<PAGE>

                                                                      EXHIBIT 13

STOCK PRICE AND DIVIDEND DATA
-----------------------------

                                   Market Price               Dividends
           Quarter Ended         High         Low           Paid Per Share

2002       March 3               4.09         1.08            $  0.000
           June 2                3.70         3.00               0.000
           September 1           3.36         1.50               0.000
           December 1            2.20         1.55               0.000
                                                              --------
                                                              $  0.000
                                                              ========

2001       March 4               4.10         2.50            $  0.035
           June 3                4.01         2.93               0.035
           September 2           4.10         2.01               0.035
           December 2            2.25         0.88               0.000
                                                              --------
                                                              $  0.105
                                                              ========

The Company's shares are traded on the New York Stock Exchange under the symbol
ROW. On December 1, 2002, 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 1, 2002 COMPARED TO YEAR ENDED DECEMBER 2, 2001

Net shipments in 2002 increased by $9,172,000, or 2.8%, to $334,610,000 from
$325,438,000 in 2001. The increase in shipments resulted from increased
wholesale shipments, offset by a decline in retail segment shipments.

For the wholesale segment, net shipments increased $12.4 million, or 5.3%, to
$247.7 million from $235.3 million, including shipments to the retail segment.
The increase resulted primarily from existing customers, in a combination of
their expansion programs as well as more product placement on existing selling
floors. In addition, some new customers have been added to the dealer base.
Wholesale segment sales to the retail segment, included in the numbers above,
increased from $23.8 million for 2001 to $24.9 million, or 4.6%, due to expanded
upholstery promotions within the retail segment. In the retail segment, net
shipments declined 1.9%, or $2.2 million, to $111.8 million from $114.0 million,
primarily due to weak sales of bedroom furniture.

Gross profit in 2002 increased by $9,998,000, or 9.5%, to $115,311,000 from
$105,313,000 in 2001. Gross margin, or gross profit as a percent of net
shipments, increased to 34.5% from 32.4% in 2001, primarily from improvements in
the wholesale segment.

Wholesale segment gross profit increased $12.2 million, or 24.7%, from $49.3
million to $61.5 million. Gross margin increased from 20.9% in 2001 to 24.8% in
2002. Significant improvements have been made in manufacturing efficiencies,
quality control and shipping costs. Improvement in materials costs have come
from improved fabric and leather yields as well as price concessions obtained
from raw material vendors. Shipping costs have improved primarily through the
use of

<PAGE>

rail transport for certain shipments to the pacific coast region. This has
substantially reduced freight costs and damage to these goods, while allowing
more efficient operation of the truck fleet with other shipments. In the retail
segment, gross profit for 2002 declined by 2.9%, or $1.6 million. This is
attributable both to the decline in net shipments as well as markdowns taken to
clear slow moving product, as gross margin has decreased from 48.9% to 48.4%.

During 2002, selling and administrative expenses decreased by $6,769,000, or
6.1%, to $104,310,000 from $111,079,000 in 2001. Approximately $4.1 million of
the decrease represents the write-off associated with the Homelife Furniture
Corp. bankruptcy reflected in the 2001 results, while approximately $2.4 million
represents reductions in advertising at both the retail and the wholesale
segments. In addition, selling and administrative expenses in 2002 include
$230,000 of costs related to the retail restructuring, such as costs to move
equipment, relocate transferred employees, and train staff from Home Elements on
the retail software utilized by Storehouse. These costs are in addition to the
$2,351,000 in segregated restructuring, store closing and other costs associated
with the merger of the Home Elements operation into Storehouse. These costs
include costs to close two stores and Home Elements' administrative offices,
severance benefits for terminated staff, and other costs of the restructuring.

Operating income was $8,650,000 for 2002 compared to a loss of $(5,766,000) in
the prior year. The improvement results from the inclusion in 2001 of the
Homelife bankruptcy charges, improvements in sales, manufacturing efficiencies
and quality control, as well as reductions in other components of selling and
administrative expenses, offset by the restructuring, store closing and other
charges and related expenses in 2002.

Net interest expense increased from $4,862,000 in 2001 to $5,980,000. As a
result of its bank debt restructuring, the Company capitalized the lease
relating to the Elliston, Virginia facility. Interest expense relating to the
capitalized lease was the primary reason for the increase in interest expense.

Other income decreased $53,000, from $1,572,000 in 2001 to $1,519,000 in 2002.

Earnings (loss) from continuing operations before taxes during 2002 improved by
$13,245,000 to income of $4,189,000 from a loss of $(9,056,000) in 2001,
reflecting higher sales, improvements in manufacturing efficiencies and quality
control, reductions in selling and administrative expenses and the absence of
the Homelife bankruptcy charges in 2001, partially offset by restructuring
charges, store closing costs and certain other expenses, incurred in 2002.

The effective tax rate changed between 2001 and 2002 due primarily to the impact
of non-deductible goodwill amortization on the calculation of tax expense
(benefit).

Net earnings improved in 2002 by $8,209,000, from a loss of $(6,189,000) in 2001
to earnings of $2,020,000. Higher net shipments, improved manufacturing margins,
improvements in selling and administrative expenses, offset by higher interest
charges and the costs of the retail restructuring, accounted for the
improvement.

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.

Wholesale segment shipments decreased $28,819,000, or 10.9%, to $235,253,000,
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 $26.0 million for 2000 to
$23.8 million for 2001, a decline of 8.4%, 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.

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 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

<PAGE>

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 were 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. 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.

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. 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. 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 (loss) 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 (loss) 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.

CRITICAL ACCOUNTING POLICIES:

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

SELF-INSURANCE RESERVES

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

<PAGE>

RESTRUCTURING LIABILITIES

During 2002, the Company recorded costs associated with combining its retail
operations into one chain. Such costs included severance costs for terminated
employees, write-offs of obsolete equipment and costs of leased space no longer
needed, such as termination fees or future rent expense in excess of revenue
from subleasing such space. Sublease revenue was determined based upon advice
from leasing agents as to the expected time needed to find a subtenant and
negotiate a sublease, as well as the projected sublease rate. In light of
current leasing market conditions, actual time to sublease and sublease rate
could vary from such estimates. As conditions warrant, revisions to these
estimates may be required.

LONG-LIVED ASSET VALUATIONS AND IMPAIRMENTS

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

INVENTORY RESERVES

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

LIQUIDITY AND SOURCE OF CAPITAL:

CASH FROM OPERATIONS

Net cash provided by (used in) operating activities was $20,109,000,
$(1,733,000) and $14,398,000 in 2002, 2001 and 2000, respectively. Fluctuations
in net cash used in operating activities are primarily the result of changes in
operating income and changes in working capital accounts. Cash flow from
operating activities has been affected by tax refunds received, distributions
under certain deferred compensation arrangements and provisions for losses on
receivables and includes changes in inventory levels between the periods.
Charge-offs (excluding recoveries) as a percent of net shipments increased from
0.28% in 2000 to 0.90% in 2001 and decreased to 0.09% in 2002. The increases in
2000 and 2001 were primarily due to the Heilig-Meyers (in 2000) and Homelife (in
2001) bankruptcy filings.

