<PAGE>   1


                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM 10-Q


          [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

               For The Quarterly Period Ended September 28, 1996
               -------------------------------------------------
                                       OR

         [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
            FOR THE TRANSITION PERIOD FROM        TO 
                                           ------    ------

                         Commission file number 0-18446

                              FAIRWOOD CORPORATION
                              --------------------
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
           <S>                                          <C>
                    DELAWARE                              13-3472113
                    --------                              ----------
           (State or other jurisdiction of                (I.R.S. Employer
           incorporation or organization)               Identification No.)
</TABLE>

One Commerce Center
1201 N. Orange St., Suite 790, Wilmington, DE        19801
-------------------------------------------------------------
(Address Of Principal Executive Offices)           (Zip Code)

                                 (302) 884-6749
                                 --------------
              (Registrant'S telephone number, including area code)

                                 Not Applicable
              (Former name, former address and former fiscal year,
                         if changed since last report)


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

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
<TABLE>
<CAPTION>
                                                       Outstanding At
          Class                                      September 28, 1996
          -----                                      ------------------
<S>                                                          <C>
Class A Voting, $.01 Par Value                                   500
-------------------------------                      ------------------

Class B Non-Voting, $.01 Par Value                           999,800
----------------------------------                   ------------------   
</TABLE>
<PAGE>   2

                     FAIRWOOD CORPORATION AND SUBSIDIARIES
                     Condensed Consolidated Balance Sheets
                    (Dollars in thousands except share data)



<TABLE>
<CAPTION>
                                                             September 28,    December 31,
                           Assets                                 1996            1995   
                           ------                            ------------     -----------
                                                              (Unaudited)      (Audited)
<S>                                                          <C>                 <C>
Current Assets:

  Cash and cash equivalents                                   $      903          4,264 
                                                                --------         ------ 

  Accounts and notes receivable:
    Trade                                                         24,896         29,545
    Due from affiliate                                             2,693          1,293
    Other                                                            718          1,542 
                                                                --------         ------
                                                                  28,307         32,380
    Less allowance for discounts and doubtful accounts             1,774          1,857
    Less advances from factor                                     11,087         14,443 
                                                                --------         ------ 
                                                                  15,446         16,080 
                                                                --------         ------ 

  Inventories                                                     13,556         14,394

  Prepaid expenses and other current assets                        2,067          2,524 
                                                                --------         ------

               Total current assets                               31,972         37,262 
                                                                --------         ------ 


Property, plant and equipment, at cost                            31,261         30,875
  Less accumulated depreciation and amortization                  18,361         16,841 
                                                                --------         ------
                                                                  12,900         14,034 
                                                                --------         ------ 


Other assets                                                       2,126          2,125 
                                                                --------         ------


                                                             $    46,998         53,421  
                                                                ========         ======  
</TABLE>

                                                                     (Continued)

                                     - 2 -
<PAGE>   3



                     FAIRWOOD CORPORATION AND SUBSIDIARIES
                     Condensed Consolidated Balance Sheets
                    (Dollars in thousands except share data)
<TABLE>
<CAPTION>



                                                            September 28,    December 31,
                 Liabilities and Deficit                         1996            1995    
                 -----------------------                    -------------    ------------
                                                             (Unaudited)      (Audited)
<S>                                                          <C>             <C>
Current Liabilites:
  Current maturities of long-term debt:
    Revolving credit                                          $  187,222              -
    Senior subordinated debentures                                80,000              -
    Senior subordinated pay-in-kind debentures                   105,853        105,853
    Merger debentures                                             62,928         62,928
    Other                                                            180            170
  Overdraft                                                        1,457              -
  Accounts payable                                                 6,152          6,587
  Accrued expenses                                                76,739         46,820
  Federal and state income taxes                                   5,691          5,719
                                                               ---------      ---------

