<PAGE>   1
EXHIBIT 13





                        HECHINGER COMPANY ANNUAL REPORT
                        -------------------------------
                            Year ended February 1, 1997


<PAGE>   2


[MAP]

Hechinger Company Markets

   Hechinger Stores                           64
   Home Quarters Warehouse Stores             52
   Better Spaces                               1
   ----------------------------------------------
   TOTAL STORES                              117


Store logos for Hechinger Stores and Home Quarters Warehouse appear above a map
of Hechinger Company's markets.  The map includes the number of stores in each
city/state and the total number of stores in the Company's markets.

<PAGE>   3
--------------------------------------------------------------------------------


HECHINGER COMPANY IS A SPECIALTY RETAILER PROVIDING PRODUCTS AND SERVICES FOR
THE CARE, REPAIR, REMODELING AND MAINTENANCE OF THE HOME AND GARDEN. THE COMPANY
OPERATES UNDER THE STORE NAMES: HECHINGER, HOME QUARTERS WAREHOUSE AND BETTER
SPACES.

HECHINGER COMPANY COMMON STOCK HAS BEEN TRADED PUBLICLY SINCE 1972 AND TRADES ON
THE NASDAQ STOCK MARKET UNDER THE SYMBOLS HECHA AND HECHB. CORPORATE 
HEADQUARTERS ARE LOCATED IN LARGO, MARYLAND.

To Our Stockholders, Associates and Friends:


Last year I told you that in 1996 we would complete some major elements in our 
plans to regain positive momentum and drive our business forward.

    I said that we were returning to a clearer focus on the basics of our
business. That focus would include a renewed emphasis on customer service, a
vendor consolidation program intended to lower costs and improve merchandise
presentations, and aggressive marketing and advertising campaigns -- all
designed to bring more customers to our stores. While all of these efforts 
unfolded in 1996 and resulted in some major accomplishments for Hechinger, 
increased competition and disruptions from some of our iniatitives caused us 
to produce less than satisfactory results. For the immediate future, while we 
see no let up in competitive pressure, we see ourselves continuing to improve 
the way we do business. But I'm jumping ahead --more about this in a moment. 
Let's get back to the events of 1996.

    We completed the consolidation of our Hechinger Stores and Home Quarters
Warehouse operations in 1996. This merger created significant opportunities for
us to reorganize and create a more efficient operation. First, we implemented a
vendor consolidation program that has lowered our cost of acquiring 
merchandise, improved our merchandise assortments and presentations, and
enabled us to provide better service in our stores. In 1996, we completed over
150 merchandise assortment resets, including major remodeling of our Kitchen,
Bath and Flooring departments. The disruption in our stores caused by these
resets hampered our ability to maintain our high level of customer service and
adversely impacted sales. At the same time, we began to see the benefits of our
vendor consolidation program as our gross margins were up sharply in the second
half of 1996 over the previous year. This trend should continue into 1997. The
support we have received from our vendors has exceeded our expectations. We
recognize the important role our vendors play in our success and are very
pleased to have them as partners.
    
[PHOTO]
John W. Hechinger, Jr.
Chairman and Chief Executive Officer

WE COMPLETED THE CONSOLIDATION OF OUR HECHINGER AND HOME QUARTERS
WAREHOUSE OPERATIONS IN 1996.


                                                                               1
<PAGE>   4

----------------------------------------------------------------
AS I LOOK TO 1997, OUR EMPHASIS IS ON IMPROVING OUR PERFORMANCE.

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


    Second, and as expected, we reduced our general and administrative
expenses by $16 million in 1996. This will grow to annual savings in excess of
$20 million in 1997, some of which we will reinvest in customer service
initiatives.

    Third, we completed all of the changes necessary to get our Company
operating on uniform store and merchandising information systems. This was a
tremendous undertaking, affecting practically everyone in the Company. While
completing the merger was a difficult task, I know we are a more efficient and
effective company because of it.

    In the midst of all of the reorganizing, resetting merchandise and
retraining we undertook in 1996, we saw over 30 new competing home center
warehouse stores open in our markets, the most openings we have ever seen in
any one year. Clearly, this has had and will continue to have an impact on our
results. For us, this means that over 85 percent of our markets now have
competition from "big box" home centers. We anticipate a comparable number of
competitive openings in 1997, bringing us close to 100 percent of our markets
having significant home center warehouse competition.
    
    As a result of all of our changes and increased competition, we reported a
pre-tax loss from operations for 1996 of $25.1 million, compared with last
year's pre-tax loss from operations, before special charges, of $25.3 million.
Still, our financial position remains on firm ground. In 1996, earnings before
interest, taxes, depreciation and amortization was $72 million, up 12 percent
from last year's $64.5 million, before special charges. We also have a flexible
$200 million secured revolving credit facility, approximately $200 million of
unencumbered real estate, low maturities on our long-term debt and had $37
million in cash at year end.