CASH FROM INVESTING ACTIVITIES

Net cash used in investing activities was $(3,323,000), $(2,261,000) and
$(14,294,000) in 2002, 2001 and 2000, respectively. In 2002, expenditures were
made for systems conversions and upgrades related to the retail consolidation,
as well as routine upgrading and replacing of older equipment; signage to
reflect the name change on former Home Elements stores; and the expansion of one
distribution center. Capital expenditures in 2001 included costs for 4 new
retail stores, several renovations of older stores, and costs for a production
planning system deployed during 2001. Capital expenditures in 2000 included
costs for new retail stores, renovations of older stores, and costs for the
production planning system to be deployed in 2001. In 2000, a payment was made
under the interim earn-out provisions of the Mitchell Gold purchase agreement,
and in 2001, proceeds were realized from the sale of Wexford assets.

Management anticipates that capital expenditures will increase substantially in
2003. New retail stores, renovation of older stores and systems upgrades and
replacements at all three operating subsidiaries, will account for the majority
of the expenditures. The Company is considering requesting additional capital
spending capacity beyond the $5 million authorized by its lending agreements for
2003.

CASH FROM FINANCING ACTIVITIES

Net cash provided by (used in) financing activities was $(25,969,000),
$10,058,000 and $(1,815,000) in 2002, 2001 and 2000, respectively. In 2002, the
Company repaid approximately $24.1 million in conjunction with and subsequent to
the

<PAGE>

refinancing of the Company's debt, which was completed during 2002. The Company
did not pay common stock dividends during 2002. The Company borrowed funds to
offset operating losses and acquire additional leather hides in 2001 (in
response to "mad cow" disease concerns about availability).

REFINANCING OF OUTSTANDING DEBT

As part of the refinancing of the Company's debt in May 2002, the Company
arranged a new working capital revolving credit facility, a term loan and two
mortgages. The Company borrowed $9.3 million, net of certain amounts set aside
for required repairs and capital improvements, under mortgages against two real
estate investment properties; borrowed $5 million under a term note repayable in
20 equal quarterly installments of $250,000; and drew down approximately $25.1
million (initially) under a $40 million revolving credit facility, maturing in
May 2007.

As part of this refinancing, the Company utilized approximately $14.1 million in
cash on hand to pay down existing balances, including $9.4 million in short-term
bank debt, $3 million of debentures, and $1.7 million on the Elliston lease and
revolving debt. The Company utilized the new debt to substantially pay down the
existing revolving bank loans. The remaining balance of approximately $9.2
million carries minimum required principal repayments during the next 12 months,
with a requirement for additional principal repayments if cash flow, as defined,
exceeds certain ratios. The unpaid balance is due in December 2003.

The Company also modified the terms of the lease used to finance the Elliston
facility, resulting in a change in the accounting for the lease from an
operating to a capital lease. Payments under the lease, previously characterized
as rent and included in manufacturing overhead, have been recorded as interest
expense since June 2002. In addition, minimum monthly principal payments are now
required, as well as additional principal repayments if cash flow, as defined,
exceeds certain ratios. The lease term has been modified and expires in December
2003. At that time, the Company must either purchase the property or negotiate a
new lease.

CONTRACTUAL OBLIGATIONS

The following summarizes our significant contractual obligations as of December
1, 2002:

<TABLE>
<CAPTION>
                                                                Payments By Period
                                         ------------------------------------------------------------------
                                         Less Than        1-3             4-5         After
                                           1 Year        Years           Years       5 Years       Total
                                         ----------   ----------    ------------   ----------    ----------
                                                                   (in thousands)
<S>                                      <C>          <C>           <C>            <C>           <C>
CONTRACTUAL OBLIGATIONS:
Operating leases                         $   13,261   $   22,344    $     11,846   $   11,356    $   58,807
Capital leases                                2,052       20,711               -            -        22,763
Payment due under earn-out obligation        12,800            -               -            -        12,800
Loans on life insurance                           -            -               -        2,749         2,749
Revolving credit facility                         -            -          18,892            -        18,892
Contractual maturities of debt                3,893        9,487           2,414       11,971        27,765
                                         ----------   ----------    ------------   ----------    ----------

Total contractual cash obligations       $   32,006   $   52,542    $     33,152   $   26,076    $  143,776
                                         ==========   ==========    ============   ==========    ==========
</TABLE>

<TABLE>
<CAPTION>
                                                      Amount of Commitment Expiration Period
                                         ------------------------------------------------------------------
                                         Less Than        1-3           4-5          After
                                           1 Year        Years         Years        5 Years        Total
                                         ----------   ----------    ------------   ----------    ----------
<S>                                      <C>          <C>           <C>            <C>           <C>
OTHER COMMERCIAL COMMITMENTS:

Total commercial commitments                                      None
</TABLE>

<PAGE>

The purchase agreement under which the Company acquired Mitchell Gold contains
an earn-out provision that allows for a maximum payment of up to $14 million if
certain earnings targets are attained over a four or five year period. As of
December 1, 2002, the sellers of Mitchell Gold may elect to exercise their right
to base their earn-out payment on the five-year period ending November 30, 2003.
Unless the sellers so elect, the Company would be obligated to pay an amount of
approximately $12.8 million (included in the table above) during the second
quarter of fiscal year 2003.

Management believes that net cash provided by operating activities and
availability under the revolving credit facility will be sufficient to meet the
Company's anticipated capital requirements, debt service and operating needs,
including our contractual commitments shown above, for at least the next twelve
months. However, weakening of, or other adverse developments concerning
operating performance or the availability of credit under our revolving credit
facility due to covenant limitations or other factors, could limit the
availability of funds to us, or adversely affect the price at which such funds
may be available. In addition, should the sellers of Mitchell Gold, as described
above, be entitled to receive a payment under the four year earn-out period, the
Company would be required to negotiate with its existing lenders in order to
make this payment, or make other arrangements regarding a period of time over
which to fulfill this potential obligation. There can be no assurance that the
Company would be able to make arrangements acceptable to all involved parties.

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.

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."

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit and Disposal Activities." SFAS 146 is effective for activities
occurring after December 31, 2002. The standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing or other exit or disposal activity.

On December 31, 2002, the FASB issued SFAS No. 148, "Accounting for Stock Based
Compensation - Transition and Disclosure." SFAS 148 is effective for reporting
periods ending after December 15, 2002. This statement amends existing
disclosures that a company should make in its annual financial statements and
requires disclosures in interim financial reports.

The Company will adopt SFAS 142, 144 and 148 in the first quarter of fiscal
2003. The Company is assessing but has not yet determined how the adoption of
SFAS 141, 142, 144, and 146 will impact its financial position and results of
operations.

