<PAGE>

                                                                      Exhibit 13

The Rowe Companies Annual Report 2003
Five Year Summary

<TABLE>
<CAPTION>
                                                               2003        2002(4)      2001(4)      2000(4)    1999(1)(2)(4)
                                                            (52 weeks)   (52 weeks)   (52 weeks)   (53 weeks)     (52 weeks)
                                                            ----------   ----------   ----------   ----------   -------------
<S>                                                          <C>         <C>          <C>           <C>           <C>
(in thousands, except per share amounts)

Net shipments                                                $ 279,385   $ 270,084    $ 268,901     $ 308,068     $ 240,860
Gross profit                                                   101,137      96,621       90,336       108,398        75,315
Operating income (loss)                                          5,399        (433)     (11,613)       11,537        18,378
Net earnings (loss) from continuing operations (3)               1,000      (2,335)      (8,271)        6,294        12,269
Net earnings (loss) (3)                                      $   2,546   $   2,020    $  (6,189)    $   3,544     $  13,901

Working capital                                              $  23,779   $  12,963    $  32,126     $  31,008     $  33,959
Total assets                                                   130,068     174,292      155,115       164,584       168,580
Long-term debt                                                  34,312      63,475       52,096        52,761        54,608
Stockholders' equity                                         $  51,917   $  48,823    $  46,696     $  55,422     $  54,659

Ratio of current assets to current liabilities                1.6 to 1    1.2 to 1     1.7 to 1      1.6 to 1      1.6 to 1
Ratio of cash and receivables to current liabilities          0.6 to 1    0.4 to 1     0.7 to 1      0.7 to 1      0.8 to 1

Net earnings (loss) from continuing operations
   per common share - basic                                  $    0.08   $   (0.18)   $   (0.63)    $    0.48     $    0.91
Net earnings (loss) per common share - basic                 $    0.19   $    0.15    $   (0.47)    $    0.27     $    1.04
Weighted average common shares                                  13,167      13,152       13,135        13,152        13,426

Net earnings (loss) from continuing operations per common
   share assuming dilution                                   $    0.08   $   (0.18)   $   (0.63)    $    0.46     $    0.85
Net earnings (loss) per common share assuming dilution       $    0.19   $    0.15    $   (0.47)    $    0.27     $    0.98
Weighted average common shares and equivalents                  13,205      13,193       13,135        13,703        14,372
Cash dividends paid per share                                $      --   $      --    $    0.11     $    0.14     $    0.13
</TABLE>

(1)  The 1999 results have been restated to reflect the discontinuation of
     operations at The Wexford Collection, Inc., which occurred in 2000.

(2)  The 1999 amounts include Storehouse, Inc., acquired August 1, 1999. (See
     Note 2 of the Consolidated Financial Statements.)

(3)  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.

(4)  The results of operations for 2002, 2001, 2000, and 1999 have been restated
     to reflect the discontinuation of operations at The Mitchell Gold Co. (See
     Note 2 of the Consolidated Financial Statements.)

<PAGE>

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

Overview

The Rowe Companies (the "Company") operates through two subsidiaries in the home
furnishings industry. Rowe Furniture, Inc. ("Rowe") manufactures quality,
upholstered furniture serving the middle and upper middle market primarily
throughout the United States. Storehouse, Inc. ("Storehouse") is a multi-channel
lifestyle home furnishings retailer with 61 stores from Texas through the
Southeast and Mid-Atlantic markets.

During 2003, the Company completed several transactions significantly affecting
our balance sheet and overall financial condition, and made progress towards
improved operating results, particularly in our retail segment.

The Company completed the sale of its subsidiary, The Mitchell Gold Co.
("Mitchell Gold"). With the proceeds of the sale, the Company was able to settle
certain obligations to the previous owners of Mitchell Gold, in accordance with
the terms of the original purchase agreement, and substantially reduced the
Company's outstanding debt. The Company was also able to modify, in beneficial
ways, both the Elliston capital lease obligation as well as certain terms of the
revolving bank loan entered into in 2002. These changes improve the Company's
near-term debt service requirements.

The Company also saw positive changes in its retail segment operations. With
solid same store sales growth over 2002 (eleven positive months during the
year), and improvements in most operating areas, operating losses in the retail
segment were reduced by more than half, contributing substantially to the
overall improvement in earnings from operations in 2003 over 2002.

<PAGE>

                                        2003       2002       2001
                                      --------   --------   --------
(in thousands)
Net Shipments:
Manufacturing, total                  $176,315   $177,351   $172,914
Sales to retail segment                (19,898)   (19,056)   (17,972)
                                      --------   --------   --------
Manufacturing, net of eliminations     156,417    158,295    154,942
Retail                                 122,968    111,789    113,959
                                      --------   --------   --------
Total                                  279,385    270,084    268,901
                                      ========   ========   ========
Gross Profit:
Manufacturing                           40,769     42,520     34,618
Retail                                  60,368     54,101     55,718
                                      --------   --------   --------
Total                                  101,137     96,621     90,336
                                      ========   ========   ========
Selling and Adminstrative Expenses:
Manufacturing                           23,951     25,007     31,088
Retail                                  64,972     63,066     64,003
Other                                    6,590      6,630      6,858
                                      --------   --------   --------
Total                                 $ 95,513   $ 94,703   $101,949
                                      ========   ========   ========

RESULTS OF OPERATIONS

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

Net shipments increased $9,301,000, or 3.4%, to $279,385,000 in 2003 from
$270,084,000 in 2002. The increase primarily resulted from increased shipments
in our retail segment.

Retail segment net shipments increased $11.2 million, or 10.0%, from $111.8
million in 2002 to $123.0 million in 2003. Retail shipments benefited from
management initiatives to improve promotional efficiency and selling
effectiveness, and to strengthen performance of certain previously
underperforming merchandise categories. Same store sales increased 9.9% in 2003
over 2002, with eleven months of positive change during the year. Upholstery,
wall units and bedroom were the categories with the largest dollar increases.

Manufacturing segment net shipments decreased $1.9 million, or 1.2%, from $158.3
million in 2002 to $156.4 million in 2003. The decrease was attributable to
generally soft economic conditions, particularly in early 2003. The
manufacturing segment also shipped $19.9 million to the retail segment, 4.4%
over the amount shipped in 2002. These shipments have been eliminated in
consolidation.

Gross profit increased $4,516,000, or 4.7%, from $96,621,000 in 2002 to
$101,137,000 in 2003. Gross margin, or gross profit as a percent of net
shipments, improved from

<PAGE>

35.8% in 2002 to 36.2% in 2003. These increases were due to increased retail
margins and an increase in retail shipments as a percent of total shipments.

Retail segment gross profit improved by $6.3 million, from $54.1 million in 2002
to $60.4 million in 2003, primarily as a result of increased shipments. Retail
gross margin also improved, from 48.4% to 49.1%; improved inventory management,
resulting in reduced inventory shrinkage, accounted for the increase in gross
margin.

Manufacturing segment gross profit declined $1.8 million, or 4.1%, from $42.5
million in 2002 to $40.8 million in 2003. Gross margin declined from 26.9% in
2002 to 26.1% in 2003. Higher fuel costs early in 2003, combined with reduced
shipments resulting in underabsorbed overhead early in the year, unfavorably
impacted gross profit and gross margin.

Selling and administrative expenses increased by $810,000, or 0.9%, from
$94,703,000 in 2002 to $95,513,000 in 2003. Selling and administrative expenses
improved from 35.1% of net shipments in 2002 to 34.2% in 2003. Increases in
retail segment expenses were partially offset by decreases in manufacturing
segment expenses.

Retail segment selling and administrative expenses increased $1.9 million, or
3.0%, from $63.1 million in 2002 to $65.0 million in 2003. Retail distribution
costs (warehousing and home delivery) were impacted unfavorably by costs
incurred in consolidating two overlapping distribution center locations into one
operation, as part of the retail consolidation undertaken in 2002. The Company
also recorded $491,000 in impairment charges relating to leasehold improvements
in certain unprofitable retail stores in 2003, based on expected cash flows at
those stores. This was offset by the elimination of goodwill amortization in
2003 under new accounting regulations. Other fluctuations included an increase
in salaries and wages of $511,000, largely related to higher shipments; and a
reduction in advertising expenses by $1.6 million, due to savings from the
consolidation, elimination of television advertising and increased advertising
reimbursements from vendors.

