FURNITURE BRANDS INTERNATIONAL INC, 424B1, 1997-06-25

FURNITURE BRANDS INTERNATIONAL INC
424B1, 1997-06-25
HOUSEHOLD FURNITURE

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<PAGE>

RULE NO. 424(b)(1)
REGISTRATION NO. 333-28173

PROSPECTUS

11,000,000 SHARES

[LOGO OF FURNITURE BRANDS INTERNATIONAL]

COMMON STOCK

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

[LOGOS OF BROYHILL, LANE AND THOMASVILLE]

The 11,000,000 shares of Common Stock, no par value (the "Common Stock"), of
Furniture Brands International, Inc. (the "Company") offered hereby are being
sold by the Selling Stockholders (as defined herein). The Company will not
receive any of the proceeds from the sale of the Common Stock offered hereby.
Of the 11,000,000 shares of Common Stock offered hereby, a total of 8,800,000
shares are being offered hereby for sale in the United States and Canada (the
"U.S. Offering") by the U.S. Underwriters (as defined) and a total of 2,200,000
shares are being offered by the Managers (as defined) in a concurrent
international offering outside the U.S. and Canada (the "International
Offering" and, together with the U.S. Offering, the "Offerings"). The Common
Stock is listed on the New York Stock Exchange under the symbol "FBN." On June
24, 1997, the last reported sale price of the Common Stock on the New York
Stock Exchange was $17.00 per share.

Concurrently with the consummation of the Offerings, the Company will
repurchase (i) 10,842,299 shares of Common Stock from the Selling Stockholders
at a price of $15.50 per share and (ii) warrants to purchase 290,821 shares of
Common Stock at a price of $8.37 per warrant (representing $15.50 per share
less the $7.13 per share warrant exercise price). See "Selling Stockholders and
Company Repurchase."

SEE "RISK FACTORS" BEGINNING ON PAGE 10 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 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 PROCEEDS TO
PRICE TO DISCOUNT AND THE SELLING
PUBLIC COMMISSIONS(1) STOCKHOLDERS(2)
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $17.00 $0.68 $16.32
- ---------------------------------------------------------------------
Total(3) $187,000,000 $7,480,000 $179,520,000
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1)For information regarding indemnification of the U.S. Underwriters and
the Managers, see "Underwriting."
(2)Before deducting expenses estimated at $1,000,000 payable by the Company.
(3) The Selling Stockholders have granted the U.S. Underwriters a 30-day
option to purchase up to 1,100,000 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 the Selling Stockholders will be $205,700,000,
$8,228,000 and $197,472,000, respectively.

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

The shares of Common Stock are being offered by the several U.S. 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 June
27, 1997, at the office of Smith Barney Inc., 333 West 34th Street, New York,
New York 10001.

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

SMITH BARNEY INC.
CREDIT SUISSE FIRST BOSTON
DILLON, READ & CO. INC.
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
WHEAT FIRST BUTCHER SINGER

June 24, 1997
<PAGE>

[LOGO]BROYHILL

[PHOTOGRAPH]

Torreon, a sophisticated rustic pine collection blends eclectic elements of
wood and metal in this appealing lifestyle group.

[PHOTOGRAPH]

The use of hand-carved components from offshore enabled Broyhill's premier
division to introduce the Tynecastle collection with high-end styling, intricate
carvings and ample scaling.

[PHOTOGRAPH]

Sutter Street speaks of timeless elegance -- richly finished woods with
distinguished detail, but there is home style comfort and function built into
every piece. This Entertainment Center features many old fashioned details:
lamb's tongue molding on side pilasters, scrolled bracket feet, recessed wood
and satin brass hardware.

[PHOTOGRAPH]

Broyhill merges the elegance of a traditional Queen Anne Wing Chair with the
laid-back comfort of a three-way recliner. No levers or handles -- simply lean
back to activate. The traditional silhouette and recessed panel arm of this
luxuriously cushioned Sofa are wrapped in a formal dansk that will uplift any
room.

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

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVERALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS, AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
<PAGE>

[LOGO]LANE

[PHOTOGRAPH]

Over two years of research and development have gone into the newly developed
line of ComfortKing(TM) Recliners. Specially designed for the big and tall user,
in the fully-reclined position, the recliner extends to 80 inches.

[PHOTOGRAPH]

For those who want a little more out of their furniture, the Infinity
Comfortmates(R) collection offers the comfort of heat & massage or the
convenience of a hands-free speaker phone. You might also find hidden storage
compartments, fold-down tray tables or a sleep sofa beneath the sleek
well-trimmed cushions of this versatile motion group.

[PHOTOGRAPH]

Many retailers consider Pearson a leader in traditional designs and fabrics,
capturing looks that are popular today. This classic leather chair and ottoman
combination reflects outstanding hand-tailored craftsmanship.

[PHOTOGRAPH]

Venture's WeatherMaster collection continues to capture an increasing share of
the market. The compelling benefit to the consumer is the patented cushions
that are very comfortable yet allow water to pass right through for quick
drying.
<PAGE>

[LOGO]THOMASVILLE(R)

[PHOTOGRAPH]

Thomasville's collection of home entertainment units meets the growing demand
for home theater and contemporary entertainment systems.

[PHOTOGRAPH]

The elegant Renaissance collection appeals to consumers who desire a more
sophisticated home. This dining room set is part of a wide assortment of case
goods in major style categories.

[PHOTOGRAPH]

Stylish, casual and exceedingly comfortable design leadership is fueling growth
in upholstery and occasional furniture as shown by the Signature collection.

[PHOTOGRAPH]

Shelter magazine ads like this featured Elysee collection bedroom represent the
Thomasville brand effectively in more than a dozen publications.
<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 Furniture Brands International, Inc. and its subsidiaries,
(ii) "Broyhill" refers to Broyhill Furniture Industries, Inc. and its
subsidiaries, (iii) "Lane" refers to The Lane Company Incorporated and its
subsidiaries, (iv) "Thomasville" refers to Thomasville Furniture Industries,
Inc. and its subsidiaries and (v) "Action Industries" refers to Action
Industries, Inc., a subsidiary of Lane. Unless otherwise indicated, the
information in this Prospectus assumes that the U.S. Underwriters' over-
allotment option is not exercised.

THE COMPANY

The Company believes that it is the largest manufacturer of residential
furniture in the United States based on domestic revenues (excluding estimated
revenues of competitors from fabrics and decorative accessories). 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 from "premium" priced home
furnishings to lower priced ready-to-assemble ("RTA") furniture. The Company
distributes its products through a diverse network of national, regional and
local retailers, including one of the largest systems of independently-owned
dedicated retail outlets in the residential furniture industry. Management
believes that the acquisition of Thomasville in December 1995 has significantly
enhanced the Company's competitive strengths and positions the Company to
continue to increase its market share, sales and earnings. For the twelve
months ended March 31, 1997, the Company had net sales of $1.7 billion, EBITDA
(as hereinafter defined) of $190.3 million, net income before extraordinary
items of $60.4 million and earnings per share of $0.94.

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 two of the largest segments of the residential furniture market.
Management believes Broyhill is the largest full line manufacturer of
residential furniture under one brand name, and Broyhill has been rated the
number one brand in the industry in terms of brand awareness by several recent
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, although there are no published industry figures available. Broyhill
distributes its products through an extensive distribution network of more than
6,200 independently-owned retail locations, including 345 dedicated Broyhill
Showcase Galleries and 415 dedicated Broyhill Furniture Centers.

LANE. Lane manufactures specialty products for niche markets in the "better,"
"best" and "premium" price categories. The Company believes that Lane is the
largest domestic manufacturer of cedar chests, although there are no published
industry figures available. In addition, Lane, through Action Industries, its
largest operating unit, is one of the leading manufacturers of motion furniture
and 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 294 dedicated furniture galleries.

3
<PAGE>

products through approximately 635 independently-owned retail locations,
including 239 dedicated Thomasville Galleries and 82 free-standing Thomasville
Home Furnishings stores, which exclusively feature Thomasville furniture. The
Company also produces a separate line of lower priced RTA and promotional
furniture.

The Company believes that in addition to its substantial size relative to
most of 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) extensive distribution networks, including dedicated
galleries located in independently-owned retail locations; (iv) innovative,
high quality products; (v) highly efficient, low cost manufacturing
capabilities; and (vi) experienced management teams. Management believes that
these competitive strengths position the Company to continue to increase its
market share in the highly-fragmented residential furniture manufacturing
industry.

GROWTH STRATEGY

The Company seeks to grow both sales and profits and increase its market
share by executing the following strategies:

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 is committed to continue
to strengthen its brand names through advertising in various media including
network and cable television and highly read consumer magazines such as People,
Reader's Digest, Sports Illustrated, Architectural Digest, Good Housekeeping
and Better Homes and Gardens among many others, in addition to its dealer
cooperative advertising program.

EXPANDING DEDICATED DISTRIBUTION CHANNELS. The Company has generated
increased sales volume and has strengthened its alliances with key retailers by
distributing its products through independently-owned dedicated retail outlets,
such as galleries, which tend to have higher sales per square foot and faster
inventory turns than non-gallery locations. The Company continues to expand
these distribution channels by attracting additional retailers in new and
existing geographic markets to participate in the Company's gallery programs.
Since the beginning of 1996, the number of dedicated galleries, furniture
centers and stores has increased from 1,265 to 1,375. Furthermore, the Company
intends to expand its current network of 82 free-standing Thomasville Home
Furnishings stores by approximately 25 by the end of 1997.

INCREASING SALES TO NATIONAL AND LARGE REGIONAL RETAILERS. The Company is
well positioned to benefit from the increasing presence of national and large
regional retailers in the residential furniture industry. According to
Furniture/Today, in 1995 the top 10 furniture retailers represented 16% of
total sales versus 10% in 1985. The Company's overall size, breadth of product,
strength of brands and national scope of distribution enable it to service
national retailers, such as J.C. Penney, Sears, Levitz and Heilig-Meyers, and
key regional companies, such as Breuner's, Haverty's and Roberds, more
effectively than the Company's smaller competitors. For example, during 1997
the Company has increased the number of products it offers to J.C. Penney and
is currently in discussion with other major retailers for additional increases
in square footage dedicated to the Company's broad range of products.
Furthermore, the Company's unique competitive position enabled it to establish
an innovative alliance with Carl's Furniture, an independent retailer based in
Florida which has opened a new location dedicated to the Company's products.
The Company intends to pursue similar alliances with other retailers.

4
<PAGE>

believes there is substantial opportunity for growth in the international
export market, particularly Canada, Europe, Japan and the Middle East.
Management has implemented a more aggressive international strategy across all
of its operating companies to improve the sales, marketing and distribution of
its products outside the United States. For the three months ended March 31,
1997, international sales were $17.0 million, an increase of 17.3% versus the
comparable period for the prior year.

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 recently introduced two new recliners, an oversized model for
larger customers and a two-piece model with an ottoman footrest, that it
believes will allow it to further increase market share in this segment.
Furthermore, the Company continues to design innovative new products in other
areas including the growing home office and home entertainment center markets.

MAXIMIZING OPERATING MARGINS. The Company is successfully implementing gross
profit improvement programs 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 programs include continuous product profitability
review, new product introductions, pricing strategies and management incentive
programs. Management believes that these programs have contributed to the
Company achieving among the highest EBITDA margins of publicly-owned U.S.
residential furniture manufacturing companies in recent years. For the quarter
ended March 31, 1997, the Company's EBITDA margin increased to 11.2%, as
compared to 10.6% for the prior year comparable period. Management believes
opportunities exist to increase further the EBITDA margins of its operating
companies through continued implementation of these programs. For example, the
Company recently initiated efforts to realign several manufacturing facilities
at Thomasville and Lane to increase capacity utilization and reduce overall
production costs. Management believes that these actions will result in annual
savings of approximately $3.5 million beginning in 1997.

EXPANDING OPERATING COMPANY COORDINATION. The Company has historically
managed its operating units on a stand-alone basis. Increasingly since the
acquisition of Thomasville and the appointment of Wilbert G. (Mickey) Holliman
as President and Chief Executive Officer, the Company has concentrated on
enhancing the coordination among its operating companies. As a result of this
enhanced coordination, the Company has begun to achieve operating efficiencies
and believes it has the opportunity to further improve operating efficiencies
and results. These opportunities include (i) cost savings generated through
volume purchasing; (ii) reductions in future capital expenditures through
better utilization of existing capacity; (iii) complementary sales and
marketing activities; (iv) joint international sourcing; and (v) shared
operating experience and expertise. The Company has taken actions to capitalize
on these opportunities by moving senior managers among operating companies to
encourage coordination and, in several instances, by shifting manufacturing
from one operating company to another to improve capacity utilization. In
addition, by combining the purchases of various raw materials (such as foam,
cartons, springs and fabric) and services of the operating companies, the
Company has been able to realize cost savings.

5
<PAGE>

SELLING STOCKHOLDERS AND COMPANY REPURCHASE

Apollo Investment Fund, L.P. ("Apollo") and Lion Advisors, L.P., on behalf of
an investment account under management ("Lion," and together with Apollo, the
"Selling Stockholders"), are selling 11,000,000 shares of Common Stock in the
Offerings and have granted the U.S. Underwriters an over-allotment option for
1,100,000 shares of Common Stock. In addition, the Company has agreed to
repurchase from the Selling Stockholders (i) 10,842,299 shares of Common Stock
at a price of $15.50 per share and (ii) warrants to purchase 290,821 shares of
Common Stock at a price of $8.37 per warrant (representing $15.50 per share
less the $7.13 per share warrant exercise price) (the "Company Repurchase").
The total purchase price is approximately $170.5 million. The Company plans to
finance the Company Repurchase and related fees and expenses through a new term
loan of $200 million (the "New Term Loan"), with excess proceeds of
approximately $25 million used to reduce outstanding borrowings from the
revolving credit facility under the Company's existing secured credit agreement
(the "Secured Credit Agreement"). The Secured Credit Agreement will be amended
to include the New Term Loan. The New Term Loan will bear interest at a
floating rate equal to (i) the London interbank offered rate (LIBOR) plus 1.75%
or (ii) the prime rate plus 0.75%, at the Company's discretion, and matures in
10 years. Following the Offerings and the Company Repurchase, the Selling
Stockholders will own 1,100,000 shares of Common Stock unless the U.S.
Underwriters exercise their over-allotment option. If the over-allotment option
is exercised in full, the Selling Stockholders will own no shares of the
Company's Common Stock. See "Capitalization," "Selected Consolidated Historical
and Pro Forma Financial Information," "Selling Stockholders and Company
Repurchase" and "Underwriting."

In connection with the Offerings and the Company Repurchase, eight directors
associated with the Selling Stockholders will resign from the Board of
Directors. Although no persons have been nominated to replace these directors,
the Board of Directors intends to appoint four directors to fill board
positions left vacant upon the resignation of these directors. See
"Management." Additionally, the Company's Consulting Agreement (as defined
herein) with Apollo Advisors, L.P., an affiliate of the Selling Stockholders,
will terminate upon consummation of the Offerings. See "Certain Transactions."
The consummation of each of (i) the Offerings and (ii) the Company Repurchase
is contingent upon the consummation of the other and the closing of the New
Term Loan. On a pro forma basis reflecting the consummation of the Offerings,
the New Term Loan and the Company Repurchase, earnings per share for the year
ended December 31, 1996 would have been $0.90, an increase of $0.04 over actual
results, and earnings per share for the three months ended March 31, 1997 would
have been $0.29, an increase of $0.02 over actual results. See
"Capitalization," "Selected Consolidated Historical and Pro Forma Financial
Information" and "Selling Stockholders and Company Repurchase."

6
<PAGE>

THE OFFERINGS

<TABLE>
<S> <C>
Common Stock offered in
the Offerings:
U.S. Offering.......... 8,800,000 shares
International Offer- 2,200,000 shares
ing...................
Total................ 11,000,000 shares(1)
Common Stock to be out- 50,624,767 shares(2)
standing................
Use of proceeds.......... All of the proceeds from the sale of the shares will
be received by the Selling Stockholders.
Conditions to the Offer- The consummation of each of (i) the Offerings and
ings.................... (ii) the Company Repurchase is contingent upon the
consummation of the other and the closing of the New
Term Loan.
New York Stock Exchange FBN
symbol..................
</TABLE>
- --------
(1) Excludes 1,100,000 shares that may be offered under an over-allotment
option granted by the Selling Stockholders. See "Underwriting."

(2) Reflects the repurchase of 10,842,299 shares of the Common Stock in the
Company Repurchase. Excludes, as of March 31, 1997, 5,227,151 shares of
Common Stock issuable pursuant to warrants or stock options, consisting of
1,386,594 shares of Common Stock issuable pursuant to warrants exercisable
at $7.13 per share (net of 290,821 shares of Common Stock issuable
pursuant to warrants to be acquired in the Company Repurchase) and
3,840,557 shares of Common Stock issuable pursuant to management stock
options, 1,623,352 of which are currently exercisable.

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

Information contained or incorporated by reference in this Prospectus
contains "forward-looking statements" which can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, or by discussions of strategy. See, e.g., "Growth
Strategy" in this Prospectus Summary, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business-- Growth
Strategy." No assurance can be given that the future results covered by the
forward-looking statements will be achieved. The Risk Factors beginning on page
10 constitute cautionary statements identifying important factors with respect
to such forward-looking statements, including certain risks and uncertainties,
that could cause actual results to vary materially from the future results
covered in such forward-looking statements. Other factors could also cause
actual results to vary materially from the future results covered in such
forward-looking statements. The Company undertakes no obligation to publicly
release any revisions to these forward-looking statements to reflect any future
events or occurrences.