<PAGE>

INTEREST RISK DISCLOSURES:

Because the Company's obligations under its term loans, revolving loans and
Industrial Revenue Bonds bear interest at variable rates, the Company is
sensitive to changes in interest rates. A 10% fluctuation in market interest
rates would not have a material impact on earnings during the 2003 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 in Part I of this report, 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.

ADDITIONAL RISKS INCLUDE:

     .    We may be unable to meet ongoing stock exchange listing requirements.

          The New York Stock Exchange maintains rules for, among other items,
          minimum market capitalization and minimum stockholders' equity. The
          Company is currently not in compliance with such requirements and is
          subject to an eighteen-month timeframe within which it must achieve
          compliance with these requirements. This timeframe expires in February
          2003. The Company may be unable to achieve such values in compliance
          with exchange rules, resulting in the Company listing its shares on a
          different exchange or becoming delisted.

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

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

     .    Our retail operations may not become profitable.

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

<PAGE>

The Rowe Companies Annual Report 2002
FIVE YEAR SUMMARY

<TABLE>
<CAPTION>
                                                              2002          2001          2000   1999(1)(2)   1998(1)(3)
                                                        (52 weeks)    (52 weeks)    (53 weeks)   (52 weeks)   (52 weeks)
------------------------------------------------------------------------------------------------------------------------
                                                                    (in thousands, except per share amounts)
<S>                                                     <C>          <C>           <C>           <C>          <C>
Net shipments                                           $  334,610   $   325,438   $   362,935   $  289,619   $  191,675
Gross profit                                               115,311       105,313       123,653       88,295       50,026
Operating income (loss)                                      8,650        (5,766)       17,705       23,778       17,307
Net earnings (loss) from continuing operations (4)(5)        2,020        (6,189)        8,934       14,857       11,195
Net earnings (loss) (4)(5)                              $    2,020   $    (6,189)  $     3,544   $   13,901   $   11,200

Working capital                                         $   12,963   $    32,126   $    31,008   $   33,959   $   30,473
Total assets                                               174,292       155,115       164,584      168,580      110,462
Long-term debt                                              63,475        52,096        52,761       54,608       33,796
Stockholders' equity                                    $   48,823   $    46,696   $    55,422   $   54,659   $   45,236

Ratio of current assets to current liabilities            1.2 to 1      1.7 to 1      1.6 to 1     1.6 to 1     2.2 to 1
Ratio of cash and receivables to current liabilities      0.4 to 1      0.7 to 1      0.7 to 1     0.8 to 1     1.3 to 1

Net earnings (loss) from continuing operations
 per common share - basic                               $     0.15   $     (0.47)  $      0.68   $     1.11   $     0.82
Net earnings (loss) per common share - basic            $     0.15   $     (0.47)  $      0.27   $     1.04   $     0.82
Weighted average common shares                              13,152        13,135        13,152       13,426       13,672

Net earnings (loss) from continuing operations
 per common share assuming dilution                     $     0.15   $     (0.47)  $      0.66   $     1.04   $     0.79
Net earnings (loss) per common share assuming dilution  $     0.15   $     (0.47)  $      0.27   $     0.98   $     0.79
Weighted average common shares and equivalents              13,193        13,135        13,703       14,372       14,128
Cash dividends paid per share                           $        -   $      0.11   $      0.14   $     0.13   $     0.11
</TABLE>

(1)  The 1999 and 1998 results have been restated to reflect the discontinuation
     of operations at The Wexford Collection, Inc.

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

(3)  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).

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

(5)  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 unusual charges.

<PAGE>

The Rowe Companies Annual Report 2002
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                  12/01/2002    12/02/2001
------------------------------------------------------------------------------------------
                                                                      (in thousands)
<S>                                                              <C>           <C>
ASSETS (Note 6)
CURRENT ASSETS
Cash and cash equivalents                                        $       274    $     9,457
Restricted cash collateralizing letters of credit                      1,938              -
Accounts receivable (net of allowance
 for losses of $1,100 in 2002 and $1,057 in 2001) (Note 13)           24,344         23,525
Notes receivable                                                         200            325
Tax refunds receivable, net                                                -          2,514
Inventories (Notes 1 & 3)                                             37,207         41,070
Deferred income taxes (Note 12)                                        2,118          2,371
Prepaid expenses and other                                             3,589          1,949
                                                                 -----------    -----------
   Total current assets                                               69,670         81,211
                                                                 -----------    -----------
PROPERTY AND EQUIPMENT (Notes 1 & 4)                                  51,769         31,452
                                                                 -----------    -----------
OTHER ASSETS
Cash value of life insurance, net of loans of $2,749 in 2002
 and $3,014  in 2001 (Note 7)                                          1,290          1,140
Investment property (net of accumulated depreciation of
 $7,070 in 2002 and $6,755 in 2001) (Notes 1 &  9)                     8,327          8,154
Goodwill (net of amortization of $4,390 in 2002 and $3,094 in
 2001) (Notes 1 & 2)                                                  40,565         29,061
Miscellaneous                                                          2,671          4,097
                                                                 -----------    -----------
  Total other assets                                                  52,853         42,452
                                                                 -----------    -----------
                                                                 $   174,292    $   155,115
LIABILITIES                                                      ===========    ===========
CURRENT LIABILITIES
Current maturities of long-term debt (Note 6)                    $     5,945    $     7,006
Short-term bank borrowings (Note 5)                                        -          9,368
Accounts payable                                                      12,463         14,344
Payment due under earn-out obligation (Note 2)                        12,800              -
Accrued expenses:
   Compensation                                                        4,716          3,346
   Income taxes                                                        1,464              -
   Other                                                               8,723          7,746
Customer deposits                                                     10,436          7,112
Deferred compensation - current portion (Note 7)                         160            163
                                                                 -----------    -----------
     Total current liabilities                                        56,707         49,085
LONG-TERM DEBT (Note 6)                                               63,475         52,096
DEFERRED COMPENSATION AND OTHER LIABILITIES (Note 7)                   2,216          4,999
DEFERRED INCOME TAXES (Note 12)                                        3,071          2,239
                                                                 -----------    -----------
     Total liabilities                                               125,469        108,419
                                                                 -----------    -----------

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                                                    16,585         16,548
CAPITAL IN EXCESS OF PAR VALUE                                        23,083         23,082
RETAINED EARNINGS                                                     32,224         30,204
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Note 10)               (1,113)        (1,201)
LESS TREASURY STOCK                                                  (21,956)       (21,937)
                                                                 -----------    -----------
     Total stockholders' equity                                       48,823         46,696
                                                                 -----------    -----------
                                                                 $   174,292    $   155,115
                                                                 ===========    ===========
</TABLE>

See notes to consolidated financial statements.

