INTERCO INC, S-3, 1996-01-16

INTERCO INC
S-3, 1996-01-16
HOUSEHOLD FURNITURE

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 16, 1996
REGISTRATION NO. 33-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
INTERCO INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 43-0337683
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
101 SOUTH HANLEY ROAD
ST. LOUIS, MISSOURI 63105
(314) 863-1100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
----------------
LYNN CHIPPERFIELD, ESQUIRE
GENERAL COUNSEL
INTERCO INCORPORATED
101 SOUTH HANLEY ROAD
ST. LOUIS, MISSOURI 63105
(314) 863-1100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S AGENT FOR SERVICE OF PROCESS)
----------------
COPIES OF ALL COMMUNICATIONS TO:
PETER S. SARTORIUS, ESQUIRE JOHN T. GAFFNEY, ESQUIRE
MORGAN, LEWIS & BOCKIUS LLP CRAVATH, SWAINE & MOORE
2000 ONE LOGAN SQUARE WORLDWIDE PLAZA
PHILADELPHIA, PENNSYLVANIA 19103 825 EIGHTH AVENUE
(215) 963-5000 NEW YORK, NEW YORK 10019-7475
(212) 474-1122
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable on or after this Registration Statement is
declared effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SCURITIES TO BE REGISTEREDE BE REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par
value................. 10,000,000 shares $8.875 $88,750,000 $30,603
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

(1) Includes 1,250,000 shares that the Underwriters have the option to
purchase from the Company to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based on the average of the high and low prices
of the Common Stock as reported on the New York Stock Exchange on January
10, 1996.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 16, 1996

PROSPECTUS

8,750,000 SHARES
INTERCO INCORPORATED

COMMON STOCK

--------

All of the shares of Common Stock, no par value (the "Common Stock"), offered
hereby (the "Offering") are being sold by INTERCO INCORPORATED. The Common
Stock is listed on the New York Stock Exchange under the symbol "ISS." On
January 15, 1996 the last reported sale price of the Common Stock on the New
York Stock Exchange was $8 7/8 per share.

SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.

--------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- -------------------------------------------------------------------
Total(3) $ $ $
</TABLE>
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(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses estimated at $ payable by the Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up
to 1,250,000 additional shares of Common Stock solely to cover over-
allotments, if any. If such option is exercised in full, the total Price
to Public, Underwriting Discounts and Commissions and Proceeds to Company
will be $ , $ and $ , respectively.

--------

The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about ,
1996, at the office of Smith Barney Inc., 14 Wall Street, New York, New York
10005.

--------

SMITH BARNEY INC.
DEAN WITTER REYNOLDS INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
WHEAT FIRST BUTCHER SINGER

, 1996
<PAGE>

[PICTURES]

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

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

2
<PAGE>

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities of the Commission, Judiciary Plaza,
450 Fifth Street, N.W., Washington, DC 20549, as well as at the following
Commission Regional Offices: Seven World Trade Center, 13th Floor, New York,
NY 10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies can be obtained from the Commission by mail at
prescribed rates. Requests should be directed to the Commission's Public
Reference Branch, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC
20549. Such material can also be inspected and copied at the offices of the
New York Stock Exchange, 20 Broad Street, New York, New York, 10005, on which
the Company's Common Stock is listed.

This Prospectus constitutes a part of a registration statement on Form S-3
(herein, together with all exhibits thereto, referred to as the "Registration
Statement") filed by the Company with the Commission under the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the securities
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. Reference is
hereby made to the Registration Statement and to the exhibits thereto for
further information with respect to the Company and the securities offered
hereby. Copies of the Registration Statement and the exhibits thereto are on
file at the offices of the Commission and may be obtained upon payment of the
prescribed fee or may be examined without charge at the public reference
facilities of the Commission described above. Statements contained herein
concerning the provisions of documents are necessarily summaries of such
documents, and each statement is qualified in its entirety by reference to the
copy of the applicable document filed with the Commission.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by the Company with the Commission (File No.
I-91) are incorporated by reference in this Prospectus:

(1) Annual Report on Form 10-K for the year ended December 31, 1994;

(2) Quarterly Reports on Form 10-Q for the quarterly periods ended March 31,
1995, June 30, 1995 and September 30, 1995;

(3) Current Report on Form 8-K filed January 12, 1996 as amended by Form 8-
K/A-1 filed January 16, 1996; and

(4) the description of the Company's Common Stock contained in its Form 8
filed with the Commission on June 29, 1992.

All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus shall be
deemed to be incorporated by reference into this Prospectus.

Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.

This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. These documents (not including exhibits to the
documents incorporated by reference unless such exhibits are specifically
incorporated by reference into the information that the Prospectus
incorporates) are available without charge to each person to whom a Prospectus
is delivered upon written or oral request. Requests should be directed to
INTERCO INCORPORATED, 101 South Hanley Road, St. Louis, Missouri 63105-3493,
Attention: Secretary (telephone number (314) 863-1100).

3
<PAGE>

PROSPECTUS SUMMARY

The following is a summary of certain information appearing elsewhere in this
Prospectus. Reference is made to, and this summary is qualified in its entirety
by, the more detailed information and financial statements, including the notes
thereto, contained elsewhere or incorporated by reference in this Prospectus.
As used in this Prospectus, unless the context indicates otherwise, (i) the
"Company" refers to INTERCO INCORPORATED and its subsidiaries, (ii) "Broyhill"
refers to Broyhill Furniture Industries, Inc., (iii) "Lane" refers to The Lane
Company Incorporated and its subsidiaries, (iv) "Thomasville" refers to
Thomasville Furniture Industries, Inc. and (v) "Action Industries" refers to
Action Industries, Inc., a subsidiary of Lane. Unless otherwise indicated, the
information in this Prospectus assumes that the Underwriters' over-allotment
option is not exercised.

THE COMPANY

The Company is the largest manufacturer of residential furniture in the
United States. The Company markets its products under three of the best known
brand names in the industry - Broyhill, Lane and Thomasville. The Company is a
quality and style leader across a broad spectrum of price categories in the
residential furniture industry from "premium" priced home furnishings to lower
priced ready-to-assemble ("RTA") furniture. The Company distributes its
products through a diverse network of independently-owned retail locations,
which includes the largest system of dedicated retail outlets in the
residential furniture industry. Management believes that the acquisition of
Thomasville in December 1995 (see "Thomasville Acquisition") significantly
enhances the Company's competitive strengths and positions the Company to
increase its market share, sales and earnings.

The Company is organized into three primary operating subsidiaries of similar
size which target particular product and price categories as described below:

BROYHILL. Broyhill is a leader in the "good" and "better" price
categories, which are the largest segments of the residential furniture
market. Management believes Broyhill is the largest manufacturer of
residential furniture under one brand name and has been rated the number
one brand in the industry in terms of brand awareness by several consumer
surveys. The Company believes that the Broyhill Fontana collection has been
the best selling furniture collection in the industry for the last three
years. Broyhill distributes its products through an extensive network of
more than 6,200 independently-owned retail locations, including more than
330 dedicated Broyhill Showcase Galleries and more than 410 dedicated
Broyhill Furniture Centers.

LANE. Lane manufactures specialty products for niche markets in the
"better," "best" and "premium" price categories. Lane is the largest
manufacturer of motion furniture, the largest manufacturer of cedar chests
and the second largest manufacturer of recliners in the United States. Lane
is one of the most widely recognized brands in the residential furniture
industry and has established a reputation for innovative marketing and
quality designs. Lane distributes its products through an extensive
distribution network of more than 16,000 independently-owned retail
locations, including more than 200 dedicated furniture galleries.

THOMASVILLE. Thomasville is the largest residential furniture
manufacturer under one brand name in the "premium" price category and
manufactures furniture which embodies the widely recognized "Thomasville
Look" for both the "best" and "premium" price categories. Thomasville is
ranked the "highest quality" brand by consumer surveys. Management believes
that the Collector's Cherry and the Mahogany Collection have consistently
been among the best selling collections in the industry. Thomasville
distributes its products through more than 680 independently-owned retail
locations, including more than 410 dedicated Thomasville Galleries and
approximately 80 free-standing Thomasville Home Furnishings stores, which
exclusively feature Thomasville furniture. Thomasville also produces a
separate line of lower priced RTA and promotional furniture.

4
<PAGE>

The Company believes that in addition to its substantial size relative to its
competitors, the Company's competitive strengths include its (i) widely
recognized brand names; (ii) broad range of product offerings across all price
categories; (iii) dedicated distribution channels, including galleries located
in independently-owned locations; (iv) innovative, high quality products; (v)
highly efficient, low cost manufacturing capabilities; and (vi) experienced
management teams. In addition, the Company's breadth of product and national
scope of distribution enable it to service effectively national and major
regional retailers, which are commanding an increasing presence in the
furniture retailing industry. These competitive strengths position the Company
to increase its market share in the highly-fragmented residential furniture
industry.

GROWTH STRATEGY

Management believes that the Company's growth strategies will enable it to
continue to grow over the next several years at a rate higher than that of the
residential furniture industry as a whole. The Company's strategies for growth
in both sales and profits include the following elements:

ENHANCING BRAND NAME STRENGTH. Brand name recognition is a critical
factor in consumer purchases of furniture. The Company believes that
consumer recognition of its brand names is a key to increasing its market
share. The Company has three of the six most recognized brand names in the
residential furniture industry--Broyhill, Lane and Thomasville. The Company
intends to continue to strengthen its brand names through ongoing
investment in innovative consumer advertising through leading shelter
magazines, such as House Beautiful, Better Homes and Gardens and
Architectural Digest, as well as through cooperative advertising programs
with retailers and national and regional television advertising.

MAXIMIZING OPERATING MARGINS. The Company's Gross Profit Management
Program consists of twelve specific "building blocks" that management uses
in its strategic and operational planning to maximize gross profit margins
and thereby provide the Company with additional funds for purposes such as
increased advertising and product development. These "building blocks"
include continuous product profitability review, new product introductions,
pricing strategies and management incentive programs. Management believes
that this program has contributed to the Company achieving among the
highest EBITDA (as hereinafter defined) margins of publicly-owned
residential furniture manufacturing companies in recent years. Management
believes opportunities exist to increase the EBITDA margins of its
operating companies through continued implementation of the Gross Profit
Management Program, including the initiation of the program at Thomasville.

EXPANDING DEDICATED DISTRIBUTION CHANNELS. Dedicated distribution
outlets, such as galleries, tend to have higher sales per square foot and
faster inventory turns than non-gallery locations. The Company has
generated increased sales volume by distributing its products through
independently-owned dedicated retail outlets. In addition, the Company
believes that it strengthens its manufacturer/retailer alliances through
gallery relationships. The Company intends to continue to expand these
distribution channels by attracting additional retailers in new and
existing geographic markets to participate in the Company's gallery
programs. Furthermore, the Company intends to expand the network of free-
standing Thomasville Home Furnishings stores.

PENETRATING NEW MARKETS. The Company is actively pursuing sales
opportunities in new markets. In the United States, management is targeting
key furniture retailers in important geographic territories, particularly
portions of the West Coast and New England. In addition, the Company has
developed a program designed to increase sales to the contract market,
which includes hotels, motels and health care facilities. The Company is
also actively pursuing the international export market, particularly
Canada, Europe, Japan and the Middle East, where the Company believes there
are significant opportunities for growth.

EMPHASIZING NEW AND GROWING PRODUCT AREAS. The Company emphasizes
development of new high margin products in growing product areas. For
example, the Company has become a leader in the fast

5
<PAGE>

growing motion furniture and recliner segments. The Company has also
introduced a sleeper sofa incorporating a unique sleep deck designed to be
more comfortable, both as a sofa and a bed, than competitive product
offerings. Furthermore, the Company is currently designing innovative new
products for the growing home office and home entertainment center markets.

CAPITALIZING ON DEMOGRAPHIC TRENDS. Management believes that demographic
trends will continue to drive long-term growth in the furniture industry.
In particular, as "baby boomers" (people born between 1946 and 1964) mature
to the 35-64 year age group over the next decade, they will be reaching
their highest earnings power. It is currently estimated that the 35-64 year
age group will increase by approximately 11 million persons by the year
2000. According to Furniture Today, such age group includes the largest
consumers of furniture. Furthermore, statistics show that the average size
of new homes has increased in recent years, which generally results in
increased purchases of furniture per home. The Company is well positioned
to capitalize on these demographic trends by reason of its broad range of
product offerings and widely-recognized brand names.

INCREASING OPERATING EFFICIENCIES. The Company believes that it has
opportunities to increase operating efficiencies through improved
coordination among its operating companies. These opportunities include (i)
cost savings generated through volume purchasing, (ii) reductions in future
capital expenditures through better utilization of existing capacity and
(iii) complementary sales and marketing activities.

THOMASVILLE ACQUISITION

On December 29, 1995, the Company completed the acquisition of Thomasville
from Armstrong World Industries, Inc. for approximately $339 million,
consisting of $331 million in cash and $8 million in assumed indebtedness.
Thomasville is the largest residential furniture manufacturer under one brand
name in the "premium" price category and manufactures furniture which embodies
the widely recognized "Thomasville Look" for both the "best" and "premium"
price categories of the residential furniture market. The cash portion of the
acquisition of Thomasville was financed through funds obtained under a secured
credit agreement (the "Secured Credit Agreement") and an amended receivables
securitization facility (the "Receivables Securitization Facility"). The
acquisition of Thomasville, on a pro forma basis and as adjusted for this
Offering, is accretive to earnings per share. See "Unaudited Pro Forma
Consolidated Financial Information."

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

The Company was incorporated in Delaware in 1921. Its principal executive
offices are located at 101 South Hanley Road, St. Louis, Missouri 63105-3493,
and its telephone number at such location is (314) 863-1100.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Compa-
ny................................. 8,750,000 shares(1)
Common Stock to be outstanding after
the Offering....................... 58,870,079 shares(1)(2)
Use of proceeds..................... Repayment of term loans outstanding under
the Secured Credit Agreement
New York Stock Exchange Symbol...... ISS
</TABLE>
- --------
(1) Excludes 1,250,000 shares that may be offered under an over-allotment
option granted by the Company. See "Underwriting."
(2) Excludes, as of January 15, 1996, 9,405,198 shares of Common Stock reserved
for issuance pursuant to warrants or stock options, consisting of 6,907,198
shares issuable pursuant to warrants exercisable at $7.13 per share and
2,423,000 shares issuable pursuant to management stock options, 1,271,750
of which are currently exercisable.

6
<PAGE>

SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA

The following summary historical and pro forma consolidated financial data of
the Company are derived from and should be read in connection with the
historical consolidated financial statements of the Company and Thomasville and
the unaudited pro forma consolidated financial information and the notes
thereto included elsewhere or incorporated by reference in this Prospectus. The
pro forma consolidated financial and other data is presented for comparative
purposes only and is not necessarily indicative of the combined results of
operations in the future or of what the combined results of operations would
have been had the transactions assumed therein been consummated at the
beginning of the period for which the statement is presented. In addition, the
pro forma consolidated statement of operations does not give effect to profit
improvement opportunities, if any, which may be realized by the Company as a
result of the acquisition of Thomasville.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------- ----------------------------------
1993 1994 1994 1994 1995 1995
HISTORICAL HISTORICAL PRO FORMA(1) HISTORICAL HISTORICAL PRO FORMA(1)
---------- ----------- ------------ ---------- ---------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATING DATA:
Net sales.................. $ 980,532 $ 1,072,696 $ 1,599,339 $ 795,452 $ 794,866 $ 1,203,148
Costs and expenses:
Cost of operations......... 685,749 752,528 1,162,462 556,768 562,479 881,280
Selling, general and
administrative expenses... 186,205 199,333 267,167 150,871 149,101 204,004
Depreciation and
amortization(2)........... 34,455 35,776 51,375 27,825 28,387 40,407
--------- ----------- ----------- ---------- --------- -----------
Earnings from operations... 74,123 85,059 118,335 59,988 54,899 77,457
Interest expense........... 38,621 37,886 56,690 28,952 25,409 39,511
Other income, net.......... 1,764 1,668 961 900 3,352 3,420
--------- ----------- ----------- ---------- --------- -----------
Earnings before income tax
expense, discontinued
operations and
extraordinary item........ 37,266 48,841 62,606 31,936 32,842 41,366
Income tax expense......... 15,924 20,908 26,616 14,799 13,416 16,008
--------- ----------- ----------- ---------- --------- -----------
Net earnings before
discontinued operations
and extraordinary
item(3)................... $ 21,342 $ 27,933 $ 35,990 $ 17,137 $ 19,426 $ 25,358
========= =========== =========== ========== ========= ===========
Net earnings per common
share before discontinued
operations and
extraordinary item (fully
diluted).................. $ 0.41 $ 0.54 $ 0.60 $ 0.33 $ 0.38 $ 0.42
========= =========== =========== ========== ========= ===========
Weighted average common
shares outstanding (fully
diluted)
(in thousands)............
51,397 51,506 60,256 51,665 51,404 60,154
OTHER DATA:
Earnings from operations... $ 74,123 $ 85,059 $ 118,335 $ 59,988 $ 54,899 $ 77,457
Depreciation and
amortization:
1992 Asset Revaluation
(Fresh Start)............. 16,463 16,900 16,900 12,836 11,836 11,836
Excess of cost over net
assets acquired........... -- -- 2,646 -- -- 1,984
--------- ----------- ----------- ---------- --------- -----------
Adjusted earnings from
operations................ 90,586 101,959 137,881 72,824 66,735 91,277
Depreciation and
amortization (other than
Fresh Start and excess of
cost over net assets
acquired)................. 17,992 18,876 31,829 14,989 16,551 26,587
--------- ----------- ----------- ---------- --------- -----------
EBITDA(4).................. $ 108,578 $ 120,835 $ 169,710 $ 87,813 $ 83,286 $ 117,864
========= =========== =========== ========== ========= ===========
</TABLE>

<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1995
--------------------------------------
PRO FORMA FOR
THOMASVILLE PRO FORMA AS
HISTORICAL ACQUISITION(5) ADJUSTED(6)
---------- -------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............. $ 61,375 $ 28,469 $ 28,469
Working capital........................ 312,684 447,339 447,905
Total assets........................... 896,444 1,283,194 1,281,714
Long-term debt, less current
maturities............................ 381,312 705,256 630,943
Total shareholders' equity............. 292,194 286,445 359,844
</TABLE>

7
<PAGE>

IMPACT OF 1992 ASSET REVALUATION (FRESH-START REPORTING)

Included in the Company's statement of operations are depreciation and
amortization charges related to adjustments of assets and liabilities to fair
value made in 1992. These adjustments are a result of the Company's 1992
reorganization and the adoption of AICPA Statement of Position (SOP) 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code"
(commonly referred to as "fresh-start reporting") and are not the result of
historical capital expenditures. Fair value adjustments included the write up
of property, plant and equipment, trademarks and reorganization value in excess
of identifiable assets. Due to the significance of these items, management
believes that it is useful to isolate their impact on the statement of
operations as shown below. This information does not represent and should not
be considered an alternative to net earnings, any other measure of performance
as determined by generally accepted accounting principles or as an indicator of
operating performance. See "Fresh Start Reporting," "Reorganization Value in
Excess of Amounts Allocable to Identifiable Assets" and "Trademarks and Trade
Names" in Note 2 to the Company's Consolidated Financial Statements included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Depreciation and amortization--Fresh Start... $(16,900) $(11,836)
After-tax impact on net earnings............. (13,051) (9,247)
Impact on pro forma earnings per share....... (0.22) (0.15)
</TABLE>

- --------
(1) Pro forma to reflect the acquisition of Thomasville and the consummation of
this Offering and the application of the estimated net proceeds therefrom,
in each case as if such transactions occurred on the first day of the
period presented.
(2) Includes $12,836 and $11,836 for the nine months ended September 30, 1994,
and 1995 (historical and pro forma), respectively, and $16,463 and $16,900
for the years ended December 31, 1993, and 1994 (historical and pro forma),
respectively, related to the 1992 asset revaluation. See Note 2 to the
Company's Consolidated Financial Statements included elsewhere in this
Prospectus.
(3) On November 17, 1994, the Company distributed the common stock of each of
The Florsheim Shoe Company and Converse Inc. (which in aggregate
represented the Company's "Footwear Segment") to the Company's
shareholders. The financial results of the Footwear Segment are reported as
Discontinued Operations, and as such the Company's historical results of
operations were restated.
(4) EBITDA is defined as earnings before interest expense, taxes, restructuring
expenses and depreciation and amortization. The Company believes that
EBITDA provides useful information regarding a company's financial
performance. EBITDA should not be considered in isolation or as an
alternative to net earnings, an indicator of the Company's operating
performance, or an alternative to the Company's cash flow from operating
activities as a measure of liquidity.
(5) Pro forma to reflect the acquisition of Thomasville as if such transaction
occurred on September 30, 1995.
(6) Pro forma to reflect the acquisition of Thomasville and the consummation of
this Offering and the application of the estimated net proceeds therefrom,
as if each such transaction occurred on September 30, 1995.