               Total current liabilities                         526,222        228,077
                                                               ---------      ---------
Long-term debt:
  Revolving credit                                                     -        171,369
  Senior subordinated debentures                                       -         80,000
  Senior subordinated pay-in-kind debentures                           -              -
  Merger debentures                                                    -              -
  Other                                                              190            370
                                                               ---------      ---------

                                                                     190        251,739

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

Deferred income taxes                                              1,318          1,318
Other liabilities                                                  3,611          3,222
                                                               ---------      ---------

                                                                   4,929          4,540
                                                               ---------      ---------
Redeemable preferred stock:
  Junior preferred, cumulative, par value $.01 per share             100            100
                                                               ---------      ---------
Common stock and other shareowners' deficit:
  Common stock and additional paid-in capital                     55,948         55,948
  Minimum pension liability                                    (     956)     (     956)
  Retained deficit                                             ( 539,435)     ( 486,027)
                                                               ---------      --------- 

                                                               ( 484,443)     ( 431,035)
                                                               ---------      ---------

                                                              $   46,998         53,421
                                                               =========      ========= 
</TABLE>
See accompanying notes to the Unaudited Condensed Consolidated Financial 
Statements.




                                     - 3 -
<PAGE>   4


                     FAIRWOOD CORPORATION AND SUBSIDIARIES

           Unaudited Condensed Consolidated Statements Of Operations

                                 (In Thousands)



<TABLE>
<CAPTION>
                                     Three Months Ended              Nine Months Ended    
                               ---------------------------     ---------------------------

                               September 28,  September 30,    September 28,  September 30,
                                    1996           1995             1996           1995    
                               -------------  -------------    -------------  -------------
<S>                              <C>             <C>             <C>             <C>
Net sales                        $  34,422         38,473          110,413        136,277
                                   -------        -------          -------        -------


Cost of sales                       31,528         35,015          101,958        123,500
Selling, administrative and
  general expenses                   4,996          6,444           16,870         22,364
                                   -------        -------          -------        -------

                                    36,524         41,459          118,828        145,864
                                   -------        -------          -------        -------

Operating loss                    (  2,102)      (  2,986)        (  8,415)      (  9,587)


Interest income                         19             84              189            187


Interest on indebtedness          ( 15,073)      ( 14,751)       ( 44,700)       ( 43,808)


Other income (expenses), net      (     76)      (    199)       (    440)       (     36)
                                   -------        -------          -------        ------- 

Income (loss) before income
  taxes                           ( 17,232)      ( 17,852)       ( 53,366)       ( 53,244)

Provision for income taxes               -              -               -               -
                                   -------        -------         -------         -------

Net income (loss)                $( 17,232)      ( 17,852)       ( 53,366)       ( 53,244)
                                   =======        =======         =======         ======= 
</TABLE>


See accompanying notes to the Unaudited Condensed Consolidated Financial
Statements.

                                     - 4 -
<PAGE>   5



                     FAIRWOOD CORPORATION AND SUBSIDIARIES
           Unaudited Condensed Consolidated Statements of Cash Flows
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                     Nine Months Ended      
                                                          ----------------------------------------
                                                          September 28, 1996    September 30, 1995
                                                          ------------------    ------------------
<S>                                                          <C>                   <C>
Cash flows from operating activities:
  Net loss                                                   $ ( 53,366)           ( 53,244)
  Adjustments to reconcile net loss to net cash
    provided by operating activities:
      Depreciation and amortization                               1,623               1,573
      (Gain) loss on sale of property, plant and equipment     (    122)           (     59)
  Changes in assets and liabilities:
        Accounts receivable                                       3,990               3,684
        Inventories                                                 838            (    183)
        Prepaid expenses and other current assets                   457            (     60)
        Overdraft                                                 1,457                   -
        Accounts payable                                       (    435)                310
        Accrued expenses                                         29,919              18,472
        Other, net                                                  360            (    250)
                                                                -------             ------- 
Cash used - operating activities                               ( 15,279)           ( 29,757)
                                                                -------             ------- 