Manufacturing segment selling and administrative expenses decreased $1.1
million, or 4.2%, from $25.0 million in 2002 to $23.9 million in 2003. Most of
this decrease represents a recovery of $729,000 recorded in 2003 relating to
certain reserves established in connection with a 2001 retail customer
bankruptcy and reduced sales commissions on lower shipments.

Operating earnings were $5.4 million in 2003, compared to a loss of $(433,000)
in 2002, as a result of increased retail shipments and associated gross profit,
lower retail restructuring and other charges, partially offset by reduced
manufacturing segment shipments and gross profit and higher retail selling and
administrative expenses.

Interest expense increased from $4,316,000 in 2002 to $4,462,000 in 2003. While
interest rates declined from 2002 to 2003, and the outstanding balances also
declined during 2003, including interest on the Elliston lease in interest
expense for all of 2003,

<PAGE>

versus six months in 2002 as a result of its reclassification as a capital lease
in 2002, offset the reductions from declining rates and balances.

Other income, net, decreased $352,000, from $1,519,000 in 2002 to $1,167,000 in
2003, primarily due to reduced net rental income associated with an investment
property.

Earnings from continuing operations before taxes improved to earnings of
$2,104,000 in 2003 from a loss of $(3,230,000) in 2002, reflecting the factors
discussed above.

As the Company regained profitability in 2003, the effective tax rate was 52.5%.
The effective rate exceeded the statutory rate due to state income taxes,
non-deductible items and other items, net. In 2002, the Company recorded a tax
benefit as a result of a loss from operations. The effective rate of the tax
benefit was 27.7%. The 2002 effective tax benefit rate was lower than the
statutory rate as goodwill amortization, which is not a component of federal
income tax, reduced the book loss, and other miscellaneous non-deductible items
further reduced the potential recovery.

Year Ended December 1, 2002 Versus Year Ended December 2, 2001

Net shipments increased $1,183,000, or 0.4%, to $270,084,000 in 2002 from
$268,901,000 in 2001. The increase primarily resulted from increased shipments
in our manufacturing segment.

Manufacturing segment net shipments increased $3.4 million, or 2.2%, from $154.9
million to $158.3 million in 2002. The increase was primarily attributable to a
new lower price point category of product introduced in 2002. The manufacturing
segment also shipped $19.1 million to the retail segment, 6.0% over the amount
shipped in 2001. These shipments have been eliminated in consolidation.

Retail segment net shipments decreased $2.2 million, or 1.9%, from $114.0
million in 2001 to $111.8 million in 2002. General unfavorable retail sales
conditions, along with weak sales of bedroom furniture in particular, accounted
for the decrease.

Gross profit increased $6,285,000, or 7.0%, from $90,336,000 in 2001 to
$96,621,000 in 2002. Gross margin improved from 33.6% in 2001 to 35.8% in 2002.
Gross profit in 2001 was significantly impacted by lost volume resulting from
the loss of three key customers early in the year, including one that filed for
bankruptcy in mid 2001.

Manufacturing segment gross profit increased $7.9 million, or 22.8%, from $34.6
million in 2001 to $42.5 million in 2002. Gross margin improved from 22.3% in
2001 to 26.9% in 2002. Gross profit in 2001 was impacted by lost volume
resulting from the loss of three key customers early in the year; this
negatively impacted overhead absorption and manufacturing efficiencies due to
workforce reductions and short work weeks. In 2002, with the workforce
restructuring completed, manufacturing efficiencies were

<PAGE>

substantially improved, and other improvements, particularly in the areas of
distribution/trucking costs and service costs, were also achieved.

Retail segment gross profit declined by $1.6 million, from $55.7 million in 2001
to $54.1 million in 2002, primarily as a result of decreased shipments. Retail
gross margin also declined, from 48.9% to 48.4%, primarily as a result of
inventory adjustments for obsolete and clearance inventory subsequent to the
retail consolidation undertaken in 2002.

Selling and administrative expenses decreased by $7,246,000, or 7.1%, from
$101,949,000 in 2001 to $94,703,000 in 2002. Approximately $4.1 million of the
improvement resulted from the write-offs and reserves established in 2001 in
connection with the key customer bankruptcy in mid 2001.

Retail segment selling and administrative expenses and restructuring charges
increased $1.4 million, or 2.2%, from $64.0 million in 2001 to $65.4 million in
2002. The restructuring charges were offset, in part, with savings in other
overhead costs as duplicate positions were eliminated and advertising programs
were consolidated.

Manufacturing segment selling and administrative expenses decreased $6.1
million, or 19.6%, from $31.1 million in 2001 to $25.0 million in 2002. Much of
this decrease, approximately $4.1 million, represents the reserves established
in connection with a 2001 customer bankruptcy. Other savings were recognized as
a result of workforce reductions taken in 2001 in response to lower shipments as
a result of lost customers.

Operating losses were $(433,000) in 2002, compared to a loss of $(11,613,000) in
2001, as a result of increased manufacturing segment shipments and improved
gross profit, offset by reduced retail segment shipments and gross profit and
higher selling and administrative expenses, including retail restructuring and
related charges, offset by lower manufacturing segment selling and
administrative expenses, as described above.

Interest expense increased from $2,762,000 in 2001 to $4,316,000 in 2002,
primarily as a result of the Elliston lease classification change. Changes in
the terms of the operating lease during 2002 resulted in the lease being
re-characterized as a capital lease, with rent expense payments converted into
interest payments, beginning in May 2002.

Losses from continuing operations before taxes improved from a loss of
$(12,810,000) in 2001 to a loss of $(3,230,000) in 2002, reflecting the factors
discussed above.

The effective tax rate declined from 35.4% in 2001 to 27.7% in 2002 due
primarily to the impact of non-deductible expense items, particularly goodwill
amortization, on the calculation of tax expense.

<PAGE>

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, long-lived asset valuations and impairments,
inventory reserves and goodwill.

Self-Insurance Reserves

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

Long-lived Asset Valuations and Impairments

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

Inventory Reserves

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

Goodwill

In accordance with SFAS 142, "Goodwill and Other Intangible Assets," which was
adopted by the Company in 2003, goodwill and other intangible assets are to be

<PAGE>

evaluated for impairment at the reporting unit level on an annual basis and
between annual tests whenever events or circumstances indicate that the carrying
value of a reporting unit may exceed its fair value. The Company conducts its
required annual impairment test during the second quarter of each fiscal year.
The impairment test uses a discounted cash flow and projected profitability
model to estimate the fair value of the reporting unit. This model requires the
use of long-term planning forecasts and assumptions regarding specific economic
conditions that are outside the control of the Company.

Liquidity and Source of Capital:

Cash from Operations

Net cash provided by (used in) operating activities was $10,327,000, $20,134,000
and $(1,679,000) in 2003, 2002 and 2001, respectively. Fluctuations in net cash
provided by (used in) operating activities are primarily the result of changes
in operating income and changes in working capital accounts. Substantial changes
from 2002 to 2003 included the decrease in inventory, particularly leather,
during the early part of 2002; the payout of the deferred compensation plan
during 2002; and the collection of the 2001 tax refund in early 2002. Between
2001 and 2002, substantial changes included provisions for bad debt losses,
largely associated with the bankruptcy of one customer in 2001; a decrease in
accounts receivable during 2001, associated with lost volume due to the loss of
three major customers in 2001; and a decrease in accounts payable in 2001, due
to lower sales activity and changes in payment practices.

Cash from Investing Activities

Net cash provided by (used in) investing activities was $19,798,000,
$(3,348,000) and $(2,315,000) in 2003, 2002 and 2001, respectively, primarily
reflecting cash receipts and payments related to Mitchell Gold in 2003. Capital
expenditures in all periods were generally routine information systems
maintenance and upgrade projects, with some store remodeling activity and four
new retail stores in 2001. Fiscal 2002 also included expenditures relating to
the retail consolidation, including new signage and systems upgrades. Fiscal
2004 capital expenditures are expected to total approximately $5.0 million and
will be funded from cash from operations and available borrowing capacity. In
addition, the Company expects to fund approximately $2.0 million of system
acquisition costs with operating leases in 2004.

