<PAGE>

                                                                     EXHIBIT 13

Stock Price and Dividend Data

<TABLE>
<CAPTION>
                                   Market Price
                                   ------------    Dividends
                     Quarter Ended  High   Low   Paid Per Share
                     -------------  ----   ---   --------------
                <C>  <S>           <C>    <C>    <C>
                2001  March 4      4.1000 2.5000     $0.035
                      June 3       4.0100 2.9300      0.035
                      September 2  4.1000 2.0100      0.035
                      December 2   2.2500 0.8800      0.000
                                                     ------
                                                     $0.105
                                                     ======

                2000  February 27  9.6250 7.3750     $0.035
                      May 28       7.6870 3.8125      0.035
                      August 28    4.8125 3.8125      0.035
                      December 3   4.6250 2.8125      0.035
                                                     ------
                                                     $0.140
                                                     ======
</TABLE>

   The Company's shares are traded on the New York Stock Exchange under the
symbol ROW. On December 2, 2001, the Company had approximately 1,000
stockholders of record.

--------------------------------------------------------------------------------

Management's Discussion and Analysis of Financial Condition and Results of
Operations

RESULTS OF OPERATIONS

Year Ended December 2, 2001 Compared to Year Ended December 3, 2000

   Net shipments in 2001 decreased by $37,497,000, or 10.3%, to $325,438,000
from $362,935,000 in 2000. Effective for fiscal year 2001, the Company
implemented EITF Issue 00-10, "Accounting for Shipping and Handling Fees and
Costs". As a result, charges to customers for delivery services have been
reclassified to net shipments from cost of sales or selling and administrative
expenses. Prior periods have been restated to reflect the current year
presentation. See Note 1 of the consolidated financial statements.

   Wholesale segment shipments decreased $29,591,000, or 11.2%, to
$235,254,000, including shipments to the retail segment. Of this decrease,
$21.7 million resulted from the loss of three major customers, including
Heilig-Meyers that filed for bankruptcy in 2000, Homelife Furniture Corporation
that filed for bankruptcy in July 2001, and a third customer with whom the
Company ceased doing business near the beginning of the year. Wholesale segment
sales to the retail segment, included in the numbers above, declined from $26.7
million for 2000 to $23.8 million for 2001, a decline of 11.1%,

<PAGE>

due to general economic conditions. The remaining decline in sales is primarily
due to the recession which started in March 2001, lower consumer confidence
levels and partially due to 52 weeks included in 2001 versus 53 weeks in 2000.
Retail segment sales declined by $10,862,000, or 8.7%, to $113,959,000 from
$124,821,000 in 2000. Weak general economic conditions, combined with
significant changes in store management and operating practices following
changes in senior management at our Storehouse unit, contributed to the decline
in sales. The changes in management and operating practices had a negative
short-term effect, but are expected to produce positive results in the future.
Expected improved economic conditions in 2002 should also result in increased
shipments.

   Gross profit in 2001 decreased by $18,340,000, or 14.8%, to $105,313,000
from $123,653,000 in 2000, on a consolidated basis. Gross profit as a
percentage of shipments ("gross margin") in 2001 decreased to 32.4% from 34.1%
in 2000.

   For the wholesale segment, gross profit declined by $11,946,000, or 19.5%,
to $49,324,000 from $61,270,000 in 2000. Gross margin declined from 23.1% to
20.9%. Of the decrease in gross profit, approximately $6.6 million resulted
from the decline in shipments, while the remainder resulted from increased
costs (including additional plant rent at Elliston and higher health and
medical costs) and underabsorbed overhead due to the decline in volume. During
2001, significant measures have been taken to control product costs, including
a focus on quality in manufacturing, head count reductions and materials cost
reductions through re-negotiated contracts with suppliers. These steps are
expected to improve 2002 wholesale segment margins. For the retail segment,
gross profit declined by $6,784,000, or 10.9%, from $62,502,000 in 2000 to
$55,718,000 in 2001. Gross margins declined from 50.1% to 48.9% in 2001. Of the
decline in gross profit, $5.4 million resulted from the reduction in volume.
The decline in gross margin resulted from discounting standard markups to
stimulate sales as well as to clear slow moving goods through clearance stores
and warehouse sales. Gross margins are expected to improve somewhat in 2002, as
economic conditions improve and due to reduced backlog of slow-moving goods.

   Selling and administrative expenses in 2001 increased by $5,131,000, or
4.8%, to $111,079,000 from $105,948,000 in 2000. Of this increase, $4.1 million
represents the write-off of receivables and other balances associated with the
Homelife bankruptcy filing in 2001.

   In the wholesale segment, selling and administrative expenses increased
$3,594,000, or 9.8%, from $36,624,000 in 2000 to $40,218,000 in 2001. Lower
commissions on lower sales offset, in part, the impact of the write-off of
Homelife-related balances. Cost-cutting measures initiated during 2001,
combined with the absence of the Homelife write-off, should significantly
reduce selling and administrative expenses in the wholesale segment in 2002. In
the retail segment, selling and administrative expenses increased by
$1,340,000, or 2.1%, to $63,882,000 in 2001, from $62,542,000 in 2000.
Increased costs associated with new retail stores opened in late 2000 and
during 2001 were offset by cost-cutting measures, such as head count reductions
and reduced travel and other expenditures, as well as reduced expenditures for
advertising, particularly television advertising. These measures will continue
into 2002, further reducing selling and administrative expenses. The Company
has also initiated the consolidation of certain selling and administrative
functions at its two retail subsidiaries. The impact on 2002's selling and
administrative expenses is anticipated to be slightly negative as costs, such
as systems conversion costs and moving costs, are incurred up front, while
benefits are realized later; however, the impact on future year's expenses is
anticipated to be positive, through reduced head count overall in the
administrative areas, efficiencies in advertising and delivery networks, and
improved purchasing power with various vendors for the

<PAGE>

combined operations. Parent company administrative expenses increased
approximately $200,000, primarily due to legal and other fees incurred in
connection with negotiations with our lending institutions.

   Operating income in 2001 decreased by $23,471,000 to a loss of $5,766,000
from earnings of $17,705,000 in 2000 Declining sales, reduced margins, the
Homelife write-off, higher plant rent and health and medical costs, and
increased professional fees, resulted in the decline.

   Interest expense in 2001 increased by $595,000 to $4,862,000 from $4,267,000
in 2000 due to increased borrowings used to fund the operations of the Company,
an increase in the LIBOR spread based on the Company's financial ratios and the
change during the year on the Company's bank debt from LIBOR based rates to the
Prime rate plus a spread, in return for the lending institutions' forbearance
with the Company's covenant defaults. Declining market interest rates during
the year mitigated the impact of these other factors.

   Net other income increased by $157,000 from $1,415,000 in 2000 to $1,572,000
in 2001. Increases in rental income from investment properties accounted for
the majority of the increase.

   The Company's effective tax rate decreased from 39.9% during 2000 to 31.7%
in 2001. This change is primarily attributable to the impact of non-deductible
goodwill charges on the calculation of taxable income (loss) for the two years.

   Net earnings from continuing operations declined in 2001 by $15,123,000,
from $8,934,000 in 2000 to a loss of $6,189,000. Declining shipments, lower
gross margins, the Homelife bankruptcy write-off and higher interest charges
accounted for the decline.

Year Ended December 3, 2000 Compared to Year Ended November 28, 1999

   Net shipments in 2000 increased by $73,316,000, or 25.3%, to $362,935,000
from $289,619,000 in 1999. Included in net shipments were a full twelve months
of operations at Storehouse, Inc. ("Storehouse"), which was acquired August 1,
1999 (see Note 2 of the consolidated financial statements). Excluding
Storehouse, net shipments increased 2.3% in 2000. The increase in net shipments
was primarily due to increases at The Mitchell Gold Company ("Mitchell Gold")
and Home Elements, Inc. ("Home Elements").

   Gross profit in 2000 increased by $35,358,000, or 40.0%, to $123,653,000
from $88,295,000 in 1999. As a percentage of shipments, gross profit in 2000
increased to 34.1% from 30.5% in 1999. Excluding the effects of Storehouse,
gross margin was unchanged, at 28.3% for both years.

   Selling and administrative expenses in 2000 increased by $41,431,000, or
64.2%, to $105,948,000 from $64,517,000 in 1999. Of this increase, $34,000,000
represents a full year of costs at Storehouse in 2000, compared to four months
included in 1999; $2,900,000 resulted from growth at Home Elements in support
of new stores; $1,500,000 resulted from growth and increased sales at Mitchell
Gold; and the remaining $2,200,000 represented increased salaries and benefits,
as well as increased provisions for losses on receivables at Rowe Furniture,
and increased corporate expenses at Rowe Companies. Also included in 2000 were
approximately $692,000 in pre-opening expenses

<PAGE>

that, under new accounting guidance, were expensed as incurred. The Company
provided $1,200,000 for potential losses on receivables, including the
Heilig-Meyers and other bankruptcy filings.

   Operating income in 2000 decreased by $6,073,000 to $17,705,000 from
$23,778,000 in 1999. Increases in gross profits, primarily from sales at
Storehouse, were offset by selling and administrative expenses at Storehouse
and other subsidiaries noted above.