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

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.

7
<PAGE>

SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
DATA

The following summary consolidated historical and pro forma condensed
consolidated financial data of the Company are derived from and should be read
in connection with the historical consolidated financial statements of the
Company (the "Consolidated Financial Statements") included elsewhere or
incorporated by reference in this Prospectus. The pro forma condensed
consolidated financial and other data is presented for comparative purposes
only and is not necessarily indicative of the results of operations in the
future or of what the 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.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
---------------------------------------------- ----------------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996(1) 1996 1997 1997(1)
---------- ---------- ---------- ---------- --------- --------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $1,072,696 $1,073,889 $1,696,795 $1,696,795 $ 423,947 $ 449,861 $ 449,861
Costs and expenses:
Cost of operations..... 752,528 760,393 1,228,355 1,228,355 308,883 326,187 326,187
Selling, general and
administrative ex-
penses................ 199,333 198,321 283,432 282,795(2) 70,204 73,511 73,352(2)
Depreciation and amor-
tization(3)........... 35,776 36,104 54,082 54,082 14,178 14,596 14,596
---------- ---------- ---------- ---------- --------- --------- ---------
Earnings from opera-
tions................. 85,059 79,071 130,926 131,563 30,682 35,567 35,726
Interest expense....... 37,886 33,845 45,217 58,310(4) 13,715 9,089 12,456(4)
Other income, net:
Gain on insurance set-
tlement(5)............ -- 7,882 -- -- -- -- --
Other.................. 1,668 3,930 2,583 2,583 747 872 872
---------- ---------- ---------- ---------- --------- --------- ---------
Earnings before income
tax expense, discon-
tinued operations and
extraordinary item.... 48,841 57,038 88,292 75,836 17,714 27,350 24,142
Income tax expense..... 20,908 22,815 34,070 29,263(6) 6,867 10,291 9,084(6)
---------- ---------- ---------- ---------- --------- --------- ---------
Net earnings from con-
tinuing opera-
tions(3)(7)........... $ 27,933 $ 34,223 $ 54,222 $ 46,573 $ 10,847 $ 17,059 $ 15,058
========== ========== ========== ========== ========= ========= =========
Per share of common
stock--fully diluted:
Net earnings from con-
tinuing opera-
tions(3)(7)........... $ 0.54 $ 0.65 $ 0 .86 $ 0.90 $ 0.19 $ 0.27 $ 0.29
========== ========== ========== ========== ========= ========= =========
Weighted average common
and common equivalent
shares outstanding--
fully diluted (in
thousands)............ 51,506 52,317 62,871 51,884 55,982 63,732 52,745
OTHER DATA:
EBITDA(8).............. $ 120,835 $ 115,175 $ 185,008 $ 185,645 $ 44,860 $ 50,163 $ 50,322
EBITDA margin.......... 11.3% 10.7% 10.9% 10.9% 10.6% 11.2% 11.2%
Net cash provided by
continuing operating
activities............ $ 22,016 $ 91,990 $ 115,420 $ 37,285 $ 14,802
Net cash used by in-
vesting activities.... $ (15,487) $ (370,535) $ (37,578) $ (5,462) $ (8,225)
Net cash provided
(used) by financing
activities............ $ 7,502 $ 272,812 $ (84,889) $ (27,663) $ (7,279)
</TABLE>

<TABLE>
<CAPTION>
AT MARCH 31, 1997
-----------------------
ACTUAL PRO FORMA(1)
---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................... $ 18,663 $ 18,663
Working capital..................................... 479,282 479,282
Total assets........................................ 1,288,631 1,292,381(9)
Long-term debt...................................... 567,800 743,037(10)
Total shareholders' equity.......................... 434,237 262,750(11)
</TABLE>

8
<PAGE>

- --------
(1) Pro forma information reflects consummation of the Offerings, the New Term
Loan and the Company Repurchase as of the first day of the period
presented for Statement of Operations Data and Other Data and at March 31,
1997 for Balance Sheet Data. See "Selected Consolidated Historical and Pro
Forma Financial Information."

(2) Reflects a pro forma adjustment for the decrease in selling, general and
administrative expenses of $637 for 1996 and $159 for the three months
ended March 31, 1997 that is related to the cancellation of the Consulting
Agreement and a decline in fees paid to outside board members due to a
reduction in the size of the Board of Directors arising from the
resignation of eight individuals associated with the Selling Stockholders
and the appointment of four replacement directors. See "Management" and
"Certain Transactions."

(3) 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 "Intangible Assets" in Note 3 to the Company's
Consolidated Financial Statements and related notes included elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------- ---------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996 1996 1997 1997
-------- -------- -------- --------- ------- ------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Depreciation and amor-
tization--fresh-
start................. $(16,900) $(15,922) $(16,285) $(16,285) $(4,220) $(4,312) $(4,312)
After-tax impact on net
earnings.............. (13,051) (12,470) (12,697) (12,697) (3,259) (3,301) (3,301)
Impact on earnings per
share-fully diluted... (0.25) (0.24) (0.20) (0.24) (0.06) (0.05) (0.06)
</TABLE>

(4) Reflects a pro forma adjustment for the increase in interest expense of
$13,093 for 1996 and $3,367 for the three months ended March 31, 1997 that
is related to the New Term Loan, assuming an interest rate of 7.27% for
1996 and 7.34% for the three months ended March 31, 1997, and additional
borrowings under the Secured Credit Agreement.

(5) Gain on insurance settlement related to the November 1994 fire at the
Company's particleboard plant.

(6) Reflects a pro forma adjustment for the income tax benefit in the amount
of $4,807 for 1996 and $1,207 for the three months ended March 31, 1997
arising as a result of the increased interest expense and cancellation of
the Consulting Agreement.

(7) 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.

(8) EBITDA is defined as earnings from operations before depreciation and
amortization and therefore does not include other income, net. EBITDA is
not intended to represent cash flows from operating activities as measured
in accordance with generally accepted accounting principles. Nor has it
been presented as an alternative to net income from operations or cash
flows from operating activities computed in accordance with generally
accepted accounting principles as an indicator of operating performance.
EBITDA is presented solely as supplemental disclosure because the Company
believes that it is a good measure of the Company's ability to generate
cash to enable it to make capital expenditures and meet its other
obligations. The Company believes that EBITDA may be a better indicator
for this purpose than earnings from operations because of the significant
fresh-start depreciation and amortization charges described in Note 3
above. Because all companies and analysts do not calculate EBITDA in an
identical manner, however, EBITDA as presented above may not necessarily
be comparable to similarly-titled measures of other companies.

(9) Reflects a pro forma adjustment for deferred financing fees in the amount
of $3,750 for the New Term Loan.

(10) Reflects a pro forma adjustment for an increase in long-term debt of
$175,237 resulting from borrowing $200,000 from the New Term Loan and the
payment of $24,763 under the revolving credit facility of the Secured
Credit Agreement.

(11) Reflects a pro forma adjustment for the repurchase of the 10,842,299
shares of Common Stock and warrants to purchase 290,821 shares of Common
Stock in the Company Repurchase, and estimated fees and expenses
associated with the Offerings in the amount of $1,000.

9
<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.

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 residential 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 leverage. After the
Offerings, the Company's Secured Credit Agreement will consist of the New Term
Loan totaling $200 million and a reducing revolving credit facility totaling
$475 million, of which $345 million was outstanding as of March 31, 1997. In
addition, the Company has a $225 million receivables securitization facility
(the "Receivables Securitization Facility") of which $210 million was
outstanding as of March 31, 1997. As of March 31, 1997, on a pro forma basis,
the Company's debt would have totaled approximately $743 million, and the
Company's debt to equity ratio on that date would have been 2.8:1. As a result
of the Company Repurchase, the Company will have negative tangible net worth.
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. In
February 1996, in order to reduce the impact of changes in interest rates on
its floating rate long-term debt, the Company entered into three-year interest
rate swap agreements having a total notional amount of $300 million.

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 and other financial ratios. 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.

10
<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. See "Business--Environmental Matters."

SHARES ELIGIBLE FOR FUTURE SALE

The Company, certain of its officers and directors and the Selling
Stockholders have agreed not to sell any shares of Common Stock, other than
the shares offered hereby, for a period of 90 days following the consummation
of the Offerings without the prior written consent of Smith Barney Inc. as
representative of the Underwriters. After expiration of the lock-up period,
the Company, such officers and directors and the Selling Stockholders may sell
shares of Common Stock without regard to any such limitations. The sale of a
substantial number of shares by such persons 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
("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."

11
<PAGE>

USE OF PROCEEDS

All of the shares of Common Stock being offered hereby are being offered by
the Selling Stockholders. The Company will not receive any of the proceeds
from the sale of such shares.

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 "FBN." The following table sets forth for the
periods indicated the high and low sales prices of the Common Stock, as
reported on the New York Stock Exchange Composite Tape.

<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
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................................................ 10 1/4 8 1/4
Second Quarter............................................... 12 1/8 9
Third Quarter................................................ 14 5/8 9 3/4
Fourth Quarter............................................... 15 12
1997:
First Quarter................................................ 16 13 5/8
Second Quarter (April 1 through June 24)..................... 17 1/8 14 1/4
</TABLE>

On June 24, 1997, the last reported sale price of the Common Stock on the
New York Stock Exchange was $17 per share. As of March 31, 1997, 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
on a historical basis and a pro forma basis to reflect the Offerings, the New
Term Loan and the Company Repurchase as of March 31, 1997. 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 included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1997
------------------------
ACTUAL PRO FORMA
----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents........................... $ 18,663 $ 18,663
=========== ===========
Secured credit agreement
Revolving credit facility......................... $ 345,000 $ 320,237(1)
New term loan..................................... -- 200,000(1)
Receivables securitization facility................. 210,000 210,000
Other............................................... 12,800 12,800
----------- -----------
Long-term debt.................................. 567,800 743,037(1)
----------- -----------
Shareholders' equity:
Preferred stock, 10,000,000 shares authorized, no
par value, none issued and outstanding........... -- --
Common Stock, 100,000,000 shares authorized, $1.00
stated value (no par value), 61,467,066 shares
issued and outstanding (actual) and 50,624,767
shares issued and outstanding (pro forma)........ 61,467 50,625(1)
Paid-in capital................................... 276,040 115,395(1)
Retained earnings................................. 96,730 96,730
----------- -----------
Total shareholders' equity...................... 434,237 262,750
----------- -----------
Total capitalization................................ $ 1,002,037 $ 1,005,787
=========== ===========
</TABLE>
- --------
(1) Reflects a pro forma adjustment for the repurchase of the 10,842,299
shares of Common Stock and warrants to purchase 290,821 shares of Common
Stock in the Company Repurchase.

13
<PAGE>

SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION

The following selected consolidated historical financial data of the Company
should be read in conjunction with the Consolidated Financial Statements and
related notes included elsewhere and incorporated by reference in this
Prospectus. The selected consolidated historical financial data at December
31, 1994, 1995 and 1996, and for the years ended December 31, 1994, 1995 and
1996 are derived from the audited Consolidated Financial Statements of the
Company, included herein. The selected consolidated historical financial data
at March 31, 1996 and 1997 and for the three months ended March 31, 1996 and
1997 are unaudited, but include all adjustments, consisting of normal
recurring accruals, which management of the Company considers necessary for a
fair presentation. The results for the three months ended March 31, 1997 are
not necessarily indicative of the results to be expected for the full year.
The pro forma information is unaudited and presented for comparative purposes
only, and is not necessarily indicative of what the Company's financial
position or results of operations would have been if the Offerings, the New
Term Loan and the Company Repurchase had been completed on the dates indicated
as of the first day of the period presented for Statement of Operations Data
and Other Data and at March 31, 1997 for Balance Sheet Data.

In 1992, the Company was required to adopt "fresh-start" reporting
principles in accordance with AICPA SOP 90-7, "Financial Reporting by Entities
in Reorganization under the Bankruptcy Code," which resulted in the
revaluation of all assets and liabilities to reflect the Company's estimated
reorganization value.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
---------------------------------------------- ------------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996(1) 1996 1997 1997(1)
---------- ---------- ---------- ---------- --------- -------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $1,072,696 $1,073,889 $1,696,795 $1,696,795 $ 423,947 $449,861 $ 449,861
Costs and expenses:
Cost of operations..... 752,528 760,393 1,228,355 1,228,355 308,883 326,187 326,187
Selling, general and
administrative ex-
penses................ 199,333 198,321 283,432 282,795(2) 70,204 73,511 73,352(2)
Depreciation and amor-
tization(3)........... 35,776 36,104 54,082 54,082 14,178 14,596 14,596
---------- ---------- ---------- ---------- --------- -------- ---------
Earnings from opera-
tions................. 85,059 79,071 130,926 131,563 30,682 35,567 35,726
Interest expense....... 37,886 33,845 45,217 58,310(4) 13,715 9,089 12,456(4)
Other income, net:
Gain on insurance set-
tlement(5)............ -- 7,882 -- -- -- -- --
Other.................. 1,668 3,930 2,583 2,583 747 872 872
---------- ---------- ---------- ---------- --------- -------- ---------
Earnings before income
tax expense,
discontinued opera-
tions and extraordi-
nary item............. 48,841 57,038 88,292 75,836 17,714 27,350 24,142
Income tax expense..... 20,908 22,815 34,070 29,263(6) 6,867 10,291 9,084(6)
---------- ---------- ---------- ---------- --------- -------- ---------
Net earnings from con-
tinuing opera-
tions(3)(7)........... $ 27,933 $ 34,223 $ 54,222 $ 46,573 $ 10,847 $ 17,059 $ 15,058
========== ========== ========== ========== ========= ======== =========
Per share of common
stock--fully diluted:
Net earnings from con-
tinuing opera-
tions(3)(7)........... $ 0.54 $ 0.65 $ 0.86 $ 0.90 $ 0.19 $ 0.27 $ 0.29
========== ========== ========== ========== ========= ======== =========
Weighted average common
and common equivalent
shares outstanding--
fully diluted (in
thousands)............ 51,506 52,317 62,871 51,884 55,982 63,732 52,745
OTHER DATA:
Gross profit(8)........ $ 298,712 $ 291,237 $ 431,473 $ 431,473 $ 105,333 $113,425 $ 113,425
EBITDA(9).............. $ 120,835 $ 115,175 $ 185,008 $ 185,645 $ 44,860 $ 50,163 $ 50,322
EBITDA margin.......... 11.3% 10.7% 10.9% 10.9% 10.6% 11.2% 11.2%
Net cash provided by
continuing operating
activities............ $ 22,016 $ 91,990 $ 115,420 $ 37,285 $ 14,802
Net cash used by in-
vesting activities.... $ (15,487) $ (370,535) $ (37,578) $ (5,462) $ (8,225)
Net cash provided
(used) by financing
activities............ $ 7,502 $ 272,812 $ (84,889) $ (27,663) $ (7,279)
</TABLE>

<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
---------------------------- -------------------
PRO FORMA
1994 1995 1996 1997 1997(1)
-------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equiva-
lents................... $ 32,145 $ 26,412 $ 19,365 $ 18,663 $ 18,663
Working capital.......... 308,323 455,036 462,661 479,282 479,282
Total assets............. 881,735 1,291,739 1,269,204 1,288,631 1,292,381(10)
Long-term debt........... 426,253 723,679 572,600 567,800 743,037(11)
Total shareholders' equi-
ty...................... 275,394 301,156 419,657 434,237 262,750(12)
</TABLE>

14
<PAGE>

- --------
(1) Pro forma information reflects consummation of the Offerings, the New
Term Loan and the Company Repurchase as of the first day of the period
presented for Statement of Operations Data and Other Data and at March
31, 1997 for Balance Sheet Data.

(2) Reflects a pro forma adjustment for the decrease in selling, general and
administrative expenses of $637 for 1996 and $159 for the three months
ended March 31, 1997 that is related to the cancellation of the
Consulting Agreement and a decline in fees paid to outside board members
due to a reduction in the size of the Board of Directors arising from the
resignation of eight individuals associated with the Selling Stockholders
and the appointment of four replacement directors. See "Management" and
"Certain Transactions."

(3) 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 "Intangible Assets" in Note 3 to the
Company's Consolidated Financial Statements and related notes included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------- ---------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996 1996 1997 1997
-------- -------- -------- --------- ------- ------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Depreciation and amorti-
zation--fresh-start.... $(16,900) $(15,922) $(16,285) $(16,285) $(4,220) $(4,312) $(4,312)
After-tax impact on net
earnings............... (13,051) (12,470) (12,697) (12,697) (3,259) (3,301) (3,301)
Impact on earnings per
share-fully diluted.... (0.25) (0.24) (0.20) (0.24) (0.06) (0.05) (0.06)
</TABLE>

(4) Reflects a pro forma adjustment for the increase in interest expense of
$13,093 for 1996 and $3,367 for the three months ended March 31, 1997
that is related to the New Term Loan, assuming an interest rate of 7.27%
for 1996 and 7.34% for the three months ended March 31, 1997, and
additional borrowings under the Secured Credit Agreement.

(5) Gain on insurance settlement related to the November 1994 fire at the
Company's particleboard plant.

(8) The Company believes that gross profit provides useful information
regarding a Company's financial performance. Gross profit 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. Gross profit has been calculated by subtracting cost of
operations and the portion of depreciation associated with cost of goods
sold from net sales. Pro forma information reflects the adjustments set
forth in Note 1 above.