Cash from Financing Activities

Net cash provided by (used in) financing activities was $(26,691,000),
$(25,969,000) and $10,058,000 for 2003, 2002 and 2001, respectively. In 2002,
the Company refinanced significant portions of its outstanding debt and re-paid
approximately $24.0 million. During 2003, proceeds from the sale of Mitchell
Gold were used to reduce

<PAGE>

outstanding debt by approximately $22.0 million. The Company used other cash
generated from operations to pay down debt by an additional approximately $5.0
million. The Company did not pay cash dividends on its common stock during
either 2003 or 2002.

As of November 30, 2003, the Company had $11.5 million available under its
revolving bank loan. The Company believes it has the financial resources
(including available cash, expected cash flow from operations, and bank loans)
needed to meet business requirements for the foreseeable future including
capital expenditures and working capital. Cash flow from operations is highly
dependent on order rates and the Company's operating performance.

Contractual Obligations

The following summarizes our significant contractual obligations as of November
30, 2003:

<TABLE>
<CAPTION>
                                                           Payments by Period
                                           -------------------------------------------------
                                           Less Than     1-3       3-5      After
                                             1 Year     Years     Years    5 Years    Total
                                           ---------   -------   -------   -------   -------
<S>                                         <C>        <C>       <C>       <C>       <C>
(in thousands)

CONTRACTUAL OBLIGATIONS:
Operating leases                            $13,941    $20,283   $10,152   $ 7,922   $52,298
Capital leases                                2,172      1,735     1,735     8,662    14,304
Loans on life insurance                       2,733      2,733
Contractual maturities of long-term debt      1,142      2,319    11,583     8,278    23,322
Other long-term liabilities reflected
   on the balance sheet                         167        227       408     3,396     4,198
                                            -------    -------   -------   -------   -------
Total contractual cash obligations          $17,422    $24,564   $23,878   $30,991   $96,855
                                            =======    =======   =======   =======   =======
</TABLE>

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

As of the end of fiscal 2003, the Company was in the best financial condition of
the last few years. Total debt was significantly reduced, through improved
operations and the proceeds of the Mitchell Gold asset sale. In addition,
outstanding debt terms were extended, reducing near-term cash flow needs for
servicing debt and removing the uncertainty of refinancing debt in these still
difficult economic conditions.

Interest Rate Risk and Foreign Currency Exchange Rate Risk

Because the Company's obligations under its term loan, revolving loan and
capital lease obligation bear interest at variable rates, the Company is
sensitive to

<PAGE>

changes in prevailing interest rates. A 10% fluctuation in market interest rates
would not result in a material change in interest expense during the 2004 fiscal
year. The Company is exposed to market risk from changes in the value of foreign
currencies because it imports a substantial portion of its retail inventory and
some of its raw materials, from foreign sources. See "Forward-Looking
Statements" below.

Forward-Looking Statements:

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

Additional risks include:

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

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

<PAGE>

..    Our retail operations may not become profitable.

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

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

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

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

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

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

     Similar impacts could be experienced in our manufacturing segment.

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

     The Company has substantial debt obligations that mature in 2007 and 2008
     in particular. At those times, the Company would be required to pay off or
     refinance these obligations. If economic conditions, as well as the
     Company's own operating results, do not improve in the intervening years,
     then the Company would be more likely to need to refinance, rather than pay
     off, such obligations. There can be no assurance that the Company would be
     successful in obtaining this financing, or that, if obtained, the financing
     would be on favorable terms and conditions.

..    Our bad debts experience may differ materially from our estimates.

<PAGE>

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

..    We are implementing new Enterprise Resource Planning ("ERP") software that
     may not work as planned.

     Our manufacturing operations are implementing a new ERP system that
     includes accounting, order processing, materials purchasing and inventory
     management, human resources and payroll management and certain other
     functions. This is a complex, multi-step implementation. Various parts of
     the system may not perform as planned, which could create problems in
     entering or processing customer orders, processing payroll, procuring and
     managing inventory or record keeping. We could also experience costs to
     implement in excess of our budgeted amount.

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

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

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

<PAGE>

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

<PAGE>

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 November 30, 2003 and December 1, 2002, 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 November 30, 2003. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Rowe Companies
and subsidiaries at November 30, 2003 and December 1, 2002, and the results of
their operations and their cash flows for each of the three years in the period
ended November 30, 2003, in conformity with accounting principles generally
accepted in the United States of America.

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


------------------------------                         -------------------------
High Point, North Carolina                             BDO SEIDMAN, LLP
January 9, 2004

<PAGE>

The Rowe Companies Annual Report 2003
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                     11/30/2003   12/1/2002
                                                                     ----------   ---------
<S>                                                                   <C>          <C>
(in thousands)
ASSETS (Notes 1,2 and 6)
CURRENT ASSETS
Cash and cash equivalents                                             $  3,708     $    274
Restricted cash collateralizing letters of credit                        3,674        1,938
Accounts receivable (net of allowance
   for losses of $850 in 2003 and $1,100 in 2002)                       19,889       24,344
Notes receivable                                                           100          200
Inventories (Note 3)                                                    32,387       37,207
Deferred income taxes (Note 12)                                            880        2,118
Prepaid expenses and other                                               2,711        3,589
                                                                      --------     --------
   Total current assets                                                 63,349       69,670
                                                                      --------     --------

PROPERTY AND EQUIPMENT (Note 4)                                         41,624       51,769
                                                                      --------     --------

OTHER ASSETS
Cash value of life insurance, net of loans of $2,733 in 2003
   and $2,749 in 2002 (Note 7)                                           1,427        1,290
Investment property (net of accumulated depreciation of
   $7,406 in 2003 and $7,070 in 2002) (Note 9)                           8,198        8,327
Goodwill (net of amortization of $2,118 in 2003 and $4,390 in
   2002)                                                                14,224       40,565
Miscellaneous                                                            1,246        2,671
                                                                      --------     --------
   Total other assets                                                   25,095       52,853
                                                                      --------     --------
                                                                      $130,068     $174,292
                                                                      ========     ========
LIABILITIES (Notes 1 and 2)
CURRENT LIABILITIES
Current maturities of long-term debt (Note 6)                         $  3,314     $  5,945
Accounts payable                                                        11,744       12,463
Payment due under earn-out obligation                                       --       12,800
Accrued expenses:
   Compensation                                                          4,067        4,716
   Income taxes                                                          1,061        1,464
   Other                                                                 5,712        8,723
Customer deposits                                                       13,512       10,436
Deferred compensation - current portion (Note 7)                           160          160
                                                                      --------     --------
   Total current liabilities                                            39,570       56,707

LONG-TERM DEBT (Note 6)                                                 34,312       63,475
DEFERRED COMPENSATION AND OTHER LIABILITIES (Note 7)                     1,490        2,216
DEFERRED INCOME TAXES (Note 12)                                          2,779        3,071
                                                                      --------     --------
   Total liabilities                                                    78,151      125,469
                                                                      --------     --------

COMMITMENTS AND CONTINGENCIES (Notes 2, 6, 7, 8, 9 and 10)

STOCKHOLDERS' EQUITY (Note 11)
COMMON STOCK, par value $1 per share, 50,000,000 authorized shares      16,587       16,585
CAPITAL IN EXCESS OF PAR VALUE                                          23,084       23,083
RETAINED EARNINGS                                                       34,770       32,224
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Note 10)                   (566)      (1,113)
LESS TREASURY STOCK                                                    (21,958)     (21,956)
                                                                      --------     --------

   Total stockholders' equity                                           51,917       48,823
                                                                      --------     --------
                                                                      $130,068     $174,292
                                                                      ========     ========
</TABLE>
See notes to consolidated financial statements.