   Interest expense in 2000 increased by $2,136,000 to $4,267,000 from
$2,131,000 in 1999 due to increased borrowings used to finance the Storehouse
acquisition, higher interest rates during much of the year (on average,
approximately 110 basis points higher during the year), and an increase in the
LIBOR spread based on the Company's financial ratios.

   Net other income decreased by $455,000 from $1,870,000 in 1999 to $1,415,000
in 2000. Increases in rental income from investment properties were offset by
the absence in 2000 of certain non-recurring transactions at Storehouse.

   The Company's effective tax rate increased from 36.8% during 1999 to 39.9%
in 2000. This increase is primarily attributable to the impact of increased,
non-deductible goodwill charges relative to the lower level of pre-tax income
between 1999 and 2000.

   Net earnings from continuing operations declined in 2000 by $5,923,000, from
$14,857,000 in 1999 to $8,934,000. Lower operating income, higher interest
expense, and lower other income accounted for the decline.

   During the fourth quarter of 2000, the Company announced its intention to
discontinue manufacturing operations at Wexford. Declining sales (primarily due
to order flow disruptions resulting from prior manufacturing problems)
increased provisions for sales returns, labor and overhead losses due to low
sales volume and efficiency issues, resulted in substantially lower operating
results in 2000. Impairment losses on goodwill and property and equipment, as
well as costs to dispose excess inventory and severance costs to the employees,
resulted in a $3.6 million after tax charge on the disposal.

Liquidity and Capital Resources

   The Company has historically financed its operations and capital
requirements primarily with internally generated funds. To fund the
acquisitions of Wexford and Mitchell Gold in 1998, followed by Storehouse in
1999, the Company entered into two revolving bank loan agreements in November
1998 and July 1999 for $25,000,000 each. In addition, during 1999, the Company
leased a new plant to replace its Salem, Virginia upholstery plant (see Notes
2, 6 and 9 of the consolidated financial statements).

   Net cash provided by (used in) operating activities was ($1,733,000),
$14,398,000 and $12,124,000 in 2001, 2000 and 1999, respectively. Fluctuations
in net cash provided by operating activities are primarily the result of
changes in net income and changes in working capital accounts, including
operating losses in 2001; purchases of additional leather during 2001 in
response to "mad cow disease" concerns earlier in the year; and changes in
taxes paid/received due to declining earnings.

<PAGE>

Charge-offs (excluding recoveries) as a percent of net shipments increased from
0.13% in 1999, to 0.28% in 2000, to 0.90% in 2001. The increases in 2000 and
2001 were primarily due to the Heilig-Meyers (in 2000) and Homelife (in 2001)
bankruptcy filings.

   Net cash used in investing activities was $2,261,000, $14,294,000 and
$17,703,000 for 2001, 2000 and 1999, respectively. Capital expenditures were
$3,317,000, $9,155,000 and $8,830,000 for 2001, 2000 and 1999, respectively.
Expenditures in 2001 included final costs for the production planning and
scheduling system started in 2000, as well as several new retail stores and
remodeling of several older stores. Expenditures in 2000 were made for a
production planning and scheduling system to improve management of the
production process and inventory, and to fund new retail store openings.
Expenditures for 1999 were incurred primarily in connection with the expansion
of the Company's production capacity and additions of equipment and information
systems, including upgrades and replacements associated with Year 2000
requirements.

   Management anticipates that the Company's capital expenditures for 2002 will
approximate those made in 2001. These expenditures include continuing upgrades
and improvements to information systems and several additional retail locations
and remodelings at Home Elements and Storehouse.

   During 2000, the Company paid $5,000,000 under the interim earn-out
provisions of the Mitchell Gold purchase agreement. The Company also invested
$8,892,000 (net of cash acquired) in 1999 to acquire Storehouse.

   Financing activities provided (utilized) net cash of $10,058,000,
($1,815,000) and $8,203,000 in 2001, 2000 and 1999, respectively. This includes
the revolving bank loan entered into during 1999, offset by the reduction of
higher rate debt at Storehouse in 1999, as well as repurchases of the Company's
common stock and dividends paid to stockholders. During 2001, the $3,000,000 of
convertible debentures issued in conjunction with the Mitchell Gold acquisition
matured. Effective November 1, 2001, the Company was in default under the
repayment provisions of the debentures.

   The amount outstanding under the Company's lines of credit was $9,368,000 at
December 2, 2001. The Company had lines of credit totaling $10,000,000 at
December 2, 2001.

   In March 2002, the Company reached agreements with its existing lenders and
a syndicate of new lending institutions to refinance the Company's short-term
borrowings, revolving bank loans and the debentures. The terms of the
refinancing require the Company to pay off the debentures and to pay
approximately $8 million to its existing lenders from cash on hand and $4
million from the proceeds of the fiscal 2001 tax refunds; mortgage two
investment properties for approximately $9.3 million, and borrow approximately
$30 million from the new lending institutions in the form of a $5 million,
five-year term note and a $25 million draw under the revolving loan. The
proceeds of these loans will be used to further pay down the existing bank
debt. The remaining bank debt will have minimum required payments of $50,000
per month for fiscal 2002, and $100,000 per month thereafter until maturity in
December 2003. The terms also provide for additional principal repayments if
certain cash flow targets are exceeded. Interest on the remaining bank debt
will be payable at prime plus three percent.

   The mortgage loans will require monthly payments based on a 25-year
amortization period, with a balloon payment after ten years. Interest on these
loans will be at 7.75%.

<PAGE>

   The revolving loan carries a maximum capacity of $40 million and is subject
to availability of borrowing base amounts related to levels of eligible
receivables and inventories. Essentially all assets of the Company (except for
the two investment properties collateralizing the mortgage debt) will be used
as collateral for these loans. The term loan will require 20 equal quarterly
principal payments of $250,000. The revolving loan term expires in April 2007.
Interest on these loans will be payable at prime or Libor rates plus a spread
of up to 1.25% or 3.25%, respectively, based upon certain ratios.

   The terms of the Company's lease obligation related to the Elliston facility
will also be amended to require principal reductions from a pro-rata portion of
the additional principal repayments referred to above. The term of the lease
will be revised to December 2003, to coincide with the maturity of the
remaining bank debt. It is anticipated that the property under the lease will
be purchased at the expiration of the lease. In conjunction with the revision
of terms, the Company, in accordance with generally accepted accounting
principles, will change its accounting for the lease from an operating lease to
a capital lease when the refinancing is completed in 2002. The change will
include capitalizing property and equipment of $25 million and recognizing a
related capital lease obligation of the same amount. The capitalization of the
lease will result in additional charges to pre-tax earnings of approximately
$1,300,000 per year due to depreciation and interest under the capital lease
exceeding the current rent expense.

   The Company believes that net cash provided by operating activities, as well
as availability under the revolving loan will be adequate to fund the Company's
foreseeable operating needs and capital and debt service requirements through
2002.

New Accounting Standards

   During 2001, the Financial Accounting Standards Board finalized Statements
No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and Other
Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase method
of accounting and prohibits the use of the pooling-of-interests method of
accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations completed on or after July 1, 2001. It
also requires, upon adoption of SFAS 142, that the Company reclassify the
carrying amounts of intangible assets and goodwill based on the criteria in
SFAS 141.

   SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in
fiscal years beginning after December 15, 2001 to all goodwill and other
intangible assets recognized at that date, regardless of when those assets were
initially recognized. SFAS 142 requires the Company to complete a transitional
goodwill impairment test six months from the date of adoption. The Company is
also required to reassess the useful lives of other intangible assets within
the first interim quarter after adoption of SFAS 142. As of December 2, 2001,
the net carrying amount of goodwill is $29,061,000. Amortization expense during
the year ended December 2, 2001 was $1,267,000.

<PAGE>

   In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. SFAS 144 is effective for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years. This statement addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. It supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of.

   Currently, the Company anticipates adopting SFAS 142 and 144 in the first
quarter of fiscal 2003. The Company is assessing but has not yet determined how
the adoptions of SFAS 141, 142 and 144 will impact its financial position and
results of operations.

Interest Risk Disclosures

   Because the Company's obligations under its term loans, revolving loans,
lines of credit and industrial revenue bonds bear interest at variable rates,
the Company is sensitive to changes in prevailing interest rates. A 10%
fluctuation in market interest rates would result in a change of approximately
$430,000 in interest expense during the 2002 fiscal year.

Forward Looking Statements

   Certain portions of this report, particularly the Notes to the Consolidated
Financial Statements and the Management's Discussion and Analysis of Financial
Condition and Results of Operations, contain forward looking statements. These
statements can be identified by the use of future tense or dates or terms such
as "believe," "expect," "anticipate," or "plan." Important factors could cause
actual results to differ materially from those anticipated by some of the
statements made in this report. Some of the factors include, among other
things, 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 or
acquisition, 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.