8
<PAGE>

RISK FACTORS

Prospective purchasers should carefully consider the following factors,
together with other information contained and incorporated by reference in
this Prospectus, in evaluating an investment in the shares of Common Stock of
the Company.

ECONOMIC CONDITIONS

The furniture industry historically has been cyclical, fluctuating with
general economic cycles. During economic downturns, the furniture industry
tends to experience longer periods of recession and greater declines than the
general economy. The Company believes that the industry is significantly
influenced by economic conditions generally and particularly by consumer
behavior and confidence, the level of personal discretionary spending, housing
activity, interest rates, credit availability, demographics and overall
consumer confidence. These factors not only affect the ultimate consumer, but
also impact retailers, the Company's primary direct customers. There can be no
assurance that a prolonged economic downturn would not have a material adverse
effect on the Company. See "Business."

COMPETITION

The furniture manufacturing business is highly competitive and fragmented.
Because of the Company's broad product lines, its products compete with
products made by a number of major furniture manufacturers. The elements of
competition include pricing, styling, quality and marketing. See "Business--
Competition."

SIGNIFICANT LEVERAGE

The Company has a capital structure that contains significant leverage. On
December 29, 1995, the Company entered into the Secured Credit Agreement
consisting of term loan facilities totalling $450 million and a $180 million
revolving credit facility. In addition, the Company has the Receivables
Securitization Facility of $225 million. As of December 31, 1995, the
Company's debt totalled approximately $725 million. Assuming that the
Thomasville acquisition, these financings and this Offering had occurred on
September 30, 1995, the Company's debt to equity ratio on that date would have
been 1.75:1. Further, as of December 31, 1995, the Company had approximately
$81 million and approximately $25 million available under the Secured Credit
Agreement and the Receivables Securitization Facility, respectively. This
substantial indebtedness could reduce the Company's ability to respond to
changing business and economic conditions by impairing access to additional
financing and requiring a significant portion of the Company's cash flow from
operations to be used to service debt. The ability of the Company to further
reduce its debt and increase its equity will be dependent upon the future
performance of the Company, which will be subject to prevailing economic
conditions and to financial, business and other factors, including factors
beyond the control of the Company that affect its business and operations. The
Company intends to use the net proceeds of this Offering to repay a portion of
the term loans outstanding under the Secured Credit Agreement. See
"Capitalization."

RESTRICTIVE COVENANTS IN CERTAIN DEBT INSTRUMENTS

The Secured Credit Agreement to which the Company is a party contains a
number of covenants that restrict, among other things, the ability of the
Company to incur additional indebtedness, make capital expenditures, pay
dividends, repurchase capital stock, create liens, dispose of certain assets,
enter into sale and leaseback transactions, or engage in mergers. In addition,
under the Secured Credit Agreement the Company is required to maintain certain
interest coverage ratios and maintain certain minimum net worth levels.
Unfavorable operating results could affect the Company's ability to pay debt
service on its outstanding indebtedness or to meet its debt covenants. The
indebtedness under the Secured Credit Agreement is secured by most of the
assets of the Company. Among other consequences, the terms of the Secured
Credit Agreement could increase the Company's vulnerability to adverse general
economic conditions and could impair the Company's ability to obtain
additional financing in the future and to take advantage of significant
business opportunities that may arise.

9
<PAGE>

GOVERNMENTAL REGULATIONS

The Company's operations must meet federal, state, and local regulatory
standards in the areas of safety, health, and environmental pollution
controls. Historically, these standards have not had any material adverse
effect on the Company's sales or operations. If the Company fails to comply
with such regulations, the Company could be subject to liability ranging from
monetary damages to injunctive action, which could adversely affect the
Company. Future changes to such regulations could also have a material adverse
effect on the Company.

CONTROLLING STOCKHOLDERS

Apollo Investment Fund, L.P. ("Apollo") and Lion Advisors, L.P. ("Lion")
together beneficially own approximately 67.5% of the outstanding Common Stock
of the Company, and will beneficially own approximately 57.4% of the
outstanding Common Stock of the Company after this Offering. Apollo and Lion
are affiliated companies. By reason of their ownership of shares of Common
Stock, Apollo and Lion currently have, and will continue to have after this
Offering, the power to control or influence control of the Company, including
the power to elect the entire Board of Directors and to approve matters
submitted to a vote of the Company's stockholders, including extraordinary
corporate transactions. Apollo and Lion may exercise such control from time to
time. A majority of the Board of Directors consists of individuals associated
with affiliates of Apollo and Lion. See "Management" and "Principal
Stockholders."

SHARES ELIGIBLE FOR FUTURE SALE

Apollo and Lion together beneficially own 33,981,920 shares of Common Stock.
The Company, Apollo and Lion have agreed not to sell any shares of Common
Stock owned by them for a period of 120 days following the consummation of
this Offering without the prior written consent of Smith Barney Inc., as
representative of the Underwriters. After expiration of the lock-up period,
the Company, Apollo and Lion may sell shares of Common Stock without regard to
any such limitations. The sale of a substantial number of shares by the
Company, Apollo or Lion could adversely affect the market price of the Common
Stock.

ABSENCE OF DIVIDENDS

ANTI-TAKEOVER PROVISIONS

The Company's Restated Certificate of Incorporation contains certain
provisions, including authorization to issue "blank check" Preferred Stock,
prohibition of stockholder action by written consent and the requirement of
75% ("supermajority") stockholder vote to alter, amend, repeal or adopt
certain provisions of the Restated Certificate of Incorporation. In addition,
the Company's Restated Certificate of Incorporation contains provisions
limiting the ability of any person who is the beneficial owner of more than
10% of the outstanding voting stock to effect certain transactions involving
the Company unless approved by a majority of the Disinterested Directors (as
defined in the Restated Certificate of Incorporation of the Company). Such
provisions could impede any merger, consolidation, takeover or other business
combination involving the Company or discourage a potential acquiror from
making a tender offer or otherwise attempting to obtain control of the
Company. See "Description of Capital Stock."

10
<PAGE>

THOMASVILLE ACQUISITION

On December 29, 1995, the Company completed the acquisition of Thomasville
from Armstrong World Industries, Inc. for approximately $339 million,
consisting of $331 million in cash and $8 million in assumed indebtedness.
Thomasville is the largest residential furniture manufacturer under one brand
name in the "premium" price category and manufactures furniture which embodies
the widely recognized "Thomasville Look" for both the "best" and "premium"
price categories of the residential furniture market. The cash portion of the
acquisition of Thomasville was financed through funds obtained under the
Secured Credit Agreement and the Receivables Securitization Facility. The
acquisition of Thomasville, on a pro forma basis and as adjusted for this
Offering, is accretive to earnings per share. See "Unaudited Pro Forma
Consolidated Financial Information."

The following table presents summary historical financial information and
other data for Thomasville.

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- ------------------
1993 1994 1994 1995
-------- -------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales....................... $449,583 $526,643 $ 385,141 $408,282
Costs and expenses:
Cost of operations............ 361,116 409,934 300,544 318,801
Selling, general and adminis-
trative expenses............. 54,833 65,654 50,542 52,726
Depreciation and amortiza-
tion......................... 13,003 12,205 9,162 9,475
-------- -------- --------- --------
Earnings from operations ....... $ 20,631(1) $ 38,850(1) $ 24,893 $ 27,280
======== ======== ========= ========
EBITDA(2)....................... $ 33,634 $ 51,055 $ 34,055 $ 36,755
Capital expenditures............ 10,035 14,091 9,942 11,015
</TABLE>

- --------
(1) Excludes restructuring charges of $582 and $1,000 for the years ended
December 31, 1993 and 1994, respectively.

(2) EBITDA is defined as earnings from operations before restructuring charges
and depreciation and amortization.

11
<PAGE>

USE OF PROCEEDS

The net proceeds from the sale of the shares of Common Stock offered hereby
are estimated to be $ million, assuming an offering price of $ per share
($ million if the over-allotment option is exercised in full), after
deducting estimated offering expenses and underwriting discounts and
commissions. The net proceeds will be utilized to repay a portion of the
indebtedness incurred on December 29, 1995 under the Company's Secured Credit
Agreement. The indebtedness to be repaid bears interest at a variable rate
equal to the London Interbank Offered Rate plus 3 1/8% and matures in
approximately eight years.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Company's Common Stock is listed and traded on the New York Stock
Exchange under the symbol "ISS." The following table sets forth for the
periods indicated the high and low closing prices of the Common Stock, as
reported on the New York Stock Exchange Composite Tape.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1994:
Fourth Quarter (November 21 through December 31)............ $8 3/8 $6 1/8
1995:
First Quarter............................................... 7 1/4 5 3/4
Second Quarter.............................................. 6 7/8 5 5/8
Third Quarter............................................... 8 1/8 5 1/2
Fourth Quarter.............................................. 9 1/4 7
1996:
First Quarter (January 1 through January 15)................ 9 3/8 8 3/4
</TABLE>

The price range of the Common Stock prior to November 21, 1994 has not been
included because on November 17, 1994 the Company distributed to its
stockholders all the stock of its former footwear subsidiaries, Converse Inc.
and The Florsheim Shoe Company. November 21, 1994 was the first day of trading
reflecting such distribution and prices prior to November 21, 1994 are not
comparable.

On January 15, 1996, the last reported sale price of the Common Stock on the
New York Stock Exchange was $8 7/8 per share. As of December 31, 1995 there
were approximately 3,000 holders of record of the Company's Common Stock.

The Company does not anticipate paying any cash dividends in the foreseeable
future, and the Secured Credit Agreement to which the Company is a party
restricts the payment of dividends. Any future payment of dividends will
depend upon the financial condition, capital requirements and earnings of the
Company, as well as upon other factors that the Board of Directors may deem
relevant.

12
<PAGE>

CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company and its consolidated subsidiaries as of September 30, 1995 on an
actual basis, pro forma to give effect to the acquisition of Thomasville,
including the incurrence of indebtedness in connection therewith, and pro
forma as adjusted to give effect to the completion of this Offering and the
application of the net proceeds therefrom as described in "Use of Proceeds,"
as if each such event had occurred on September 30, 1995. The information in
the table below is qualified in its entirety by, and should be read in
conjunction with, the consolidated financial statements of the Company and its
subsidiaries included elsewhere in this Prospectus or incorporated by
reference herein.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
---------------------------------------
PRO FORMA
FOR THOMASVILLE PRO FORMA
ACTUAL ACQUISITION(1) AS ADJUSTED(2)
-------- --------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents.............. $ 61,375 $ 28,469 $ 28,469
======== ======== ========
Current maturities of long-term debt... $ 21,066 $ 18,622 $ 18,622
======== ======== ========
Secured credit agreement(3)............ $243,056 $504,000 $429,687
Receivables securitization facili-
ty(3)................................. 130,000 185,000 185,000
Other.................................. 8,256 16,256 16,256
-------- -------- --------
Long-term debt, less current matu-
rities............................ 381,312 705,256 630,943
Shareholders' equity:
Preferred stock, 10,000,000 shares
authorized, no par value, none is-
sued and outstanding................ -- -- --
Common stock, 100,000,000 shares au-
thorized, $1.00 stated
value, 50,119,816 shares issued and
outstanding (58,870,079 shares is-
sued and outstanding, as adjusted).. 50,120 50,120 58,870
Paid-in capital...................... 218,154 218,154 283,717
Retained earnings.................... 23,920 18,171 17,257
-------- -------- --------
Total shareholders' equity......... 292,194 286,445 359,844
-------- -------- --------
Total capitalization................... $673,506 $991,701 $990,787
======== ======== ========
</TABLE>
- --------
(1) Information is adjusted to give pro forma effect to the acquisition of
Thomasville and the incurrence of indebtedness by the Company on December
29, 1995.
(2) Information is adjusted to give pro forma effect to the acquisition of
Thomasville, the incurrence of indebtedness by the Company on December 29,
1995 and the application of the estimated net proceeds of this Offering.
(3) As of December 31, 1995, the Company had approximately $81 million of
availability under the Secured Credit Agreement and approximately $25
million available under the Receivables Securitization Facility.

13
<PAGE>

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma consolidated financial information
reflects the acquisition of Thomasville, which was consummated on December 29,
1995, the incurrence of indebtedness by the Company in connection therewith
and in connection with the refinancing of a portion of the Company's then-
existing indebtedness, and the completion of this Offering (at an assumed
offering price of $9.00 per share) and the application of the net proceeds
therefrom, as of the beginning of the period presented for pro forma statement
of operations data purposes and on September 30, 1995 for pro forma balance
sheet purposes. This information is presented for comparative purposes only
and is not necessarily indicative of the combined results of operations in the
future or of what the combined results of operations would have been if the
foregoing transactions had actually been consummated as of such dates. In
addition, the pro forma consolidated statement of operations does not give
effect to profit improvement opportunities, if any, which may be realized by
the Company as a result of the acquisition of Thomasville. The unaudited pro
forma consolidated financial information should be read in connection with the
historical financial statements presented elsewhere in this Prospectus or
incorporated herein by reference.

The pro forma financial information has been prepared on the basis of
assumptions described in the notes thereto and includes assumptions relating
to the allocation of the consideration paid for the Thomasville acquisition to
its respective assets and liabilities based on preliminary estimates of their
respective fair values. The actual allocation of such consideration may differ
from that reflected in the pro forma consolidated financial statements after
valuations and other studies to be performed pursuant to post-closing
adjustments related to the acquisition have been completed. Actual amounts
allocated will be based upon the estimated fair values at the time of the
acquisition.

14
<PAGE>

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
-------------------------------------------------------------------------------
HISTORICAL THOMASVILLE ACQUISITION EQUITY OFFERING
----------------------- ----------------------------- -------------------------
PRO FORMA PRO FORMA
THE COMPANY THOMASVILLE ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
----------- ----------- ------------ ------------ ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........... $ 61,375 $ 594 $ (33,500)(a) $ 28,469 $ -- $ 28,469
Receivables, net....... 206,355 73,412 -- 279,767 -- 279,767
Inventories............ 157,417 64,612 54,867 (b) 276,896 -- 276,896
Prepaid expenses and
other current assets.. 12,727 8,189 (8,189)(c) 12,727 -- 12,727
-------- -------- ----------- ------------ -------- ----------
Total current assets... 437,874 146,807 13,178 597,859 -- 597,859
Net property, plant and
equipment.............. 172,470 105,211 10,048 (d) 287,729 -- 287,729
Reorganization value in
excess of amounts
allocable to
identifiable assets,
net.................... 122,936 -- -- 122,936 -- 122,936
Trademarks and trade
names, net............. 144,412 -- -- 144,412 -- 144,412
Excess of cost over net
assets acquired........ -- -- 105,834 (e) 105,834 -- 105,834
Other assets............ 18,752 7,803 (9,310)(f)
13,450 (g)
(3,635)(h)
(2,636)(c) 24,424 (1,480)(m) 22,944
-------- -------- ----------- ------------ -------- ----------
$896,444 $259,821 $ 126,929 $ 1,283,194 $ (1,480) $1,281,714
======== ======== =========== ============ ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of
long-term debt........ $ 21,066 $ -- $ (19,444)(i) $ $ $
17,000 (i) 18,622 -- 18,622
Accrued interest
expense............... 2,843 -- -- 2,843 -- 2,843
Accounts payable and
other accrued
expenses.............. 97,413 44,357 (15,522)(c)
2,500 (j) 128,748 -- 128,748
Income taxes........... 3,868 3,706 (3,706)(c)
(3,561)(f) 307 (566)(m) (259)
-------- -------- ----------- ------------ -------- ----------
Total current
liabilities........... 125,190 48,063 (22,733) 150,520 (566) 149,954
Long-term debt, less
current maturities..... 381,312 8,000 (243,056)(i)
559,000 (i) 705,256 (74,313)(n) 630,943
Other long-term
liabilities............ 97,748 38,256 (5,031)(c)
10,000 (k) 140,973 -- 140,973
Notes payable--
affiliates............. -- 134,461 (134,461)(c) -- -- --
Shareholders' equity:
Common stock........... 50,120 7,500 (7,500)(l) 50,120 8,750 (n) 58,870
Paid-in capital........ 218,154 4,376 (4,376)(l) 218,154 65,563 (n) 283,717
Retained earnings...... 23,920 19,165 (19,165)(l)
(5,749)(f) 18,171 (914)(m) 17,257
-------- -------- ----------- ------------ -------- ----------
Total shareholders'
equity................ 292,194 31,041 (36,790) 286,445 73,399 359,844
-------- -------- ----------- ------------ -------- ----------
$896,444 $259,821 $ 126,929 $ 1,283,194 $ (1,480) $1,281,714
======== ======== =========== ============ ======== ==========
</TABLE>
- --------
(a) Adjusted to reflect the cash used by the Company to finance the
acquisition of Thomasville.
(b) Adjusted to reflect Thomasville's inventory at estimated fair value.
(c) Adjusted to reflect the elimination of certain historical Thomasville
assets not acquired and liabilities not assumed by the Company in the
acquisition of Thomasville.
(d) Adjusted to reflect the estimated fair value of property, plant and
equipment of Thomasville pursuant to the acquisition of Thomasville.
(e) Adjusted to reflect the excess of cost over net assets of Thomasville
acquired by the Company. The acquisition of Thomasville was accounted for
under the purchase method of accounting.
(f) Adjusted to reflect the write-off of deferred debt costs related to the
Company's old secured credit agreement, net of income tax benefits of
$3,561.
(g) Adjusted to reflect deferred debt costs attributable to the Secured Credit
Agreement and Receivables Securitization Facility.
(h) Adjusted to reflect the elimination of Thomasville's historical excess of
cost over net assets acquired.
(i) Adjusted to reflect the repayment of the Company's old secured credit
agreement and borrowings under the Secured Credit Agreement and the
Receivables Securitization Facility in connection with the financing of
the acquisition of Thomasville.
(j) Adjusted to reflect the accrual of certain fees and expenses incurred in
connection with the Company's acquisition of Thomasville.
(k) Adjusted to reflect the estimated projected benefit obligation exceeding
the accumulated benefit obligation related to the Thomasville pension
plan.

15
<PAGE>

(l) Adjusted to reflect the elimination of the shareholder's equity of
Thomasville that existed prior to the acquisition of Thomasville by the
Company.
(m) Adjusted to reflect the write-off of deferred debt cost related to the
Secured Credit Agreement, for the application of the estimated net
proceeds of this Offering (assuming the sale of 8,750,000 shares of Common
Stock at a price to the public of $9.00 per share, less underwriting
discounts and commissions and expenses payable by the Company) to prepay
outstanding amounts under the Secured Credit Agreement, net of income tax
benefits of $566.
(n) Adjusted to reflect the application of the estimated net proceeds of the
Offering (assuming the sale of 8,750,000 shares of Common Stock at a price
to public of $9.00, less underwriting discounts and commissions and
estimated expenses payable by the Company) to prepay outstanding amounts
under the Secured Credit Agreement.

