UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    Form 10-K

(Mark One)
  X  Annual report pursuant to Section 13 or 15 (d) of the Securities Exchange
     Act of 1934 [Fee Required]

For the fiscal year ended February 28, 1998 or

     Transition  report  pursuant  to  Section  13 or 15 (d)  of the  Securities
     Exchange Act of 1934 [No Fee Required]

For the transition period from               to

Commission file number 1-8484
                              HEILIG-MEYERS COMPANY
             (Exact name of registrant as specified in its charter)

                  Virginia                          54-0558861
         (State or other jurisdiction of        (I.R.S. Employer
         incorporation or organization)          Identification No.)

12560 West Creek Parkway, Richmond, Virginia           23238
(Address of principal executive offices)          (Zip Code)

Registrant's telephone number, including area code:  (804) 784-7300
Securities registered pursuant to Section 12(b) of the Act:

         Title of each Class           Name of each exchange on which registered
         Common Stock, $2.00                             New York Stock Exchange
         Par Value                                       Pacific Exchange

         Rights to purchase Preferred                    New York Stock Exchange
         Stock, Series A, $10.00                         Pacific Exchange
         Par Value

Securities registered pursuant to Section 12(g)of the Act:

                                       None
                                (Title of Class)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such  reports),  and (2) has been subject to the
filing requirements for at least the past 90 days. Yes X No .
                                                      ---
         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of  Regulation  S-K (Sec.  229.405 of this  chapter)  is not  contained
herein,  and will not be contained,  to the best of registrant's  knowledge,  in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]

         The aggregate  market value of the voting stock held by  non-affiliates
of the registrant as of May 1, 1998 was approximately $748,798,640.

<PAGE>

         This figure was calculated by  multiplying  (i) the closing sales price
of the  registrant's  common stock on the New York Stock Exchange on May 1, 1998
by (ii) the number of shares of the  registrant's  common  stock not held by the
officers or directors of the  registrant or any persons known to the  registrant
to own more than five percent of the outstanding common stock of the registrant.
Such calculation does not constitute an admission or determination that any such
officer,  director or holder of more than five percent of the outstanding common
stock of the registrant is in fact an affiliate of the registrant.

         As of May 1, 1998,  there  were  outstanding  58,812,313  shares of the
registrant's common stock, $2.00 par value.

DOCUMENTS INCORPORATED BY REFERENCE

Portions  of  the  registrant's  Proxy  Statement  for  its  Annual  Meeting  of
Shareholders  scheduled for June 17, 1998,  are  incorporated  by reference into
Part III.

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<PAGE>

                                                   INDEX

PART 1
ITEM 1.  BUSINESS                                                      Page
         A.  Introduction                                                4
         B.  Industry Segments                                           4
         C.  Nature of Business
                  General                                                4
                  Profit Improvement Plan                                5
                  Competition                                            5
         D.  Store Operations
                  General                                                6
                  Merchandising                                          7
                  Advertising and Promotion                              7
                  Credit Operations                                      8
                  Distribution                                           9
                  Customer Service                                      10
         E.  Corporate Expansion                                        10
         F.  Other Factors Affecting the Business of Heilig-Meyers
                  Suppliers                                             12
                  Service Marks, Trademarks and Franchise Operations    12
                  Seasonality                                           12
                  Employees                                             12
                  Foreign Operations and Export Sales                   13

ITEM 2.  PROPERTIES                                                     13

ITEM 3.  LEGAL PROCEEDINGS                                              14

ITEM 4.  SUBMISSION of MATTERS to a VOTE of SECURITY HOLDINGS           14

PART II
ITEM 5.  MARKET for REGISTRANT'S COMMON EQUITY and
                 RELATED STOCKHOLDER MATTERS                            17

ITEM 6.  SELECTED FINANCIAL DATA                                        18

ITEM 7.  MANAGEMENT'S DISCUSSION and ANALYSIS of
                  FINANCIAL CONDITION and RESULTS of OPERATIONS         20

ITEM 8.  FINANCIAL STATEMENTS and SUPPLEMENTARY DATA                    27

ITEM 9.  CHANGES in and DISAGREEMENTS with ACCOUNTANTS
                  on ACCOUNTING and FINANCIAL DISCLOSURE                49

PART III
ITEM 10.  DIRECTORS and EXECUTIVE OFFICERS of the REGISTRANT            50

ITEM 11.  EXECUTIVE COMPENSATION                                        50

ITEM 12.  SECURITY OWNERSHIP of CERTAIN BENEFICIAL OWNERS
          and MANAGEMENT                                                50

ITEM 13.  CERTAIN RELATIONSHIPS and RELATED TRANSACTIONS                50

PART IV
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE, and
         REPORTS on FORM 8-K                                            50


                                       3
<PAGE>

                                                   PART 1

ITEM 1. BUSINESS

                           A.  Introduction

         Heilig-Meyers  Company  (the  "registrant"),  which  together  with its
predecessors  and  subsidiaries,   sometimes  hereinafter  referred  to  as  the
"Company,"  is engaged  primarily  in the retail  sale of home  furnishings  and
bedding.  The Company's  predecessors  are numerous  Virginia and North Carolina
corporations, the first of which was incorporated in 1940, and all of which were
merged into Heilig-Meyers Company, a North Carolina corporation,  in March 1970,
which in turn was merged into the registrant,  a Virginia  corporation,  in June
1972.

         The Company  has grown in recent  years,  in part,  through a series of
acquisitions. Among the largest acquisitions are the January 1994 acquisition of
certain  assets  relating  to 92  stores of  McMahan's  Furniture  Company,  the
February 1995  acquisition  of certain  assets  relating to the operations of 17
stores owned by Berrios  Enterprises  of Caguas,  Puerto Rico,  the October 1996
acquisition of certain assets relating to the 20 stores of J. McMahan's in Santa
Monica,  California and the unrelated  acquisition of certain assets relating to
the 23 stores of  Self-Service  Furniture  Company of Spokane,  Washington,  the
December 1996 acquisition of the Atlanta, Georgia-based Rhodes, Inc., a publicly
traded home furnishings  retailer with 105 stores in 15 states, and the February
1997  acquisition of certain assets  relating to the 10 stores of The RoomStore,
Inc. of Fort Worth,  Texas. The Company also acquired the assets of the 19-store
Star  Furniture  chain based in North  Carolina in  February  1997.  The Company
acquired  Mattress  Discounters  Corporation  and a related  corporation in July
1997,  with 169  stores in 10 states  and  Washington,  D.C.  The  Company  also
acquired  Bedding  Experts,  Inc.  with 54 stores in Chicago,  Illinois  and the
surrounding  area in January  1998.  In addition,  the Company also acquired the
assets of 5 John M. Smyth's  Homemakers  stores, a Chicago,  Illinois  furniture
chain in January 1998,  and the 24-store Hub Furniture  chain based in Columbia,
Maryland in February  1998.  The Rhodes,  RoomStore,  and  Mattress  Discounters
chains continue to operate under their respective names and formats.

         As of April 30, 1998,  Heilig-Meyers Company operates stores under four
formats. The "Heilig-Meyers"  format is associated with the Company's historical
operations,  as well  as the 32  stores  operating  in  Puerto  Rico  under  the
"Berrios"  name.  The majority of the  Heilig-Meyers  stores  operate in smaller
markets with a broad line of  merchandise.  The "Rhodes"  format is used for 102
stores as of April 30, 1998.  The Rhodes  format  retailing  strategy is selling
quality furniture to a broad base of middle income customers.  Stores under "The
RoomStore"  format  display and sell  furniture in complete room  packages.  The
rooms are arranged by professional designers and sell at a value if purchased as
a group.  The "Mattress  Discounters"  format is used for 225 stores acquired in
fiscal  1998.  Mattress  Discounters  is the  Nation's  largest  retail  bedding
specialist.  Stores are  classified by operating  format rather than by the name
under which a store is operated.

                           B.  Industry Segments

         The  Company  considers  that it is  engaged  primarily  in one line of
business, the sale of home furnishings, and has one reportable industry segment.
Accordingly,  data with  respect to industry  segments  has not been  separately
reported herein.

                           C.  Nature of Business

General
         The  Company  is  the  Nation's  largest  specialty  retailer  of  home
furnishings with 1,244 stores (as of April 30, 1998), 1,212 of which are located
in 37 states and  Washington,  D.C.,  with the  remainder  in Puerto  Rico.  The
Company's  Heilig-Meyers  stores are primarily  located in small towns and rural
markets in the southern,  mid-western and western Continental United States. The


                                       4
<PAGE>

102  Rhodes  stores  are  primarily   located  in  the  mid-sized   markets  and
metropolitan areas of 15 southern,  midwestern and western states. The 67 stores
of The RoomStore are primarily  located in 7 states,  including Texas,  Illinois
and Maryland.  The 225 Mattress  Discounters  stores are primarily located in 11
eastern states, California and Washington, D.C.

         The  Company's  operating  strategies  include:  (1)  offering  a broad
selection of  competitively  priced home  furnishings,  including  furniture and
accessories, and bedding, and in the Heilig-Meyers stores, consumer electronics,
appliances,  and other  items such as jewelry,  small  appliances  and  seasonal
goods;  (2)  locating  Heilig-Meyers  stores  primarily in small towns and rural
markets  which are at least 25 miles from a  metropolitan  market;  (3) offering
credit programs to provide  flexible  financing to its customers;  (4) utilizing
centralized  inventory and distribution  systems in strategic regional locations
to support store inventory and merchandise delivery operations;  (5) emphasizing
customer  service,  including  free  delivery  on most  major  purchases  in the
Heilig-Meyers  stores and repair  service  for  consumer  electronics  and other
mechanical  items. As a result of the  acquisition of Rhodes,  The RoomStore and
Mattress Discounters, the Company now has the ability to match operating formats
to markets with appropriate demographic and competitive factors.

Profit Improvement Plan
         Home  furnishings   purchases  are  generally  considered   "big-ticket
purchases",  and consumers  typically  utilize  consumer credit to finance these
purchases.  Impacted by an increase in consumer  credit  problems  and  personal
bankruptcies,  the demand for home furnishings in the niche in which the Company
serves  has  been  low over the past  two  fiscal  years.  In  response  to this
difficult  environment,  the  Company  conducted a  comprehensive  review of its
operations,  and developed a Profit  Improvement  Plan (the  "Plan"),  which was
announced on December 17, 1997. The Plan has three main components:  (1) expense
reductions;  (2)  restructuring  of  certain  aspects of the  business;  and (3)
Heilig-Meyers  store  operating  initiatives.  The Plan calls for the closing of
approximately  40 Heilig-Meyers  stores,  the downsizing of  administrative  and
support facilities,  a reorganization of the Heilig-Meyers  private label credit
card  program,  and the  development  of  operating  initiatives  to improve the
performance of the Heilig-Meyers stores.

         The core-store  operating  initiatives  include a plan to significantly
slow the growth of the Heilig-Meyers  stores over the next year to allow for the
maturation of the recent store additions.  Approximately 20 to 30 stores will be
relocated to higher-traffic  areas. The initiatives also call for adjustments to
merchandising and advertising  strategies based on the remaining markets and the
strengthening of the inventory  management  programs.  While management plans to
slow  the  growth  in  the   Heilig-Meyers   division,   it  expects  to  pursue
opportunities in the Company's other formats. These opportunities will be in the
formats that are less capital  intensive and are  currently  operating at higher
levels of return than the  Heilig-Meyers  division.  For additional  information
concerning  the Plan,  see  "Management's  Discussion  and Analysis of Financial
Condition and Results of Operations."

Competition
         The  retail  home  furnishings  industry  is a highly  competitive  and
fragmented  market.  The  Company,  as a  whole,  competes  with  large  chains,
independent  stores,  discount stores,  furniture  stores,  specialty stores and
others,  some of  which  have  financial  resources  greater  than  those of the
Company,  and some of which derive revenues from the sale of products other than
home  furnishings.  The Company believes that the "Rhodes",  "The RoomStore" and
"Mattress  Discounters" names and formats will enhance the Company's competitive
position.  The  Company is capable of matching  the store  format with the local
market  environment.  The Company  believes  the  "Rhodes"  and "The  RoomStore"
formats  are better  suited  for larger  markets  than the  Heilig-Meyers  store
format,  which it believes better serves small towns.  The addition of "Mattress
Discounters"  enables the Company to position itself more  competitively  in the
retail bedding market.


                                       5
<PAGE>

         Due to volume purchasing,  the Company believes it is generally able to
offer  merchandise at equal or lower prices than its  competitors,  particularly
local  independent  and regional  specialty  furniture  retailers.  In addition,
Management  believes that it offers a broader selection of merchandise than many
of its competitors.

         The Company  believes that locating its  Heilig-Meyers  stores in small
towns and rural markets provides an important competitive advantage.  Currently,
approximately  80% of  all  Heilig-Meyers  stores  are  located  in  towns  with
populations under 50,000 that are more than 25 miles from a metropolitan market.
Competition  in these  small  towns  largely  comes  from  locally  owned  store
operations,  which generally lack the financial strength to compete  effectively
with the Company.  Consequently,  the Company  believes  that its  Heilig-Meyers
stores have the largest  market  share among home  furnishings  retailers in the
majority of their areas.

         The RoomStore and Rhodes formats compete in  mid-to-large  metropolitan
markets and serve middle income customers.  The Mattress Discounters stores also
operate in metropolitan markets.

         Based  on  its  experience,   the  Company   believes  its  competitive
environment  is  comparable  in all  geographic  regions  in which it  operates.
Therefore,  the  Company  does  not  believe  that a  regional  analysis  of its
competitive market is meaningful at this time.

                           D.  Store Operations

General
         The Company's  Heilig-Meyers stores generally range in size from 12,000
to 35,000 square feet, with the average being approximately  25,000 square feet.
A store's  attached or nearby  warehouse  usually  measures  from 3,000 to 5,000
square feet. A typical store is designed to give the customer an urban  shopping
experience  in a rural  location.  During the last five  years,  the Company has
revised its Heilig-Meyers  prototype store construction  program.  The Company's
most recent  version of its prototype  stores opened in fiscal 1997. The Company
added 3 of these stores in fiscal 1994, 7 in fiscal 1995, 8 in fiscal 1996, 8 in
fiscal 1997 and 16 in fiscal 1998.  The prototype  stores are 27,000 square feet
and feature the latest display techniques and construction efficiencies. Certain
features of these prototype stores are incorporated into other locations through
the  Company's  ongoing  remodeling   program.   The  Company's  existing  store
remodeling  program,  under which stores are  remodeled  on a rotational  basis,
provides the Company's older stores with a fresh look and up-to-date displays on
a periodic basis.  During fiscal 1998, the Company  remodeled 78 existing stores
and plans to  remodel  approximately  10  existing  stores in fiscal  1999.  The
existing  Rhodes,  The  RoomStore,   and  Mattress  Discounters  stores  average
approximately 34,000, 25,000, and 4,000 square feet,  respectively.  The Company
does not have significant remodeling activities planned for these formats during
fiscal 1999.

         Each  store  unit is managed  by an  on-site  manager  responsible  for
day-to-day store  operations  including,  if offered in that store,  installment
credit extension and collection.  For executive management purposes,  stores are
grouped by operating  format.  For  operational  purposes,  stores are generally
grouped within their format by geographic market.

         The Company has an in-house education program to train new employees in
its operations and to keep current employees informed of the Company's policies.
This training program emphasizes sales productivity,  store administration,  and
where applicable, credit extension and collection. The training program utilizes
the  publication  of  detailed  store  manuals,   internally  produced  training
videotapes and Company-conducted  classes for employees. The Company also has an
in-store  manager  training  program,  which  provides  potential  managers with
hands-on  experience in all aspects of store  operations.  The Company's ongoing
education  program is  designed  to  provide a  sufficient  number of  qualified
personnel for its stores.


                                       6
<PAGE>

         In recent years,  Heilig-Meyers  has enhanced its operating  systems to
increase the availability and effectiveness of management information. In fiscal
1995,  the  Company  made  improvements  to  inventory   management  by  use  of
just-in-time ordering and backhauling. In fiscal 1995, the Company completed the
installation  of  a  new  satellite  system.   This  system  provides  immediate
communication between the Company's corporate headquarters and the Heilig-Meyers
stores and distribution  centers.  As a result,  the Company  believes  customer
service has been improved by providing  store  management  more timely access to
information related to product availability. This system also provided the means
for the Company to implement,  for the Heilig-Meyers  stores,  its new inventory
reservation  system and enhanced target  marketing  programs during fiscal 1997.
The Rhodes,  The  RoomStore,  and Mattress  Discounters  formats have  operating
systems in place that provide similar operating capabilities.

Merchandising
         The Company's Heilig-Meyers  merchandising strategy is to offer a broad
selection of  competitively  priced home  furnishings,  including  furniture and
accessories,  consumer electronics,  appliances, bedding and other items such as
jewelry and seasonal goods.  During the fiscal year ended February 28, 1998, the
percentage of Heilig-Meyers stores' sales derived from the various merchandising
categories was as follows:

Furniture and accessories                                60%
Consumer electronics                                      9
Bedding                                                  13
Appliances                                                7
Other (e.g. jewelry and seasonal goods)                  11

         These  percentages  have not  varied  significantly  over the past five
fiscal years.

  The RoomStore and Rhodes stores primarily sell  mid-price-point  furniture and
bedding.  During  the  fiscal  year  ended  February  28,  1998,  89%  and  90%,
respectively,  of Rhodes' and The  RoomStore's  sales consisted of furniture and
accessories with bedding comprising the remaining 11% and 10%, respectively. The
Mattress  Discounters stores are specialty bedding retailers and sell across the
full spectrum of bedding price points. During fiscal 1998,  approximately 90% of
Mattress  Discounters'  sales  consisted of bedding,  with  bedding  accessories
comprising the remaining 10%.

         The  Company's  stores  carry  a wide  variety  of  items  within  each
merchandise category to appeal to individual tastes and preferences. The Company
believes this broad  selection of products has enabled it to expand its customer
base and  increase  repeat  sales to existing  customers.  By carrying  seasonal
merchandise (heaters, air conditioners, lawn mowers, outdoor furniture, etc.) in
its  Heilig-Meyers  stores,  the Company has been able to moderate  the seasonal
fluctuations  in its sales that are common to the industry  and, in  particular,
small towns.

         While the basic  merchandise mix within each operating  format remained
fairly  constant  during  fiscal  1998,  the  Company  continued  to refine  its
merchandise  selections to  capitalize  on  variations in customer  preferences.
During   fiscal  1998,   the  Company   continued  to   strengthen   its  vendor
relationships.   In  addition  to   providing   purchasing   advantages,   these
relationships  provide  warehousing and distribution  arrangements  that improve
inventory management.


Advertising and Promotion
         Direct  mail  circulars  are a key  part  of  the  Company's  marketing
program.  The  Company  centrally  designs  its direct  mail  circulars  for its
Heilig-Meyers  stores,  which accounted for  approximately  40% of the Company's
Heilig-Meyers  store  advertising  expenses in fiscal 1998. In fiscal 1998,  the
Heilig-Meyers  format  distributed over 183 million direct mail circulars.  This


                                       7
<PAGE>

included monthly circulars sent by direct mail to over twelve million households
on the Heilig-Meyer's  mailing list and special private sale circulars mailed to
approximately  two million of these  households  each  month,  as well as during
special  promotional  periods.  In its Rhodes stores,  direct mailing  comprised
approximately 25% of total  advertising  expenses in fiscal 1998, with circulars
being mailed to  approximately  six million  households  per  promotion.  Direct
mailing expenses accounted for approximately 15% of advertising  expenses at The
RoomStore  during  fiscal 1998,  with  circulars  being mailed to  approximately
350,000 customers per month. Direct mailing expenses comprised approximately 40%
of total advertising  expenses at Mattress  Discounters during fiscal 1998, with
approximately fourteen million circulars mailed each month.