<PAGE>

The Rowe Companies Annual Report 2001
Five Year Summary

<TABLE>
<CAPTION>
                                                        2001       2000    1999(2)(3) 1998(2)(4)    1997
                                                     (52 weeks) (53 weeks) (52 weeks) (52 weeks) (52 weeks)
                                                     ---------- ---------- ---------- ---------- ----------
                                                            (in thousands, except per share amounts)
<S>                                                  <C>        <C>        <C>        <C>        <C>
Net shipments (1)................................... $ 325,438  $ 362,935  $ 289,619  $ 191,675  $ 154,087
Gross profit (1)....................................   105,313    123,653     88,295     50,026     39,235
Operating income (loss).............................    (5,766)    17,705     23,778     17,307      8,775
Net earnings (loss) from continuing operations
  (5)(6)(7).........................................    (6,189)     8,934     14,857     11,195      6,286
Net earnings (loss) (5)(6)(7)....................... $  (6,189) $   3,544  $  13,901  $  11,200  $   6,286
Working capital..................................... $  32,126  $  31,008  $  33,959  $  30,473  $  17,404
Total assets........................................   155,115    164,584    168,580    110,462     63,710
Long-term debt......................................    52,096     52,761     54,608     33,796         --
Stockholders' equity................................ $  46,696  $  55,422  $  54,659  $  45,236  $  39,442
Ratio of current assets to current liabilities......  1.7 to 1   1.6 to 1   1.6 to 1   2.2 to 1   1.9 to 1
Ratio of cash and receivables to current liabilities  0.7 to 1   0.7 to 1   0.8 to 1   1.3 to 1   1.1 to 1
Net earnings (loss) from continuing operations per
  common share--basic............................... $   (0.47) $    0.68  $    1.11  $    0.82  $    0.44
Net earnings (loss) per common share--basic......... $   (0.47) $    0.27  $    1.04  $    0.82  $    0.44
Weighted average common shares......................    13,135     13,152     13,426     13,672     14,250
Net earnings (loss) from continuing operations
  per common share assuming dilution................ $   (0.47) $    0.66  $    1.04  $    0.79  $    0.43
Net earnings (loss) per common share assuming
  dilution.......................................... $   (0.47) $    0.27  $    0.98  $    0.79  $    0.43
Weighted average common shares and equivalents......    13,135     13,703     14,372     14,128     14,666
Cash dividends paid per share....................... $    0.11  $    0.14  $    0.13  $    0.11  $    0.09
</TABLE>
--------
Weighted average shares and earnings per share amounts have been adjusted to
give retroactive effect to a 10% stock dividend declared November 2, 1999, and
the adoption of SFAS 128, "Earnings per Share".

(1) Net shipments and gross profit amounts prior to 2001 have been restated to
    reflect the implementation of EITF Issue 00-10 (See Note 1 of the
    consolidated financial statements).

(2) The 1999 and 1998 results have been restated to reflect the discontinuation
    of operations at The Wexford Collection, Inc. (See Note 2 of the
    consolidated financial statements).

(3) The 1999 amounts include Storehouse, Inc., acquired August 1, 1999 (See
    Note 2 of the consolidated financial statements).

(4) The 1998 amounts include The Wexford Collection, Inc., acquired January 1,
    1998 and The Mitchell Gold Co., acquired October 31, 1998 (See Note 2 of
    the consolidated financial statements).

(5) The results of operations for 2001 include an after-tax loss 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.

(6) The results of operations for 1998 include an after-tax gain of
    approximately $0.02 per share reflecting the sale of Levitz Furniture
    receivable, partially offset by an increase in reserve for bad debts,
    write-down of investment property and other charges.

(7) The results of operations for 1997 include unusual charges, net of taxes,
    of $2.7 million, or $0.19 per share, primarily associated with the
    write-off of a receivable from Levitz Furniture.

<PAGE>

The Rowe Companies Annual Report 2001
Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                                 12/2/01       12/3/00
                                                                                                 -------       -------
                                                                                                    (in thousands)
<S>                                                                                              <C>           <C>
ASSETS (Note 6)
CURRENT ASSETS
Cash and cash equivalents....................................................................... $  9,457      $  3,393
Accounts receivable (net of allowance for losses of $1,057 in 2001 and $1,856 in 2000) (Note 13)   23,525        30,892
Notes receivable (Note 2).......................................................................      325            --
Tax refunds receivable..........................................................................    2,514            --
Inventories (Notes 1 & 3).......................................................................   41,070        41,297
Deferred income taxes (Note 12).................................................................    2,371         2,057
Prepaid expenses and other......................................................................    1,949         3,884
                                                                                                 --------      --------
  Total current assets..........................................................................   81,211        81,523
                                                                                                 --------      --------

PROPERTY AND EQUIPMENT (Notes 1 & 4)............................................................   31,452        36,117
                                                                                                 --------      --------
OTHER ASSETS
Cash value of life insurance, net of loans of $3,014 in 2001 (Note 7)...........................    1,140         3,975
Investment property (net of accumulated depreciation of $6,755 in 2001 and $6,403 in 2000)
  (Notes 1 & 9).................................................................................    8,154         8,484
Goodwill (net of amortization of $3,094 in 2001 and $1,827 in 2000) (Notes 1 & 2)...............   29,061        30,357
Miscellaneous...................................................................................    4,097         4,128
                                                                                                 --------      --------
  Total other assets............................................................................   42,452        46,944
                                                                                                 --------      --------
                                                                                                 $155,115      $164,584
                                                                                                 ========      ========
LIABILITIES
CURRENT LIABILITIES
Current maturities of long-term debt (Note 6)................................................... $  7,006      $  3,299
Short-term bank borrowings (Note 5).............................................................    9,368         4,000
Accounts payable................................................................................   14,344        24,621
Accrued expenses:
  Compensation..................................................................................    3,346         3,254
  Income taxes..................................................................................       --           770
  Other.........................................................................................    7,746         6,336
Customer deposits...............................................................................    7,112         7,515
Deferred compensation--current portion (Note 7).................................................      163           720
                                                                                                 --------      --------
  Total current liabilities.....................................................................   49,085        50,515
LONG-TERM DEBT (Note 6).........................................................................   52,096        52,761
DEFERRED COMPENSATION AND OTHER LIABILITIES (Note 7)............................................    4,999         4,225
DEFERRED INCOME TAXES (Note 12).................................................................    2,239         1,661
                                                                                                 --------      --------
  Total liabilities.............................................................................  108,419       109,162
                                                                                                 --------      --------
COMMITMENTS AND CONTINGENCIES (Notes 2, 6, 7, 8, 9 & 10)
STOCKHOLDERS' EQUITY (Note 11)
COMMON STOCK, par value $1 per share, 50,000,000 authorized shares..............................   16,548        16,520
CAPITAL IN EXCESS OF PAR VALUE..................................................................   23,082        23,083
RETAINED EARNINGS...............................................................................   30,204        37,772
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Note 10).........................................   (1,201)          (32)
LESS TREASURY STOCK.............................................................................  (21,937)      (21,921)
                                                                                                 --------      --------
  Total stockholders' equity....................................................................   46,696        55,422
                                                                                                 --------      --------
                                                                                                 $155,115      $164,584
                                                                                                 ========      ========
</TABLE>

See notes to consolidated financial statements.

<PAGE>

The Rowe Companies Annual Report 2001
Consolidated Statements of Operations and Comprehensive Income (Loss)

<TABLE>
<CAPTION>
                                                                                        Year Ended
------------------------------------------------------------------------------------------------------------------
                                                                          12/2/01           12/3/00    11/28/1999
                                                                         (52 weeks)        (53 weeks)  (52 weeks)
-----------------------------------------------------------------------------------------------------------------
                                                                         (in thousands, except per share amounts)
<S>                                                                      <C>               <C>         <C>
Net shipments (Notes 2 & 13)............................................  $325,438          $362,935    $289,619
Cost of shipments.......................................................   220,125           239,282     201,324
                                                                          --------          --------    --------
 Gross profit...........................................................   105,313           123,653      88,295
Selling and administrative expenses.....................................   111,079           105,948      64,517
                                                                          --------          --------    --------
 Operating income (loss)................................................    (5,766)           17,705      23,778
Interest expense........................................................    (4,862)           (4,267)     (2,131)
Other income (loss), net (Note 9).......................................     1,572             1,415       1,870
                                                                          --------          --------    --------
 Earnings (loss) from continuing operations before taxes................    (9,056)           14,853      23,517
Taxes on income (refundable) (Note 12)..................................    (2,867)            5,919       8,660
                                                                          --------          --------    --------
Net earnings (loss) from continuing operations..........................    (6,189)            8,934      14,857

Discontinued operations (Note 2):
Loss from discontinued operations of Wexford,
 less tax benefit of $0, $954, and $549, respectively...................        --            (1,829)       (956)
Loss on disposal of Wexford,
 including provision for $490 of operating losses, net of tax
 benefit of $1,894......................................................        --            (3,561)         --
                                                                          --------          --------    --------

Net earnings (loss).....................................................  $ (6,189)         $  3,544    $ 13,901
                                                                          ========          ========    ========

Other comprehensive income (loss), net of tax:
 Unrealized loss on derivatives (Notes 1 & 10)..........................  $ (1,506)              (32)         --
 Payments transferred to expense........................................       337                --          --
                                                                          --------          --------    --------

Comprehensive income (loss).............................................  $ (7,358)         $  3,512    $ 13,901
                                                                          ========          ========    ========

Net earnings (loss) from continuing operations per common share (Note 1)  $  (0.47)         $   0.68    $   1.11
                                                                          ========          ========    ========

Net earnings (loss) per common share (Note 1)...........................  $  (0.47)         $   0.27    $   1.04
                                                                          ========          ========    ========
 Weighted average common shares.........................................    13,135            13,152      13,426
                                                                          ========          ========    ========
 Net earnings (loss) from continuing operations per common
   share assuming dilution (Note 1).....................................  $  (0.47)         $   0.66    $   1.04
                                                                          ========          ========    ========

Net earnings (loss) per common share assuming dilution (Note 1).........  $  (0.47)         $   0.27    $   0.98
                                                                          ========          ========    ========
 Weighted average common shares and equivalents.........................    13,135            13,703      14,372
                                                                          ========          ========    ========
</TABLE>

See notes to consolidated financial statements.