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------- ---------------
1994 1995 1996 1996 1997
-------- -------- -------- ------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales....................... $1,072.7 $1,073.9 $1,696.8 $ 423.9 $ 449.9
Cost of operations.............. 752.5 760.4 1,228.4 308.9 326.2
Depreciation (associated with
cost of goods sold)............ 21.5 22.3 36.9 9.7 10.3
-------- -------- -------- ------- -------
Gross profit.................... $ 298.7 $ 291.2 $ 431.5 $ 105.3 $ 113.4
======== ======== ======== ======= =======
</TABLE>

(9) EBITDA is defined as earnings from operations before depreciation and
amortization and therefore does not include other income, net. EBITDA is
not intended to represent cash flows from operating activities as
measured in accordance with generally accepted accounting principles. Nor
has it been presented as an alternative to net income from operations or
cash flows from operating activities computed in accordance with
generally accepted accounting principles as an indicator of operating
performance. EBITDA is presented solely as supplemental disclosure
because the Company believes that it is a good measure of the Company's
ability to generate cash to enable it to make capital expenditures and
meet its other obligations. The Company believes that EBITDA may be a
better indicator for this purpose than earnings from operations because
of the significant fresh-start depreciation and amortization charges
described in Note 3 above. Because all companies and analysts do not
calculate EBITDA in an identical manner, however, EBITDA as presented
above may not necessarily be comparable to similarly-titled measures of
other companies.

(10) Reflects a pro forma adjustment for deferred financing fees in the
amount of $3,750 for the New Term Loan.

(11) Reflects a pro forma adjustment for an increase in long-term debt of
$175,237 resulting from borrowing $200,000 from the New Term Loan and
the payment of $24,763 under the revolving credit facility of the
Secured Credit Agreement.

(12) Reflects a pro forma adjustment for the repurchase of the 10,842,299
shares of Common Stock and warrants to purchase 290,821 shares of Common
Stock in the Company Repurchase, and estimated fees and expenses
associated with the Offerings in the amount of $1,000.

15
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

The following analysis of the financial condition and results of operations
of the Company should be read in conjunction with the Consolidated Financial
Statements and related notes included elsewhere in this Prospectus. In
addition, management believes that the following factors have had a
significant effect on its recent financial statements.

ACQUISITION OF THOMASVILLE. During the year ended December 31, 1995, the
Company had two primary operating subsidiaries, Broyhill and Lane. On December
29, 1995, the Company acquired Thomasville for approximately $339 million,
consisting of $331 million in cash and $8 million in assumed indebtedness. The
transaction was accounted for as a purchase and, since the acquisition
occurred as of the last business day of 1995, was reflected in the Company's
consolidated balance sheet as of December 31, 1995. The Company's results of
operations for 1995 do not include any of the operations of Thomasville. The
cash portion of the acquisition of Thomasville was originally financed through
funds obtained by borrowing under the Company's secured credit agreement and
the Receivables Securitization Facility. On March 1, 1996, the Company
completed a public offering of 10,000,000 shares of Common Stock, generating
net cash proceeds of approximately $81.3 million, which were used to repay a
portion of this debt.

1994 SPIN-OFF TRANSACTIONS. In order to focus on its core furniture
operations, the Company completed a spin-off of its footwear subsidiaries in
1994. On November 17, 1994, the Company simultaneously refinanced the majority
of its outstanding indebtedness and distributed to its stockholders all the
stock of its former footwear subsidiaries, Converse Inc. and The Florsheim
Shoe Company. Upon completion of this restructuring, the Company retained no
ownership interest in or management control of the footwear businesses.
Accordingly, the financial results of the footwear businesses have been
reflected as discontinued operations for all applicable periods.

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 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. The impact of such
adjustments is that earnings per share for 1996 was $0.20 (or $0.24 pro forma
for the Company Repurchase) less than it would have been without "fresh-start"
reporting. See "Selected Consolidated Historical and Pro Forma Financial
Information--Impact of 1992 Asset Revaluation (Fresh-Start Reporting)."

16
<PAGE>

RESULTS OF OPERATIONS

As an aid to understanding the Company's results of operations on a
comparative basis, the following table has been prepared to set forth certain
statement of operations and other data for fiscal 1994, 1995 and 1996, and the
three months ended March 31, 1996 and 1997. The results for fiscal 1994 and
1995 do not include any of the operations of Thomasville.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
----------------------------------------------------- ---------------------------------
1994 1995 1996 1996 1997
----------------- ----------------- ----------------- ---------------- ----------------
% OF NET % OF NET % OF NET % OF NET % OF NET
DOLLARS SALES DOLLARS SALES DOLLARS SALES DOLLARS SALES DOLLARS SALES
-------- -------- -------- -------- -------- -------- ------- -------- ------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $1,072.7 100.0% $1,073.9 100.0% $1,696.8 100.0% $ 423.9 100.0% $ 449.9 100.0%
Cost of operations...... 752.5 70.2 760.4 70.8 1,228.4 72.4 308.9 72.9 326.2 72.5
Selling, general and ad-
ministrative expenses.. 199.3 18.6 198.3 18.5 283.4 16.7 70.2 16.6 73.5 16.3
Depreciation and amorti-
zation................. 35.8 3.3 36.1 3.3 54.1 3.3 14.1 3.3 14.6 3.3
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Earnings from opera-
tions.................. 85.1 7.9 79.1 7.4 130.9 7.7 30.7 7.2 35.6 7.9
Interest expense........ 37.9 3.5 33.9 3.2 45.2 2.7 13.7 3.2 9.1 2.0
Other income, net:
Gain on insurance set-
tlement............... -- -- 7.9 0.7 -- -- -- -- -- --
Other.................. 1.6 0.1 3.9 0.4 2.6 0.2 0.7 0.2 0.9 0.2
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Earnings before income
tax expense, discontin-
ued operations and ex-
traordinary item....... 48.8 4.5 57.0 5.3 88.3 5.2 17.7 4.2 27.4 6.1
Income tax expense...... 20.9 1.9 22.8 2.1 34.1 2.0 6.9 1.6 10.3 2.3
-------- ----- -------- ----- -------- ----- ------- ----- ------- -----
Net earnings from
continuing
operations............. $ 27.9 2.6% $ 34.2 3.2% $ 54.2 3.2% $ 10.8 2.6% $ 17.1 3.8%
======== ===== ======== ===== ======== ===== ======= ===== ======= =====
Gross profit(1)......... $ 298.7 27.8% $ 291.2 27.1% $ 431.5 25.4% $ 105.3 24.8% $ 113.4 25.2%
EBITDA(2)............... $ 120.9 11.3% $ 115.2 10.7% $ 185.0 10.9% $ 44.9 10.6% $ 50.2 11.2%
</TABLE>
- --------
(1) The Company believes that gross profit provides useful information
regarding a company's financial performance. Gross profit 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. Gross profit has been calculated by subtracting cost of
operations and the portion of depreciation associated with cost of goods
sold from net sales.

(2) EBITDA is defined as earnings from operations before depreciation and
amortization and therefore does not include other income, net. EBITDA is
not intended to represent cash flows from operating activities as
measured in accordance with generally accepted accounting principles. Nor
has it been presented as an alternative to net income from operations or
cash flows from operating activities computed in accordance with
generally accepted accounting principles as an indicator of operating
performance. EBITDA is presented solely as supplemental disclosure
because the Company believes that it is a good measure of the Company's
ability to generate cash to enable it to make capital expenditures and
meet its other obligations. The Company believes that EBITDA may be a
better indicator for this purpose than earnings from operations because
of the significant fresh-start depreciation and amortization charges
described herein. Because all companies and analysts do not calculate
EBITDA in an identical manner, however, EBITDA as presented above may not
necessarily be comparable to similarly-titled measure of other companies.

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<PAGE>

Three Months Ended March 31, 1997 Compared to Three Months Ended March 31,
1996

Net sales for the three months ended March 31, 1997 were $449.9 million,
compared to $423.9 million in the three months ended March 31, 1996, an
increase of $26.0 million or 6.1%. The improved sales performance occurred at
each operating company and ranged, in varying degrees, across all product
lines. The increase in net sales was achieved through continued introductions
of new products and execution of marketing and advertising programs
emphasizing the Company's brand names.

Cost of operations for the three months ended March 31, 1997 was $326.2
million compared to $308.9 million for the comparable prior year period. Cost
of operations as a percentage of net sales decreased from 72.9% for the three
months ended March 31, 1996 to 72.5% for the three months ended March 31,
1997. The decrease in cost of operations as a percentage of net sales resulted
from increased manufacturing efficiencies and continued efforts to improve
gross profit margins.

Selling, general and administrative expenses for the three months ended
March 31, 1997 were $73.5 million compared with $70.2 million in the prior
year. As a percentage of net sales, selling, general and administrative
expenses were 16.3% and 16.6% for the three months ended March 31, 1997 and
1996, respectively. The decrease reflects continuing success in the
implementation of the Company's cost reduction program.

Interest expense totaled $9.1 million for the three months ended March 31,
1997 compared to $13.7 million in the prior year comparable period. The
decrease in interest expense resulted from lower long-term debt and reduced
interest rates.

The effective income tax rates were 37.6% and 38.8% for the three months
ended March 31, 1997 and March 31, 1996, respectively. The effective tax rates
for each period were adversely impacted by certain nondeductible expenses
incurred and provisions for state and local taxes. The effective tax rate for
the three months ended March 31, 1997 was favorably impacted by the reduced
effect of the nondeductible expenses as a percentage of pretax earnings.

Net earnings per common share on both a primary and fully diluted basis were
$0.27 for the three months ended March 31, 1997, compared with $0.19 for the
same period last year. Average common and common equivalent shares outstanding
used in the calculation of net earnings per common share on a primary and
fully diluted basis were 63,716,000 and 63,732,000, respectively, for the
three months ended March 31, 1997 and 55,794,000 and 55,982,000, respectively,
for the three months ended March 31, 1996.

Gross profit for the three months ended March 31, 1997 was $113.4 million,
representing an increase of 7.7% over gross profit of $105.3 million for the
three months ended March 31, 1996. The increase in gross profit resulted from
the increase in sales and increased manufacturing efficiencies.

EBITDA for the three months ended March 31, 1997 was $50.2 million,
representing an increase of 11.8% over EBITDA of $44.9 million for the three
months ended March 31, 1996. This increase resulted from the increase in sales
and improved operating margins.

Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

Net sales for 1996 were $1.7 billion, compared with $1.07 billion for 1995.
The improved sales performance resulted primarily from the acquisition of
Thomasville. Had Thomasville been acquired at the beginning of 1995, net sales
for the year ended December 31, 1996 would have increased 4.5% over pro forma
net sales for the year ended December 31, 1995. The increase in net sales was
achieved in part through continued introductions of new products and emphasis
on the Company's brand names.

Cost of operations for 1996 was $1.2 billion, compared to $760.4 million for
1995. The large increase was a result of the Company's acquisition of
Thomasville. Cost of operations as a percentage of net sales increased from
70.8% for 1995 to 72.4% for 1996. This increase was due to the acquisition of
Thomasville, which had

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<PAGE>

higher cost of operations as a percentage of net sales than the Company's
other operating subsidiaries. Had Thomasville been included on a pro forma
basis for 1995, cost of operations as a percentage of net sales would have
been 73.3%.

Selling, general and administrative expenses increased to $283.4 million for
1996 from $198.3 million for 1995. The large increase was a result of the
Company's acquisition of Thomasville. As a percentage of net sales, selling,
general and administrative expenses were 16.7% for 1996 compared to 18.5% for
1995, reflecting the Company's acquisition of Thomasville.

Depreciation and amortization for 1996 was $54.1 million, compared to $36.1
million for 1995. The large increase was a result of the Company's acquisition
of Thomasville. The amount of depreciation and amortization attributable to
the "fresh-start" reporting was $16.3 million and $15.9 million for 1996 and
1995, respectively.

Interest expense for 1996 totaled $45.2 million, compared to $33.9 million
for 1995. The increase in interest expense reflects additional debt incurred
for the acquisition of Thomasville.

Other income, net for 1996, totaled $2.6 million compared to $3.9 million
for 1995. For 1996, other income consisted of interest on short term
investments of $1.2 million and other miscellaneous income and (expense) items
totaling $1.4 million.

For 1996, the Company provided for income taxes totaling $34.1 million on
earnings before income tax expense and extraordinary item, producing an
effective tax rate of 38.6%, compared to an effective tax rate for 1995 of
40.0%. The effective tax rates for such periods were adversely impacted by
certain nondeductible expenses incurred and provisions for state and local
income taxes.

Net earnings per common share from continuing operations on a fully diluted
basis were $0.86 for 1996 compared with $0.65 for 1995. Weighted average
shares outstanding used in the calculation of net earnings per common share on
a primary and fully diluted basis were 61,946,000 and 62,871,000 in 1996 and
50,639,000 and 52,317,000 in 1995.

Gross profit for 1996 was $431.5 million, representing an increase of 48.2%
over gross profit of $291.2 million for 1995. The increase resulted primarily
from the acquisition of Thomasville. The decrease in gross profit margin to
25.4% for 1996 from 27.1% in 1995 was due to the acquisition of Thomasville,
which had lower gross profit margins than the Company's other operating
subsidiaries. Had Thomasville been included on a pro forma basis in 1995,
gross profit margin would have been 24.6%.

EBITDA for the year ended December 31, 1996 was $185.0 million, representing
an increase of 60.6% over EBITDA of $115.2 million for the prior year. This
increase resulted primarily from the acquisition of Thomasville. EBITDA as a
percentage of net sales increased to 10.9% for the year ended December 31,
1996 from 10.7% for the prior year. Had Thomasville been included on a pro
forma basis for the 1995 period, EBITDA as a percentage of net sales would
have been 10.0% for 1995. This increase in EBITDA margin reflects efficient
manufacturing activity as well as the Company's continuing efforts to enhance
profitability.

Year Ended December 31, 1995 Compared to Year Ended December 31, 1994

Net sales for 1995 were $1.07 billion, approximately unchanged from 1994.
During 1995, residential furniture manufacturers' results were adversely
affected by industry-wide price discounting and promotional activity in
response to weaker demand for durable goods. The Company was able to maintain
comparable net sales despite these conditions through new product
introductions at both Broyhill and Lane and continued advertising support of
its brand names.

Cost of operations for 1995 was $760.4 million, compared to $752.5 million
for 1994, an increase of 1.0%. The increase in cost of operations as a
percentage of net sales from 70.2% in 1994 to 70.8% in 1995, was

19
<PAGE>

primarily the result of unfavorable overhead absorption rates reflecting the
Company's effort to maintain manufacturing utilization rates at levels
necessary to balance inventory with incoming orders.

Selling, general and administrative expenses decreased to $198.3 million in
1995 from $199.3 million in 1994, a reduction of 0.5%. In 1995, such expenses
included a $2.7 million non-cash expense related to stock options. As a
percentage of net sales, selling, general and administrative expenses were
18.5% in 1995 compared to 18.6% in 1994, reflecting the Company's successful
implementation of its ongoing cost reduction programs.

Depreciation and amortization for 1995 was $36.1 million, compared to $35.8
million in 1994, an increase of 0.9%. The amount of depreciation and
amortization attributable to the "fresh-start" reporting was $15.9 million and
$16.9 million, in 1995 and 1994, respectively.

Interest expense for 1995 totaled $33.9 million and reflects twelve months
of interest expense on the Company's debt structure, which was substantially
refinanced as of December 29, 1995. Interest expense for 1995 was not
comparable to interest expense for 1994 as a result of the previous
refinancing of substantially all of the Company's debt in November 1994.

Other income, net for 1995 totaled $11.8 million, compared to $1.6 million
in 1994. For 1995, other income consisted of a gain on insurance settlement of
$7.9 million pertaining to the November 1994 destruction of a particleboard
plant, interest income on short-term investments of $2.4 million and other
miscellaneous income and (expense) items totaling $1.5 million.

For 1995, the Company provided for income taxes totaling $22.8 million on
earnings before income tax expense, discontinued operations and extraordinary
item, producing an effective tax rate of 40.0%, compared to an effective tax
rate for 1994 of 42.8%. The effective tax rates for such years were adversely
impacted by certain nondeductible expenses incurred and provisions for state
and local income taxes. The effective income tax rate for 1995 was favorably
impacted by special state income tax incentives granted in connection with the
issuance of certain industrial revenue bonds on behalf of one of the Company's
subsidiaries.

Net earnings per common share for continuing operations on a fully diluted
basis were $0.65 and $0.54 for 1995 and 1994, respectively. Net earnings per
common share for continuing operations before gain on insurance settlement net
of income tax expense on a fully diluted basis were $0.56 and $0.54 for 1995
and 1994, respectively. Weighted average shares outstanding used in the
calculation of net earnings per common share on a primary and fully diluted
basis were 50,639,000 and 52,317,000 in 1995, and 51,495,000 and 51,506,000 in
1994.

Gross profit for 1995 was $291.2 million, compared to $298.7 million for
1994, a decrease of 2.5%. Gross profit as a percentage of net sales declined
from 27.8% in 1994 to 27.1% in 1995, primarily as a result of lower factory
utilization rates at certain of the Company's manufacturing facilities
reflecting the Company's effort to balance inventories with incoming orders.

EBITDA for 1995 was $115.2 million, compared to $120.9 million for 1994, a
decrease of 4.7%. EBITDA as a percentage of net sales decreased from 11.3% in
1994 to 10.7% in 1995, primarily as a result of lower factory utilization
rates at certain of the Company's manufacturing facilities reflecting the
Company's efforts to balance inventories with incoming orders.