    As I look to 1997, our emphasis is on improving our performance. The
distractions from consolidating our Hechinger and Home Quarters operations are
behind us. Our focus is on differentiating customers' shopping experiences in
our stores from that of the competition. The backbone of this effort is our
"CUSTOMERS FIRST" program. This program promises that customers will not stand
in a check-out line for more than five minutes, and that we will be in stock on
every item we carry. Our program also places new emphasis and awareness on our
"no hassle return" policy. We are offering discount certificates to customers
when we don't live up to these heightened levels of customer service. Also,
customers who make significant annual purchases can now earn rebate
certificates. We believe these types of customer service initiatives will
differentiate us to customers and help drive sales.

    In keeping with our focus to differentiate ourselves in the marketplace, we
reopened our Albany, New York store on February 27, 1997, under a new name --
Better Spaces. This is "The World's First Home Design Superstore," offering the
best of six major home specialty businesses with superior customer service
levels -- all under one roof. The six 


2
<PAGE>   5
--------------------------------------------------------------------------------


areas include: kitchen and bath; lighting; home decor; outdoor living; storage
and organization; and tools and supplies.

    Better Spaces is designed to be the store of choice for anyone interested in
refurbishing, enhancing, organizing, modernizing and maintaining their home,
both inside and outside. It's designed to provide a strong, differentiated
shopping experience for customers seeking creative new ideas for their homes or
needing to solve household problems. And, we also see it becoming the store
preferred by professional customers such as plumbing, electrical and painting
contractors to help them meet their clients' needs.

    The potential of this pilot store is exciting. While time will tell which
elements of the store will be successful and which will need modification, we
see Better Spaces as one idea for improving our business.

    Also, we are testing another idea--an expanded Commercial Business program
in our Tidewater, Virginia market. The commercial business market is large and
fragmented. We will be offering terrific service and value to commercial
customers without significant additional capital investment on our part. If
successful, we anticipate expanding this program to other markets.

    In July 1996, Robert S. Parker, Ph.D. joined our Board of Directors and is a
valuable addition to our team. Dr. Parker has been dean of the Georgetown School
of Business since 1986 and was previously a partner at McKinsey & Company. Also,
Herbert J. Broner, a member of our Board since 1988, retired from our Board this
past February. For the past nine years he has served with distinction and I wish
to take this opportunity to thank him for his leadership and his guidance.

    With all the effort focused on the merger of our Hechinger and Home Quarters
operations -- on top of the competitive openings we saw -- 1996 was a difficult
year. As we see it, the way to improve our results is to do our best to give
every customer plenty of reasons to shop our stores. Our Company has made many
changes and added programs designed to differentiate us in the marketplace. By
combining our determined, loyal associates and supportive vendors with our
financial flexibility, we believe we have the resources needed to compete
effectively in our markets. 


Sincerely,

/S/ JOHN W. HECHINGER, JR.

John W. Hechinger, Jr.
Chairman and Chief Executive Officer
April 21, 1997


-------------------------------------------------------------------------------
AS WE SEE IT, THE WAY TO IMPROVE OUR RESULTS IS TO DO OUR BEST TO GIVE EVERY
CUSTOMER PLENTY OF REASONS TO SHOP OUR STORES.


                                                                               3
<PAGE>   6



                                                               TABLE OF CONTENTS

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

  7                                                Quarterly Results (unaudited)

  8                                        Consolidated Statements of Operations

  9                                                  Consolidated Balance Sheets

  10                                       Consolidated Statements of Cash Flows

  11                             Consolidated Statements of Stockholders' Equity

  12                                  Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------






Hechinger Company

FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
Year ended                                     FEB. 1, 1997     Feb. 3, 1996    Jan. 28, 1995    Jan. 29, 1994   Jan. 30, 1993
----------------------------------------------------------------------------------------------------------------------------------
(in thousands except per share data)
<S>                                              <C>              <C>              <C>              <C>             <C>       
STATEMENT OF OPERATIONS DATA
Net sales                                        $2,199,067       $2,252,780       $2,449,554       $2,094,968      $1,869,349
Gross profit                                        455,208          455,932          540,680          462,266         437,009
Interest expense                                     40,194           31,341           29,793           23,063          14,121
Income tax (benefit) expense                             --           (3,000)          (5,545)          10,611         (15,429)
Net (loss) earnings                                 (25,076)         (77,636)          (9,911)          24,760         (26,272)
Net (loss) earnings
  per common share                                    $(.59)          $(1.84)           $(.24)            $.59           $(.63)
----------------------------------------------------------------------------------------------------------------------------------