<PAGE>

The Rowe Companies Annual Report 2001
Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                  Year Ended
                                                       -------------------------------
                                                        12/2/01    12/3/00    11/28/99
                                                       (52 weeks) (53 weeks) (52 weeks)
                                                       ---------- ---------- ----------
                                                                (in thousands)
<S>                                                    <C>        <C>        <C>
Increase (Decrease) In Cash
Cash flows from operating activities:
Cash received from customers.......................... $ 329,683  $ 379,400  $ 295,563
Cash paid to suppliers and employees..................  (328,948)  (354,570)  (274,870)
Income taxes paid, net of refunds.....................       585     (6,183)    (7,726)
Interest paid.........................................    (4,642)    (5,693)    (2,686)
Interest received.....................................       480        288        159
Other receipts--net...................................     1,109      1,156      1,684
                                                       ---------  ---------  ---------
Net cash and cash equivalents provided by (used in)
operating activities..................................    (1,733)    14,398     12,124
                                                       ---------  ---------  ---------
Cash flows from investing activities:
Proceeds from sale of property and equipment..........     1,056         21         19
Capital expenditures..................................    (3,317)    (9,155)    (8,830)
Payments to acquire businesses (Note 2)...............        --     (5,160)    (8,892)
                                                       ---------  ---------  ---------
Net cash used in investing activities.................    (2,261)   (14,294)   (17,703)
                                                       ---------  ---------  ---------
Cash flows from financing activities:
Net borrowings (payments) under line of credit........     5,368       (164)     2,071
Proceeds from issuance of long-term debt..............     6,865     13,020     25,132
Payments to reduce long-term debt.....................    (3,821)   (11,922)   (14,522)
Proceeds from loans against life insurance policies...     3,014         --         --
Proceeds from issuance of common stock................        27         51        460
Dividends paid........................................    (1,379)    (1,849)    (1,714)
Purchase of treasury stock............................       (16)      (951)    (3,224)
                                                       ---------  ---------  ---------
Net cash provided by (used in) financing activities...    10,058     (1,815)     8,203
                                                       ---------  ---------  ---------
Net increase (decrease) in cash and cash equivalents..     6,064     (1,711)     2,624
Cash at beginning of year.............................     3,393      5,104      2,480
                                                       ---------  ---------  ---------
Cash at end of year................................... $   9,457  $   3,393  $   5,104
                                                       ---------  ---------  ---------
</TABLE>

<PAGE>

The Rowe Companies Annual Report 2001
Reconciliation of Net Earnings (Loss) to Net Cash
Provided by (Used In) Operating Activities:

<TABLE>
<CAPTION>
                                                                   Year Ended
                                                        -------------------------------
                                                         12/2/01    12/3/00    11/28/99
                                                        (52 weeks) (53 weeks) (52 weeks)
                                                        ---------- ---------- ----------
                                                                 (in thousands)
<S>                                                     <C>        <C>        <C>
Net earnings (loss)....................................  $ (6,189)  $ 3,544    $ 13,901
                                                         --------   -------    --------
Adjustments to reconcile net earnings (loss) to net
  cash provided by (used in) operating activities, net
  of acquisition and disposition of businesses:
  Loss on disposition of Wexford.......................        --     5,455          --
  Depreciation and amortization........................     8,569     8,581       6,165
  Provision for deferred compensation..................       173       816       1,083
  Payments made for deferred compensation..............      (813)     (160)       (319)
  Deferred income taxes................................     1,001    (2,099)       (472)
  Provision for losses on accounts receivable..........     4,421     1,485         413
  Loss (gain) on disposition of assets.................        15        29           4
Change in operating assets and liabilities net of
  effects of acquisition and disposition of businesses:
  Decrease (increase) in accounts receivable...........     4,649     5,564      (9,379)
  Decrease (increase) in inventories...................       227      (832)     (5,692)
  Decrease (increase) in prepaid expenses and other....     1,679      (887)       (795)
  Decrease (increase) in other assets..................      (352)      472      (1,210)
  Increase (decrease) in accounts payable..............   (10,277)   (4,750)      3,830
  Increase (decrease) in accrued expenses..............    (4,433)   (1,715)      2,170
  Increase (decrease) in customer deposits.............      (403)   (1,105)      2,425
                                                         --------   -------    --------
     Total adjustments.................................     4,456    10,854      (1,777)
                                                         --------   -------    --------
Net cash provided by (used in) operating activities....  $ (1,733)  $14,398    $ 12,124
                                                         ========   =======    ========
Supplemental Disclosures of Cash Flows:
Fair value of assets acquired other than cash..........                        $ 37,272
Liabilities assumed....................................                         (28,380)
                                                                               --------
Payments to acquire businesses.........................                        $  8,892
                                                                               ========
</TABLE>

See notes to consolidated financial statements.

<PAGE>

The Rowe Companies Annual Report 2001
Consolidated Statements of Stockholders' Equity

<TABLE>
<CAPTION>
                                        Year Ended December 2, 2001, December 3, 2000 and November 28, 1999
                                      ----------------------------------------------------------------------
                                              Common Stock                     Treasury Stock
                                      ----------------------------            -----------------
                                                         Capital in                              Accumulated
                                        Shares   $1 Par  Excess of  Retained  Number of         Comprehensive
                                        Issued   Value   Par Value  Earnings   Shares    Cost   Income(Loss)
                                      ---------- ------- ---------- --------  --------- ------- -------------
                                         (in thousands, except share and per share amounts)
<S>                                   <C>        <C>     <C>        <C>       <C>       <C>     <C>
Balance at November 29, 1998......... 14,905,795 $14,906  $ 9,363   $ 38,713  2,641,219 $17,746    $    --
 Acquisition of treasury stock.......                                           324,592   3,224
 Cash dividends paid, $0.13 per share                                 (1,714)
 Exercise of stock options...........    106,104     106      354
 10% stock dividend..................  1,501,063   1,501   13,322    (14,823)   286,318
 Net earnings for the year ended
   November 28, 1999.................                                 13,901
                                      ---------- -------  -------   --------  --------- -------    -------
Balance at November 28, 1999......... 16,512,962  16,513   23,039     36,077  3,252,129  20,970         --
 Acquisition of treasury stock.......                                           153,818     951
 Cash dividends paid, $0.14 per share                                 (1,849)
 Exercise of stock options...........      7,185       7       44
 Net change during the year related
   to cash flow hedge................                                                                  (32)
 Net earnings for the year ended
   December 3, 2000..................                                  3,544
                                      ---------- -------  -------   --------  --------- -------    -------
Balance at December 3, 2000.......... 16,520,147  16,520   23,083     37,772  3,405,947  21,921        (32)
 Acquisition of treasury stock.......                                             6,743      16
 Cash dividends paid, $0.11 per share                                 (1,379)
 Exercise of stock options...........     27,568      28       (1)
 Net change during the year related
   to cash flow hedge................                                                               (1,169)
 Net loss for the year ended
   December 2, 2001..................                                 (6,189)
                                      ---------- -------  -------   --------  --------- -------    -------
Balance at December 2, 2001.......... 16,547,715 $16,548  $23,082   $ 30,204  3,412,690 $21,937    $(1,201)
                                      ========== =======  =======   ========  ========= =======    =======
</TABLE>

See notes to consolidated financial statements.

<PAGE>

Notes to Consolidated Financial Statements

NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   Description of Business--The Rowe Companies (the "Company") consists of two
manufacturing subsidiaries--Rowe Furniture, Inc. ("Rowe") and The Mitchell Gold
Company ("Mitchell Gold") and two retail furniture chains--Storehouse, Inc.
("Storehouse") and Home Elements, Inc. ("Home Elements"). Storehouse and Home
Elements are geographically distributed across the mid-Atlantic, northeastern,
southeastern, and southwestern United States. The manufacturing subsidiaries
sell upholstered and leather furniture throughout the United States and in some
international markets. On November 10, 2000, the Company announced its
intention to discontinue operations at its third manufacturing subsidiary, The
Wexford Collection, Inc. ("Wexford"). The transaction was completed and all
assets were sold in January 2001. See Note 2.

   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--The manufacturing subsidiaries recognize sales when
products are shipped and invoiced to customers. The retail subsidiaries
recognize 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.
Effective for fiscal year 2001, the Company implemented EITF Issue 00-10,
"Accounting for Shipping and Handling Fees and Costs". As a result, charges to
customers for delivery services have been reclassified to net shipments from
cost of sales or selling and administrative expenses. Selling and
administrative expenses include $4,800,000, $4,404,000 and $2,013,000 of retail
delivery expenses in 2001, 2000 and 1999, respectively. Prior periods have been
restated to reflect the current year presentation. The reclassifications have
no effect on reported results of operations.