<PAGE>

The Rowe Companies Annual Report 2003
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

<TABLE>
<CAPTION>
                                                                                        Year Ended
                                                                           ------------------------------------
                                                                           11/30/2003    12/1/2002    12/2/2001
                                                                           (52 weeks)   (52 weeks)   (52 weeks)
                                                                           ----------   ----------   ----------
<S>                                                                         <C>          <C>          <C>
(in thousands, except per share  amounts)

Net shipments (Notes 2 and 13)                                              $279,385     $270,084     $268,901
Cost of shipments                                                            178,248      173,463      178,565
                                                                            --------     --------     --------
   Gross profit                                                              101,137       96,621       90,336
Selling and administrative expenses                                           95,513       94,703      101,949
Retail restructuring and other charges (Note 2)                                  225        2,351           --
                                                                            --------     --------     --------
   Operating income (loss)                                                     5,399         (433)     (11,613)
Interest expense                                                              (4,462)      (4,316)      (2,762)
Other income, net (Note 9)                                                     1,167        1,519        1,565
                                                                            --------     --------     --------
   Earnings (loss) from continuing operations before taxes                     2,104       (3,230)     (12,810)
Tax expense (benefit) (Note 12)                                                1,104         (895)      (4,539)
                                                                            --------     --------     --------

Net earnings (loss) from continuing operations                                 1,000       (2,335)      (8,271)

Discontinued operations (Note 2):
Income from discontinued operations of Mitchell Gold,
   less tax expense of $664, $3,064 and $1,672, respectively                   1,084        4,355        2,082
Gain on disposal of Mitchell Gold,
   net of tax benefit of $1,473                                                  462           --           --
                                                                            --------     --------     --------
Net earnings (loss)                                                         $  2,546     $  2,020     $ (6,189)
                                                                            ========     ========     ========

Other comprehensive income (loss), net of tax:
Unrealized loss on derivatives (Notes 1 and 10)                                 (194)        (654)      (1,506)
Payments transferred to expense                                                  741          742          337
                                                                            --------     --------     --------
Comprehensive income (loss)                                                 $  3,093     $  2,108     $ (7,358)
                                                                            ========     ========     ========

Net earnings (loss) from continuing operations per common share (Note 1)    $   0.08     $  (0.18)    $  (0.63)
                                                                            ========     ========     ========
Net earnings (loss) per common share (Note 1)                               $   0.19     $   0.15     $  (0.47)
                                                                            ========     ========     ========
   Weighted average common shares                                             13,167       13,152       13,135
                                                                            ========     ========     ========
Net earnings (loss) from continuing operations per common
   share assuming dilution (Note 1)                                         $   0.08     $  (0.18)    $  (0.63)
                                                                            ========     ========     ========
Net earnings (loss) per common share assuming dilution (Note 1)             $   0.19     $   0.15     $  (0.47)
                                                                            ========     ========     ========
   Weighted average common shares and equivalents                             13,205       13,193       13,135
                                                                            ========     ========     ========
</TABLE>

See notes to consolidated financial statements.

<PAGE>

The Rowe Companies Annual Report 2003
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
                                                           Year Ended November 30, 2003, December 1, 2002
                                                                         and December 2, 2001
                                                           ----------------------------------------------
                                                                       Common Stock
                                                            ---------------------------------
                                                                                   Capital in
                                                              Shares      $1 Par    Excess of   Retained
                                                              Issued      Value     Par Value   Earnings
                                                            ----------   -------   ----------   --------
<S>                                                         <C>          <C>        <C>          <C>
(in thousands, except share and per share amounts)
Balance at December 3, 2000                                 16,520,147   $16,520    $23,083      $37,772
   Acquisition of treasury stock
   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
   Acquisition of treasury stock
   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
   Acquisition of treasury stock
   Exercise of stock options                                     2,500         2          1
   Net change during the year related to cash flow hedge
   Net earnings for the year ended
      November 30, 2003                                                                            2,546
                                                            ----------   -------    -------      -------
Balance at November 30, 2003                                16,587,407   $16,587    $23,084      $34,770
                                                            ==========   =======    =======      =======
<CAPTION>
                                                           Year Ended November 30, 2003, December 1, 2002
                                                                        and December 2, 2001
                                                           ----------------------------------------------
                                                                   Treasury Stock
                                                                 -------------------
                                                                                        Accumulated
                                                                 Number of             Comprehensive
                                                                  Shares      Cost     Income(Loss)
                                                                 ---------   -------   -------------
<S>                                                              <C>         <C>          <C>
(in thousands, except share and per share amounts)
Balance at December 3, 2000                                      3,405,947   $21,921      $   (32)
   Acquisition of treasury stock                                     6,743        16
   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                                      3,412,690    21,937       (1,201)
   Acquisition of treasury stock                                     6,847        19
   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                                      3,419,537    21,956       (1,113)
   Acquisition of treasury stock                                     1,271         2
   Exercise of stock options
   Net change during the year related to cash flow hedge                                      547
   Net earnings for the year ended
      November 30, 2003
                                                                 ---------   -------      -------
Balance at November 30, 2003                                     3,420,808   $21,958      $  (566)
                                                                 =========   =======      =======
</TABLE>
See notes to consolidated financial statements.

<PAGE>

The Rowe Companies Annual Report 2003
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                           Year Ended
                                                              ------------------------------------
                                                               11/30/03     12/1/02      12/2/01
                                                              (52 weeks)   (52 weeks)   (52 weeks)
                                                              ----------   ----------   ----------
<S>                                                           <C>          <C>          <C>
(in thousands)
Increase (Decrease) in Cash
Cash flows from operating activities:
   Cash received from customers                               $ 300,299    $ 336,853    $ 329,558
   Cash paid to suppliers and employees                        (287,266)    (317,217)    (331,014)
   Income taxes received (paid), net                              1,352        2,839          585
   Interest paid                                                 (5,225)      (4,028)      (2,397)
   Interest received                                                225          347          480
   Other receipts - net                                             942        1,340        1,109
                                                              ---------    ---------    ---------
Net cash and cash equivalents provided by (used in)
   operating activities                                          10,327       20,134       (1,679)
                                                              ---------    ---------    ---------

Cash flows from investing activities:
   Payments received on notes receivable                            100          125          125
   Increase in cash surrender value                                (121)        (150)        (179)
   Proceeds from sale of Mitchell Gold                           39,573           --           --
   Proceeds from sale of property and equipment                      --           --        1,056
   Capital expenditures                                          (3,995)      (3,323)      (3,317)
   Payments under earn-out and related obligations (Note 2)     (15,759)          --           --
                                                              ---------    ---------    ---------
Net cash provided by (used in) investing activities              19,798       (3,348)      (2,315)
                                                              ---------    ---------    ---------
Cash flows from financing activities:
   Restricted cash released from (deposited to) collateral
   for letters of credit                                            264       (1,938)          --
   Net borrowings (repayments) under line of credit                  --       (9,368)       5,368
   Draws under revolving loans                                   12,570        3,994        6,865
   Proceeds from issuance of long-term debt                          --       39,442           --
   Repayments under revolving loans                             (20,751)     (10,244)      (3,821)
   Payments to reduce long-term debt                            (18,759)     (47,874)          --
   Payments to reduce loans on cash surrender value                 (16)          --           --
   Proceeds from loans against life insurance policies               --           --        3,014
   Proceeds from issuance of common stock                             3           38           27
   Dividends paid                                                    --           --       (1,379)
   Purchase of treasury stock                                        (2)         (19)         (16)
                                                              ---------    ---------    ---------
Net cash provided by (used in) financing activities             (26,691)     (25,969)      10,058
                                                              ---------    ---------    ---------
Net increase (decrease) in cash and cash equivalents              3,434       (9,183)       6,064

Cash at beginning of year                                           274        9,457        3,393
                                                              ---------    ---------    ---------
Cash at end of year                                           $   3,708    $     274    $   9,457
                                                              ---------    ---------    ---------
</TABLE>

See notes to consolidated financial statements.

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

<PAGE>


The Rowe Companies Annual Report 2003
RECONCILIATION OF NET EARNINGS (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES
<TABLE>
<CAPTION>
                                                                           Year Ended
                                                           ---------------------------------------------
                                                            11/30/03          12/1/02           12/2/01
                                                           (52 weeks)       (52 weeks)        (52 weeks)
                                                           ----------       ----------        ----------
  (in thousands)
<S>                                                        <C>              <C>               <C>
  Net earnings (loss)                                        $2,546           $2,020           $(6,189)
                                                           ----------       ----------        ----------
  Adjustments to reconcile net earnings (loss)
   to net cash provided by (used in) operating
   activities, net of disposition of business:
    Pre-tax loss  on disposition of Mitchell Gold             1,011                -                 -
    Depreciation and amortization                             7,213            8,889             8,569
    Provision for deferred compensation                         170              218               173
    Payments made for deferred compensation                    (241)          (2,802)             (813)
    Deferred income taxes                                       577            1,031             1,001
    Provision for losses on trade accounts receivable           376              262             4,421
    Loss on disposition of assets                                 -              640                15

    Change in operating assets and liabilities net of
     effects of disposition of business:
      Decrease (increase) in accounts receivable             (1,987)            (956)            4,649
      Decrease (increase) in inventories                     (1,644)           3,863               227
      Decrease (increase) in prepaid expenses and other         272           (2,120)            1,554
      Decrease (increase) in other miscellaneous assets       1,051            1,381              (173)
      Increase (decrease) in accounts payable                (1,238)          (1,881)          (10,277)
      Increase (decrease) in income taxes                     1,070            3,978            (3,284)
      Increase (decrease) in accrued expenses                (1,926)           2,287            (1,149)
      Increase (decrease) in customer deposits                3,077            3,324              (403)
                                                           ----------       ----------        ----------

        Total adjustments                                     7,781           18,114             4,510
                                                           ----------       ----------        ----------

Net cash provided by (used in) operating activities         $10,327          $20,134           $(1,679)
                                                           =========        ==========        ==========
</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 were increased by
$25 million. In November 2002, the Company recorded an obligation relating to
the long-term earn-out provisions of the Mitchell Gold purchase agreement. As a
result, goodwill and current liabilities were increased by $12.8 million.