Cash flows from investing activities:
  Proceeds from sale of Super Sagless assets                          -              15,750
  Capital expenditures                                         (    523)           (  1,772)
  Disposition of property, plant and equipment                      156                 427
                                                                -------             -------
Cash provided - investing activities                           (    367)             14,405
                                                                -------             -------

Cash flows from financing activities:
  Proceeds from revolving credit agreement                       15,853              26,743
  Proceeds from factoring of receivables                              -              15,568
  Repayment of revolving credit agreement and other            (    170)           ( 27,160)
  Repayment of proceeds to Factor                              (  3,356)                  -
             
           
  Dividends                                                    (     42)           (     36)
                                                                -------             -------
Cash provided - financing activities                             12,285              15,115
                                                                -------             -------

Increase (decreases) in cash and cash equivalents              (  3,361)           (    237)
Cash and cash equivalents:
  Beginning of period                                             4,264               4,615
                                                                -------             -------
  End of period                                              $      903               4,378 
                                                                =======             =======
Supplemental schedule of cash flow information
----------------------------------------------
Cash paid during year for:
  Interest                                                   $   16,328              27,139
  Income taxes                                                       28                   3
</TABLE>

Cash and cash equivalents include cash in banks and highly-liquid short-term
investments having a maturity of three months or less on date of purchase.


See accompanying notes to Unaudited Condensed Consolidated Financial
Statements.

                                     - 5 -
<PAGE>   6



                     FAIRWOOD CORPORATION AND SUBSIDIARIES

         Notes to Unaudited Condensed Consolidated Financial Statements


1. In the opinion of management, the accompanying unaudited condensed
   consolidated financial statements include all adjustments, consisting of
   only normal recurring adjustments, to present fairly the results of
   operations for the three and nine months ended September 28, 1996 and
   September 30, 1995, the financial position at September 28, 1996 and
   December 31, 1995 and the cash flows for the nine months ended September 28,
   1996 and September 30, 1995.  The results of operations for the three and
   nine month periods ended September 28, 1995 are not necessarily indicative
   of the results to be expected for the full year.

2. The accompanying unaudited condensed consolidated financial statements
   should be read in conjunction with Fairwood Corporation ("Fairwood") and
   subsidiaries audited financial statements included in the 1995 annual report
   on Form 10-K.  Certain reclassifications of 1995 balances have been made to
   conform with 1996 presentation.

3. As of September 28, 1996 and pursuant to the terms of the accounts
   receivable Factoring Agreement entered into during 1995 by Stratford Company
   ("Stratford"), a division of a wholly-owned subsidiary of Fairwood,
   receivables sold which remain to be collected approximated $14.2 million, of
   which approximately $.8 million were sold with recourse.

4. All inventories (materials, labor and overhead) are valued at the lower of
   cost or market using the last-in, first-out (LIFO) method.  The components
   of inventory, in thousands, are as follows:

<TABLE>
<CAPTION>
                                      September 28, 1996         December 31, 1995
                                      ------------------         -----------------
                                          (Unaudited)               (Audited)
         <S>                                <C>                       <C>
         Raw materials                      $ 12,778                  12,857
         In process                            3,485                   3,532
         Finished goods                        7,456                   8,063
                                              ------                  ------
         Inventories at first-in,
           first-out                          23,719                  24,452
         LIFO reserve                         10,163                  10,058
                                              ------                  ------
         Inventories at LIFO                $ 13,556                  14,394
                                              ======                  ======

</TABLE>


5. No provision for federal income taxes has been provided during the nine
   months ended September 28, 1996 and September 30, 1995, as the Company is in
   a net operating loss carryforward position, and the valuation allowance has
   been increased to offset any future benefit from these positions.