   Credit Risk--Substantially all of the Company's trade accounts receivable
are from companies in the retail furniture industry. Management periodically
performs credit evaluations of its customers and generally does not require
collateral. The Company uses credit insurance to minimize the risk on certain
accounts. The Company has no concentrated credit risk with an individual
customer except as described in Note 13.

   Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles 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. All
subsidiaries utilize the first-in, first-out (FIFO) method to compute cost
except for Storehouse, which utilizes the last-in, first-out (LIFO) method.

   Property, Equipment and Depreciation--Property and equipment are stated at
cost. For financial reporting purposes, depreciation 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).

   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 will be written down to fair value. As
further disclosed in Note 2, the Company recognized an impairment loss in
fiscal 2000 related to the closing of Wexford.

   Fair Value of Financial Instruments--Financial instruments of the Company
include long-term debt and line of credit 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 and one interest rate collar
contract. See Note 10 for information concerning the fair value of these
financial instruments.

   Intangible Assets--Intangible assets consist principally of values assigned
to the excess of cost over the fair value of net assets acquired (Goodwill).
These assets are being amortized using the straight-line method over 25 years.
The Company evaluates the carrying amount of goodwill based on profitability
projections and estimated cash flows. If estimated future cash flows are not
sufficient to recover the carrying amounts of goodwill, the assets will be
written down

<PAGE>

to fair value. As further disclosed in Note 2, the Company recognized an
impairment loss in fiscal 2000 related to the closing of Wexford.

   Advertising Costs--Costs incurred for advertising are expensed when
incurred. Costs incurred under cooperative advertising programs are recognized
when the related revenues are recognized. The charges to expense were
$12,934,000, $14,623,000 and $8,176,000 in 2001, 2000 and 1999, 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
are considered "effective" under SFAS No. 133 and, as a result, changes in fair
value of the agreements are recorded to accumulated other comprehensive income
(loss) in stockholders' equity. See Note 10.

   Income Taxes--Income taxes are calculated using the liability method
specified by SFAS No. 109, "Accounting For Income Taxes."

   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. Prior to the fourth quarter of 2000, the
Company had no derivative financial instruments or items of other comprehensive
income.

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

<TABLE>
<CAPTION>
                                                  2001     2000    1999
                                                 -------  ------- -------
                                                      (in thousands)
      <S>                                        <C>      <C>     <C>
      Net earnings available to basic shares.... $(6,189) $ 3,544 $13,901
      Add interest expense on assumed conversion
       of convertible debentures, net of tax....      --      132     132
                                                 -------  ------- -------
      Net earnings available to diluted shares.. $(6,189) $ 3,676 $14,033
                                                 =======  ======= =======
      Weighted average common shares
       outstanding (Basic)......................  13,135   13,152  13,426
      Effect of dilutive stock options and
       convertible debentures...................      --      551     946
                                                 -------  ------- -------
      Weighted average common shares and
       equivalents outstanding (Diluted)........  13,135   13,703  14,372
                                                 =======  ======= =======
</TABLE>

   The dilutive share base for 2001, 2000 and 1999 excludes incremental shares
of 1,982,478, 1,852,478 and 1,552,534, respectively. These shares are excluded
due to their antidilutive effect, resulting from the option's exercise price
being greater than the average market price of the common shares and as a
result of the Company's loss from operations in 2001.

   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.

   Fiscal Year--The Company's accounting fiscal year end is the Sunday of each
year closest to November 30. Fiscal 2000 contained 53 weeks, whereas fiscal
years 2001 and 1999 each contained 52 weeks.

<PAGE>

   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--ACQUISITIONS AND DISPOSALS

   On January 1, 1998, the Company acquired, through a newly created
subsidiary, The Wexford Collection, Inc., the assets and assumed certain
liabilities of J & M Designs, Ltd.-Carson, California, a manufacturer of solid
wood reproductions. The purchase price included a cash payment of $200,000. The
Company accounted for the acquisition using the purchase method of accounting.

   On November 10, 2000, the Company announced its intention to discontinue
manufacturing operations at Wexford. The Company completed the sale of the
manufacturing assets and subleased the building to a third party in January
2001. Proceeds from the sale consisted of $800,000 in cash and $450,000 in
notes receivable (of which $125,000 was collected during 2001). The Company
recorded a $3.6 million charge, net of taxes, during the fourth quarter of
fiscal 2000 to cover the costs of the closure and disposal of the assets. This
transaction has been reflected as a discontinued operation. Included in the
balance sheet at December 2, 2001, were assets of Wexford of $254,000. Net
revenues at Wexford were $637,000 in 2001, $11,606,000 in 2000 and $12,898,000
in 1999. Discontinued operations resulted in a loss per common share of $0.00
in 2001, $0.41 in 2000 and $0.07 in 1999. On a diluted basis, loss per share
was $0.00 in 2001, $0.39 in 2000, and $0.06 in 1999.

   On October 31, 1998, the Company acquired all of the issued and outstanding
common stock of Mitchell Gold, a privately owned company located in North
Carolina. The purchase price of Mitchell Gold consisted of an initial payment
of $13 million, comprised of $10 million in cash and $3 million of convertible
debentures. During 2000, a $5 million payment was made in accordance with the
interim earn-out provisions of the purchase agreement. Additional earn-out
provisions allow for a maximum purchase price of $32 million if certain
earnings targets are attained over a four or five year period. The Company
accounted for the acquisition using the purchase method of accounting. Goodwill
related to this acquisition was approximately $14,200,000 at December 2, 2001.

   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 throughout the mid-Atlantic,
northeast, southeast and southwestern United States. The purchase price for
Storehouse consisted of $11.7 million in cash and the assumption of $12.7
million in debt. The Company utilized a $25 million unsecured revolving credit
facility to fund the cash purchase price and retire the debt, including $2.5
million previously loaned by the Company in the form of a subordinated note.
The Company accounted for the acquisition using the purchase method of
accounting. Goodwill related to this acquisition was approximately $14,900,000
at December 2, 2001.

   Each of the above companies is now operated as a wholly-owned subsidiary of
the Company, and their operations are included in the Consolidated Statements
of Operations and Comprehensive Income (Loss) from the dates of acquisition.

NOTE 3--INVENTORIES

   Inventory components are as follows:

<TABLE>
<CAPTION>
                                           2001    2000
                                          ------- -------
                                          (in thousands)
                       <S>                <C>     <C>
                       Retail merchandise $17,982 $18,645
                       Finished goods....   3,192   3,164
                       Work-in-process...   4,213   4,742
                       Raw materials.....  15,683  14,746
                                          ------- -------
                       Total inventories. $41,070 $41,297
                                          ======= =======
</TABLE>

   Included in retail merchandise was $13,048,000 for 2001 and $14,260,000 for
2000 of inventory 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 $245,000 and $302,000, respectively, over
the amounts shown above.

<PAGE>

NOTE 4--PROPERTY AND EQUIPMENT

   Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                2001    2000
                                               ------- -------
                                               (in thousands)
                 <S>                           <C>     <C>
                 Land......................... $   642 $   642
                 Buildings and improvements...  19,314  19,118
                 Leasehold improvements.......  10,054   8,853
                 Machinery and equipment......  41,830  44,481
                 Construction-in-process......     440   3,319
                                               ------- -------
                                                72,280  76,413
                 Less accumulated depreciation  40,828  40,296
                                               ------- -------
                 Net property and equipment... $31,452 $36,117
                                               ======= =======
</TABLE>

NOTE 5--SHORT-TERM BORROWINGS

   The following summarizes aggregate short-term borrowings:

<TABLE>
<CAPTION>
                                                        2001    2000    1999
                                                       ------  ------  ------
                                                           (in thousands)
 <S>                                                   <C>     <C>     <C>
 Amount outstanding at year end....................... $9,368  $4,000  $4,164
 Maximum amount outstanding at any month end..........  9,368   9,378   9,813
 Average borrowings (based on weighted daily balances)  6,255   6,852   5,615
 Weighted average interest rate during the year.......    7.4%    7.9%    5.7%
 Weighted average interest rate at year end...........    6.0%    7.3%    6.0%
</TABLE>

   See Note 6 for a discussion of the status of the Company's borrowing
relationships.

NOTE 6--LONG-TERM DEBT

   Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                             2001    2000
                                            ------- -------
                                            (in thousands)
                    <S>                     <C>     <C>
                    Revolving bank loans... $51,000 $47,659
                    Industrial revenue bond   5,100   5,335
                    Debentures.............   3,000   3,000
                    Other..................       2      66
                                            ------- -------
                                             59,102  56,060
                    Less current maturities   7,006   3,299
                                            ------- -------
                    Total long-term debt... $52,096 $52,761
                                            ======= =======
</TABLE>

   In November 1998 and July 1999, as amended in October 2000, the Company
executed agreements for revolving bank loans payable in full on April 30, 2002
and July 31, 2002, respectively. The agreements require quarterly interest
payments at the London Interbank Offering Rate ("LIBOR") plus a spread ranging
from .35% to 2.50%. The proceeds from the loans were used to provide working
capital for the Company and its subsidiaries, fund the initial purchase price
of Mitchell Gold and provide funding for the acquisition and retirement of
long-term debt of Storehouse.