16
<PAGE>

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1995
-------------------------------------------------------------------------------
HISTORICAL THOMASVILLE ACQUISITION EQUITY OFFERING
------------------------ ------------------------- -------------------------
THE PRO FORMA PRO FORMA
COMPANY THOMASVILLE ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
--------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales................ $ 794,866 $ 408,282 $ -- $ 1,203,148 $ -- $ 1,203,148
Costs and expenses:
Cost of operations...... 562,479 318,801 -- 881,280 -- 881,280
Selling, general and
administrative
expenses............... 149,101 52,726 2,700 (a)
(523)(b) 204,004 -- 204,004
Depreciation and
amortization........... 28,387(j) 9,475 (193)(c)
1,984 (d)
754 (e) 40,407(j) -- 40,407(j)
--------- --------- ------- ----------- ------ -----------
Earnings from
operations.............. 54,899 27,280 (4,722) 77,457 -- 77,457
Interest expense......... 25,409 9,855 9,529 (f) 44,793 (5,282)(i) 39,511
Other income (expense),
net..................... 3,352 1,475 (1,407)(g) 3,420 -- 3,420
--------- --------- ------- ----------- ------ -----------
Earnings before income
tax expense............. 32,842 18,900 (15,658) 36,084 5,282 41,366
Income tax expense....... 13,416 6,561 (5,989)(h) 13,988 2,020 (h) 16,008
--------- --------- ------- ----------- ------ -----------
Net earnings............. $ 19,426 $ 12,339 $(9,669) $ 22,096 $3,262 $ 25,358
========= ========= ======= =========== ====== ===========
Net earnings per common
share (fully diluted)... $0.38(j) $0.43(j) $0.42(j)
========= =========== ===========
Weighted average common
and common equivalent
shares outstanding (in
thousands) (fully
diluted)................ 51,404 51,404 60,154
</TABLE>
- --------
(a) Adjusted to reflect the estimated pension expense to the Company associated
with the formation of the new Thomasville pension plan.

(b) Adjusted to reflect the reversal of expenses incurred by Thomasville for
certain of its employee benefit plans, which were discontinued at the time
of the acquisition by the Company.

(c) Adjusted to reverse the amortization of Thomasville's historical excess of
cost over net assets acquired for the period prior to the acquisition of
Thomasville by the Company.

(d) Adjusted to reflect the amortization of the excess of cost over net assets
of Thomasville acquired by the Company.

(e) Adjusted to reflect increased depreciation expense to the Company resulting
from recording property, plant and equipment of Thomasville at estimated
fair value.

(f) Adjusted to reflect increased interest expense to the Company related to
borrowings under the Secured Credit Agreement and Receivables
Securitization Facility in connection with the acquisition of Thomasville.

(g) Adjusted to reflect reduction in interest income of the Company
attributable to cash used by the Company to finance the Thomasville
acquisition.

(h) Adjusted to record the income tax effect of all adjustments at a combined
statutory rate of 38.25%.

(i) Adjusted to reflect reduced interest expense for the application of the
estimated net proceeds of the Offering (assuming the sale of 8,750,000
shares of Common Stock at a price to public of $9.00, less underwriting
discounts and commissions and estimated expenses payable by the Company) to
prepay outstanding amounts under the Company's Secured Credit Agreement.

(j) Includes $11,836 related to the 1992 asset revaluation. The impact of this
item on net earnings and pro forma earnings per share is a reduction of
$9,247 and $.15 per share, respectively. See Note 2 to the Consolidated
Financial Statements of the Company included elsewhere in this Prospectus.

17
<PAGE>

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31, 1994
------------------------------------------------------------------------------------
HISTORICAL THOMASVILLE ACQUISITION EQUITY OFFERING
-------------------------- ----------------------------- ------------------------
PRO FORMA PRO FORMA
THE COMPANY THOMASVILLE ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
----------- ----------- ------------ ------------ ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $1,072,696 $526,643 $ -- $ 1,599,339 $ -- $1,599,339
Costs and expenses:
Cost of operations...... 752,528 409,934 -- 1,162,462 -- 1,162,462
Selling, general and
administrative
expenses.............. 199,333 65,654 2,460 (a)
(280)(b) 267,167 -- 267,167
Restructuring charges.. -- 1,000 (1,000)(c) -- -- --
Depreciation and
amortization.......... 35,776(k) 12,205 (257)(d)
2,646 (e)
1,005 (f) 51,375(k) -- 51,375(k)
---------- -------- ---------- ------------ ------ ----------
Earnings from
operations............. 85,059 37,850 (4,574) 118,335 -- 118,335
Interest expense........ 37,886 11,389 14,457 (g) 63,732 (7,042)(j) 56,690
Other income (expense),
net.................... 1,668 1,169 (1,876) (h) 961 -- 961
---------- -------- ---------- ------------ ------ ----------
Earnings before income
tax expense............ 48,841 27,630 (20,907) 55,564 7,042 62,606
Income tax expense...... 20,908 11,011 (7,997)(i) 23,922 2,694 (i) 26,616
---------- -------- ---------- ------------ ------ ----------
Net earnings............ $ 27,933 $ 16,619 $ (12,910) $ 31,642 $4,348 $ 35,990
========== ======== ========== ============ ====== ==========
Net earnings per common
share
(fully diluted) $ 0.54(k) $ 0.61(k) $ 0.60(k)
========== ============ ==========
Weighted average common
and common equivalent
shares outstanding (in
thousands) (fully
diluted)............... 51,506 51,506 60,256

</TABLE>
- --------
(a) Adjusted to reflect the estimated pension expense to the Company
associated with the formation of the new Thomasville pension plan.
(b) Adjusted to reflect the reversal of expenses incurred by Thomasville for
certain of its employee benefit plans, which were discontinued at the time
of the acquisition by the Company.
(c) Adjusted to reflect the reversal of Thomasville's nonrecurring
restructuring charge of $1,000 in 1994 prior to the acquisition by the
Company.
(d) Adjusted to reverse the amortization of Thomasville's historical excess of
cost over net assets acquired for the period prior to the acquisition of
Thomasville by the Company.
(e) Adjusted to reflect the amortization of the excess of cost over net assets
of Thomasville acquired by the Company.
(f) Adjusted to reflect increased depreciation expense to the Company
resulting from recording property, plant and equipment of Thomasville at
estimated fair value.
(g) Adjusted to reflect increased interest expense to the Company related to
borrowings under the Company's Secured Credit Agreement and Receivables
Securitization Facility in connection with the acquisition of Thomasville.
(h) Adjusted to reflect reduction in interest income of the Company
attributable to cash used by the Company to finance the Thomasville
acquisition.
(i) Adjusted to record the income tax effect of all adjustments at a combined
statutory rate of 38.25%.
(j) Adjusted to reflect reduced interest expense for the application of the
estimated net proceeds of the Offering (assuming the sale of 8,750,000
shares of Common Stock at a price to public of $9.00, less underwriting
discounts and commissions and estimated expenses payable by the Company)
to prepay outstanding amounts under the Company's Secured Credit
Agreement.
(k) Includes $16,900 related to the 1992 asset revaluation. The impact of this
item on net earnings and pro forma earnings per share is a reduction of
$13,051 and $.22 per share, respectively. See Note 2 to the Consolidated
Financial Statements of the Company included elsewhere in this Prospectus.

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<PAGE>

BUSINESS

GENERAL

The Company is the largest manufacturer of residential furniture in the
United States. The Company markets its products under three of the best known
brand names in the industry--Broyhill, Lane and Thomasville. The Company is a
quality and style leader across a broad spectrum of price categories in the
residential furniture industry from "premium" priced home furnishings to lower
priced RTA furniture. The Company distributes its products through a diverse
network of independently-owned retail locations, which includes the largest
system of dedicated retail outlets in the residential furniture industry.
Management believes that the acquisition of Thomasville in December 1995 (see
"Thomasville Acquisition") significantly enhances the Company's competitive
strengths and positions the Company to increase its market share, sales and
earnings.

The Company is organized into three primary operating subsidiaries of
similar size which target particular product and price categories as described
below:

COMPETITIVE STRENGTHS

In addition to its substantial size relative to its competitors, the Company
believes that its focus on the following elements has contributed to its
leading position in the residential furniture industry:

BRAND NAME STRENGTH. According to a recent consumer survey conducted by
America's Research Group and commissioned by the Company, Broyhill, Lane
and Thomasville are three of the six best known brand names in the retail
furniture industry. According to this survey, Broyhill was rated the number
one brand in the industry in terms of consumer awareness, and Thomasville
was rated the "highest quality" brand and the leading brand in the "best"
price category.

BROAD RANGE OF PRODUCT OFFERINGS. The Company offers consumers a wide
range of products from the "premium" to "RTA" price categories across
virtually all residential furniture segments including: bedroom, dining
room, living room, motion/recliner, stationary upholstery, occasional table
and

19
<PAGE>

rattan/wicker. The recent acquisition of Thomasville strengthens the
Company's position across the "premium" and "best" price categories of the
market.

DEDICATED DISTRIBUTION CHANNELS. The Company distributes its products
through a diverse network of independently-owned retail locations which
includes more than 940 galleries at Broyhill, Lane and Thomasville, more
than 410 Broyhill Furniture Centers, and approximately 80 free-standing
Thomasville Home Furnishings stores. The gallery concept displays products
in complete room ensembles, which include furnishings, wall decor, window
treatments, floor coverings, accents and accessories. According to
Furniture Today, the median sales per square foot of galleries exceeds that
of non-galleries by 27%. The Broyhill Furniture Centers are participants in
a gallery program developed for smaller dealers, which enables retailers to
commit less area to Broyhill products than a gallery. The Thomasville Home
Furnishings stores are dedicated solely to the display, promotion and sale
of Thomasville products. See "Distribution."

INNOVATIVE, HIGH QUALITY PRODUCTS. The Company focuses on designing
innovative and stylish furniture, by regularly introducing new and updated
collections and designs. For example, management believes that the Broyhill
Fontana collection has been the best selling furniture collection, and the
Thomasville Collector's Cherry collection has been the best selling dining
room collection in the industry for the last three years. Lane has teamed
up with innovative, widely recognized designers such as Mark Hampton and
Dakota Jackson to design and market furniture collections. Each of these
companies strives to differentiate its products with design elements that
include special detailing, innovative finishes and unique hardware. Lane's
Action Industries subsidiary has developed new technologies that have
enhanced its position in the growing motion furniture segment, such as an
innovative deck mechanism for sleeper sofas.

MANUFACTURING EXPERTISE. The Company is a leader in automated furniture
manufacturing. Modern state-of-the-art technology and economies of scale
have made the Company a very efficient producer. The Company consistently
modernizes its manufacturing facilities through capital investment. For
example, Lane recently completed a state-of-the-art flat line finishing
plant for more efficient production of high sheen and enhanced grain
finishes and has invested in additional advanced-technology manufacturing
equipment to increase productivity. In addition, Broyhill recently
completed construction of a state-of-the-art particleboard manufacturing
facility.

EXPERIENCED MANAGEMENT TEAMS. The Company believes that an experienced,
dedicated management team is a critical factor in achieving success. The
management teams for each of the operating subsidiaries of the Company have
extensive experience in the furniture industry. The Chief Executive
Officers of Broyhill, Lane and Thomasville each have an average of more
than 28 years of experience with their respective companies.

These competitive strengths position the Company to increase its market
share in the highly-fragmented residential furniture industry. The Company's
breadth of products, strength of brands, innovative consumer advertising and
national scope of distribution give it the ability to service effectively
national retailers such as J.C. Penney and Sears and large regional retailers
such as Haverty's and Heilig-Meyers. These large retailers are commanding an
increasing presence in the consolidating furniture retailing industry.
Furthermore, the increased number of galleries dedicated to particular
manufacturers in retail furniture stores highlights the increasing importance
of manufacturer/retailer alliances. The market position of the Company's
products allows it to develop and maintain close relationships with dealers
and to achieve the most favorable positioning of its galleries at retail
locations.

GROWTH STRATEGY

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<PAGE>

MAXIMIZING OPERATING MARGINS. The Company's Gross Profit Management
Program consists of twelve specific "building blocks" that management uses
in its strategic and operational planning to maximize gross profit margins
and thereby provide the Company with additional funds for purposes such as
increased advertising and product development. These "building blocks"
include (a) introducing new high quality products with above average profit
margins, (b) marketing products to new customers, (c) developing new
markets, (d) implementing a well-defined pricing strategy to maximize the
effectiveness of price increases and decreases, (e) focusing on cost
control and cost reduction programs that target a minimum savings of 3% of
cost of goods sold each year, (f) reviewing product and purchasing
strategies, and (g) implementing other management and personnel strategies.
Management believes that this program has contributed to the Company
achieving among the highest EBITDA margins of publicly-owned residential
furniture manufacturing companies in recent years. Management believes
opportunities exist to increase the EBITDA margins of its operating
companies through continued implementation of the Gross Profit Management
Program, including the initiation of the program at Thomasville.

EMPHASIZING NEW AND GROWING PRODUCT AREAS. The Company emphasizes
development of new high margin products in growing product areas. For
example, the Company has become a leader in the fast growing motion
furniture and recliner segments. The Company has also introduced a sleeper
sofa incorporating a unique sleep deck designed to be more comfortable,
both as a sofa and a bed, than competitive product offerings. Furthermore,
the Company is currently designing innovative new products for the growing
home office and home entertainment center markets.

21
<PAGE>

consumers of furniture. Furthermore, statistics show that the average size
of new homes has increased in recent years, which generally results in
increased purchases of furniture per home. The Company is well positioned
to capitalize on these demographic trends by reason of its broad range of
product offerings and widely-recognized brand names.

THE FURNITURE INDUSTRY

The domestic residential furniture industry had approximately $19 billion in
sales during fiscal 1994 according to the American Furniture Manufacturers
Association (the "AFMA"). The industry is comprised of an estimated 600
manufacturers, of which the top 10 accounted for approximately 37% of industry
sales, representing an increase from 26% in 1986. The residential furniture
market consists of three principal product categories: wood, upholstery and
metal. Of these categories, wood is the largest, representing approximately
half of total industry sales, while upholstery represents approximately one-
third of total industry sales and metal and other products account for the
balance.

The access to diverse distribution channels has become increasingly
important over the past decade. Home centers, mass merchants, national chains
and specialty stores have emerged as increasingly important distribution
channels for residential furniture manufacturers. Management believes that
these retailers require suppliers that offer broad product lines combined with
substantial marketing and advertising resources. In addition, access to the
consumer has become more important to residential furniture manufacturers. As
a result, the "gallery" concept and other dedicated distribution outlets have
become an important development in the industry. Galleries are large display
areas within independently-owned furniture locations which are committed to
the products of a single manufacturer. A gallery generally takes up a
significant portion of a retailer's floor space. For example, the average
retail store has approximately 30,000 square feet with 7,500 square feet
dedicated to a gallery which has complete room settings and fully accessorized
displays that help customers visualize their room. In return for featuring a
manufacturer's merchandise, the retailer receives layout designs, cooperative
promotions and other assistance from the manufacturer.

The residential furniture industry is cyclical, fluctuating with the general
economy. Periods of decline, however, have been brief, with annual industry
shipments declining in only four of the past twenty-four years. The Company
believes furniture sales are influenced by a number of macroeconomic factors
including existing home sales, housing starts, consumer confidence, interest
rates and demographic trends. Management believes favorable fundamental home
building and demographic trends will continue to drive long-term growth in the
furniture industry with AFMA expecting shipments to increase 5.7% in 1996.

PRODUCTS

The Company manufactures and distributes (i) case goods, consisting of
bedroom, dining room and living room furniture, (ii) occasional furniture,
consisting of wood tables and accent items and freestanding home entertainment
centers and (iii) upholstered products, consisting of sofas, loveseats,
sectionals, chairs and (iv) recliners, motion furniture and sleep sofas. The
Company's product strategy, which is enhanced by the acquisition of
Thomasville, is to be the quality and style leader across a broad spectrum of
price categories in the residential furniture industry from "premium" to "RTA"
home furnishings. The Company believes that its products are well-positioned
in terms of selection, quality and value within each of the major style
categories in home furnishings including American Traditional/Country, 18th
Century, European Traditional, Casual Contemporary and Oriental. The Company's
brand name positioning by price and product category are shown below.

22
<PAGE>

<TABLE>
<CAPTION>
STATIONARY MOTION/
PRICING CATEGORY CASE GOODS OCCASIONAL UPHOLSTERY RECLINER
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PREMIUM Thomasville Thomasville Thomasville
Lane Lane
- ----------------------------------------------------------------------------------
BEST Thomasville Thomasville Thomasville Thomasville
Lane Lane Lane Lane
- ----------------------------------------------------------------------------------
BETTER Lane Lane Lane Lane
Broyhill Broyhill Broyhill Broyhill
- ----------------------------------------------------------------------------------
GOOD Broyhill Broyhill Broyhill
- ----------------------------------------------------------------------------------
PROMOTIONAL(1) Armstrong
- ----------------------------------------------------------------------------------
RTA(1) Armstrong
</TABLE>

- --------
(1) Promotional and RTA furniture is currently sold by Thomasville under the
Armstrong name. See "Thomasville Furniture Industries" below.

BROYHILL FURNITURE INDUSTRIES

Broyhill produces collections of medium price bedroom, dining room,
upholstered and occasional furniture aimed at middle-income consumers.
Broyhill's wood furniture offerings consist primarily of bedroom, dining room
and living room furniture, occasional tables, accent items and free standing
home entertainment centers. Upholstered products include sofas, sleep sofas,
loveseats, sectionals and chairs, all offered in a variety of fabrics and
leathers. Broyhill's residential furniture divisions produce a wide range of
furnishings in colonial, country, traditional and contemporary styles.

The widely recognized Broyhill trademarks include Broyhill, Broyhill Premier
and Highland House. The flagship Broyhill product line concentrates on
bedroom, dining room, upholstered and occasional furniture designed for the
"good" and "better" price categories. The Broyhill Premier product line enjoys
an excellent reputation for classically styled, complete furniture collections
in the "better" price category. Highland House also manufactures upholstered
products in the "better" price category. In addition, management believes that
the Broyhill Fontana collection has been the best selling furniture collection
for the past three years.

THE LANE COMPANY

Lane manufactures and markets a broad range of high quality furniture
targeting the "better," "best" and "premium" price categories. Lane targets
niche markets with its seven operating divisions, which participate in such
segments of the residential furniture market as 19th century reproductions,
motion furniture, wicker and rattan, cedar chests and finely tailored
upholstered furniture. Using its recently installed, state-of-the-art
finishing system, Lane produces quality high sheen and enhanced grain finishes
at attractive prices.

The Lane Division of Lane manufactures and sells cedar chests, occasional
living room tables, bedroom and dining room furniture, wall systems, desks,
console tables and mirrors and other occasional wood pieces. The Lane Division
has teamed up with widely recognized designers such as Dakota Jackson, as well
as design institutions such as the American Museum of Folk Art in New York, to
design and market furniture collections. The Lane Division furniture is sold
in the "better" and "best" price categories.

Action Industries, a subsidiary of Lane, manufactures and markets reclining
chairs and motion furniture in the "good," "better" and "best" price
categories under the Action by Lane brand name. Motion furniture consists of
sofas and loveseats with recliner-style moving parts and comfort features,
wall saver recliners, pad-over chaise recliners, and motion sectionals. Lane's
Royal Development Company designs and manufactures the mechanisms used in
Action Industries' reclining furniture products. Management believes that
Action Industries currently commands an approximately 14% market share
position in the motion furniture and an approximately 22% market share in the
reclining chair markets.

The Hickory Chair division manufactures and markets traditional styles of
upholstered furniture, dining room chairs and occasional tables in the "best"
and "premium" price categories. The Hickory Chair division

23
<PAGE>

has been crafting fine reproductions of 18th century furniture for over 80
years. For example, Hickory Chair offers the James River collection which
features reproductions of fine furnishings from Virginia plantations, and more
recently the new Mount Vernon collection, which features reproductions from
George Washington's home.