         In  addition to the  Company's  utilization  of direct mail  circulars,
television  and radio  commercials  are  produced  for each  format and aired in
virtually all of the Company's markets.  Newspaper advertising is placed largely
at the store level. The Company also utilizes  Spanish  language  television and
radio in selected markets with  significant  Hispanic  populations.  The Company
regularly conducts  approximately 40 Heilig-Meyers store promotional events each
year.  In addition  to these  events,  individual  stores  periodically  conduct
promotional  events  locally.  The Company also conducts  promotions  twice each
month in its  Rhodes  and The  RoomStore  formats,  and  weekly in its  Mattress
Discounters format.  Besides the conventional  marketing techniques noted above,
Heilig-Meyers  has sought  alternative  methods to increase the  Company's  name
recognition  and customer  appeal.  In fiscal 1998,  the Company  continued  its
sponsorship of the Heilig-Meyers  NASCAR Racing Team and added the Rhodes NASCAR
Racing Team as a means of enhancing the  Company's  name  recognition  among the
millions of NASCAR fans in its market areas.

         During   fiscal  1998,   the  Company   continued  to  utilize   market
segmentation techniques (begun in fiscal 1994) to identify prospective customers
by  matching  their  demographics  to those of  existing  customers.  Management
believes  ongoing market research and improved  mailing  techniques  enhance the
Company's  ability to place circulars in the hands of those potential  customers
most likely to make a purchase.  The Company  believes that the  availability as
well as the terms of credit are key  determinants in the purchasing  decision at
its  Heilig-Meyers  stores,  and  therefore,  promotes  credit  availability  by
disclosing monthly payment terms in those circulars.

Credit Operations
         The  Company  believes  that  offering  flexible  credit  options is an
important  part  of  its  business   strategy,   which  provides  a  significant
competitive advantage.  Because Heilig-Meyers installment credit is administered
at the store  level,  terms can  generally  be tailored  to meet the  customer's
ability to pay. Each  Heilig-Meyers  store has a credit  manager who,  under the
store  manager's  supervision,  is responsible for extending and collecting that
store's accounts in accordance with corporate guidelines.

         The Company  believes its credit program fosters  customer  loyalty and
repeat business.  Approximately 75% to 80% of sales in the Heilig-Meyers  stores
have been made through the Company's  installment  credit program.  Although the
Company  extends credit for original terms up to 24 months,  the average term of
installment  contracts  at  origination  for the fiscal year ended  February 28,
1998, was approximately 17 months. The Company accepts major credit cards in all
of its stores and, in addition,  offers a revolving credit program featuring its
private label credit cards. The Company promotes this program by direct mailings
to revolving  credit customers of acquired stores and potential new customers in
targeted  areas.  Credit  extension and  collection of  Heilig-Meyers  revolving
accounts are handled  centrally  from the  Company's  Credit  Center  located in
Richmond, Virginia.


                                       8
<PAGE>

         The  Company  also  offers  revolving   credit   programs,   which  are
underwritten by third parties, in The RoomStore, Rhodes and Mattress Discounters
formats.  The Company  does not service or generally  provide  recourse on these
accounts. Credit applications, sales, and many payments on account are generally
processed electronically through the point-of-sale systems. Approximately 40% of
The RoomStore,  60% of Rhodes, and 10% of Mattress Discounters fiscal 1998 sales
were made through the revolving credit programs.

         Revenue is recognized on installment and credit sales upon approval and
establishment  of a  delivery  date,  which  does  not  differ  materially  from
recognition  at time of shipment.  The effect of sales returns prior to shipment
date has been immaterial.  Finance charges are included in revenues on a monthly
basis as earned. During fiscal 1998, finance income amounted to $231,612,000, or
approximately  9.4% of total revenues.  Because credit operations are integrated
with  sales  and  store  administration,  management  does not  believe  that an
accurate  allocation  of various  costs and expenses of  operations  can be made
between retail sales and credit operations.  Therefore, the Company is unable to
estimate accurately the contribution of its financing operations to net income.

         The Company offers, but does not require,  one or more of the following
credit  insurance  products at the time of a credit  sale in all formats  except
Mattress Discounters: property, life, disability and unemployment insurance. The
Company's  employees  enroll  customers  under  a  master  policy  issued  by an
unrelated third-party insurer with respect to these credit insurance products.

Distribution
         As  of  April  30,  1998,  the  Company  operates  eight  Heilig-Meyers
distribution  centers in the  Continental  U.S.  and one center in Puerto  Rico.
These centers are located in  Orangeburg,  South  Carolina;  Rocky Mount,  North
Carolina; Russellville, Alabama; Mount Sterling, Kentucky; Thomasville, Georgia;
Moberly, Missouri; Hesperia,  California; Athens, Texas; and Cidra, Puerto Rico.
The Athens  Distribution  Center was completed near the end of fiscal 1997, with
full operations  commencing in March 1997. The Company relocated the Fontana, CA
Distribution Center during fiscal 1998 to a larger, 400,000 square foot facility
located in Hesperia, CA. The new distribution center also contains the relocated
Fontana  Service  Center as well as an outlet  store.  Currently,  the Company's
Heilig-Meyers  distribution  network has the capacity to service over 900 stores
in the continental U.S. The Company also operates the seven Rhodes  distribution
centers,  which collectively have more than 950,000 square feet and include home
delivery   operations  in  certain  markets.   The  Company  also  operates  The
RoomStore's seven and Mattress Discounters' eleven distribution  centers,  which
collectively have approximately  800,000 and 370,000 square feet,  respectively.
Management is in the process of evaluating the distribution function in light of
recent  acquisitions  in  order  to  maximize   warehousing  and  transportation
efficiencies.

         The  Company  utilizes  several  sophisticated  design  and  management
techniques to increase the operational  efficiency of its distribution  network.
These include cantilever racking and computer-controlled random-access inventory
storage.  Use of direct shipping and backhauling  from vendors has also enhanced
distribution  efficiency.  Backhauling  involves routing its trucks so that they
can transport  purchased  inventory from suppliers to the  distribution  centers
while   returning  from  normal  store   deliveries.   The  Company   backhauled
approximately 20% of its purchased inventory in the Heilig-Meyers  stores during
fiscal 1998.

         Typically, each of the Company's Heilig-Meyers stores is located within
250 miles of one of the eight distribution  centers, each Rhodes store is within
100 miles of one of the seven Rhodes distribution centers, each of The RoomStore
stores is located  within 70 miles of the seven The RoomStore  distribution  and
delivery  centers,  and each Mattress  Discounters  store is located  within 110
miles of the eleven Mattress Discounters  distribution and delivery centers. The
Company operates a fleet of trucks which generally delivers  merchandise to each


                                       9
<PAGE>

Heilig-Meyers  store at least twice a week.  In the Rhodes,  The  RoomStore  and
Mattress  Discounters  formats,  which are located in larger cities, the Company
also  utilizes  centralized  delivery  centers  for home  delivery.  The Company
believes  the use of the  distribution  centers  enables it to make  available a
broader selection of merchandise, to reduce inventory requirements at individual
stores,  to benefit  from  volume  purchasing,  to provide  prompt  delivery  to
customers and to minimize freight costs.

Customer Service
         The Company believes that customer service is an important  element for
success in the retail furniture business and therefore provides a broad range of
services to its  customers.  These include home  delivery and setup,  as well as
liberal policies with respect to exchanges and returns. In addition, the Company
offers service agreements on certain merchandise sold in its stores. The Company
sells  substantially all of its service policies to third parties and recognizes
service  policy  income  on  these at the time of  sale.  Revenue  from  service
policies and extended  warranty  contracts  retained by the Company are deferred
and recognized over the life of the contract period.

         In addition,  the Company  provides  repair  services on virtually  all
consumer electronics and mechanical items sold in its Heilig-Meyers  stores. The
Company operates Heilig-Meyers service centers in Fayetteville,  North Carolina;
Moberly,  Missouri;  Hesperia,  California and Athens,  Texas.  The Fayetteville
Service Center occupies approximately 32,000 square feet and has the capacity to
process 2,000 repairs a week. The Moberly  Service Center occupies 35,000 square
feet adjacent to the Moberly,  Missouri Distribution Center and has the capacity
to process 2,000 repairs a week.  The Hesperia  Service Center  occupies  35,000
square feet and has the  capacity to process  2,500  repairs a week.  The Athens
Service Center occupies 30,000 square feet and has the capacity to process 2,000
repairs a week. The service centers provide service for all consumer  electronic
items,  most  mechanical  items  (except  major  appliances,  which are serviced
locally) and watches.  The service centers are also authorized to perform repair
work under  certain  manufacturers'  warranties.  Service  center  trucks  visit
Heilig-Meyers stores weekly, allowing one-week turnaround on most repair orders.


                            E.  Corporate Expansion

         The Company has grown from 434 stores at February  28,  1993,  to 1,244
stores at April 30, 1998.  Over this time period,  the Company has expanded from
its traditional  southeast operating region into the midwest,  west,  southwest,
northwest,  southcentral  and  northeast  Continental  United  States as well as
Puerto Rico. In addition,  the Company has acquired new  operating  formats as a
result of the Rhodes, The RoomStore and Mattress Discounters acquisitions.


                                       10
<PAGE>

         The following  table lists the Company's  stores by state and format as
of April 30, 1998:

                                  Heilig-              The     Mattress
State                             Meyers    Rhodes  RoomStore Discounters  Total


Alabama ......................        33        10                            43
Arizona ......................        15                                      15
California ...................        82                              60     142
Colorado .....................         4         9                            13
District of Columbia .........                                         3       3
Florida ......................        36        19                            55
Georgia ......................        56        18                            74
Idaho ........................         4                                       4
Iowa .........................        19                                      19
Illinois .....................        25         2        22          53     102
Indiana ......................        21         1                            22
Kansas .......................                   1                             1
Kentucky .....................        29         2                            31
Louisiana ....................        21                                      21
Maine ........................                                         1       1
Maryland .....................         2                  14          28      44
Massachusetts ................                                        17      17
Michigan .....................                                        12      12
Mississippi ..................        30         1                            31
Missouri .....................        29         6                            35
Montana ......................         2                                       2
Nevada .......................         5                                       5
New Hampshire ................                                         3       3
New Jersey ...................                                        14      14
New Mexico ...................        10                                      10
North Carolina ...............       112        11                           123
Ohio .........................        33         7                            40
Oklahoma .....................        11                                      11
Oregon .......................         2                   4                   6
Pennsylvania .................        22                               8      30
Puerto Rico ..................        32                                      32
Rhode Island .................                                         1       1
South Carolina ...............        45         6                            51
Tennessee ....................        53         7                            60
Texas ........................        33                  18                  51
Virginia .....................        44         2         4          24      74
Washington ...................        13                   1                  14
West Virginia ................        27                                      27
Wisconsin ....................                             4           1       5
                                   -----     -----     -----       -----   -----
                                     850       102        67         225   1,244
                                   =====     =====     =====       =====   =====



         The table  excludes 15  Heilig-Meyers  stores in operation at April 30,
1998 that are  scheduled to be closed during the first quarter of fiscal 1999 as
part of the Profit  Improvement  Plan.  Stores listed under the RoomStore format
include: 1) the stores in Maryland and Virginia acquired in a recent acquisition
that are in the  process  of  converting  to the  RoomStore  format,  2)  former
Heilig-Meyers  stores in Illinois  which have been  converted  to the  RoomStore
format,  but continue to operate under  Heilig-Meyers  signage and 3) 3 recently
acquired  stores in Illinois that operate  under the John M. Smyth's  Homemakers
name. All of these stores are under the supervision of the RoomStore  management
team.


                                       11
<PAGE>

         Growth in the number of stores  comes  primarily  from  three  sources:
acquisition of chains or independent  stores,  refurbishing  of existing  retail
space and new construction.  During the fiscal year ended February 28, 1998, the
Company opened or acquired 330 stores and closed 21 stores for a net increase of
309 stores.  Of the 330 new stores,  284 were  existing  stores  acquired by the
Company in various  transactions,  30 were  operations  begun by the  Company in
vacant  existing  buildings and 16 were prototype  stores built according to the
Company's specifications.

         The Company constantly evaluates opportunities for further expansion of
its business.  The Company plans to slow the growth of its Heilig-Meyers stores.
In selecting  new  Heilig-Meyers  locations,  the Company  intends to follow its
established  strategy  of  generally  locating  stores  within  250  miles  of a
distribution  center and in towns with  populations  of 5,000 to 50,000 that are
over 25 miles from the closest metropolitan market. The Company believes that it
has  substantial  growth  potential  in  certain  of its other  formats.  Growth
opportunities  of the  recently  acquired  Rhodes,  The  RoomStore  and Mattress
Discounters  formats  are being  evaluated.  The Company  plans to expand  these
formats as the appropriate markets are identified.


            F.  Other Factors Affecting the Business of the Company

Suppliers
         During the fiscal year ended  February  28,  1998,  the  Company's  ten
largest suppliers  accounted for  approximately 30% of consolidated  merchandise
purchases.  In the past, the Company has not experienced difficulty in obtaining
satisfactory sources of supply and believes that adequate alternative sources of
supply  exist for the  types of  merchandise  sold in its  stores.  Neither  the
Company nor its officers or directors have an interest,  direct or indirect,  in
any of its suppliers of  merchandise  other than minor  investments  in publicly
held companies.

Service Marks, Trademarks and Franchise Operations
         The  marks  "Heilig-Meyers",   "MacSaver",   "MacSaver,   design  of  a
Scotsman",  other marks acquired through various  acquisitions and the Company's
distinctive  logo are federally  registered  service  marks of the Company.  The
Company has  registrations  for  numerous  other  trademarks  and service  marks
routinely used in the Company's  business.  These  registrations  can be kept in
force in perpetuity  through continued use of the marks and timely  applications
for renewal.

         The  mark  "Berrios"  is a  federally  registered  service  mark of the
Company.  The Company has also applied for certain other  trademarks and service
marks for use in connection with its stores in Puerto Rico.

         The marks "Rhodes" and "The RoomStore" are federally registered service
marks of the Company which were acquired in fiscal year 1997.

         The marks "Mattress  Discounters"  and "Bedding  Experts" are federally
registered service marks of the Company which were acquired in fiscal year 1998.

Seasonality
         Quarterly fluctuations in the Company's sales are insignificant.

Employees
         As of April 30, 1998, the Company employed approximately 23,100 persons
full- or part-time  in the  Continental  United  States,  of whom  approximately
22,100 worked in the Company's stores, distribution centers and service centers,
with the balance in the Company's  corporate  offices.  As of February 28, 1998,
the Company  employed  approximately  1,000 persons full- or part-time in Puerto
Rico, of whom  approximately  900 worked in the stores and distribution  center,
with the  balance in the  corporate  office.  The  Company is not a party to any
union contract and considers its relations with its employees to be good.

                                       12
<PAGE>

Foreign Operations and Export Sales
         The Company has no foreign operations and makes no export sales.


                                    ITEM 2.  PROPERTIES

         As of April  30,  1998,  962 of the  Company's  stores  are on a single
level,  with floor space  devoted to sales as well as a warehouse  primarily for
merchandise being prepared for delivery and for items customers carry with them.
The Heilig-Meyers stores are typically located away from the center of town. The
remaining  282 stores  generally are in older two- or  three-level  buildings in
downtown areas.  Usually there is no warehouse  space in these older  buildings,
and the stores' warehouses are located in nearby buildings.

         As of April 30, 1998, the Company owned 75 of its  Heilig-Meyers and 15
of its  Rhodes  stores,  three of its  Heilig-Meyers  and  three  of its  Rhodes
distribution  centers and the Fayetteville,  North Carolina Service Center.  The
Company leases the remaining stores,  the remaining  distribution  centers,  its
corporate headquarters located at 12560 West Creek Parkway,  Richmond,  Virginia
and other office space.  Rentals  generally are fixed without reference to sales
volume,  although  some leases  provide for  increased  rent due to increases in
taxes,  insurance  premiums or both. Some renewal options are tied to changes in
the Consumer  Price Index.  Total rental  payments for properties for the fiscal
year ended February 28, 1998, were approximately $109,374,000.  Most vehicles, a
majority  of  the  distribution  centers'  material  handling  equipment,  and a
majority of the Company's data processing equipment are also leased.   In
addition, Mattress Discounters  operates a 102,000-square-foot mattress
manufacturing facility in Maryland and a 54,000-square-foot mattress
manufacturing facility in California.  The Company believes that its facilities
are adequate at present levels of operations.


                                       13
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS


         The Company previously reported  involvement in certain cases regarding
non-filing  fees  charged  by  the  Company  on  certain  credit   transactions.
Non-filing  fees are used to  obtain  insurance  in lieu of  filing a  financing
statement  to  perfect  a  security   interest  in  connection   with  a  credit
transaction.  The  plaintiffs  in the  cases  are  alleging  that the  Company's
charging of the non-filing fees violates  certain state and federal statutes and
are seeking statutory damages and unspecified  punitive damages.  Kirby et al v.
Heilig-Meyers  Furniture  Company  and  Heilig-Meyers  Company  was filed in the
United  States   District  Court  for  the  Southern   District  of  Mississippi
(Hattiesburg District) on April 10, 1995 and initially sought certification of a
class in all states except Alabama and Georgia.  On February 3, 1997,  this case
was transferred by the panel on  multi-district  litigation (the "MDL Panel") to
the United  States  District  Court for the  Middle  District  of  Alabama  (the
"Alabama  Court").  The  Company  has moved to return  this case to the court in
which it was originally  filed. On December 3, 1997,  Faulkner v.  Heilig-Meyers
Company  (filed on  February  18,  1997 in the  Northern  District  of  Illinois
alleging  violation of federal and Illinois statutes) was transferred by the MDL
Panel to the Alabama Court and  consolidated  with Kirby. The Court in Kirby has
pending a motion to certify a class for all states  except  Alabama and Florida.
In addition,  the Company has  previously  reported  two cases  pending in state
court: (i) Eubanks v. Heilig-Meyers Company and Heilig-Meyers  Furniture Company
(alleging violation of Georgia statutes and seeking  certification of a class of
Georgia  residents) filed on March 5, 1997 in Georgia State Court,  subsequently
removed to United States  District  Court for the Southern  District of Georgia,
and on July 7, 1997, remanded to Superior Court of Liberty County,  Georgia, and
(ii) Wahl v. Heilig-Meyers Company and Heilig-Meyers Furniture Company (alleging
violations of Tennessee statutes and seeking certification of a class of certain
individuals who made purchase in the Company's  Tennessee  stores) filed on June
23, 1997 in Memphis,  Tennessee  Chancery Court. On March 25, 1998, the court in
Eubanks entered an order dismissing the case. The Company's motion to dismiss is
pending in the Wahl case.

         In  addition,  the  Company  is  party to  various  legal  actions  and
administrative proceedings and subject to various claims arising in the ordinary
course of business,  including claims relating to its charges in connection with
credit sales.  Based on the best information  presently  available,  the Company
believes that the disposition of these matters will not have a material  adverse
impact on the financial statements of the Company.


ITEM 4.  SUBMISSION of MATTERS to a VOTE of SECURITY HOLDERS


None.


                                       14
<PAGE>


                     Executive Officers of the Registrant

         The following table sets forth certain  information with respect to the
executive officers of the Company as of May 1, 1998:


                                           Positions with
                                           the Company or
Principal                                  Occupation for
the                           Years with   Past Five Years and
     Name              Age   the Company   Other Information

William C. DeRusha      48           29    Chairman  of the Board since April 
                                           1986.  Chief Executive Officer since
                                           April 1984.  Director since January
                                           1983.