   The industrial revenue bond proceeds were used to construct a new
manufacturing and office facility for Mitchell Gold. Annual principal payments
are required ranging from $245,000 to $405,000 through 2017. Interest rates
range from 3.0% to 5.0%. The bonds are collateralized primarily by the new
facility.

   The Company's financing agreements (covering the revolving bank loans,
industrial revenue bond and short-term borrowings) contain financial covenants.
Beginning in May 2001, the Company was in default of certain financial
performance covenants under these agreements. As a consequence, all of the
long-term indebtedness of the Company had been classified as debt due within
one year. The Company signed forbearance

<PAGE>

agreements with its lenders that provided the Company a period of time to
arrange alternative financing. In conjunction with the forbearance agreements,
the Company's LIBOR-based debt converted to prime-based debt, and the Company
was required to draw down all available funds under its revolving bank loans
and short-term lines of credit.

   The debentures were issued in connection with the acquisition of Mitchell
Gold as part of the initial purchase amount. The debentures were convertible to
393,444 shares of the Company's common stock at any time after October 31,
1999, and prior to maturity at October 31, 2001. Effective November 1, 2001,
the Company was in default under the repayment provisions of the debentures,
and the debentures are no longer convertible into shares of the Company's
common stock. As a result of the default, the debentures bear interest at the
rate of 12% payable quarterly.

   In March 2002, the Company reached agreements with its existing lending
institutions and new lending institutions to refinance the Company's short-term
borrowings and revolving bank loans, pay off the debentures and cure the
financial performance default under the industrial revenue bond. Commitments
have been signed with these lenders, subject to, among other things,
satisfactory documentation, and closing of these agreements is anticipated to
occur in April 2002. The agreement with the new lending institutions calls for
a $40 million senior secured revolving credit facility (including a $5 million
sub limit for letters of credit) subject to availability of borrowing base
amounts related to levels of eligible receivables and inventories. The revolver
matures five years from closing. The agreement also provides for a $5 million
senior secured term loan payable in 20 equal quarterly payments of $250,000.
Interest on these loans will be payable at prime or Libor rates plus a spread
of up to 1.25% or 3.25%, respectively, based upon certain ratios. The remaining
portion of the current lending institutions' term debt bears interest at prime
plus 3%.

   Except for those portions of the debt expected to be repaid with current
assets of the Company (reflected as short-term borrowings and current
maturities of long-term debt), the outstanding debt of the Company has been
classified as long-term debt. Terms of the new agreements include provisions
for mandatory principal repayments on the remaining existing debt of $50,000
per month through December 1, 2002 and $100,000 per month thereafter through
December 2003, with the remaining amounts due at that time; such amounts for
2002 are included in current maturities shown above. The agreements also
require additional principal repayments if fixed charge coverage (defined as
earnings before interest, taxes, depreciation and amortization less capital
expenditures and cash taxes, divided by principal and interest) exceeds 1.10
and availability under the revolving loan exceeds $8 million, both before and
after giving effect to such repayments. Such excess cash flow would be applied
to the remaining outstanding debt to the existing lenders. Annual repayment
amounts shown below do not include any amounts projected for additional
principal reductions.

   The Company has also negotiated mortgage loan agreements in the amount of
$9.3 million collateralized by certain investment properties. The agreements
require monthly payments of approximately $70,000 including interest at 7.75%.
The proceeds from this loan will be used to repay debt to the existing lenders.

   In addition to refinancing the existing long-term debt of the Company, the
agreements include a requirement to reduce the outstanding balance of the lease
obligation (described in Note 9). A pro-rata portion of additional principal
repayments, if any, would be applied towards the balance of this obligation. As
a result of this change in repayment terms, in accordance with generally
accepted accounting principles, the Company will change its accounting for the
lease from an operating lease to a capital lease when the refinancing is
complete in 2002. The results of this change will include capitalizing property
and equipment of $25 million and a related capital lease obligation in the same
amount. It is expected that the property under the lease will be purchased at
the expiration of the lease in December 2003 (fiscal 2004). Accordingly, the
lease obligation is included in the amounts shown in 2004 below as the amounts
to be repaid in the interim period are contingent on reaching the earnings
targets mentioned above. The capitalization of the lease will result in
additional charges to pre-tax earnings of approximately $1.3 million per year
due to the depreciation and interest exceeding the rent payments included in
Note 9.

   The new agreements with the lenders are collateralized by substantially all
assets of the Company and its subsidiaries. Each of the new facilities is
expected, among other things, to contain covenants with respect to a fixed
charge coverage ratio, minimum excess borrowing availability, minimum
consolidated tangible net worth, maximum consolidated leverage ratio and
maximum capital expenditures.

<PAGE>

   Minimum required debt service payments for each of the five fiscal years
subsequent to December 2, 2001, are approximately $16,374,000 in 2002
(including the short-term obligations described in Note 5); $2,592,000 in 2003;
$34,226,000 in 2004 (including the full amount of the lease obligation
discussed above); $1,430,000 in 2005; $1,452,000 in 2006 and $37,396,000
thereafter.

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 $72,000 in 2001, $114,000 in 2000 and $100,000
in 1999.

   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 $167,000 in 2001, $147,000 in 2000 and $140,000 in 1999.

   The Company has non-qualified retirement plans for certain personnel. The
plans enable participants to defer income on a pre-tax basis and are not
funded. The Company matches a portion of the deferral for certain participants.
The charges to expense were $189,000 in 2001, $396,000 in 2000 and $377,000 in
1999.

NOTE 8--EMPLOYEE BENEFIT PLANS

   The Company maintains 401(k) and savings plans that cover substantially all
employees. Contributions to the plans were $819,000 in 2001, $696,000 in 2000
and $621,000 in 1999.

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
2018 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 $16,287,000 in 2001,
$13,211,000 in 2000 and $5,532,000 in 1999. The increase for 2000 reflects
additional rental costs at Storehouse.

   In August 1999, as amended in October 2000, the Company executed an
agreement to enter into a five-year lease of a new manufacturing facility in
Elliston, Virginia. Funding under the agreement was limited to $25 million.
Payments under this lease are based on LIBOR plus a spread ranging from .35% to
2.50%. Upon expiration of the lease, the Company has the option to purchase the
property, or the facility can be sold to a third party with the Company's
guarantee of a residual value of not less than 85% of the total cost. The table
of minimum lease commitments excludes any payment related to this guarantee.
The agreement contains financial covenants including ratios on leverage to cash
flow, debt to total capitalization and interest coverage. At December 2, 2001,
the Company was in default of its financial covenants. In conjunction with the
forbearance agreements referred to in Note 6, the interest rate on this debt
was changed from LIBOR plus a spread to prime plus 1%. See Note 6 for
additional information regarding this lease.

   The Company is a lessor of its investment properties primarily under
long-term operating leases. The lease arrangements have initial terms of three
to twelve years and some contain provisions to increase the monthly rentals at
specific intervals. Rental income, net of commissions, was $1,902,000 in 2001,
$1,570,000 in 2000 and $1,437,000 in 1999 and is included in other income in
the accompanying Consolidated Statements of Operations and Comprehensive Income
(Loss). Since June 2000, investment properties include the Company's former
manufacturing facility located in Salem, Virginia.

<PAGE>

   Minimum lease commitments at December 2, 2001, under long-term operating
leases are as follows:

<TABLE>
<CAPTION>
                                                 Lease
                                 Lease Expense   Income
                                 ------------- ----------
                      <S>        <C>           <C>
                      2002......  $14,072,000  $1,796,000
                      2003......   13,524,000   1,474,000
                      2004......   12,156,000   1,050,000
                      2005......    8,849,000     369,000
                      2006......    6,268,000     117,000
                      Thereafter   15,497,000      21,000
                                  -----------  ----------
                                  $70,366,000  $4,827,000
                                  ===========  ==========
</TABLE>

   In addition, the Company is obligated through a dedicated contract carriage
agreement for delivery services for periods ranging from 4 to 8 years. Current
monthly expense is $260,000 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 $45,000 up to $100,000 per person annually, and aggregate
claims ranging from $725,000 up to $7,600,000 in 2001. 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.

  Employment Agreements

   The Company has employment agreements with certain key officers 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 annual compensation of $792,000,
adjusted for changes in the consumer price index, through November 30, 2004.
Payments under this agreement were $822,000 in 2001 and 2000 and $802,000 in
1999.

   In connection with the acquisitions in 1998 and 1999, the Company's
subsidiaries have employment agreements with certain key officers for periods
of three to five years with salaries up to $275,000.

  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 lease agreement for its Elliston facility,
the Company was required to maintain interest rate protection agreements. As a
result, the Company entered into two contracts to hedge the interest rate risk
exposure on the Elliston plant lease. The Company entered into a $20 million
notional principal interest rate swap that effectively converted the floating
rate LIBOR based payments to fixed payments at 6.805% plus the spread
calculated under the lease agreement. This agreement expires in August 2004. In
addition, the Company entered into an interest rate collar on $5 million
notional principal that limits the float on the remainder of the lease balance
between a floor of 5.75% plus a spread, and a cap of 8.25% plus a spread. This
agreement expires April 2003.