See notes to consolidated financial statements.

<PAGE>

Notes to Consolidated Financial Statements

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business- The Rowe Companies (the "Company") operates two
subsidiaries in the home furnishings industry: Rowe Furniture, Inc. ("Rowe"), a
major manufacturer of quality upholstered furniture serving the middle and upper
middle market primarily throughout the United States, through home furnishings
retailers; and Storehouse, Inc. ("Storehouse"), a multi-channel, lifestyle home
furnishings business including 61 retail home furnishings stores. Storehouse
makes good design accessible by selling an edited assortment of casual,
contemporary home furnishings through its stores from Texas through the
Southeast and Mid-Atlantic markets and its catalog.

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

Revenue Recognition - Rowe recognizes sales when products are shipped and
invoiced to customers. Storehouse recognizes sales when the goods are delivered
to the customer or services have been rendered. Customer deposits represent cash
received for items not currently in inventory and items on hand but not yet
delivered to the customer. Selling and administrative expenses include
$5,150,000, $4,501,000 and $4,800,000 of retail delivery expenses in 2003, 2002
and 2001, respectively.

Credit Risk- Accounts receivable are customer obligations due under normal trade
terms. Rowe sells its products to distributors and retailers in the residential
home furnishings industry, including traditional furniture retailers and
specialty home furnishings stores. Management performs continuing credit
evaluations of its customers' financial condition and although generally does
not require collateral, letters of credit may be required from customers in
certain circumstances. Senior management reviews accounts receivable on a
monthly basis to determine if any receivables will potentially be uncollectible.
Any accounts receivable balances that are determined to be uncollectible, along
with a general reserve are included in the overall allowance for doubtful
accounts. After all attempts to collect a receivable have failed, the receivable
is written off against the allowance. Based on the information available,
management believes the allowance for doubtful accounts as of November 30, 2003
is adequate. However, actual write-offs might exceed the recorded allowance.

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. Rowe utilizes
the first-in, first-out (FIFO) method to compute cost, while Storehouse utilizes
the last-in, first-out (LIFO) method.

Property, Equipment and Depreciation- Property and equipment are stated at cost.
For financial reporting purposes, depreciation, which includes amortization of
assets under capital leases, is computed over the estimated useful lives of the
assets using primarily the straight-line method.

<PAGE>

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 are written down to fair value. During
2003, the Company performed an evaluation of Storehouse's assets, including its
store portfolio, and concluded that certain store locations were not generating
sufficient cash flow to support their fixed depreciation charges. The Company
recorded a non-cash impairment charge of approximately $491,000 to write-down
the value of the fixed assets at those locations. The Company is still
evaluating specific actions for each impaired location. As further disclosed in
Note 2, the Company also recognized impairment losses relating to the retail
restructuring charges in 2002.

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

Goodwill - In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets," which was effective as of the beginning of fiscal 2003 for
the Company. SFAS No. 142 represents a change in accounting for goodwill. SFAS
No. 142 requires that goodwill no longer be amortized, and that goodwill be
tested for impairment at the reporting unit level by comparing the reporting
unit's carrying value to its fair value as of the beginning of the fiscal year.
SFAS 142 also requires that, at least annually, goodwill be retested for
impairment. Using a discounted cash flow model, management has determined that
there has been no impairment of the goodwill recorded in its financial
statements. Goodwill is included in the total assets of the wholesale segment in
the Company's segment reporting. The change in goodwill from December 1, 2002 to
November 30, 2003 was due to the sale of its former subsidiary, The Mitchell
Gold Co. ("Mitchell Gold"). See Note 2 for information concerning the
disposition of Mitchell Gold. The change in goodwill from December 2, 2001 to
December 1, 2002 was due to the Mitchell Gold earnout obligation. The following
table highlights the impact of goodwill amortization on the Company's reported
net earnings (loss) and basic and diluted earnings per share:

                                            2003     2002      2001
                                           ------   ------   -------
(in thousands, except per share amounts)

Net earnings (loss)                        $2,546   $2,020   $(6,189)
Goodwill amortization                          --    1,296     1,267
                                           ------   ------   -------
Adjusted net earnings (loss)               $2,546   $3,316   $(4,922)
                                           ======   ======   =======

Reported basic and diluted EPS             $ 0.19   $ 0.15   $ (0.47)
Goodwill amortization                          --     0.10      0.10
                                           ------   ------   -------
Adjusted basic and diluted EPS             $ 0.19   $ 0.25   $ (0.37)
                                           ======   ======   =======

<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 selling and administrative
expense were $9,750,000, $9,774,000 and $12,090,000 in 2003, 2002 and 2001,
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 fiscal years
2003 and 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.

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

                                        2003       2002      2001
                                       -------   -------   -------
(in thousands)

Net earnings available to basic and
   diluted shares                      $ 2,546   $ 2,020   $(6,189)
                                       =======   =======   =======

Weighted average common shares
   outstanding (Basic)                  13,167    13,152    13,135
Effect of dilutive stock options            38        41        --
                                       -------   -------   -------
Weighted average common shares and
   equivalents outstanding (Diluted)    13,205    13,193    13,135
                                       =======   =======   =======

As of November 30, 2003, December 1, 2002 and December 2, 2001, there were
1,415,937, 1,783,702 and 1,950,595 outstanding options, respectively, whose
exercise price was equal to or greater than the average market price of the
Company's common stock for the twelve months ended thereon, respectively. These
options are excluded from the computation of the effect of dilutive stock

<PAGE>

options shown in the table above. In addition, 32,192 options have been excluded
from the 2001 calculation shown above, due to their dilutive effect in
conjunction with the net loss incurred for fiscal year 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 years 2003, 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.

NOTE 2 - ACQUISITIONS, DISPOSALS AND RESTRUCTURING

On January 1, 1998, the Company, through a newly created subsidiary, The Wexford
Collection, Inc., acquired 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 and
$100,000 was collected during 2003). 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 2003 and 2002 and
$637,000 in 2001.

On October 31, 1998, the Company acquired all of the issued and outstanding
common stock of Mitchell Gold, a privately owned furniture manufacturing company
located in North Carolina. 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 allowed for a maximum purchase price of $32
million if certain earnings targets were 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. During April 2003, the Company completed
the sale of its Mitchell Gold manufacturing subsidiary. At the time of the sale,
Mitchell Gold's financial statements included total assets of $47,116,000 and
liabilities of $10,051,000, consisting of the following major classes of assets
(amounts in thousands):

<PAGE>

Accounts receivable                     $ 6,065
Inventory                                 6,488
Fixed assets                              7,003
Goodwil                                  26,342
Other assets                              1,218
                                        -------
Total assets                            $47,116
                                        =======

Accounts payable and accrued expenses   $ 5,196
Long-term debt                            4,855
                                        -------
Total liabilities                       $10,051
                                        =======

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

                          2003      2002      2001
                        -------   -------   -------
(in thousands)

Net shipments           $20,226   $65,794   $57,563

Interest expense        $   415   $ 1,665   $ 2,100

Earnings before taxes   $ 1,748   $ 7,419   $ 3,754

On August 1, 1999, the Company completed the acquisition of Storehouse, a
privately owned, 43 store chain of retail furniture stores headquartered in
Atlanta, Georgia. Storehouse has operations from Texas through the Southeast and
Mid-Atlantic markets. 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 November 30, 2003.

Storehouse is operated as a wholly-owned subsidiary of the Company, and its
operations are included in the Consolidated Statements of Operations and
Comprehensive Income (Loss) from its date of acquisition.