DIVIDENDS PER SHARE
  Class A common                                       $.00             $.16             $.16             $.16            $.16
  Class B common                                       $.00             $.06             $.06             $.06            $.06
----------------------------------------------------------------------------------------------------------------------------------

BALANCE SHEET DATA
Total assets                                     $1,105,103       $1,150,421       $1,261,229       $1,229,242      $1,075,749
Current portion of long-term debt
  and capital lease obligations                       3,657            3,806            3,453            3,068           1,544
Long-term debt and capital
  lease obligations                                 394,478          399,530          403,377          407,873         305,974
Total stockholders' equity                          374,256          399,039          481,273          493,867         473,924
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

Note: In 1996, the Company suspended dividend payments. In 1995, the Company
recorded a charge of $25 million related to its decision to combine its
Hechinger and Home Quarters operations under one management team and a non-cash
charge of $30.3 million related to the adoption of SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of." In
1994, the Company recorded a charge of $61.9 million primarily related to its
decision to close its stores in certain markets. In 1992, the Company recorded a
charge of $83 million to cover estimated costs associated with the repositioning
of its Hechinger stores. In 1994, the Company changed its method of calculating
LIFO inventories. See Notes to Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations. All years presented were 52 weeks except for the year ended February
3, 1996, which was 53 weeks.




4
<PAGE>   7



Hechinger Company

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


OPERATIONS. The following table sets forth the sales reported by the Company (in
billions):

Year ended                        FEB. 1, 1997   Feb. 3, 1996   Jan. 28, 1995
-------------------------------------------------------------------------------
Net sales                             $2.20          $2.25          $2.45
Net sales (decrease) increase           (2%)           (8%)           17%
Comparable store sales
 (decrease) increase                    (3%)           (8%)            2%

     The sales decrease for 1996 compared with 1995 was due primarily to
increased competition during 1996 and fewer stores open during 1996 compared
with 1995. Additionally, the year ended February 1, 1997 was a 52-week year
compared with the previous year which was a 53-week year. The sales decrease for
1995 compared with 1994 was due to 22 stores closed as a part of the store
closing plan announced in 1994 as well as increased competition, unseasonable
weather and weak sales of existing homes. Competition is expected to continue to
expand into the Company's markets and could have an adverse impact on the
Company's sales.

     The following table sets forth the number of stores operated by the
Company:

Year ended                        FEB. 1, 1997   Feb. 3, 1996   Jan. 28, 1995
------------------------------------------------------------------------------
At beginning of year                    118           133            125
  Openings                                2            10             12
  Closings                               (3)          (25)            (4)
                                        ---           ---            ---
At end of the year                      117           118            133
                                        ===           ===            ===

     Other income, which consists primarily of interest income, was $2.8
million, $2.9 million and $4.4 million in 1996, 1995 and 1994, respectively. The
decreases in 1996 and 1995 were due primarily to decreases in funds available
for investment.

     Cost of sales was 79.3% of sales for 1996 compared with 79.8% and 77.9% of
sales for 1995 and 1994, respectively. Distribution, buying and occupancy
expenses, which are primarily fixed costs, are included in cost of sales. As a
percent of sales, the decrease in 1996 was due primarily to improvement in the
merchandise margin resulting from the Company's vendor consolidation program and
an improvement of 16 basis points resulting from a LIFO credit in 1996 of $1.0
million versus a LIFO charge in 1995 of $2.6 million, offset by the impact of
competitive pricing in certain markets. In 1995, as a percent of sales, over
one-half of the increase in 1995 was due primarily to less leverage of
distribution, buying and occupancy expenses as a result of lower sales in 1995
compared with 1994. The remaining amount of the increase in 1995 is attributable
to the impact of competitive pricing in certain markets, among other factors.

     In 1994, the Company changed its method of calculating LIFO inventories to
provide for a better matching of costs and revenues, more closely conform the
LIFO methods used to the method used for the majority of its inventories,
provide for a LIFO adjustment more representative of the Company's actual
inflation on its inventories and reduce the likelihood of LIFO layer
liquidations during periods of overall growth in inventories. The cumulative
effect of the change in method and the pro forma effects of the change on prior
years' results of operations was not determinable. The effect of the change on
results of operations for 1994 was to reduce the net loss by $6.2 million or
$.15 per share. Cost of sales included a LIFO credit of $1.0 million in 1996
compared with LIFO charges of $2.6 million and $1.9 million in 1995 and 1994,
respectively. LIFO, inventory acquisition costs and other inventory adjustments
decreased fourth quarter cost of sales by $1.7 million, $2.0 million and $2.4
million in 1996, 1995 and 1994, respectively.

     Selling, general and administrative expenses were 20.1% of sales for both
1996 and 1995, compared with 19.1% of sales for 1994. Pre-opening expenses of
$1.9 million, $7.6 million and $8.9 million are included in selling, general and
administrative expenses for 1996, 1995 and 1994, respectively.