   The Company accounts for the interest rate swap and collar as cash flow
hedges whereby the fair value of these contracts are reflected in other
liabilities in the accompanying consolidated balance sheet with the offset, net
of income taxes, recorded as accumulated other comprehensive income (loss). The
fair value of these contracts was $1,201,000, as determined by quoted market
prices, net of taxes approximating $736,000. The current portion of this
liability, or amount expected to be reclassified into earnings within the next
year, is $670,000, net of taxes.

<PAGE>

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.

   Under the 1993 incentive stock option plan, as amended, 3,264,937 shares of
unissued common stock or treasury stock have been made 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 exercisable for a term of eight
to ten years from the date of grant.

   Under the 1983 incentive stock option plan, as amended, 3,132,420 shares of
unissued common stock or treasury stock were available for grants. These
options are exercisable for a term of ten years from the date of grant. These
options were granted at market value on the date of grant and have been
adjusted for stock splits and dividends. Effective January 28, 1993, no further
options may be granted under this plan.

   SFAS 123, "Accounting for Stock-Based Compensation," 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
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 2001, 2000 and 1999, respectively; dividend
yields of 1.5%; expected volatility of 77.2%, 56.6%, and 45.6%; risk-free
interest rates of 4.6%, 6.0% and 6.0%; and expected lives of 4 years.

   Under the accounting provisions of SFAS 123, the Company's net income (loss)
and earnings (loss) per share would have been the pro forma amounts indicated
below:

<TABLE>
<CAPTION>
                                                          2001         2000       1999
                                                       -----------  ---------- -----------
<S>                                                    <C>          <C>        <C>
Net earnings (loss)
 As reported.......................................... $(6,189,000) $3,544,000 $13,901,000
 Pro forma............................................ $(6,397,000) $3,166,000 $12,756,000
Net earnings (loss) per common share
 As reported..........................................      $(0.47)      $0.27       $1.04
 Pro forma............................................      $(0.49)      $0.24       $0.95
Net earnings (loss) per common share assuming dilution
 As reported..........................................      $(0.47)      $0.27       $0.98
 Pro forma............................................      $(0.49)      $0.24       $0.90
</TABLE>

   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:

<PAGE>

<TABLE>
<CAPTION>
                       December 2, 2001     December 3, 2000    November 28, 1999
                     -------------------- -------------------- --------------------
                                 Weighted             Weighted             Weighted
                                 Average              Average              Average
                                 Exercise             Exercise             Exercise
                       Shares    Price      Shares     Price     Shares     Price
                     ----------  -------- ----------  -------- ----------  --------
<S>                  <C>         <C>      <C>         <C>      <C>         <C>
Outstanding
at beginning of year  2,010,301   $7.32    2,105,198   $7.37    1,569,613   $6.01
Granted.............    179,000    3.27      169,000    8.23      774,466    9.69
Exercised...........    (27,568)   0.96       (7,185)   7.05     (116,824)   3.94
Forfeited...........   (178,946)   9.81     (256,712)   8.35     (122,057)   7.84
                     ----------           ----------           ----------
Outstanding
at end of year......  1,982,787   $6.82    2,010,301   $7.32    2,105,198   $7.37
                     ==========           ==========           ==========
Weighted-average
  fair value of
  options granted
  during the year... $     1.84           $     3.72           $     2.35
                     ==========           ==========           ==========
</TABLE>

   The following table summarizes information about fixed stock options
outstanding at December 2, 2001.

<TABLE>
<CAPTION>
                   Options Outstanding                    Options Exercisable
             -------------------------------          ---------------------------
Range            Number         Weighted     Weighted                    Weighted
of           Outstanding at     Average      Average       Number        Average
Exercise      December 2,      Remaining     Exercise   Exercisable      Exercise
Prices            2001      Contractual Life  Price   December 2, 2001      Price
--------     -------------- ---------------- -------- ---------------- ----------
<S>          <C>            <C>              <C>      <C>              <C>
$1.01--$2.88     120,512           2          $2.33        120,512       $2.33
3.19-- 5.00      539,848           5           4.28        529,849        4.27
6.25-- 6.93      367,752           6           6.59        367,752        6.59
7.39 - 9.00      421,935           7           8.06        363,152        8.04
9.09-- 12.05     532,740           7           9.50        452,503        9.60
               ---------                                 ---------       -----
               1,982,787                      $6.82      1,833,768       $6.65
               =========                                 =========       =====
</TABLE>

NOTE 12--TAXES ON INCOME

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

<TABLE>
<CAPTION>
                                   2001         2000         1999
                                -----------  -----------  ----------
          <S>                   <C>          <C>          <C>
          Current.............. $(3,868,000) $ 5,062,000  $8,575,000
          Deferred.............   1,001,000   (1,991,000)   (464,000)
                                -----------  -----------  ----------
          Total taxes on income $(2,867,000) $ 3,071,000  $8,111,000
                                ===========  ===========  ==========
</TABLE>

<PAGE>

   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 were as follows:

<TABLE>
<CAPTION>
                                                     2001         2000
                                                  -----------  -----------
     <S>                                          <C>          <C>
     Receivables................................. $ 1,177,000  $   788,000
     Deferred compensation.......................   1,692,000    1,931,000
     Cash flow hedge.............................     736,000           --
     Deferred rent...............................     366,000      338,000
     Goodwill....................................          --      771,000
     Other.......................................     916,000      590,000
                                                  -----------  -----------
     Gross deferred tax assets...................   4,887,000    4,418,000
                                                  -----------  -----------
     Property and equipment......................   2,599,000    1,576,000
     Investment property.........................   1,903,000    2,009,000
     Inventories.................................     253,000      122,000
     Receivables.................................          --      315,000
                                                  -----------  -----------
     Gross deferred tax liabilities..............   4,755,000    4,022,000
                                                  -----------  -----------
     Net deferred tax liability.................. $   132,000  $   396,000
                                                  ===========  ===========
     Included in the balance sheet:
      Deferred income tax-current................ $ 2,371,000  $ 2,057,000
      Deferred income tax liabilities-non-current  (2,239,000)  (1,661,000)
                                                  -----------  -----------
      Net deferred tax liability................. $   132,000  $   396,000
                                                  ===========  ===========
</TABLE>

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

<TABLE>
<CAPTION>
                                            2001         2000        1999
  -                                      -----------  ----------  ----------
  <S>                                    <C>          <C>         <C>
  Income tax expense (benefit), computed
    at the statutory rate............... $(3,170,000) $2,315,000  $7,704,000
  State income taxes, net of
    federal income tax benefit..........    (156,000)    357,000     558,000
  Goodwill..............................     495,000     435,000     231,000
  Life insurance transactions...........    (101,000)    (56,000)    (65,000)
  Other items, net......................      65,000      20,000    (317,000)
                                         -----------  ----------  ----------
  Total taxes on income (refundable).... $(2,867,000) $3,071,000  $8,111,000
                                         ===========  ==========  ==========
</TABLE>

NOTE 13--MAJOR CUSTOMER INFORMATION

   Shipments to the Company's top three customers as a percent of net shipments
were 16% in 2001, 15% in 2000 and 17% in 1999. Shipments to the Company's top
ten customers, as a percent of net shipments, amounted to 26% in 2001, 28% in
2000 and 31% in 1999. Receivables from the Company's top three customers as a
percent of year-end receivables amounted to 13% in 2001 and 28% in 2000.

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

<PAGE>

fabric or leather. The retail home furnishings segment sells home furnishings
and accessories to customers through Company-owned stores. These products
consist of upholstered furniture (primarily obtained from related companies),
case goods and home accessories. The other category is comprised of additional
subsidiaries reviewed by management including parent company expenses.

<TABLE>
<CAPTION>
                                             Wholesale
                                               Home      Retail Home
                                            Furnishings  Furnishings            Inter-segment
                                              Segment      Segment      Other   Eliminations  Consolidated
                                            ----------- -------------- -------  ------------- ------------
2001                                                    (in thousands)
<S>                                         <C>         <C>            <C>      <C>           <C>
Net shipments..............................  $235,254      $113,959    $    --    $ (23,775)    $325,438
Interest expense...........................     2,354         2,021        487           --        4,862
Depreciation and amortization..............     5,106         3,025        437           --        8,568
Pre-tax net earnings (loss) from continuing
  operations...............................     2,673       (11,033)      (967)         271       (9,056)
Capital expenditures.......................     1,412         1,870         35           --        3,317
Total assets...............................   129,457        45,876     93,317     (113,789)     154,861

2000
Net shipments..............................  $264,845      $124,821    $    --    $ (26,731)    $362,935
Interest expense...........................     2,304         1,600        363           --        4,267
Depreciation and amortization..............     4,739         3,064        314           --        8,117
Pre-tax net earnings (loss)
  from continuing operations...............    17,647        (2,554)        25         (265)      14,853
Capital expenditures.......................     4,982         3,325        719           --        9,026
Total assets...............................   115,782        47,844     96,051      (98,089)     161,588

1999
Net shipments..............................  $250,963      $ 51,660    $    --    $ (13,004)    $289,619
Interest expense...........................     1,907           443         --         (219)       2,131
Depreciation and amortization..............     4,199         1,241        253           --        5,693
Pre-tax net earnings (loss)
  from continuing operations...............    23,889        (1,528)     1,481         (325)      23,517
Capital expenditures.......................     6,871         1,485        171           --        8,527
Total assets...............................   109,344        48,892     94,125      (92,698)     159,663
</TABLE>

   The consolidated amounts for capital expenditures and total assets exclude
amounts for the discontinued Wexford segment. Capital expenditures at Wexford
were $0, $129,000 and $303,000 for 2001, 2000 and 1999, respectively. Total
assets at Wexford were $254,000, $2,996,000 and $8,917,000 for 2001, 2000 and
1999, respectively.