6. The Internal Revenue Service ("IRS") has completed an audit examination of
   the consolidated Federal income tax returns of Fairwood and its subsidiaries
   for the years ended July 11, 1988 through December 31, 1991 and has
   delivered to Fairwood a "30-day letter" and revenue Agent's Report ("RAR")
   proposing to adjust Fairwood's taxable income in the years in issue and in
   prior years to which net operating losses of the  Consolidated  Group  were
   carried  back.   The cumulative proposed deficiency in Federal income tax 
   arising from all of the proposed adjustments is approximately $70 million, 
   before applicable statutory interest.  Fairwood estimates that the 
   aggregate proposed liability if all issues were resolved unfavorably would,
   together with statutory interest

                                     - 6 -

<PAGE>   7

                     FAIRWOOD CORPORATION AND SUBSIDIARIES

         Notes to Unaudited Condensed Consolidated Financial Statements


   and state income tax, total approximately $115 million.  Fairwood believes
   that the proposed adjustments are in error and is vigorously contesting this
   matter.  Under available administrative procedures, Fairwood had protested
   the proposed adjustments and has had a series of conferences with the IRS
   Appeals division regarding the issues. Moreover, recent tax legislation
   passed by both houses of Congress and awaiting President Clinton's signature
   would, on a retroactive basis, resolve in the Company's favor one of the
   issues in the case.  The passage of recent tax legislation and certain
   retroactive provisions will substantially reduce the Company's obligation.
   The Company and the IRS Appeals Office handling the case have tentatively
   reached an agreement in principle regarding the settlement of the principal
   issues in the case.  A final settlement on that basis is estimated to be
   approximately $4.4 million and is included in Federal and state income taxes
   on the accompanying unaudited condensed consolidated balance sheets.
   However, the terms of such a tentative settlement are subject to further
   review by the IRS and by the Joint Committee on Taxation, and no assurance
   can be given that any such settlement will be reached with the Appeals
   division.  Depending on the outcome of the discussion of the issues with the
   IRS Appeals division, Fairwood may litigate one or more of the issues in the
   case.  The Company cannot predict the ultimate outcome of these issues, nor
   the impact on its financial statements.

7. On each of April 1, 1995, October 1, 1995, April 1, 1996 and October 1,
   1996, Fairwood failed to make the required interest payments due on the
   senior subordinated pay-in-kind debentures and merger debentures
   (collectively, the "Fairwood Debentures") and Fairwood does not expect to
   make the cash interest payments required under the Fairwood Debentures on
   any future semi-annual interest payment dates.  Accrued interest of $54.1
   million on the Fairwood Debentures, which includes $32.8 million due to
   Court Square Capital Limited ("CSCL"), an affiliate, is included in accrued
   expenses on the accompanying unaudited condensed consolidated balance sheet
   as of September 28, 1996. An involuntary Chapter 7 petition was filed on
   January 3, 1996 in the United States Bankruptcy Court for the Southern
   District of New York against Fairwood Corporation by certain bondholders.
   In response to the bankruptcy filing, on April 22, 1996, Fairwood and
   certain other entities filed a cross-motion seeking the dismissal of the
   petition. A motion was presented at a hearing on June 7, 1996 to dismiss the
   petition and the judge reserved decision.  If Fairwood is unsuccessful in
   obtaining dismissal, Fairwood may convert the Chapter 7 case to a Chapter 11
   case or permit a trustee to be appointed as part of a Chapter 7 proceeding.

8. Consolidated Furniture's revolving line of credit and senior subordinated
   debentures mature on January 2, 1997 and, accordingly, have been classified
   as current liabilities in the accompanying unaudited condensed consolidated
   balance sheet of the Company as of September 28, 1996.  Consolidated
   Furniture expects to negotiate an extension of these maturity dates prior to
   January 2, 1997.

   The failure to make the April 1, 1995 and subsequent period interest
   payments constitutes an event of default which permits the acceleration of
   the Fairwood Debentures by demand of the holders of the requisite aggregate
   principal amount of the debentures, subject to a 180-day acceleration
   blockage provision.  Upon acceleration, the Fairwood Debentures would be
   currently due and payable.  Accordingly, the Fairwood Debentures have been
   classified as current liabilities in the accompanying unaudited condensed 
   consolidated balance sheet as of September 28, 1996.