The Pearson division has been manufacturing and selling contemporary and
traditional styles of finely tailored upholstered furniture including sofas,
love seats, chairs and ottomans for over 50 years. Pearson manufactures the
Viceroy collection, which features fine furnishings from the award winning
designer Victoria Moreland. Pearson furniture sells in the "premium" price
category and is distributed to high end furniture stores and interior
designers.

The Lane Upholstery division includes two product lines, one of which is
composed of contemporary and modern upholstered furniture and metal and glass
occasional and dining tables, and the other of which is composed of
traditional and contemporary upholstered furniture, primarily sofas, love
seats, chairs and ottomans.

The Venture Furniture division manufactures and markets moderately priced
wicker, rattan and bamboo upholstered furniture, tables, occasional wood
pieces and other home furnishings accessories. The division manufactures a
line of outdoor and patio furniture featuring fast drying upholstered cushions
under the name WeatherMaster, which has developed significant consumer
acceptance.

Hickory Business Furniture manufactures and sells a line of office chairs,
tables, conference tables, desks and credenzas in the upper-medium price
range.

THOMASVILLE FURNITURE INDUSTRIES

Thomasville manufactures and markets wood furniture, upholstered products
and RTA/promotional furniture. Thomasville markets its products primarily
under the Thomasville brand name. Management believes Thomasville products
contain special design elements which embody the famous "Thomasville Look." In
wood furniture, these elements include special details, high sheen finishes,
original design hardware, hand selected veneers and fancy face veneer patterns
and decorative carvings that are made possible by the unique manufacturing
techniques that have been developed by Thomasville and the skills of its
experienced employees. In upholstery, these elements include a wide range of
frames, fabrics and leathers combined with fringes, cords, pillows, exposed
frame finishes and seating options.

Management believes that Thomasville's wood products are well-positioned in
terms of selection, quality and value within each of the major style
categories in home furnishings. In 1994, Thomasville introduced two major new
collections, American Revival and Stone Terrace. Additionally, Collector's
Cherry and the Mahogany Collection have consistently been among the most
successful collections in the industry.

Thomasville offers an assortment of upholstery under one brand name that
targets the "best" and "premium" price categories. Upholstery is primarily
marketed in three major styles: Traditional, American Traditional/Country and
Casual Contemporary. Upholstery style is determined by both frame style and
fabric or leather selection. Thomasville's frame assortment allows the
consumer to select from over 90 different styles within the general style
categories, and as much as 45% of the Thomasville fabric offering changes in a
12 month period, insuring that the latest styles are available.

Thomasville's RTA/Promotional division offers assembled bedroom sets,
bookcases and home entertainment centers as well as RTA furniture consisting
of home entertainment centers, audio cabinets, television/VCR carts, room
dividers, bookcases, bedroom and kitchen/utility furniture, microwave carts,
computer desks and storage armoires. These products are primarily constructed
from fibreboard or particleboard and are printed or covered with laminated
paper in a variety of finishes and colors.

Thomasville's RTA/Promotional division markets products under the Armstrong
brand name to a variety of retailers for sale to consumer end-users and
certain contract customers. The Company has the right to continue to use the
Armstrong name for 18 months after the closing of the Thomasville acquisition.
Management does not

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<PAGE>

believe that the loss of the Armstrong name will have a material adverse
effect on the Company's sales of RTA and promotional furniture.

DISTRIBUTION

The Company's strategy of targeting diverse distribution channels such as
furniture centers, independent dealers, national and local chain stores,
department stores, specialty stores and decorator showrooms is supported by
dedicated sales forces covering each of these distribution channels. The
Company is also exploring opportunities to expand international sales and to
distribute through non-traditional channels such as electronic retailers,
wholesale clubs, catalog retailers and television home shopping.

The Company's breadth of product and national scope of distribution enable
it to service effectively national retailers such as J.C. Penney, Sears and
Levitz and key regional retailers such as Haverty's and Heilig-Meyers. These
large retailers are commanding an increasing presence in the consolidating
furniture retailing industry and management believes that the Company is
better positioned than its competitors to meet their needs. Additionally, the
consolidation of the retail furniture industry has made access to distribution
channels an important competitive advantage for manufacturers. The Company has
developed dedicated distribution channels by expanding its gallery program and
the network of independently-owned dedicated retail locations, such as
Thomasville Home Furnishings stores. The Company distributes its products
through a diverse network of independently-owned retail locations, which
includes approximately 80 free-standing stores, more than 680 galleries and
more than 410 furniture centers.

Broyhill, Lane and Thomasville have all developed gallery programs with
dedicated dealers displaying furniture in complete room ensembles. These
retailers employ a consistent showcase gallery concept wherein products are
displayed in complete and fully accessorized room settings instead of as
individual pieces. This presentation format encourages consumers to purchase
an entire room of furniture instead of individual pieces from different
manufacturers. As a result, galleries tend to have higher sales per square
foot as well as faster inventory turns than non-gallery locations. According
to Furniture Today, the median sales per square foot of galleries exceeds that
of non-galleries by 27%. The Company recognizes the importance of the gallery
network to its long-term success, and has developed and maintains close
relationships with its dealers. The Company offers substantial services to
retailers to support their marketing efforts, including coordinated national
advertising, merchandising and display programs and extensive dealer training.

The Thomasville Home Furnishings stores are free-standing retail locations
that exclusively feature Thomasville furniture. The Company believes
distributing its products through dedicated free-standing stores strengthens
brand awareness, provides well-informed and focused sales personnel and
encourages the purchase of multiple items per visit. Management is currently
evaluating similar opportunities to market Lane and Broyhill products.

Showrooms for the national furniture market are located in High Point, North
Carolina and for regional markets in Dallas, Texas, Atlanta, Georgia, Chicago,
Illinois, and San Francisco, California.

BROYHILL FURNITURE INDUSTRIES

One of Broyhill's principal distribution channels is the Broyhill Showcase
Gallery Program. This program, developed over the past twelve years, involves
more than 330 participating dealer locations. Each dealer in the Broyhill
Showcase Gallery Program owns the gallery and the Broyhill furniture
inventory. The program incorporates a core merchandise program, advertising
material support, in-store merchandising events and educational opportunities
for the retail store sales and management personnel. The average Broyhill
Showcase Gallery consists of 7,500 square feet of display space within a
30,000 square foot store. Furniture is displayed in complete and fully
accessorized room settings instead of as individual pieces.

For the retailer that is currently not a participant in the gallery program,
Broyhill offers the Independent Dealer Program. This concept, initiated in
1987, is designed to strengthen Broyhill's relationship with these

25
<PAGE>

retailers by assisting them in overcoming some of the significant difficulties
in running an independent furniture business. The Company seeks to develop
these relationships so that these retailers may become participants in the
Broyhill Showcase Gallery Program. Participating retailers in the Independent
Dealer Program commit to a minimum pre-selected lineup of Broyhill merchandise
and, in return, receive a detailed, step-by-step, year-round advertising and
merchandising plan. The program includes four major sales events per year,
monthly promotional themes and professionally prepared advertising and
promotional materials at nominal cost in order to help increase consumer
recognition on the local level. As part of the Independent Dealer Program,
Broyhill offers the Broyhill Furniture Center Program for retailers that have
committed at least 2,000 square feet exclusively to Broyhill products. This
program includes all of the benefits of the Independent Dealer Program, plus
additional marketing, designing and advertising assistance.

The Company is currently exploring opportunities to expand its distribution
channels for Broyhill through free-standing retail stores similar to the
Thomasville Home Furnishings stores. A retailer in Memphis, Tennessee recently
opened an independently-owned Broyhill store.

THE LANE COMPANY

Lane distributes its products nationally through a well established network
of approximately 16,000 retail locations. A diverse distribution network is
utilized in keeping with Lane's strategy of supplying customers highly
specialized products in selected niche markets. This distribution network
primarily consists of independent furniture stores, regional chains such as
Haverty's and Art Van, and department store companies such as J.C. Penney,
Sears, May Department Stores, Federated Department Stores and Dillard
Department Stores. Lane has an established specialty gallery program with more
than 200 participating dealers.

THOMASVILLE FURNITURE INDUSTRIES

Thomasville products are offered at more than 680 independently-owned retail
locations, including more than 410 Thomasville Galleries, approximately 80
Thomasville Home Furnishings stores and more than 180 selected furniture
chains and retailers. The Thomasville Gallery concept was initiated in 1983.
Each Thomasville Gallery has an average 7,500 square feet of retail space
specifically dedicated to the display, promotion and sale of Thomasville
products. Management believes that the gallery concept results in increased
sales of Thomasville products by encouraging the consumer to purchase a
complete collection as opposed to individual pieces from different
manufacturers. The first Thomasville Home Furnishings store opened in 1988.
The typical Thomasville Home Furnishings store is a 15,000 square foot
independently-owned store offering a broad range of Thomasville products,
presented in a home-like setting by specially trained salespersons.
Thomasville's management believes that the gallery and dedicated store
programs have helped create one of the most efficient distribution systems in
the industry.

Thomasville's RTA/Promotional division sells promotional and RTA furniture
to a variety of retailers for sale to consumer end-users and certain contract
customers. Promotional furniture is sold to retail chains such as Wal-Mart and
Levitz, as well as independent furniture stores. Promotional furniture is also
sold in the hospitality and health care markets of Thomasville's contract
business. RTA customers include national chains such as Wal-Mart and Ames,
catalog showrooms, discount mass merchandisers, warehouse clubs and home
furnishings retailers.

MARKETING AND ADVERTISING

The Company continues to strengthen its valuable brand names through ongoing
investment in innovative consumer advertising. The Company is one of the
largest advertisers in the residential furniture industry. Advertising is used
to increase consumer awareness of its brand names and is targeted to specific
customer segments through leading shelter magazines. Each operating company
uses focused advertising in major markets to create buying urgency around
specific sale and location information, enabling retailers to be listed
jointly in advertisements for maximum advertising efficiency and shared costs.
The Company seeks to increase consumer

26
<PAGE>

buying and strengthen relationships with retailers through cooperative
advertising and selective promotional programs. The Company focuses its
marketing efforts on prime potential customers utilizing information from
databases and from callers to each operating company's toll-free telephone
number. Each of the operating companies also advertises selectively on
television in conjunction with dealers, and Action and Thomasville also use
television advertising independently.

BROYHILL FURNITURE INDUSTRIES

Broyhill's advertising programs focus on translating its strong consumer
awareness into increased sales. According to the recent consumer survey
conducted for the Company by America's Research Group, Broyhill was rated the
number one brand in the industry in terms of brand awareness. In addition, a
survey of readers by Better Homes and Gardens found that 92.5% of people
recognized the name in an aided name recognition test, and a nationwide survey
by Southern Bride magazine found that Broyhill had the highest unaided name
recognition of any residential furniture manufacturer.

Broyhill's current marketing strategy features a national print advertising
program in addition to traditional promotional programs such as furniture
"giveaways" on television gameshows and dealer-based promotions such as
product mailings and brochures. The national print advertising program, which
consists of multi-page lay-outs, is designed to appeal to the consumer's
desire for decorating assistance and increased confidence in making the
decision to purchase a big ticket product such as furniture. These
advertisements are run in publications such as Good Housekeeping and Country
Living which appeal to Broyhill's customer base. Game show promotions, a long-
standing Broyhill tradition, include popular programs such as Wheel of Fortune
and The Price is Right.

THE LANE COMPANY

Management believes that Lane was the first residential furniture
manufacturer to institute a national advertising campaign. Lane became a well-
known brand name through Lane's initial use in the 1920s of creative
advertising to promote its cedar chests. Since then, Lane has continued to use
advertising programs to generate consumer awareness of the Lane brand name.
Through Lane's in-house advertising agency, recent programs have been
developed for print campaigns in national publications such as Country Home,
Country Living, House Beautiful and Architectural Digest. Action Industries is
engaged in selective national and regional television advertising.

The Lane Keepsake program has made the Lane cedar chest one of the best-
known furniture products in the industry and contributes to the high level of
consumer recognition. The program enables the 1,100 participating dealers to
establish early personal contact with a large number of women who are about to
enter the bridal market as potential buyers of home furnishings. Information
regarding a graduation gift of a miniature Lane cedar chest, available at the
local participating furniture store, is sent to the parents of graduating high
school women. This Keepsake program is believed to be instrumental in building
consumer recognition and promoting the Lane brand name.

Lane markets its products through the use of well-known designers and
affiliation with institutions. For example, Lane has teamed up with widely
recognized designers such as Mark Hampton and Dakota Jackson, as well as
design institutions such as the American Museum of Folk Art in New York, to
design and market furniture collections.

THOMASVILLE FURNITURE INDUSTRIES

According to a recent consumer survey conducted by America's Research Group,
Thomasville is consistently rated the "highest quality" residential furniture
brand. Management seeks to enhance this brand identification through
advertising programs. Thomasville's current campaign, featured in household
magazines and periodic television commercials, emphasizes single dramatic,
high quality wood and upholstery pieces to

27
<PAGE>

support the emphasis on higher quality. Thomasville invests in image
advertising by placing advertisements in up-front positions in national
household magazines, such as Better Homes and Gardens, Good Housekeeping and
House Beautiful. Thomasville also utilizes focused advertising in major
markets to create buying urgency around specific sale and location
information, enabling retailers to be listed jointly in advertisements for
maximum advertising efficiency and shared costs.

To reach additional customers, Thomasville uses promotional discounts and
dealer cooperative advertising support. Thomasville has two major retailer
promotions, the Winter and Summer Thomasville Sales, which coincide with
traditional industry sale periods and are supported by eight page color
circulars and full page advertisements in USA Today. Typically, six to eight
million circulars are mailed by retailers during these periods to draw
customers to Thomasville Galleries and Thomasville Home Furnishings stores.

MANUFACTURING

Management believes that the Company is one of the world's most advanced
producers of furniture products and a leader in automated manufacturing. The
Company has sophisticated and computerized manufacturing facilities that are
run by a well-trained, non-union work force. Management believes that the
Company is one of the lowest cost producers in the furniture industry. In
addition to cost efficiency, the high degree of automation results in
substantial additional capacity, which can be accessed by implementing
selected departmental second and third shifts. Management believes that the
Company is well positioned to respond to an increase in demand for furniture
products. As a result of the availability of some excess capacity in Lane and
Thomasville manufacturing facilities, management believes that it will be able
to meet its manufacturing requirements over the next several years without the
necessity of making significant additional capital expenditures to expand
capacity.

Broyhill operates 16 finished case goods and upholstery production and
warehouse facilities totalling over 4.9 million square feet of manufacturing
and warehouse space. All finished goods plants are located in North Carolina.
Broyhill pioneered the use of mass production techniques in the furniture
industry and continues to be a leader in this area by utilizing longer
production runs to achieve economies of scale. Short set-up times and long
production runs have allowed for a reduction of both manufacturing cost and
overhead over the last five years. Broyhill recently completed construction of
a state-of-the-art particleboard manufacturing facility that provides a
captive, cost-effective source of high quality particleboard, a primary
material used in the Company's products.

Lane operates 15 finished case goods and upholstery production and warehouse
facilities in Virginia, North Carolina and Mississippi. Since the late 1980s,
significant capital expenditures have been made to acquire technologically
advanced manufacturing equipment which has increased factory productivity. In
1993, Lane completed a new 396,000 square foot plant, located in Mississippi,
which manufactures motion furniture as well as a new sleep sofa product line.
This facility added approximately $100 million of annual production capacity.
Lane recently installed a state-of-the-art flat-line finishing system that
produces quality high sheen and enhanced grain finishes at attractive prices.

Thomasville manufactures or assembles its products at 16 finished case goods
and upholstery production and warehouse facilities located in North Carolina,
Virginia, Tennessee and Mississippi, close to sources of raw materials and
skilled craftsmen. Each plant is specialized, manufacturing limited product
categories, allowing longer, more efficient production runs and economies of
scale. During recent years, Thomasville has focused on reducing manufacturing
costs by closing less efficient plants, reducing labor costs and establishing
process improvement programs.

The manufacturing process for Thomasville's RTA/promotional product line is
highly automated. Large fiberboard and particleboard sheets are machine-
finished in long production runs, then stored and held for assembly using
highly automated assembly lines. Completed goods are stored in an automated
warehouse to provide quicker delivery to customers. All plant operations use
automated manufacturing processes and inventory

28
<PAGE>

management systems. Ninety percent of Thomasville's RTA/promotional products
are shipped within 14 days of production.

RAW MATERIALS AND SUPPLIERS

The raw materials used by the Company in manufacturing its products are
lumber, veneers, plywood, fiberboard, particleboard, paper, hardware,
adhesives, finishing materials, glass, mirrored glass, fabrics, leathers and
upholstered filling material (such as synthetic fibers, foam padding and
polyurethane cushioning). The various types of wood used in the Company's
products include cherry, oak, maple, pine and pecan, which are purchased
domestically, and mahogany, which is purchased abroad. Fabrics, leathers and
other raw materials are purchased both domestically and abroad. Management
believes that its supply sources for those materials are adequate.

The Company has no long-term supply contracts and has experienced no
significant problems in supplying its operations. Although the Company has
strategically selected suppliers of raw materials, the Company believes that
there are a number of other sources available, contributing to its ability to
obtain competitive pricing for raw materials. Raw materials prices fluctuate
over time depending upon factors such as supply, demand and weather. Increases
in prices may have a short-term impact on the Company's margins for its
products.

The majority of supplies for RTA and promotional products is purchased
domestically, although paper and certain hardware is purchased abroad.
Management believes, however, that its proximity to and relationships with
suppliers are advantageous for the sourcing of such materials. In addition, by
combining the purchase of various raw materials (such as foam, cartons,
springs and fabric) and services, Lane and Broyhill have been able to realize
cost savings. Management believes that the Company's position as the largest
residential furniture manufacturer will create opportunities for additional
cost savings.

COMPETITION

The furniture manufacturing industry is highly competitive. The Company's
products compete with products made by a number of furniture manufacturers,
including Masco Corporation, La-Z-Boy Chair Company, Ladd Furniture, Inc.,
Bassett Furniture Industries, Inc., and Ethan Allen Interiors, Inc., as well
as approximately 600 smaller producers. The elements of competition include
pricing, styling, quality and marketing.

EMPLOYEES

As of December 31, 1995, the Company employed approximately 20,700 people.
None of the Company's employees is represented by a union.

BACKLOG

The combined backlog of the Company's operating companies as of December 31,
1995 aggregated approximately $194 million, compared to approximately $209
million as of December 31, 1994. The backlog calculations for each year have
been adjusted to include the backlog for Thomasville. Substantially all of the
decrease in backlog is attributable to a change in the Company's method of
calculating backlog with regard to certain operations. Management believes
that if it had reported its backlog on a consistent basis, the year end
backlog would have been substantially the same for each of the years ended
December 31, 1994 and 1995.

