0.01  | ) |  |   | 0.20   |  
|Net earnings (loss) per common share assuming dilution (as restated)                            |  |       | 0.00                                     |   |        |   | 0.01   |       |  |   | (0.04  | ) |  |   | 0.20   |  
|Net earnings (loss) per common share assuming dilution (as reported)                            |  |       | 0.00                                     |   |        |   | 0.01   |       |  |   | (0.01  | ) |  |   | 0.20   |  



Earnings per share
calculations for each of the quarters are based on the weighted average shares outstanding for each period. The sum of the quarters may not necessarily be equal to the full year earnings per share amounts. The results of operations have been
restated to reflect the discontinued operations of investment real estate effective during the second and fourth quarters of 2004.



45



---

NOTE 16RECENT ACCOUNTING PRONOUNCEMENTS



In December 2004, the FASB released Statement 123R, Share-Based Payment, the revision to Statement 123 that
will, beginning in fiscal 2006, require that the compensation cost relating to share-based payment transactions be recognized in financial statements. Statement 123R provides expanded guidance on measuring the fair value of share-based payment
transactions. The Company continues to explore its stock option data to better implement the guidance in Statement 123R. While the ultimate impact of applying this guidance cannot be fully predicted at this time, the Company does not expect the
impact to be significantly different from that presented in the pro-forma disclosures included in Note 11.



NOTE 17SUBSEQUENT EVENTS



Subsequent to the end of the fiscal year, the Company completed the sale of an investment property previously included in discontinued operations. The Company will record a gain on sale of this property of approximately $2,700,000, net of
tax, or $.20 per share, in the first quarter of fiscal year 2005. Mortgage debt of $3,185,000, which carried an interest rate of 7.75%, was retired at closing.



Also subsequent to the end of the fiscal year, the Company has agreed to settle litigation with a vendor. As a result, the Company will record
earnings, net of tax, of approximately $700,000 or $0.05 per share in its first fiscal quarter.



46



---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Rowe Companies

McLean, Virginia



We have
audited the accompanying consolidated balance sheets of The Rowe Companies and subsidiaries as of November 28, 2004 and November 30, 2003, and the related consolidated statements of operations and comprehensive income, stockholders equity, and
cash flows for each of the three years in the period ended November 28, 2004. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our
audits.



We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Rowe
Companies and subsidiaries at November 28, 2004 and November 30, 2003, and the results of their operations and their cash flows for each of the three years in the period ended November 28, 2004, in conformity with accounting principles generally
accepted in the United States of America.



As discussed in Note
1 to the Consolidated Financial Statements, the Company changed its method of accounting for goodwill in 2003.



As discussed in Note 2, the accompanying Consolidated Financial Statements have been restated.



|                                                                              |  |  |  |                 
|----------------------------------------------------------------------------- |  |  |  | ----------------
|High Point, North Carolina                                                    |  |  |  | BDO SEIDMAN, LLP
|January 14, 2005, except for Note 2 and Note 6 which are as of April 15, 2005 |  |  |  |                 



47



---

|Item 9A. | Controls and Procedures.
|-------- | ------------------------



During the quarter ended November 28, 2004, Rowe implemented its new ERP system, including new software for processing customer orders, procurement of raw
materials, production planning and scheduling, inventory tracking, shipping product to customers, invoicing customers, cash receipts and disbursements processing, as well as a new general ledger package. Numerous changes were made to processes and
the procedures used to monitor them. The failure to properly execute these new procedures could have an impact on how results of operations are reflected in the Companys books and records. Management has performed additional procedures
intended to insure that the changes have not had an effect on the Companys internal control over financial reporting. During the quarter ended November 28, 2004, no other changes have occurred in the Companys internal control over
financial reporting that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



However, in response to views expressed by the Office of the Chief Accountant of the Securities and Exchange Commission (the SEC) in a letter
to the American Institute of Certified Public Accountants dated February 7, 2005, the Companys management commenced a review of its method of accounting for leases. As a result of this review, on March 21, 2005, the Companys management
advised the Audit Committee of the Companys Board of Directors that it had made a determination, similar to recent determinations made by many other companies, that its then current method of accounting for leasehold improvements funded by
landlord incentives and practice of recognizing straight-line rent expense beginning on the earlier of the store opening date or rent commencement date (thereby excluding the construction period following the commencement of the lease term from the
calculation of the period over which rent is recognized and expensed) were not consistent with the recently expressed views of the SEC staff.