Troy A. Peery, Jr.      52           26    President since  April 1986.  Chief
                                           Operating Officer since December 
                                           1987. Director since April 1984.

James F. Cerza, Jr.     50           10    Executive Vice President, Heilig-
                                           Meyers since April 1998. Executive
                                           Vice President, Operations from June
                                           1996 until April 1998. Executive Vice
                                           President, from April 1995 to June
                                           1996. Executive Vice President, 
                                           Operations from August 1989 to April
                                           1995.

Joseph R. Jenkins       52           10    Executive Vice President, Heilig-
                                           Meyers / Mattress Discounters since
                                           April 1998. Executive Vice President
                                           from July 1997 until April 1998.
                                           Executive Vice President and Chief
                                           Financial Officer from January 1988
                                           to July 1997.

Irwin L. Lowenstein     62            1    Executive Vice President, Rhodes
                                           since April 1997. Executive Vice 
                                           President, Rhodes, Inc. since January
                                           1997. Chairman of the Board, Rhodes,
                                           Inc. from 1994 to December 1996. 
                                           Chief Executive Officer, Rhodes, Inc.
                                           from 1989 to December 1996. President
                                           and Chief Operating Officer, Rhodes,
                                           Inc. from 1973 to 1994.

James R. Riddle         56           13    Executive Vice President, The 
                                           RoomStore / Berrios since April 1998.
                                           Executive Vice President from April
                                           1995 to April 1998. Executive Vice
                                           President, Marketing from January
                                           1988 to April 1995.

                                       15
<PAGE>

Patrick D. Stern        41            -    Executive Vice President, The 
                                           RoomStore / Berrios since June
                                           1997. Vice President, Merchandising,
                                           Value City Furniture (retailer) from
                                           April 1994 to April 1997. Vice
                                           President, Sales and Marketing,
                                           SilverOaks Furniture Manufacturing
                                           prior to 1994.

George A. Thornton III  57            1    Executive Vice President, Rhodes 
                                           since April 1997. Director from
                                           April 1980 to February 1997. 
                                           Independent consultant to furniture
                                           manufacturers and Chairman, Tim  Buck
                                           II, LTD (real estate development) for
                                           more than five years prior to April
                                           1997.

William J. Dieter       58           25    Senior Vice President, Accounting
                                           since April 1986. Chief Accounting
                                           Officer since 1975.


Roy B. Goodman          40           17    Senior Vice President,Chief Financial
                                           Officer since July 1997. Senior Vice
                                           President, Finance from April 1995 to
                                           July 1997.  Vice President, Secretary
                                           and Treasurer prior to April 1995.


                                       16
<PAGE>

                                  PART II

ITEM 5.   MARKET for REGISTRANT'S COMMON EQUITY and RELATED STOCKHOLDER MATTERS



         The Company's  common stock is traded on the New York Stock and Pacific
Exchanges  under the  symbol  HMY.  The table  below sets forth the high and low
prices as reported on the New York Stock Exchange  Composite  Tape, and dividend
information for each of the last eight fiscal quarters.

         Fiscal Year          High           Low        Dividends

   1998
         4th Quarter        $  15 3/4    $  11 15/16    $  .07
         3rd Quarter           17 3/16      12 9/16        .07
         2nd Quarter           20           14 3/4         .07
         1st Quarter           17 7/8       13 3/4         .07

         1997
         4th Quarter        $  16 1/8    $  12 3/4      $  .07
         3rd Quarter           17 1/4       12 5/8         .07
         2nd Quarter           24 1/8       16             .07
         1st Quarter           23 3/8       13 7/8         .07

         There were  approximately  3,300  shareholders of record as of February
28, 1998.

         The Company has paid cash  dividends  in every year since  fiscal 1976.
The Board of Directors  intends to continue its present policy of paying regular
quarterly  dividends when  justified by the financial  condition of the Company.
The amount of future  dividends,  if any,  will  depend  upon  general  business
conditions,  earnings,  capital requirements and such other factors as the Board
may deem  relevant.  The  Company's  payment of dividends is  restricted,  under
certain  covenants in loan  agreements,  to $92,687,000 plus 75% of net earnings
adjusted for dividend payouts subsequent to February 28, 1998.

         Recent Sales of Unregistered  Securities.  During the past fiscal year,
the Company  issued  shares of its common  stock in the  transactions  described
below.  The sales of the  securities  were  exempt from  registration  under the
Securities  Act of 1933 ("the  Act") for  transactions  not  involving  a public
offering,  based on the fact that the private placements were made to accredited
investors under Rule 506 of Regulation D under the Act.

         On July 17, 1997, the Company  acquired all of the outstanding  capital
stock of Mattress  Discounters  Corporation  and TJB,  Inc.,  which operated 169
stores  in  10  states  and  Washington,   D.C.  The  shareholders  of  Mattress
Discounters Corporation and TJB, Inc. received 2,269,839 shares of the Company's
common stock as part of the  transaction.  An additional  264,550  shares of the
Company's  common  stock  were  placed  in  escrow  to be  paid  to  the  former
shareholders  of Mattress  Discounters  Corporation if the acquired  stores meet
certain earnings targets in the twelve months following the transaction.

         On January 2, 1998, the Company acquired all of the outstanding capital
stock of Bedding Experts,  Inc.,  which operated 54 stores in Chicago,  Illinois
and the surrounding  area. The  shareholders of Bedding Experts,  Inc.  received
2,019,182 shares of the Company's common stock as part of the transaction.



                                       17
<PAGE>

<TABLE>


ITEM 6.  SELECTED FINANCIAL DATA
<S>                        <C>         <C>         <C>         <C>         <C> 
FISCAL YEAR                     1998 (1)    1997 (1)    1996        1995        1994
                                 (Dollar amounts in thousands except per share data)

Operations Statement Data:
Sales                      $2,160,223  $1,342,208  $1,138,506  $  956,004  $  723,633
Annual growth in sales           60.9%       17.9%       19.1%       32.1%       31.7%
Other income               $  309,513  $  250,911  $  220,843  $  196,135  $  140,156
Total revenues              2,469,736   1,593,119   1,359,349   1,152,139     863,789
Annual growth in revenue         55.0%       17.2%       18.0%       33.4%       31.4%
Costs of sales             $1,451,560  $  876,142  $  752,317  $  617,839  $  460,284
Gross profit margin              32.8%       34.7%       33.9%       35.4%       36.4%
Selling, general and
  administrative expense   $  828,105  $  526,369  $  436,361  $  350,093  $  260,161
 Interest expense              67,283      47,800      40,767      32,889      23,834
Provision for doubtful
  accounts                    181,645      80,908      65,379      45,419      32,356
Store closing and other
  charges                      25,530         ---         ---         ---         ---
Provision (benefit) for
  income taxes                (29,244)     21,715      23,021      39,086      32,158
Effective income tax rate        34.7%       35.1%       35.7%       36.9%       36.9%
Net earnings (loss)        $  (55,143) $   40,185  $   41,504  $   66,813  $   54,996
Earnings (loss) margin           (2.6)%       3.0%        3.7%        7.0%        7.6%
Net earnings (loss) per share:
  Basic (2)                $     (.98) $      .81  $      .85  $     1.38  $     1.16
  Diluted (2)                    (.98)        .80         .84        1.34        1.12
Cash dividends per share          .28         .28         .28         .24         .20


Balance Sheet Data:
Total assets               $2,097,513  $1,837,158  $1,288,960  $1,208,937  $1,049,633
Average assets per store        1,674       1,946       1,800       1,869       1,841
Accounts receivable, net      392,765     380,879     518,969     538,208     535,437
Retained interest in
  securitized receivables
  at fair value               182,158     243,427         ---         ---         ---
Inventories                   542,868     433,277     293,191     253,529     184,216
Property and equipment, net   398,151     366,749     216,059     203,201     168,142
Additions to property
  and equipment                70,921      84,137      40,366      49,101      36,252
Short-term debt               282,365     256,413     207,812     167,925     210,318
Long-term debt                715,271     561,489     352,631     370,432     248,635
Average debt per store            796         866         783         832         805
Stockholders' equity          609,154     642,621     518,983     490,390     433,229
Stockholders' equity per share  10.36       11.81       10.69       10.10        8.95

Other Financial Data:
Working capital            $  591,397  $  550,137  $  527,849   $ 554,096  $  453,175
Current ratio                     1.8         1.9         2.4         2.9         2.4
Debt to equity ratio             1.64        1.27        1.08        1.10        1.06
Debt to debt and equity          62.1%       56.0%       51.9%       52.3%       51.4%
Rate of return on average
  assets (3)                     (0.6)%       4.6%        5.4%        7.8%        7.7%
Rate of return on average
  equity                         (8.8)%       6.9%        8.2%       14.5%       14.9%
Number of stores                1,253         944         716         647         570
Number of employees            24,374      19,131      14,383      13,063      10,536
Average sales per employee $       99  $       84  $       83   $      81  $       79


                                       18
<PAGE>

SELECTED FINANCIAL DATA, cont.


FISCAL YEAR                     1998        1997        1996        1995        1994
                                (Dollar amounts in thousands except per share data)

Weighted average common shares outstanding:
    (in thousands)
  Basic                       56,312       49,360      48,560       48,459     47,292
  Diluted                     56,312       50,146      49,604       49,954     49,103

Price range on common stock per share:
       High               $   20       $   24 1/8  $   27 1/4   $   36     $   39
       Low                    11 15/16     12 5/8      13 1/2       23 1/4     19 3/8
       Close                  15 1/2       14 1/8      14           23 5/8     33

</TABLE>



(1)Operations   statement  data  include   operating   results  of  acquisitions
   subsequent  to the dates of  acquisition.  Balance  sheet  data  include  the
   financial  position of  acquisitions as of fiscal year ends subsequent to the
   dates of acquisition.  See the description of such  acquisitions in the Notes
   to Consolidated Financial Statements.

(2)The earnings per share  amounts  prior to 1998 have been restated as required
   to comply with Statement of Financial  Accounting Standards No. 128, Earnings
   Per Share.  For further  discussion  of earnings  per share and the impact of
   Statement 128, see the Notes to Consolidated Financial Statements.

(3) Calculated using earnings before interest, net of tax.


                                       19
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION
and RESULTS of OPERATIONS

RESULTS OF OPERATIONS

         Results  of  operations  expressed  as a  percentage  of  sales  are as
follows:

                                                        Fiscal Year
                                    1998              1997              1996
                                    ----------------------------------------

Other income                        14.3%            18.7%             19.4%
Costs of sales                      67.2             65.3              66.1
Selling, general and
         administrative expense     38.3             39.2              38.3
Interest expense                     3.1              3.6               3.6
Provision for doubtful
         accounts                    8.4              6.0               5.7
Store closing and other
         charges                     1.2                -                 -
Earnings (loss) before
         provision (benefit)
         for income taxes           (3.9)             4.6               5.7
Provision (benefit) for
         income taxes               (1.4)             1.6               2.0
Net earnings (loss)                 (2.6)             3.0               3.7


Profit Improvement Plan
         Home  furnishings   purchases  are  generally  considered   "big-ticket
purchases",  and consumers  typically  utilize  consumer credit to finance these
purchases.  Impacted by an increase in consumer  credit  problems  and  personal
bankruptcies,  the demand for home furnishings in the niche in which the Company
serves  has  been  low over the past  two  fiscal  years.  In  response  to this
difficult  environment,   Heilig-Meyers  Company  (the  "Company")  conducted  a
comprehensive review of its operations,  and developed a Profit Improvement Plan
(the "Plan"),  which was announced on December 17, 1997. The Plan has three main
components:  (1) expense reductions; (2) restructuring of certain aspects of the
business; and (3) Heilig-Meyers store operating initiatives.  The Plan calls for
the closing of certain  Heilig-Meyers  stores,  the downsizing of administrative
and support  facilities,  a reorganization  of the  Heilig-Meyers  private label
credit card program, and the development of operating initiatives to improve the
performance of the Heilig-Meyers stores.
         In the fourth  quarter of fiscal 1998,  the Company  recorded a pre-tax
charge  of  approximately  $25.5  million  related  to  specific  plans to close
approximately 40 Heilig-Meyers  stores,  downsize office and support facilities,
and reorganize the Heilig-Meyers  private label credit card program.  The charge
reduced 1998 net earnings  $16.7 million or $.30 per share.  The pre-tax  charge
includes the following components:  $8.1 million for severance, $7.6 million for
lease and facility exit costs, $7.3 million for fixed asset impairment, and $2.5
million for goodwill impairment.  The Company expects to substantially  complete
the store  closings  and office  downsizing  during the first  quarter of fiscal
1999, and private label credit card program  reorganization  during fiscal 1999.
Accordingly,  the majority of the  reserves  are expected to be utilized  during
fiscal 1999.  The final plan calls for closing  approximately  40 stores  rather
than the  approximately  60 stores  initially  contemplated,  as a result of the
completion of store operations and asset disposition analyses.
         The core-store  operating  initiatives  include a plan to significantly
slow the growth of the Heilig-Meyers  stores over the next year to allow for the
maturation of the recent store additions.  Approximately 20 to 30 stores will be
relocated to higher-traffic  areas. The initiatives also call for adjustments to
merchandising and advertising  strategies based on the remaining markets and the
strengthening of the inventory  management  programs.  While management plans to
slow  the  growth  in  the   Heilig-Meyers   division,   it  expects  to  pursue
opportunities in the Company's other formats. These opportunities will be in the
formats that are less capital  intensive and are  currently  operating at higher
levels of return  than the  Heilig-Meyers  division.  The  Company has adopted a
capital  allocation  process under which all expansion and capital projects will
be subjected to return on investment criteria.


                                       20
<PAGE>

         Pursuant  to these  initiatives,  raw  selling  margins  in the  fourth
quarter of fiscal 1998 were negatively  impacted by approximately  $5.1 million,
or .2% of sales, due to inventory liquidations. Approximately $14.8 million (.7%
of sales) in selling,  general and administrative expenses were incurred related
to asset  write-downs  and other  reserves  in the third and fourth  quarters of
fiscal 1998 (see "Costs and Expenses").
         While the Company anticipates that the majority of the reserves related
to this  Plan will be  utilized  over the first  two  quarters  of fiscal  1999,
amounts related to property and long-term lease  commitments will continue to be
utilized  subsequent to this time period. The overall cash impact of the Plan is
expected  to be positive as cash  received  from the sale of certain  assets and
from income tax benefits is expected to significantly  exceed cash expenditures,
which will consist  primarily  of employee  severance  and payments  under lease
obligations.

Revenues
         Sales for fiscal 1998  compared to the two  previous  periods are shown
below:

                                                          Fiscal Year
                                           1998              1997          1996
                                       ----------------------------------------

Sales (in thousands)                 $2,160,223       $1,342,208     $1,138,506
Percentage increase over
         prior period                      60.9%            17.9%          19.1%
Portion of increase from 
         existing (comparable)
         stores                             2.8             (0.6)           0.3
Portion of increase from
         new stores                        58.1             18.5           18.8



         The growth in total sales of the Company  for fiscal  years 1998,  1997
and 1996 is  primarily  attributed  to the  growth in  operating  units  through
acquisitions.  The impact of price  changes on sales  growth over the last three
fiscal years has been insignificant. Expansion of the Heilig-Meyers retail units
during fiscal 1998 and 1997 was primarily in the south central, southwestern and
northwestern United States.
         The Company has four primary retail  formats  targeting a wide range of
consumers.  The  increase  in these  formats  over the past two  years  has been
achieved through  acquisitions.  Sales for the last three fiscal years and store
counts as of February 28, (29), were as follows:


                                            Fiscal Year
                         1998                  1997                 1996
               -----------------------------------------------------------------
                                   (Sales amounts in millions)

                # of           % of   # of           % of    # of          % of
              Stores   Sales  Total  Stores   Sales  Total  Stores  Sales  Total
              ------------------------------------------------------------------
Heilig-Meyers    865  $1,436   66.5    829   $1,262   94.1   716   $1,139  100.0
Rhodes           102     480   22.2    105       78    5.8     -        -      -
The RoomStore     61     112    5.2     10        2    0.1     -        -      -
Mattress
   Discounters   225     132    6.1      -        -      -     -        -      -
               -----------------------------------------------------------------
Total          1,253  $2,160  100.0    944   $1,342  100.0   716   $1,139  100.0
               =================================================================


         On December 31, 1996,  Rhodes,  Inc., a Georgia  Corporation,  became a
wholly-owned  subsidiary of the Company in a transaction accounted for under the
purchase  method.  The Company  operates  these stores under the Rhodes name and
format. These stores are primarily located in metropolitan areas of 15 southern,
midwestern and western states.
         In late February 1997, the Company  acquired certain assets relating to
10 stores  operating  in  central  Texas  under the name  "The  RoomStore"  in a
transaction  accounted for under the purchase  method.  The  RoomStore  operates
under a "rooms  concept,"  displaying  and selling  furniture  in complete  room


                                       21
<PAGE>

packages.  At the end of fiscal 1998,  The RoomStore  operated 61 stores,  18 of
which were acquired from Reliable Inc. in Columbia,  Maryland,  in February 1998
and 3 of which were acquired in January 1998 from John M. Smyth's  Homemakers in
Chicago,  Illinois. The remaining additions to The RoomStore format were through
the ongoing conversion of pre-existing Heilig-Meyers and Rhodes stores.
         In July 1997, the Company acquired all of the outstanding capital stock
of  Mattress  Discounters  Corporation  and  a  related  corporation  ("Mattress
Discounters") with 169 stores in 10 states and Washington,  D.C. The transaction
was  accounted  for under the  purchase  method.  In January  1998,  the Company
acquired all of the outstanding capital stock of Bedding Experts,  Inc., with 54
stores in Chicago,  Illinois,  and the  surrounding  area. The  transaction  was
recorded  as a  pooling-of-interests,  however,  prior  periods  have  not  been
restated as the effect is not considered material to the consolidated  financial
statements.  These stores are included in the Mattress Discounters format in the
table above.
         Other income  decreased to 14.3% of sales for fiscal 1998 from 18.7% of
sales for fiscal 1997.  Other income decreased to 18.7% of sales for fiscal 1997
from 19.4% of sales for fiscal 1996. These decreases are primarily the result of
the effect of Rhodes,  The RoomStore  and Mattress  Discounters  operations,  as
these stores' credit  programs are  maintained by third parties and,  unlike the
Heilig-Meyers  in-house program,  do not produce finance income for the Company.
Excluding the results of Rhodes, The RoomStore and Mattress  Discounters,  other
income decreased .1% of sales for the year ended February 28, 1998,  compared to
the prior fiscal year.
         The Company plans to continue its program of periodically  securitizing
a portion of the installment  accounts receivable portfolio of its Heilig-Meyers
stores.  Proceeds from securitized accounts receivable are generally used by the
Company  to lower debt  levels.  Net  servicing  income  related to  securitized
receivables  that have been sold to third  parties is included in other  income.
The Company offers  third-party  private label credit card programs to customers
of the Rhodes and The RoomStore formats.