29
<PAGE>

MANAGEMENT

The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION AND PRINCIPAL OCCUPATION
---- --- ---------------------------------
<C> <C> <S>
Richard B. Loynd 68 Chairman of the Board, President and Chief Executive
Officer of the Company
Brent B. Kincaid 64 President and Chief Executive Officer of Broyhill
K. Scott Tyler, Jr. 56 President and Chief Executive Officer of Lane
Frederick B. Starr 63 President and Chief Executive Officer of Thomasville
David P. Howard 45 Vice-President and Chief Financial Officer of the Com-
pany
Duane A. Patterson 64 Vice-President and Secretary of the Company
Steven W. Alstadt 41 Controller of the Company
Leon D. Black 44 Director of the Company; Officer and director of Apollo
Capital Management, Inc. and Lion Capital Management,
Inc.
Michael S. Gross 34 Director of the Company; Officer of Apollo Capital
Management, Inc. and Lion Capital Management, Inc.
John J. Hannan 43 Director of the Company; Officer and director of Apollo
Capital Management, Inc. and Lion Capital Management,
Inc.
Joshua J. Harris 31 Director of the Company; Officer of Apollo Capital
Management, Inc. and Lion Capital Management, Inc.
Bruce A. Karsh 40 Director of the Company; President of Oaktree Capital
Management, LLC
John H. Kissick 54 Director of the Company; Officer of Lion Capital
Management, Inc. and advisor to Apollo Capital Manage-
ment, Inc.
Donald E. Lasater 70 Director of the Company; Retired, formerly Chairman and
Chief
Executive Officer of Mercantile Bancorporation, Inc.
Lee M. Liberman 74 Director of the Company; Retired, formerly Chairman and
Chief Executive Officer of Laclede Gas Company
</TABLE>

Apollo Capital Management, Inc. ("Apollo Capital") and Lion Capital
Management, Inc. ("Lion Capital") are affiliates of Apollo and Lion, which
together beneficially own approximately 67.5% of the outstanding Common Stock
of the Company. See "Principal Stockholders" below. Apollo Capital and Lion
Capital are the general partners of Apollo Advisors, L.P. ("Apollo Advisors")
and Lion, respectively. Apollo Advisors is the managing general partner of
Apollo, AIF II, L.P. and Apollo Investment Fund III, L.P., private securities
investment funds. Lion acts as financial advisor to and representative of
certain institutional investors with respect to securities investments.

MR. LOYND was elected Vice-President and member of the Board of Directors of
the Company in 1987. He was named President of the Company in March 1989,
became Chief Executive Officer in November 1989 and Chairman of the Board in
June 1990. Previously, Mr. Loynd was Chairman of the Board of Converse Inc.
from 1982 to 1989. He is a director of Emerson Electric Company, Converse Inc.
and The Florsheim Shoe Company.

MR. KINCAID has served as President and Chief Executive Officer of Broyhill
since 1992. Previously, Mr. Kincaid held several positions within Broyhill,
including Executive Vice President (1991 to 1992), Vice President-Operations
(1987 to 1991) and Vice President-Purchasing (1982 to 1987).

MR. TYLER has served as Chief Executive Officer of Lane since 1991 and
President of Lane since 1989. From 1987 to 1989, Mr. Tyler served as President
of the Lane Division, and has been a Vice President of Lane since 1986.

MR. STARR was named President and Chief Executive Officer of Thomasville in
1982. From 1977 to 1982, Mr. Starr served as Senior Vice President and General
Sales Manager of Thomasville.

30
<PAGE>

MR. HOWARD joined the Company in July 1984 as Director of Internal Audit. He
was promoted to Controller in March 1990, elected Vice-President in April 1991
and appointed Chief Financial Officer in July 1994.

MR. PATTERSON has served as Vice-President of the Company since July 1992
and Secretary of the Company since March 1973.

MR. ALSTADT joined the Company in June 1979 as a member of the Internal
Audit Department. He was named Manager, Financial Reporting and Analysis in
1990 and was elected Controller and appointed Chief Accounting Officer in
1994.

CERTAIN TRANSACTIONS

The Company is party to a consulting agreement with Apollo Advisors, an
affiliate of the Company's controlling stockholders (the "Consulting
Agreement"), pursuant to which Apollo Advisors provides corporate advisory,
financial and other consulting services to the Company. Fees under the
Consulting Agreement are payable at an annual rate of $500,000, plus out-of-
pocket expenses. The Consulting Agreement is for a term ending December 31,
1996 and is automatically renewable for successive one-year terms unless
terminated by independent members of the Board of Directors. The Company has
also granted registration rights to Apollo and Lion with respect to shares of
Common Stock owned by Apollo and Lion.

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of shares of the Company Common Stock as of December 31, 1995 by
each person known by the Company to beneficially own more than five percent of
the outstanding shares of Common Stock.

<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
NUMBER OF PRIOR TO AFTER
NAME SHARES OFFERING(1) OFFERING(1)
---- ---------- ----------- -----------
<S> <C> <C> <C>
Apollo Investment Fund, L.P.
c/o CICB Bank and Trust Company
(Cayman) Limited, Edward Street,
Georgetown, Grand Cayman, Cayman
Islands, British West Indies and
Lion Advisors, L.P.
Two Manhattanville Road
Purchase, New York 10577............... 33,981,920(2) 67.5% 57.4%
J.P. Morgan & Co. Incorporated
60 Wall Street
New York, New York..................... 2,791,344 5.6% 4.7%
</TABLE>
- --------
(1) Shares of Common Stock issuable upon exercise of warrants to purchase
Common Stock owned by such stockholder were deemed to be outstanding for
purposes of calculating the percentages of outstanding shares.
(2) Messrs. Black, Gross, Hannan, Harris and Kissick disclaim beneficial
ownership of the shares owned by Apollo and Lion. See "Management."

By reason of its ownership of its shares of Common Stock, Apollo and Lion
have the power to control or influence control of the Company, and Apollo and
Lion have reported that they may exercise such control from time to time.

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 100,000,000 shares
of Common Stock, no par value, and 10,000,000 shares of Preferred Stock, no
par value. The Common Stock has a stated value of $1.00 per share.

As of December 31, 1995, there were 50,120,079 shares of Common Stock
outstanding held of record by approximately 3,000 persons, 2,498,000 shares of
Common Stock reserved for issuance upon the exercise of outstanding stock
options and 6,907,198 shares of Common Stock reserved for issuance upon the
exercise of outstanding warrants at an exercise price of $7.13 per share. No
shares of Preferred Stock have been issued by the Company.

31
<PAGE>

COMMON STOCK

Holders of shares of the Company's Common Stock are entitled to one vote per
share on all matters to be voted upon by the stockholders and are not entitled
to cumulate votes for the election of directors. Subject to preferences that
may be applicable to any outstanding Preferred Stock, holders of shares of
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. In the event of liquidation, dissolution or winding up of
the Company, the holders of shares of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of Preferred Stock, if any, then outstanding. Shares of
Common Stock have no preemptive, conversion or other subscription rights and
there are no redemption or sinking fund provisions applicable to the Common
Stock.

PREFERRED STOCK

The Restated Certificate of Incorporation of the Company provides that the
Company may issue up to 10,000,000 shares of Preferred Stock. The Board of
Directors has the authority to issue Preferred Stock in one or more series and
to fix the rights, preferences, privileges and restrictions, including the
dividend, conversion, voting, redemption (including sinking fund provisions),
and other rights, liquidation preferences, and the number of shares
constituting any series and the designations of such series, without any
further vote or action by the stockholders of the Company. Because the terms
of the Preferred Stock may be fixed by the Board of Directors of the Company
without stockholder action, the Preferred Stock could be issued quickly with
terms calculated to defeat a proposed takeover of the Company, or to make the
removal of management of the Company more difficult. Under certain
circumstances this could have the effect of decreasing the market price of the
Common Stock. Management of the Company is not aware of any such threatened
transaction to obtain control of the Company.

CERTAIN RESTATED CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS

Transactions with Substantial Stockholders. The Restated Certificate of
Incorporation of the Company contains provisions limiting the ability of any
person who is the beneficial owner of more than 10% of the outstanding voting
stock of the Company (a "Substantial Stockholder") to effect certain
transactions involving the Company unless approved by a majority of the
Disinterested Directors of the Company (as defined in the Restated Certificate
of Incorporation). If there are no Disinterested Directors, the transaction
must be approved by the holders of a majority of the shares voting on such
transaction of which the Substantial Stockholder is not a beneficial owner.
Approval will also be required by the holders of a majority of the shares
voting on such transaction not owned by the Substantial Stockholder, if the
transaction is required to be approved by stockholders under applicable law
(provided that such stockholder approval requirement will not be required if
the Substantial Stockholder is the record owner of at least 90% of the
outstanding Common Stock).

Transactions covered by these provisions include (a) the merger or
consolidation of the Company with a Substantial Stockholder, (b) the sale,
exchange, mortgage, pledge, lease or transfer of assets to a Substantial
Stockholder, (c) the issuance or transfer by the Company of any securities or
other property to a Substantial Stockholder, (d) the reclassification of
securities of the Company or the recapitalization or merger of the Company
with any of its subsidiaries if the transaction would, directly or indirectly,
increase the proportionate share of any class of equity or convertible
securities of the Company or a subsidiary owned by a Substantial Stockholder,
or (e) any other transaction with a Substantial Stockholder, including without
limitation payment of compensation and management fees (but not including
customary directors' fees and expense reimbursements). Covered transactions
will not, however, include (1) bona fide loans by the Substantial Stockholder
not exceeding $10.0 million in any 12-month period, (2) participation by the
Substantial Stockholder in bona fide offerings of equity, convertible or
equity-related securities by the Company to the extent required to allow the
Substantial Stockholder to avoid dilution of its percentage interest in the
Common Stock, (3) repurchases of securities either pursuant to certain open
market transactions or on terms identical to those being offered to all other
holders of the same securities, (4) the preparation and filing of registration
statements with respect to securities received by

32
<PAGE>

any Substantial Stockholder pursuant to the Plan of Reorganization and the
payment of reasonable expenses associated therewith, and (5) other immaterial
transactions in the ordinary course of business.

Repurchase of Stock. The Restated Certificate of Incorporation of the
Company provides that, except under certain circumstances, the Company may not
repurchase its stock at a price greater than the Market Price (as defined in
the Company's Restated Certificate of Incorporation) or for consideration
other than cash from a 5% or more stockholder who has held such shares for
less than two years, unless the repurchase is authorized by a majority of all
shares entitled to vote generally in the election of directors, excluding the
shares held by such stockholder.

No Stockholder Action by Written Consent; Special Meetings. The Company's
Restated Certificate of Incorporation and By-Laws provide that stockholder
action can be taken only at an annual or special meeting of stockholders, and
prohibit stockholder action by written consent in lieu of a meeting. The
Company's Restated Certificate of Incorporation and By-Laws provide that
special meetings of stockholders can only by called (i) pursuant to a
resolution adopted by a majority of the entire Board of Directors or (ii) upon
the request of stockholders holding 20% or more the Company's voting stock
outstanding at that time. Any call for a special meeting of stockholders must
specify the matters to be acted upon at such a meeting and only those
specified matters may be acted upon at such special meeting.

Supermajority Vote Requirements. The Company's Restated Certificate of
Incorporation contains provisions requiring the affirmative vote of the
holders of at least a majority of all shares voting, excluding the shares
owned by a Substantial Stockholder, to approve an Affiliate Transaction (as
defined in the Company's Restated Certificate of Incorporation) and requiring
the affirmative vote of the holders of at least a majority of all shares
entitled to vote generally in the election of directors, excluding the shares
owned by an Interested Stockholder (as defined in the Company's Restated
Certificate of Incorporation), to approve a Stock Repurchase (as defined in
the Company's Restated Certificate of Incorporation) from an Interested
Stockholder.

The Company's Restated Certificate of Incorporation contains provisions
requiring the affirmative vote of the holders of at least 75% of all shares
entitled to vote generally in the election of directors and, in addition, the
affirmative votes of the holders of at least 50% of the shares voting,
excluding the shares owned by a Substantial Stockholder, to alter, amend,
repeal or adopt provisions inconsistent with present provisions providing for
action by stockholders only during duly called annual or special meetings and
not by consent, the calling of special meeting of stockholders, defining the
phrase "Substantial Stockholder" and approving Affiliate Transactions.

TRANSFER AGENT AND REGISTRAR

The Transfer Agents and Registrars for the Common Stock are KeyCorp
Shareholder Services Inc. and First Chicago Trust Company of New York.

UNDERWRITING

Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), each
Underwriter named below has severally agreed to purchase, and the Company has
agreed to sell to such Underwriter, the number of shares of Common Stock set
forth opposite the name of such Underwriter below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Smith Barney Inc. ..............................................
Dean Witter Reynolds Inc. ......................................
Donaldson, Lufkin & Jenrette Securities Corporation.............
Wheat, First Securities, Inc. ..................................
---------
Total......................................................... 8,750,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock are
subject to approval of certain legal matters by counsel and to certain

33
<PAGE>

other conditions. The Underwriters are obligated to take and pay for all
shares of Common Stock offered hereby (other than those covered by the over-
allotment option described below) if any such shares are taken.

The Underwriters, for whom Smith Barney Inc., Dean Witter Reynolds Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation and Wheat, First
Securities, Inc. are acting as the Representatives, propose to offer some of
the shares of Common Stock directly to the public at the price to public set
forth on the cover page of this Prospectus and some of the shares of Common
Stock to certain dealers at a price which represents a concession not in
excess of $ per share under the price to public. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of $ per
share of Common Stock to certain other dealers. The Representatives of the
Underwriters have advised the Company that the Underwriters do not intend to
confirm any shares of Common Stock to any accounts over which they exercise
discretionary authority.

The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 1,250,000 additional
shares of Common Stock at the price to public set forth on the cover page of
this Prospectus minus the underwriting discounts and commissions. The
Underwriters may exercise such option solely for the purpose of covering over-
allotments, if any, in connection with the Offering. To the extent such option
is exercised, each Underwriter will be obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number of shares set forth opposite each Underwriter's name in
the preceding table bears to the total number of shares listed in such table.

The Company, its officers and directors, and Apollo and Lion have agreed
that, for a period of 120 days from the date of this Prospectus, they will
not, without the prior written consent of Smith Barney Inc., offer, sell,
contract to sell, or otherwise dispose of, any shares of Common Stock of the
Company or any securities convertible into, or exercisable or exchangeable for
Common Stock of the Company.

Smith Barney Inc. has from time to time performed various investment banking
services for the Company, including in connection with the Company's recent
acquisition of Thomasville, and has received customary fees in respect of such
services.

The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.

LEGAL MATTERS

The validity of the shares offered hereby will be passed upon for the
Company by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania. Certain
legal matters will be passed upon for the Underwriters by Cravath, Swaine &
Moore, New York, New York.

34
<PAGE>

EXPERTS

The consolidated financial statements and financial statement schedules of
the Company and subsidiaries as of December 31, 1994 and 1993, and for each of
the years ended December 31, 1994 and December 31, 1993 and the five months
ended December 31, 1992 and August 2, 1992 have been included and incorporated
by reference herein and in the Registration Statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere and incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing. The report of
KPMG Peat Marwick LLP includes explanatory paragraphs that describe the
adoption of fresh-start reporting principles and refers to the changes in
accounting for postretirement benefits and income taxes.

In addition, the consolidated financial statements of Thomasville as of
December 31, 1994 and 1993 and for each of the years in the three-year period
ended December 31, 1994, have been incorporated by reference herein, and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing. The
report of KPMG Peat Marwick LLP refers to the changes in accounting for post
employment benefits, post retirement benefits and income taxes.

35
<PAGE>

INTERCO INCORPORATED

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
CONSOLIDATED FINANCIAL STATEMENTS: ----
<S> <C>
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheet as of December 31, 1993 and 1994.............. F-3
Consolidated Statement of Operations for the Five Months Ended August 2,
1992 and December 31, 1992 and for the Years Ended December 31, 1993 and
1994 ................................................................... F-4
Consolidated Statement of Cash Flows for the Five Months Ended August 2,
1992 and December 31, 1992 and for the Years Ended December 31, 1993 and
1994 ................................................................... F-5
Consolidated Statement of Shareholders' Equity for the Five Months Ended
August 2, 1992 and December 31, 1992 and for the Years Ended December
31, 1993 and 1994....................................................... F-6
Notes to Consolidated Financial Statements............................... F-7

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheet as of December 31, 1994 and
September 30, 1995 (Unaudited).......................................... F-20
Condensed Consolidated Statement of Operations for the Three Months Ended
September 30, 1994 and
September 30, 1995 (Unaudited).......................................... F-21
Condensed Consolidated Statement of Operations for the Nine Months Ended
September 30, 1994 and
September 30, 1995 (Unaudited).......................................... F-22
Condensed Consolidated Statement of Cash Flows for the Nine Months Ended
September 30, 1994 and
September 30, 1995 (Unaudited).......................................... F-23
Notes to Condensed Consolidated Financial Statements (Unaudited)......... F-24
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders INTERCO INCORPORATED:

We have audited the accompanying consolidated financial statements of
INTERCO INCORPORATED and subsidiaries as listed in the accompanying index.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 INTERCO
INCORPORATED and subsidiaries at December 31, 1994 and 1993, and the results
of their operations and their cash flows for the year ended December 31, 1994,
year ended December 31, 1993, five months ended December 31, 1992, and five
months ended August 2, 1992, in conformity with generally accepted accounting
principles.

As discussed in Note 2 to the consolidated financial statements, effective
August 2, 1992, INTERCO INCORPORATED was required to adopt "fresh-start"
reporting principles in accordance with AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code."
As a result, the financial statements for the period subsequent to the
adoption of fresh-start reporting are presented on a different cost basis than
that for prior periods and, therefore, are not comparable.

As discussed in Notes 2 and 6 to the consolidated financial statements, the
company changed its method of accounting for postretirement benefits and
income taxes in calendar year 1992.

KPMG Peat Marwick LLP

St. Louis, Missouri January 31, 1995

F-2
<PAGE>

CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1994
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 34,809 $ 32,145
Receivables, less allowances of $5,062 ($4,060 at
December 31, 1993) (Note 9)........................ 174,291 202,270
Inventories (Note 7)................................ 134,478 155,031
Prepaid expenses and other current assets........... 14,989 14,325
Net current assets of discontinued operations (Note
3)................................................. 262,327 --
---------- --------
Total current assets................................ 620,894 403,771
Property, plant and equipment:
Land................................................ 11,933 11,933
Buildings and improvements.......................... 106,623 111,076
Machinery and equipment............................. 106,354 115,407
---------- --------
224,910 238,416
Less accumulated depreciation....................... 33,329 57,023
---------- --------
Net property, plant and equipment................... 191,581 181,393
Reorganization value in excess of amounts allocable
to identifiable assets, net (Note 2)................ 135,716 128,414
Trademarks and trade names, net (Note 2)............. 151,274 147,353
Other assets......................................... 21,025 20,804
---------- --------
$1,120,490 $881,735
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (Note 9)....... $ 4,739 $ 16,574
Accounts payable.................................... 32,426 37,721
Accrued employee compensation....................... 13,101 19,771
Accrued interest expense............................ 3,307 1,652
Other accrued expenses.............................. 22,537 25,882
Income taxes........................................ 10,869 (6,152)
---------- --------
Total current liabilities........................... 86,979 95,448
Long-term debt, less current maturities (Note 9)..... 403,255 409,679
Net noncurrent liabilities of discontinued operations
(Note 3)............................................ 187,258 --
Other long-term liabilities.......................... 104,441 101,214
Shareholders' equity:
Preferred stock, authorized 10,000,000 shares, no
par value--issued, none............................ -- --
Common stock, authorized 100,000,000 shares $1.00
stated value--issued 50,004,282 and 50,076,515
shares at December 31, 1993 and 1994 (Note 10)..... 50,004 50,076
Paid-in capital..................................... 226,391 220,788
Retained earnings................................... 62,162 4,530
---------- --------
Total shareholders' equity.......................... 338,557 275,394
---------- --------
$1,120,490 $881,735
========== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>

CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
FIVE MONTHS FIVE MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
AUGUST 2, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 1992 1993 1994
----------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales................................................................. $ 356,705 $394,873 $980,532 $1,072,696
Costs and expenses:
Cost of operations....................................................... 253,528 278,711 685,749 752,528
Selling, general and administrative expenses............................. 74,715 70,896 186,205 199,333
Depreciation and amortization (includes $0, $6,695, $16,463 and $16,900
related to fair value adjustments)...................................... 8,104 13,370 34,455 35,776
---------- -------- -------- ----------
Earnings from operations.................................................. 20,358 31,896 74,123 85,059
Interest expense.......................................................... 29,689 16,358 38,621 37,886
Other income, net......................................................... 383 2,507 1,764 1,668
---------- -------- -------- ----------
Earnings (loss) before reorganization items, income tax expense (benefit),
discontinued operations, extraordinary item and cumulative effect of a
change in accounting principle........................................... (8,948) 18,045 37,266 48,841
Reorganization items (Note 4)............................................. 256,664 -- -- --
---------- -------- -------- ----------
Earnings before income tax expense (benefit), discontinued operations,
extraordinary item and cumulative effect of a change in accounting
principle................................................................ 247,716 18,045 37,266 48,841
Income tax expense (benefit) (Note 11).................................... (1,206) 6,807 15,924 20,908
---------- -------- -------- ----------
Net earnings before discontinued operations, extraordinary item and
cumulative effect of a change in accounting principle.................... 248,922 11,238 21,342 27,933
Discontinued operations (Note 3):
Earnings (loss) from operations, net of taxes............................ (112,522) 10,088 24,026 25,443
Loss on distribution, net of taxes....................................... -- -- -- (15,104)
Cumulative effect of accounting change.................................... (23,825) -- -- --
---------- -------- -------- ----------
Net earnings before extraordinary item and cumulative effect of a change
in accounting principle.................................................. 112,575 21,326 45,368 38,272
Extraordinary item--gain on extinguishment of debt (Note 5)............... 1,075,466 -- -- --
Cumulative effect on prior years of a change in accounting for
postretirement benefits other than pensions and income taxes (Note 6).... (1,719) -- -- --
---------- -------- -------- ----------
Net earnings.............................................................. $1,186,322 $ 21,326 $ 45,368 $ 38,272
========== ======== ======== ==========
Net earnings per common share--primary and fully diluted (Note 2):
Net earnings before discontinued operations, extraordinary item and
cumulative effect of a change in accounting principle................... $ 6.42 $ 0.23 $ 0.41 $ 0.54
Discontinued operations.................................................. (3.52) 0.20 0.47 0.20
Extraordinary item--gain on extinguishment of debt....................... 27.72 -- -- --
Cumulative effect on prior years of a change in accounting for
postretirement benefits other than pensions and income taxes............ (0.04) -- -- --
---------- -------- -------- ----------
Net earnings per common share............................................. $ 30.58 $ 0.43 $ 0.88 $ 0.74
--------------------------------------------------
========== ======== ======== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
FIVE MONTHS FIVE MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
AUGUST 2, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 1992 1993 1994
----------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash Flows from Operating
Activities:
Net earnings.............. $ 1,186,322 $ 21,326 $ 45,368 $ 38,272
Adjustments to reconcile
net earnings to net cash
provided (used) by
operating activities:
Net adjustment in accounts
for fair value........... (263,768) -- -- --
Gain on extinguishment of
debt..................... (1,075,466) -- -- --
Net (earnings) loss from
discontinued operations.. 136,347 (10,088) (24,026) (10,339)
Cumulative effect of a
change in accounting for
postretirement benefits
other than pensions and
income taxes............. 1,719 -- -- --
Depreciation of property,
plant and equipment...... 7,793 9,140 24,304 25,675
Amortization of intangible
assets................... 311 4,230 10,151 10,101
Noncash interest and other
expense.................. 866 188 2,097 196
(Increase) decrease in
receivables.............. 3,234 (16,400) (3,237) (27,979)
(Increase) decrease in
income tax refund
receivable............... (1,317) 6,327 -- --
(Increase) decrease in
inventories.............. (2,777) 6,742 (11,072) (20,553)
(Increase) decrease in
prepaid expenses and
other assets............. (1,805) 3,553 (714) (8,807)
Increase (decrease) in
accounts payable, accrued
interest expense and
other accrued expenses... 41,343 (26,158) (3,866) 15,788
Increase (decrease) in
income taxes............. (375) (2,268) 3,938 (17,021)
Increase (decrease) in net
deferred tax
liabilities.............. (1,381) 4,348 969 7,904
Increase (decrease) in
other long-term
liabilities.............. 2,934 3,971 (886) (2,676)
----------- -------- -------- ---------
Net cash provided by
continuing operations..... 33,980 4,911 43,026 10,561
Net cash provided (used) by
discontinued operations... (43,818) 6,773 (11,993) (16,695)
----------- -------- -------- ---------
Net cash provided (used) by
operating activities...... (9,838) 11,684 31,033 (6,134)
----------- -------- -------- ---------
Cash Flows from Investing
Activities:
Proceeds from the disposal
of assets................ 1,242 173 358 5,621
Additions to property,
plant and equipment...... (7,041) (8,850) (30,197) (21,108)
----------- -------- -------- ---------
Net cash used by investing
activities............... (5,799) (8,677) (29,839) (15,487)
----------- -------- -------- ---------
Cash Flows from Financing
Activities:
Additions to long-term
debt..................... -- -- -- 423,000
Payments of long-term
debt..................... -- (19,144) (20,940) (404,741)
Proceeds from the issuance
of common stock.......... -- -- 42 698
----------- -------- -------- ---------
Net cash provided (used) by
financing activities...... -- (19,144) (20,898) 18,957
----------- -------- -------- ---------
Cash Flows from
Reorganization Activities:
Payments of liabilities
subject to compromise.... (241,287) -- -- --
Payments of deferred
financing fees and
expenses................. (1,736) -- -- --
Proceeds from cash held in
trust.................... 27,351 -- -- --
----------- -------- -------- ---------
Net cash used by
reorganization
activities................ (215,672) -- -- --
----------- -------- -------- ---------
Net decrease in cash and
cash equivalents.......... (231,309) (16,137) (19,704) (2,664)
Cash and cash equivalents
at beginning of period.... 301,959 70,650 54,513 34,809
----------- -------- -------- ---------
Cash and cash equivalents
at end of period.......... $ 70,650 $ 54,513 $ 34,809 $ 32,145
=========== ======== ======== =========
Supplemental Disclosure:
Cash payments (refunds)
for income taxes, net.... $ 910 $ (1,817) $ 11,115 $ 37,127
=========== ======== ======== =========
Cash payments for
interest, exclusive of
reorganization
activities............... $ 194 $ 29,474 $ 38,454 $ 39,345
=========== ======== ======== =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
PREFERRED STOCK RETAINED
----------------- COMMON PAID-IN EARNINGS
SERIES D SERIES E STOCK CAPITAL (DEFICIT) TOTAL
-------- -------- ------- -------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance, February 29,
1992................... $1,146 $3,321 $ 3,873 $199,084 $(1,393,946) $(1,186,522)
Net earnings--Five
months ended
August 2, 1992......... 1,186,322 1,186,322
Conversion of preferred
stock:
Series D--1,600
shares................ (160) 15 145 --
Foreign currency
translations--Five
months ended
August 2, 1992......... 200 200
Fresh-start adjustments:
Cancellation of former
equity and elimination
of deficit............ (986) (3,321) (3,888) (199,229) 207,424 --
Issuance of new
equity................ 50,000 225,400 275,400
Net earnings--Five
months ended
December 31, 1992...... 21,326 21,326
Foreign currency
translations--Five
months ended December
31, 1992............... (3,612) (3,612)
------ ------ ------- -------- ----------- -----------
Balance, December 31,
1992................... -- -- 50,000 225,400 17,714 293,114
Net earnings............ 45,368 45,368
Common stock activity:
Stock option grants and
exercises (Note 10)... 4 988 992
Warrant exercises--282
shares................ 3 3
Foreign currency
translations........... (920) (920)
------ ------ ------- -------- ----------- -----------
Balance, December 31,
1993................... -- -- 50,004 226,391 62,162 338,557
Net earnings............ 38,272 38,272
Common stock activity:
Stock option exercises
(Note 10)............. 71 615 686
Warrant exercise--983
shares................ 1 11 12
Foreign currency
translations........... 2,659 2,659
Distribution of
discontinued operations
to shareholders........ (6,229) (98,563) (104,792)
------ ------ ------- -------- ----------- -----------
Balance, December 31,
1994................... $ -- $ -- $50,076 $220,788 $ 4,530 $ 275,394
====== ====== ======= ======== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>

INTERCO INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. THE COMPANY

INTERCO INCORPORATED (the "Company") is a major manufacturer of residential
furniture. The Company has two primary operating subsidiaries, Broyhill
Furniture Industries, Inc. and The Lane Company, Incorporated.

Substantially all of the Company's sales are made to unaffiliated customers.
The Company has a diversified customer base with no one customer accounting
for 10% or more of consolidated sales and no particular concentration of
credit risk in one economic section. Foreign operations and sales are not
material.

On November 17, 1994, the Company simultaneously refinanced the majority of
its outstanding indebtedness and distributed to holders of its common stock
the common stock of The Florsheim Shoe Company and the common stock of
Converse Inc. (which, in aggregate, represented the Company's footwear
segment). Upon completion of this restructuring, the Company retained no
ownership interest or management control of the footwear businesses.
Accordingly, the financial results of the footwear businesses have been
reflected as discontinued operations for all periods presented, and the
Company's financial results of prior years have been restated.

2. SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies of the Company are set forth below.

Fresh-Start Reporting

On January 24, 1991, INTERCO INCORPORATED and its domestic subsidiaries
filed petitions for reorganization under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the Eastern District
of Missouri (the "Court"). The Company emerged from Chapter 11 effective with
the beginning of business on August 3, 1992. In general, the Plan of
Reorganization (the "Plan") provided for resolution of all claims against the
Company as of January 24, 1991, the Chapter 11 filing date, as well as
resolution of certain legal disputes, in exchange for cash, new indebtedness
and/or new common equity securities. The Plan provided for no distributions to
the holders of the Company's Series D Preferred Stock, Series E Preferred
Stock or common stock, and all outstanding shares of those equity securities
were cancelled as of the effective date of the Plan.

As of August 2, 1992, in accordance with AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("SOP 90-7"), the Company was required to adopt "fresh-start" reporting and
reflect the effects of such adoption in the financial statements as of August
2, 1992. The ongoing impact of the adoption of fresh-start reporting is
reflected in the financial statements for the five months ended December 31,
1992 and the years ended December 31, 1993 and 1994.

In adopting fresh-start reporting, the Company, with the assistance of its
financial advisors, was required to determine its reorganization value, which
represents the fair value of the entity before considering liabilities and
approximates the amount a willing buyer would pay for the assets of the
Company immediately after its emergence from Chapter 11 status. The
reorganization value of the Company was determined by consideration of several
factors, including: the discounted residual value of the Company; market
share, position and competition of each operating company; projected sales,
profitability growth and working capital requirements; and general economic
considerations. Various valuation methods were relied upon, including:
discounted cash flow, price/earnings ratios, comparable merger and acquisition
activities and other applicable ratios and industry indices.

F-7
<PAGE>

INTERCO INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The adjustments to reflect the consummation of the Plan (including the gain
on extinguishment of debt relating to pre-petition liabilities) and the
adjustment to record assets and liabilities at their fair values (including
the establishment of reorganization value in excess of amounts allocable to
identifiable assets) have been reflected in the accompanying consolidated
financial statements. Accordingly, a vertical black line is shown in the
consolidated financial statements to separate post-emergence operations from
those prior to August 3, 1992 since they have not been prepared on a
comparable basis.

Fiscal Year

Effective December 31, 1992, the Company changed its fiscal year end to
December 31. Prior to December 31, 1992, the Company's fiscal year ended on
the last Saturday in February.

For purposes of this annual report, calendar 1992 refers to the two five
month periods ended December 31, 1992 and August 2, 1992, calendar 1993 refers
to the 12 month period ended December 31, 1993, and calendar 1994 refers to
the 12 month period ended December 31, 1994.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and all its subsidiaries, the majority of which are wholly owned. All material
intercompany transactions are eliminated in consolidation. The operating
companies included in the consolidated financial statements report their
results of operations as of the Saturday closest to December 31. Accordingly,
the results of operations will periodically include a 53 week fiscal year. As
a result of adopting fresh-start reporting, calendar 1992 included a 22 week
period ended August 2, 1992 and a 22 week period ended January 2, 1993 for the
operating companies. Calendar 1993 and calendar 1994 represent 52 week fiscal
years.

Cash and Cash Equivalents

The Company considers all short-term investments with an original maturity
of three months or less to be cash equivalents. Short-term investments are
recorded at amortized cost, which approximates market.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost when acquired.
Expenditures for improvements are capitalized while normal repairs and
maintenance are expensed as incurred. When properties are disposed of, the
related cost and accumulated depreciation or amortization are removed from the
accounts, and gains or losses on the dispositions are reflected in results of
operations. For financial reporting purposes, the Company utilizes both
accelerated and straight-line methods of computing depreciation and
amortization. Such expense is computed based on the estimated useful lives of
the respective assets, which generally range from 3 to 45 years for buildings
and improvements and from 3 to 12 years for machinery and equipment. In
connection with the adoption of fresh-start reporting, property, plant and
equipment were adjusted to fair value resulting in an increase of
approximately $77,500 as of August 2, 1992.

Reorganization Value in Excess of Amounts Allocable to Identifiable Assets

As a result of adopting fresh-start reporting, the Company recorded
reorganization value in excess of amounts allocable to identifiable assets of
approximately $146,000. This intangible asset is being amortized on a
straight-line basis over a 20 year period.

F-8
<PAGE>

INTERCO INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Trademarks and Trade Names

In connection with the adoption of fresh-start reporting, the Company
recorded approximately $156,800 in fair value of trademarks and trade names
based upon an independent appraisal. Such trademarks and trade names are being
amortized on a straight-line basis over a 40 year period.

Reorganization Items

Reorganization items consist of income, expenses and other costs directly
related to the reorganization of the Company during the Chapter 11 period.

Income Tax Expense (Benefit)

In connection with the adoption of fresh-start reporting, the Company was
required to adopt Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109") as of August 2, 1992. Under the
asset and liability method of SFAS No. 109, deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates in effect for
the year in which those temporary differences are expected to be recovered or
settled. The effect of a change in tax rates on deferred tax assets and
liabilities is recognized in income in the period that includes the enactment
date.

Extraordinary Item

The extraordinary item for the five months ended August 2, 1992 represents
the gain, net of income taxes, resulting from the discharge of pre-petition
liabilities in accordance with the Plan.

Cumulative Effect on Prior Years of a Change in Accounting for Postretirement
Benefits other than Pensions and Income Taxes

In connection with the adoption of fresh-start reporting, the Company was
required to adopt Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits other than Pensions" ("SFAS
No. 106") as of August 2, 1992. SFAS No. 106 requires the cost of these
benefits be recognized in the financial statements over an employee's service
period with the Company. Prior to August 2, 1992, the Company recognized these
benefits on a cash payment basis. The adoption of SFAS No. 106 and SFAS No.
109 (described above under Income Tax Expense (Benefit)) represents a change
in accounting principle.

Net Earnings Per Common Share

Net earnings per common share is based on the weighted average number of
shares of common stock and common stock equivalents outstanding during the
year. Subsequent to the Company's emergence from Chapter 11, net earnings per
common share is calculated based on the common stock and common stock
equivalents issued in accordance with the Plan. The stock options and warrants
issued (Note 10) are considered common stock equivalents. Weighted average
shares used in the calculation of primary and fully diluted net earnings per
common share for calendar 1994 were 51,495,000 and 51,506,000, respectively.

Prior to the Company's emergence from Chapter 11, common stock equivalents
and the conversion of Series D Preferred Stock were not included in
computations of net earnings per common share as they were not dilutive. As a
result of the Chapter 11 filing, the Company stopped providing for preferred
dividend requirements.

Reclassification

Certain calendar 1992 and calendar 1993 amounts have been reclassified to
conform to the calendar 1994 presentation.

F-9
<PAGE>

INTERCO INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

3. DISCONTINUED OPERATIONS

On November 17, 1994, the Company distributed the common stock of each of
The Florsheim Shoe Company and Converse Inc. (which, in aggregate, represented
the Company's footwear segment) to its shareholders. In accordance with
Accounting Principles Board Opinion No. 30, the financial results for the
footwear segment are reported as "Discontinued Operations" and the Company's
financial results of prior periods have been restated. Condensed results of
the discontinued operations were as follows:

<TABLE>
<CAPTION>
FIVE MONTHS FIVE MONTHS ELEVEN MONTHS
ENDED ENDED YEAR ENDED ENDED
AUGUST 2, DECEMBER 31, DECEMBER 31, NOVEMBER 17,
1992 1992 1993 1994
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net sales................................................................ $ 246,868 $267,401 $676,282 $663,637
========= ======== ======== ========
Earnings (loss) before reorganization items, income tax expense and
cumulative effect of a change in accounting principle................... $ (1,384) $ 17,831 $ 38,706 $ 40,047
Reorganization items..................................................... (110,976) -- -- --
Income tax expense....................................................... 162 7,743 14,680 14,604
--------- -------- -------- --------
Net earnings (loss)...................................................... $(112,522) $ 10,088 $ 24,026 $ 25,443
========= ======== ======== ========
Loss on distribution, net of taxes of $4,564............................. $ -- $ -- $ -- $(15,104)
========= ======== ======== ========
Cumulative effect of accounting change................................... $ (23,825) $ -- $ -- $ --
========= ======== ======== ========
</TABLE>

The loss on distribution reflects expenses related to: the distribution of
the common stock of The Florsheim Shoe Company and Converse Inc. to the
Company's shareholders, including certain expenses associated with
establishing the capital structure of each company; compensation expense
accrued as a result of adjustments required to be made to exercisable employee
stock options; interest expense on certain long-term debt defeased, net of
estimated interest income to be received from the trustees; and applicable
income taxes.

Prior to the distribution of the common stock of The Florsheim Shoe Company
to its shareholders, the Company had guaranteed certain of Florsheim's retail
store operating leases. At December 31, 1994, the Company had guarantees
outstanding on 148 retail store leases with a contingent liability totaling
approximately $49,400. The Florsheim Shoe Company has agreed to indemnify the
Company against any losses incurred as a result of the lease guarantees.

4. REORGANIZATION ITEMS

Reorganization items included in the consolidated statement of operations
are summarized as follows:

<TABLE>
<CAPTION>
FIVE MONTHS
ENDED
AUGUST 2,
1992
-----------
<S> <C>
Adjustments to fair value...................................... $263,768
Fees for services rendered..................................... (6,996)
Other reorganization costs and expenses........................ (2,179)
Debtor-in-possession financing fee amortization and expenses... (263)
Interest earned on accumulated cash resulting from Chapter 11
proceedings................................................... 2,334
--------
$256,664
========
</TABLE>

Adjustments to fair value reflect the net change to state assets and
liabilities at fair value in accordance with the provisions of SOP 90-7.

F-10
<PAGE>

INTERCO INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5. EXTRAORDINARY ITEM--GAIN ON EXTINGUISHMENT OF DEBT

The Plan resulted in the discharge of approximately $2,200,000 of pre-
petition liabilities against the Company through the distribution to creditors
of $293,100 in cash, $642,300 in various debt instruments, 50.0 million shares
of common stock and 5.0 million warrants to purchase common stock. The book
value of cash and securities distributed was approximately $1,100,000 less
than the pre-petition liabilities, and the resultant gain was recorded as an
extraordinary item for the five months ended August 2, 1992.

6. CUMULATIVE EFFECT OF ACCOUNTING CHANGES

In connection with the adoption of fresh-start reporting, the Company
adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits other
than Pensions," as of August 2, 1992. The cumulative effect of the change on
retained earnings, prior to the adoption of fresh-start reporting at August 2,
1992, was approximately $1,700, net of approximately $900 in income taxes. The
Company also adopted SFAS No. 109, "Accounting for Income Taxes," as of August
2, 1992. The adoption of SFAS No. 109 had no impact on calendar 1992
continuing operations.

7. INVENTORIES

Inventories are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1994
------------ ------------
<S> <C> <C>
Finished products.................................. $ 55,453 $ 66,445
Work-in process.................................... 32,460 36,365
Raw materials...................................... 46,565 52,221
-------- --------
$134,478 $155,031
======== ========
</TABLE>

8. SHORT-TERM FINANCING

In conjunction with the November 17, 1994 distribution of the common stock
of The Florsheim Shoe Company and Converse, Inc. to the Company's
shareholders, the Company refinanced the majority of its indebtedness. As part
of this refinancing, the Company entered into a $360,000 Secured Credit
Agreement which includes a $75,000 revolving credit facility.