In a telephonic meeting held on March 25, 2005, among the Companys management and the Audit Committee, the Audit Committee concluded, in concurrence
with managements determination, that the Companys methods of accounting for leasehold improvements funded by landlord incentives and rent expense during construction periods were incorrect. Management recommended, and the Audit Committee
concurred, that the previously issued financial statements included in the Companys fiscal 2004 Annual Report on Form 10-K and in the Companys Quarterly Reports on Form 10-Q filed during fiscal 2004 should be restated, and that the
Company should report on Form 8-K that such financial statements should no longer be relied upon.



Based on the definition of material weakness in the Public Company Accounting Oversight Boards Auditing Standard No. 2, An Audit of
Internal Control Over Financial Reporting Performed in Conjunction With an Audit of Financial Statements, restatement of financial statements in prior filings with the SEC is a strong indicator of the existence of a material weakness in
the design or operation of internal control over financial reporting. Based on that, management concluded that a material weakness existed in the Companys internal control over financial reporting, and disclosed this to the Audit Committee and
to the Companys independent registered public accounting firm.



The Company also carried out an evaluation, under the supervision and with the participation of the Companys management, including the chief executive officer and the chief financial officer, of the effectiveness of the design and
operation of the disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based upon that evaluation, the Companys chief executive
officer and chief financial officer concluded that, due to the Companys prior lease accounting practices, the Companys disclosure controls and procedures were not effective, as of the end of the period covered by this Report (November
28, 2004), in ensuring that material information relating to The Rowe Companies, including its consolidated subsidiaries, required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC rules and forms.



48



---

The Company has remediated the material weakness in internal control over financial reporting and the
ineffectiveness of its disclosure controls and procedures by conducting a review of its accounting related to leases, and correcting its methods of accounting for leasehold improvement allowances and construction periods for leased stores.



The Company does not expect that its disclosure controls and
procedures will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable not absolute, assurance that the objectives of the control procedure are met. Because of the inherent
limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management
override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all
potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control
procedure, misstatements due to error or fraud may occur and not be detected.



At the end of fiscal 2006, Section 404 of the Sarbanes-Oxley Act will require the Companys management to provide an assessment of the effectiveness of the Companys internal control over financial
reporting, and the Companys independent registered public accounting firm will be required to audit managements assessment. The Company is in the process of performing the system and process documentation, evaluation and testing required
for management to make this assessment and for its independent registered public accountants to provide its attestation report. The Company has not completed this process or its assessment, and this process will require significant amounts of
management time and resources. In the course of evaluation and testing, management may identify deficiencies that will need to be addressed and remediated.



|Item 15. | Exhibits and Financial Statement Schedules.
|-------- | -------------------------------------------



(a)1. Financial Statements:



The consolidated balance sheets as of November 28, 2004 and November 30, 2003 and the related consolidated statements of operations and comprehensive
income (loss), stockholders equity, cash flows and notes to consolidated financial statements for each of the years in the three-year period ended November 28, 2004, together with the report of BDO Seidman, LLP dated January 14, 2005, except
for Note 2 and Note 6 which are as of April 15, 2005 appearing in Item 8 of this Form 10-K/A. The following additional financial data should be read in conjunction with the consolidated financial statements included in this
Form 10-K/A.



2. Financial Statement Schedules:



Report of Independent Registered Public Accounting Firm on
Financial Statement Schedule.

Schedule IIValuation and Qualifying Accounts.



Schedules other than those listed above are omitted for the reason that they
are not required or are not applicable, or the required information is shown in the consolidated financial statements and notes thereto.



3. Exhibits: See Exhibit Index



49



---

SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.



THE ROWE COMPANIESBy:

/s/    G. S. MORPHISG. S. Morphis,Chief Financial Officer, Secretary-Treasurer




April 15, 2005



Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|                                    |  |                                                                                         |  |               
|----------------------------------- |  | --------------------------------------------------------------------------------------- |  | --------------
|Signature                           |  | Title                                                                                   |  | Date          
|                                    |  |                                                                                        
|/s/    G. M. BIRNBACHG. M. Birnbach |  | Chairman of the Board President, Director (Principal Executive Officer)                 |  | April 15, 2005
|                                    |  |                                                                                        
|/s/    R. E. CHENEYR. E. Cheney     |  | Director                                                                                |  | April 15, 2005
|                                    |  |                                                                                        
|/s/    H. I. PTASHEKH. I. Ptashek   |  | Director                                                                                |  | April 15, 2005
|                                    |  |                                                                                        
|/s/    C. T. ROSENC. T. Rosen       |  | Director                                                                                |  | April 15, 2005
|                                    |  |                                                                                        
|/s/    K. J. ROWEK. J. Rowe         |  | Director                                                                                |  | April 15, 2005
|                                    |  |                                                                                        
|/s/    S. J. SILVERS. J. Silver     |  | Director                                                                                |  | April 15, 2005
|                                    |  |                                                                                        
|Allan Tofias                        |  | Director                                                                                |  | April 15, 2005
|                                    |  |                                                                                        
|/s/    G. O. WOODLIEFG. O. Woodlief |  | Director                                                                                |  | April 15, 2005
|                                    |  |                                                                                        
|/s/    G. S. MORPHISG. S. Morphis   |  | Chief Financial Officer,Secretary-Treasurer(Principal Financial and Accounting Officer) |  | April 15, 2005



50



---

EXHIBIT INDEX



|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            | 
|3.1         |  | Articles of Incorporation of the Company, as amended (filed as an exhibit to the Companys Registration Statement on Form S-8 No. 333-108542 filed with the Securities and Exchange
Commission on September 5, 2003 and incorporated herein by reference)                                                                                                                                                                                                                                                                                                                                                                                                            
|            | 
|3.2         |  | By-laws of the Company, as amended (filed as an exhibit to the Companys Registration Statement on Form S-8 No. 333-108542 filed with the Securities and Exchange Commission on September
5, 2003 and incorporated herein by reference)                                                                                                                                                                                                                                                                                                                                                                                                                              
|            | 
|4           |  | Specimen Stock Certificate (filed as an exhibit to the Companys Registration Statement on Form 8-A filed with the Securities and Exchange Commission on January 5, 1994 and incorporated
herein by reference)                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            | 
|10.2        |  | Rowe Furniture Corporation Amended and Restated Supplemental Executive Retirement Plan II (filed as an exhibit to the Companys Registration Statement on Form S-1 No. 33-74504 filed with
the Securities and Exchange Commission on January 27, 1994 and incorporated herein by reference)                                                                                                                                                                                                                                                                                                                                                                          
|            | 
|10.5        |  | Salary Continuation Agreement dated December 6, 1984 between the Company and Mr. Barry A. Birnbach (filed as an exhibit to the Companys Form 10-K filed with the Securities and Exchange
Commission on February 25, 2000 and incorporated herein by reference)                                                                                                                                                                                                                                                                                                                                                                                                      
|            | 
|10.6        |  | First Amendment to the Salary Continuation Agreement By and Between Rowe Furniture Corporation and Barry A. Birnbach dated August 28, 1995 (filed as an exhibit to the Companys Form 10-K
filed with the Securities and Exchange Commission on February 25, 2000 and incorporated herein by reference)                                                                                                                                                                                                                                                                                                                                                              
|            | 
|10.7        |  | Employment Agreement dated February 2, 1998 between the Company and Mr. Gerald M. Birnbach (incorporated by reference to the Companys Form 10-K filed with the Securities and Exchange
Commission on February 12, 1998)                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            | 
|10.8        |  | The Rowe Companies 2003 Stock Option and Incentive Plan (filed as an exhibit to the Companys definitive proxy statement filed with the Securities and Exchange Commission on March 3,
2003 and incorporated herein by reference)                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            | 
|10.9        |  | The Rowe Companies Amended and Restated 1993 Stock Option and Incentive Plan (filed as an exhibit to the Companys Registration Statement on Form S-8 (No. 333-82571 filed with the
Securities and Exchange Commission on July 9, 1999 and incorporated herein by reference)                                                                                                                                                                                                                                                                                                                                                                                         
|            | 
|10.10       |  | Master Agreement dated August 27, 1999 among Rowe Furniture, Inc., and certain other Subsidiaries of The Rowe Companies that may hereafter become party hereto, as Lessees, The Rowe Companies,
The Mitchell Gold Co., Rowe Properties, Inc. and certain other subsidiaries of The Rowe Companies that may hereafter become party hereto, as Guarantors, Atlantic Financial Group, LTD, as Lessor, Crestar Bank and certain Financial Institutions
parties hereto, as Lenders and Crestar Bank, as Agent (filed as an exhibit to the Companys Form 10-K filed with the Securities and Exchange Commission on February 25, 2000 and incorporated herein by reference)
|            | 
|10.11       |  | Master Lease Agreement dated as of August 27, 1999 between Atlantic Financial Group, LTD, as Lessor and Rowe Furniture, Inc. and certain other Subsidiaries of The Rowe Companies that may
hereafter become party hereto, as Lessees (filed as an exhibit to the Companys Form 10-K filed with the Securities and Exchange Commission on February 25, 2000 and incorporated herein by reference)                                                                                                                                                                                                                                                                    