                                     - 7 -

<PAGE>   8


Item 2.

                     FAIRWOOD CORPORATION AND SUBSIDIARIES

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

                           AND RESULTS OF OPERATIONS


Certain information set forth or incorporated by reference herein contains
forward-looking statements as such term is defined in Section 27A of the
Securities Act of 1933 as amended and Section 21E of the Securities Exchange
Act of 1934, as amended.

Liquidity and Capital Resources

At September 28, 1996, The Company had total indebtedness of approximately
$436.4 million of which approximately $436.2 million was current (excluding
$54.1 million of accrued interest on the Fairwood Debentures).  At September
28, 1996, $373.1 million of the Company's total debt is owed to CSCL, an
affiliate.  Total indebtedness was approximately $420.7 million at December 31,
1995, of which $357.2 million was owed to CSCL (excluding $33.8 million of
accrued interest on the Fairwood Debentures).  The Company's outstanding
indebtedness includes its senior subordinated pay-in-kind debentures and merger
debentures (collectively, the "Fairwood Debentures"). Fairwood had the option
during the first five years to pay interest on the Fairwood Debentures either
through cash payments or through the distribution of additional securities.
During such five-year period, Fairwood distributed additional securities in
satisfaction of its interest obligations.

Fairwood is a holding company with no operations.  The Company has effectively
no cash flow from its subsidiaries because the cash produced by the operations
of the subsidiaries is not expected for the foreseeable future to be sufficient
to permit the subsidiaries to transfer funds to Fairwood.  Fairwood's sole
asset is the stock of Consolidated Furniture Corporation ("Consolidated
Furniture"), its wholly-owned subsidiary.  Fairwood's obligations under the
Fairwood Debentures are secured by Fairwood's pledge of its interest in
Consolidated Furniture's stock.  CSCL, as holder of Fairwood's senior
subordinated pay-in-kind debentures, has a first priority security interest in
all of the outstanding stock of Consolidated Furniture, and the holders of the
merger debentures have a second priority security interest in such stock.  The
Fairwood Debentures are obligations of Fairwood. Consolidated Furniture is not
an obligor under the Fairwood Debentures.  However, Consolidated Furniture is
an obligor under the Credit Agreement with CSCL.  The Credit Agreement does not
permit Consolidated Furniture to borrow funds and transfer them to Fairwood to
enable Fairwood to make cash interest payments on the Fairwood Debentures. The
borrowings under the Credit Agreement are secured by substantially all of the
assets of Consolidated Furniture.  Consolidated Furniture is also a holding
company without operations.  Its primary asset is the outstanding
stock of Furniture Comfort Corporation ("Furniture Comfort"), which has
operations that it conducts through its two divisions, Stratford and
Barcalounger.  Furniture Comfort is also a direct obligor under the Credit
Agreement and has pledged substantially all of its assets to secure the
obligations under the Credit Agreement.  Furniture Comfort  is not an obligor
on the Fairwood Debentures.



                                     - 8 -


<PAGE>   9

On each of April 1, 1995, October 1, 1995, April 1, 1996 and October 1, 1996,
the Company failed to make the required interest payments due on the Fairwood
Debentures and Fairwood does not expect to make the cash interest payments
required under the Fairwood Debentures on any future semi-annual interest
payment dates.  Accrued interest of $54.1 million on the Fairwood Debentures,
which includes $32.8 million due to CSCL, is included in accrued expenses on
the accompanying unaudited condensed consolidated balance sheet as of September
28, 1996.

An involuntary Chapter 7 petition was filed on January 3, 1996 in the United
States Bankruptcy Court for the Southern District of New York against Fairwood
Corporation by certain bondholders.  In response to the bankruptcy filing, on
April 22, 1996, Fairwood and certain other entities filed a cross-motion
seeking the dismissal of the petition.  A motion was presented at a hearing on
June 7, 1996 to dismiss the petition and the judge reserved decision.  If
Fairwood is unsuccessful in obtaining dismissal, Fairwood may convert the
Chapter 7 case to a Chapter 11 case or permit a trustee to be appointed as part
of a Chapter 7 proceeding.