FINANCIAL CONDITION AND LIQUIDITY

LIQUIDITY. Cash and cash equivalents at March 31, 1997 totaled $18.7 million
compared to $19.4 million at December 31, 1996. During the three months ended
March 31, 1997, net cash from operating activities totaled $14.8 million, net
cash used by investing activities totaled $8.2 million, and net cash used by
financing activities totaled $7.3 million. For 1996, net cash from operating
activities totaled $115.4 million. Net cash used in investing activities
totaled $37.5 million. Net cash used in financing activities totaled $84.9
million, including the net repayment of $150.3 million of long-term debt, the
receipt of $81.3 million of net proceeds from the sale

20
<PAGE>

of Common Stock pursuant to the 1996 Company Equity Sale, the receipt of $9.2
million from the exercise of warrants to purchase shares of Common Stock,
$20.0 million for the repurchase of warrants and $4.5 million in debt issuance
costs associated with the 1996 Refinancing.

Working capital was $479.3 million at March 31, 1997, compared to $462.7
million at December 31, 1996. The current ratio was 4.1:1 at March 31, 1997,
compared to 4.2:1 at December 31, 1996.

At March 31, 1997, long-term debt totaled $567.8 million compared to $572.6
million at December 31, 1996. Assuming the consummation of the Offerings, the
New Term Loan and the Company Repurchase at March 31, 1997, the Company's
long-term debt would have been $743.0 million. As a result of the Company
Repurchase, the Company will have negative tangible net worth.

FINANCING ARRANGEMENTS. On September 6, 1996, the Company completed a
refinancing involving execution of the Secured Credit Agreement and
modifications incorporated in the Receivables Securitization Facility. The
Secured Credit Agreement replaced a secured credit agreement that had been
entered into in connection with the acquisition of Thomasville.

The Secured Credit Agreement is a $475.0 million reducing revolving credit
facility to which the New Term Loan will be added. The interest rate on
revolving credit borrowings is based on selected credit ratios set forth in
the Secured Credit Agreement and as of March 31, 1997 was 6.4%. The Secured
Credit Agreement allows for both the issuance of letters of credit and cash
borrowings. Letters of credit are limited to no more than $60.0 million. Cash
borrowings are limited to the facility's maximum availability less letters of
credit outstanding. At March 31, 1997, the Company had $345.0 million of cash
borrowings drawn under the Secured Credit Agreement and $26.5 million in
letters of credit outstanding, leaving an excess availability of approximately
$103.5 million. The Secured Credit Agreement contains customary covenants,
including financial covenants with respect to the Company's leverage and
interest coverage. The leverage coverage (a ratio of net debt to cash flows)
and interest coverage (a ratio of cash flows to interest expense) covenants
are the most restrictive covenants contained in the Secured Credit Agreement.
As anticipated to be amended in connection with the New Term Loan, the
leverage covenant will require that the Company's consolidated debt to
consolidated cash flow (as such terms are defined in the Secured Credit
Agreement) must not exceed 4.65:1 (4.50:1 beginning on March 31, 1998 and
reducing thereafter in steps to 4.00:1 on March 31, 1999). The interest
coverage covenant will require that the Company's consolidated cash flow to
consolidated interest expense (as such terms are defined in the Secured Credit
Agreement) exceed or equal 3.00:1 (3.25:1 from September 30, 1998 through
December 31, 1998 and 3.50:1 beginning on March 31, 1999) for any period of
four consecutive fiscal quarters. As of March 31, 1997, on a pro forma basis,
the leverage and interest coverage ratios were 3.80:1 and 3.84:1,
respectively. The Company is currently and expects to continue to be in
compliance with all restrictive covenants in the Secured Credit Agreement.

The Receivables Securitization Facility is a $225.0 million facility
pursuant to which the Company sells interests in the trade receivables of its
operating companies to a third party financial institution. The Company
accounts for the Receivables Securitization Facility as long-term debt. The
Company's cost of borrowing is based on a commercial paper index rate plus a
program fee and at March 31, 1997 the Company had approximately $13.4 million
of excess availability under the Receivables Securitization Facility.

In February 1996, in order to reduce the impact of changes in interest rates
on its floating rate long-term debt, the Company entered into three-year
interest rate swap agreements having a total notional amount of $300 million.
The swap agreements effectively convert a portion of the Company's floating
rate long-term debt to a fixed rate. The Company pays the counterparties a
fixed rate of 5.14% per annum and receives payments based upon the floating
three month London interbank offered rate (LIBOR).

The Company believes that the Secured Credit Agreement, as proposed to be
amended to add the New Term Loan, and the Receivables Securitization Facility,
together with cash generated from operations, will be adequate to meet
liquidity requirements for the foreseeable future.

CAPITAL EXPENDITURES. The Company maintains a significant capital
expenditure program focusing on increasing manufacturing efficiency and
expanding capacity as required. The Company's total capital

21
<PAGE>

expenditures were $40.3 million, $35.6 million and $21.1 million for the years
ended December 31, 1996, 1995 and 1994, respectively. The annual figures for
1995 and 1994 do not include the capital expenditures of Thomasville ($15.2
million and $14.1 million for the years ended December 31, 1995 and 1994,
respectively). The Company estimates that total capital expenditures will be
approximately $40.0 million in 1997. Significant new projects during the past
three years included a new upholstery manufacturing facility at Action
Industries to meet the increased demand for the Company's recliners, motion
furniture and sleep sofas and a state-of-the-art flat line finishing system at
Lane. The capital expenditures for 1995 include $18.2 million to construct a
new state-of-the-art particleboard manufacturing facility at Broyhill, which
was funded by proceeds from an insurance settlement, to replace the Company's
facility that was destroyed by fire in November 1994. The Company believes
that as a result of the availability of excess capacity in the Lane and
Thomasville manufacturing facilities, the Company will be able to pursue its
growth strategy over the next several years without the necessity of making
significant additional capital expenditures to expand capacity.

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<PAGE>

BUSINESS

GENERAL

The Company believes that it is the largest manufacturer of residential
furniture in the United States based on domestic revenues (excluding estimated
revenues of competitors from fabrics and decorative accessories). 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 from "premium" priced home
furnishings to lower priced RTA furniture. The Company distributes its
products through a diverse network of national, regional and local retailers,
including one of the largest systems of independently-owned dedicated retail
outlets in the residential furniture industry. Management believes that the
acquisition of Thomasville in December 1995 has significantly enhanced the
Company's competitive strengths and positions the Company to increase its
market share, sales and earnings. For the twelve months ended March 31, 1997,
the Company had net sales of $1.7 billion, EBITDA of $190.3 million, net
income before extraordinary items of $60.4 million and earnings per share of
$0.94.

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 two of the largest segments of the residential furniture market.
Management believes Broyhill is the largest full line manufacturer of
residential furniture under one brand name, and Broyhill has been rated the
number one brand in the industry in terms of brand awareness by several recent
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, although there are no published industry figures available.
Broyhill distributes its products through an extensive distribution network of
more than 6,200 independently-owned retail locations, including 345 dedicated
Broyhill Showcase Galleries and 415 dedicated Broyhill Furniture Centers.

LANE. Lane manufactures specialty products for niche markets in the
"better," "best" and "premium" price categories. The Company believes that
Lane is the largest domestic manufacturer of cedar chests, although there are
no published industry figures available. In addition, Lane, through Action
Industries, its largest operating unit, is one of the leading manufacturers of
motion furniture and 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 294 dedicated
furniture galleries.

THOMASVILLE. Thomasville manufactures furniture which embodies the widely
recognized "Thomasville Look" for both the "best" and "premium" price
categories. Thomasville has been rated the "highest quality" brand by several
recent 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
approximately 635 independently-owned retail locations, including 239
dedicated Thomasville Galleries and 82 free-standing Thomasville Home
Furnishings stores, which exclusively feature Thomasville furniture. The
Company also produces a separate line of lower priced RTA and promotional
furniture.

COMPETITIVE STRENGTHS

In addition to its substantial size relative to most of 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
Intersearch Corporation and commissioned by Thomasville, 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 overall consumer awareness, and
Thomasville was rated the number two brand in the industry in terms of
consumer awareness among purchase intenders, second only to Broyhill.

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<PAGE>

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,
stationary and motion/reclining upholstery, occasional table, home
entertainment/home office and rattan/wicker. The acquisition of Thomasville
has strengthened 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 878 galleries dedicated to Broyhill, Lane and Thomasville products,
415 Broyhill Furniture Centers, and 82 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 fully-accessorized product
display 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. In addition, Lane
has teamed up with innovative, widely recognized designers such as Mark
Hampton 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. Management believes that the Company is a leader in
automated furniture manufacturing, although there are no published industry
figures available. 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 began full production in
a state-of-the-art particle board manufacturing facility which will provide
substrate for many new products. Broyhill also recently opened a new
upholstery manufacturing facility in order to keep up with consumer demand for
stylish, affordable upholstery.

EXPERIENCED MANAGEMENT TEAMS. The Company believes that an experienced,
dedicated management team is a critical factor in achieving success. Effective
on October 1, 1996, Mr. Holliman became President and Chief Executive Officer
of the Company. Mr. Holliman was previously the President and Chief Executive
Officer of Action Industries, a subsidiary of the Company, which he founded
over 25 years ago. Since the founding of Action Industries, Mr. Holliman has
built this start-up company into an industry leader, with compound sales and
earnings growth of approximately 20% a year and total sales that approach $400
million annually. In addition, Action Industries has consistently been one of
the most profitable operating units of the Company. The management teams for
each of the operating subsidiaries of the Company also have extensive
experience in the furniture industry. The Chief Executive Officers of
Broyhill, Lane and Thomasville have an average of more than 28 years of
experience with their respective companies.

GROWTH STRATEGY

The Company seeks to grow in both sales and profits and increase its market
share by executing the following strategies:

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<PAGE>

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 is committed
to continue to strengthen its brand names through advertising in various media
including network and cable television and highly read consumer magazines such
as People, Reader's Digest, Sports Illustrated, Architectural Digest, Good
Housekeeping and Better Homes and Gardens among many others, in addition to
its dealer cooperative advertising program.

EXPANDING DEDICATED DISTRIBUTION CHANNELS. The Company has generated
increased sales volume and has strengthened its alliances with key retailers
by distributing its products through independently-owned dedicated retail
outlets, such as galleries, which tend to have higher sales per square foot
and faster inventory turns than non-gallery locations. The Company continues
to expand these distribution channels by attracting additional retailers in
new and existing geographic markets to participate in the Company's gallery
programs. Since the beginning of 1996, the number of dedicated galleries,
furniture centers and stores has increased from 1,265 to 1,375. Furthermore,
the Company intends to expand its current network of 82 free-standing
Thomasville Home Furnishings stores by approximately 25 by the end of 1997.

INCREASING SALES TO NATIONAL AND LARGE REGIONAL RETAILERS. The Company is
well positioned to benefit from the increasing presence of national and large
regional retailers in the residential furniture industry. According to
Furniture/Today, in 1995 the top 10 furniture retailers represented 16% of
total sales versus 10% in 1985. The Company's overall size, breadth of
product, strength of brands and national scope of distribution enable it to
service national retailers, such as J.C. Penney, Sears, Levitz and Heilig-
Meyers, and key regional companies, such as Breuner's, Haverty's and Roberds,
more effectively than the Company's smaller competitors. For example, during
1997 the Company has increased the number of products it offers to J.C. Penney
and is currently in discussion with other major retailers for additional
increases in square footage dedicated to the Company's broad range of
products. Furthermore, the Company's unique competitive position enabled it to
establish an innovative alliance with Carl's Furniture, an independent
retailer based in Florida which has opened a new location dedicated to the
Company's products. The Company intends to pursue similar alliances with other
retailers.

PENETRATING NEW MARKETS. The Company is actively pursuing sales
opportunities in new markets where it seeks to enhance distribution. 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 believes there is substantial opportunity
for growth in the international export market, particularly Canada, Europe,
Japan and the Middle East. Management has implemented a more aggressive
international strategy across all of its operating companies to improve the
sales, marketing and distribution of its products outside the United States.
For the three months ended March 31, 1997, international sales were $17.0
million, an increase of 17.3% versus the comparable period for the prior year.

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 recently introduced two new recliners, an
oversized model for larger customers and a two-piece model with an ottoman
footrest, that it believes will allow it to further increase market share in
this segment. Furthermore, the Company continues to design innovative new
products in other areas, including the growing home office and home
entertainment center markets.

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<PAGE>

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 these programs have contributed to the Company achieving among the
highest EBITDA margins of publicly-owned U.S. residential furniture
manufacturing companies in recent years. For the quarter ended March 31, 1997,
the Company's EBITDA margin increased to 11.2%, as compared to 10.6% for the
prior year comparable period. Management believes opportunities exist to
increase further the EBITDA margins of its operating companies through
implementation of these programs. For example, the Company recently initiated
efforts to realign several manufacturing facilities at Thomasville and Lane to
increase capacity utilization and reduce overall production costs. Management
believes that these actions will result in annual savings of approximately
$3.5 million beginning in 1997.

EXPANDING OPERATING COMPANY COORDINATION. The Company has historically
managed its operating units on a stand-alone basis. Increasingly since the
acquisition of Thomasville and the appointment of Mr. Holliman as President
and Chief Executive Officer, the Company has concentrated on enhancing the
coordination among its operating companies. As a result of this enhanced
coordination, the Company has begun to achieve operating efficiencies and
believes it has the opportunity to further improve operating efficiencies and
results. These opportunities include (i) cost savings generated through volume
purchasing; (ii) reductions in future capital expenditures through better
utilization of existing capacity; (iii) complementary sales and marketing
activities; (iv) joint international sourcing; and (v) shared operating
experience and expertise. The Company has taken actions to capitalize on these
opportunities by moving senior managers among operating companies to encourage
coordination and, in several instances, by shifting manufacturing from one
operating company to another to improve capacity utilization. In addition, by
combining the purchases of various raw materials (such as foam, cartons,
springs and fabric) and services of the operating companies, the Company has
been able to realize cost savings.

THE FURNITURE INDUSTRY

The domestic residential furniture industry had approximately $20 billion in
shipments during 1996 according to the American Furniture Manufacturers
Association (the "AFMA"). According to Furniture/Today, the industry is
comprised of an estimated 600 manufacturers, of which the top 10 accounted for
approximately 38% of industry sales, representing an increase from 23% in
1985. 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 40% of total industry sales and metal and
other products account for the balance.

The domestic residential furniture manufacturing industry in which the
Company operates is affected by the residential furniture retail industry. The
retail furniture industry had approximately $37.5 billion in total revenues in
1995, according to Furniture/Today. The industry has experienced significant
consolidation in the past decade. For example, according to Furniture/Today,
the top 10 furniture retailers in 1995 represented a 16% market share, versus
10% in 1985. Additionally, over the past twelve months, this consolidation of
the retail furniture industry has continued, as evidenced by recently
announced or completed mergers and acquisitions.

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, the direct
display of products to the consumer has become more important to residential
furniture manufacturers. As a result, the "gallery" concept and other
dedicated distribution outlets have become increasingly important to
manufacturers because they have provided them with dedicated retail space and
have historically generated greater sales per square foot than other
distribution outlets. Galleries are large display areas within independently-
owned retail 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 and has complete room settings and fully accessorized
displays that help customers visualize their room. In return for featuring a
manufacturer's

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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 5.9% in 1997.

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 residential 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 believes that it is well positioned to capitalize on these
demographic trends as a result of its broad range of product offerings and
widely-recognized brand names.

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 free standing home
entertainment centers and home office items, (iii) stationary 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 positioning by price and
product category are shown below.

<TABLE>
<CAPTION>
PRICING CATEGORY CASE GOODS OCCASIONAL STATIONARY UPHOLSTERY MOTION/RECLINER
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Premium Thomasville Thomasville Thomasville
Lane Lane
- ----------------------------------------------------------------------------------------
Best Thomasville Thomasville Thomasville Thomasville
Lane Lane Lane Lane
Broyhill
- ----------------------------------------------------------------------------------------
Better Lane Lane Lane Lane
Broyhill Broyhill Broyhill Broyhill
- ----------------------------------------------------------------------------------------
Good Broyhill Broyhill Broyhill
- ----------------------------------------------------------------------------------------
Promotional Founders
- ----------------------------------------------------------------------------------------
RTA CreativeInteriors
</TABLE>

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, free-standing home
entertainment centers and home office products. Upholstered products include
sofas, sleep sofas, loveseats, sectionals, chairs and fully-

27
<PAGE>

reclining upholstery, all offered in a variety of fabrics and/or 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" and "best" price category. In addition, management
believes that the Broyhill Fontana collection has been the best selling
furniture collection for the past three years, although there are no published
industry figures available.

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.

The Company believes that the Lane Division of Lane is the leading
manufacturer of cedar chests in the United States, although there are no
published industry figures available. It also manufactures and sells
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
Raymond Waite, Mark Hampton, Blake Tovin and Sandra Nunnerley. Lane has
introduced two new collections, a new Mark Hampton Collection and the Hearst
Castle Collection. 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, high-leg recliners, sleep
sofas and motion sectionals. Lane's Royal Development Company designs and
manufactures the mechanisms used in Action Industries' reclining furniture
products.

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 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
furniture, including chairs, tables, conference tables, desks and credenzas,
in the upper-medium price range.

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<PAGE>

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 1997, Thomasville has introduced a major
new collection called River Roads, which will begin shipment in 1997.
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 lines are produced in highly
automated facilities. Thomasville's RTA/Promotional division markets products
under the CreativeInteriors and Founders brand names (previously having used
Armstrong) to a variety of retailers for sale to consumer end-users and
certain contract customers.