Costs and Expenses
         In fiscal 1998, costs of sales increased,  as a percentage of sales, to
67.2%  from  65.3% in fiscal  year  1997.  This  increase  is the  result of the
liquidation of merchandise  associated with  acquisitions,  reduced  leverage on
distribution  and  occupancy  costs,  and higher  occupancy  costs in the larger
markets served by the Rhodes and The RoomStore formats. Raw selling margins were
reduced  by  approximately  $5.1  million,  or .2% of  sales,  due to  inventory
liquidation sales in the Rhodes stores and  Heilig-Meyers  stores in Puerto Rico
(see "Profit Improvement  Plan").  Costs of sales decreased to 65.3% of sales in
fiscal  1997 from  66.1% in fiscal  1996.  The  reduction  in costs of sales was
primarily related to improved raw selling margins in the Heilig-Meyers stores. A
reduction in the use of aggressive,  price-cutting promotions and improvement in
day-to-day  pricing  policies were the primary  contributors  to the raw selling
margin results.  Additionally, as compared to fiscal 1996, the merchandise sales
mix for fiscal 1997 included a higher percentage of furniture and bedding, which
carry higher raw selling margins.
         Selling,  general and  administrative  expenses  decreased  to 38.3% of
sales in fiscal 1998 from 39.2% in fiscal 1997.  The decrease  between years was
the result of leverage gained on sales at the Rhodes, The RoomStore and Mattress
Discounters  formats.  Compared to the prior year period,  the addition of these
formats has resulted in a lower  administrative  cost structure generally due to
the  use  of  third-party  credit  providers.   However,  selling,  general  and
administrative  expenses for fiscal 1998 include charges of approximately  $14.8
million,  or .7% of sales,  related to asset write-downs and other reserves (see
"Profit Improvement Plan").  These charges arise primarily from asset impairment
caused  by  the  conversion  of  existing  stores  to  new  operating   formats,
relocations of  administrative  and support  facilities,  and a more  aggressive
strategy to exit excess real estate.  Also included in this amount are legal and
other transaction costs associated with the Bedding Experts  acquisition,  which
was accounted for as a pooling of interests. Selling, general and administrative
expenses  increased  to 39.2% of sales in fiscal 1997 from 38.3% in fiscal 1996.
The increase in fiscal 1997 was primarily  the result of loss of sales  leverage
on fixed type expenses such as base salaries, data processing,  and depreciation
and amortization,  given the modest decline in comparable store sales during the
fiscal year. Advertising costs in fiscal 1997 were slightly down as a percentage
of sales compared to fiscal 1996.


                                       22
<PAGE>

         Interest  expense  was 3.1% and 3.6% of sales in fiscal  years 1998 and
1997,  respectively.  The  decrease  is mainly due to  leverage  on the sales by
Rhodes, The RoomStore and Mattress Discounters, which were purchased with common
stock.  The Company issued $175 million in public debt during the second quarter
of fiscal  1998.  The Company also issued  approximately  $300 million in public
debt in the last half of fiscal 1997 as part of the financing strategy discussed
below.  Weighted  average  long-term  interest  rates for fiscal  1998  remained
relatively  consistent at 7.8%, compared to 7.7% during the prior year. Weighted
average  short-term  debt increased to $229.2 million in fiscal 1998 from $186.3
million in fiscal 1997.  Weighted average short-term interest rates increased to
6.1% from 5.8% in the prior year.  Interest  expense was 3.6% of sales in fiscal
years 1997 and 1996.  The impact of an increase in  weighted  average  long-term
debt of $93.5 million was offset by lower weighted average interest rates, which
decreased  to 7.7%  from  7.9%  on  long-term  debt  and to  5.8%  from  6.3% on
short-term  debt in fiscal  years 1997 and 1996,  respectively.  The increase in
long-term  debt  levels in both  fiscal  1998 and 1997 was  consistent  with the
Company's plan to structure its debt portfolio to contain a higher percentage of
long-term fixed rate debt in order to minimize the exposure to future short-term
interest rate fluctuations.
         The  provision  for doubtful  accounts was 8.4% of sales in fiscal 1998
compared to 6.0% and 5.7% in fiscal 1997 and 1996, respectively. The increase in
the  provision for doubtful  accounts as a percentage of sales  resulted from an
increase in the installment  portfolio's loss rate and related  write-offs,  the
impact of management's plan to close  approximately 40 stores,  and management's
plan to reorganize  the  Heilig-Meyers  private  label credit card program.  The
overall rise in the portfolio's loss rate is primarily attributed to an increase
in  bankruptcies.  The Company provided an additional $38.0 million for doubtful
bankrupt accounts based on the increase in the total bankrupt account portfolio,
the  mix of  accounts  by  type  of  bankruptcy  filed,  and  recent  collection
experience.  The Company also provided for increased write-offs of approximately
$36.3 million  related to a more  critical  evaluation of accounts for write-off
for  fiscal  1998 and to cover  the  impact of  transferring  the  servicing  of
accounts  from  stores  that are  planned  for  closing in fiscal  1999 to other
Heilig-Meyers  store  locations.  Additionally,  management  has  committed to a
reorganization of the Heilig-Meyers private label credit card program,  which is
offered to certain  customers  under an agreement with a financial  institution.
The Company  provided $15.0 million to cover estimated losses under the recourse
provisions  of  the  agreement  that  will  be  incurred  as  a  result  of  the
reorganization  plan. The items noted above, which total 4.1% of sales in fiscal
1998 were  slightly  offset by the  operations  of Rhodes,  The  RoomStore,  and
Mattress Discounters as these formats primarily use third-party credit providers
and, accordingly, do not record significant provisions for doubtful accounts.
         Total  portfolio  write-offs for fiscal 1998, 1997 and 1996 were $167.5
million, $77.4 million and $66.1 million,  respectively. Of these amounts, $21.2
million,  $6.9  million  and  $8.9  million  were  for  purchased   receivables,
respectively.  Management  believes that the allowance for doubtful  accounts at
February 28, 1998, is adequate.
         Components of the Profit  Improvement  Plan address the increase in the
portfolio loss rate.  Stores that have been targeted for closing have been among
the  poorest  performers  related  to credit  losses.  Management  believes  the
elimination of these stores will positively  impact the Company's  credit losses
going  forward.  The Company plans to more fully  implement  risk-based  scoring
models to provide local  management with better tools in making credit extension
decisions.   These  models  will  also  enable  corporate   management  to  more
efficiently monitor the portfolio. Management believes implementing this plan at
the local and  corporate  levels  will also  positively  impact the  portfolio's
credit losses.

Provision for Income Taxes and Net Earnings
         The income tax  benefit for fiscal  1998 was  calculated  by applying a
percentage of 34.7% compared to fiscal 1997's tax rate of 35.1%. The decrease in
the rate from 1997 is due to the impact of the loss incurred during 1998, offset
by  the  higher  effective  tax  rates  of  the  recently   acquired   operating
subsidiaries.  The higher  rates result from the  carryover  tax  attributes  of
acquired  assets and  liabilities.  The  effective  tax rate for fiscal 1997 was
35.1%  compared to 35.7% for fiscal 1996.  The decrease  between the fiscal 1997
and 1996  effective  tax rate was  primarily  the result of higher  fixed dollar
income tax credits in fiscal 1997 and lower levels of pretax earnings.

                                       23
<PAGE>

         The net loss for fiscal 1998 was $55.1 million  compared to earnings of
$40.2  million  for fiscal  1997.  The loss in fiscal 1998 was the result of the
store closing and other charges related to the Profit Improvement Plan discussed
above and the increase in the  provision  for doubtful  accounts in fiscal 1998.
The net earnings for fiscal 1997  decreased to $40.2  million from $41.5 million
for fiscal 1996. As a percentage of sales,  profit margin  decreased to 3.0% for
fiscal 1997 from 3.7% for fiscal 1996. The decrease was mostly  attributable  to
an increase as a  percentage  of sales in  selling,  general and  administrative
expenses  due to the  decline in  comparable  store sales and an increase in the
provision for doubtful accounts.

LIQUIDITY AND CAPITAL RESOURCES
         The Company  increased its cash position $33.8 million to $48.8 million
at February 28, 1998, from $15.0 million at February 28, 1997, and $16.0 million
at February 29, 1996. As the Company  continued to expand its store base through
acquisitions, cash flows used for investing activities exceeded cash provided by
operating  activities  for  fiscal  years  1998,  1997 and 1996.  The  Company's
operating  activities  typically  use cash  primarily  because  the  significant
majority of customer  sales in the  Heilig-Meyers  format have been  through the
Company's in-house credit program. These uses of cash have been partially offset
by proceeds from the sale of accounts receivable and financing activities.
         Operating  activities  used  cash of  $22.8  million  for  fiscal  1998
compared to cash used of $3.0 million in fiscal 1997 and cash  provided of $92.5
million in fiscal 1996. The Company  traditionally  produces minimal or negative
cash flow from operating  activities  because it extends  in-house credit in its
Heilig-Meyers  stores. The Company's change in accounts receivable and provision
for doubtful  accounts  netted to a $13.5 million  increase in fiscal 1998.  The
Company's  retained interest in securitized  receivables at cost decreased $50.5
million  during  fiscal  1998 as the  result  of the  sale of  certain  of these
investments.  The Company's retained interest in securitized receivables at cost
grew by $198.8  million in fiscal 1997 with  accounts  receivable  decreasing by
$56.2 million.  These changes relate to the sale of $60.5 million of receivables
and the change in classification of certain receivables  transferred to a master
trust during fiscal 1997. The higher level of receivables  transferred relate to
the continued  extension of credit to customers and a reduced amount of accounts
sold  during the year as compared to the  amounts  sold in fiscal  1996.  During
fiscal  1998,  inventory  levels  increased  at a higher  rate than  fiscal 1997
primarily  due to the stocking of line-up  inventory  in the  recently  acquired
stores in order to  support  the  merchandising  plan.  The prior  increases  in
inventory  levels  have  primarily  been the  result of the  opening  of 113 new
Heilig-Meyers  stores in fiscal 1997 and 69 in fiscal 1996.  Continued extension
of credit and related  increases  in customer  accounts  receivable,  as well as
increases in inventory  related to new stores,  are expected to be negative cash
flow  activities  in  future  periods.  However,  as noted  above,  the  Company
periodically  sells  accounts  receivable  to provide a source of positive  cash
flows from operating activities.
         Investing  activities produced negative cash flows of $106.5 million in
fiscal 1998,  $146.5  million in fiscal 1997,  and $95.6 million in fiscal 1996.
Cash used for acquisitions  decreased in 1998 to $40.2 million compared to $58.8
million in fiscal 1997 as a result of a lower level of  acquisition  activity in
fiscal 1998. Cash used for acquisitions was relatively consistent in fiscal 1997
compared to fiscal 1996, at $58.8 million and $51.7 million, respectively.  Cash
used for  additions to property and  equipment  resulted from the opening of new
store  locations and related  support  facilities as well as the  remodeling and
improvement  of  existing  and  acquired  locations.  The  increase  in the cash
required  for  capital  expenditures  in fiscal  1997 was the result of a larger
number  of  prototype   stores  and  support   facilities   completed  or  under
construction  as of  February  28,  1997,  compared to February  29,  1996.  The
increase in the disposals of property and equipment between fiscal 1998 and 1997
is the  result of the  beginning  phases of the  Company's  "Profit  Improvement
Plan."  See  the  discussion  concerning  the  Company's  future  expansion  and
disposition plans under "Profit Improvement Plan" above.
         Financing  activities  provided  a  positive  net cash  flow of  $163.1
million in fiscal  1998 as  compared  to $148.4  million in fiscal 1997 and $8.8
million in fiscal 1996. In June 1997, the Company and a wholly-owned  subsidiary
filed a joint  Registration  Statement  on Form  S-3  with  the  Securities  and
Exchange  Commission relating to up to $400.0 million aggregate principal amount
of  securities.  As of  February  28,  1998,  long-term  notes  payable  with an
aggregate  principal  amount of $175.0  million  have been  issued to the public


                                       24
<PAGE>

under this  registration  statement.  Long-term  notes payable with an aggregate
principal amount of $300.0 million were issued to the public during fiscal 1997.
Proceeds  from the  issues  were  used to retire  long-term  debt  maturing  and
short-term  notes  payable.  All  previously  issued  debt had  been in  private
placements rather than public markets.  As of February 28, 1998, the Company had
a $400.0 million  revolving credit facility in place which expires in July 2000.
This facility  includes  thirteen banks and had $260.0 million  outstanding  and
$140.0  million  unused as of February 28, 1998. The Company also had additional
lines of credit with banks totaling $60.0 million, all of which was unused as of
February 28, 1998.
         As a result of  charges  recorded  in  fiscal  1998  under  the  Profit
Improvement Plan, the Company obtained amendments to its bank debt agreements in
order to maintain covenant  compliance.  In addition,  certain provisions of the
Company's bond indenture  restrict the Company's ability to incur long-term debt
until certain covenant  restrictions are met.  Management  expects to meet these
covenants in the fourth  quarter of fiscal 1999.  However,  management  believes
that the Company has adequate access to capital to finance accounts  receivable,
inventories and other capital needs during these next twelve months.
         Total debt as a percentage of debt and equity was 62.1% at February 28,
1998,  compared  to 56.0%  and  51.9%  at  February  28,  (29),  1997 and  1996,
respectively. The increase in total debt as a percentage of debt and equity from
February 28, 1997 to February 28, 1998 is primarily  attributed  to the issuance
of $175 million of long-term  debt as well as the increase in  short-term  notes
payable during fiscal 1998. The issuance was partially  offset by the payment on
the maturity of long-term  notes.  The fiscal 1998 loss,  which reduced retained
earnings,  also  resulted in the increase of total debt as a percentage  of debt
and equity.  The current  ratio was 1.8X at February 28, 1998,  compared to 1.9X
and 2.4X for February 28, (29), 1997 and 1996, respectively. The decrease in the
current  ratios  from  February  29, 1996 to  February  28,  1997 was  primarily
attributed to an $82.6 million increase in long-term debt due within one year.

OTHER INFORMATION

Year 2000 Issue
         During fiscal year 1997,  management  established a team to oversee the
Company's Year 2000 date conversion project.  After conducting its assessment of
all  systems,  management  implemented  a plan of  corrective  action using both
internal and external resources to enhance the systems for Year 2000 compliance.
Management expects to complete the project during fiscal year 1999, and does not
anticipate the amounts required to be expensed as part of the corrective plan to
have a  material  effect on the  Company's  financial  position  or  results  of
operations.  The  team is  communicating  with  other  companies  on  which  the
Company's systems rely and is planning to obtain  compliance  letters from these
entities.  However,  there can be no  assurance  that the systems of these other
companies  will be  converted  in a timely  manner,  or that any such failure to
convert by another  company  would not have an adverse  effect on the  Company's
systems.  Management  believes the Year 2000 compliance issue is being addressed
properly by the Company to prevent any material adverse operational or financial
impacts. However, if such enhancements are not completed in a timely manner, the
Year 2000  issue may have a material  adverse  impact on the  operations  of the
Company.

FORWARD-LOOKING STATEMENTS

         Certain  statements  included  in this  Annual  Report are not based on
historical facts, but are  forward-looking  statements.  These statements 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.,   "Management's  Discussion  and  Analysis  of  Financial
Condition  and  Results  of  Operations"  and  "Leading  Our  Industry   Through
Innovation,"  "Strengthening Our Core Business,"  "Expanding Via New Formats and
Markets," and "Leveraging Our Strengths." These statements reflect the Company's
reasonable  judgments with respect to future events and are subject to risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking  statements.  Such risks and uncertainties  include, but are
not  limited  to, the  customer's  willingness,  need and  financial  ability to
purchase home  furnishings  and related items,  the Company's  ability to extend


                                       25
<PAGE>

credit to its customers,  the costs and effectiveness of promotional activities,
the Company's  ability to realize cost savings and other  synergies  from recent
acquisitions,  as well as the Company's  access to, and cost of, capital.  Other
factors  such as changes  in  consumer  debt and  bankruptcy  trends,  tax laws,
recessionary or expansive trends in the Company's  markets,  inflation rates and
regulations  and laws which affect the  Company's  ability to do business in its
markets may also impact the outcome of forward-looking statements.


                                       26
<PAGE>


ITEM 8.  FINANCIAL STATEMENTS and SUPPLEMENTARY DATA




                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (Amounts in thousands except per share data)


FISCAL YEAR                               1998         1997         1996
                                         ------       ------       -----
   Revenues:
     Sales                           $2,160,223   $1,342,208   $1,138,506
     Other income                       309,513      250,911      220,843
                                     ----------   ----------    ---------

        Total revenues                2,469,736    1,593,119    1,359,349

Costs and expenses:

     Costs of sales                   1,451,560      876,142      752,317
     Selling,general and administrative 828,105      526,369      436,361
     Interest                            67,283       47,800       40,767
     Provision for doubtful accounts    181,645       80,908       65,379
     Store closing and other charges     25,530           --           --
                                     ----------   ----------    ---------
        Total costs and expenses      2,554,123    1,531,219    1,294,824
                                     ----------   ----------    ---------

Earnings (loss) before provision
     (benefit) for income taxes         (84,387)      61,900       64,525
Provision (benefit) for income taxes    (29,244)      21,715       23,021
                                      ----------   ---------    ---------
Net earnings (loss)                   $ (55,143)   $  40,185    $  41,504
                                      ==========   =========    =========

Net earnings (loss) per share:
     Basic                            $    (.98)   $     .81    $     .85
                                      ==========   =========    =========
     Diluted                          $    (.98)   $     .80    $     .84
                                      ==========   =========    =========

Weighted average common shares outstanding:

     Basic                               56,312       49,360       48,560
     Diluted                             56,312       50,146       49,604
                                      =========    =========    =========

Cash dividends per share of common
     stock                            $     .28    $     .28    $     .28
                                      =========    =========    =========


                       See notes to consolidated financial statements.

                                       27
<PAGE>

                              CONSOLIDATED BALANCE SHEETS
                       (Amounts in thousands except par value data)


FEBRUARY 28,                                 1998                   1997
                                            ------                 -----

Assets
Current assets:
     Cash                              $    48,779            $    14,959
     Accounts receivable, net              392,765                380,879
     Retained interest in securitized
          receivables at fair value        182,158                243,427
     Inventories                           542,868                433,277
     Other current assets                  126,978                 61,515
                                       -----------            -----------

          Total current assets           1,293,548              1,134,057

Property and equipment, net                398,151                366,749
Other assets                                55,321                 42,262
Excess costs over net
     assets acquired, net                  350,493                294,090
                                       -----------            -----------

                                       $ 2,097,513            $ 1,837,158
                                       ===========            ===========

Liabilities And Stockholders' Equity

Current liabilities:
     Notes payable                     $   260,000            $   156,000
     Long-term debt due within one year     22,365                100,413
     Accounts payable                      203,048                160,857
     Accrued expenses                      216,738                166,650
                                       -----------            -----------
          Total current liabilities        702,151                583,920

Long-term debt                             715,271                561,489
Deferred income taxes                       70,937                 49,128

Stockholders' equity:
     Preferred stock, $10 par value             --                     --
     Common stock, $2 par value (250,000
          shares authorized; 58,808 and
          54,414 shares issued and
          outstanding, respectively)       117,616                108,828
     Capital in excess of par value        230,580                195,352
     Unrealized gain on investments          4,548                 10,797
     Retained earnings                     256,410                327,644
                                       -----------            -----------

         Total stockholders' equity        609,154                642,621
                                       -----------            -----------
                                       $ 2,097,513            $ 1,837,158
                                       ===========            ===========

                    See notes to consolidated financial statements.