     Excluding pre-opening expenses, as a percent of sales, the increase in
selling, general and administrative expenses in 1996 was due primarily to
higher store payroll and other expenses to support the Company's customer
service programs. This was partially offset by general and administrative
expense savings from the combination of Hechinger and Home Quarters operations
under one management team. The increase in 1995 was due primarily to less
leverage of selling, general and administrative expenses as a result of lower
sales in 1995 compared with 1994. In addition, approximately $6 million was
recorded in 1995 for costs related to the combination of Hechinger and Home
Quarters operations, including relocation and professional service fees.
     
     Interest expense, net of capitalized interest, was $40.2 million, $31.3
million and $29.8 million for 1996, 1995 and 1994, respectively. The increase in
1996 was due primarily to the utilization of the Company's revolving credit
facility. The increase in 1995 was due primarily to less interest capitalized on
construction-in-progress compared with last year. Capitalized interest amounted
to $.3 million, $2.4 million and $3.6 million for the years 1996, 1995 and 1994,
respectively. 

     In 1995, the Company recorded a charge of $25 million related primarily to
the Company's decision to combine its Hechinger and Home Quarters operations
under one management team. By merging the management, purchasing and
administrative functions of its two operating subsidiaries, the Company
believes it is in a better competitive position as it operates a more efficient
organization and has increased purchasing power with its vendors. In 1996, the
Company reduced its general and administrative costs by approximately $16
million primarily from the elimination of duplicate information systems and
management and administrative functions. See the Notes to the Consolidated
Financial Statements under the caption "Unusual Charges" for more detail.
     
     In 1994, the Company recorded a charge of $61.9 million primarily related
to the Company's decision to close 22 stores in certain markets. The specific
actions included: closing 14 Home Quarters stores, primarily in North and South
Carolina; and closing eight Hechinger stores, including four in Columbus, OH,
two in Rochester, NY and one each in Roanoke, VA and Ft. Washington, MD.

     As a group, these 22 stores were older, smaller units and had not been
updated to reflect elements of newer or remodeled stores. In addition,
competition had intensified in these markets which adversely affected the
performance of these stores. Based on the 


                                                                               5
<PAGE>   8

recent performance and limited potential for long term profitability of these
stores, management decided to close them. The last store was closed in 1995.

     For 1995 and 1994, these 22 stores generated revenue of $15 million and
$257 million, respectively, while generating operating losses of $0 and $14
million, respectively.

     The main components of this store closing charge were:

     1. estimated write-down of inventories in these stores to its net
        realizable value, including estimated costs to liquidate the
        inventories, of approximately $19 million;

     2. estimated write-down to net realizable value of furniture, fixtures,
        equipment and other assets to be disposed of approximately $19 million;

     3. estimated cash expenditures for carrying costs of the stores vacated,
        including estimated rents, utilities and other expenses subsequent to
        the stores being closed, until estimated disposition of approximately
        $20 million; and

     4. estimated cash expenditures for employee termination costs of
        approximately $4 million, including severance pay and related benefits.
        Approximately 1,400 employees were terminated in 1995 as a result of
        these decisions. Substantially all of these employees were based in the
        affected stores.

     See the Notes to the Consolidated Financial Statements under the caption
"Unusual Charges" for more detail.

     The effective income tax benefit rates were 0%, 3.7% and 35.9% of the
losses before income taxes for 1996, 1995 and 1994, respectively. The effective
tax rate for 1996 differs from the statutory rate as a result of an increase in
a valuation reserve on the net deferred tax asset resulting from the current
year's loss. The effective tax rate for 1995 differed from the statutory rate as
a result of the effect of a valuation allowance established on the Company's net
deferred tax asset generated from unusual charges recorded in 1995. The
effective tax rate for 1994 differed from the statutory rate due primarily to
tax-free earnings on funds available for investment and various tax credits. At
February 1, 1997, the Company had a net deferred tax asset of $42.8 million. Due
to uncertainties of the amount of the deferred tax asset to be realized in
future periods, a valuation allowance of $27.9 million established in 1995 has
been increased to $39.2 million in 1996. The Company's fully reserved tax
operating loss carryforward of $52.3 million and fully reserved general business
credit carryforward of $7.6 million will begin to expire in 2008 and 2011,
respectively.

     The net losses were 1.1%, 3.4% and .4% of sales for 1996, 1995 and 1994,
respectively.

     Certain accruals and estimates considered necessary for a fair statement of
the results of operations are made for interim periods. In some cases, the
determination of actual expenses can be made only at the end of each year.
Accordingly, adjustments to these accruals and estimates occur in and flow
through the fourth quarter. See discussion of cost of sales and income taxes
above.