<PAGE>

The Rowe Companies Annual Report 2002
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

<TABLE>
<CAPTION>
                                                                                   Year Ended
-----------------------------------------------------------------------------------------------------------
                                                                      12/01/2002    12/02/2001   12/03/2000
                                                                     (52 WEEKS)    (52 weeks)    (53 weeks)
-----------------------------------------------------------------------------------------------------------
                                                                    (in thousands, except per share amounts)
<S>                                                                  <C>           <C>           <C>
Net shipments (Notes 2 & 13)                                         $   334,610   $   325,438   $  362,935
Cost of shipments                                                        219,299       220,125      239,282
                                                                     -----------   -----------   ----------
   Gross profit                                                          115,311       105,313      123,653
Selling and administrative expenses                                      104,310       111,079      105,948
Retail restructuring and other charges (Note 2)                            2,351             -            -
                                                                     -----------   -----------   ----------
   Operating income (loss)                                                 8,650        (5,766)      17,705
Interest expense                                                          (5,980)       (4,862)      (4,267)
Other income, net (Note 9)                                                 1,519         1,572        1,415
                                                                     -----------   -----------   ----------
   Earnings (loss) from continuing operations before taxes                 4,189        (9,056)      14,853
Tax expense (benefit) (Note 12)                                            2,169        (2,867)       5,919
                                                                     -----------   -----------   ----------

Net earnings (loss) from continuing operations                             2,020        (6,189)       8,934

Discontinued operations (Note 2):
Loss from discontinued operations of Wexford,
 less tax benefit of $954                                                      -             -       (1,829)
Loss on disposal of Wexford,
 including provision for $490 of operating
 losses, net of tax benefit of $1,894                                          -             -       (3,561)
                                                                     -----------   -----------   ----------
Net earnings (loss)                                                  $     2,020   $    (6,189)  $    3,544
                                                                     ===========   ===========   ==========

Other comprehensive income (loss), net of tax:
Unrealized loss on derivatives (Notes 1 & 10)                               (654)       (1,506)         (32)
Payments transferred to expense                                              742           337            -
                                                                     -----------   -----------   ----------

Comprehensive income (loss)                                          $     2,108   $    (7,358)  $    3,512
                                                                     ===========   ===========   ==========


Net earnings (loss) from continuing operations per
 common share (Note 1)                                               $      0.15   $     (0.47)  $     0.68
                                                                     ===========   ===========   ==========

Net earnings (loss) per common share (Note 1)                        $      0.15   $     (0.47)  $     0.27
                                                                     ===========   ===========   ==========

  Weighted average common shares                                          13,152        13,135       13,152
                                                                     ===========   ===========   ==========

Net earnings (loss) from continuing operations per common
 share assuming dilution (Note 1)                                    $      0.15   $     (0.47)  $     0.66
                                                                     ===========   ===========   ==========

Net earnings (loss) per common share assuming dilution (Note 1)      $      0.15   $     (0.47)  $     0.27
                                                                     ===========   ===========   ==========

  Weighted average common shares and equivalents                          13,193        13,135       13,703
                                                                     ===========   ===========   ==========
</TABLE>

See notes to consolidated financial statements.

<PAGE>

The Rowe Companies Annual Report 2002
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                              Year Ended December 1, 2002, December 2, 2001 and December 3, 2000
                                                         -------------------------------------------------------------------------
                                                                       Common Stock                            Treasury Stock
                                                         ------------------------------------              ----------------------
                                                                                   Capital in
                                                           Shares        $1 Par     Excess of   Retained    Number of
                                                           Issued         Value    Par Value    Earnings     Shares     Cost
----------------------------------------------------------------------------------------------------------------------------------
                                                                        (in thousands, except share and per share amounts)
<S>                                                        <C>          <C>        <C>          <C>         <C>          <C>
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
   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
   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
   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
   Acquisition of treasury stock                                                                                6,847          19
   Exercise of stock options                                   37,192         37            1
   Net change during the year related to cash flow hedge
   Net earnings for the year ended
    December 1, 2002                                                                               2,020
                                                         ------------- ---------- ------------ ---------- ------------  ----------
Balance at December 1, 2002                                16,584,907   $ 16,585   $   23,083   $ 32,224    3,419,537    $ 21,956
                                                         ============= ========== ============ ========== ============  ==========

<CAPTION>
                                                         Year Ended
                                                         December 1,
                                                            2002,
                                                         December 2,
                                                            2001
                                                            and
                                                         December 3,
                                                            2000
                                                         ------------
                                                          Accumulated
                                                         Comprehensive
                                                         Income(Loss)
----------------------------------------------------------------------
<S>                                                      <C>
Balance at November 28, 1999                             $          -
   Acquisition of treasury stock
   Cash dividends paid, $0.14 per share
   Exercise of stock options
   Net change during the year related to cash flow hedge          (32)
   Net earnings for the year ended
    December 3, 2000
                                                         ------------
Balance at December 3, 2000                                       (32)
   Acquisition of treasury stock
   Cash dividends paid, $0.11 per share
   Exercise of stock options
   Net change during the year related to cash flow hedge       (1,169)
   Net loss for the year ended
    December 2, 2001
                                                         ------------
Balance at December 2, 2001                                    (1,201)
   Acquisition of treasury stock
   Exercise of stock options
   Net change during the year related to cash flow hedge          88
   Net earnings for the year ended
    December 1, 2002
                                                         ------------
Balance at December 1, 2002                              $     (1,113)
                                                         ============
</TABLE>

See notes to consolidated financial statements.

<PAGE>

The Rowe Companies Annual Report 2002
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                     YEAR ENDED
------------------------------------------------------------------------------------------------------------
                                                                         12/1/02      12/2/01      12/3/00
                                                                      (52 WEEKS)   (52 weeks)    (53 weeks)
------------------------------------------------------------------------------------------------------------
                                                                                   (in thousands)
<S>                                                                    <C>           <C>          <C>
Increase (Decrease) In Cash
Cash flows from operating activities:
   Cash received from customers                                        $  336,978    $ 329,683    $ 379,400
   Cash paid to suppliers and employees                                  (315,415)    (328,948)    (354,570)
   Income taxes received (paid), net                                        2,839          585       (6,183)
   Interest paid                                                           (5,980)      (4,642)      (5,693)
   Interest received                                                          347          480          288
   Other receipts - net                                                     1,340        1,109        1,156
                                                                       ----------    ---------    ---------

Net cash and cash equivalents provided by (used in)
 operating activities                                                      20,109       (1,733)      14,398
                                                                       ----------    ---------    ---------

Cash flows from investing activities:
   Proceeds from sale of property and equipment                                 -        1,056           21
   Capital expenditures                                                    (3,323)      (3,317)      (9,155)
   Payments to acquire businesses (Note 2)                                      -            -       (5,160)
                                                                       ----------    ---------    ---------

Net cash used in investing activities                                      (3,323)      (2,261)     (14,294)
                                                                       ----------    ---------    ---------

Cash flows from financing activities:
   Restricted cash deposited to collateralize letters of credit            (1,938)           -            -
   Net borrowings (repayments) under line of credit                        (9,368)       5,368         (164)
   Proceeds from issuance of long-term debt                                43,139        6,865       13,020
   Payments to reduce long-term debt                                      (57,821)      (3,821)     (11,922)
   Proceeds from loans against life insurance policies                          -        3,014            -
   Proceeds from issuance of common stock                                      38           27           51
   Dividends paid                                                               -       (1,379)      (1,849)
   Purchase of treasury stock                                                 (19)         (16)        (951)
                                                                       ----------    ---------    ---------

Net cash provided by (used in) financing activities                       (25,969)      10,058       (1,815)
                                                                       ----------    ---------    ---------

Net increase (decrease) in cash and cash equivalents                       (9,183)       6,064       (1,711)

Cash at beginning of year                                                   9,457        3,393        5,104
                                                                       ----------    ---------    ---------

Cash at end of year                                                    $      274    $   9,457    $   3,393
                                                                       ==========    =========    =========
</TABLE>

See notes to consolidated financial statements.