As previously reported, the Company restructured its retail operations by
combining the former Home Elements subsidiary into Storehouse, to operate under
the Storehouse name. During 2002, the Company recorded restructuring, store
closing and other charges relating to the restructuring; $2,319,000 in the
second quarter (of which $230,000 was reported in selling and administrative

<PAGE>

expenses), and an additional $262,000 in the fourth quarter, for a total of
$2,581,000. Of this total, $2,062,000 was utilized during 2002, with the
remaining $519,000 reserve available for lease termination costs expected to be
incurred in 2003 and beyond. Through November 30, 2003, $409,000 has been
expended in monthly lease payments and costs to sublease space. During 2003, the
Company entered into a sublease for certain space previously utilized by Home
Elements. Based upon the terms of the sublease, the Company recorded an
additional $225,000 charge for lease termination costs. The estimates of lease
termination costs, particularly in regards to subleased space, included
estimates of cost increases to be recognized in the future, such as incremental
increases in base rent and charges for operating expenses. Actual increases may
vary from those assumed at the time these costs were determined. As such
increases are realized, revisions to the recorded costs to sublease certain
space may be required, and will be recorded as they become known. The following
tables outline the components of the restructuring and related charges and the
balance of the reserve account as of November 30, 2003 and December 1, 2002.

                          12/1/02                          11/30/03
                          Reserve                Paid      Reserve
                          Balance   Revisions   To Date    Balance
                          -------   ---------   -------   ----------
(in thousands)
Lease termination costs    $519       $225       $409       $335
                           ====       ====       ====       ====

<TABLE>
<CAPTION>
                                                             Revisions
                                                             and Fixed             12/1/02
                                    Original     Non-Cash      Asset       Paid    Reserve
                                     Charges   Write-downs    Charges    To Date   Balance
                                    --------   -----------   ---------   -------   -------
<S>                                  <C>          <C>          <C>        <C>        <C>
(in thousands)

Non-cash write-downs of fixed
   assets to net realizable value    $  494       $494         $(494)     $   --     $ --

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

Lease termination costs                 720         --           262         463      519

Moving and relocation costs             130         --           (43)         87       --

Other costs                             616         --           210         826       --
                                     ------       ----         -----      ------     ----
                                     $2,319       $494         $(164)     $1,636     $519
                                     ======       ====         =====      ======     ====
</TABLE>

NOTE 3 - INVENTORIES

Inventory components are as follows:

                       2003      2002
                     -------   -------
(in thousands)
Retail merchandise   $19,149   $17,683
Finished goods         2,036     2,495

<PAGE>

Work-in-process        3,208     3,924
Raw materials          7,994    13,105
                     -------   -------
Total inventories    $32,387   $37,207
                     =======   =======

Retail merchandise is valued by Storehouse using the LIFO method to determine
cost. Had this inventory been valued using FIFO, retail merchandise and total
inventories would have increased by $535,000 and $385,000, respectively, over
the amounts shown above. The 2002 amounts include Mitchell Gold inventories
consisting of $4.2 million of raw materials; $600,000 of work-in-process and
$1.1 million of finished goods.

NOTE 4- PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

                                  2003     2002
                                -------   -------
(in thousands)
Land                            $   405   $   840
Buildings and improvements       32,515    38,755
Leasehold improvements           10,306     9,896
Machinery and equipment          43,337    45,277
Projects-in-process               1,849       713
                                -------   -------
                                $88,412   $95,481
Less accumulated depreciation    46,788    43,712
                                -------   -------
Net property and equipment      $41,624   $51,769
                                =======   =======

The 2002 amounts included the following amounts of Mitchell Gold property and
equipment (in thousands):

Land                            $   435
Buildings and improvements        6,472
Leasehold improvements               85
Machinery and equipment           3,223
Projects-in-process                  --
                                -------
                                $10,215
Less accumulated depreciation     3,002
                                -------
Net property and equipment      $ 7,213
                                =======

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

<PAGE>

                                  2003      2002
                                -------   -------
(in thousands)
Land                            $   198   $   198
Buildings and improvements       18,572    18,572
Machinery and equipment           6,230     6,230
                                -------   -------
                                $25,000   $25,000
Less accumulated amortization     1,627       608
                                -------   -------
Net property and equipment      $23,373   $24,392
                                =======   =======

NOTE 5- SHORT-TERM BORROWINGS

The following summarizes aggregate short-term borrowings:

                                                        2003    2002     2001
                                                        ----   ------   ------
(in thousands)

Amount outstanding at year end                          $  0   $    0   $9,368
Maximum amount outstanding at any month end                0    9,418    9,368
Average borrowings (based on weighted daily balances)      0    4,241    6,255
Weighted average interest rate during the year           n/a      5.8%     7.4%
Weighted average interest rate at year end               n/a      n/a      6.0%

NOTE 6 - LONG-TERM DEBT AND CAPITAL LEASES

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

                             2003     2002
                           -------   -------
(in thousands)

Capital lease obligation   $14,304   $22,763
Revolving bank loan         10,711    18,892
Term loan                    3,500    13,669
Mortgage loans               9,111     9,241
Industrial revenue bond         --     4,855
                           -------   -------

                            37,626    69,420
Less current maturities      3,314     5,945
                           -------   -------
Total long term debt       $34,312   $63,475
                           =======   =======

Utilizing proceeds from the sale of Mitchell Gold, combined with cash generated
from operations, the Company significantly reduced outstanding debt during 2003.
The industrial revenue bond was assumed by the purchaser of Mitchell Gold.

Capital Lease Obligation

<PAGE>

The term of the capital lease obligation was extended in December 2003 and
various provisions of the agreement were modified, and such terms are reflected
here and in the minimum required debt service requirements shown below. As a
result of this modification, the Company agreed to reduce the outstanding
balance to $13 million in December from $14.3 million at November 30, 2003, and
to repay the remaining balance in 59 monthly installments of $72,300 plus
interest at 30 day LIBOR plus a spread of 4%, currently approximately 5.13%. A
balloon payment of approximately $8.7 million is due in December 2008. The
Company also elected to hedge the variable interest rate risk associated with
this debt. The Company entered into an interest rate swap with a third party for
a notional principal amount of $9 million through November 2008. On this amount
of principal, the capital lease obligation becomes effectively a fixed rate
obligation at 7.65%. While 30 day LIBOR is below 3.65%, the Company pays the
counterparty the difference in interest between 3.65% and actual 30 day LIBOR.
If and when 30 day LIBOR exceeds 3.65%, then the counterparty will pay the
Company the difference. This swap has been determined to be fully effective over
its terms, and as such will be accounted for as a hedge, with changes in its
fair value recorded as a component of comprehensive income (loss).

Revolving Bank Loan

The revolving bank loan bears interest at 30 day LIBOR plus a spread of 2.25%,
currently approximately 3.38%. Up to $30 million may be advanced to the Company
under the terms of this loan, subject to availability. Availability is based
upon certain percentages of outstanding receivables and inventory, as defined in
the loan agreement. The revolving bank loan expires in May 2007.

Term Loan

The term loan bears interest at 30 day LIBOR plus a spread of 2.50%, currently
approximately 3.63%. The term loan is repayable in quarterly installments of
$250,000 through May 2007.

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

Mortgage Loans

The mortgage loans bear interest at 7.75%, and require monthly payments of
approximately $70,000 including interest based on a 25-year amortization period,
with balloon maturity in May 2012. The mortgage loans are secured by investment
properties located in California and Maryland.

Covenants

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

<PAGE>

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

The agreements also restrict the amount of capital expenditures and the
Company's ability to sell certain assets. Each of these facilities contain,
among other things, covenants with respect to a fixed charge coverage ratio
(defined generally as the ratio of consolidated earnings before interest, taxes,
depreciation and amortization ("EBITDA"), reduced by capital expenditures and
cash taxes, to consolidated debt service), maximum leverage ratio (defined
generally as the ratio of consolidated debt to consolidated EBITDA), and to
maintain a minimum borrowing availability ($3.0 million) and minimum
consolidated tangible net worth (defined generally as total equity reduced by
goodwill). As of November 30, 2003, the Company was in compliance with the
provisions of these agreements.

Minimum Debt Service Requirements

Minimum required debt service payments (including obligations under the capital
lease) for each of the five fiscal years subsequent to November 30, 2003, are
(in thousands) approximately $3,314 in 2004; $2,021 in 2005; $2,033 in 2006;
$12,257 in 2007; $1,061 in 2008; and $16,940 thereafter.