IMPAIRMENT OF LONG-LIVED ASSETS. Statement of Financial Accounting Standards No.
121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" was issued in 1995. The statement requires
companies to review long-lived assets and certain intangible assets in certain
circumstances, and if the value of the assets is impaired, to record an
impairment loss. In 1995, the Company adopted this statement and recorded a
non-cash charge of $30.3 million described as follows:

     1. the Company has a number of real estate properties which were acquired
        for future store expansion. As a result of the Company's decision to
        slow down its expansion plans and not to pursue development of these
        properties, the Company plans to dispose of these properties. These
        properties had a carrying value of $24 million and had an estimated
        sales value, net of related costs to sell, of approximately $9 million.
        Accordingly, the Company recorded an impairment loss of approximately
        $15 million; and

     2. the Company reviewed its property, furniture, fixtures and equipment and
        evaluated how these assets will continue to be used in its operations.
        Based on this evaluation, the Company determined that certain assets
        with a carrying value of $33 million were impaired and had fair values
        totaling approximately $18 million. Fair values were based on estimated
        market values. Accordingly, the Company recorded an impairment loss of
        approximately $15 million.

STOCK-BASED COMPENSATION. Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting and Disclosure of Stock-Based Compensation" was issued
in 1995. The statement relates to the measurement of compensation of stock
options issued to employees and requires either expense recognition based on the
fair value method or the continued application of APB 25, "Accounting for Stock
Issued to Employees" and disclose pro forma net income as if the recognition and
measurement provisions of SFAS 123 had been adopted.

     The Company currently accounts for its stock compensation arrangements
under the provisions of APB 25 and intends to continue to do so. See the Notes
to the Consolidated Financial Statements under the caption "Stock Compensation
Plans" for more detail.

LIQUIDITY AND CAPITAL RESOURCES. Net cash used in operations was $59.1 million
in 1996 compared with net cash flows from operations of $47.1 million and $3.5
million in 1995 and 1994, respectively. The decrease between 1996 and 1995 was
due primarily to a decrease in accounts payable and accrued expenses. This
decrease was offset by an increase in borrowings under the Company's revolving
credit facility of $84.8 million. The increase between 1995 and 1994 was due
primarily to a decrease in inventory levels due primarily to the closing of 22
stores. Cash and cash equivalents and marketable securities were $36.7 million,
$35.8 million and $95.2 million at February 1, 1997, February 3, 1996 and
January 28, 1995, respectively. Expenditures for 


6
<PAGE>   9

property, furniture and equipment and other assets were $41.0 million, $107.2
million and $175.6 million in 1996, 1995 and 1994, respectively. These
expenditures are related primarily to the Company's store expansion, relocation
and remodeling programs.

     The Company has entered into several financing and other transactions over
the past three years in order to generate funds for its seasonal working capital
requirements, store expansion and remodeling programs.

     In February 1996, the Company's operating subsidiaries entered into a 
senior secured revolving credit facility which permits borrowings of up to $200
million, with preauthorization from the lender to utilize the last $25 million.
This facility replaced a $50 million revolving credit facility and all letter
of credit facilities. This facility is secured by merchandise inventories and
expires in February 1999. Borrowings under this facility bear interest at prime
plus 1% or LIBOR plus 2.75% at the option of management. As of February 1,
1997, the Company had outstanding loans of $84.8 million and had issued and
outstanding letters of credit of $46.7 million under this facility.
     
     In August 1994, the Company sold 13 stores for $99.3 million, net of
expenses, and concurrently leased the properties back for an initial term of 25
years. The lease is renewable at the Company's option for nine additional terms
of five years each and the Company has a right of first refusal to repurchase
the properties.

     The Company anticipates that capital expenditures for fiscal 1997 will be
approximately $30 million. Management believes that cash and cash equivalents,
cash generated from operations and its available credit facility are adequate to
meet the Company's working capital needs and planned capital expenditures for
fiscal 1997.

IMPACT OF INFLATION AND CHANGING PRICES. The Company does not measure precisely
the effect of inflation on its operations; however, it does not believe
inflation has had a material effect on sales or results of operations.

FORWARD-LOOKING STATEMENTS. Forward-looking statements in this annual report,
letter to stockholders and Form 10-K are made pursuant to the safe harbor
provision of the Private Securities Litigation Reform Act of 1995. There are
various factors that could cause results to differ materially from those
anticipated by some statements made in this annual report, letter to
stockholders and Form 10-K. Investors are cautioned that all forward looking
statements involve risks and uncertainty. Factors that could cause actual
results to differ materially include, but are not limited to the following: the
strength and extent of new and existing competition; the Company's ability to
maintain competitive pricing in its markets; the Company's ability to maintain
adequate levels of vendor support; the ability of the Company's customer
service programs, Better Spaces store and commercial business programs to
increase sales; the Company's ability to attract, train and retain experienced,
quality employees; the Company's ability to dispose of excess real estate;
general economic conditions; housing turnover; interest rates; weather;
and other factors described from time to time in the Company's Securities and
Exchange Commission filings.