                                       28
<PAGE>



                         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                       (Amounts in thousands)


               Number of
                  Common            Capital in  Unrealized               Total
                  Shares     Common  Excess of   Gain on  Retained Stockholders'
             Outstanding      Stock  Par Value  Investments Earnings    Equity


Balances at
 March 1,1995     48,548   $ 97,096   $120,129   $    --   $273,165   $490,390
 Cash dividends       --         --         --        --    (13,598)   (13,598)
 Exercise of stock
  options, net        23         47        640        --         --        687
 Net earnings         --         --         --        --     41,504     41,504
                  ------------------------------------------------------------

Balances at
 February 29,1996 48,571     97,143    120,769        --    301,071    518,983
 Cash dividends       --         --         --        --    (13,612)   (13,612)
 Common stock
  issued for
  acquisitions     5,791     11,582     73,842        --         --     85,424
 Exercise of stock
  options, net        52        103        741        --         --        844
 Unrealized gain
  on investments      --         --         --    10,797         --     10,797
 Net earnings         --         --         --        --     40,185     40,185
                  ------------------------------------------------------------

Balances at
 February 28,1997 54,414    108,828    195,352    10,797    327,644    642,621
 Cash dividends       --         --         --        --    (16,249)   (16,249)
 Common stock
  issued for
  acquisitions     4,279      8,558     34,578        --         --     43,136
 Exercise of stock
  options, net       115        230        650        --         --        880
 Change in
  unrealized gain
  on investments      --         --         --    (6,249)        --     (6,249)
 Net loss             --         --         --        --    (55,143)   (55,143)
 Other                --         --         --        --        158        158
                  ------------------------------------------------------------

Balances at
 February 28,1998 58,808   $117,616   $230,580   $ 4,548   $256,410   $609,154
                  ============================================================


                           See notes to consolidated financial statements.


                                       29
<PAGE>


                          CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (Amounts in thousands)


FISCAL YEAR                                 1998       1997        1996
                                        -------------------------------

Cash flows from operating activities:
 Net earnings (loss)                   $ (55,143) $  40,185   $  41,504

  Adjustments  to reconcile net earnings
  (loss) to net cash provided  (used) by
   operating activities:
    Depreciation and amortization         54,043     33,874      29,460
    Provision for doubtful accounts      181,645     80,908      65,379
    Store closing and other charges
     provision                            25,530         --          --
    Store closing and other charges
     payments                             (1,452)        --          --
    Other, net                             2,616        588        (470)
    Change in operating assets and
     liabilities, net of the effects
     of acquisitions:
       Accounts receivable              (195,141)    (4,331)   (167,860)
       Sale of accounts receivable            --     60,500     150,000
       Retained interest in securitized
         receivables at cost              50,533   (198,786)         --
       Inventories                       (77,115)   (35,154)    (24,015)
       Other current assets              (65,218)   (11,749)    (23,447)
       Accounts payable                   14,788     18,017         216
       Accrued expenses                   42,106     12,948      21,734
                                       --------------------------------

        Net cash provided (used)
         by operating activities         (22,808)    (3,000)     92,501
                                       --------------------------------

Cash flows from investing activities:
  Acquisitions, net of cash acquired     (40,186)   (58,842)    (51,658)
  Additions to property and equipment    (70,921)   (84,137)    (40,366)
  Disposals of property and equipment     15,107      3,423       6,348
  Miscellaneous investments              (10,467)    (6,907)     (9,942)
                                       ---------------------------------

         Net cash used by
          investing activities          (106,467)  (146,463)    (95,618)
                                       ---------------------------------

Cash flows from financing activities:
  Issuance of stock                          912        683         286
  Proceeds from long-term debt           174,767    299,444          --
  Increase (decrease) in notes
   payable, net                          104,000    (34,000)     50,200
  Payments of long-term debt            (100,335)  (104,110)    (28,114)
  Dividends paid                         (16,249)   (13,612)    (13,598)
                                       ---------------------------------

         Net cash provided by
          financing activities           163,095    148,405       8,774
                                       --------------------------------

Net increase (decrease) in cash           33,820     (1,058)      5,657
Cash at beginning of year                 14,959     16,017      10,360
                                       --------------------------------

Cash at end of year                    $  48,779  $  14,959    $ 16,017
                                       ================================


                       See notes to consolidated financial statements.


                                       30
<PAGE>

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)    Summary of Significant Accounting Policies
-----------------------------------------------------------------------------

Nature of Operations

         Heilig-Meyers Company and subsidiaries (the "Company") is a retailer of
home  furnishings  that  operated  1,253 stores as of February 28, 1998 of which
1,221 are located in 38 states and Washington, D.C. and 32 are located in Puerto
Rico.  Through  acquisitions,  the Company now has four primary  retail  formats
operating as  Heilig-Meyers  Furniture,  Rhodes  Furniture,  The  RoomStore  and
Mattress Discounters.
         The Company's operating strategy includes offering a broad selection of
home  furnishings  and bedding.  The Company  offers third party  private  label
credit card programs to provide  financing to its customers.  The  Heilig-Meyers
format also offers consumer electronics, appliances, and floor coverings as well
as an in-house installment credit program.

Principles of Consolidation

         The  consolidated   financial   statements   include  the  accounts  of
Heilig-Meyers  Company and its subsidiaries,  all of which are wholly owned. All
material intercompany balances and transactions have been eliminated.

Fiscal Year

         Fiscal years are designated in the consolidated financial statements by
the calendar year in which the fiscal year ends. Accordingly, results for fiscal
years 1998, 1997 and 1996 represent the years ended February 28, 1998,  February
28, 1997 and February 29, 1996, respectively. Certain amounts in the fiscal 1997
and 1996 consolidated  financial statements have been reclassified to conform to
the fiscal 1998 presentation.

Segment Information

         The  Company  considers  that it is  engaged  primarily  in one line of
business,  the sale of home  furnishings.  Accordingly,  data  with  respect  to
industry segments have not been separately reported herein.

Use of Estimates in the Preparation of Financial Statements

         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
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

Accounts Receivable

         Accounts  receivable arise primarily from closed-end  installment sales
contracts  used by customers to finance  purchases of  merchandise  and services
offered by the Company.  These contracts are at fixed rates and terms with level
payments of principal and interest. In accordance with trade practice,  payments
due after one year are  included  in current  assets.  Provisions  for  doubtful
accounts are made to maintain an adequate allowance to cover anticipated losses.
Credit operations are generally  maintained at each store to evaluate the credit
worthiness of its customers and to manage the  collection  process.  The Company
reviews customer accounts on an individual basis in reaching decisions regarding
methods of collection or write-off of doubtful accounts.  Generally, accounts on
which  payments  have  not been  received  for six  months  are  charged  to the
allowance for doubtful accounts. The Company generally requires down payments on
credit sales and offers credit insurance to its customers,  both of which lessen
credit risk.


                                       31
<PAGE>

         The  Company  also offers  certain of its  customers  revolving  credit
through private label credit  facilities with various  commercial  banks.  Where
applicable, provisions for recourse obligations are made to maintain an adequate
allowance to cover anticipated losses.
         The Company operates its 1,253 stores throughout 38 states, Washington,
D.C., and Puerto Rico and, therefore,  is not dependent on any given industry or
business for its customer base and has no  significant  concentration  of credit
risk.

Retained Interest in Securitized Receivables

         As part of its accounts receivable  securitization program, the Company
transfers  a  portion  of  installment  accounts  receivable  to a Master  Trust
("Trust") in exchange for certificates  representing undivided interests in such
receivables.  The  Company  retains an  undivided  interest  in the  securitized
receivables through its ownership of the seller's certificate,  which represents
both  contractually  required  seller's interest and excess seller's interest in
the receivables in the Trust.  Retained  interests also include an interest-only
strip,  which  arises  due to  estimated  excess  cash flow from the Trust  that
reverts to the Company.  The Company continues to service the receivables in the
Trust. The prior year balances of retained interests have been reclassified to a
separate balance sheet line item.

Inventories

         Merchandise  inventories  are  stated at the lower of cost or market as
primarily determined by the average cost method. Inventory costs include certain
warehouse and handling costs.

Property and Equipment

         Additions to property and  equipment,  other than capital  leases,  are
recorded at cost and, when  applicable,  include  interest  incurred  during the
construction period.  Capital leases are recorded at the lesser of fair value or
the discounted present value of the minimum lease payments.
         Depreciation is computed by the  straight-line  method.  Capital leases
and leasehold  improvements are amortized by the  straight-line  method over the
shorter of the estimated  useful life of the asset or the term of the lease. The
estimated  useful  lives  are 7 to 45 years  for  buildings,  3 to 10 years  for
fixtures, equipment and vehicles, and 10 to 15 years for leasehold improvements.

Excess Costs Over Net Assets Acquired

         Excess costs over net assets  acquired are being amortized over periods
not exceeding 40 years using the  straight-line  method.  The Company  evaluates
excess costs over net assets acquired for recoverability on the basis of whether
goodwill is fully  recoverable from projected,  undiscounted net cash flows from
operations of the related business unit. Impairment,  should any occur, would be
recognized  by a charge to  operating  results and a reduction  in the  carrying
value of excess costs over net assets acquired.

Stockholders' Equity

         The Company is authorized to issue  250,000,000  shares of $2 par value
common  stock.  At  February  28,  1998 and  1997,  there  were  58,808,000  and
54,414,000 shares outstanding,  respectively. The Company is authorized to issue
3,000,000 shares of $10 par value preferred stock. To date, none of these shares
have been issued.
         On February 10, 1998 the Board of  Directors of the Company  declared a
dividend  distribution of one preferred share purchase right (a "Right") on each
outstanding  share of Common Stock pursuant to a Shareholders'  Rights Plan. The
action  replaced  a  similar  plan  expiring  in fiscal  1998.  The  Rights  are
exercisable  only after the attainment of, or the commencement of a tender offer
to attain, a specified  ownership  interest in the Company by a person or group.
When exercisable,  each Right would entitle its holder to purchase one-hundredth
of a newly issued share of Cumulative  Participating  Preferred Stock, Series A,
par value $10.00 per share (the "Series A Preferred  Stock") at an initial price
of $110, subject to adjustment.  A total of 750,000 shares of Series A Preferred
Stock have been  reserved.  Each share of Series A Preferred  Stock will entitle


                                       32
<PAGE>

the  holder  to 100 votes and has an  aggregate  dividend  rate of 100 times the
amount paid to holders of the Common Stock.  Upon  occurrence of certain events,
each holder of a Right (other than those which are void pursuant to the terms of
the plan) will become entitled to purchase shares of Common Stock having a value
of twice the Right's then current  exercise  price in lieu of Series A Preferred
Stock.

New Accounting Standards

         During the fiscal  year,  the Company  adopted  Statement  of Financial
Accounting  Standards  (SFAS) No. 128,  "Earnings per Share," which requires the
Company to disclose  basic and diluted  earnings per share.  See Note 13 for the
calculation  of basic and diluted  earnings per share.  The Company also adopted
SFAS  No.  129,   "Disclosure   Information  about  Capital   Structure,"  which
established disclosure requirements for the Company's common stock. The adoption
of SFAS No. 128 and SFAS No. 129 did not have a material impact on the Company's
financial statements.
         In June 1997, the Financial  Accounting  Standards  Board (FASB) issued
SFAS No. 130, "Reporting  Comprehensive  Income," which requires presentation of
total nonowner changes in equity for all periods displayed. The Company plans to
adopt this  statement for the year ending  February 28, 1999,  and is evaluating
the alternative disclosure formats suggested by the standard.
         In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an  Enterprise  and Related  Information,"  which will be  effective  for the
Company's  fiscal year ended  February  28,  1999.  SFAS No. 131  redefines  how
operating  segments are determined and requires  disclosure of certain financial
and descriptive  information about a company's operating  segments.  Adoption of
this statement will not affect the Company's  consolidated  financial  position,
results of operations or cash flows, and will be limited to the form and content
of its disclosures.

Revenues and Costs of Sales

         Sales  revenue  is  generally   recognized  upon   determination   that
merchandise  is  in  stock  and  establishment  of  a  delivery  date,  and,  if
applicable,  upon  approval  of  customer  credit.  Sales are  presented  net of
returns. The effect of sales returns prior to shipment date has been immaterial.
Other income  consists  primarily of finance and other income earned on accounts
receivable.  Finance charges were $231,612,000,  $209,491,000,  and $182,426,000
during fiscal 1998, 1997 and 1996, respectively. Finance charges are included in
revenues on a monthly basis as earned.  The Company sells  substantially  all of
its service  policies to third parties and  recognizes  service policy income on
these at the time of sale.  Revenue from service policies and extended  warranty
contracts  retained by the Company are deferred and recognized  over the life of
the contract period. Costs of sales includes occupancy and delivery expenses.

Earnings Per Share

         Basic  earnings  per share is computed  based on the  weighted  average
number of common shares  outstanding.  Diluted  earnings per share also includes
the effect of dilutive  potential common shares  outstanding  during the period.
Dilutive  potential  common shares are additional  common shares (dilutive stock
options) assumed to be earned.

Interest Rate Swap Agreements

      The Company has entered into several interest rate swap agreements  ("swap
agreements")  as a means of managing its exposure to changes in interest  rates.
These agreements in effect convert a portion of the Company's floating rate debt
and floating rate asset  securitizations  to fixed rates by exchanging  floating
rate payments for fixed rate payments.  The  differential to be paid or received
on these  agreements  is accrued and is  recognized as an adjustment to interest
expense.  The related amount of payable to or receivable from  counterparties is
recorded as an adjustment to accrued interest expense.


                                       33
<PAGE>

(2)    Expansion
-----------------------------------------------------------------------------

      During  fiscal  years 1998 and 1997,  the  Company  made the  acquisitions
described below. All acquisitions,  except for the Bedding Experts  transaction,
have been  accounted for by the purchase  method,  and  accordingly,  operations
subsequent  to the  respective  acquisition  dates  have  been  included  in the
accompanying  financial statements.  Pro forma results of operations for certain
acquisitions  have not been presented  because the effects were not significant.
Other acquisitions completed during fiscal years 1998 and 1997 are not discussed
below because they are not  considered  material to the  consolidated  financial
statements.
      During July 1997,  the Company  acquired  all of the  outstanding  capital
stock of Mattress Discounters  Corporation and a related corporation  ("Mattress
Discounters")  with 169 stores in 10 states and  Washington,  D.C.  The  initial
purchase  price was valued at  approximately  $42,900,000.  The  Company  issued
2,269,839  shares of its common stock at the time of closing and placed  264,550
shares  of  common  stock in escrow  to be paid to the  former  shareholders  of
Mattress Discounters if the acquired stores meet certain earnings targets in the
twelve months following the closing. As of February 28, 1998, the purchase price
allocation was considered  preliminary  as certain  studies  related to the fair
value of  assets  acquired  and  liabilities  assumed  have not been  completed.
However,  management  does not expect the resulting  adjustments to be material.
The  unamortized  excess of purchase price over the fair market value of the net
assets acquired, as of February 28, 1998 was $56,181,000.
      During January 1998, the Company  acquired all of the outstanding  capital
stock of Bedding  Experts,  Inc.  with 54 stores in  Chicago,  Illinois  and the
surrounding area. The Company issued 2,019,182 shares of its common stock in the
transaction   valued  at   $25,000,000.   The  transaction  was  recorded  as  a
pooling-of-interests, however prior periods have not been restated as the effect
is not considered material to the consolidated financial statements.
      During  January 1998,  the Company  acquired  certain  assets related to 5
stores,  3 of which will  remain in  operation,  of John M.  Smyth's  Homemakers
("Homemakers")  in Chicago,  Illinois.  The  purchase  price of these assets was
approximately  $11,959,000.  The  unamortized  excess of purchase price over the
fair market value of the net assets  acquired from Homemakers as of February 28,
1998 was not significant.
      During  February 1998, the Company  acquired  certain assets related to 24
stores of Reliable,  Inc. of  Columbia,  Maryland.  The purchase  price of these
assets was approximately  $18,164,000.  The unamortized excess of purchase price
over the fair market value of the net assets acquired from Reliable,  Inc. as of
February 28, 1998 was $4,602,000.
      During  October 1996,  the Company  acquired  certain assets related to 20
stores of J. McMahan's in Santa Monica,  California. The purchase price of these
assets was approximately  $20,021,000,  net of $26,989,000 of assets, which were
subsequently sold. The unamortized excess of purchase price over the fair market
value of the net assets  acquired from J.  McMahan's as of February 28, 1998 was
$16,346,000.
      During October 1996, the Company  purchased  certain assets relating to 23
stores of Self Service  Furniture Company of Spokane,  Washington.  The purchase
price of these assets was approximately  $19,163,000.  The unamortized excess of
purchase  price over the fair market value of the net assets  acquired from Self
Service as of February 28, 1998 was $4,857,000.
      During December 1996, the Company acquired Rhodes, Inc., a publicly traded
home  furnishings  retailer  with 105 stores in 15 states.  The  Company  issued
approximately  4,588,000 shares of its common stock in the transaction valued at
$69,390,000,  assumed debt and other accrued  liabilities  of  $192,542,000  and
incurred  approximately  $1,400,000  in costs  related to the  acquisition.  The
Company assigned  $108,319,000 of acquisition  costs to excess of purchase price
over the fair market value of the net assets acquired. The unamortized excess of
purchase  price over the fair  market  value of the net assets  acquired,  as of
February 28, 1998 was $105,162,000. Adjustments made to the preliminary purchase
price allocation were not material.


                                       34
<PAGE>

      The unaudited  consolidated  results of operations on a pro forma basis as
though  Rhodes had been  acquired as of the  beginning  of fiscal years 1997 and
1996 are as follows:

                                                               1997        1996
                                                               ----        ----
                                   (Amounts in thousands except per share data)

Total revenues                                           $2,027,753  $1,795,015
Net earnings                                                 33,829      48,674
Net earnings per share:
         Basic                                                 0.64        0.92
         Diluted                                               0.63        0.90


         The pro forma  information is presented for  comparative  purposes only
and is not  necessarily  indicative  of the  operating  results  that would have
occurred had the Rhodes  acquisition been consummated as of the above dates, nor
is it necessarily indicative of future operating results.
         During February 1997, the Company  acquired  certain assets relating to
10 stores of The RoomStore, Inc. of Ft. Worth, Texas. The Company issued 720,000
shares of its common stock in the transaction valued at $9,630,000,  and assumed
debt and other accrued  liabilities of  $5,984,000.  The  unamortized  excess of
purchase  price  over the fair  market  value of the net assets  acquired  as of
February 28, 1998 was $7,778,000.
         The Company  amortizes  the excess of  purchase  price over fair market
value of net assets acquired on a straight-line basis over periods not exceeding
40 years.  The  unamortized  excess of purchase price over the fair value of the
net assets acquired for all acquisitions was $350,493,000 and $294,090,000,  net
of accumulated amortization of $29,050,000 and $20,213,000, at February 28, 1998
and 1997, respectively.


(3)    Store Closing & Other Charges
------------------------------------------------------------------------------

      In the  fourth  quarter of fiscal  1998,  the  Company  recorded a pre-tax
charge  of  approximately   $25,530,000  related  to  specific  plans  to  close
approximately 40 Heilig-Meyers  stores,  downsize office and support facilities,
and reorganize the Heilig-Meyers  private label credit card program.  The charge
reduced 1998 net earnings $16,683,000 or $.30 per share.
The pre-tax charge is summarized as follows:

                                             Amount Utilized   Remaining
                                                 through     Reserve as of
                                 Pre-Tax       February 28,   February 28, 
                                 Charge          1998              1998
                             ---------------------------------------------
  (Amounts in thousands)

Severance                       $ 8,100           $1,452         $ 6,648
Lease & facility exit cost        7,680                -           7,680
Fixed asset impairment            7,250            2,117           5,133
Goodwill impairment               2,500            2,500               -
                              --------------------------------------------
Total                           $25,530           $6,069         $19,461
                              ============================================


      The Company expects to complete the store closings, office downsizing, and
private  label credit card program  reorganization  within the next fiscal year.
Accordingly,  the  substantial  majority  of the  reserves  are  expected  to be
utilized during fiscal 1999.  Amounts related to long-term lease obligations may
extend beyond fiscal 1999.