<PAGE>

NOTE 7- DEFERRED COMPENSATION PLANS

Effective December 1, 1986, as amended in 1991, the Company established deferred
compensation contracts for certain officers of the Company. The contracts fixed
a minimum level for retirement benefits to be paid to participants based on age
at retirement with the Company. The contracts are not funded. Charges to expense
were $53,000 in 2003, $63,000 in 2002, and $72,000 in 2001.

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 $118,000 in 2003, $167,000 in 2002 and $167,000 in 2001.

The Company had non-qualified retirement plans for certain personnel. These
plans were terminated during fiscal 2002 and all participants' deferred
compensation was distributed. The plans enabled participants to defer income on
a pre-tax basis and were not funded. The Company matched a portion of the
deferral for certain participants. The charges to expense were $0 in 2003,
$81,000 in 2002 and $189,000 in 2001.

NOTE 8- EMPLOYEE BENEFIT PLANS

The Company maintains 401(k) and savings plans that cover substantially all
employees. Contributions to the plans were $836,000 in 2003, $683,000 in 2002
and $714,000 in 2001.

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 $14,506,000 in 2003,
$15,858,000 in 2002 and $15,622,000 in 2001.

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 $2,028,000 in 2003, $1,947,000
in 2002 and $1,902,000 in 2001 and is included in other income in the
accompanying Consolidated Statements of Operations and Comprehensive Income
(Loss).

Minimum lease commitments at November 30, 2003, under long-term operating leases
are as follows:

<PAGE>

                 Lease Expense   Lease Income
                 -------------   ------------
(in thousands)
2004                $13,941         $1,579
2005                 11,942            457
2006                  8,341            366
2007                  5,956            273
2008                  4,196             42
Thereafter            7,922             --
                    -------         ------
                    $52,298         $2,717
                    =======         ======

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 $230,000 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 $1,500,000 up to $8,200,000 in 2003. Self-insurance costs are
accrued based upon the aggregate of the liability for reported claims and an
estimated liability for claims incurred but not reported.

Workers' Compensation Insurance Plan

The Company is responsible for workers compensation claims up to $250,000 per
incident. The Company maintains insurance for claims exceeding $250,000 and had
stop loss coverage starting at $3,000,000 in aggregate for fiscal year 2003. The
Company accrues its estimated claims based upon actuarial estimates as
determined by its claim administrator.

Employment Agreements

The Company has employment agreements with certain employees of the Company,
which provide for salary continuation of two years in the event of termination
of employment without cause. In addition, the Company has an agreement with an
officer, which provides annual salary of $792,000, adjusted for changes in the
consumer price index, through November 30, 2004. Payments under this agreement
were $888,000 in 2003 and $822,000 in 2002 and 2001.

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.

<PAGE>

NOTE 10 -INTEREST RATE HEDGING

In connection with the Company's capital 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 limited 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 expired 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 the swap contract was $566,000, as determined by quoted market prices, net of
taxes approximating $347,000. For 2002, fair value for both contracts totaled
$1,113,000, net of taxes of $682,000. The current portion, or amount expected to
be reclassified into earnings within the next year, is $566,000, net of taxes,
compared to $707,000 in 2002.

NOTE 11 -STOCK OPTION PLANS

The Company has two stock option plans as described below. The Company applies
APB Opinion 25, "Accounting for Stock Issued to Employees," and related
Interpretation in accounting for the plans. Under APB Opinion 25, because the
exercise price of the Company's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation cost is
recognized. Substantially all of the options granted during the three-year
period ended November 30, 2003 were fully vested at the grant date.

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

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

SFAS 123, "Accounting for Stock-Based Compensation," as amended by SFAS 148,
requires the Company to provide pro forma information regarding net income and
earnings per share as if compensation costs for the Company's stock option plans
had been determined in accordance with the fair value based method prescribed in
SFAS 123. The Company uses the intrinsic value method to account for stock-based
employee compensation. As the Company's awards of stock options carry an
exercise price equal to the fair market value of the stock on the date of grant,
no accounting cost is reflected in the Company's Consolidated Statements of
Operations. The Company estimated the fair value of each stock option at the
grant date by using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 2003, 2002 and 2001,
respectively; dividend yields of 0%, 0%, and 1.5%; expected volatility of 54.5%,
123.1%, and 77.2%; risk-free interest rates of 4.0%, 4.0% and 4.6%; and expected
lives of 4 years.

<PAGE>

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

<TABLE>
<CAPTION>
                                                             2003     2002      2001
                                                            ------   ------   -------
<S>                                                         <C>      <C>      <C>
(in thousands, except per share amounts)

Net earnings (loss), as reported                            $2,546   $2,020   $(6,189)
Earnings (loss) per share, basic, as reported               $ 0.19   $ 0.15   $ (0.47)
Earnings (loss) per share, diluted, as reported             $ 0.19   $ 0.15   $ (0.47)

Stock-based employee compensation cost, net of related
   taxes, included in net earnings (loss) as reported           --       --        --

Stock-based employee compensation cost, net of related
   taxes, that would have been included in net earnings
   (loss) if the fair value based method had been applied   $  159   $   95   $   208

Pro forma net earnings (loss), including the impact of
   applying the fair value based method                     $2,387   $1,925   $(6,397)

Pro forma earnings (loss) per share, basic                  $ 0.18   $ 0.15   $ (0.49)
Pro forma earnings (loss) per share, diluted                $ 0.18   $ 0.15   $ (0.49)
</TABLE>

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

<TABLE>
<CAPTION>
                               November 30, 2003       December 1, 2002         December 2, 2001
                             ---------------------   ---------------------   ---------------------
                                          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                    1,845,202     $6.62     1,982,787     $6.82     2,010,301     $7.32

Granted                         290,500      2.13       102,500      1.83       179,000      3.27

Exercised                        (2,500)     1.25       (37,192)     1.04       (27,568)     0.96

Forfeited                      (363,265)     6.78      (202,893)     7.13      (178,946)     9.81
                             ----------              ----------              ----------
Outstanding at end of year    1,769,937     $5.86     1,845,202     $6.62     1,982,787     $6.82
                             ==========              ==========              ==========
Weighted average fair
value of options granted
during the year              $     1.14              $     1.46              $     1.84
</TABLE>

<PAGE>

The following table summarizes information about fixed stock options outstanding
at November 30, 2003.

<TABLE>
<CAPTION>
                                      Options Outstanding                         Options Exercisable
--------------------------------------------------------------------------   ----------------------------

                                              Weighted            Weighted                       Weighted
                        Number                 Average             Average         Number         Average
Range of            Outstanding at            Remaining           Exercise    Exercisable at     Exercise
Exercise Prices   November 30, 2003   Contractual Life (Years)      Price    November 30, 2003     Price
---------------   -----------------   ------------------------   ---------   -----------------   --------

<S>                   <C>                         <C>              <C>           <C>              <C>
$1.25 - $2.15           354,000                   9                $ 1.98          176,319        $ 1.83

3.19 - 5.00             491,281                   3                  4.21          491,281          4.21

6.25 - 7.67             351,032                   4                  6.66          351,032          6.66

8.07 - 9.20             474,899                   5                  8.92          474,899          8.92

10.28 - 10.68            98,725                   4                 10.43           37,125         10.68
                      ---------                                                  ---------

                      1,769,937                                    $ 5.86        1,530,656        $ 6.12
                      =========                                                  =========
</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:

                                   2003      2002      2001
                                  ------   -------   -------
(in thousands)
Current                           $  771   $(1,856)  $(5,710)
Deferred                             333       961     1,171
                                  ------   -------   -------

Total taxes on income (benefit)   $1,104   $  (895)  $(4,539)
                                  ======   =======   =======

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

<PAGE>

                                                   2003      2002
                                                 -------   -------
(in thousands)
Deferred compensation                            $   726   $   757
Receivables                                          514     1,164
Deferred rent                                        444       463
Cash flow hedge                                      347       682
Restructuring                                        127       197
State net operating loss carryforwards             1,291       942
Other                                                438       538
                                                 -------   -------

Gross deferred tax assets                          3,887     4,743
Less valuation allowance                          (1,291)     (942)
                                                 -------   -------
Net deferred tax asset                             2,596     3,801
                                                 -------   -------