Hechinger Company

QUARTERLY RESULTS (UNAUDITED)
(in thousands except per share data)


The following table sets forth summarized unaudited quarterly results for the
years ended February 1, 1997 and February 3, 1996:

<TABLE>
<CAPTION>
QUARTER ENDED                                                 MAY 4, 1996       AUG. 3, 1996      NOV. 2, 1996      FEB. 1, 1997
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                <C>               <C>               <C>     
NET SALES                                                        $561,317           $665,902          $533,276          $438,572
GROSS PROFIT                                                      115,845            139,564           109,006            90,794
INCOME TAX EXPENSE                                                     --                 --                --                --
NET EARNINGS (LOSS)                                                (5,990)            12,215            (9,965)          (21,337)
NET EARNINGS (LOSS) PER COMMON SHARE                                $(.14)              $.28             $(.24)            $(.51)

<CAPTION>
Quarter ended                                              April 29, 1995      July 29, 1995     Oct. 28, 1995      Feb. 3, 1996
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                <C>               <C>               <C>     
Net sales                                                        $553,174           $648,649          $549,189          $501,768
Gross profit                                                      119,548            138,531           103,949            93,904
Income tax expense (benefit)                                          686              5,368            (3,762)           (5,292)
Net earnings (loss)                                                 1,167              9,139            (6,406)          (81,536)
Net earnings (loss) per common share                                 $.03               $.22             $(.15)           $(1.93)
</TABLE>

Final LIFO valuation and inventory acquisition cost adjustments impacted the
fourth quarters of 1996 and 1995. In the fourth quarter of 1995, the Company
recorded a charge of $25 million related to its decision to combine its
Hechinger and Home Quarters operations under one management team and a non-cash
charge of $30.3 million related to the adoption of SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of."
All quarters presented were 13 weeks except for the quarter ended February 3,
1996, which was 14 weeks.




                                                                               7
<PAGE>   10



Hechinger Company

CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

Year ended                                                FEB. 1, 1997      Feb. 3, 1996     Jan. 28, 1995
----------------------------------------------------------------------------------------------------------
(in thousands except per share data)
<S>                                                         <C>               <C>               <C>       
REVENUES
Net sales                                                   $2,199,067        $2,252,780        $2,449,554
Other (principally interest)                                     2,757             2,869             4,405
                                                            ----------        ----------        ----------
Total Revenues                                               2,201,824         2,255,649         2,453,959

COSTS AND EXPENSES
Cost of sales                                                1,743,859         1,796,848         1,908,874
Selling, general and administrative expenses                   442,847           452,796           468,898
Interest expense                                                40,194            31,341            29,793
Unusual charges                                                     --            25,000            61,850
Impairment of long-lived assets                                     --            30,300                --
                                                            ----------        ----------        ----------
Total Costs and Expenses                                     2,226,900         2,336,285         2,469,415
                                                            ----------        ----------        ----------
LOSS BEFORE INCOME TAXES                                       (25,076)          (80,636)          (15,456)
INCOME TAX BENEFIT                                                  --            (3,000)           (5,545)
                                                            ----------        ----------        ----------
NET LOSS                                                    $  (25,076)       $  (77,636)       $   (9,911)
                                                            ==========        ==========        ==========
NET LOSS PER COMMON SHARE                                        $(.59)           $(1.84)            $(.24)
                                                            ==========        ==========        ==========
</TABLE>

All years presented were 52 weeks except for the year ended February 3, 1996,
which was 53 weeks. See notes to consolidated financial statements.