<PAGE>

The Rowe Companies Annual Report 2002
RECONCILIATION OF NET EARNINGS (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES

<TABLE>
<CAPTION>
                                                                                     YEAR ENDED
------------------------------------------------------------------------------------------------------------
                                                                         12/1/02      12/2/01      12/3/00
                                                                        (52 WEEKS)   (52 weeks)   (53 weeks)
------------------------------------------------------------------------------------------------------------
                                                                                   (in thousands)
<S>                                                                    <C>           <C>          <C>
Net earnings (loss)                                                    $    2,020    $  (6,189)   $   3,544
                                                                       ----------    ---------    ---------
Adjustments to reconcile net earnings (loss) to net cash
 provided by (used in) operating activities, net of
 disposition of business:
  Loss on disposition of Wexford                                                -            -        5,455
  Depreciation and amortization                                             8,889        8,569        8,581
  Provision for deferred compensation                                         218          173          816
  Payments made for deferred compensation                                  (2,802)        (813)        (160)
  Deferred income taxes                                                     1,031        1,001       (2,099)
  Provision for losses on accounts receivable                                 262        4,421        1,485
  Loss on disposition of assets                                               640           15           29

  Change in operating assets and liabilities net of
   effects of disposition of business:
    Decrease (increase) in accounts receivable                               (956)       4,649        5,564
    Decrease (increase) in inventories                                      3,863          227         (832)
    Decrease (increase) in prepaid expenses and other                      (1,995)       1,679         (887)
    Decrease (increase) in other  miscellaneous assets                      1,231         (352)         472
    Increase (decrease) in accounts payable                                (1,881)     (10,277)      (4,750)
    Increase (decrease) in accrued expenses                                 6,265       (4,433)      (1,715)
    Increase (decrease) in customer deposits                                3,324         (403)      (1,105)
                                                                       ----------    ---------    ---------

         Total adjustments                                                 18,089        4,456       10,854
                                                                       ----------    ---------    ---------

Net cash provided by (used in) operating activities                    $   20,109    $  (1,733)   $  14,398
                                                                       ==========    =========    =========
</TABLE>

Supplemental Disclosures of Cash Flow:

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

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

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
Co. ("Mitchell Gold") and effective June 1, 2002, one retail furniture chain -
Storehouse, Inc. ("Storehouse"). Storehouse was created through the merger of
the Company's Home Elements retail chain into the Storehouse chain. Storehouse
locations 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 primarily to home furnishings retailers including
Storehouse.

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. Storehouse recognizes sales when
the goods are delivered to the customer or services have been rendered. Customer
deposits represent cash received for items not currently in inventory and items
on hand but not yet delivered to the customer. 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 included in shipments. Selling and administrative expenses include
$4,047,000, $4,800,000 and $4,404,000 of retail delivery expenses in 2002, 2001
and 2000, respectively.

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 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. The
manufacturing subsidiaries utilize the first-in, first-out (FIFO) method to
compute cost, while Storehouse utilizes the last-in, first-out (LIFO) method.

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

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 and incurred impairment losses relating
to the retail restructuring charges in 2002.

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 to fair value. As further disclosed in Note 2, the Company
recognized an impairment loss in fiscal 2000 related to the closing of Wexford.
See Note 16.

<PAGE>

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 $10,508,000,
$12,934,000 and $14,623,000 in 2002, 2001 and 2000, 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. Hedge ineffectiveness was not material during the year
ended December 1, 2002. 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.

                                               2002         2001        2000
                                             ---------   ---------   -----------
                                                       (in thousands)

Net earnings available to basic shares       $   2,020   $  (6,189)  $     3,544
Add interest expense on assumed conversion
 of convertible debentures, net of tax               -           -           132
                                             ---------   ---------   -----------
Net earnings available to diluted shares     $   2,020   $  (6,189)  $     3,676
                                             =========   =========   ===========

Weighted average common shares
 outstanding (Basic)                            13,152      13,135        13,152
Effect of dilutive stock options and
 convertible debentures                             41           -           551
                                             ---------   ---------   -----------
Weighted average common shares and
 equivalents outstanding (Diluted)              13,193      13,135        13,703
                                             =========   =========   ===========

The dilutive share base for 2002, 2001 and 2000 excludes incremental shares of
1,783,702, 1,982,787 and 1,852,478, 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
2002 and 2001 each contained 52 weeks.

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

<PAGE>

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 each of 2002 and 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. Net revenues at
Wexford were $0 in 2002, $637,000 in 2001 and $11,606,000 in 2000. Discontinued
operations resulted in a loss per common share of $0.41 in 2000. On a diluted
basis, loss per share was $0.39 in 2000.

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 $26,340,000 at December 1, 2002, including
$12,800,000 due under the four-year earn-out provision of the purchase
agreement, as described below. The purchase agreement under which the Company
acquired Mitchell Gold contains an earn-out provision that allows for a maximum
payment of up to $14 million if certain earnings targets are attained over a
four or five year period. As of December 1, 2002, the sellers of Mitchell Gold
may elect to exercise their right to base their earn-out payment on the
five-year period ending November 30, 2003. Unless the sellers so elect, the
Company would be obligated to pay an amount of approximately $12.8 million
during the second quarter of fiscal year 2003. Should the sellers of Mitchell
Gold, as described above, be entitled to receive a payment under the four year
earn-out period, the Company would be required to negotiate with its existing
lenders in order to make this payment, or make other arrangements regarding a
period of time over which to fulfill this potential obligation. There can be no
assurance that the Company would be able to make arrangements acceptable to all
involved parties.

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 $14,224,000 at December
1, 2002.