<PAGE>

NOTE 15--QUARTERLY FINANCIAL INFORMATION

<TABLE>
<CAPTION>
Quarter                                    First          Second       Third     Fourth(1)
-------                                    -----          -------      -----     ---------
                                        (unaudited, in thousands, except per share amounts)
<S>                                     <C>             <C>         <C>         <C>

2001
Net shipments.......................... $80,428         $78,029     $82,402     $ 84,579
Gross profit...........................  26,437          24,548      26,020       28,308
Net earnings (loss)....................    (806)         (4,878)     (1,124)         619
Net earnings (loss) per common share...   (0.06)          (0.37)      (0.09)        0.05
Net earnings (loss) per common share
  assuming dilution....................   (0.06)          (0.37)      (0.09)        0.05

2000
Net shipments.......................... $87,043         $87,850     $86,672     $101,370
Gross profit...........................  30,414          30,115      29,518       33,606
Net earnings from continuing operations   2,819           1,449       1,033        3,633
Net earnings (loss)....................   2,392           1,184         652         (684)
Net earnings per continuing operations
  per common share.....................    0.21            0.11        0.08         0.28
Net earnings (loss) per common share...    0.18            0.09        0.05        (0.05)
Net earnings from continuing operations
  per common share assuming dilution...    0.20            0.11        0.08         0.27
Net earnings (loss) per common share
  assuming dilution....................    0.17            0.09        0.05        (0.05)
</TABLE>
--------
   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.

   Net shipments and gross profit amounts for each of the quarters of fiscal
year 2000 have been restated to reflect the implementation of EITF Issue 00-10,
as described in Note 1 to the consolidated financial statements.

(1) The fourth quarter of fiscal year 2000 includes an adjustment for the
    discontinued operations of Wexford. All prior quarters presented have been
    restated.

NOTE 16--RECENT ACCOUNTING PRONOUNCEMENTS

   In June 2001, the Financial Accounting Standards Board finalized FASB
Statements No. 141, Business Combinations (SFAS 141), and No. 142, Goodwill and
Other Intangible Assets (SFAS 142). SFAS 141 requires the use of the purchase
method of accounting and prohibits the use of the pooling-of-interests method
of accounting for business combinations initiated after June 30, 2001. SFAS 141
also requires that the Company recognize acquired intangible assets apart from
goodwill if the acquired intangible assets meet certain criteria. SFAS 141
applies to all business combinations initiated after June 30, 2001 and for
purchase business combinations completed on or after July 1, 2001. It also
requires, upon adoption of SFAS 142, that the Company reclassify the carrying
amounts of intangible assets and goodwill based on the criteria in SFAS
141.SFAS 142 requires, among other things, that companies no longer amortize
goodwill, but instead test goodwill for impairment at least annually. In
addition, SFAS 142 requires that the Company identify reporting units for the
purposes of assessing potential future impairments of goodwill, reassess the
useful lives of other existing recognized intangible assets, and cease
amortization of intangible assets with an indefinite useful life. An intangible
asset with an indefinite useful life should be tested for impairment in
accordance with the guidance in SFAS 142.

<PAGE>

   SFAS 142 is required to be applied in fiscal years beginning after December
15, 2001 to all goodwill and other intangible assets recognized at that date,
regardless of when those assets were initially recognized. SFAS 142 requires
the Company to complete a transitional goodwill impairment test six months from
the date of adoption. The Company is also required to reassess the useful lives
of other intangible assets within the first interim quarter after adoption of
SFAS 142. As of December 2, 2001, the net carrying amount of goodwill is
$29,061,000. Amortization expense during the year ended December 2, 2001 was
$1,267,000.

   In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. SFAS 144 is effective for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years. This statement addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. It supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of.

   Currently, the Company anticipates adopting SFAS 142 and 144 in the first
quarter of fiscal 2003.The Company is assessing but has not yet determined how
the adoption of SFAS 141, 142 and 144 will impact its financial position and
results of operations.

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS

   The management of The Rowe Companies is responsible for the accuracy and
consistency of all the information contained in the annual report, including
all accompanying consolidated financial statements. The statements have been
prepared to conform with generally accepted accounting principles and include
amounts based on management's estimates and judgments.

   The Rowe Companies maintains a system of internal accounting controls
designed to provide reasonable assurance that financial records are accurate,
Company assets are safeguarded, and financial statements present fairly the
consolidated financial position of the Company.

   The Audit Committee of the Board of Directors, composed solely of outside
directors, reviews the scope of audits and the findings of the independent
certified public accountants. The auditors meet regularly with the Audit
Committee to discuss audit and financial issues.

   BDO Seidman, LLP, the Company's independent certified public accountants,
has audited the financial statements prepared by management. Their opinion on
the financial statements is presented as follows.

Gerald M. Birnbach                           Michael M. Thurmond
Chairman of the Board                        Chief Financial Officer,
and President                                Secretary-Treasurer

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Rowe Companies
McLean, Virginia

   We have audited the accompanying consolidated balance sheets of The Rowe
Companies and subsidiaries as of December 2, 2001 and December 3, 2000, and the
related consolidated statements of operations and comprehensive income (loss),
stockholders' equity, and cash flows for each of the three years in the period
ended December 2, 2001. 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 auditing standards generally
accepted in the United States of America. 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 December 2, 2001 and December 3, 2000, and the
results of their

<PAGE>

operations and their cash flows for each of the three years in the period ended
December 2, 2001, in conformity with accounting principles generally accepted
in the United States of America.

<TABLE>
<S>                                <C>
High Point, North Carolina         BDO SEIDMAN, LLP
January 4, 2002, except for Note 6
which is as of March 5, 2002
</TABLE>

CORPORATE INFORMATION

<TABLE>
<S>                              <C>
CORPORATE HEADQUARTERS             TRANSFER AND DIVIDEND
1650 Tysons Boulevard, Suite 710   DISBURSING AGENT
McLean, Virginia 22102             EquiServe Trust Company, N.A.
703-847-8670                       Canton, Massachusetts 02021
www.therowecompanies.com           800-633-4236

GENERAL COUNSEL
Silver, Freedman & Taff, LLP
Washington, D.C. 20005
                                   DIVIDEND REINVESTMENT
                                   AND STOCK PURCHASE PLAN
AUDITORS                           EquiServe Shareholder Services
BDO Seidman, LLP                   P. O. Box 43012
High Point, North Carolina 27265   Providence, Rhode Island 02940-3012
                                   800-633-4236
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FORM 10-K

   Copies of the Company's Annual Report filed on Form 10-K with the Securities
and Exchange Commission will be available in March. If you would like a copy
without charge, please write:

Deborah C. Jacks
2121 Gardner Street
Elliston, Virginia 24087

CORPORATE OFFICERS AND DIRECTORS

Officers:

Gerald M. Birnbach
Chairman of the Board and President

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   Barry A. Birnbach
   Vice President - Corporate Development

   Timothy J. Fortune
   Vice President - Human Resources and Strategy

   Michael M. Thurmond
   Chief Financial Officer,
   Secretary-Treasurer

  Directors:

   Gerald M. Birnbach
   Chairman of the Board and President

   Richard E. Cheney
   Former Chairman Emeritus of the
   Board of Hill and Knowlton, Inc.

   Mitchell S. Gold
   President -The Mitchell Gold Company

   Harvey I. Ptashek
   Retired - Senior Vice President

   Charles T. Rosen
   Vice President - Luth Research, Inc.

   Keith J. Rowe
   Private Investor

   Sidney J. Silver
   Partner--Silver, Freedman & Taff, LLP

   Allan Tofias
   Former Managing Partner - Tofias, Fleishman,
   Shapiro & Company, P.C.

   Gerald O. Woodlief
   Retired - Senior Vice President

SUBSIDIARY CORPORATIONS:

   ROWE FURNITURE, INC.
   Bruce M. Birnbach - President

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Headquarters--McLean, VA
Manufacturing Facilities--Morehouse, MO, Poplar Bluff, MO, Elliston, VA, Salem,
VA
Showroom--High Point, NC
www.rowefurniture.com

THE MITCHELL GOLD COMPANY
Mitchell S. Gold--President
Headquarters--Taylorsville, NC
Manufacturing Facility--Taylorsville, NC
Showroom--High Point, NC
www.mitchellgold.com

HOME ELEMENTS, INC.
Lorri A. Kelley--President
Headquarters--McLean, VA
19 retail locations
www.homelements.com

STOREHOUSE, INC.
Caroline Hipple--President
Headquarters--Atlanta, GA
40 retail locations
www.storehousefurniture.com