8
<PAGE>   11

Hechinger Company

CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                                   FEB. 1, 1997      Feb. 3, 1996
-----------------------------------------------------------------------------------------------------------------
(in thousands except share data)
<S>                                                                                  <C>               <C>       
ASSETS
CURRENT ASSETS
Cash and cash equivalents                                                            $   36,727        $   35,785
Merchandise inventories                                                                 414,980           414,974
Other current assets                                                                     66,637            79,533
                                                                                     ----------        ----------
TOTAL CURRENT ASSETS                                                                    518,344           530,292
PROPERTY, FURNITURE AND EQUIPMENT, net                                                  461,752           497,577
COST IN EXCESS OF NET ASSETS ACQUIRED, net                                               52,066            53,743
LEASEHOLD ACQUISITION COSTS, net                                                         46,876            49,128
OTHER ASSETS                                                                             26,065            19,681
                                                                                     ----------        ----------
TOTAL ASSETS                                                                         $1,105,103        $1,150,421
                                                                                     ==========        ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving credit facility                                                            $   84,814        $       --
Accounts payable and accrued expenses                                                   220,296           313,067
Current portion of long-term debt and capital lease obligations                           3,657             3,806
                                                                                     ----------        ----------
TOTAL CURRENT LIABILITIES                                                               308,767           316,873
LONG-TERM DEBT                                                                          380,868           383,709
CAPITAL LEASE OBLIGATIONS                                                                13,610            15,821
DEFERRED RENT                                                                            27,602            26,779
OTHER LONG-TERM LIABILITIES                                                                  --             8,200
STOCKHOLDERS' EQUITY
Class A common stock, $.10 par value; authorized
  50,000,000 shares; issued 32,608,139 and 30,892,581                                     3,261             3,089
Class B common stock, $.10 par value; authorized
  30,000,000 shares; issued 9,716,371 and 11,431,929                                        971             1,143
Additional paid-in capital                                                              238,248           238,248
Retained earnings                                                                       132,914           157,990
Unearned compensation                                                                      (253)             (759)
Less treasury stock at cost,
  97,265 and 39,325 Class A common shares
  and 14,497 Class B common shares                                                         (885)             (672)
                                                                                     ----------        ----------
TOTAL STOCKHOLDERS' EQUITY                                                              374,256           399,039
                                                                                     ----------        ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                           $1,105,103        $1,150,421
                                                                                     ==========        ==========
</TABLE>

See notes to consolidated financial statements.




                                                                               9
<PAGE>   12



Hechinger Company

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year ended                                                                      FEB. 1, 1997      Feb. 3, 1996     Jan. 28, 1995
--------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S>                                                                                <C>               <C>               <C>       
CASH FLOWS FROM/(USED IN) OPERATING ACTIVITIES
Net loss                                                                           $ (25,076)        $ (77,636)        $  (9,911)
Adjustments to reconcile net loss to net cash
  provided by operating activities:
  Unusual charges                                                                    (28,507)           24,700            55,871
  Depreciation and amortization                                                       56,898            58,535            53,268
  Deferred income taxes                                                                5,444            10,249           (24,085)
  Deferred rent                                                                          823              (559)           (1,122)
Changes in operating assets and liabilities:
  Merchandise inventories                                                               (943)           38,170           (53,817)
  Other current assets                                                                (5,314)            2,363           (17,006)
  Accounts payable and accrued expenses                                              (71,526)            7,875           (10,678)
  Income taxes payable                                                                 9,132           (16,570)           10,957
                                                                                   ---------         ---------         ---------
NET CASH (USED IN)/FLOWS FROM OPERATIONS                                             (59,069)           47,127             3,477
                                                                                   ---------         ---------         ---------

CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES 
Property, furniture, equipment and other assets:
  Additions                                                                          (41,002)         (107,185)         (175,577)
  Disposals                                                                           21,107             8,577             4,549
Marketable securities:
  Purchases                                                                               --          (192,101)         (206,870)
  Proceeds from sales                                                                     --           261,012           288,948
                                                                                   ---------         ---------         ---------
NET CASH FLOWS USED IN INVESTING ACTIVITIES                                          (19,895)          (29,697)          (88,950)
                                                                                   ---------         ---------         ---------

CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES
Proceeds from revolving credit facility                                              467,441                --                --
Payments to revolving credit facility                                               (382,627)               --                --
Net proceeds from sale and leaseback transactions                                         --                --            99,295
Dividends paid to stockholders                                                            --            (5,664)           (5,635)
Other                                                                                 (4,908)           (2,233)           (1,610)
                                                                                   ---------         ---------         ---------
NET CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES                                    79,906            (7,897)           92,050
                                                                                   ---------         ---------         ---------
INCREASE IN CASH AND CASH EQUIVALENTS                                                    942             9,533             6,577
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                        35,785            26,252            19,675
                                                                                   ---------         ---------         ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                           $  36,727         $  35,785         $  26,252
                                                                                   =========         =========         =========

SUPPLEMENTAL INFORMATION
  Cash payments for income taxes                                                   $   1,629         $   3,428         $   8,814
  Cash payments for interest, net of amount capitalized                            $  37,566         $  30,949         $  29,005
</TABLE>

All years presented were 52 weeks except for the year ended February 3, 1996,
which was 53 weeks. See notes to consolidated financial statements.