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

In the first quarter of 2002, the Company announced its intention to restructure
its retail operations by combining the current two subsidiaries into one,
operating under the Storehouse name. This restructuring should result in reduced
administrative expenses in future periods, as well as increasing the efficiency
of the advertising programs and the buying power of the combined entity. The
restructuring was completed by the end of the third quarter of 2002, except for
the installation of signage at several stores. As of June 2, 2002, the Company
recorded restructuring, store closing and other charges relating to the
restructuring, totaling $2,319,000. Included in this amount were costs for
moving equipment and relocating employees of $130,000 and training costs of
$100,000 relating to training former Home Elements employees on the retail
software utilized by Storehouse, including travel expenses associated with such
training. These costs are included in selling and administrative expenses and
are not included in the restructuring costs since they benefit future periods.
The remaining $2,089,000 included estimated costs to terminate certain leases,
write-off leasehold improvements and signage without future benefit, severance
costs for employees to be terminated, and other restructuring related expenses.
Particularly in regards to the estimate of lease termination costs, these
estimates were based in part on third-party advice regarding the time required
to sub-lease such space as well as the rate per square foot at which such space

<PAGE>

may be subleased. Actual time to sublease and the rate per square foot of any
subleases may differ from such estimates. As conditions warrant, the Company
will make appropriate adjustments to such estimates. The following table
outlines the components of the restructuring and related charges recorded as of
June 2, 2002, including non-cash components of the charges and the balance of
the reserve account at December 1, 2002:

<TABLE>
<CAPTION>
                                                                Revisions
                                                                and Fixed                 12/01/2002
                                       Original    Non-Cash       Asset        Paid        Reserve
                                       Charges    Write-downs     Charges     To Date      Balance
                                       --------   -----------   ----------   ---------    ----------
                                                            (in thousands)
<S>                                    <C>        <C>           <C>          <C>          <C>
Non-cash write-downs of fixed
 assets to net realizable value        $    494   $       494   $     (494)  $       -    $        -

Employee termination benefits
 (20 administrative personnel)              359             -          (99)        260             -

Lease termination costs                     720             -          262         463           519

Moving and relocation costs                 130             -          (43)         87             -

Other costs                                 616             -          210         826             -
                                       --------   -----------   ----------   ---------    ----------

                                       $  2,319   $       494   $     (164)  $   1,636    $      519
                                       ========   ===========   ==========   =========    ==========
</TABLE>

The revisions to employee termination benefits and moving and relocation costs
resulted from changes in the number of employees receiving benefits and the
duration/cost of those benefits, as well as lower than expected costs of moving
office equipment. As of December 1, 2002, the Company recorded an increase of
$262,000 in the reserve established for lease termination costs, based on
changes in market conditions for leased space.


NOTE 3 - INVENTORIES

Inventory components are as follows:

                                        2002          2001
                                     ----------    ----------
                                           (in thousands)
Retail merchandise                   $   17,683    $   17,982
Finished goods                            2,495         3,192
Work-in-process                           3,924         4,213
Raw materials                            13,105        15,683
                                     ----------    ----------
Total inventories                    $   37,207    $   41,070
                                     ==========    ==========

Included in retail merchandise was $17,683,000 for 2002 and $13,048,000 for 2001
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 $385,000 and $245,000, respectively, over the amounts
shown above.

NOTE 4- PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<PAGE>

                                          2002        2001
                                       ---------   ----------
                                          (in thousands)
Land                                   $     840   $      642
Buildings and improvements                38,755       19,314
Leasehold improvements                     9,896       10,054
Machinery and equipment                   45,277       41,830
Construction-in-process                      713          440
                                       ---------   ----------
                                          95,481       72,280
Less accumulated depreciation             43,712       40,828
                                       ---------   ----------

Net property and equipment             $  51,769   $   31,452
                                       =========   ==========

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

                                         2002
                                       ---------
                                    (in thousands)

Land                                   $     198
Buildings and improvements                18,572
Machinery and equipment                    6,230
                                       ---------
                                          25,000
Less accumulated amortization                608
                                       ---------
Net capital leases                     $  24,392
                                       =========

NOTE 5- SHORT-TERM BORROWINGS

The following summarizes aggregate short-term borrowings:

<TABLE>
<CAPTION>
                                                            2002         2001         2000
                                                        -----------   ----------   ----------
                                                                    (in thousands)
<S>                                                     <C>           <C>          <C>
Amount outstanding at year end                          $         0   $    9,368   $    4,000

Maximum amount outstanding at any month end                   9,418        9,368        9,378

Average borrowings (based on weighted daily balances)         4,241        6,255        6,852

Weighted average interest rate during the year                  5.8%         7.4%         7.9%

Weighted average interest rate at year end                      n/a          6.0%         7.3%
</TABLE>

As a result of the debt restructuring discussed in Note 6, the Company no longer
has short-term borrowings except as related to long-term debt.

NOTE 6 - LONG-TERM DEBT AND CAPITAL LEASES

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

<TABLE>
<CAPTION>
                                                            2002         2001
                                                        -----------   ----------
                                                             (in thousands)
<S>                                                     <C>           <C>
Revolving bank loan                                     $    18,892   $   51,000
Mortgages                                                     9,241            -
Capital lease obligations                                    22,763            -
</TABLE>

<PAGE>

<TABLE>
<S>                                                     <C>           <C>
Term loans                                                   13,669            -
Industrial revenue bond                                       4,855        5,100
Debentures                                                        -        3,000
Other                                                             -            2
                                                        -----------   ----------
                                                             69,420       59,102
Less current maturities                                       5,945        7,006
                                                        -----------   ----------
Total long-term debt                                    $    63,475   $   52,096
                                                        ===========   ==========
</TABLE>

As part of the refinancing of the Company's debt in May 2002, the Company
utilized approximately $14.1 million in cash on hand to pay down existing
balances, including $9.4 million in short-term bank debt, $3 million of
debentures and $1.7 million on the capital lease and revolving debt. The Company
utilized new debt (described below) to substantially pay down the existing
revolving bank loans. The remaining balance of $9.2 million carries minimum
required principal payments of $55,000 per month during the next 12 months, with
a requirement for additional principal repayments on a quarterly basis if cash
flow, as defined, exceeds certain ratios. The unpaid balance is due in December
2003. Interest is payable at prime plus 3%, with provisions for reductions in
the spread over prime as the balance is paid down.

As part of this refinancing, the Company arranged a working capital revolving
credit facility, a term loan and two mortgages. The Company borrowed $9.3
million, net of certain amounts set aside for required repairs and capital
improvements, under mortgages against two real estate investment properties;
borrowed $5 million under a term note repayable in 20 equal quarterly
installments of $250,000; and drew down approximately $25.1 million (initially)
under a $40 million revolving credit facility, maturing in May 2007.

The mortgage loans require 120 monthly payments of approximately $70,000
including interest at 7.75%, with the remaining balance then due. The term loan
and the revolving loan bear interest payable at either prime or LIBOR rates plus
a spread of up to 1.25% or 3.25%, respectively, based upon certain ratios.

The Company also modified the terms of the lease for the Elliston facility,
resulting in a change in the accounting for the lease from an operating to a
capital lease. Payments under the lease, previously characterized as rent and
included in manufacturing overhead, have been recorded as interest expense since
June 2002. In addition, minimum monthly principal payments of $45,000 are now
required as well as additional principal repayments if cash flow, as defined,
exceeds certain ratios. The lease term has been modified and expires in December
2003. Interest charges under this lease are based on prime plus a spread ranging
up to 3%. 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. It is
expected that the property under the lease will be purchased at the expiration
of the lease in December 2003 (fiscal 2004). Accordingly, while the 2003 amounts
shown below include the minimum monthly payment, the remainder of the lease
obligation is included in the amounts shown in 2004 below as any additional
amounts to be repaid during 2003 are contingent on reaching the earnings targets
mentioned above.