51



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|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.12       |  | Construction Agency Agreement dated as of August 27, 1999 between Atlantic Financial Group, LTD and Rowe Furniture, Inc. as Construction Agent (filed as an exhibit to the Companys Form
10-K filed with the Securities and Exchange Commission on February 25, 2000 and incorporated herein by reference)                                                                                                                                                                                      
|            | 
|10.13       |  | Guaranty Agreement from The Rowe Companies, The Mitchell Gold Co., Rowe Properties, Inc. Storehouse, Inc., Home Elements, Inc., Rowe Diversified, Inc. and The Wexford Collection, Inc. dated
as of August 27, 1999 (filed as an exhibit to the Companys Form 10-K filed with the Securities and Exchange Commission on February 25, 2000 and incorporated herein by reference)                                                                                                                 
|            | 
|10.14       |  | Appendix A to Master Agreement, Lease, Loan Agreement and Construction Agency Agreement dated August 27, 1999 (filed as an exhibit to the Companys Form 10-K filed with the Securities
and Exchange Commission on February 25, 2000 and incorporated herein by reference)                                                                                                                                                                                                                       
|            | 
|10.15       |  | First Modification to Synthetic Lease Financing Operative Documents dated October 11, 2000 by and among Rowe Furniture, Inc., The Rowe Companies, The Mitchell Gold Co., Rowe Diversified,
Inc., Home Elements, Inc., Rowe Properties, Inc., The Wexford Collection, Inc., and Atlantic Financial Group, LTD and Suntrust Bank, N.A. (filed as an exhibit to the Companys Form 10-K filed with the Securities and Exchange Commission on
February 28, 2005 and incorporated herein by reference)
|            | 
|10.16       |  | Omnibus Amendment dated as of May 15, 2002 among Rowe Furniture, Inc., The Rowe Companies, The Mitchell Gold Co., Storehouse, Inc., Home Elements, Inc., Rowe Diversified, Inc., Rowe Furniture
Wood Products, Inc., Atlantic Financial Group, LTD, and SunTrust Bank (filed as an exhibit to the Companys Form 10-K filed with the Securities and Exchange Commission on February 17, 2004 and incorporated herein by reference)                                                               
|            | 
|10.17       |  | Second Omnibus Amendment dated as of December 1, 2003 among Rowe Furniture, Inc., The Rowe Companies, Storehouse, Inc., Rowe Diversified, Inc., Rowe Furniture Wood Products, Inc., Atlantic
Financial Group, LTD, and SunTrust Bank (filed as an exhibit to the Companys Form 10-K filed with the Securities and Exchange Commission on February 17, 2004 and incorporated herein by reference)                                                                                                
|            | 
|10.18       |  | Third Omnibus Amendment dated as of February 24, 2004 among Rowe Furniture, Inc., The Rowe Companies, Storehouse, Inc., Rowe Diversified, Inc., Rowe Furniture Wood Products, Inc., Atlantic
Financial Group, LTD, and Sun Trust Bank (filed as an exhibit to the Companys Form 10-K filed with the Securities and Exchange Commission on February 28, 2005 and incorporated herein by reference)                                                                                               
|            | 
|10.19       |  | Loan and Security Agreement dated as of May 15, 2002 among The Rowe Companies, Rowe Diversified, Inc., Home Elements, Rowe Furniture Wood Products, Inc., Storehouse, Inc, Rowe Furniture,
Inc., The Mitchell Gold Co. and Fleet Capital Corporation (filed as an exhibit to the Companys Form 10-K filed with the Securities and Exchange Commission on February 28, 2005 and incorporated herein by reference)                                                                                
|            | 
|10.20       |  | First Amendment to Loan and Security Agreement dated as of June 17, 2002 among The Rowe Companies, Rowe Diversified, Inc., Home Elements, Rowe Furniture Wood Products, Inc., Storehouse, Inc,
Rowe Furniture, Inc., The Mitchell Gold Co. and Fleet Capital Corporation (filed as an exhibit to the Companys Form 10-K filed with the Securities and Exchange Commission on February 28, 2005 and incorporated herein by
reference)                                                            
|            | 
|10.21       |  | Second Amendment to Loan and Security Agreement dated as of October 10, 2002 among The Rowe Companies, Rowe Diversified, Inc., Rowe Furniture Wood Products, Inc., Storehouse, Inc., Rowe
Furniture, Inc., The Mitchell Gold Co. and Fleet Capital Corporation (filed as an exhibit to the Companys Form 10-K filed with the Securities and Exchange Commission on February 28, 2005 and incorporated herein by reference)                                                                      