The revolving credit facility allows for both issuance of letters of credit
and cash borrowings. Letters of credit outstanding are limited to no more than
$35,000, with the limitation increasing by $5,000 annually to a maximum of
$50,000. Cash borrowings are limited only by the facility's maximum
availability less letters of credit outstanding.

As part of the Secured Credit Agreement, the revolving credit facility is
secured by a first priority lien on and security interest in substantially all
of the Company's assets except for trade receivables. See Note 9--Long-Term
Debt--for further information regarding the Secured Credit Agreement.

The outstanding cash borrowings under the revolving credit facility bear
interest at a base (prime) rate plus 0.75% or at an adjusted Eurodollar rate
plus 1.75%, depending upon which type of loan the Company executes. The
"spread" or margin over the base rate and Eurodollar rate is subject to a
"step-down" or reduction when the Company achieves certain financial
performance ratios. At December 31, 1994, there were no cash borrowings
outstanding under the revolving credit facility.

Under the letter of credit facility, a fee of 1.75% per annum (subject to
the same "step-down" as noted earlier) is assessed for the account of the
lenders ratably. A further fee of 0.25% is assessed on stand-by letters

F-11
<PAGE>

INTERCO INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of credit representing a facing fee. A customary administrative charge for
processing letters of credit is also payable to the relevant issuing bank.
Letter of credit fees are payable quarterly in arrears. At December 31, 1994,
there were $21,720 in letters of credit outstanding under the revolving credit
facility.

9. LONG-TERM DEBT

Long-term debt consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1994
------------ ------------
<S> <C> <C>
Secured credit agree-
ment................... $ -- $285,000
Receivables
securitization facili-
ty..................... -- 130,000
Industrial revenue
bonds.................. 12,768 8,000
Federal tax obligation.. 3,968 3,253
10.0% secured notes due
2001................... 104,734 --
9.0% secured notes due
2004................... 149,274 --
8.5% secured notes due
1997................... 9,334 --
Secured term loan....... 289,881 --
ILGWU fund note......... 16,150 --
-------- --------
586,109 426,253
Less amount allocated to
discontinued opera-
tions.................. (178,115) --
Less current maturi-
ties................... (4,739) (16,574)
-------- --------
$403,255 $409,679
======== ========
</TABLE>

On November 17, 1994, the Company refinanced the majority of its long-term
debt by entering into a $360,000 Secured Credit Agreement ($285,000 term loan
facility and $75,000 revolving credit facility) with a group of banks and a
$150,000 Receivables Securitization Facility. Proceeds from these loan
facilities were used to repay or defease (in the case of the 10.0% Secured
Notes) the majority of the Company's outstanding indebtedness. In addition, a
certain portion of the Company's long-term debt was allocated to discontinued
operations which was repaid in conjunction with the refinancing of those
operations at the time of their distribution to the Company's shareholders.

The following discussion summarizes certain provisions of the long-term
debt.

Secured Credit Agreement

The Common stock of the Company's principal subsidiaries, substantially all
of the Company's cash, working capital (other than trade receivables) and
property, plant and equipment, have been pledged or mortgaged as security for
the Secured Credit Agreement. The Secured Credit Agreement contains a number
of restrictive covenants and events of default, including covenants limiting
capital expenditures and incurrence of debt, and requires the Company to
achieve certain financial ratios, some of which become more restrictive over
time.

Borrowings under the $285,000 term loan facility bear interest at a base
(prime) rate plus 0.75% or at an adjusted Eurodollar rate plus 1.75%,
depending upon which type of loan the Company executes. Similar to the
revolving credit facility, the "spread" or margin over the base rate and
Eurodollar rate is subject to a "step down" or reduction when the Company
achieves certain financial performance ratios.

The Secured Credit Agreement (term loan facility and revolving credit
facility) matures on November 17, 2001. Interest is payable based upon the
type (base rate or Eurodollar rate) of loan the Company executes;

F-12
<PAGE>

INTERCO INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
however, interest is payable quarterly at a minimum. At December 31, 1994, all
loans outstanding under the Secured Credit Agreement were based on the
Eurodollar rate.

Mandatory principal payments of the term loan facility are due on the last
business day of March and September. Annual principal payments are as follows:

<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- -------
<S> <C>
1995............... $15,000
1996............... 20,000
1997............... 30,000
1998............... 40,000
</TABLE>
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- -------
<S> <C>
1999............... $50,000
2000............... 65,000
2001............... 65,000
</TABLE>

In addition to mandatory principal payments, the term loan facility requires
principal payments from excess cash flow (as defined in the Secured Credit
Agreement), and a portion of the net proceeds realized from (i) the sale,
conveyance, or other disposition of collateral securing the debt or (ii) the
sale by the Company for its own account of additional subordinated debt and/or
shares of its preferred and/or common stock.

Receivables Securitization Facility

The Receivables Securitization Facility is an obligation of the Company
which matures on November 15, 1999 and is secured by substantially all of the
Company's trade receivables. The facility operates through use of a special
purpose subsidiary (Interco Receivables Corp.) which "buys" trade receivables
from the operating companies and "sells" interests in same to a third party
financial institution, which uses the interests as collateral for borrowings
in the commercial paper market to fund the purchases. The Company has
accounted for this transaction as long-term debt.

The Company pays a commercial paper index rate on all funds received
(outstanding) on the facility. In addition, a program fee of 0.65% per annum
on the entire $150,000 facility is paid on a monthly basis. The $130,000
balance outstanding at December 31, 1994 was unchanged from the original
amount drawn under the facility. The Company may increase or decrease its use
of the facility on a monthly basis subject to the availability of sufficient
trade receivables and the facility's maximum amount ($150,000). As of December
31, 1994, the Company had $20,000 in excess availability under the facility.

Industrial Revenue Bonds

On January 21, 1994, the Company entered into a secured obligation with the
Mississippi Business Finance Corporation to finance the construction of a new
furniture manufacturing facility in Tupelo, Mississippi. The industrial
revenue bonds totaled $8,000 and bear interest at 8.82% per annum. The bonds
mature in annual installments of $800 beginning January 15, 1995 and are
secured by the facility and equipment included therein. Because of special tax
incentives granted by the State of Mississippi, the Company will receive
certain state income tax credits based upon the interest and principal
payments made on the bonds.

Federal Tax Obligation

In settlement of certain federal tax obligations, the Company entered into
an unsecured obligation with the Internal Revenue Service which matures on
August 3, 1998, and bears interest at 8.0%. Interest and principal are paid
quarterly based upon a predetermined amortization schedule.

Other Information

Maturities of long-term debt are $16,574, $21,639, $31,709, $41,531 and
$180,800 for calendar years 1995 through 1999, respectively.

F-13
<PAGE>

INTERCO INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

10. COMMON STOCK

The Company's restated certificate of incorporation includes authorization
to issue up to 100.0 million shares of common stock with a $1.00 per share
stated value. As of December 31, 1994, 50,076,515 shares of common stock were
issued and outstanding. It is not presently anticipated that dividends will be
paid on common stock in the foreseeable future and certain of the debt
instruments to which the Company is a party restrict the payments of
dividends.

Shares of common stock were reserved for the following purposes at December
31, 1994:

<TABLE>
<CAPTION>
NUMBER OF
SHARES
----------
<S> <C>
Common stock options:
Granted......................................................... 2,643,000
Available for grant............................................. 710,000
Common stock warrants............................................. 8,397,190
----------
11,750,190
==========
</TABLE>

On May 5, 1993, shareholders approved the 1992 Stock Option Plan including
an amendment thereto which increased the number of common shares reserved for
issuance from 2.5 million shares to 3.5 million shares. Under the Company's
1992 Stock Option Plan, certain key employees may be granted nonqualified
options, incentive options or combinations thereof. Nonqualified and incentive
options may be granted to expire up to ten years after the date of grant.
Options granted become exercisable at varying dates depending upon the
achievement of certain performance targets and/or the passage of certain time
periods.

Shareholders also approved an amendment to the 1992 Stock Option Plan
authorizing grants of options to purchase common shares at less than fair
market value on the date of grant. During calendar 1993, an option grant of
250 thousand common shares was made by the Company at less than market value
resulting in a credit to paid-in capital and a charge to compensation expense
of approximately $1.0 million.

Changes in options granted and outstanding are summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1993 DECEMBER 31, 1994
------------------ -------------------
AVERAGE AVERAGE
SHARES PRICE SHARES PRICE
--------- ------- ---------- -------
<S> <C> <C> <C> <C>
Beginning of period................... 2,500,000 $7.00 2,915,000 $7.39
Granted............................... 461,000 9.58 917,000 7.85
Exercised............................. (4,000) 7.00 (71,250) 7.00
Cancelled............................. (42,000) 7.92 (1,117,750) 7.82
--------- ----- ---------- -----
End of period......................... 2,915,000 $7.39 2,643,000 $4.64
========= ===== ========== =====
Exercisable at end of period.......... 586,750 954,750
========= ==========
</TABLE>

As a result of the November 17, 1994 distribution of the common stock of The
Florsheim Shoe Company and Converse Inc. to the Company's shareholders,
options granted to the employees of those operating companies were cancelled.
In addition, the exercise prices of the remaining options were adjusted to
reflect the distribution in accordance with the antidilution provisions of the
1992 Stock Option Plan.

F-14
<PAGE>

INTERCO INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company issued, upon emergence from Chapter 11 status, approximately 5.0
million warrants to purchase common stock. Each warrant entitled the holder
thereof to purchase one share of common stock at $12.00 per share; provided
however, that in the event of certain distributions of assets, the purchase
price and number of shares of common stock would be subject to adjustment in
accordance with the antidilution provisions of the warrant agreement. The
November 17, 1994 distribution to shareholders resulted in the number of
warrants increasing by approximately 3.4 million and the exercise price
decreasing to $7.13 per share. The warrants, which expire on August 3, 1999,
were issued in two series; Series 1 warrants include a five year call
protection, whereas Series 2 warrants do not include such a feature. All other
terms and conditions of the two series of warrants are identical. The warrants
trade on the over-the-counter market.

In accordance with the Plan, all shares of the Company's common stock
outstanding prior to the Plan's effective date were cancelled, as were all
option shares outstanding, shares available for grant, existing stock option
plans and common share purchase rights.

11. INCOME TAXES

Income tax expense (benefit) was comprised of the following:

<TABLE>
<CAPTION>
FIVE MONTHS FIVE MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
AUGUST 2, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 1992 1993 1994
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current:
Federal.............................................................. $(1,463) $1,443 $11,788 $10,095
State and local...................................................... 1,638 1,016 3,167 2,909
------- ------ ------- -------
175 2,459 14,955 13,004
Deferred............................................................... (1,381) 4,348 969 7,904
------- ------ ------- -------
$(1,206) $6,807 $15,924 $20,908
======= ====== ======= =======
</TABLE>

The following table reconciles the differences between the federal corporate
statutory rate and the Company's effective income tax rate:

<TABLE>
<CAPTION>
FIVE MONTHS FIVE MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
AUGUST 2, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 1992 1993 1994
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Federal corporate statutory rate....................................... 34.0% 34.0% 35.0% 35.0%
State and local income taxes, net of federal tax benefit............... 0.4 2.8 4.2 2.9
Reorganization items................................................... (35.5) -- -- --
Amortization of excess reorganization value............................ -- 5.7 6.8 5.2
Other.................................................................. 0.6 (4.8) (3.3) (0.3)
----- ---- ---- ----
Effective income tax rate.............................................. (0.5)% 37.7% 42.7% 42.8%
===== ==== ==== ====
</TABLE>

F-15
<PAGE>

INTERCO INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The sources of the tax effects for temporary differences that give rise to
the deferred tax assets and liabilities were as follows:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1994
------------ ------------
<S> <C> <C>
Deferred tax assets:
Expense accruals................................. $ 4,973 $ 6,109
Valuation reserves............................... 3,089 3,027
Inventory costs capitalized...................... 1,418 1,534
Interest expense................................. 8,199 --
Employee pension plans........................... 4,607 --
Other............................................ 1,684 2,404
-------- --------
Total gross deferred tax assets................ 23,970 13,074
Valuation allowance.............................. -- --
-------- --------
Total net deferred tax assets.................. 23,970 13,074
-------- --------
Deferred tax liabilities:
Fair value adjustments........................... (77,299) (70,690)
Employee pension plans........................... -- (6,139)
Depreciation..................................... (6,703) (4,441)
Other............................................ (7,835) (7,575)
-------- --------
Total deferred tax liabilities................. (91,837) (88,845)
-------- --------
Net deferred tax liabilities................... $(67,867) $(75,771)
======== ========
</TABLE>

The net deferred tax liabilities are included in the consolidated balance
sheet as follows:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1994
------------ ------------
<S> <C> <C>
Prepaid expenses and other current assets.......... $ 12,534 $ 12,089
Other long-term liabilities........................ (80,401) (87,860)
-------- --------
$(67,867) $(75,771)
======== ========
</TABLE>

The federal income tax returns of the Company and its major subsidiaries
have been examined by the Internal Revenue Service ("IRS") through February
23, 1991. For tax periods beginning January 1, 1982 and ending February 23,
1991, the Company settled claims by the IRS by entering into an unsecured
obligation of approximately $4,800 (See Note 9).

12. EMPLOYEE BENEFITS

The Company sponsors or contributes to retirement plans covering
substantially all employees. The total cost of all plans for calendar 1992
(ten months), calendar 1993 and calendar 1994 was $4,085, $5,716 and $6,303,
respectively.

Company-Sponsored Defined Benefit Plans

Annual cost for defined benefit plans is determined using the projected unit
credit actuarial method. Prior service cost is amortized on a straight-line
basis over the average remaining service period of employees expected to
receive benefits.

F-16
<PAGE>

INTERCO INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

It is the Company's practice to fund pension costs to the extent that such
costs are tax deductible and in accordance with ERISA. The assets of the
various plans include corporate equities, government securities, corporate
debt securities and insurance contracts. The table below summarizes the funded
status of the Company-sponsored defined benefit plans.

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1994
------------ ------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation...................... $168,844 $179,006
======== ========
Accumulated benefit obligation................. $171,533 $182,903
======== ========
Projected benefit obligation................... $192,608 $202,148
Plan assets at fair value........................ 188,573 217,535
-------- --------
Projected benefit obligation less than (greater
than) plan assets............................... (4,035) 15,387
Unrecognized net loss............................ 928 3,886
Unrecognized prior service cost.................. 7,599 (515)
-------- --------
Prepaid pension cost............................. $ 4,492 $ 18,758
======== ========
</TABLE>

Net periodic pension cost for calendar 1992, 1993 and 1994 includes the
following components:

<TABLE>
<CAPTION>
FIVE MONTHS FIVE MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
AUGUST 2, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 1992 1993 1994
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Service cost-benefits earned during the period......................... $ 1,888 $ 1,868 $ 4,575 $ 4,758
Interest cost on the projected benefit obligation...................... 5,311 5,419 12,818 13,682
Actual return on plan assets........................................... (1,779) (11,269) (16,863) (159)
Net amortization and deferral.......................................... (4,340) 5,007 1,377 (16,297)
------- -------- -------- --------
Net periodic pension cost.............................................. $ 1,080 $ 1,025 $ 1,907 $ 1,984
======= ======== ======== ========
</TABLE>

Employees are covered primarily by noncontributory plans, funded by Company
contributions to trust funds, which are held for the sole benefit of
employees. Monthly retirement benefits are based upon service and pay with
employees becoming vested upon completion of five years of service.

The expected long-term rate of return on plan assets was 8.0%-9.5% in
calendar 1992, 1993 and 1994. Measurement of the projected benefit obligation
was based upon a weighted average discount rate of 7.75%, 7.25% and 8.00% and
a long-term rate of compensation increase of 5.0%, 4.5% and 4.5% for calendar
1992, 1993 and 1994, respectively.

Other Retirement Plans and Benefits

In addition to defined benefit plans, the company makes contributions to a
defined contribution plan and sponsors an employee savings plan. The cost of
these plans is included in the total cost for all plans reflected above.

F-17
<PAGE>

INTERCO INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

13. LEASE COMMITMENTS

Certain of the Company's real properties and equipment are operated under
lease agreements expiring at various dates through the year 2005. Leases
covering equipment generally require, in addition to stated minimums,
contingent rentals based on usage. Generally, the leases provide for renewal
for various periods at stipulated rates.

Rental expense under operating leases was as follows:

<TABLE>
<CAPTION>
FIVE MONTHS FIVE MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
AUGUST 2, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 1992 1993 1994
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Basic rentals.......................................................... $4,043 $3,727 $10,704 $11,553
Contingent rentals..................................................... 1,578 1,436 570 385
------ ------ ------- -------
5,621 5,163 11,274 11,938
Less: sublease rentals................................................. 256 219 132 54
------ ------ ------- -------
$5,365 $4,944 $11,142 $11,884
====== ====== ======= =======
</TABLE>

Future minimum lease payments under operating leases, reduced by minimum
rentals from subleases of $830 at December 31, 1994, aggregate $32,226. Annual
minimum payments under operating leases are $9,248, $7,697, $4,749, $3,595 and
$2,712 for 1995 through 1999, respectively.

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company considers the carrying amounts of cash and cash equivalents,
receivables and accounts payable to approximate fair value because of the
short maturity of these financial instruments.

The Secured Credit Agreement and Receivables Securitization Facility are
also considered to be carried on the financial statements at their estimated
fair values because they were entered into recently (November 17, 1994) and
both accrue interest at rates which generally fluctuate with interest rate
trends.

The Industrial Revenue Bonds and Federal Tax Obligation are considered
special purpose financing as an incentive to acquire specific real estate and
for settlement of certain claims. Accordingly, the Company believes the
carrying amounts approximate fair value given the circumstances under which
such financings were acquired.

15. LITIGATION

Notwithstanding the confirmation and effectiveness of the Plan, the Court
continues to have jurisdiction, among other things, to resolve disputed pre-
petition claims against the Company, to resolve matters related to the
assumption, assumption and assignment, or rejection of executory contracts
pursuant to the Plan, and to resolve other matters that may arise in
connection with or relate to the Plan. Pursuant to the Plan, the Company, on
the effective date, paid into a Disputed Claims Trust the face amount of
certain claims still to be resolved. Since those unresolved claims were funded
at their face amounts, the Company has no further financial exposure with
respect to those claims.

The Company is or may become a defendant in a number of pending or
threatened legal proceedings in the ordinary course of business. In the
opinion of management, the ultimate liability, if any, of the Company from all
such proceedings will not have a material adverse effect upon the consolidated
financial position or results of operations of the Company and its
subsidiaries.

F-18
<PAGE>

INTERCO INCORPORATED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Following is a summary of unaudited quarterly information:

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Year ended December 31,
1993:
Net sales............. $ 246,253 $ 242,191 $ 240,317 $ 251,771
Gross profit.......... 70,521 68,244 66,795 69,763
Net earnings:
Continuing
operations......... 6,301 4,912 4,060 6,069
Discontinued
operations......... 8,097 3,989 5,134 6,806
Total............. $ 14,398 $ 8,901 $ 9,194 $ 12,875
Net earnings per
common share:
Continuing
operations......... $ 0.12 $ 0.10 $ 0.08 $ 0.11
Total............. $ 0.28 $ 0.17 $ 0.18 $ 0.25
Common stock price
range (High-Low)..... $ 14 7/8-9 3/8 $15 3/4-12 3/8 $ 14 5/8-12 $ 15 3/8-13
Year ended December 31,
1994:
Net sales............. $ 268,753 $ 272,203 $ 254,496 $ 277,244
Gross profit.......... 74,184 75,894 71,697 76,937
Net earnings:
Continuing
operations......... 5,908 5,863 5,366 10,796
Discontinued
operations......... 9,769 5,480 7,042 (11,952)
Total............. $ 15,677 $ 11,343 $ 12,408 $ (1,156)
Net earnings per
common share:
Continuing
operations......... $ 0.11 $ 0.12 $ 0.10 $ 0.21
Total............. $ 0.30 $ 0.22 $ 0.24 $ (0.02)
Common stock price
range (High-Low)..... $15 3/4-13 1/8 $14 7/8-12 3/8 $15 3/4-13 3/4 $14 7/8-6 1/8
</TABLE>

The Company has not paid cash dividends on its common stock during the two
years ended December 31, 1994. The closing market price of the Company's common
stock on December 31, 1994 was $6.75 per share.