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,
Levitz and Heilig-Meyers and key regional retailers such as Breuner's,
Haverty's and Roberds. These large retailers are commanding an increasing
presence in the consolidating furniture retailing industry and management
believes that the Company, by virtue of its size, 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 82
free-standing stores, 878 galleries and 415 furniture centers. Since the
beginning of 1996, the number of dedicated galleries, furniture centers and
stores has increased from 1,265 to 1,375. Furthermore, the Company intends to
expand its current network of 82 free-standing Thomasville Home Furnishings
stores by approximately 25 by the end of 1997.

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

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<PAGE>

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 334 participating dealer locations in the United States and eleven
galleries in foreign countries. 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 retailers
by assisting them in overcoming some of the significant difficulties in
running an independent furniture business. 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 three 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 2,500 square feet exclusively to
Broyhill products arranged in fully-accessorized room settings. The Company
seeks to develop relationships with these Broyhill Furniture Center retailers,
which may eventually become participants in the Broyhill Showcase Gallery
Program. This program includes all of the benefits of the Independent Dealer
Program, plus additional marketing, designing and advertising assistance.

THE LANE COMPANY

Lane distributes its products nationally through a well established network
of more than 16,000 retail locations. A diverse distribution network is
utilized in keeping with Lane's strategy of supplying customers with 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 established specialty galleries with 294
participating dealers. This includes 213 Comfort Showcase Galleries
established by Action Industries since October 1995 in connection with a newly
created gallery program. Action Industries anticipates that it will continue
to expand significantly its Comfort Showcase Gallery program. The Action
Industries' galleries average approximately 4,200 square feet of retail space
specifically dedicated to the display, promotion and sale of Action
Industries' products. Lane's other gallery programs call for the display of
Lane wood and upholstered furniture in settings that range from less than
3,000 to approximately 5,000 square feet.

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<PAGE>

THOMASVILLE FURNITURE INDUSTRIES

Thomasville products are offered at approximately 635 independently-owned
retail locations, including 239 Thomasville Galleries, 82 Thomasville Home
Furnishings stores and approximately 310 authorized Thomasville dealers. The
foregoing figures reflect a review and reclassification by Thomasville of its
distribution network that became effective on July 1, 1996. The Thomasville
Gallery concept was initiated in 1983. Thomasville Galleries have 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 and popular magazines such
as Sports Illustrated, People, Reader's Digest, Good Housekeeping and Better
Homes and Gardens. 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 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 Industries
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 recent survey
conducted by Intersearch Corporation for Thomasville found that when consumers
were asked to name a furniture brand, Broyhill had the highest unaided name
recognition of any residential furniture manufacturer (36.1% of the people in
the survey named Broyhill as a furniture brand). In aided name recognition
tests, consumers are given a list of furniture brand names and are asked to
identify the names listed which they recognize. In an unaided name recognition
test, consumers are not provided with a list of names from which to choose and
are asked to name brands with which they are familiar.

Broyhill's current marketing strategy features a national print advertising
program in addition to traditional promotional programs such as furniture
"giveaways" on television game shows 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

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<PAGE>

publications such as Good Housekeeping, Better Homes and Gardens, Country
Living and HOME magazine, 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. An extensive public relations
campaign also exposes Broyhill products in leading magazine and newspaper
editorial features. In addition, Broyhill began a regional television
advertising program in 1997.

THE LANE COMPANY

Management believes that Lane was the first residential furniture
manufacturer to institute a national advertising campaign, although the
Company is not aware of any records documenting this fact. 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. Additionally, Action
Industries is engaged in 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 Raymond Waite, Mark Hampton, Blake Tovin and
Sandra Nunnerley.

In 1996, Action Industries increased its advertising expenditures
significantly and emphasized the use of fully integrated advertising programs.
These campaigns are aimed at the promotion of selected products at coordinated
times through all the various advertising channels employed by Action
Industries, including shelter magazines, popular magazines and television.

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 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. Typically, three to four million 32- to 36-page "magalogs" 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,
although there are no published industry figures available. The Company has
sophisticated and computerized manufacturing facilities that are run by a
well-trained, non-union

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<PAGE>

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 18 finished case goods and upholstery production and
warehouse facilities totaling over 5.0 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. In 1996, Broyhill began full production in
a new, 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. In 1996, Broyhill added a new
upholstery manufacturing facility with approximately $25.0 million of annual
production capacity.

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's Action Industries subsidiary 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.

Thomasville manufactures or assembles its products at 15 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 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.

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<PAGE>

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 in the United States, based on domestic
revenues (excluding estimated revenues of competitors from fabrics and
decorative accessories), will create opportunities for additional cost
savings.

ENVIRONMENTAL MATTERS

The Company is subject to a wide-range of federal, state and local laws and
regulations relating to protection of the environment, worker health and
safety and the emission, discharge, storage, treatment and disposal of
hazardous materials. These laws include the Clean Air Act of 1970, as amended,
the Resource Conservation and Recovery Act, the Federal Water Pollution
Control Act and the Comprehensive Environmental, Response, Compensation and
Liability Act ("Superfund"). Certain of the Company's operations use glues and
coating materials that contain chemicals that are considered hazardous under
various environmental laws. Accordingly, management closely monitors the
Company's environmental performance at all of its facilities. Management
believes that the Company is in substantial compliance with all environmental
laws.

Under the provisions of the Clean Air Act Amendments of 1990 (the "CAA"), in
December 1995, the Environmental Protection Agency (the "EPA") promulgated air
emission standards for the wood furniture industry. These regulations, known
as National Emission Standards for Hazardous Air Pollutants ("NESHAPs"),
govern the levels of emission of certain designated chemicals into the air and
will require that the Company reduce emissions of certain volatile organic
compounds ("VOCs") by November 1997. Management is investigating and
evaluating techniques to meet these standards at all facilities to which the
NESHAPs standards will apply. While the Company may be required to make
capital investments at some of its facilities to ensure compliance, the
Company believes that it will meet all applicable requirements in a timely
fashion and that the amount of money required to meet the NESHAPs requirements
will not materially affect its financial condition or its results of
operations.

The Company has been identified as a potentially responsible party ("PRP")
at a number of Superfund sites. The Company believes that its liability with
respect to most of the sites is de minimis, and the Company is entitled to
indemnification by others with respect to liability at certain sites. The
Company also accrued a reserve for such environmental liabilities in
connection with the acquisition of Thomasville. Management believes that any
liability as a PRP with regard to the Superfund sites will not have a material
adverse effect on the financial condition or results of operations of the
Company.

COMPETITION

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

EMPLOYEES

As of March 31, 1997, the Company employed approximately 20,900 people. None
of the Company's employees is represented by a union.

BACKLOG

The combined backlog of the Company's operating companies as of March 31,
1997 aggregated approximately $177.9 million, compared to approximately $187.6
million as of March 31, 1996. The modest decline in backlog was due to the
strong shipping activity in the quarter ended March 31, 1997, as well as a
concerted effort to reduce lead times to improve customer service.

34
<PAGE>

MANAGEMENT

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

<TABLE>
<CAPTION>
NAME AGE POSITION AND PRINCIPAL OCCUPATION
---- --- ---------------------------------
<S> <C> <C>
Richard B. Loynd........ 69 Chairman of the Board of the Company
Wilbert G. Holliman, 59 President, Chief Executive Officer and Director of the
Jr..................... Company
Brent B. Kincaid........ 66 President and Chief Executive Officer of Broyhill
K. Scott Tyler, Jr...... 57 President and Chief Executive Officer of Lane
John T. Foy............. 49 President and Chief Executive Officer of Action Industries
Frederick B. Starr...... 63 President and Chief Executive Officer of Thomasville
David P. Howard......... 46 Vice-President, Chief Financial Officer and Treasurer of the
Company
Lynn Chipperfield....... 45 Vice-President, General Counsel and Secretary of the Company
Steven W. Alstadt....... 43 Controller and Chief Accounting Officer of the Company
Leon D. Black........... 45 Director of the Company; Officer and director of Apollo
Capital Management, Inc. and Lion Capital Management, Inc.
Michael S. Gross........ 35 Director of the Company; Officer of Apollo Capital
Management, Inc. and Lion Capital Management, Inc.
John J. Hannan.......... 44 Director of the Company; Officer and director of Apollo
Capital Management, Inc. and Lion Capital Management, Inc.
Joshua J. Harris........ 32 Director of the Company; Officer of Apollo Capital
Management, Inc. and Lion Capital Management, Inc.
Bruce A. Karsh.......... 41 Director of the Company; President of Oaktree Capital
Management, LLC
John H. Kissick......... 55 Director of the Company; Officer of Lion Capital Management,
Inc. and advisor to Apollo Capital Management, Inc.
Donald E. Lasater....... 71 Director of the Company; Retired, formerly Chairman and Chief
Executive Officer of Mercantile Bancorporation, Inc.
Lee M. Liberman......... 75 Director of the Company; Retired, formerly Chairman and Chief
Executive Officer of Laclede Gas Company
Marc J. Rowan........... 34 Director of the Company; Officer of Apollo Capital
Management, Inc. and Lion Capital Management, Inc.
John J. Ryan III........ 69 Director of the Company; Director of Artemis S.A. and
Financiere Pinault S.A.
Michael D. Weiner....... 44 Director of the Company; Officer of Apollo Capital
Management, Inc. and Lion Capital Management, Inc.
</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 37.6% of the outstanding Common Stock
of the Company. See "Selling Stockholders and Company Repurchase" 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, together with an
affiliate, Apollo Investment Fund III, L.P., each a private securities
investment fund. Lion acts as financial advisor to and representative of
certain institutional investors with respect to securities investments. After
the Offerings and the Company Repurchase, Messrs. Black, Gross, Hannan,
Harris, Kissick, Rowan, Ryan and Weiner will resign from the Board of
Directors. Although no persons have been nominated to replace these directors,
the Board of Directors intends to appoint four directors to fill board
positions left vacant upon the resignation of the foregoing directors.

MR. LOYND was the President and Chief Executive Officer of the Company until
he was succeeded by Mr. Holliman on October 1, 1996. Mr. Loynd was originally
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 and 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 Co., Converse Inc. and Florsheim
Group Inc.

35
<PAGE>

MR. HOLLIMAN became President and Chief Executive Officer of the Company on
October 1, 1996. Previously, Mr. Holliman was employed by Action Industries
for more than 25 years, having been one of the founders of that company in
1970. He was Executive Vice President of Action Industries until January 1989,
when he became President and Chief Operating Officer. Mr. Holliman
subsequently became President and Chief Executive Officer commencing in 1993.

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. FOY was named President and Chief Executive Officer of Action in 1996.
Mr. Foy was previously Executive Vice President for Sales and Marketing and
has been with Action for eleven years.

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.

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, appointed Chief Financial Officer in July 1994 and elected Treasurer in
May 1996.

MR. CHIPPERFIELD has served as General Counsel of the Company since January
1993, and as Vice-President and Secretary of the Company since January 1996.
From 1986 to 1993, Mr. Chipperfield served as Assistant General Counsel of the
Company.

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 (the "Consulting Agreement")
with Apollo Advisors, L.P., an affiliate of the Selling Stockholders, pursuant
to which Apollo Advisors, L.P. 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 currently expiring on December 31, 1997 and
is automatically renewable for successive one-year terms unless terminated by
independent members of the Board of Directors. The Consulting Agreement will
terminate upon consummation of the Offerings. Apollo and Lion will continue to
have registration rights with respect to shares of Common Stock which will be
owned by them after the Offerings until such time as the shares can be sold
without restrictions. The Company is also a party to a Stock Purchase and
Secondary Offering Agreement with the Selling Stockholders (the "Stock
Purchase and Secondary Offering Agreement"). See "Selling Stockholders and
Company Repurchase."

SELLING STOCKHOLDERS AND COMPANY REPURCHASE

This Prospectus relates to 11,000,000 shares of Common Stock which are being
offered by the Selling Stockholders. This Prospectus also relates to an
additional 1,100,000 shares of Common Stock which may be offered by the
Selling Stockholders solely to cover over-allotments. One-half of the shares
being offered hereby will be sold by Apollo and one-half will be sold by Lion.

The Company has entered into the Stock Purchase and Secondary Offering
Agreement pursuant to which the Company has agreed to repurchase (i) an
aggregate of 10,842,299 shares of its Common Stock and (ii) warrants to
purchase 290,821 shares of Common Stock from the Selling Stockholders
concurrently with the consummation

36
<PAGE>

of the Offerings. The purchase price for the 10,842,299 shares of Common Stock
will be $15.50 per share, and the purchase price for the warrants will be
$8.37 per warrant (representing $15.50 per share less the $7.13 per share
warrant exercise price). The Company intends to finance the Company Repurchase
through the New Term Loan. Upon consummation of the Offerings and the Company
Repurchase, assuming that the Underwriters exercise their over-allotment
option in full, the Selling Stockholders will not own any shares of the
Company. If, however, the Underwriters do not exercise all or a portion of
their over-allotment option, the Selling Stockholders will beneficially own up
to an aggregate of 1,100,000 shares of Common Stock after the Offerings. The
consummation of each of (i) the Offerings and (ii) the Company Repurchase is
contingent upon the consummation of the other and the closing of the New Term
Loan. The Selling Stockholders have the right to terminate the Company
Repurchase under certain circumstances, including if the anticipated purchase
price of the Offerings is unacceptable or if the closing of the Company
Repurchase has not occurred by August 30, 1997. Pursuant to the Stock Purchase
and Secondary Offering Agreement, neither the Selling Stockholders nor any of
their affiliates may, at any time prior to May 27, 1999, (i) directly or
indirectly acquire or agree to acquire ownership of the Company's securities,
(ii) sell or otherwise transfer any shares of the Company's Common Stock,
(iii) solicit proxies to vote, participate in any election contest or solicit
the approval of any stockholder proposal, (iv) join in a voting group
regarding the Company's securities, (v) deposit its Company securities in a
voting trust or similar arrangement or (vi) seek to influence or control the
Company.

Pursuant to a Registration Rights Agreement dated August 3, 1992, the
Company has agreed to pay the expenses of the Offerings incurred by the
Company (other than underwriting discounts and commissions). The Selling
Stockholders and the Company have each agreed to indemnify the other against
certain liabilities which may arise from the Offerings.

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 March 31, 1997 there were 61,467,066 shares of Common Stock
outstanding held of record by approximately 3,000 persons, 3,840,557 shares of
Common Stock reserved for issuance upon the exercise of outstanding stock
options having an average exercise price of $6.72 per share and 1,677,415
shares of Common Stock reserved for issuance upon the exercise of outstanding
warrants at an exercise price of $7.13 per share. All of the outstanding
shares of Common Stock, including the shares of Common Stock to be sold in the
Offerings by the Selling Stockholders, are fully paid and non-assessable. No
shares of Preferred Stock have been issued by the Company, and the Company has
no current plans to issue any Preferred Stock.

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.

37
<PAGE>

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 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

38
<PAGE>

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 Agent and Registrar for the Common Stock is The Bank of New
York.

CERTAIN U.S. TAX CONSEQUENCES TO NON-U.S. STOCKHOLDERS

The following is a general discussion of the material Federal income and
estate tax consequences of the ownership and disposition of a share of Common
Stock by beneficial owner of such shares that is not a U.S. person for U.S.
Federal income tax purposes (a "non-U.S. holder"). For purposes of this
discussion, a "U.S. person" means a citizen or resident of the United States,
a corporation or partnership created or organized in the United States or
under the laws of the United States or of any State or political subdivision
of the foregoing, or any estate or trust whose income is includible in gross
income for U.S. Federal income tax purposes regardless of its source. The
discussion does not address all aspects of Federal income and estate taxation
nor any aspects of state, local, or foreign tax laws. The discussion does not
consider any specific facts or circumstances that may apply to particular non-
U.S. holders (including insurance companies, tax-exempt organizations,
financial institutions, broker dealers or certain U.S. expatriates).
Furthermore, the following discussion is based on current provisions of the
Code, the regulations promulgated thereunder and administrative and judicial
interpretations as of the date hereof, all of which are subject to change,
possibly with retroactive effect. Treasury regulations were recently proposed
that would, if adopted in their present form, revise in certain respects the
rules applicable to non-U.S. holders of Common Stock (the "Proposed
Regulations"). The Proposed Regulations are generally proposed to be effective
with respect to payments made after December 31, 1997. It is not certain
whether, or in what form, the Proposed Regulations will be adopted as final
regulations. Each prospective investor is urged to consult its own tax adviser
as to its personal tax situation with respect to the U.S. Federal, state and
local consequences of owning and disposing of a share of Common Stock, as well
as any tax consequences arising under the laws of any other taxing
jurisdiction.

U.S. INCOME TAX CONSEQUENCES

It is not currently contemplated that the Company will pay dividends on the
Common Stock in the foreseeable future. If the Company were to pay a dividend
in the future, such a dividend paid to a non-U.S.

39
<PAGE>

holder would be subject to U.S. withholding tax at a 30% rate, or if
applicable, a lower treaty rate, unless the dividend is effectively connected
with the conduct of a trade or business in the United States by a non-U.S.
holder (and, if certain tax treaties apply, is attributable to a United States
permanent establishment maintained by such non-U.S. holder). A dividend that
is effectively connected with the conduct of a trade or business in the United
States by the non-U.S. holder (and, if certain tax treaties apply, is
attributable to a United States permanent establishment maintained by such
non-U.S. holder) will generally be exempt from the withholding tax described
above and subject instead (i) to the U.S. Federal income tax on net income
that applies to U.S. persons and (ii) with respect to corporate holders under
certain circumstances, a 30% (or, if applicable, lower treaty rate) branch
profits tax that in general is imposed on its "effectively connected earnings
and profits" (within the meaning of the Code) for the taxable year, as
adjusted for certain items.