52



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|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                            
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                
|            | 
|10.22       |  | Third Amendment to Loan and Security Agreement dated as of February 28, 2003 among The Rowe Companies, Rowe Diversified, Inc., Rowe Furniture Wood Products, Inc., Storehouse, Inc., Rowe
Furniture, Inc., The Mitchell Gold Co. and Fleet Capital Corporation (filed as an exhibit to the Companys Form 10-K filed with the Securities and Exchange Commission on February 28, 2005 and incorporated herein by reference)
|            | 
|10.23       |  | Fourth Amendment to Loan and Security Agreement dated as of April 3, 2003 among The Rowe Companies, Rowe Diversified, Inc., Rowe Furniture Wood Products, Inc., Storehouse, Inc., Rowe
Furniture, Inc. and Fleet Capital Corporation (filed as an exhibit to the Companys Form 10-K filed with the Securities and Exchange Commission on February 28, 2005 and incorporated herein by reference)                          
|            | 
|10.24       |  | Fifth Amendment to Loan and Security Agreement dated as of November 30, 2003 among The Rowe Companies, Rowe Diversified, Inc., Rowe Furniture Wood Products, Inc., Storehouse, Inc., Rowe
Furniture, Inc. and Fleet Capital Corporation (filed as an exhibit to the Companys Form 10-K filed with the Securities and Exchange Commission on February 28, 2005 and incorporated herein by reference)                       
|            | 
|10.25       |  | Sixth Amendment to Loan and Security Agreement dated as of September 23, 2004 among The Rowe Companies, Rowe Diversified, Inc., Rowe Furniture Wood Products, Inc., Storehouse, Inc., Rowe
Furniture, Inc. and Fleet Capital Corporation (filed as an exhibit to the Companys Form 10-K filed with the Securities and Exchange Commission on February 28, 2005 and incorporated herein by reference)                      
|            | 
|10.26       |  | Seventh Amendment to Loan and Security Agreement dated as of February 24, 2005 among The Rowe Companies, Rowe Diversified, Inc., Rowe Furniture Wood Products, Inc., Storehouse, Inc., Rowe
Furniture, Inc. and Fleet Capital Corporation (filed as an exhibit to the Companys Form 10-K filed with the Securities and Exchange Commission on February 28, 2005 and incorporated herein by reference)                     
|            | 
|10.27       |  | Form of Incentive Stock Option Agreement under 2003 Stock Option and Incentive Plan (filed as an exhibit to the Companys Form 10-K filed with the Securities and Exchange Commission on
February 28, 2005 and incorporated herein by reference)                                                                                                                                                                           
|            | 
|10.28       |  | Form of Non-Qualified Stock Option Agreement under 2003 Stock Option and Incentive Plan (filed as an exhibit to the Companys Form 10-K filed with the Securities and Exchange Commission
on February 28, 2005 and incorporated herein by reference)                                                                                                                                                                       
|            | 
|10.29       |  | Deferred Compensation Agreement between the Company and Barry A. Birnbach dated August 31, 1978 (filed as an exhibit to the Companys Form 10-K filed with the Securities and Exchange
Commission on February 28, 2005 and incorporated herein by reference)                                                                                                                                                               
|            | 
|10.30       |  | First Amendment to Deferred Compensation Agreement between the Company and Barry A. Birnbach dated March 13, 1980 (filed as an exhibit to the Companys Form 10-K filed with the
Securities and Exchange Commission on February 28, 2005 and incorporated herein by reference)                                                                                                                                             
|            | 
|10.31       |  | Second Amendment to Deferred Compensation Agreement between the Company and Barry A. Birnbach dated December 4, 1986 (filed as an exhibit to the Companys Form 10-K filed with the
Securities and Exchange Commission on February 28, 2005 and incorporated herein by reference)                                                                                                                                          
|            | 
|10.32       |  | Third Amendment to Deferred Compensation Agreement between the Company and Barry A. Birnbach dated June 13, 1989 (filed as an exhibit to the Companys Form 10-K filed with the Securities
and Exchange Commission on February 28, 2005 and incorporated herein by reference)                                                                                                                                              