The failure to make the April 1, 1995 and subsequent period interest payments
constitutes an event of default which permits the acceleration of the Fairwood
Debentures by the demand of the holders of the requisite aggregate principal
amount of the debentures, subject to a 180-day acceleration blockage provision.
Upon acceleration, the Fairwood Debentures would be due and payable.
Accordingly, the Fairwood Debentures have been classified as current
liabilities in the accompanying unaudited condensed consolidated balance sheet
as of September 28, 1996.

Consolidated Furniture, Fairwood's wholly-owned subsidiary, is expected to
service its interest payment obligations under the Credit Agreement and senior
subordinated debentures from its cash flow from operations and available credit
facilities.  Throughout 1995 and the first nine months of 1996, Consolidated
Furniture funded interest obligations related to long-term indebtedness on the
revolving line of credit and the senior subordinated debentures through
increased borrowings from CSCL under the Credit Agreement.  Borrowings from
CSCL during the first nine months of 1996 were approximately $15.9 million.
There were no repayments to CSCL during the first nine months of 1996.
Consolidated Furniture is dependent upon CSCL for funding of its debt service
costs. CSCL has in the past increased its revolving credit line to Consolidated
Furniture in order for Consolidated Furniture to meet its debt service
obligations on the revolving line of credit and the senior subordinated
debentures.  Under the Credit Agreement, Consolidated Furniture and its
subsidiaries are generally prohibited from transferring moneys to Fairwood with
the exception of amounts for (a) specified administrative expenses of Fairwood
and (b) payment of income taxes. The senior subordinated debentures, senior
subordinated pay-in-kind debentures and merger debentures also have certain
restrictions as to the payment and transfer of moneys.  Management believes
that cash flow from operations and funding from CSCL will be adequate to meet
Consolidated Furniture's obligations on the revolving line of credit and the
senior subordinated debentures through December 31, 1996.

Consolidated Furniture's revolving line of credit and senior subordinated
debentures mature on January 2, 1997 and, accordingly, have been classified
as current liabilities in the accompanying unaudited condensed consolidated
balance sheet as of September 28, 1996. Consolidated Furniture expects to
negotiate an extension of these maturity dates with CSCL prior to January 2,
1997.  However, there can be no assurances that the Company will be able to
negotiate such an extension, or that the terms of such extension will not be on
terms less favorable than those currently in place.


                                     - 9 -
<PAGE>   10

There can be no assurance that Fairwood will be able to continue as a going
concern.  A  Bankruptcy Petition was filed against Fairwood on January 3, 1996
by certain holders of the merger debentures.  A motion was presented at a
hearing on June 7, 1996 to dismiss the petition and the judge reserved
decision.  There is no way to know what the outcome of the judge's decision
will be.  At this time no decision has been made by Fairwood concerning its
alternatives should the Court not dismiss the Petition.

For a discussion of the status of the IRS examination, refer to Fairwood's
audited consolidated financial statements as of December 31, 1995 included in
Fairwood's Form 10-K, and footnote 6 to Fairwood's unaudited condensed
consolidated financial statements included herein.

Results of Operations

Three Months Ended September 28, 1996 Versus Three Months Ended September 30,
1995

The following discussion presents the material changes in results of operations
which have occurred in the third quarter of 1996 in comparison to the same
period in 1995.

Consolidated net sales were approximately $34.4 million in the third quarter of
1996, a decrease of 10.6% from last year's third quarter consolidated net sales
of approximately $38.5 million, due primarily to a reduction of sales at
Stratford.