Under current Treasury Regulations, dividends paid to an address in a
foreign country are presumed to be paid to a resident of that country (unless
the payor has knowledge to the contrary) for purposes of the withholding
discussed above and, under the current interpretation of the Treasury
Regulations, for purposes of determining the applicability of a tax treaty
rate. Under the Proposed Regulations, however, a non-U.S. holder of Common
Stock who wishes to claim the benefit of an applicable treaty rate would be
required to satisfy applicable certification and other requirements. In the
case of a foreign partnership, the certification requirement would generally
be applied to the partners of the partnership. In addition, the Proposed
Regulations also would require the partnership to provide certain information,
including a United States taxpayer identification number, and would provide
look-through rules for tiered partnerships. A non-U.S. holder that is eligible
for a reduced rate of U.S. withholding tax pursuant to an income tax treaty
may obtain a refund of any excess amounts withheld by filing an appropriate
claim for refund with the Internal Revenue Service (the "IRS").

Under current law, a non-U.S. holder generally will not be subject to U.S.
Federal income tax on any gain recognized on a sale or other disposition of a
share of Common Stock unless (i) the gain is effectively connected with the
conduct of a trade or a business within the United States of the non-U.S.
holder and, if certain tax treaties apply, is attributable to a United States
permanent establishment maintained by the non-U.S. holder, (ii) the gain is
not described in clause (i) above, the non-U.S. holder is an individual who
holds the share as a capital asset, is present in the United States for 183
days or more in the taxable year of the disposition and either (a) such
individual has a "tax home" (as defined for U.S. Federal income tax purposes)
in the United States or (b) the gain is attributable to an office or other
fixed place of business maintained in the United States by such individual, or
(iii) the Company is or has been a United States real property holding
corporation (a "USRPHC") for United States federal income tax purposes (which
the Company does not believe that it is or is likely to become) at any time
within the shorter of the five year period preceding such disposition or such
non-U.S. holder's holding period. If the Company were to become a USRPHC,
gains realized upon a disposition of Common Stock by a non-U.S. holder which
did not directly or indirectly own more than 5% of the Common Stock during the
shorter of the periods described above generally would not be subject to
United States federal income tax, provided that the Common Stock is "regularly
traded" on an established securities market. In case of a non-U.S. holder that
is described under clause (i) above, its gain will be subject to the U.S.
Federal income tax on net income that applies to U.S. persons and, in
addition, if such non-U.S. holder is a foreign corporation, it may be subject
to the branch profits tax as described in the preceding paragraph. An
individual non-U.S. holder that is described under clause (ii) above will be
subject to a flat 30% tax on the gain derived from the sale, which may be
offset by certain U.S. capital losses (notwithstanding the fact that he or she
is not considered a resident of the United States). Thus, individual non-U.S.
holders who have spent 183 days or more in the United States in the taxable
year in which they contemplate a sale of the Common Stock are urged to consult
their tax advisers as to the tax consequences of such sale.

U.S. ESTATE TAX CONSEQUENCES

Shares of Common Stock owned at the time of his or her death by an
individual non-U.S. holder will be includible in his or her gross estate for
U.S. Federal estate tax purposes unless an applicable estate tax treaty
provides otherwise, and may be subject to U.S. Federal estate tax.

40
<PAGE>

BACK-UP WITHHOLDING AND INFORMATION REPORTING

Dividends

Except as provided below, the Company must report annually to the IRS and to
each non-U.S. holder the amount of dividends paid to and the tax withheld with
respect to such holder. These information reporting requirements apply
regardless of whether withholding was reduced or eliminated by an applicable
tax treaty. Copies of these information returns may also be available under
the provisions of a specific treaty or agreement with the tax authorities in
the country in which the non-U.S. holder resides. In general, backup
withholding at a rate of 31% and additional information reporting will apply
to dividends paid on shares of Common Stock to holders that are not "exempt
recipients" and that fail to provide in the manner required certain
identifying information (such as the holder's name, address and taxpayer
identification number). Generally, individuals are not exempt recipients,
whereas corporations and certain other entities generally are exempt
recipients. However, dividends that are subject to U.S. withholding tax at the
30% statutory rate or at a reduced tax treaty rate are exempt from backup
withholding of U.S. Federal income tax and such additional information
reporting.

Broker Sales

If a non-U.S. holder sells shares of Common Stock through a U.S. office of a
U.S. or foreign broker, the broker is required to file an information return
and is required to withhold 31% of the sale proceeds unless the non-U.S.
holder is an exempt recipient or has provided the broker with the information
and statements, under penalties of perjury, necessary to establish an
exemption from backup withholding. If payment of the proceeds of the sale of a
share by a non-U.S. holder is made to or through the foreign office of a
broker, that broker will not be required to backup withhold or, except as
provided in the next sentence, to file information returns. In the case of
proceeds from a sale of a share by a non-U.S. holder paid to or through the
foreign office of a U.S. broker or a foreign office of a foreign broker that
is (i) a controlled foreign corporation for U.S. tax purposes or (ii) a person
50% or more of whose gross income for the three-year period ending with the
close of the taxable year preceding the year of payment (or for the part of
that period that the broker has been in existence) is effectively connected
with the conduct of a trade or business within the United States (a "Foreign
U.S. Connected Broker"), information reporting is required unless the broker
has documentary evidence in its files that the payee is not a U.S. person and
certain other conditions are met, or the payee otherwise establishes an
exemption.

Refunds

Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. holder may be refunded or credited against the non-U.S. holder's U.S.
Federal income tax liability, provided that the required information is
furnished to the IRS.

41
<PAGE>

UNDERWRITING

Upon the terms and subject to the conditions stated in the U.S. Underwriting
Agreement dated the date hereof (the "U.S. Underwriting Agreement"), each of
the underwriters of the U.S. Offering named below (the "U.S. Underwriters"),
for whom Smith Barney Inc., Credit Suisse First Boston Corporation, Dillon,
Read & Co. Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon
Brothers Inc and Wheat, First Securities, Inc. are acting as the
representatives (the "Representatives"), has severally agreed to purchase from
the Selling Stockholders the number of shares of Common Stock set forth
opposite the name of such U.S. Underwriter below.

<TABLE>
<CAPTION>
U.S. UNDERWRITERS NUMBER OF SHARES
----------------- ----------------
<S> <C>
Smith Barney Inc. .......................................... 1,466,700
Credit Suisse First Boston Corporation...................... 1,466,660
Dillon, Read & Co. Inc. .................................... 1,466,660
Merrill Lynch, Pierce, Fenner & Smith
Incorporated........................................... 1,466,660
Salomon Brothers Inc........................................ 1,466,660
Wheat, First Securities, Inc. .............................. 1,466,660
---------
Total..................................................... 8,800,000
=========
</TABLE>

Under the terms and subject to the conditions contained in the International
Underwriting Agreement dated the date hereof (the "International Underwriting
Agreement"), each of the managers of the concurrent International Offering
named below (the "Managers"), for whom Smith Barney Inc., Credit Suisse First
Boston (Europe) Limited, Dillon, Read & Co. Inc., Merrill Lynch International,
Salomon Brothers International Limited and Wheat, First Securities, Inc. are
acting as lead managers (the "Lead Managers"), has severally agreed to
purchase from the Selling Stockholders the numbers of shares of Common Stock
set forth opposite the name of such Manager below.

<TABLE>
<CAPTION>
MANAGERS NUMBER OF SHARES
-------- ----------------
<S> <C>
Smith Barney Inc. .......................................... 366,670
Credit Suisse First Boston (Europe) Limited................. 366,666
Dillon, Read & Co. Inc ..................................... 366,666
Merrill Lynch International................................. 366,666
Salomon Brothers International Limited...................... 366,666
Wheat, First Securities, Inc. .............................. 366,666
---------
Total..................................................... 2,200,000
=========
</TABLE>

Each of the U.S. Underwriting Agreement and the International Underwriting
Agreement provides that the obligations of the several U.S. Underwriters and
the several Managers to pay for and accept delivery of the shares of Common
Stock offered hereby are subject to the approval of certain legal matters by
counsel and to certain other conditions. The U.S. Underwriters and the
Managers 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 U.S. Underwriters and the Managers (collectively, the "Underwriters")
initially propose to offer part of the shares offered hereby directly to the
public at the public offering price set forth on the cover page of this
Prospectus and part of the shares offered hereby to certain dealers at a price
which represents a concession not in excess of $0.41 per share under the price
to public. The U.S. Underwriters and the Managers may allow, and such dealers
may reallow, a concession not in excess of $0.10 per share to other U.S.
Underwriters or Managers, respectively, or to certain other dealers.

42
<PAGE>

The Selling Stockholders have granted the U.S. Underwriters an option,
exercisable at any time and from time to time during a 30-day period from the
date of this Prospectus, to purchase up to an aggregate of 1,100,000
additional shares of Common Stock at the public offering price set forth on
the cover page hereof less underwriting commissions. The U.S. Underwriters may
exercise such option to purchase additional shares solely for the purpose of
covering over-allotments, if any, incurred in connection with the sales of the
shares of Common Stock offered hereby. To the extent such option is exercised,
each U.S. 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 U.S. Underwriter's name in the
preceding U.S. Underwriters table bears to the total number of shares of
Common Stock offered by the U.S. Underwriters hereby.

The Company, certain of its officers and directors and the Selling
Stockholders have agreed that, for a period of 90 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, or grant any options or
warrants to purchase Common Stock, except in certain circumstances, other than
shares included in the Company Repurchase. See "Selling Stockholders and
Company Repurchase."

The U.S. Underwriters and the Managers have entered into an Agreement
between U.S. Underwriters and Managers pursuant to which each U.S. Underwriter
has agreed that as part of the distribution of the shares offered in the U.S.
Offering (i) it is not purchasing any such shares for the account of anyone
other than a U.S. or Canadian Person, and (ii) it has not offered or sold, and
will not offer, sell, resell or deliver, directly or indirectly, any of such
shares or distribute any prospectus relating to the U.S. Offering outside the
United States or Canada or to anyone other than a U.S. or Canadian Person. In
addition, each Manager has agreed that as part of the distribution of the
shares offered in the International Offering: (i) it is not purchasing any
such shares for the account of any U.S. or Canadian Person, and (ii) it has
not offered or sold, and will not offer, sell, resell or deliver, directly or
indirectly, any of such shares or distribute any prospectus relating to the
International Offering in the United States or Canada or to any U.S. or
Canadian Person. Each Manager has also agreed that it will offer to sell
shares only in compliance with all relevant requirements of any applicable
laws.

The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the U.S. Underwriting Agreement, the
International Underwriting Agreement and the Agreement Between U.S.
Underwriters and Managers, including (i) certain purchases and sales between
the U.S. Underwriters and Managers, (ii) certain offers, sales, resales,
deliveries or distributions to or through investment advisors or other persons
exercising investment discretion, (iii) purchases, offers or sales by a U.S.
Underwriter who is also acting as a Manager or by a Manager who is also acting
as a U.S. Underwriter, and (iv) other transactions specifically approved by
the Representatives and the Lead Managers. As used herein, "U.S. or Canadian
Person" means any resident or national of the United States or Canada, any
corporation, partnership or other entity created or organized in or under the
laws of the United States or Canada or any estate or trust the income of which
is subject to U.S. or Canadian income taxation regardless of the source of its
income (other than the foreign branch of any U.S. or Canadian Person), and
includes any U.S. or Canadian branch of a person other than a U.S. or Canadian
Person.

Any offer of shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the relevant province of Canada
in which such offer is made.

Each Manager has represented and agreed that (i) it has not offered or sold
and will not offer or sell in the United Kingdom, by means of any document,
any shares other than to persons whose ordinary business it is to buy or sell
shares or debentures, whether as principal or agent or in circumstances which
do not constitute an offer to the public within the meaning of the Public
Offering of Securities Regulation 1995, (ii) it has complied and will comply
with all applicable provisions of the Financial Services Act 1986 with respect
to anything done by it in relation to the shares in, from, or otherwise
involving, the United Kingdom, and (iii) it has only issued or passed on and
will only issue or pass on to any person in the United Kingdom any document
received by it in

43
<PAGE>

connection with the issue of the shares if that person is of a kind described
in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom the document
may otherwise lawfully be issued or passed on.

No action has been or will be taken in any jurisdiction by the Company, the
U.S. Underwriters or the Managers that would permit any offering to the
general public of the Common Stock offered hereby in any jurisdiction other
than the United States.

Purchasers of the Common Stock offered hereby may be required to pay stamp
taxes and other charges in accordance with the laws and practices of the
country of purchase in addition to the offering price set forth on the cover
page hereof.

Pursuant to the Agreement Between U.S. Underwriters and Managers, sales may
be made between the U.S. Underwriters and the Managers of such number of
shares of Common Stock as may be mutually agreed. The price of shares so sold
shall be the public offering price as then in effect for Common Stock being
sold by the U.S. Underwriters and the Managers, less all or any part of the
selling concession, unless otherwise determined by mutual agreement. To the
extent that there are sales between the U.S. Underwriters and Managers
pursuant to the Agreement Between U.S. Underwriters and Managers, the number
of shares initially available for sale by the U.S. Underwriters and by the
Managers may be more or less than the number of shares appearing on the front
cover of this Prospectus.

In connection with the Offerings and in compliance with applicable law, the
Underwriters may overallot (i.e., sell more Common Stock than the total amount
shown on the list of Underwriters and participations which appears above) and
may effect transactions which stabilize, maintain or otherwise affect the
market price of the Common Stock at levels above those which might otherwise
prevail in the open market. Such transactions may include placing bids for the
Common Stock or effecting purchases of the Common Stock for the purpose of
pegging, fixing or maintaining the price of the Common Stock or for the
purpose of reducing a syndicate short position created in connection with the
Offerings. A syndicate short position may be covered by exercise of the option
described above in lieu of or in addition to open market purchases. In
addition, the contractual arrangements among the Underwriters include a
provision whereby, if the Representatives or Lead Managers purchase Common
Stock in the open market for the account of the underwriting syndicate and the
securities purchased can be traced to a particular U.S. Underwriter, Manager
or syndicate member, the underwriting syndicate may require the U.S.
Underwriter, Manager or syndicate member in question to purchase the Common
Stock in question at the cost price to the syndicate or may recover from (or
decline to pay to) the U.S. Underwriter, Manager or syndicate member in
question the selling concession applicable to the securities in question. The
Underwriters are not required to engage in any of these activities and any
such activities, if commenced, may be discontinued at any time.

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

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

44
<PAGE>

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 Selling Stockholders by Wachtell,
Lipton, Rosen & Katz, New York, New York, and for the Underwriters by Cravath,
Swaine & Moore, New York, New York.

EXPERTS

The consolidated financial statements and financial statement schedule of
the Company and subsidiaries as of December 31, 1996 and 1995, and for each of
the years in the three-year period ended December 31, 1996, have been included
and incorporated by reference herein and in the registration statement in
reliance upon the reports 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.

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 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. Such material may also be accessed
electronically by means of the Commission's home page on the Internet
(http://www.sec.gov).

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, 1996;

(2) Quarterly report on Form 10-Q for the quarter ended March 31, 1997;

(3) Current Report on Form 8-K filed on May 29, 1997; and

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

45
<PAGE>

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 and prior
to the termination of the Offering 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
Furniture Brands International, Inc., 101 South Hanley Road, St. Louis,
Missouri 63105-3493, Attention: Secretary (telephone number (314) 863-1100).

46
<PAGE>

FURNITURE BRANDS INTERNATIONAL, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996............. F-3
Consolidated Statements of Operations for the Years Ended December 31,
1994, 1995 and 1996..................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31,
1994, 1995 and 1996..................................................... F-5
Consolidated Statement of Shareholders' Equity for the Years Ended Decem-
ber 31, 1994, 1995 and 1996............................................. F-6
Notes to Consolidated Financial Statements............................... F-7
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of March 31, 1997.......................... F-19
Consolidated Statements of Operations for the Three Months Ended March
31, 1996 and
March 31, 1997.......................................................... F-20
Consolidated Statements of Cash Flows for the Three Months Ended March
31, 1996 and
March 31, 1997.......................................................... F-21
Notes to Consolidated Financial Statements............................... F-22
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Furniture Brands International, Inc.:

We have audited the accompanying consolidated balance sheets of Furniture
Brands International, Inc. and subsidiaries (the "Company") as of December 31,
1995 and 1996, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1996. 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 Furniture
Brands International, Inc. and subsidiaries as of December 31, 1995 and 1996,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.