                                       35
<PAGE>

(4)    Accounts Receivable and Retained Interest in Securitized Receivables
-----------------------------------------------------------------------------
      Accounts  receivable  are shown net of an allowance for doubtful  accounts
and unearned finance income. The allowance for doubtful accounts was $60,306,000
and $41,120,000  and unearned  finance income was $46,980,000 and $44,356,000 at
February 28, 1998 and 1997,  respectively.  Accounts  receivable having balances
due after one year were  $94,676,000  and  $139,233,000 at February 28, 1998 and
1997, respectively.
      As noted in Note 1, the  Company  transfers  a portion of its  installment
accounts  receivable  to a Master Trust  ("Trust") in exchange for  certificates
representing  undivided interests in such receivables.  The Trust has two series
of  certificates  outstanding as of February 28, 1998:  Series 1997-1 and Series
1998-1.  Certificates  have been sold to third  parties  representing  undivided
interests in  $652,000,000  of the  securitized  receivables  as of February 28,
1998, and  $592,000,000 of the securitized  receivables as of February 28, 1997.
The  Series  1997-1  Senior  class   certificates   totaling   $252,000,000  and
$592,000,000  were  outstanding as of February 28, 1998 and 1997,  respectively,
and bear a variable interest rate tied to commercial paper indices. The rates in
effect as of February 28, 1998 and 1997 were 6.1% and 5.7%, respectively. Unless
extended,   the  commitment  termination  date  related  to  the  Series  1997-1
certificates is February 24, 1999. The Series 1998-1 $307,000,000 Class A 6.125%
and $61,000,000 Class B 6.35% fixed rate certificates were held by third parties
as of February  28, 1998.  Additionally,  as of February 28, 1998, a third party
held the $32,000,000 Series 1998-1 Collateral Indebtedness Interest, which bears
interest  at a  variable  rate  (6.5%  as  of  February  28,  1998).  The  final
distribution date for the Class A certificates is scheduled to occur in December
2002,  at which  time the Class A  certificate  holders  will  begin to  receive
principal payments.  The final distribution date for the Class B certificates is
scheduled  to occur in  February  2003,  at which  time the Class B  certificate
holders  will  begin  to  receive  principal  payments  provided  that  Class  A
certificates  have been paid in full. The holder of the Collateral  Indebtedness
Interest will receive principal  payments  beginning one month subsequent to the
final principal payment to Class B certificate holders.
      The Company  retained  the  remaining  undivided  interests in the Trust's
receivables.  The Company will continue to service all accounts in the Trust. No
servicing asset resulted because contractual rates are at estimated market rates
and are considered adequate  compensation for servicing.  Retained interests are
carried at fair value and are summarized below:

                                          Unrealized Unrealized
(Amounts in thousands)               Cost       Gain    Loss   Fair Value

February 28, 1998:
Contractually required
         seller's interest        $110,193  $  7,242   $  -      $117,435
Excess seller's interest            36,706         -      -        36,706
Interest-only strip                 27,925        92      -        28,017
                                  ---------------------------------------
                                  $174,824  $  7,334   $  -      $182,158
                                  =======================================
February 28, 1997:
Contractually required
         seller's interest        $200,229  $ 15,851   $  -      $216,080
Interest-only strip                 25,337     2,010      -        27,347
                                  ---------------------------------------
                                  $225,566  $ 17,861   $  -      $243,427
                                  =======================================


                                       36
<PAGE>

(5)    Property and Equipment
-----------------------------------------------------------------------------

      Property and equipment consists of the following:

                                              1998            1997
                                          ------------------------
                                            (Amounts in thousands)

Land and buildings                        $135,857        $133,049
Fixtures, equipment and vehicles           150,259         111,916
Leasehold improvements                     254,363         215,683
Construction in progress                    30,998          36,484
                                          ------------------------
                                           571,477         497,132
Less accumulated depreciation              173,326         130,383
                                          ------------------------
                                          $398,151        $366,749
                                          ========================



(6)    Notes Payable and Long-Term Debt
-----------------------------------------------------------------------------

      The Company is  currently  in the third year of a  five-year  $400,000,000
revolving credit facility dated July 19, 1995.  Comprised of thirteen banks, the
facility had $260,000,000 outstanding and $140,000,000 unused as of February 28,
1998.  The Company  also has  additional  lines of credit  with banks,  totaling
$60,000,000,  all of which were  unused at  February  28,  1998.  The  Company's
maximum  short-term   borrowings  were  $342,100,000   during  fiscal  1998  and
$321,000,000  during fiscal 1997. The average  short-term  debt  outstanding for
fiscal 1998 was  $229,213,000  compared to  $186,281,000  for fiscal  1997.  The
approximate  weighted  average interest rates were 6.1%, 5.8% and 6.3% in fiscal
1998, 1997 and 1996, respectively.
      At  February  28,  1998,  the  Company  had  $260,000,000  of  outstanding
short-term borrowings compared to $156,000,000 at February 28, 1997. The average
interest rate on this debt was approximately 6.2% at February 28, 1998, and 5.8%
and 5.6% at February 28, 1997 and February 29, 1996, respectively. There were no
compensating balance requirements.
      Long-term debt consists of the following:

                                                   1998           1997
                                              ------------------------
                                                (Amounts in thousands)
Shelf registration issues:
         7.60% unsecured notes due 2007       $175,000       $      -
         7.88% unsecured notes due 2003        200,000        200,000
         7.40% unsecured notes due 2002        100,000        100,000
Other issues:
         Notes payable to insurance
         companies and banks, maturing
         through 2002, interest ranging
         from 6.25% to 8.99%,unsecured         245,000        343,400

         Notes,  collateralizing  industrial
         development revenue bonds, maturing
         through 2005, interest ranging from
         a floating rate of 60% of prime to
         an 8.50% fixed rate                       906          1,316

         Term loans, maturing through
         2007, interest ranging to 9.80%,
         primarily collateralized by deeds
         of trust                                1,026            505

         Capital lease obligations, maturing
         through 2009, interest ranging
         from 76% of prime to 12.80%            15,704         16,681
                                              -----------------------
                                               737,636        661,902
         Less amounts due within one year       22,365        100,413
                                              -----------------------
                                              $715,271       $561,489
                                              =======================

                                       37
<PAGE>


         Principal  payments are due for the four years after  February 28, 1999
as follows: 2000,  $131,132,000;  2001,  $35,641,000;  2002, $200,000; and 2003,
$208,000.   The  aggregate   net  carrying   value  of  property  and  equipment
collateralization at February 28, 1998, was $9,794,000.  The Company has on file
a shelf  registration to issue up to $400,000,000 of common stock,  warrants and
debt  securities.  The  $175,000,000  unsecured 7.60% notes due 2007 were issued
under  the  shelf  registration  with the  remaining  $225,000,000  unissued  at
February 28, 1998. During fiscal 1997, the Company issued $200,000,000 unsecured
7.88%  notes due 2003 and  $100,000,000  unsecured  7.40% notes due 2002 under a
previous shelf registration.
         Notes  payable  to  insurance  companies  contain  certain  restrictive
covenants.  Under these  covenants,  the payment of cash dividends is limited to
$92,687,000 plus 75% of net earnings adjusted for dividend payouts subsequent to
February 28, 1998. Other covenants relate to the maintenance of working capital,
pre-tax  earnings  coverage of fixed  charges,  limitations  on total and funded
indebtedness  and maintenance of stockholders'  equity.  As a result of the loss
incurred  during fiscal 1998, the Company  obtained  amendments to its bank debt
agreements  to exclude  certain  charges from its pre-tax  earnings  coverage of
fixed  charges  calculation  in  order to  maintain  covenant  compliance  as of
February 28,  1998.  As a result of these  charges,  certain  provisions  of the
Company's bond indenture  restrict the Company's ability to incur long-term debt
until certain covenant restrictions are met.
      Interest  payments of  $65,404,000,  $46,710,000  and  $40,710,000  net of
capitalized  interest of $3,762,000,  $2,360,000 and $2,141,000 were made during
fiscal 1998, 1997 and 1996, respectively.


(7)    Income Taxes
------------------------------------------------------------------------------

      The provision (benefit) for income taxes consists of the following:
                                 1998         1997          1996
(Amounts in thousands)       -----------------------------------
Current:
         Federal             $(21,250)    $ 5,481        $11,034
         State                 (4,911)      3,006          1,988
         Puerto Rico            2,238       2,160           (522)
                             ------------------------------------
                              (23,923)     10,647         12,500
                             ------------------------------------
Deferred:
         Federal               (2,178)      7,758          6,012
         State                  ( 573)      1,618          1,293
         Puerto Rico           (2,570)      1,692          3,216
                             -----------------------------------
                               (5,321)     11,068         10,521
                             -----------------------------------
                             $(29,244)    $21,715        $23,021
                             ===================================

      The  income  tax  effects  of  temporary  differences  that  gave  rise to
significant  portions of the net deferred tax  liability as of February 28, 1998
and February 28, 1997, consist of the following:

                                                   1998            1997
                                                (Amounts in thousands)
Deferred tax assets:
         Allowance for doubtful accounts       $ 20,613        $  8,775
         Store closing and other charges         15,521               -
         Accrued liabilities                     12,400          25,198
         Alternative minimum tax credit
                  carryforward                    7,973           3,014
         Federal tax credits                      6,655               -
         Net operating loss carryforward          1,977           5,622
         Other                                      247             435
         Deferred revenues                            -           1,487
                                               ------------------------
                                                 65,386          44,531
                                               ------------------------


                                       38
<PAGE>

Deferred tax liabilities:
         Excess costs over net assets acquired   46,536          58,172
         Accounts receivable                     20,586           6,813
         Depreciation                            17,520           7,029
         Asset securitizations                   17,436          19,152
         Inventory                                9,264           7,469
         Deferred revenues                        8,962               -
         Costs capitalized on constructed
                  assets                          6,525           5,767
         Other                                    3,580           2,547
                                               ------------------------
                                                130,409         106,949
                                               $ 65,023        $ 62,418
Balance sheet classification:
         Other current assets                  $  5,914        $      -
         Other current liabilities                    -          13,290
         Deferred income tax liability           70,937          49,128
                                               ------------------------
                                               $ 65,023        $ 62,418
                                               ========================


         A  reconciliation  of the  statutory  federal  income  tax  rate to the
Company's effective rate is provided below:

                                           1998            1997          1996
                                        ---------------------------------------
Statutory federal income
         tax rate                         35.0%            35.0%         35.0%
State income taxes, net of
         federal income tax benefit        2.5              3.7           3.8
Tax credits                               (4.9)            (5.3)         (3.1)
Other, net                                 2.1              1.7             -
                                        ---------------------------------------
                                          34.7%            35.1%         35.7%
                                        =======================================


      Federal and state  income tax  payments  of  $8,427,000,  $18,447,000  and
$24,738,000  were made during fiscal 1998,  1997,  and 1996,  respectively.  The
Company  has  an   alternative   minimum  tax  and  other   federal  tax  credit
carryforwards   of  approximately   $7,973,000  and  $6,655,000,   respectively.
Additionally,  the Company  has a federal net  operating  loss  carryforward  of
approximately   $566,000.   The  federal  net  operating  loss  and  tax  credit
carryforwards will expire fiscal year 2013.


(8)    Retirement Plans
------------------------------------------------------------------------------

The Company has a qualified  profit sharing and retirement  savings plan,  which
includes a cash or deferred  arrangement  under  Section  401(k) of the Internal
Revenue Code (the "Code") and covers  substantially all the Company's employees.
Eligible  employees  may  elect to  contribute  specified  percentages  of their
compensation to the plan. The Company  guarantees a  dollar-for-dollar  match on
the first two percent of the  employee's  compensation  contributed to the plan.
The Company will make an additional  matching  contribution if and to the extent
that four percent of the Company's  estimated  consolidated  income before taxes
exceeds the two percent  dollar-for-dollar  match described  above.  The Company
may,  at the  discretion  of its Board of  Directors,  make  additional  Company
matching  contributions  subject  to  certain  limitations.   The  plan  may  be
terminated  at the  discretion  of the  Board  of  Directors.  If  the  plan  is
terminated,  the Company will not be required to make any further  contributions
to  the  plan  and   participants   will  become  100%  vested  in  any  Company
contributions made to the plan. The plan expense recognized in fiscal 1998, 1997
and 1996 was $3,052,000, $2,507,000 and $2,553,000, respectively.
         In addition, a non-qualified supplemental profit sharing and retirement
savings plan was  established  as of March 1, 1991, for the purpose of providing
deferred  compensation  for certain  employees whose benefits and  contributions
under the  qualified  plan are limited by the Code.  The  deferred  compensation
expense  recognized  in fiscal 1998,  1997 and 1996 was  $445,000,  $283,000 and
$254,000, respectively.

                                       39
<PAGE>

         The Company has an  executive  income  continuation  plan which  covers
certain executive officers. The plan is intended to provide certain supplemental
pre-retirement death benefits and retirement benefits to its key executives.  In
the event an executive  dies prior to age 65 in the  employment  of the Company,
the executive's beneficiary will receive annual benefits of 100% of salary for a
period of one to two years and/or 50% of salary for a period of eight years.  If
the executive  retires at age 65, either the executive or his  beneficiary  will
receive an annual  retirement  benefit of 20% to 25% of the  executive's  salary
increased  4%  annually  for a period  of 15 years.  This  plan has been  funded
through the purchase of life  insurance  contracts  covering the  executives and
owned by the Company.  For fiscal years 1998, 1997 and 1996, there was no charge
to earnings.  As of February 28, 1998, the Company continued to operate separate
employee benefit plans covering certain groups of employees of Rhodes, which was
acquired on December 31, 1996. These plans include a qualified  non-contributory
defined  benefit plan, a  non-qualified  unfunded  defined  benefit plan,  and a
qualified  defined  contribution  savings plan.  During fiscal 1998, these three
plans were amended in order to cease future benefit accruals and  contributions.
As of that date, no new participants could be added.
     A  comparison  of  accumulated  plan  benefits  and plan net  assets  as of
February 28, 1998 and 1997 for the qualified defined benefit plan follows:

   Plan Benefits & Assets

                                                              1998        1997
                                                         (Amounts in thousands)
Actuarial present value of accumulated plan benefits:
               Vested                                      $15,280     $13,495
               Non-vested                                        -         387
                                                           -------------------
                                                           $15,280     $13,882
Net assets available for plan benefits                     $15,205     $12,972
                                                           ===================


      The projected benefit  obligation of the unfunded plan totaled  $1,796,000
and $1,062,000 at February 28, 1998 and 1997, respectively.  The assumed rate of
return used in  determining  the  actuarial  present value of  accumulated  plan
benefits  for both  defined  benefit  plans was 7.25% and 7.75%,  for the fiscal
years ended February 28, 1998 and 1997, respectively. The expense related to the
operation of these plans during fiscal 1998 and 1997 was insignificant.


(9)    Stock Options
------------------------------------------------------------------------------

      The Company has elected to follow Accounting  Principles Board Opinion No.
25,   "Accounting   for  Stock  Issued  to  Employees"   (APB  25)  and  related
Interpretations  in accounting for its employee  stock  options.  In electing to
account for its stock  options under APB 25, the Company is required by SFAS No.
123, "Accounting for Stock-Based  Compensation" to provide pro forma information
regarding net income and earnings per share.
      The 1983,  1990 and 1994 Stock Option Plans  provide that key employees of
the Company are eligible to receive  common stock options (at an exercise  price
of no less than fair market  value at the date of grant) and stock  appreciation
rights. Under these plans,  approximately  8,094,000 shares have been authorized
to be reserved for issuance.  All options granted have ten-year  terms.  Options
granted  during  fiscal  1998  immediately  vested and became  exercisable  when
granted.  Previously  granted options vest on a graduated basis and become fully
exercisable at the end of two years of continued employment.
      Pro forma  information  regarding  net  income and  earnings  per share as
required by SFAS No. 123 has been determined as if the Company had accounted for
its employee  stock options under the fair value method of that  statement.  The
fair  value  for  these  options  was  estimated  at the date of  grant  using a
Black-Scholes  option  valuation  model  with  the  following   weighted-average
assumptions for fiscal 1998,  1997 and 1996,  respectively:  risk-free  interest
rates of 6.5%,  6.1% and 5.2%; a dividend yield of 1.6%;  volatility  factors of
the expected market price of the Company's common stock of 46%, 41% and 41%; and
a weighted-average expected option life of 3.61, 3.48 and 3.50 years.



                                       40
<PAGE>

      The  Black-Scholes  option  valuation  model  was  developed  for  use  in
estimating the fair value of traded  options which have no vesting  restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.  Because the Company's  employee stock options have  characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially  affect the fair value estimate,  in
management's  opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
      For purposes of pro forma  disclosures,  the  estimated  fair value of the
options is amortized to expense over the options' vesting period.  The Company's
pro forma information follows:

                                           1998           1997            1996
                                    (Amounts in thousands except per share data)

Pro forma net income (loss)            $(55,837)       $37,072         $36,524
Pro forma earnings (loss) per share:
                  Basic                    (.99)           .75             .75
                  Diluted                  (.99)           .74             .74


      A summary of the Company's stock option  activity and related  information
for the years ended February 28, (29), 1998, 1997 and 1996 follows:

                                                                      Weighted
                                                                       Average
                                                      Options   Exercise Price
                                                    ---------   --------------
Outstanding at March 1, 1995                        4,075,729           $18.46
Granted                                             1,045,200            17.25
Exercised                                             (23,525)           12.17
Forfeited                                            (665,500)           32.50
                                                    ---------           ------
Outstanding at February 29, 1996                    4,431,904            18.49
Granted                                               816,480            14.55
Exercised                                             (51,500)           13.25
                                                    ---------           ------
Outstanding at February 28, 1997                    5,196,884            15.55
Granted                                                28,008            15.53
Exercised                                            (116,435)            7.81
Forfeited                                            (100,000)           15.63
                                                    ---------           ------
Outstanding at February 28, 1998                    5,008,457           $15.98
                                                    =========           ======



Range of                       $5.52     $10.01        $17.01      $27.01
Exercise                        to         to            to          to
Prices                        $10.00     $17.00        $27.00      $35.06
                              ------     ------        ------      ------ 
Options outstanding
at February 28, 1998       1,527,259    733,758     2,735,440      12,000

Weighted average
remaining contract life,
outstanding options             3.21       8.95          5.96        5.95

Weighted average
exercise price,
outstanding options            $8.66     $14.46        $20.39      $35.06

                                       41
<PAGE>

Options exercisable
at February 28, 1998       1,527,259    659,596     2,632,240      12,000

Weighted average
exercise price,
exercisable options            $8.66     $14.32        $20.51      $35.06


         Options  exercisable  at year end and the respective  weighted  average
exercise  prices were 4,831,095 at $15.96,  4,762,846 at $15.50 and 4,017,290 at
$18.06 for fiscal 1998, 1997 and 1996, respectively.
      The weighted average fair values of options granted were $5.82, $4.88, and
$5.42 for fiscal 1998, 1997, and 1996, respectively.