Property and equipment                             1,986     2,527
Investment property                                1,796     1,844
Inventories                                          713       383
                                                 -------   -------
Gross deferred tax liability                       4,495     4,754
                                                 -------   -------
Net deferred tax liability                       $(1,899)  $  (953)
                                                 =======   =======
Included in balance sheet:

   Deferred income tax asset - current           $   880   $ 2,118
   Deferred income tax liability - non-current    (2,779)   (3,071)
                                                 -------   -------
Net deferred tax liability                       $(1,899)  $  (953)
                                                 =======   =======

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

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

<PAGE>

<TABLE>
<CAPTION>
                                                         2003      2002      2001
                                                        ------   -------   -------
<S>                                                     <C>      <C>       <C>
(in thousands)
Income tax expense (benefit), computed at the
   statutory rate                                       $  715   $(1,098)  $(4,484)
State income taxes, net of federal income tax benefit      106        96      (183)
Goodwill                                                    --       249       249
Life insurance transactions                                (88)     (104)     (101)
Nondeductible and other items, net                         371       (38)      (20)
                                                        ------   -------   -------
Total taxes on income (refundable)                      $1,104   $  (895)  $(4,539)
                                                        ======   =======   =======
</TABLE>

NOTE 13- MAJOR CUSTOMER INFORMATION

Shipments to the Company's top three customers as a percent of net shipments
were 7% in 2003, 8% in 2002 and 8% in 2001. Shipments to the Company's top ten
customers, as a percent of net shipments, amounted to 13% in 2003, 14% in 2002
and 16% 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. The retail home
furnishings segment sells home furnishings and accessories to customers through
Company-owned stores. These products consist of upholstered furniture (largely
obtained from the wholesale home furnishings segment), case goods and home
accessories. The other category is comprised of additional subsidiaries reviewed
by management including parent company expenses.

<PAGE>

<TABLE>
<CAPTION>
                                  Wholesale      Retail
                                     Home         Home
                                 Furnishings   Furnishings             Inter-segment
                                   Segment       Segment      Other     Eliminations   Consolidated
                                 -----------   -----------   -------   -------------   ------------
<S>                                <C>          <C>          <C>         <C>             <C>
(in thousands)
    2003

Net shipments                      $176,315     $122,968     $    --     $(19,898)       $279,385
Interest expense                      2,448        1,219         795           --           4,462
Depreciation and amortization         4,045        2,465         410           --           6,920
Earnings(loss) from continuing
   operations before taxes           11,194       (6,925)     (2,287)         122           2,104

Capital expenditures                  2,412        1,286         214           --           3,912
Total assets                        118,216       45,994      44,688      (78,830)        130,068

    2002

Net shipments                      $177,351     $111,789     $    --     $(19,056)       $270,084
Interest expense                      1,623        1,762         931           --           4,316
Depreciation and amortization         3,974        3,051         424           --           7,449
Earnings(loss) from continuing
   operations before taxes           13,033      (13,735)     (2,231)        (297)         (3,230)

Capital expenditures                  1,111        1,479         523           --           3,113
Total assets                        121,205       43,651      39,457      (79,917)        124,396

    2001

Net shipments                      $172,914     $113,959     $    --     $(17,972)       $268,901
Interest expense                        254        2,021         487           --           2,762
Depreciation and amortization         3,656        3,025         438           --           7,119
Earnings(loss) from continuing
   operations before taxes              112      (11,033)     (2,230)         341         (12,810)

Capital expenditures                  1,258        1,870          35           --           3,163
Total assets                         91,757       45,876      22,400      (42,872)        117,161
</TABLE>

The consolidated amounts shown above for capital expenditures and total assets
exclude amounts for the discontinued Mitchell Gold and Wexford segments. For
these discontinued segments capital expenditures (in thousands) were $83, $214
and $154 for 2003, 2002, and 2001, respectively and total assets were $0,
$49,896 and $37,954 for 2003, 2002 and 2001, respectively.

<PAGE>

NOTE 15 - QUARTERLY FINANCIAL INFORMATION

<TABLE>
<CAPTION>
Quarter                                           First     Second    Third     Fourth
                                                 -------   -------   -------   -------
<S>                                              <C>       <C>       <C>       <C>
(in thousands, except per share amounts)
   2003
Net shipments                                    $63,719   $68,059   $70,152   $77,455

Gross profit                                      22,343    23,963    25,451    29,380

Net earnings (loss) from continuing operations      (812)     (642)     (178)    2,632

Net earnings (loss)                                    3        89      (178)    2,632

Net earnings (loss) from continuing operations
   per common share                                (0.06)    (0.05)    (0.01)     0.20

Net earnings (loss) per common share                  --      0.01     (0.01)     0.20

Net earnings (loss) from continuing operations
   per common share assuming dilution              (0.06)    (0.05)    (0.01)     0.20

Net earnings (loss) per common share
   assuming dilution                                  --      0.01     (0.01)     0.20

   2002
Net shipments                                    $65,745   $67,582   $69,094   $67,663

Gross profit                                      23,238    24,294    23,564    25,525

Net earnings (loss) from continuing operations       (41)   (1,724)     (622)       52

Net earnings (loss)                                  699    (1,366)      554     2,133

Net earnings (loss) from continuing operations
   per common share                                   --     (0.13)    (0.05)       --

Net earnings (loss) per common share                0.05     (0.10)     0.04      0.16

Net earnings (loss) from continuing operations
   per common share assuming dilution                 --     (0.13)    (0.05)       --

Net earnings (loss) per common share
   assuming dilution                                0.05     (0.10)     0.04      0.16
</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. The
results of operations for the first quarter of 2003 and 2002 have been restated
to reflect the discontinued operations of Mitchell Gold.

<PAGE>

NOTE 16 - RECENT ACCOUNTING PRONOUNCEMENTS

As of the date of this annual report, there are no recently issued accounting
pronouncements that are expected to have a material impact on the Company's
current accounting or financial reporting activities. The Financial Accounting
Standards Board has initiated discussions with the intent to issue a new
statement in 2004 (with an initial adoption date of fiscal 2005) that would,
among other things, require companies that award stock options to employees to
account for those options using fair value based methods. This would require the
Company to change its accounting for the stock options it has issued and
anticipates continuing to issue in the future, resulting in a charge to expense
to be determined in accordance with such pronouncements. Such charges may or may
not be similar to those pro forma disclosures reported in accordance with
existing pronouncements in Note 11. As these discussions have not been
finalized, the Company is unable to determine the impact of this change on its
historical or future financial position or results of operations.

Stock Price and Dividend Data

                       Market Price
                       ------------
       Quarter Ended    High    Low
       -------------    ----   ----

2003   March 2          2.75   1.76
       June 1           2.30   1.72
       August 31        1.99   1.56
       November 30      3.00   1.75

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

The Company's common stock is currently traded on the American Stock Exchange
under the symbol ROW. Prior to March 2003, the Company's common stock traded on
the New York Stock Exchange under the same symbol. On December 1, 2003, the
Company had approximately 950 stockholders of record.

The Company has not paid any cash dividends on its common stock during the past
two years, and is prohibited from paying cash dividends by the Company's capital
lease obligation, revolving bank loan and term loan agreements. See Note 6 of
the Notes to Consolidated Financial Statements.

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

<PAGE>

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.  20007
                                    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 on Form 10-K for the fiscal year ended
November 30, 2003 filed 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

The annual meeting of stockholders will be held at 10:00 a.m. on Tuesday, April
13, 2004 at the Ritz Carlton - 1700 Tysons Blvd., McLean, Virginia.

<PAGE>

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.
Chairman of the Stock Option Committee
Member of the Audit and Executive Committees

Harvey I. Ptashek
Retired - Senior Vice President
Member of the Audit and Executive Committees

Charles T. Rosen
Retired - Vice President - Luth Research, Inc.
Chairman of the Compensation Committee
Member of the Audit, Executive and Stock Option Committees

Keith J. Rowe
Private Investor
Member of the Audit, Executive and Compensation Committees

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

<PAGE>

Allan Tofias
Former Managing Partner - Tofias, Fleishman,
Shapiro & Company, P.C.
Chairman of the Audit Committee
Member of the Audit, Executive and Stock Option Committees

Gerald O. Woodlief
Retired - Senior Vice President
Chairman of the Executive Committee
Member of the Audit, Compensation and Executive Committees

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

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