Third quarter 1996 net sales (including intercompany sales) by the Stratford
Company decreased to approximately $25.6 million as compared to $31.0 million
for the comparable period in 1995 or 17.4%.  The decrease in net sales due to
decreases in sales volume and changes in selling prices is partially offset by
new sales to Simmons Upholstered Furniture Corporation ("Simmons") of
approximately $3.4 million for the third quarter of 1996.  Third quarter sales
in 1996 to Stratford's larger national retail chain customers decreased 28.9%,
while sales to smaller retail furniture store customers decreased 26.0%. Total
Stratford volume, excluding sales to Simmons, decreased 19.7% during the third
quarter of 1996 as compared to 1995.  Volume to Stratford's larger national
retail chain customers decreased 19.4%, while volume to Stratford's smaller
retail furniture store customers decreased 20.0%.  Sales declines at Stratford
are the result of continuing internal and external factors compounded further
by industry-wide softness in moderately priced residential furniture sales, the
market that Stratford services and targets. Stratford's market strategy
started, in 1995 to discontinue low margin and slow moving styles in
conjunction with more stringent credit and sales terms, resulted in expected
sales declines with smaller retail customers that have not abated.  Sales to
larger national retail customers have and are decreasing primarily due to
ongoing conditions involving: (1) customer's reductions of inventory levels,
(2) consolidation of national customer stores, resulting in fewer sales
outlets, (3) conflicts over Stratford's price increases and  (4) the reduction
and or elimination of furniture departments and sales.

Stratford's average selling prices decreased an average of 9.5%.  Excluding
sales to Simmons, who became an affiliate during November 1995, net sales
for the third quarter of 1996 were approximately $22.2 million compared to
approximately $31.0 million for the third quarter of 1995, a decrease of 28.4%.

Third quarter 1996 net sales by Barcalounger increased 18.3% to approximately
$9.7 million as compared to $8.2 million for the comparable period in 1995.
This increase in sales  reflects an increase in total volume of 10.9%, and a
5.8% increase in average sales prices.



                                     - 10 -


<PAGE>   11

Consolidated cost of sales decreased 10.0% in the third quarter of 1996 to
$31.5 million, or 91.6% of net sales, as compared to $35.0 million, or 91.0% of
net sales, in 1995. Stratford Company cost of sales increased slightly to 95.5%
of net sales in the third quarter of 1996, as compared to 93.8% in the third
quarter of 1995.  The increase is the result of an increase in overhead costs
as a percentage of net sales.  Barcalounger cost of sales increased in the
third quarter of 1996 to 82.1% of net sales, as compared to 80.5% of in the
third quarter of 1995.

Consolidated selling, administrative and general expenses for the third
quarters of 1996 and 1995 were approximately $5.0 million and $6.4 million,
respectively, representing a decrease of 21.9%.  The decrease was due primarily
to decreases in selling commissions as a result of the lower sales volume on
smaller retail customers which generally have a higher commission rate, and
continued reduction of the cost  of the company's corporate expenses.

Other income (expenses), net, was approximately $(.1) million and $(.2) million
for the third quarters of 1996 and 1995, respectively.  The difference between
the two years was primarily due to costs associated with divested operations.

Interest expense was approximately $15.1 million and $14.8 million for the
third quarters of 1996 and 1995, respectively, representing an increase of
2.0%.  The increase was due primarily to increased debt due to CSCL.

Nine Months Ended September 28, 1996 Versus Nine Months Ended September 30,
1995

The following discussion presents the material changes in results of operations
which have occurred in the first nine months of 1996 in comparison to the same
period in 1995.

Consolidated net sales were approximately $110.4 million in the first nine
months of 1996, a decrease of 19.0% from last year's first nine months
consolidated net sales of approximately $136.3 million, due primarily to a
reduction of sales at Stratford.