KPMG Peat Marwick LLP

St. Louis, Missouri
January 28, 1997

F-2
<PAGE>

FURNITURE BRANDS INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 26,412 $ 19,365
Receivables, less allowances of $20,724 and $19,124
at December 31, 1995 and 1996 (Note 8)............ 276,116 283,417
Inventories (Note 6)............................... 269,677 281,107
Prepaid expenses and other current assets.......... 17,888 23,378
---------- ----------
Total current assets........................... 590,093 607,267
Property, plant and equipment:
Land............................................... 16,635 16,292
Buildings and improvements......................... 166,214 172,783
Machinery and equipment............................ 206,580 236,654
---------- ----------
389,429 425,729
Less accumulated depreciation...................... 83,023 123,767
---------- ----------
Net property, plant and equipment.............. 306,406 301,962
Intangible assets (Note 7)........................... 370,307 344,101
Other assets......................................... 24,933 15,874
---------- ----------
$1,291,739 $1,269,204
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (Note 8)...... $ 18,639 $ --
Accounts payable................................... 53,093 61,095
Accrued employee compensation...................... 29,020 29,864
Accrued interest expense........................... 1,304 6,579
Other accrued expenses............................. 33,001 47,068
---------- ----------
Total current liabilities...................... 135,057 144,606
Long-term debt, less current maturities (Note 8)..... 705,040 572,600
Other long-term liabilities.......................... 150,486 132,341
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 (no par value)--issued 50,120,079
shares and 61,432,181 shares at December 31, 1995
and 1996 (Note 9)................................. 50,120 61,432
Paid-in capital.................................... 218,156 278,554
Retained earnings.................................. 32,880 79,671
---------- ----------
Total shareholders' equity..................... 301,156 419,657
---------- ----------
$1,291,739 $1,269,204
========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE>

FURNITURE BRANDS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1994 1995 1996
--------------- --------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales................... $ 1,072,696 $ 1,073,889 $ 1,696,795
Costs and expenses:
Cost of operations........ 752,528 760,393 1,228,355
Selling, general and
administrative expenses.. 199,333 198,321 283,432
Depreciation and
amortization (includes
$16,900, $15,922 and
$16,285 related to fair
value adjustments)....... 35,776 36,104 54,082
--------------- --------------- ---------------
Earnings from operations.... 85,059 79,071 130,926
Interest expense............ 37,886 33,845 45,217
Other income, net:
Gain on insurance
settlement (Note 14)..... -- 7,882 --
Other..................... 1,668 3,930 2,583
--------------- --------------- ---------------
Earnings before income tax
expense, discontinued
operations and
extraordinary item......... 48,841 57,038 88,292
Income tax expense (Note
10)........................ 20,908 22,815 34,070
--------------- --------------- ---------------
Net earnings from continuing
operations................. 27,933 34,223 54,222
Discontinued operations
(Note 4):
Earnings from operations,
net of taxes............. 25,443 -- --
Loss on distribution, net
of taxes................. (15,104) -- --
--------------- --------------- ---------------
Net earnings before
extraordinary item......... 38,272 34,223 54,222
Extraordinary item--early
extinguishment of debt, net
of tax benefit (Note 5).... -- (5,815) (7,417)
--------------- --------------- ---------------
Net earnings................ $ 38,272 $ 28,408 $ 46,805
=============== =============== ===============
Net earnings per common
share--primary (Note 3):
Net earnings from
continuing operations.... $ 0.54 $ 0.67 $ 0.88
Discontinued operations... 0.20 -- --
Extraordinary item--early
extinguishment of debt... -- (0.11) (0.12)
--------------- --------------- ---------------
Net earnings per common
share--primary............. $ 0.74 $ 0.56 $ 0.76
=============== =============== ===============
Net earnings per common
share--fully diluted (Note
3):
Net earnings from
continuing operations.... $ 0.54 $ 0.65 $ 0.86
Discontinued operations... 0.20 -- --
Extraordinary item--early
extinguishment of debt... -- (0.11) (0.12)
--------------- --------------- ---------------
Net earnings per common
share--fully diluted....... $ 0.74 $ 0.54 $ 0.74
=============== =============== ===============
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE>

FURNITURE BRANDS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1995 1996
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net earnings.................................... $ 38,272 $ 28,408 $ 46,805
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Net loss on early extinguishment of debt....... -- 5,815 7,417
Net earnings from discontinued operations...... (10,339) -- --
Depreciation of property, plant and equipment.. 25,675 26,371 42,022
Amortization of intangible and other assets.... 10,101 9,733 12,060
Noncash interest and other expense............. 196 2,150 2,042
(Increase) decrease in receivables............. (27,979) 165 (7,301)
(Increase) decrease in inventories............. (20,553) 3,340 (11,430)
Decrease in prepaid expenses and other assets.. 2,648 1,179 13,695
Increase (decrease) in accounts payable,
accrued interest expense and other accrued
expenses...................................... (1,233) 14,794 33,710
Increase (decrease) in net deferred tax
liabilities................................... 7,904 (211) (7,972)
Increase (decrease) in other long-term
liabilities................................... (2,676) 246 (15,628)
-------- -------- --------
Net cash provided by continuing operations...... 22,016 91,990 115,420
Net cash used by discontinued operations........ (16,695) -- --
-------- -------- --------
Net cash provided by operating activities....... 5,321 91,990 115,420
-------- -------- --------
Cash Flows from Investing Activities:
Acquisition of business (Note 2)................ -- (335,438) --
Proceeds from the disposal of assets............ 5,621 519 2,766
Additions to property, plant and equipment...... (21,108) (35,616) (40,344)
-------- -------- --------
Net cash used by investing activities........... (15,487) (370,535) (37,578)
-------- -------- --------
Cash Flows from Financing Activities:
Payments for debt issuance costs................ (11,455) (14,026) (4,467)
Additions to long-term debt..................... 423,000 576,000 380,000
Payments of long-term debt...................... (404,741) (286,574) (530,279)
Proceeds from the sale of common stock.......... -- -- 81,292
Proceeds from the issuance of common stock...... 698 201 9,290
Payments for the repurchase of common stock
warrants....................................... -- (2,789) (19,961)
Payments for common stock offering expenses of
selling shareholders........................... -- -- (764)
-------- -------- --------
Net cash provided (used) by financing
activities..................................... 7,502 272,812 (84,889)
-------- -------- --------
Net decrease in cash and cash equivalents....... (2,664) (5,733) (7,047)
Cash and cash equivalents at beginning of
period......................................... 34,809 32,145 26,412
-------- -------- --------
Cash and cash equivalents at end of period...... $ 32,145 $ 26,412 $ 19,365
======== ======== ========
Supplemental Disclosure:
Cash payments for income taxes, net............ $ 37,127 $ 14,386 $ 33,126
======== ======== ========
Cash payments for interest..................... $ 39,345 $ 32,010 $ 37,960
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE>

FURNITURE BRANDS INTERNATIONAL, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
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 9)......... 71 615 686
Warrant exercises--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
Net earnings.............................. 28,408 28,408
Common stock activity:
Stock option exercises (Note 9)......... 43 153 196
Warrant exercises--564 shares........... 1 4 5
Warrant purchases--1,489,422 shares..... (2,789) (2,789)
Foreign currency translations............. (58) (58)
------- -------- ------- --------
Balance December 31, 1995................. 50,120 218,156 32,880 301,156
Net earnings.............................. 46,805 46,805
Common stock activity:
Sale of common stock--10,000,000
shares................................. 10,000 71,292 81,292
Stock option grants and exercises (Note
9)..................................... 85 2,309 2,394
Warrant exercises--1,227,052 shares..... 1,227 7,522 8,749
Warrant purchases--3,578,399 shares..... (19,961) (19,961)
Common stock offering expenses of
selling shareholders................... (764) (764)
Foreign currency translations............. (14) (14)
------- -------- ------- --------
Balance December 31, 1996................. $61,432 $278,554 $79,671 $419,657
======= ======== ======= ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE>

FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1. THE COMPANY

Furniture Brands International, Inc. (the "Company") is a major manufacturer
of residential furniture. During the year ended December 31, 1996, the Company
had three primary operating subsidiaries, Broyhill Furniture Industries, Inc.;
The Lane Company, Incorporated, and Thomasville Furniture Industries, Inc.

Substantially all of the Company's sales are made to unaffiliated furniture
retailers. 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.

2. ACQUISITION OF BUSINESS

On December 29, 1995, the Company acquired all of the outstanding stock of
Thomasville Furniture Industries, Inc. The purchase price totaled $331,200
plus the assumption of $8,000 of long-term debt. The purchase price, including
capitalized expenses which approximated $4,200, was paid in cash. The
transaction was accounted for as a purchase and, since the acquisition
occurred as of the last business day of 1995, was reflected in the Company's
consolidated balance sheet as of December 31, 1995. The Company's results of
operations for 1995 do not include any of the operations of Thomasville. The
total acquisition cost exceeded the estimated fair value of the net assets
acquired by $93,110 with such amount being recorded as an intangible asset.
The determination of the final fair values of assets and liabilities resulted
in adjustments consisting of changes from initially recorded values as of
December 31, 1995 resulting in decreases in receivables, inventories, excess
of cost over net assets acquired and other noncurrent liabilities of $3,350,
$2,236, $12,654 and $16,641, respectively. Adjustments to other balance sheet
accounts were individually immaterial.

The following unaudited summary, prepared on a pro forma basis, combines the
consolidated results of operations of the Company for 1994 and 1995 with those
of Thomasville as if the transaction occurred at the beginning of each year
presented.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995
----------- -----------
<S> <C> <C>
Net sales........................................... $ 1,599,339 $ 1,624,116
Net earnings from continuing operations............. 30,963 37,422
Net earnings........................................ 41,302 31,607
Net earnings per common share--fully diluted:
Continuing operations............................. 0.60 0.72
Total............................................. 0.80 0.61
</TABLE>

The pro forma data has been adjusted, net of income taxes, to reflect
interest expense and the amortization of the excess of cost over net assets
acquired. Such pro forma amounts are not necessarily indicative of what the
actual consolidated results of operations might have been if the acquisition
had been effective at the beginning of each year presented.

3. SIGNIFICANT ACCOUNTING POLICIES

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

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and

F-7
<PAGE>

FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and all its subsidiaries. All material intercompany transactions are
eliminated in consolidation. The Company's fiscal year ends on December 31.
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. The years 1994, 1995 and 1996 all 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.

Intangible Assets

The excess of cost over net assets acquired in connection with the
acquisition of Thomasville totaled $93,110. The determination of the final
fair values of assets and liabilities resulted in adjustments consisting of
changes from initially recorded values as of December 31, 1995 resulting in
decreases in receivables, inventories, excess of cost over net assets acquired
and other noncurrent liabilities of $3,350, $2,236, $12,654 and $16,641,
respectively. Adjustments to other balance sheet accounts were individually
immaterial. This intangible asset is being amortized on a straight-line basis
over a 40 year period.

The Company emerged from Chapter 11 reorganization effective with the
beginning of business on August 3, 1992. In accordance with generally accepted
accounting principles, the Company was required to adopt "fresh-start"
reporting which included adjusting all assets and liabilities to their fair
values as of the effective date. The ongoing impact of the adoption of fresh-
start reporting is reflected in the financial statements for all years
presented.

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>

FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Also 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.

Interest Rate Swap Agreements

Interest rate swap agreements are used by the Company to fix the interest
rate on a portion of its floating rate long-term debt. Amounts to be paid or
received under the interest rate swap agreements are recognized in income as
adjustments to interest expense. The fair value of the interest rate swap
agreements is not recognized in the consolidated financial statements since
they are accounted for as hedges.

Revenue Recognition

The Company recognizes revenue when finished products are shipped with
appropriate provisions for returns and uncollectible accounts.

Income Tax Expense

Income tax expense is based on results of operations before discontinued
operations and extraordinary items. 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

In conjunction with the September 6, 1996 refinancing of the Secured Credit
Agreement, the deferred financing fees and expenses pertaining to the
refinanced credit facility were charged to results of operations, as an
extraordinary item.

In conjunction with the December 29, 1995 acquisition of Thomasville, the
Company refinanced its Secured Credit Agreement and amended its Receivables
Securitization Facility. As a result thereof, the Company charged to results
of operations, as an extraordinary item, the deferred financing fees and
expenses pertaining to such credit facilities.

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. The stock options and warrants outstanding (Note 9) are considered
common stock equivalents. Weighted average shares used in the calculation of
primary and fully diluted net earnings per common share for 1996 were
61,946,000 and 62,871,000, respectively.

Stock-Based Compensation

Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation," encourages, but does not require, companies to record
compensation cost for stock-based employee compensation plans at fair value.
The Company has chosen to continue to account for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees."

Reclassification

Certain 1994 and 1995 amounts have been reclassified to conform to the 1996
presentation.

F-9
<PAGE>

FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

4. 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
generally accepted accounting principles, the financial results for the
footwear segment are reported as "Discontinued Operations" and the Company's
financial results of prior periods were restated. Condensed results of the
discontinued operations were as follows:

<TABLE>
<CAPTION>
ELEVEN MONTHS ENDED
NOVEMBER 17, 1994
-------------------
<S> <C>
Net sales................................................ $ 663,637
=========
Earnings before income tax expense....................... $ 40,047
Income tax expense....................................... 14,604
---------
Net earnings............................................. $ 25,443
=========
Loss on distribution, net of taxes of $4,564............. $ (15,104)
=========
</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, 1996, the Company had guarantees
outstanding on 85 retail store leases with a contingent liability totaling
approximately $29,700. The Florsheim Shoe Company has agreed to indemnify the
Company against any losses incurred as a result of the lease guarantees.

5. EXTRAORDINARY ITEM--EARLY EXTINGUISHMENT OF DEBT

In conjunction with the September 6, 1996 refinancing of the Secured Credit
Agreement, the Company charged to results of operations $7,417, net of tax
benefit of $4,469, representing the deferred financing fees and expenses
pertaining to the refinanced facility. The charge was recorded as an
extraordinary item.

In conjunction with the December 29, 1995 acquisition of Thomasville, the
Company refinanced its Secured Credit Agreement and amended its Receivables
Securitization Facility. As a result thereof, the Company charged to results
of operations $5,815, net of taxes of $3,478, representing the deferred
financing fees and expenses pertaining to such credit facilities. The charge
was recorded as an extraordinary item.

6. INVENTORIES

Inventories are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Finished products.................................. $114,857 $127,292
Work-in-process.................................... 51,259 51,587
Raw materials...................................... 103,561 102,228
-------- --------
$269,677 $281,107
======== ========
</TABLE>

F-10
<PAGE>

FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

7. INTANGIBLE ASSETS

Intangible assets include the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Intangible assets, at cost:
Reorganization value in excess of amounts
allocable to identifiable assets.............. $146,063 $146,063
Trademarks and trade names..................... 156,828 156,828
Excess of cost over net assets acquired........ 105,764 93,110
-------- --------
408,655 396,001
Less accumulated amortization.................... 38,348 51,900
-------- --------
$370,307 $344,101
======== ========
</TABLE>

8. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Secured credit agreement........................... $521,000 $359,000
Receivables securitization facility................ 185,000 200,000
Other.............................................. 17,679 13,600
-------- --------
723,679 572,600
Less current maturities............................ 18,639 --
-------- --------
$705,040 $572,600
======== ========
</TABLE>

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

Secured Credit Agreement

On September 6, 1996, the Company refinanced its Secured Credit Agreement.
The new Secured Credit Agreement is a five year reducing revolving credit
facility with an initial commitment totaling $475,000. The Secured Credit
Agreement allows for issuance of letters of credit and cash borrowings. Letter
of credit outstandings are limited to no more than $60,000, with cash
borrowings limited only by the facility's maximum availability less letters of
credit outstanding.

Under the letter of credit facility, a fee of 0.875% per annum (subject to
reduction based upon the Company achieving certain leverage ratios) is
assessed for the account of the lenders ratably. A further fee of 0.125% is
assessed on stand-by letters 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.

Cash borrowings under the Secured Credit Agreement bear interest at a base
rate or at an adjusted Eurodollar rate plus an applicable margin which varies,
depending upon the type of loan the Company executes. The applicable margin
over the base rate and the Eurodollar rate is subject to adjustment based upon
achieving certain leverage ratios. At December 31, 1996, all loans outstanding
under the Secured Credit Agreement were based on the Eurodollar rate.

F-11
<PAGE>

FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

At December 31, 1996, there were $359,000 of cash borrowings and $28,767 in
letters of credit outstanding under the Secured Credit Agreement, leaving an
excess of $87,233 available under the facility.

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.

The Secured Credit Agreement has no mandatory principal payments; however,
the commitment is reduced to $400,000 on September 30, 1999 and $300,000 on
September 29, 2000, with the remaining commitment maturing on September 15,
2001. In addition, the facility requires principal payments from 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 December 29, 2000 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 accounts for
this facility 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 0.55% per annum
on the entire $225,000 facility is payable on a monthly basis. The balance
outstanding at December 31, 1996 was $200,000. 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
($225,000). As of December 31, 1996, the Company had $9,989 in excess
availability under the facility.

Other

Other long-term debt consists of various industrial revenue bonds and other
debt instruments with interest rates ranging from approximately 4.0% to 9.0%.
Annual mandatory principal payments are required through 2004.

Interest Rate Swap Agreements

In February 1996, the Company entered into interest rate swap agreements
with two financial institutions to reduce the impact of changes in interest
rates on its floating rate long-term debt. The two agreements, which mature in
three years, have a total notional principal amount of $300,000. The swap
agreements effectively convert a portion of the Company's floating rate long-
term debt to a fixed rate. The Company pays the counterparties a fixed rate of
5.14% per annum and receives payments based upon the floating three month
Eurodollar rate. The Company is exposed to credit loss in the event of
nonperformance by the counterparties; however, the Company does not anticipate
nonperformance by the counterparties.

Other Information

Maturities of long-term debt are $0, $0, $0, $288,567 and $272,033 for years
1997 through 2001, respectively.

F-12
<PAGE>

FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

9. 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, 1996, 61,432,181 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 payment of dividends.

Shares of common stock were reserved for the following purposes at December
31, 1996:

<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------
<S> <C>
Common stock options:
Granted................................................... 3,859,476
Available for grant....................................... 184,724
Common stock warrants....................................... 2,042,631
---------
6,086,831
=========
</TABLE>

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.