(10)   Commitments and Contingencies
-----------------------------------------------------------------------------

Leases
The Company has entered into noncancellable  lease agreements with initial terms
ranging  from 1 to 25 years for certain  stores,  warehouses  and the  corporate
office. Certain leases include renewal options ranging from 1 to 10 years and/or
purchase  provisions,  both of which may be exercised at the  Company's  option.
Most of the  leases are gross  leases  under  which the  lessor  pays the taxes,
insurance and maintenance  costs.  The following  capital leases are included in
the accompanying consolidated balance sheets:

                                                            1998           1997
                                                         (Amounts in thousands)

Land and buildings .............................         $12,098       $12,098
Fixtures and equipment .........................           1,955           675
                                                         -------       -------
                                                          14,053        12,773
Less accumulated depreciation
         and amortization ......................           5,219         3,724
                                                         -------       -------
                                                         $ 8,834       $ 9,049
                                                         =======       =======


         Capitalized lease amortization is included in depreciation expense.
Future minimum lease  payments under capital leases and operating  leases having
initial  or  remaining  noncancellable  lease  terms  in  excess  of one year at
February 28, 1998, are as follows:


Fiscal Years                           Capital Leases    Operating Leases
                                                        (Amounts in thousands)

1999                                  $  3,308                $136,294
2000                                     3,772                 133,179
2001                                     3,349                 116,732
2002                                     2,957                 100,782
2003                                     2,403                  91,684
After 2003                               5,085                 337,684
                                      --------------------------------
Total minimum lease payments          $ 20,874                $916,355
                                                              ========
Less:
         Executory costs                    88
         Imputed interest                5,082
Present value of minimum              --------  
         lease payments               $ 15,704
                                      ========

         Total rental expense under  operating  leases for fiscal 1998, 1997 and
1996 was  $138,128,000,  $83,888,000 and $67,509,000,  respectively.  Contingent
rentals and sublease rentals are negligible.
         Payments to affiliated entities under capital and operating leases were
$327,000 for fiscal 1998,  which included  payments to limited  partnerships  in
which the Company has equity  interests.  Lease payments to affiliated  entities
for fiscal 1997 and 1996 were $314,000 and $625,000, respectively.

Litigation
      The  Company  is  party  to  various  legal  actions  and   administrative
proceedings  and subject to various  claims  arising in the  ordinary  course of
business.  Based  on the  best  information  presently  available,  the  Company
believes that the  disposition of these matters will not have a material  effect
on the financial statements.

                                       42
<PAGE>


(11)   Derivative Financial Instruments
------------------------------------------------------------------------------

      The Company uses derivative financial  instruments in the form of interest
rate swap  agreements  primarily to manage the risk of unfavorable  movements in
interest rates.  These convert floating rate notes payable to banks and floating
rates on asset securitization agreements to fixed rates. The notional amounts of
these swap agreements at February 28, were as follows:

                                         1998             1997
                                        (Amounts in thousands)
On notes payable and other           $168,300         $211,700
On securitized receivables            185,000          235,000


         Interest  rates that the Company paid per the swap  agreements  related
primarily  to notes  payable  were fixed at an average  rate of 7.0% and 6.7% at
February 28, 1998 and 1997, respectively.  The variable rates received per these
agreements  were tied to LIBOR or  commercial  paper rates and averaged  5.7% at
February  28, 1998 and 1997.  The terms for these  agreements  range from 1 to 2
years.
         Interest  rates that the  Company  paid on swap  agreements  related to
securitized  receivables  were  fixed  at an  average  rate of 6.8%  and 6.5% at
February 28, 1998 and 1997, respectively.  The variable rates received per these
agreements  were tied to LIBOR or  commercial  paper rates and averaged 5.7% and
5.5% at February 28, 1998 and 1997, respectively. The terms for these agreements
range from 1 to 3 years. Resulting changes in interest are recorded as increases
or  decreases  to  interest   expense.   The  accrued   interest   liability  is
correspondingly increased or decreased.
         The Company believes its risk of  credit-related  losses resulting from
nonperformance by a counterparty is remote. The amount of any such loss would be
limited to a small percentage of the notional amount of each swap. As a means of
reducing  this  risk,  the  Company  as a matter  of  policy  only  enters  into
transactions with counterparties rated "A" or higher.
         The Company  does not mark its swaps to market and  therefore  does not
record a gain or loss with interest  rate  changes.  Gains on disposals of swaps
are recognized over the remaining life of the swap.  Losses on disposals,  which
there have been none to date, would be recognized immediately.
         All swaps are held for purposes other than trading.



(12)   Fair Value of Financial Instruments
------------------------------------------------------------------------------

      The estimated fair values of financial instruments have been determined by
using available market information. The estimates are not necessarily indicative
of the amounts the Company could realize in a current market  exchange.  The use
of different  market  assumptions  and/or  estimation  methodologies  may have a
material effect on the estimated fair value amounts.
      The  estimated  fair  values of the  Company's  financial  instruments  at
February 28, 1998 and 1997 are as follows:


                                       43
<PAGE>

                                          1998                 1997
                                          ----                 ----
                                  Carrying      Fair   Carrying     Fair
(Amounts in thousands)              Amount     Value     Amount    Value
Assets:
         Cash                     $ 48,779  $ 48,779   $ 14,959 $ 14,959
         Accounts receivable, net  392,765   392,765    380,879  380,879
         Retained interest in
         securitized receivables   182,158   182,158    243,427  243,427

Liabilities:
         Accounts payable          203,048   203,048    160,857  160,857
         Notes payable             260,000   260,000    156,000  156,000
         Long-term debt            721,932   725,997    645,221  661,940

Off-balance-sheet financial
     instruments:
         Interest rate swap
       agreements:
                  Assets                 -       86           -      632
                  Liabilities            -    6,570           -    6,247


      The following methods and assumptions were used to estimate the fair value
for each class of financial instruments shown above:

Cash and Accounts Receivable

         The carrying amount  approximates  fair value because of the short-term
maturity of these assets.

Retained Interest in Securitized Receivables

         The  carrying  amount  approximates  fair  value,  based upon  customer
payment experience and discounted at the market rate.

Accounts Payable and Notes Payable

         The carrying amount  approximates  fair value because of the short-term
maturity of these liabilities.

Long-Term Debt

         The  fair  value  of the  Company's  long-term  debt  is  based  on the
discounted cash flow of that debt, using current rates and remaining maturities.

Interest Rate Swap Agreements

      The fair  value of the  Company's  interest  rate swap  agreements  is the
estimated  amount that the Company would receive or pay upon  termination of the
agreements,   based  on  estimates  obtained  from  the  counterparties.   These
agreements are not held for trading purposes,  but rather to hedge interest rate
risk.


(13)   Earnings (Loss) Per Share
------------------------------------------------------------------------------

      The  Company was  required  to adopt in the fourth  quarter of fiscal 1998
SFAS No.  128,  "Earnings  Per  Share",  which  superceded  APB  Opinion No. 15.
Earnings  (loss)  per share for all  periods  presented  have been  restated  to
reflect the adoption of SFAS No. 128. SFAS No. 128 requires companies to present
basic and  diluted  earnings  (loss)  per share,  instead  of primary  and fully
diluted  earnings (loss) per share.  Basic earnings (loss) per share is computed
by dividing the net earnings  (loss) by the  weighted  average  number of shares
outstanding.  Diluted earnings (loss) per share reflects the potential  dilution
that could occur if options or other  contingencies  to issue  common stock were
exercised.
      The following is a  reconciliation  of the number of shares  (denominator)

                                       44
<PAGE>

used in the basic and diluted earnings (loss) per share computations:


                                                    1998        1997        1996
                                                 -------------------------------
(Amounts in thousands)

Numerator:
         Net earnings (loss)                    $(55,143)    $40,185     $41,504
Denominator:
         Denominator for basic
         earnings (loss) per
         share - average common
         shares outstanding                       56,312      49,360      48,560

         Effect of potentially
         dilutive stock options                        -         786       1,044

         Denominator for diluted
         earnings loss) per share                 56,312      50,146      49,604

Basic EPS                                      $  (0.98)     $  0.81     $  0.85
Diluted EPS                                       (0.98)        0.80        0.84


      The  computation  for  fiscal  1998  does not  assume  the  conversion  of
outstanding  options  to  purchase  5,008,000  shares of common  stock at prices
ranging from $5.52 to $35.06,  with  expiration  dates between  January 1999 and
June 2007 or 265,000  contingently  issuable  shares,  since the result would be
antidilutive to the loss from operations.  Options to purchase  1,723,000 shares
of common stock at prices ranging from $20.29 to $35.06,  with expiration  dates
between  February  2003 and August 2004,  were  outstanding  during fiscal 1997,
however,  were  excluded from the diluted EPS  calculation  because the options'
exercise prices were greater than the average market price of the common shares.
Options to purchase 545,000 shares of common stock at prices ranging from $26.13
to $35.06,  with  expiration  dates between  February 2004 and August 2004, were
outstanding  during  fiscal 1996,  however,  were  excluded from the diluted EPS
calculation  because the options'  exercise prices were greater than the average
market price of the common shares.


                                       45
<PAGE>

(14)   Quarterly Financial Data (Unaudited)
------------------------------------------------------------------------------

      The following is a summary of quarterly financial data for fiscal 1998 and
1997:

Three months ended                May 31    August 31   November 30  February 28
--------------------------------------------------------------------------------
                                  (Amounts in thousands except per share data)

1998
Revenues                        $566,325     $590,212     $678,468     $634,732
Gross profit(1)                  169,058      171,201      202,796      165,609
Earnings (loss) before taxes      22,000       14,402      (75,467)     (45,322)
Net earnings (loss)               13,761        9,279      (49,122)     (29,061)

Earnings (loss) per share of common stock(2):
         Basic                      0.25         0.17        (0.87)       (0.50)
         Diluted                    0.25         0.16        (0.87)       (0.50)

Cash dividends per share of
     common stock                   0.07         0.07         0.07         0.07

1997
Revenues                        $357,914     $343,523     $413,474     $478,207
Gross profit(1)                  106,977       95,784      123,614      139,692
Earnings before taxes             19,208       12,085       14,701       15,907
Net earnings                      12,371        7,747        9,492       10,576

Earnings per share of common stock(2):
         Basic                      0.25         0.16         0.20         0.20
         Diluted                    0.25         0.16         0.19         0.20

Cash dividends per share of
common stock                        0.07         0.07         0.07         0.07


(1) Gross profit is sales less costs of sales.

(2)   Total of  quarterly  earnings  (loss) per  common  share may not equal the
      annual  amount  because net income  (loss) per common share is  calculated
      independently for each quarter. The earnings (loss) per share amounts have
      been restated as required to comply with Statement of Financial Accounting
      Standards  No.  128,  "Earnings  Per Share."  For  further  discussion  of
      earnings (loss) per share and the impact of SFAS No. 128, see Note 13.


(15)   MacSaver Financial Services
------------------------------------------------------------------------------

      MacSaver Financial Services  ("MacSaver"),  is the Company's  wholly-owned
subsidiary  whose  principal  business  activity is to obtain  financing for the
operations  of the Company,  and in  connection  therewith,  MacSaver  generally
acquires and holds the aggregate principal amount of installment credit accounts
generated  by the  Company's  operating  subsidiaries,  and issues  and  carries
substantially  all of the Company's notes payable and long-term  debt.  MacSaver
also  transfers  a portion of its  installment  accounts  receivable,  through a
wholly-owned   subsidiary,   to  a  Master  Trust  which   issues   certificates
representing  undivided  interests  in such  certificates  (See  Notes 1 and 4).
Substantially  all of the net  revenues  generated  by MacSaver  are pursuant to
operating   agreements  with  the  Company  and  certain  of  its   wholly-owned
subsidiaries.  In June 1997, the Company and MacSaver filed a joint Registration
Statement on Form S-3 with the Securities and Exchange Commission relating to up
to $400,000,000  aggregate  principal amount of securities.  MacSaver has issued
$175,000,000  in aggregate  principal  amount of its notes at 7.60% due 2007. In
fiscal 1997,  MacSaver issued  $300,000,000 in aggregate principal amount of its


                                       46
<PAGE>

notes under a previous  Registration  Statement filed jointly by the Company and
MacSaver;  $200,000,000  at 7.88% due 2003 and  $100,000,000  at 7.40% due 2002.
These  notes are  unconditionally  guaranteed  as to  payment of  principal  and
interest  by the  Company.  The  Company has not  presented  separate  financial
statements and other  disclosures  concerning  MacSaver  because  management has
determined  that  such  information  is not  material  to  holders  of the  debt
securities.  However,  as required  by the 1934 Act,  the  summarized  financial
information concerning MacSaver is as follows:

MacSaver Financial Services Summarized Statements of Operations

                            Twelve months ended February 28, (29),
                                        1998      1997       1996
                                        (Amounts in thousands)

Net revenues                        $267,386  $158,306   $116,243
Operating expenses                   292,493   102,706     71,649
                                    -----------------------------
Earnings (loss) before
         taxes                       (25,107)   55,600     44,594
                                    -----------------------------
Net earnings (loss)                 $(16,320) $ 36,140   $ 28,986
                                    =============================


MacSaver Financial Services Summarized Balance Sheets

                                                February 28,
                                              1998        1997
(Amounts in thousands)

Current assets                          $   29,545    $  9,054
Accounts receivable, net                   295,405     238,694
Retained interest in securitized
         receivables at fair value         182,158     243,427
Due from affiliates                        645,291     504,763
                                        ----------------------
         Total assets                   $1,152,399    $995,938
                                        ======================

Current liabilities                     $   48,951    $128,921
Notes payable                              260,000     156,000
Long-term debt                             700,000     545,000
Stockholder's equity                       143,448     166,017
                                        ----------------------
         Total liabilities and
         stockholder's equity           $1,152,399    $995,938
                                        ======================


                                       47
<PAGE>

Independent Auditors' Report

To the Stockholders and Board of Directors
Heilig-Meyers Company
Richmond, Virginia

We have audited the  accompanying  consolidated  balance sheets of Heilig-Meyers
Company  and  subsidiaries  as of February  28,  1998 and 1997,  and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
each of the three years in the period ended  February 28, 1998.  Our audits also
included the financial  statement  schedule  listed in the Index at item 14(a)2.
These   financial   statements   and  financial   statement   schedule  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on the financial  statements and financial  statement  schedule 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,  such consolidated  financial  statements present fairly, in all
material  respects,   the  financial  position  of  Heilig-Meyers   Company  and
subsidiaries  as of  February  28,  1998  and  1997,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
February 28, 1998 in conformity with generally accepted  accounting  principles.
Also, in our opinion,  such financial  statement  schedule,  when  considered in
relation  to the  basic  consolidated  financial  statements  taken  as a whole,
presents fairly in all material respects the information set forth therein.


/s/ Deloitte & Touche LLP

Richmond, Virginia
March 25, 1998


                                       48
<PAGE>

ITEM 9. CHANGES in and DISAGREEMENTS with ACCOUNTANTS on ACCOUNTING and
        FINANCIAL DISCLOSURE


  None.


                                       49
<PAGE>

                             PART III

    In accordance  with general  instruction  G(3) of Form 10-K, the information
called for by Items 10, 11, 12 and 13 of Part III is  incorporated  by reference
from the  registrant's  definitive  Proxy  Statement  for its Annual  Meeting of
Shareholders  scheduled for June 17, 1998, except for information concerning the
executive  officers of the registrant which is included in Part I of this report
under the caption "Executive Officers of the Registrant."

                              PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, and REPORTS on FORM 8-K

      (a)  1.   Financial Statements

         The  following   consolidated  financial  statements  of  Heilig-Meyers
         Company  and  Subsidiaries  included  in the  registrant's  1998 Annual
         Report to Shareholders are included in item 8 herein:

             Independent Auditors' Report

             Consolidated Balance Sheets -
               February 28, 1998 and 1997

             Consolidated Statements of Operations -
               Year Ended February 28, 1998,
               Year Ended February 28, 1997, and
               Year Ended February 29, 1996

             Consolidated Statements of Stockholders' Equity -
               Year Ended February 28, 1998,
               Year Ended February 28, 1997, and
               Year Ended February 29, 1996


             Consolidated Statements of Cash Flows -
               Year Ended February 28, 1998,
               Year Ended February 28, 1997, and
               Year Ended February 29, 1996

             Notes to Consolidated Financial Statements


                                       50
<PAGE>

      (a) 2. Financial Statement Schedules:  The financial statement
                  schedule required by this item is listed below.

             Independent  Auditors'  Report on  Schedule  II  included in Item 8
                  herein.

             Schedule II - Valuation and Qualifying Accounts

             Schedules other than those listed  above have been omitted  because
                  they are not  applicable  or are not  required  or because the
                  required  information is included in the financial  statements
                  or notes thereto.

      (a) 3. Exhibits required to be filed by Item 601 of Regulation S-K.

             See INDEX TO EXHIBITS

      (b) 1.  Reports  on Form 8-K  Filed  During  Last  Quarter  of Year  Ended
                  February 28, 1998.


                    There were two Current Reports on Form 8-K filed during the
                    last quarter of the fiscal year ended February 28, 1998. On
                    December 24, 1997,  Registrant  filed a Form 8-K in which it
                    reported  the results  for the third  quarter of fiscal 1998
                    and  announced  an  aggressive  plan to  improve  core store
                    profitability. On February 11, 1998, Registrant filed an 8-K
                    in which it  reported  that a  Shareholders  Rights Plan had
                    been adopted to replace a similar plan adopted in 1988 which
                    expired on January 31, 1998.


                                       51
<PAGE>

                                   SIGNATURES

    Pursuant  to the  requirements  of  Section  13 or 15(d)  of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                             HEILIG-MEYERS COMPANY


       Date:  May 27, 1998                by  /s/William C. DeRusha
                                          -------------------------
                                          William C. DeRusha
                                          Chairman of the Board
                                          and Chief Executive Officer


    Pursuant to the  requirements  of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.


       Date:  May 27, 1998                /s/William C. DeRusha
                                          ---------------------
                                          William C. DeRusha
                                          Chairman of the Board
                                          Principal Executive Officer
                                          Director


       Date:  May 27, 1998                /s/Roy B. Goodman
                                          -----------------
                                          Roy B. Goodman
                                          Senior Vice President
                                          Principal Financial Officer


       Date:  May 27, 1998                /s/William J. Dieter
                                          --------------------
                                          William J. Dieter
                                          Senior Vice President,
                                          Accounting and Principal
                                          Accounting Officer


       Date:  May 27, 1998                /s/Alexander Alexander
                                          ----------------------   
                                          Alexander Alexander, Director


       Date:  May 27, 1998                /s/Robert L. Burrus, Jr.
                                          ------------------------
                                          Robert L. Burrus, Jr., Director


       Date:  May 27, 1998                /s/Beverley E. Dalton
                                          ---------------------
                                          Beverley E. Dalton, Director


       Date:  May 27, 1998                
                                          -------------------
                                          Charles A. Davis, Director


       Date:  May 27, 1998                
                                          ---------------------------
                                          Benjamin F. Edwards, III, Director


       Date:  May 27, 1998                /s/Alan G. Fleischer
                                          --------------------
                                          Alan G. Fleischer, Director


                                       52
<PAGE>

       Date:  May 27, 1998               
                                         ---------------------
                                         Nathaniel Krumbein, Director


       Date:  May 27, 1998               
                                         ---------------
                                         Hyman Meyers, Director


       Date:  May 27, 1998               /s/S. Sidney Meyers
                                         -------------------
                                         S. Sidney Meyers, Director


       Date:  May 27, 1998               /s/Troy A. Peery, Jr.
                                         ---------------------
                                         Troy A. Peery, Jr., Director


       Date:  May 27, 1998               /s/Lawrence N. Smith
                                         --------------------
                                         Lawrence N. Smith, Director


       Date:  May 27, 1998               /s/Eugene P. Trani
                                         ------------------
                                         Eugene P. Trani, Director


       Date:  May 27, 1998               /s/L. Douglas Wilder
                                         --------------------
                                         L. Douglas Wilder, Director


                                       53
<PAGE>

<TABLE>

                     HEILIG-MEYERS COMPANY AND SUBSIDIARIES

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                             (Amounts in thousands)


<S>            <C>        <C>          <C>       <C>       <C>        <C>         <C>
Column A       Column B           Column C                    Column D            Column  E
--------       ---------  -------------------    ------------------------------   ---------

                                                Write-off
               Balance at   Charged   Charged      and     Purchased    Sold      Balance
               Beginning   To Costs   To Other Repossession Accounts   Accounts   at Close
Description    of Period  & Expenses  Accounts    Losses   Receivable Receivable  of Period

Allowance for
 Doubtful Accounts:

Year Ended
 February 28,
 1998          $41,120     $181,136   $ 1,817(A) $106,029  $21,156(C)  $38,148    $60,306
                                      $ 1,566(B)
Year Ended
 February 28,
 1997          $54,714     $ 80,908   $ 1,330(A) $ 70,438  $ 6,912(C)  $33,940    $41,120
                                      $15,458(B)
Year Ended
 February 29,
 1996          $46,678     $ 65,379   $ 1,134(A) $ 57,231  $ 8,917(C)  $    --    $54,714
                                      $ 7,671(B)



(A)  Represents  recoveries  on accounts  previously  written off.
(B)  Allowance applicable  to  purchased  accounts  receivable.
(C)  Deductions  from  reserve applicable to purchased accounts receivable, as
     follows:


                                           1998         1997          1996
                                         --------     --------      ------

Write-offs of Uncollectible Accounts     $21,156      $ 6,912       $ 8,917

</TABLE>

                                       54
<PAGE>

Index to Exhibits


3.       Articles of Incorporation and Bylaws.

         a.       Registrant's Restated Articles of Incorporation, as amended.

         b.       Registrant's  Amended and Restated Bylaws, filed as Exhibit
                  3a to  Registrant's  Quarterly  Report  on Form  10-Q  for the
                  quarter ended  November 30, 1997, are  incorporated  herein by
                  this reference.