Stratford net sales (including intercompany sales) for the first nine months of
1996 decreased 24.4% to approximately $83.5 million as compared to $110.8
million for the comparable period in 1995.  Total Stratford volume, excluding
sales to Simmons, has decreased 31.0% for the first nine months of 1996 as
compared to the first nine months of 1995.  Sales volume to the smaller retail
customers has decreased 26.6%, while national account sales volume has
decreased 35.5% in the first nine months of 1996 as compared to 1995.
Stratford's average selling prices decreased 3.8% for the first nine months of
1996 as compared to the first nine months of 1995.  The decrease in net sales
due to decreases in sales volume and average selling prices is partially offset
by new sales to Simmons of approximately $9.5 million for the first nine months
of 1996. Sales declines at Stratford are the result of continuing internal and
external factors compounded further by industry-wide softness in moderately
priced residential furniture sales, the market that Stratford services and
targets.  Stratford's market strategy, started in 1995 to discontinue low
margin and slow moving styles in conjunction with more stringent credit and
sales terms, resulted in expected sales declines with smaller retail customers
that have not abated. Sales to larger national retail customers have and are
decreasing primarily due to ongoing conditions involving: (1) customer's
reductions of inventory levels, (2) consolidation of national customer stores,
resulting in fewer sales outlets, (3) conflicts over Stratford's price increases
and (4) the reduction and or elimination of furniture departments and sales.  As
a result of these circumstance, Stratford sales have declined sharply.

                                     - 11 -
<PAGE>   12

Barcalounger net sales for the first nine months of 1996 increased 5.5% to
approximately $28.9 million as compared to $27.4 million in 1995, reflective of
a 0.1% increase in the number of pieces sold and 4.4% increase in average
selling prices.  Barcalounger sells higher priced merchandise which merchandise
has not been affected by the industry wide slowdown.

Consolidated cost of sales decreased 17.4% in first nine months of 1996 to
approximately $102.0 million, or 92.3% of net sales, as compared to $123.5
million, or 90.6% of net sales, in 1995.  Stratford cost of sales increased to
96.2% of net sales in the first nine months of 1996, as compared to 92.9% in
the first nine months of 1995.  The increase in Stratford's cost of sales was
caused by an under absorption of overhead due to the decrease in volume.
Barcalounger's cost of sales remained essentially flat at 81.7% and 82.3% of
net sales for the first nine months of 1996 and 1995, respectively.

Consolidated selling, administrative and general expenses for the first nine
months of 1996 and 1995 were approximately $16.9 million and $22.4 million,
respectively, representing a decrease of  24.6%.  The decrease was due
primarily to decreases in selling commissions as a result of the lower sales
volume on smaller retail customers which generally have a higher commission
rate, and continued organization-wide downsizing, where appropriate.

Other expenses, net, were approximately $0.5 million and $0.1 million for the
first nine months of 1996 and 1995, respectively.

Interest expense was approximately $44.7 million and $43.8 million for the
first nine months of 1996 and 1995, respectively, representing an increase of
2.0%.  The increase was due primarily to increased debt due to CSCL.

No provision for federal income taxes has been provided in the first nine
months of 1996 and 1995, respectively, as Fairwood is in a net operating loss
carryforward position, and a valuation allowance has been increased to offset
any future benefit from these positions.

Part II OTHER INFORMATION

Item 1.  Legal Proceedings

         Reference is made to Item 3, Legal Proceedings, previously reported in
         the Registrant's Form 10-K for the year ended December 31, 1995 for a
         description of pending legal action.

         There are certain legal proceedings arising out of the normal course
         of business, the financial risk of which are not considered material
         in relation to the consolidated financial position of Fairwood.

Item 6.  Exhibits and Reports on Form 8-K

    (a)  Exhibits

         None

    (b)  Reports on Form 8-K

         None

                                     - 12 -
<PAGE>   13


                     FAIRWOOD CORPORATION AND SUBSIDIARIES


                                   SIGNATURES


     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.




                                           FAIRWOOD CORPORATION
                                           --------------------
                                               (Registrant)



                                         /s/ John B. Sganga       
                                         -------------------------
                                         John B. Sganga
                                         Chief Financial Officer,
                                         Executive Vice President,





Date:  November 11, 1996


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