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") with pro forma
disclosures of net income and earnings per share as if the fair value method
has been applied. The Company adopted SFAS No. 123 as of January 1, 1996 and
has elected to, as permitted under the statement, continue recognition of
compensation costs under the provisions of Opinion No. 25 with appropriate
disclosure, if material. The effect on net earnings for the years ended
December 31, 1996 and 1995 is not material and, accordingly, no disclosure has
been made. Further, based on current and anticipated use of stock options for
the forseeable future, it is not envisioned the impact of the pronouncement
would be material in subsequent periods.

The 1992 Stock Option Plan authorizes grants of options to purchase common
shares at less than fair market value on the date of grant. During 1996,
option grants totalling 217,978 common shares were made by the Company at less
than market value. These options were issued to Thomasville employees as
compensation for forfeited deferred compensation plans due to the acquisition;
therefore, the cost of issuing the option at less than market value was
included in determining the excess of cost over net assets acquired.

F-13
<PAGE>

FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Changes in options granted and outstanding are summarized as follows:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
------------------------- ------------------------ ------------------------
SHARES AVERAGE PRICE SHARES AVERAGE PRICE SHARES AVERAGE PRICE
---------- ------------- --------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Beginning of period..... 2,915,000 $7.39 2,643,000 $4.64 2,498,000 $4.75
Granted................. 917,000 7.85 125,000 6.42 1,620,926 9.14
Exercised............... (71,250) 7.00 (43,000) 3.38 (85,050) 3.99
Canceled................ (1,117,750) 7.82 (227,000) 4.68 (174,400) 4.29
---------- --------- ---------
End of period........... 2,643,000 $4.64 2,498,000 $4.75 3,859,476 $6.63
========== ===== ========= ===== ========= =====
Exercisable at end of
period................. 954,750 1,346,750 1,473,600
========== ========= =========
</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 canceled.
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.

As of December 31, 1996, the Company had outstanding approximately 2.0
million warrants to purchase common stock. Each warrant entitles the holder
thereof to purchase one share of common stock at $7.13 per share (as adjusted
for the November 17, 1994 distribution to shareholders of the Company's former
footwear segment). The warrants, which expire on August 3, 1999, include a
five year call protection, which expires on August 3, 1997. The warrants trade
on the over-the-counter market.

10. INCOME TAXES

Income tax expense was comprised of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal.................................... $ 10,095 $ 20,499 $ 40,870
State and local............................ 2,909 2,527 4,014
-------- -------- --------
13,004 23,026 44,884
Deferred..................................... 7,904 (211) (10,814)
-------- -------- --------
$ 20,908 $ 22,815 $ 34,070
======== ======== ========

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

<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Federal corporate statutory rate............. 35.0% 35.0% 35.0%
State and local income taxes, net of Federal
tax benefit................................. 2.9 2.6 2.3
Amortization of excess reorganization value.. 5.2 4.5 2.9
Other........................................ (0.3) (2.1) (1.6)
-------- -------- --------
Effective income tax rate.................... 42.8% 40.0% 38.6%
======== ======== ========
</TABLE>

F-14
<PAGE>

FURNITURE BRANDS INTERNATIONAL, INC.

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, 1995 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Deferred tax assets:
Employee postretirement benefits
other than pensions................. $ 10,954 $ 3,318
Expense accruals..................... 9,267 14,251
Valuation reserves................... 5,147 6,514
Inventory costs capitalized.......... 1,785 2,550
Other................................ 919 1,063
--------- --------
Total gross deferred tax assets.... 28,072 27,696
Valuation allowance.................. -- --
--------- --------
Total net deferred tax assets...... 28,072 27,696
Deferred tax liabilities:
Fair value adjustments............... (84,263) (77,645)
Employee pension plans............... (1,990) (697)
Depreciation......................... (9,029) (7,158)
Other................................ (8,350) (9,784)
--------- --------
Total deferred tax liabilities..... (103,632) (95,284)
--------- --------
Net deferred tax liabilities....... $ (75,560) $(67,588)
========= ========
</TABLE>

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

<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Prepaid expenses and other current
assets............................... $ 14,328 $ 19,783
Other long-term liabilities........... (89,888) (87,371)
--------- --------
$ (75,560) $(67,588)
========= ========
</TABLE>

11. EMPLOYEE BENEFITS

The Company sponsors or contributes to retirement plans covering
substantially all employees. The total cost of all plans for 1994, 1995 and
1996 was $6,303, $7,070 and $9,450, 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-15
<PAGE>

FURNITURE BRANDS INTERNATIONAL, INC.

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, 1995 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation............ $ 217,879 $ 230,456
========= =========
Accumulated benefit obligation....... $ 222,256 $ 237,512
========= =========
Projected benefit obligation......... $ 254,815 $ 262,667
Plan assets at fair value.............. 252,810 279,054
--------- ---------
Plan assets in excess of (less than)
projected benefit obligations......... (2,005) 16,387
Unrecognized net (gain) loss........... 5,211 (13,975)
Unrecognized prior service cost........ 1,267 1,021
--------- ---------
Prepaid pension cost................... $ 4,473 $ 3,433
========= =========
</TABLE>

Net periodic pension cost for 1994, 1995 and 1996 includes the following
components:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Service cost-benefits earned during the
period...................................... $ 4,758 $ 3,544 $ 6,792
Interest cost on the projected benefit
obligation.................................. 13,682 17,005 18,102
Actual return on plan assets................. (159) (49,272) (41,006)
Net amortization and deferral................ (16,297) 31,566 20,366
-------- -------- --------
Net periodic pension cost.................... $ 1,984 $ 2,843 $ 4,254
======== ======== ========
</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 1994,
8.5% in 1995 and 8.5% in 1996. Measurement of the projected benefit obligation
was based upon a weighted average discount rate of 8.0%, 7.25% and 7.25% and a
long-term rate of compensation increase of 4.5%, 4.5% and 4.5% for 1994, 1995
and 1996, respectively.

Other Retirement Plans and Benefits

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

In 1996, Thomasville discontinued postretirement medical benefits for future
retirees. The accrued postretirement benefit obligation as of December 31,
1995 of $31,906 was primarily due to the acquisition of Thomasville;
therefore, the elimination of the benefit was recorded as an adjustment to
excess of cost over net assets acquired.

F-16
<PAGE>

FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

12. 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>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Basic rentals........................................ $11,553 $11,516 $13,470
Contingent rentals................................... 385 779 1,364
------- ------- -------
11,938 12,295 14,834
Less sublease rentals................................ 54 54 76
------- ------- -------
$11,884 $12,241 $14,758
======= ======= =======
</TABLE>

Future minimum lease payments under operating leases, reduced by minimum
rentals from subleases of $491 at December 31, 1996, aggregate $39,691. Annual
minimum payments under operating leases are $12,370, $10,351, $7,817, $5,087
and $2,327 for 1997 through 2001, respectively.

13. 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.

Amounts outstanding under 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 and both accrue interest at rates which generally fluctuate with
interest rate trends.

Amounts outstanding under the other long-term debt is 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.

The fair value of the interest rate swap agreements at December 31, 1996 is
approximately $5.0 million. The fair value of the interest rate swap
agreements is based upon market quotes from the counterparties.

14. GAIN ON INSURANCE SETTLEMENT

On November 20, 1994, an explosion and fire destroyed a particleboard plant
owned and operated by the Company. During 1995, the Company rebuilt the plant
with proceeds received from the insurance settlement. As a result thereof, a
gain on insurance settlement, totaling $7,882 (representing the insurance
proceeds received minus the book value of the assets destroyed), was recorded
during the fourth quarter of 1995. The gain includes all costs associated with
the claim with no further expenses or liability anticipated.

15. LITIGATION

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-17
<PAGE>

FURNITURE BRANDS INTERNATIONAL, INC.

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,
1995:
Net sales.............. $ 285,904 $ 250,336 $ 258,626 $ 279,023
Gross profit........... 76,349 67,399 70,557 76,932
Net earnings:
Continuing
operations.......... 7,743 5,487 6,196 14,797
Extraordinary item... -- -- -- (5,815)
Total.............. $ 7,743 $ 5,487 $ 6,196 $ 8,982
Net earnings per common
share--primary:
Continuing
operations.......... $ 0.15 $ 0.11 $ 0.12 $ 0.29
Extraordinary item... -- -- -- (0.11)
Total.............. $ 0.15 $ 0.11 $ 0.12 $ 0.18
Net earnings per common
share--fully diluted:
Continuing
operations.......... $ 0.15 $ 0.11 $ 0.12 $ 0.27
Extraordinary item... -- -- -- (0.11)
Total.............. $ 0.15 $ 0.11 $ 0.12 $ 0.16
Common stock price
range (High-Low)...... $ 7 1/8-6 1/8 $ 6 7/8-5 3/4 $8 1/8-5 3/4 $ 9 1/8-7
============= ============= ============ ==========
Year ended December 31,
1996:
Net sales.............. $ 423,947 $ 420,742 $ 417,921 $ 434,185
Gross profit........... 105,333 108,446 107,067 110,627
Net earnings:
Continuing
operations.......... 10,847 11,621 14,325 17,429
Extraordinary item... -- -- (7,417) --
Total.............. $ 10,847 $ 11,621 $ 6,908 $ 17,429
Net earnings per common
share--primary and
fully diluted:
Continuing
operations.......... $ 0.19 $ 0.18 $ 0.22 $ 0.27
Extraordinary item... -- -- $ (0.11) --
Total.............. $ 0.19 $ 0.18 $ 0.11 $ 0.27
Common stock price
range (High-Low)...... $10 1/8-8 3/8 $12 1/8-9 1/8 $14 5/8-10 $14 7/8-12
============= ============= ============ ==========
</TABLE>

The Company has not paid cash dividends on its common stock during the two
years ended December 31, 1996. The closing market price of the Company's common
stock on December 31, 1996 was $14.00 per share.

F-18
<PAGE>

FURNITURE BRANDS INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEET
(UNAUDITED)

<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 18,663
Receivables, less allowance of $19,276................ 300,864
Inventories (Note 2).................................. 288,052
Prepaid expenses and other current assets............. 25,378
----------
Total current assets................................ 632,957
----------
Property, plant and equipment........................... 433,894
Less accumulated depreciation......................... 135,288
----------
Net property, plant and equipment................... 298,606
Intangible assets....................................... 340,713
Other assets............................................ 16,355
----------
$1,288,631
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accrued interest expense.............................. $ 6,103
Accounts payable and other accrued expenses........... 147,572
----------
Total current liabilities........................... 153,675
Long-term debt.......................................... 567,800
Other long-term liabilities............................. 132,919
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 (no par value)-- issued 61,467,066
shares at March 31, 1997............................. 61,467
Paid-in capital....................................... 276,040
Retained earnings..................................... 96,730
----------
Total shareholders' equity.......................... 434,237
----------
$1,288,631
==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-19
<PAGE>

FURNITURE BRANDS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1996 1997
----------- -----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Net sales.............................................. $ 423,947 $ 449,861
Costs and expenses:
Cost of operations................................... 308,883 326,187
Selling, general and administrative expenses......... 70,204 73,511
Depreciation and amortization........................ 14,178 14,596
----------- -----------
Earnings from operations............................... 30,682 35,567
Interest expense....................................... 13,715 9,089
Other income, net...................................... 747 872
----------- -----------
Earnings before income tax expense..................... 17,714 27,350
Income tax expense..................................... 6,867 10,291
----------- -----------
Net earnings........................................... $ 10,847 $ 17,059
=========== ===========
Net earnings per common share:
Net earnings per common share--primary............... $ 0.19 $ 0.27
Net earnings per common share--fully diluted......... $ 0.19 $ 0.27
</TABLE>

See accompanying notes to consolidated financial statements.

F-20
<PAGE>

FURNITURE BRANDS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31,
--------------------------
1996 1997
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings...................................... $ 10,847 $ 17,059
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation of property, plant and equipment... 11,084 11,581
Amortization of intangible and other assets..... 3,094 3,015
Noncash interest expense........................ 617 276
Increase in receivables......................... (8,011) (17,447)
Increase (decrease) in inventories.............. 198 (6,945)
Increase in prepaid expenses and intangible and
other assets................................... (4,672) (2,501)
Increase in accounts payable, accrued interest
expense and other accrued expenses............. 21,496 9,069
Increase (decrease) in net deferred tax
liabilities.................................... 1,740 (1,253)
Increase in other long-term liabilities......... 892 1,948
------------ -----------
Net cash provided by operating activities......... 37,285 14,802
------------ -----------
Cash Flows from Investing Activities:
Proceeds from the disposal of assets.............. 1,836 20
Additions to property, plant and equipment........ (7,298) (8,245)
------------ -----------
Net cash used by investing activities............. (5,462) (8,225)
------------ -----------
Cash Flows from Financing Activities:
Additions to long-term debt....................... -- 10,000
Payments of long-term debt........................ (109,004) (14,800)
Proceeds from the sale of common stock............ 81,335 --
Proceeds from the issuance of common stock........ 6 274
Payments for the repurchase of common stock
warrants......................................... -- (2,753)
------------ -----------
Net cash used by financing activities............. (27,663) (7,279)
------------ -----------
Net increase (decrease) in cash and cash
equivalents........................................ 4,160 (702)
Cash and cash equivalents at beginning of period.... 26,412 19,365
------------ -----------
Cash and cash equivalents at end of period.......... $ 30,572 $ 18,663
============ ===========
Supplemental Disclosure:
Cash payments for income taxes, net............... $ 231 $ 5,454
============ ===========
Cash payments for interest expense................ $ 11,243 $ 9,274
============ ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-21
<PAGE>

FURNITURE BRANDS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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.

(2) Inventories are summarized as follows:

<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Finished products.................................. $133,878
Work-in-process.................................... 54,385
Raw materials...................................... 99,789
--------
$288,052
========
</TABLE>

(3) In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 (SFAS No. 128)
"Earnings Per Share" (EPS). SFAS No. 128 establishes standards for
computing and presenting earnings per share. It also requires dual
presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation. SFAS No. 128 is effective for financial statements for both
interim and annual periods ending after December 15, 1997, and early
application is not permitted. The Company believes the adoption of this
accounting standard will not have a material impact on earnings per share.

F-22
<PAGE>

FURNITURE BRANDS INTERNATIONAL [LOGO]

BROYHILL [LOGO]

LANE [LOGO]

THOMASVILLE [LOGO]
<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>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 10
Use of Proceeds.......................................................... 12
Price Range of Common Stock and Dividend Policy.......................... 12
Capitalization........................................................... 13
Selected Consolidated Historical and Pro Forma Financial Information..... 14
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 16
Business................................................................. 23
Management............................................................... 35
Certain Transactions..................................................... 36
Selling Stockholders and Company Repurchase.............................. 36
Description of Capital Stock............................................. 37
Certain U.S. Tax Consequences to Non-U.S. Stockholders................... 39
Underwriting............................................................. 42
Legal Matters............................................................ 45
Experts.................................................................. 45
Available Information.................................................... 45
Incorporation of Certain Documents by Reference.......................... 45
Index to Consolidated Financial Statements............................... F-1
</TABLE>

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

11,000,000 SHARES

[LOGO OF FURNITURE BRANDS INTERNATIONAL]

COMMON STOCK

[LOGOS OF BROYHILL, LANE, THOMASVILLE]

--------

PROSPECTUS

JUNE 24, 1997

--------

SMITH BARNEY INC.
CREDIT SUISSE FIRST BOSTON
DILLON, READ & CO. INC.
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
WHEAT FIRST BUTCHER SINGER

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

PROSPECTUS

11,000,000 SHARES

[LOGO OF FURNITURE BRANDS INTERNATIONAL]

COMMON STOCK

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

[LOGOS OF BROYHILL, LANE, THOMASVILLE]

The 11,000,000 shares of Common Stock, no par value (the "Common Stock"), of
Furniture Brands International, Inc. (the "Company") offered hereby are being
sold by the Selling Stockholders (as defined herein). The Company will not
receive any of the proceeds from the sale of the Common Stock offered hereby.
Of the 11,000,000 shares of Common Stock offered hereby, a total of 2,200,000
shares are being offered hereby in an international offering outside the United
States and Canada (the "International Offering") by the Managers (as defined)
and a total of 8,800,000 shares are being offered by the U.S. Underwriters (as
defined) in a concurrent offering in the United States and Canada (the "U.S.
Offering" and, together with the International Offering, the "Offerings"). The
Common Stock is listed on the New York Stock Exchange under the symbol "FBN."
On June 24, 1997, the last reported sale price of the Common Stock on the New
York Stock Exchange was $17.00 per share.

SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.

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

------------
The shares of Common Stock are being offered by the several Managers 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 June 27, 1997,
at the office of Smith Barney Inc., 333 West 34th Street, New York, New York
10001.

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

SMITH BARNEY INC.
CREDIT SUISSE FIRST BOSTON
DILLON, READ & CO. INC.
MERRILL LYNCH INTERNATIONAL
SALOMON BROTHERS INTERNATIONAL LIMITED
WHEAT FIRST BUTCHER SINGER

June 24 , 1997
<PAGE>

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

-----------

TABLE OF CONTENTS

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

11,000,000 SHARES

[LOGO OF FURNITURE BRANDS INTERNATIONAL]

COMMON STOCK

[LOGOS OF BROYHILL, LANE, THOMASVILLE]

-------

PROSPECTUS

JUNE 24, 1997

-------

SMITH BARNEY INC.
CREDIT SUISSE FIRST BOSTON
DILLON, READ & CO. INC.
MERRILL LYNCH INTERNATIONAL
SALOMON BROTHERS INTERNATIONAL LIMITED
WHEAT FIRST BUTCHER SINGER

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