The above agreements restrict the Company's ability to pay dividends, repurchase
stock and are collateralized by substantially all assets of the Company and its
subsidiaries. Each of these facilities contain, among other things, 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. As of December 1, 2002, the
Company is in compliance with the provisions of these agreements.

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 $255,000 to $405,000 through 2017. Interest rates are variable and
were 1.35% at December 1, 2002. The bonds are collateralized primarily by the
new facility. In addition, the Company has a $4.9 million irrevocable letter of
credit to serve as collateral for the bonds.

Minimum required debt service payments (including obligations under the capital
lease described above) for each of the five fiscal years subsequent to December
1, 2002, are approximately $5,945,000 in 2003; $28,775,000 in 2004; $1,423,000
in 2005; $1,445,000 in 2006; $19,861,000 in 2007 and $11,971,000 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

<PAGE>

age at retirement with the Company. The contracts are not funded. Charges to
expense were $63,000 in 2002, $72,000 in 2001 and $114,000 in 2000.

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 2002, $167,000 in 2001 and $147,000 in 2000.

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 $81,000 in 2002, $189,000 in 2001 and $396,000 in 2000. These
plans were terminated during fiscal 2002 and all participants' deferred
compensation was distributed.

NOTE 8- EMPLOYEE BENEFIT PLANS

The Company maintains 401(k) and savings plans that cover substantially all
employees. Contributions to the plans were $765,000 in 2002, $819,000 in 2001
and $696,000 in 2000.

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 $16,686,000 in 2002,
$16,287,000 in 2001 and $13,211,000 in 2000.

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 $1,947,000 in 2002, $1,902,000
in 2001 and $1,570,000 in 2000 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.

Minimum lease commitments at December 1, 2002, under long-term operating leases
are as follows:

                                     Lease Expense      Lease Income
                                     -------------      ------------

2003                                 $  13,261,000      $ 1,773,000
2004                                    12,296,000        1,294,000
2005                                    10,048,000          480,000
2006                                     6,897,000          328,000
2007                                     4,949,000          232,000
Thereafter                              11,356,000           21,000
                                     -------------      -----------
                                     $  58,807,000      $ 4,128,000
                                     =============      ===========

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 $500,000 up to $7,100,000 in 2002. 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.

<PAGE>

WORKERS' COMPENSATION INSURANCE PLAN

The Company is self-insured for certain workers compensation claims up to
$250,000 per incident. The Company maintains insurance for claims exceeding
$250,000 and has stop loss coverage of $3,000,000 in aggregate for fiscal year
2002. The Company accrues its estimated claims based upon actuarial estimates as
determined by its claim administrator.

EMPLOYMENT AGREEMENTS

The Company has employment agreements with certain 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 2002, 2001 and 2000.

In connection with the acquisition in 1998, one of the Company's subsidiaries
has employment agreements with certain key officers for five years with salaries
of 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 $1,113,000, as determined by quoted market prices, net of
taxes approximating $682,000. For 2001, fair value totaled $1,201,000,net of
taxes of $736,000. The current portion of this liability, or amount expected to
be reclassified into earnings within the next year, is $707,000, net of taxes,
compared to $670,000 in 2001.

NOTE 11 -STOCK OPTION PLANS

The Company has two stock option plans as described below. The Company applies
APB Opinion 25, "Accounting for Stock Issued to Employees," and related
Interpretation in accounting for the plans. Under APB Opinion 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation cost is
recognized. Substantially all of the options granted during the three-year
period ended December 1, 2002 were fully vested at the grant date.

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
were 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

<PAGE>

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 2002, 2001 and 2000,
respectively; dividend yields of 0%, 1.5%, and 1.5%; expected volatility of
123.1%, 77.2% and 56.6%; risk-free interest rates of 4.0%, 4.6% 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:

                                           2002          2001           2000
--------------------------------------------------------------------------------
Net earnings (loss)
     As reported                        $ 2,020,000  $ (6,189,000)  $ 3,544,000
     Pro forma                          $ 1,925,000  $ (6,397,000)  $ 3,166,000
Net earnings (loss) per common share
     As reported                        $      0.15  $      (0.47)  $      0.27
     Pro forma                          $      0.15  $      (0.49)  $      0.24
Net earnings (loss) per common share
 assuming dilution
    As reported                         $      0.15  $      (0.47)  $      0.27
    Pro forma                           $      0.15  $      (0.49)  $      0.24

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:

<TABLE>
<CAPTION>
                         December 1, 2002             December 2, 2001            December 3, 2000
----------------------------------------------------------------------------------------------------
                                     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               1,982,787    $     6.82     2,010,301     $   7.32     2,105,198    $    7.37
  Granted                102,500          1.83       179,000         3.27       169,000         8.23
  Exercised              (37,192)         1.04       (27,568)        0.96        (7,185)        7.05
  Forfeited             (202,893)         7.13      (178,946)        9.81      (256,712)        8.35
                     -----------                 -----------                 ----------

Outstanding
 at end of year        1,845,202    $     6.62     1,982,787     $   6.82     2,010,301    $    7.32
                     ===========                 ===========                 ==========

Weighted-average
 fair value of
 options granted
 during the year     $      1.46                 $      1.84                 $     3.72
                     ===========                 ===========                 ==========
</TABLE>

The following table summarizes information about fixed stock options outstanding
at December 1, 2002.

<TABLE>
<CAPTION>
                           Options Outstanding                        Options Exercisable
---------------------------------------------------------------------------------------------
Range                Number           Weighted           Weighted   Number           Weighted
of                   Outstanding at   Average            Average    Exercisable      Average
Exercise             December 1,      Remaining          Exercise   December 1,      Exercise
Prices               2002             Contractual Life   Price      2002             Price
---------------------------------------------------------------------------------------------
<S>                      <C>          <C>                <C>          <C>            <C>
$ 1.25 - $  2.88         163,820      5 years            $ 2.15       153,820        $  2.16
  3.19 -    5.00         495,699      4 years              4.22       495,699           4.22
  6.25 -    6.93         321,882      5 years              6.59       321,882           6.59
</TABLE>

<PAGE>

<TABLE>
  <S>                  <C>            <C>                <C>        <C>              <C>
  7.39 -   9.00          401,527      6 years              8.03       396,277           8.03
  9.09 -  12.05          462,274      6 years              9.58       430,553           9.54
                     -----------                                    --------
                       1,845,202                         $ 6.62     1,798,231        $  6.58
                     ===========                                    =========
</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:

                                         2002          2001           2000
                                     -----------    -----------   -----------
Current                              $ 1,138,000   $ (3,868,000)  $ 5,062,000
Deferred                               1,031,000      1,001,000    (1,991,000)
                                     -----------   ------------   -----------

Total taxes on income (benefit)      $ 2,169,000   $ (2,867,000)  $ 3,071,000
                                     ===========   ============   ===========

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:

                                                       2002          2001
                                                    -----------   -----------

Receivables                                         $ 1,164,000   $ 1,177,000
Deferred compensation                                   757,000     1,692,000
Cash flow hedge                                         682,000       736,000
Deferred rent                                           463,000       366,000
Restructuring                                           197,000             -
Other                                                   538,000       916,000
                                                    -----------   -----------

Gross deferred tax assets                             3,801,000     4,887,000
                                                    -----------   -----------

Property and equipment                                2,527,000     2,599,000
Investment property                                   1,844,000     1,903,000
Inventories                                             383,000       253,000
                                                    -----------   -----------

Gross deferred tax liabilities                        4,754,000     4,755,000
                                                    -----------   -----------

Net deferred tax asset (liability)                  $  (953,000)  $   132,000
                                                    ===========   ===========

Included in the balance sheet:
  Deferred income tax assets-current                $ 2,118,000   $ 2,371,000
  Deferred income tax liabilities-non-current        (3,071,000)   (2,239,000)
                                                    -----------   -----------
  Net deferred tax asset (liability)                $  (953,000)  $   132,000
                                                    ===========   ===========

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

                                         2002          2001          2000
                                     -----------   ------------   -----------
Income tax expense (benefit),
 computed at the statutory rate      $ 1,424,000   $ (3,170,000)  $ 2,315,000
State income taxes, net of
 federal income tax benefit              154,000       (156,000)      357,000
Goodwill                                 495,000        495,000       435,000

<PAGE>

Life insurance transactions             (104,000)      (101,000)      (56,000)
Other items, net                         200,000         65,000        20,000
                                     -----------   ------------   -----------
Total taxes on income (refundable)   $ 2,169,000   $ (2,867,000)  $ 3,071,000
                                     ===========   ============   ===========

NOTE 13- MAJOR CUSTOMER INFORMATION

Shipments to the Company's top three customers as a percent of net shipments
were 15% in 2002, 16% in 2001 and 15% in 2000. Shipments to the Company's top
ten customers, as a percent of net shipments, amounted to 25% in 2002, 26% in
2001 and 28% in 2000. Receivables from the Company's top three customers as a
percent of year-end receivables amounted to 22% in 2002 and 13% in 2001.

NOTE 14 -SEGMENT REPORTING

The Company's operations are classified into two business segments; wholesale
and retail home furnishings. The wholesale home furnishings segment manufactures
upholstered furniture. Upholstered furniture includes sofas, loveseats,
occasional chairs and sleep sofas, covered with fabric 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.

<PAGE>

<TABLE>
<CAPTION>
                                      Wholesale       Retail
                                        Home           Home
                                     Furnishings    Furnishings                 Inter-segment
                                       Segment        Segment        Other       Eliminations    Consolidated
                                     -----------    -----------   -----------   -------------    ------------
                                                   (in thousands)
<S>                                  <C>            <C>           <C>           <C>              <C>
         2002

Revenue                              $   247,697    $   111,789   $         -   $     (24,876)   $   334,610
Interest expense                           3,287          1,762           931               -          5,980
Depreciation and amortization              5,414          3,051           424               -          8,889
Pre-tax net earnings(loss) from
   continuing operations                  18,976        (13,735)         (804)           (248)         4,189

Capital expenditures                       1,325          1,475           523               -          3,323
Total assets                             171,101         43,651        39,457         (79,917)       174,292

         2001

Revenue                              $   235,253    $   113,959   $         -   $     (23,774)   $   325,438
Interest expense                           2,354          2,021           487               -          4,862
Depreciation and amortization              5,106          3,025           438               -          8,569
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        22,400         (42,872)       154,861

         2000

Revenue                              $   264,072    $   124,821   $         -   $     (25,958)   $   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        18,458         (20,496)       161,588
</TABLE>

The consolidated amounts for capital expenditures and total assets exclude
amounts for the discontinued Wexford segment. Capital expenditures at Wexford
were $0, $0 and $129,000 for 2002, 2001 and 2000, respectively. Total assets at
Wexford were $0, $254,000 and $2,996,000 for 2002, 2001 and 2000, respectively.

<PAGE>

NOTE 15 - QUARTERLY FINANCIAL INFORMATION

<TABLE>
<CAPTION>
Quarter                                   First        Second        Third         Fourth
-------------------------------------------------------------------------------------------
                                         (unaudited, in thousands, except per share amounts)
<S>                                     <C>         <C>           <C>           <C>
2002
Net shipments                           $ 81,623    $    80,313   $    85,536   $    87,138
Gross profit                              27,503         27,692        28,326        31,790
Net earnings (loss)                          699         (1,366)          554         2,133
Net earnings (loss) per common share        0.05          (0.10)         0.04          0.16
Net earnings (loss) per common share
 assuming dilution                          0.05          (0.10)         0.04          0.16

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
</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.

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.

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 1, 2002, the net carrying amount of goodwill is $40,565,000.
Amortization expense during the year ended December 1, 2002 was $1,296,000.

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.

<PAGE>

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit and Disposal Activities." SFAS 146 is effective for activities
occurring after December 31, 2002. The standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity.

On December 31, 2002, The FASB issued SFAS No. 148, "Accounting for Stock Based
Compensation - Transition and Disclosure." SFAS 148 is effective for reporting
periods ending after December 15, 2002. This statement amends existing
disclosures that a company should make in its annual financial statements and
requires disclosures in interim financial reports.

The Company will adopt SFAS 142, 144 and 148 in the first quarter of fiscal
2003. The Company is assessing but has not yet determined how the adoption of
SFAS 141, 142, 144 and 146 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 accounting principles generally accepted in the United
States of America 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                              Gene S. Morphis
Chairman of the Board and President             Chief Financial Officer
                                                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 1, 2002 and December 2, 2001, 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 1, 2002. 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.

<PAGE>

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 1, 2002 and December 2, 2001, and the results of
their operations and their cash flows for each of the three years in the period
ended December 1, 2002, in conformity with accounting principles generally
accepted in the United States of America.

High Point, North Carolina                  BDO SEIDMAN, LLP
January 8, 2003


CORPORATE INFORMATION


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

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

ANNUAL MEETING

<PAGE>

The annual meeting of stockholders will be held at 10:00 a.m. on Tuesday, April
15, 2003 at the Ritz Carlton - 1700 Tysons Blvd., McLean, Virginia.


CORPORATE OFFICERS AND DIRECTORS

OFFICERS:

Gerald M. Birnbach
Chairman of the Board and President

Barry A. Birnbach
Vice President - Corporate Development

Timothy J. Fortune
Vice President - Human Resources and Strategy

Gene S. Morphis
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 Co.

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

<PAGE>

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


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


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