53



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|            |  |                                                                                                                                                                                                                                                                                   
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                       
|            | 
|10.33       |  | Fourth Amendment to Deferred Compensation Agreement between the Company and Barry A. Birnbach dated December 9, 1991 (filed as an exhibit to the Companys Form 10-K filed with the
Securities and Exchange Commission on February 28, 2005 and incorporated herein by reference) 
|            | 
|10.34       |  | Fifth Amendment to Deferred Compensation Agreement between the Company and Barry A. Birnbach dated December 3, 1993 (filed as an exhibit to the Companys Form 10-K filed with the
Securities and Exchange Commission on February 28, 2005 and incorporated herein by reference)  
|            | 
|10.35       |  | Sixth Amendment to Deferred Compensation Agreement between the Company and Barry A. Birnbach dated December 5, 1995 (filed as an exhibit to the Companys Form 10-K filed with the
Securities and Exchange Commission on February 28, 2005 and incorporated herein by reference)  
|            | 
|10.36       |  | Seventh Amendment to Deferred Compensation Agreement between the Company and Barry A. Birnbach dated December 6, 1996 (filed as an exhibit to the Companys Form 10-K filed with the
Securities and Exchange Commission on February 28, 2005 and incorporated herein by reference)
|            | 
|10.37       |  | Eighth Amendment to Deferred Compensation Agreement between the Company and Barry A. Birnbach dated December 1, 1999 (filed as an exhibit to the Companys Form 10-K filed with the
Securities and Exchange Commission on February 28, 2005 and incorporated herein by reference) 
|            | 
|23          |  | Consent of BDO Seidman, LLP                                                                                                                                                                                                                                                       
|            | 
|31.1        |  | Certification of CEO under Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                          
|            | 
|31.2        |  | Certification of CFO under Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                          
|            | 
|32.1        |  | Certification of CEO under Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                          
|            | 
|32.2        |  | Certification of CFO under Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                          



54



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

ON FINANCIAL STATEMENT SCHEDULE



The Rowe Companies

McLean, Virginia



The audits referred to in our report dated January 14, 2005, except Note 2
and Note 6 which are as of April 15, 2005 relating to the consolidated financial statements of The Rowe Companies, which is contained in Item 8 of this Form 10-K/A included the audit of the financial statement schedule listed in the
accompanying index. The financial statement schedule is the responsibility of the Companys management. Our responsibility is to express an opinion on the financial statement schedule based upon our audits.



In our opinion such financial statement schedule presents fairly, in all
material respects, the information set forth therein.



/s/    BDO Seidman, LLPBDO Seidman, LLP




High Point, North Carolina

April 15, 2005



55



---

THE ROWE COMPANIES

AND WHOLLY-OWNED SUBSIDIARIES



SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS



For the Years Ended November 28, 2004, November 30, 2003 and December 1, 2002

(Thousands of Dollars)



|                                     |  |                                 |       |                                        |   |                      |  |   |                         |  |    |        |        |  |   |      
|------------------------------------ |  | ------------------------------- | ----- | -------------------------------------- | - | -------------------- |  | - | ----------------------- |  | -- | ------ | ------ |  | - | -----
|COLUMN A                             |  | COLUMN B                        |       | COLUMN C                               |   | COLUMN D             |  |   | COLUMN E               
|Description                          |  | Balance atBeginning ofPeriod    |       | Additions                              |   | Deductions(Describe) |  |   | Balance atEnd of Period
|                                     |  | (1) Charged toCosts andExpenses |       | (2) Charged toOther Accounts(Describe) |   |                     
|Allowance for Doubtful Accounts2004 |  | $                               | 850   |                                        | $ | 107                  |  | $ |                        |  | $  | 157    | (A)    |  | $ | 800  
|Allowance for Doubtful Accounts2003 |  | $                               | 1,100 |                                        | $ | 376                  |  | $ |                        |  | $$ | 384242 | (B)(D) |  | $ | 850  
|Allowance for Doubtful Accounts2002 |  | $                               | 1,057 |                                        | $ | 262                  |  | $ |                        |  | $  | 219    | (C)    |  | $ | 1,100

---

|(A) | Accounts charged off less bad debt recoveries of $102,000
|--- | ---------------------------------------------------------



|(B) | Accounts charged off less bad debt recoveries of $54,000
|--- | --------------------------------------------------------



|(C) | Accounts charged off less bad debt recoveries of $71,000
|--- | --------------------------------------------------------



|(D) | Balance in allowance attributable to Mitchell Gold customers
|--- | ------------------------------------------------------------



56