4.       Instruments defining the rights of security holders, including 
         indentures.


         a.       The long-term debt as shown on the consolidated  balance sheet
                  of the  Registrant  at  February  28,  1995  includes  various
                  obligations  each  of  which  is  evidenced  by an  instrument
                  authorizing  an  amount  that is less  than  10% of the  total
                  assets  of  the   Registrant   and  its   subsidiaries   on  a
                  consolidated basis. The documents evidencing these obligations
                  are  accordingly  omitted  pursuant to  Regulation  S-K,  Item
                  601(b)(4)(iii)  and will be furnished to the  Commission  upon
                  request.

10.      Contracts

         a.       Three  leases  dated as of  December  27, 1976  between  Hyman
                  Meyers,  Agent, and the Registrant,  filed as Exhibit 10(a)(2)
                  and Exhibit 10(a)(4) - Exhibit 10(a)(5) to Registrant's Annual
                  Report on Form 10-K for the  fiscal  year ended  February  28,
                  1989 (No. 1-8484), are incorporated herein by this reference.

         b.       The following Agreements filed as Exhibits 10(b) through 10(f)
                  to Registrant's Annual Report on Form 10-K for the fiscal year
                  ended February 28, 1991 (No. 1-8484) are  incorporated  herein
                  by this reference:

                  (1)      Lease dated as of January 1, 1980 between Hyman Myers
                           , Agent, and the Registrant.

                  (2)      Lease dated  November 1, 1970 between  Hyman  Meyers,
                           Agent, and the Registrant as successor in interest to
                           Heilig-Meyers Company of Greenville, Inc.

                  (3)      Lease dated April 15,  1971  between  Meyers-Thornton
                           Investment  Co. and the  Registrant  as  successor in
                           interest to Meyers-Thornton Corporation.

                  (4)      Lease  dated June 28,  1971  between  Meyers-Thornton
                           Investment Company and the Registrant as successor in
                           interest to Meyers-Thornton Corporation.

                  (5)      Lease dated December 1, 1972 between Meyers-Thornton
                           Investment Company and the Registrant.

         c.       The  following  Agreements  (originally  filed as  exhibits to
                  Registrant's  Annual  Report on Form 10-K for the fiscal  year
                  ended March 31, 1982) were refiled as Exhibits 10(c)(1)-(3) to
                  Registrant's  Annual  Report on Form 10-K for the fiscal  year
                  ended  February  28, 1993 (No.  1-8484)  and are  incorporated
                  herein by reference:

                  (1)      Executive Employment and Deferred Compensation
                           Agreement made January 12, 1982 between Hyman
                           Meyers and the Registrant. *

                  (2)      Executive Employment and Deferred Compensation
                           Agreement made January 12, 1982 between S.
                           Sidney Meyers and the Registrant. *


                                       55
<PAGE>

                  (3)      Executive Employment and Deferred Compensation
                           Agreement made January 12, 1982 between
                           Nathaniel Krumbein and the Registrant. *

         d.       Addendum  to  Lease  and  Contract  dated  February  26,  1973
                  amending   Lease   Contract   dated  April  15,  1971  between
                  Meyers-Thornton Investment Co. and the Company as successor in
                  interest   to   Meyers-Thornton   Corporation   (see   Exhibit
                  10(c)(2)), filed as Exhibit 10(k) to Registrant's Registration
                  Statement on Form S-2 (No. 2-81775) is incorporated  herein by
                  this reference.

         e.       The following Agreements filed as Exhibits 19(a) through 19(c)
                  to Registrant's  Quarterly Report on Form 10-Q for the quarter
                  ended June 30, 1984 (No.  1-8484) are  incorporated  herein by
                  this reference:

                  (1)      Agreement  made as of May 4, 1984 to amend  Executive
                           Employment   and  Deferred   Compensation   Agreement
                           between Hyman Meyers and Registrant.*

                  (2)      Agreement  made as of May 4, 1984 to amend  Executive
                           Employment   and  Deferred   Compensation   Agreement
                           between S. Sidney Meyers and Registrant.*


                  (3)      Agreement  made as of May 4, 1984 to amend  Executive
                           Employment   and  Deferred   Compensation   Agreement
                           between Nathaniel Krumbein and Registrant.*

         f.       Agreement  made as of  September  15, 1989 to amend  Executive
                  Employment and Deferred  Compensation  Agreement between Hyman
                  Meyers  and   Registrant   filed  as  Exhibit   10(i)  to  the
                  Registrant's  Annual  Report on Form 10-K for the fiscal  year
                  ended February 28, 1990 (No. 1-8484) is incorporated herein by
                  this reference.*

         g.       Agreement  made as of  September  15, 1989 to amend  Executive
                  Employment  and  Deferred  Compensation  Agreement  between S.
                  Sidney  Meyers and  Registrant  filed as Exhibit  10(j) to the
                  Registrant's  Annual  Report on Form 10-K for the fiscal  year
                  ended February 28, 1990 (No. 1-8484) is incorporated herein by
                  this reference.*

         h.       Agreement  made as of  September  15, 1989 to amend  Executive
                  Employment  and  Deferred   Compensation   Agreement   between
                  Nathaniel  Krumbein and  Registrant  filed as Exhibit 10(k) to
                  the  Registrant's  Annual  Report on Form 10-K for the  fiscal
                  year  ended  February  28,  1990 (No.  1-8484)is  incorporated
                  herein by this reference.*

         i.       Deferred Compensation Agreement between Robert L. Burrus, Jr.
                  and the Registrant filed as Exhibit 10(o) to the Registrant's
                  Annual Report on Form 10-K for the fiscal year ended February
                  28, 1987(No.1-8484) is incorporated herein by this reference.*

         j.       Amendment dated September 15, 1989 to the Deferred
                  Compensation Agreement between Robert L. Burrus,
                  Jr. and the Registrant filed as Exhibit 10(m) to Registrant's
                  Annual Report on Form 10-K for the fiscal year ended February
                  28, 1990(No.1-8484) is incorporated herein by this reference.*

         k.       Deferred Compensation  Agreement between Lawrence N. Smith and
                  the  Registrant  filed as  Exhibit  10(p) to the  Registrant's
                  Annual Report on Form 10-K for the fiscal year ended  February
                  28,  1987  (No.   1-8484)  is  incorporated   herein  by  this
                  reference.*

         l.       Amendment  dated  September 15, 1989 to Deferred  Compensation
                  Agreement  between  Lawrence N. Smith and the Registrant filed
                  as Exhibit  10(o) to  Registrant's  Annual Report on Form 10-K
                  for the fiscal year ended  February  28, 1990 (No.  1-8484) is
                  incorporated herein by this reference.*

                                       56
<PAGE>

         m.       Deferred  Compensation  Agreement  between George A. Thornton,
                  III  and  the  Registrant   filed  as  Exhibit  10(q)  to  the
                  Registrant's  Annual  Report on Form 10-K for the fiscal  year
                  ended February 28, 1987 (No.
                  1-8484) is incorporated herein by this reference.*

         n.       Amendment  dated  September 15, 1989 to Deferred  Compensation
                  Agreement  between George A. Thornton,  III and the Registrant
                  filed as Exhibit 10(q) to  Registrant's  Annual Report on Form
                  10-K for the fiscal year ended February 28, 1990 (No.  1-8484)
                  is incorporated herein by this reference.*

         o.       Employees Supplemental Profit-Sharing and Retirement Savings
                  Plan, adopted effective as of March 1, 1991, amended and
                  restated  effective as of March 1, 1994 filed as Exhibit 10(s)
                  to Registrant's Annual Report on Form 10-K for the fiscal year
                  ended February 28, 1997 (No. 1-8484) is incorporated herein
                  by this reference. *

         p.       Registrant's  1983 Stock  Option  Plan,  as amended,  filed as
                  Exhibit C to  Registrant's  Proxy  Statement dated May 9, 1988
                  (No.  1-8484) for its Annual Meeting of  Stockholders  held on
                  June 22, 1988 is incorporated herein by this reference.*

         q.       Amendments to registrant's 1983 Stock Option Plan, as amended,
                  filed as Exhibit 10(t) to  Registrant's  Annual Report on Form
                  10-K for the fiscal year ended February 28, 1990 (No.  1-8484)
                  is incorporated herein by this reference.*

         r.       Registrant's  1990 Stock  Option  Plan,  as amended,  filed as
                  Exhibit 10(t) to  Registrant's  Annual Report on Form 10-K for
                  the  fiscal  year  ended  February  28,  1993 (No.  1-8484) is
                  incorporated herein by this reference.*

         s.       Registrant's  1994 Stock  Option  Plan,  as amended,  filed as
                  Exhibit A to  Registrant's  Proxy  Statement dated May 3, 1994
                  (No.  1-8484) for its Annual Meeting of  Stockholders  held on
                  June 15, 1994 is incorporated herein by this reference.*

         t.       Registrant's   Executive   Severance   Plan  effective  as  of
                  September  15,  1989  filed as Exhibit  10(v) to  Registrant's
                  Annual Report on Form 10-K for the fiscal year ended  February
                  28,  1990  (No.   1-8484)  is  incorporated   herein  by  this
                  reference.*

         u.       Form of Executive Supplemental Retirement Agreement between
                  the Registrant and each of William C. DeRusha and Troy A.
                  Peery, Jr. dated January 1, 1996 filed as Exhibit 10(y) to
                  Registrant's Annual Report on Form 10-K for the fiscal year
                  ended February 28, 1997 (No. 1-8484) is incorporated herein by
                  this reference. *

         v.       Form of Executive Supplemental Retirement Agreement between
                  the Registrant and each of James F. Cerza, Jr., Joseph R.
                  Jenkins and James R. Riddle dated January 1, 1996 filed as
                  Exhibit 10(z) to Registrant's Annual Report on Form 10-K for
                  the  fiscal  year  ended February  28, 1997 (No. 1-8484) is
                  incorporated herein by this reference. *

         w.       Form of Executive Supplemental Retirement Agreement between
                  the Registrant and William J. Dieter dated January 1, 1996 
                  filed as Exhibit 10(aa) to Registrant's Annual Report on Form
                  10-K for the fiscal year ended February 28, 1997 (No. 1-8484)
                  is incorporated herein by this reference. *

         x.       Employment Agreement made as of November 1, 1996 between
                  William C. DeRusha and the Registrant filed as Exhibit 10(bb)
                  to Registrant's Annual Report on Form 10-K for the fiscal year
                  ended February 28, 1997 (No. 1-8484) is incorporated herein by
                  this reference. *

                                       57
<PAGE>

         y.       Employment Agreement made as of November 1, 1996 between Troy
                  A. Peery, Jr. and the Registrant filed as Exhibit 10(cc) to
                  Registrant's Annual Report on Form 10-K for the fiscal year
                  ended February 28, 1997 (No. 1-8484) is incorporated herein by
                  this reference. *

         z.       The following  Agreements filed as Exhibits 10 (ii) through 10
                  (kk) to the Registrant's Annual Report on Form 10-K for fiscal
                  year ended  February  28, 1991 (No.  1-8484) are  incorporated
                  herein by this reference:

                  (1)      Employment Agreement dated April 10, 1991 between 
                           Joseph R. Jenkins and the Registrant.*

                  (2)      Employment Agreement dated April 10, 1991 between
                           James C. Cerza, Jr. and the Registrant.*

                  (3)      Employment Agreement dated April 10, 1991 between
                           James R. Riddle and the Registrant.*

         aa.      Carve Out Life Insurance Plan filed as Exhibit 10(ff) to the
                  Registrant's Annual Report on Form 10-K for the fiscal year
                  ended February 28, 1993 (No. 1-8484) is incorporated herein
                  by this reference.*

         bb.      Amendment, dated as of August 18, 1993, to the Heilig-
                  Meyers Company Severance Plan filed as exhibit 10(hh)
                  to the Registrant's  Annual Report on Form 10-K for the fiscal
                  year ended  February  28,  1994 (No.  1-8484) is  incorporated
                  herein by this reference.*

         cc.      1988 Deferred Compensation Agreement for Outside Directors
                  between George A. Thornton, III and the Registrant filed as 
                  exhibit 10(ii) to the Registrant's Annual Report on Form
                  10-K for the fiscal year ended February 28, 1994 (No. 1-8484)
                  is incorporated herein by this reference.*

         dd.      Amendment,   dated  as  of  April  18,   1994,   to  the  1986
                  Heilig-Meyers  Company  Deferred  Compensation  Agreement  for
                  Outside  Director  between  George  A.  Thornton,  III and the
                  Registrant filed as exhibit 10(jj) to the Registrant's  Annual
                  Report on Form 10-K for the  fiscal  year ended  February  28,
                  1994 (No. 1-8484) is incorporated herein by this reference.*

         ee.      Amendment,  dated as of April  18,  1994,  to the 1990  Heilig
                  Meyers  Company  Deferred  Compensation  Agreement for Outside
                  Director  between George A.  Thornton,  III and the Registrant
                  filed as exhibit 10(kk) to the  Registrant's  Annual Report on
                  Form 10-K for the fiscal year ended February 28, 1994 (No.
                  1-8484) is incorporated herein by this reference.*

         ff.      Letter Agreement, dated August 26, 1993, amending employment
                  agreement between Joseph R. Jenkins and the Registrant filed
                  as exhibit 10(ll) to the Registrant's Annual Report on Form
                  10-K for the fiscal year ended February 28, 1994 (No. 1-8484)
                  is incorporated herein by this reference.*

         gg.      Letter Agreement, dated August 26, 1993, amending employment
                  agreement between James R. Riddle and the Registrant filed as
                  exhibit 10(mm) to the Registrant's Annual Report on Form 10-K
                  for the fiscal year ended February 28, 1994 (No. 1-8484) is
                  incorporated herein by this reference.*

         hh.      Letter Agreement, dated August 26, 1993, amending employment
                  agreement between James F. Cerza and the Registrant filed as
                  exhibit 10(nn) to the Registrant's Annual Report on Form 10-K
                  for the fiscal year ended February 28, 1994 (No. 1-8484) is
                  incorporated herein by this reference.*

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         ii.      $400,000,000  Credit  Agreement  dated July 18, 1995 (the
                  "Credit Facility") among MacSaver Financial Services, Inc., as
                  Borrower; the Registrant,  as Guarantor;  and Wachovia Bank of
                  Georgia,  N.A.,  as  Administrative  Agent,  as amended by the
                  First Amendment and Restatement of Credit  Agreement dated May
                  14, 1996 filed as exhibit 10 (pp) to the  Registrant's  Annual
                  Report on Form 10-K for the  fiscal  year ended  February  29,
                  1996 (No. 1-8484) is incorporated herein by this reference.

     jj.          Policy issued by Life Insurance Company of North America, 
                  dated March 1, 1989 covering the Rhodes, Inc. Employee
                  Disability Plan, filed with the Commission as Exhibit 10.38
                  to Rhodes, Inc.'s Annual Report on Form 10-K for the year
                  ended February 28, 1991 (No. 0-08966) is incorporated herein
                  by this reference.*

     kk.          Form of Compensation (change in control) Agreement between 
                  Irwin L. Lowenstein and Rhodes, Inc., filed with the 
                  Commission as Exhibit 10.7 to Rhodes, Inc.'s Annual Report on
                  Form 10-K for the year ended February 28, 1995 (No. 1-09308)
                  is incorporated herein by this reference.*

     ll.          Amended and Restated Merchant Agreement by and between
                  Beneficial National Bank USA, HMY RoomStore, Inc. and Rhodes,
                  Inc., dated as of May 9, 1997 filed as Exhibit 10(qq) to
                  Registrant's Annual Report on Form 10-K for the fiscal year
                  ended February 28, 1997 (No. 1-8484) is incorporated herein by
                  this reference.

     mm.          Compensation Agreement entered into between Rhodes, Inc. and
                  Joel T. Lanham, filed with the Commission as Exhibit 10.10 to
                  Rhodes, Inc.'s. Annual Report on Form 10-K for the year ended
                  February 29, 1996 (No. 1-09308) is incorporated herein by this
                  reference.*

     nn.          Compensation Agreement entered into between Rhodes, Inc. and
                  Joel H. Dugan, filed with the Commission as Exhibit 10.11 to
                  Rhodes, Inc.'s Annual Report on Form 10-K for the year ended
                  February 29, 1996 (No. 1-09308) is incorporated herein by this
                  reference.*

     oo.          First Amendment and Restatement of Credit Agreement dated as
                  of May 14, 1996.

     pp.          Second Amendment and Restatement of Credit Agreement dated as
                  of January 8, 1997.

     qq.          Third Amendment and Restatement of Credit Agreement dated as
                  of May 23, 1997.

     rr.          Amendment No. 4 to the Credit Agreement, dated as of November
                  30, 1997 filed as Exhibit 10a to Registrant's Quarterly Report
                  on Form 10-Q for the quarter ended November 30, 1997, is 
                  incorporated herein by this reference.

     ss.          Amendment No. 5 to the Credit Agreement dated as of April 22,
                  1998.

     tt.          Amended and Restated  Guaranty by the Registrant,  dated as of
                  May 9, 1997,  of certain  obligations  under the  Amended  and
                  Restated Merchant  Agreement by and among Beneficial  National
                  Bank USA, HMY RoomStore,  Inc. and Rhodes,  Inc.,  dated as of
                  May 9, 1997,  filed as Exhibit 10a to  Registrant's  Quarterly
                  Report on Form 10-Q for the  quarter  ended May 31,  1997,  is
                  incorporated herein by this reference.

     uu.          Rhodes Inc. Supplemental Employees Pension Plan, effective as
                  of March 1, 1995.


                                       59
<PAGE>

21.               Subsidiaries of Registrant.


23.               Consents of experts and counsel.

                  a.       Consent of Deloitte & Touche LLP to  incorporation by
                           reference of Accountants'  Reports into  Registrant's
                           Registration Statements on Form S-8.

27.               Financial Data Schedule


* Management contract or compensatory plan or arrangement of the Company
  required to be filed as an exhibit.



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