The 1994 fourth quarter common stock price range reflects the impact of the
November 17, 1994 distribution of the discontinued operations to the Company's
shareholders.

F-19
<PAGE>

INTERCO INCORPORATED

CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 32,145 $ 61,375
Receivables, less allowances of $7,597 ($5,062 at
December 31, 1994)............................... 202,270 206,355
Inventories (Note 1).............................. 155,031 157,417
Prepaid expenses and other current assets......... 14,325 12,727
-------- --------
Total current assets............................ 403,771 437,874
-------- --------
Property, plant and equipment....................... 238,416 250,516
Less accumulated depreciation..................... 57,023 78,046
-------- --------
Net property, plant and equipment............... 181,393 172,470
-------- --------
Reorganization value in excess of amounts allocable
to identifiable assets, net........................ 128,414 122,936
Trademarks and trade names, net..................... 147,353 144,412
Other assets........................................ 20,804 18,752
-------- --------
$881,735 $896,444
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (Note 2)..... $ 16,574 $ 21,066
Accrued interest expense.......................... 1,652 2,843
Accounts payable and other accrued expenses....... 83,374 97,413
Income taxes...................................... (6,152) 3,868
-------- --------
Total current liabilities....................... 95,448 125,190
-------- --------
Long-term debt, less current maturities (Note 2).... 409,679 381,312
Other long-term liabilities......................... 101,214 97,748
Shareholders' equity:
Preferred stock, authorized 10,000,000 shares, no
par value--issued none........................... -- --
Common stock, authorized 100,000,000 shares, $1.00
stated value--issued 50,076,515 shares at
December 31, 1994 and 50,119,816 shares at
September 30, 1995 .............................. 50,076 50,120
Paid-in capital................................... 220,788 218,154
Retained earnings................................. 4,530 23,920
-------- --------
Total shareholders' equity...................... 275,394 292,194
-------- --------
$881,735 $896,444
======== ========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

F-20
<PAGE>

INTERCO INCORPORATED

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1995
------------- -------------
<S> <C> <C>
Net sales......................................... $ 254,496 $ 258,626
Costs and expenses:
Cost of operations.............................. 177,631 182,349
Selling, general and administrative expenses.... 48,215 49,721
Depreciation and amortization................... 8,737 9,049
---------- ----------
Earnings from operations.......................... 19,913 17,507
Interest expense.................................. 9,859 8,212
Other income, net................................. 345 1,081
---------- ----------
Earnings before income tax expense and
discontinued operations.......................... 10,399 10,376
Income tax expense................................ 5,033 4,180
---------- ----------
Net earnings before discontinued operations....... 5,366 6,196
Discontinued operations:
Earnings from operations, net of taxes.......... 7,042 --
---------- ----------
Net earnings...................................... $ 12,408 $ 6,196
========== ==========
Net earnings per common share--primary and fully
diluted:
Net earnings before discontinued operations..... $ 0.10 $ 0.12
Discontinued operations......................... 0.14 --
---------- ----------
Net earnings per common share................... $ 0.24 $ 0.12
========== ==========
Weighted average common and common equivalent
shares outstanding:
Primary......................................... 51,619,706 50,597,623
========== ==========
Fully diluted................................... 51,665,149 51,403,855
========== ==========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

F-21
<PAGE>

INTERCO INCORPORATED

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1995
------------- -------------
<S> <C> <C>
Net sales......................................... $ 795,452 $ 794,866
Costs and expenses:
Cost of operations.............................. 556,768 562,479
Selling, general and administrative expenses.... 150,871 149,101
Depreciation and amortization................... 27,825 28,387
---------- ----------
Earnings from operations.......................... 59,988 54,899
Interest expense.................................. 28,952 25,409
Other income, net................................. 900 3,352
---------- ----------
Earnings before income tax expense and
discontinued operations.......................... 31,936 32,842
Income tax expense................................ 14,799 13,416
---------- ----------
Net earnings before discontinued operations....... 17,137 19,426
Discontinued operations:
Earnings from operations, net of taxes.......... 22,291 --
---------- ----------
Net earnings...................................... $ 39,428 $ 19,426
========== ==========
Net earnings per common share--primary and fully
diluted:
Net earnings before discontinued operations..... $ 0.33 $ 0.38
Discontinued operations......................... 0.43 --
---------- ----------
Net earnings per common share................... $ 0.76 $ 0.38
========== ==========
Weighted average common and common equivalent
shares outstanding:
Primary......................................... 51,619,706 50,597,623
========== ==========
Fully diluted................................... 51,665,149 51,403,855
========== ==========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

F-22
<PAGE>

INTERCO INCORPORATED

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1995
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings..................................... $39,428 $19,426
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Net earnings from discontinued operations...... (22,291) --
Depreciation of property, plant and equipment.. 20,212 21,087
Amortization of intangible assets.............. 7,613 7,300
Noncash interest expense....................... -- 1,670
Increase in receivables........................ (20,973) (4,085)
Increase in inventories........................ (27,036) (2,386)
Decrease in prepaid expenses and other assets.. 4,366 2,783
Increase in accounts payable, accrued interest
expense and other accrued expenses............ 31,831 15,230
Increase (decrease) in income taxes............ (9,962) 10,020
Decrease in net deferred tax liabilities....... (2,862) (3,173)
Decrease in other long-term liabilities........ (46) (13)
------- -------
Net cash provided by continuing operations......... 20,280 67,859
Net cash used by discontinued operations........... (14,131) --
------- -------
Net cash provided by operating activities.......... 6,149 67,859
------- -------
Cash Flows from Investing Activities:
Proceeds from the disposal of assets............. 294 147
Additions to property, plant and equipment....... (14,478) (12,311)
------- -------
Net cash used by investing activities.............. (14,184) (12,164)
------- -------
Cash Flows from Financing Activities:
Addition to long-term debt....................... 8,000 --
Payments of long-term debt....................... (12,677) (23,875)
Proceeds from the issuance of common stock....... 558 199
Payments for the repurchase of common stock war-
rants........................................... -- (2,789)
------- -------
Net cash used by financing activities.............. (4,119) (26,465)
------- -------
Net increase (decrease) in cash and cash equiva-
lents............................................. (12,154) 29,230
Cash and cash equivalents at beginning of period... 34,809 32,145
------- -------
Cash and cash equivalents at end of period......... $22,655 $61,375
======= =======
Supplemental Disclosure:
Cash payments for income taxes, net.............. $36,535 $ 6,549
======= =======
Cash payments for interest expense............... $24,417 $22,548
======= =======
</TABLE>

See accompanying notes to condensed consolidated financial statements.

F-23
<PAGE>

INTERCO INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS)
(UNAUDITED)

(1) The financial statements are unaudited, but include all adjustments
(consisting of normal recurring adjustments) which the management of the
Company considers necessary for a fair presentation of the results of the
period. The results for the three months and nine months ended September
30, 1995 are not necessarily indicative of the results to be expected for
the full year.

(2) Inventories are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1994 1995
------------ -------------
<S> <C> <C>
Finished products................................. $ 66,445 $ 71,132
Work-in-process................................... 36,365 35,669
Raw materials..................................... 52,221 50,616
-------- --------
$155,031 $157,417
======== ========
</TABLE>

(3) On May 12, 1995, the Company made a $15,000 optional prepayment on the
Secured Credit Agreement. Fifty percent of the optional prepayment was
applied to scheduled repayments due within one year, with the balance
applied pro-rata based upon the then remaining scheduled repayments.

(4) Certain December 31, 1994 amounts have been reclassified to conform to the
September 30, 1995 presentation.

(5) Accounting Standards Not Yet Implemented

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation" (SFAS No. 123). Under SFAS
No. 123, companies can either measure the compensation cost of equity
instruments issued under employee compensation plans using a fair value
based method, or can continue to recognize compensation cost under the
provisions of Accounting Principles Board Opinion No. 25 (Opinion No. 25).
However, if the provisions of Opinion No. 25 are continued, pro forma
disclosures of net income and earnings per share must be presented in the
financial statements as if the fair value method had been applied. The
Company intends to continue to recognize compensation costs under the
provisions of Opinion No. 25, and upon adoption of SFAS No. 123 as of
January 1, 1996, will disclose the effects of SFAS No. 123 on net earnings
and earnings per share for 1995 and 1996.

In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" (SFAS No. 121). SFAS No. 121 requires that long-
lived assets, certain identifiable intangibles and goodwill to be held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be
recoverable. SFAS No. 121 is effective for the Company in 1996. The Company
believes the adoption of this accounting standard will not have a material
impact on its operating results or financial condition.

F-24
<PAGE>

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

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN AS CONTAINED HEREIN AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO PURCHASE ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER
TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT INFORMATION
PROVIDED HEREIN IS CORRECT AT ANY TIME SUBSEQUENT TO ITS DATE.

-----------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 3
Incorporation of Certain Documents by Reference............................ 3
Prospectus Summary......................................................... 4
Risk Factors............................................................... 9
Thomasville Acquisition.................................................... 11
Use of Proceeds............................................................ 12
Price Range of Common Stock and Dividend Policy............................ 12
Capitalization............................................................. 13
Unaudited Pro Forma Consolidated Financial Information..................... 14
Business................................................................... 19
Management................................................................. 30
Certain Transactions....................................................... 31
Principal Stockholders..................................................... 31
Description of Capital Stock............................................... 31
Underwriting............................................................... 33
Legal Matters.............................................................. 34
Experts.................................................................... 35
Index to Consolidated Financial Statements................................. F-1
</TABLE>

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

8,750,000 SHARES

INTERCO INCORPORATED

COMMON STOCK

-------

PROSPECTUS

, 1996

-------

SMITH BARNEY INC.
DEAN WITTER REYNOLDS INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
WHEAT FIRST BUTCHER SINGER

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table shows the estimated expenses of the issuance and
distribution of the securities offered hereby, other than underwriting
discounts and commissions:

<TABLE>
<S> <C>
Securities and Exchange Commission filing fee........................ $30,603
National Association of Securities Dealers, Inc. filing fee.......... 9,375
Printing expenses.................................................... *
Legal fees and expenses.............................................. *
Accounting fees and expenses......................................... *
Blue sky filing fees and expenses (including counsel fees)........... *
Miscellaneous expenses............................................... *
-------
Total................................................................ *
=======
</TABLE>

- ----------------
* To be completed by amendment.

15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 ("Section 145") of the Delaware General Corporation Law permits
indemnification of directors, officers, agents and controlling persons of a
corporation under certain conditions and subject to certain limitations.
Section 145 empowers a corporation to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that such person is or was a director,
officer or agent of the corporation or another enterprise if serving at the
request of the corporation. Depending on the character of the proceeding, a
corporation may indemnify against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with such action, suit or proceeding if the person
indemnified acted in good faith and in a manner such person reasonably
believed to be in or not opposed to, the best interests of the corporation,
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe such person's conduct was unlawful. In the case of an action
by or in the right of the corporation, no indemnification may be made with
respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine that despite the adjudication of liability such person is
fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper. Section 145 further provides that to the extent a director
or officer of a corporation has been successful in the defense of any action,
suit or proceeding referred to above or in the defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith.

The Company's By-laws contain provisions for indemnification of directors,
officers, employees and agents which are substantially the same as Section 145
and also permit the Company to purchase insurance on behalf of any such person
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of such person's status as such, whether
or not the Company would have the power to indemnify such person against such
liability under the foregoing provision of the By-laws. The Company maintains
such insurance.

Certain of the directors and former directors of the Company have entered
into and are the beneficiaries of indemnification agreements with the Company.
These agreements provide indemnity protection for such persons which is
substantially the same as that authorized by the Delaware General Corporation
Law and provided for in the Company's By-Laws.

II-1
<PAGE>

The Underwriting Agreement, included as Exhibit 1 hereto, provides that each
of the Underwriters will indemnify the directors and officers of the Company
against certain liabilities, including liabilities under the Securities Act
1933, as amended.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

EXHIBITS

<TABLE>
<C> <S>
1 Form of Underwriting Agreement.*
3(a) Restated Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 4(a) to the Company's Report on Form 10-Q for the
quarter ended March 31, 1993).
3(b) By-Laws of the Company (incorporated by reference to Exhibit 4(b) to the
Company's Report on Form 10-Q for the quarter ended March 31, 1993).
Opinion of Morgan, Lewis & Bockius LLP as to the validity of the
5 securities.
23.1 Consents of KPMG Peat Marwick LLP.
23.2 Consent of Morgan, Lewis & Bockius LLP (included in exhibit 5).
24 Powers of Attorney.
</TABLE>
- --------
* To be filed by amendment.

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan, annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the undersigned
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.

The registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective a mendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-2
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE COUNTY OF ST. LOUIS, STATE OF MISSOURI ON
JANUARY 16, 1996.

Interco Incorporated

/s/ Richard B. Loynd
By: _________________________________
RICHARD B. LOYND CHAIRMAN OF THE
BOARD AND PRESIDENT

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON THE DATES INDICATED BELOW.

SIGNATURE TITLE DATE

/s/ Richard B. Loynd Chairman of the January 16,
- ------------------------------------- Board, President 1996
RICHARD B. LOYND and Director
(Principal
Executive Officer)

/s/ David P. Howard Vice President January 16,
- ------------------------------------- (Principal 1996
DAVID P. HOWARD Financial Officer)

/s/ Steven W. Alstadt Controller January 16,
- ------------------------------------- (Principal 1996
STEVEN W. ALSTADT Accounting Officer)

* Director January 16,
- ------------------------------------- 1996
LEON D. BLACK

* Director January 16,
- ------------------------------------- 1996
MICHAEL S. GROSS

* Director January 16,
- ------------------------------------- 1996
JOHN J. HANNAN

* Director January 16,
- ------------------------------------- 1996
JOSHUA J. HARRIS

* Director January 16,
- ------------------------------------- 1996
BRUCE A. KARSH

* Director January 16,
- ------------------------------------- 1996
JOHN H. KISSICK

* Director January 16,
- ------------------------------------- 1996
DONALD E. LASATER

* Director January 16,
- ------------------------------------- 1996
LEE M. LIBERMAN

/s/ Lynn Chipperfield
*By: ________________________________
LYNN CHIPPERFIELD, ATTORNEY-IN-FACT
JANUARY 16, 1996

II-3
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<C> <S> <C>
1 Form of Underwriting Agreement.*
3(a) Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 4(a) to the Company's
Report on Form 10-Q for the quarter ended March 31, 1993).
3(b) By-Laws of the Company (incorporated by reference to
Exhibit 4(b) to the Company's Report on Form 10-Q for the
quarter ended March 31, 1993).
Opinion of Morgan, Lewis & Bockius LLP as to the validity
5 of the securities.
23.1 Consents of KPMG Peat Marwick LLP.
Consent of Morgan, Lewis & Bockius LLP (included in exhibit
23.2 5).
24 Powers of Attorney.
</TABLE>
- --------
* To be filed by amendment.

<PAGE>

EXHIBIT 5

OPINION OF MORGAN, LEWIS & BOCKIUS LLP

January 16, 1996

INTERCO INCORPORATED
101 South Hanley Road
St. Louis, Missouri 63105

Re: INTERCO INCORPORATED - Registration Statement on Form S-3

Ladies and Gentlemen:

We have acted as counsel for INTERCO INCORPORATED, a Delaware corporation (the
"Company"), in connection with the preparation of the registration statement
on Form S-3 (the "Registration Statement"), filed by the Company with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended (the "Act"), relating to the public offering of up to 10,000,000
shares of the Company's common stock, no par value (the "Common Stock"), which
shares of Common Stock are being sold by the Company. In this connection, we
have reviewed (a) the Registration Statement; (b) the Company's Restated
Certificate of Incorporation, as amended, and By-laws, as amended; and (c)
certain records of the Company's corporate proceedings. In our examination, we
have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity with the original of
all documents submitted to us as copies thereof.

In our opinion the shares of Common Stock to be sold by the Company are duly
authorized, and, when sold by the Company to the Underwriters (as defined in
the Registration Statement) as contemplated by the Registration Statement,
will be validly issued, fully paid and non-assessable.

We hereby consent to the use of this opinion as an Exhibit to the Registration
Statement and to all references to our Firm in the Registration Statement. In
giving such consent, we do not thereby admit that we are acting within the
category of persons whose consent is required under Section 7 of the Act and
the rules and regulations of the Securities and Exchange Commission
thereunder.

Very truly yours,

Morgan, Lewis & Bockius LLP

<PAGE>

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

The Board of Directors
INTERCO INCORPORATED:

We consent to the use of our report included and incorporated by reference
in the registration statement and to the reference to our firm under the
heading "Experts" in the prospectus.

Our report dated January 31, 1995 contains an explanatory paragraph that
describes the adoption of fresh start reporting principles and refers to
changes in accounting for postretirement benefits and income taxes.

KPMG Peat Marwick LLP

St. Louis, Missouri
January 16, 1996
<PAGE>

EXHIBIT 23.1-2

INDEPENDENT AUDITORS' CONSENT

The Board of Directors
Thomasville Furniture Industries, Inc.:

We consent to the incorporation by reference in the registration statement
on Form S-3 of INTERCO INCORPORATED of our report dated January 20, 1995,
except as to note 1, which is as of April 7, 1995, with respect to the
consolidated balance sheets of Thomasville Furniture Industries, Inc. and
subsidiaries as of December 31, 1994 and 1993, and the related consolidated
statements of operations, shareholder's equity, and cash flows for each of the
years in the three-year period ended December 31, 1994, which report appears
in the Form 8-K/A-1 of INTERCO INCORPORATED dated January 16, 1996 and to the
reference to our firm under the heading "Experts" in the Prospectus.

Our report refers to changes in accounting for postemployment benefits,
postretirement benefits and income taxes.

KPMG Peat Marwick LLP

Greensboro, North Carolina
January 16, 1996

<PAGE>

EXHIBIT 24

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS that each of the undesigned does hereby
nominate, constitute and appoint Lynn Chipperfield and Richard B. Loynd or
either of them, as his agent and attorney-in-fact, in his name to execute on
behalf of the undersigned a Registration Statement or Form S-3 to be filed
with the Securities and Exchange Commission under the Securities Act of 1933,
as amended, in connection with the registration under said Act of shares of
Common Stock of INTERCO INCORPORATED (the "Company") to be sold by the
Company, the authority herein given to include execution of amendments to any
part of such Registration Statement and generally to do and perform all things
necessary to be done in the premises as fully and effectively in all respects
as the undersigned could do if personally present.

IN WITNESS WHEREOF this Power of Attorney has been executed in counterparts
by individuals listed below as of the 15th day of January, 1996.

/s/ Steven W. Alstadt /s/ Bruce A. Karsh
- ---------------------------------- ----------------------------------
Steven W. Alstadt Bruce A. Karsh

/s/ Leon D. Black /s/ John H. Kissick
- ---------------------------------- ----------------------------------
Leon D. Black John H. Kissick

/s/ Michael S. Gross /s/ Donald E. Lasater
- ---------------------------------- ----------------------------------
Michael S. Gross Donald E. Lasater

/s/ John J. Hannan /s/ Lee M. Liberman
- ---------------------------------- ----------------------------------
John J. Hannan Lee M. Liberman

/s/ Joshua J. Harris /s/ Richard B. Loynd
- ---------------------------------- ----------------------------------
Joshua J. Harris Richard B. Loynd

/s/ David P. Howard
- ----------------------------------
David P. Howard