10
<PAGE>   13



Hechinger Company

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

                                                      Class A      Class B     Additional
                                                      Common       Common        Paid-in       Retained      Unearned       Treasury
                                                       Stock        Stock        Capital       Earnings    Compensation       Stock 
------------------------------------------------------------------------------------------------------------------------------------
(in thousands except per share data)
<S>                                                    <C>          <C>          <C>           <C>             <C>          <C>     
Balance, Jan. 29, 1994                                 $2,881       $1,331       $236,543      $256,836        $(2,201)     $(1,523)
Restricted stock awards earned                             --           --             --            --            648           -- 
Performance stock awards earned and issued                  5           --            577            --             --           -- 
Exercise of stock options including income
  tax benefit                                              15           --          1,037            --             --        1,260 
Conversions from Class B to Class A
  common stock                                            179         (179)            --            --             --           -- 
Conversion of 5 1/2% Convertible
  Subordinated Debentures into shares
  of Class A common stock                                  --           --             25            --             --           -- 
Purchase of treasury stock                                 --           --             --            --             --         (244)
Adjustment to fair value of marketable securities          --           --             --          (371)            --           -- 
Cash dividends on common stock:
  Class A - $.16 per share                                 --           --             --        (4,883)            --           -- 
  Class B - $.06 per share                                 --           --             --          (752)            --           -- 
Net loss                                                   --           --             --        (9,911)            --           -- 
                                                       ------       ------       --------      --------        -------      ------- 
Balance, Jan. 28, 1995                                  3,080        1,152        238,182       240,919         (1,553)        (507)
Restricted stock awards earned                             --           --             --            --            794           -- 
Exercise of stock options including
  income tax benefit                                       --           --             66            --             --           66 
Conversions from Class B to Class A
  common stock                                              9           (9)            --            --             --           -- 
Purchase of treasury stock                                 --           --             --            --             --         (231)
Adjustment to fair value of marketable securities          --           --             --           371             --           -- 
Cash dividends on common stock:
  Class A - $.16 per share                                 --           --             --        (4,931)            --           -- 
  Class B - $.06 per share                                 --           --             --          (733)            --           -- 
Net loss                                                   --           --             --       (77,636)            --           -- 
                                                       ------       ------       --------      --------        -------      ------- 
Balance, Feb. 3, 1996                                   3,089        1,143        238,248       157,990           (759)        (672)
RESTRICTED STOCK AWARDS EARNED                             --           --             --            --            506           -- 
CONVERSIONS FROM CLASS B TO CLASS A
  COMMON STOCK                                            172         (172)            --            --             --           -- 
PURCHASE OF TREASURY STOCK                                 --           --             --            --             --         (213)
NET LOSS                                                   --           --             --       (25,076)            --           -- 
                                                       ------       ------       --------      --------        -------      -------
BALANCE, FEB. 1, 1997                                  $3,261       $  971       $238,248      $132,914        $  (253)     $  (885)
                                                       ======       ======       ========      ========        =======      ======= 

<CAPTION>
                                                      
                                                               Total
--------------------------------------------------------------------
(in thousands except per share data)
<S>                                                         <C>     
Balance, Jan. 29, 1994                                      $493,867
Restricted stock awards earned                                   648
Performance stock awards earned and issued                       582
Exercise of stock options including income
  tax benefit                                                  2,312
Conversions from Class B to Class A
  common stock                                                    --
Conversion of 5 1/2% Convertible
  Subordinated Debentures into shares
  of Class A common stock                                         25
Purchase of treasury stock                                      (244)
Adjustment to fair value of marketable securities               (371)
Cash dividends on common stock:
  Class A - $.16 per share                                    (4,883)
  Class B - $.06 per share                                      (752)
Net loss                                                      (9,911)
                                                            --------
Balance, Jan. 28, 1995                                       481,273
Restricted stock awards earned                                   794
Exercise of stock options including
  income tax benefit                                             132
Conversions from Class B to Class A
  common stock                                                    --
Purchase of treasury stock                                      (231)
Adjustment to fair value of marketable securities                371
Cash dividends on common stock:
  Class A - $.16 per share                                    (4,931)
  Class B - $.06 per share                                      (733)
Net loss                                                     (77,636)
                                                            --------
Balance, Feb. 3, 1996                                        399,039
RESTRICTED STOCK AWARDS EARNED                                   506
CONVERSIONS FROM CLASS B TO CLASS A
  COMMON STOCK                                                    --
PURCHASE OF TREASURY STOCK                                      (213)
NET LOSS                                                     (25,076)
                                                            --------
BALANCE, FEB. 1, 1997                                       $374,256
                                                            ========
</TABLE>

See notes to consolidated financial statements.



                                                                              11
<PAGE>   14



Hechinger Company

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended February 1, 1997, February 3, 1996 and January 28, 1995.


BASIS OF PRESENTATION. The Company operates a chain of specialty retail home
center stores under the Hechinger ("Hechinger") and Home Quarters Warehouse
("Home Quarters") names principally in the Mid-Atlantic, Southern, Northeastern
and Midwestern regions of the United States. The consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries. All material intercompany transactions and balances have been
eliminated.

     The Company's business is seasonal and its annual results of operations
depend to a significant extent on the results of operations for the second
quarter of the fiscal year.

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. 

FISCAL YEAR. The Company's fiscal year ends on the Saturday closest to January
31. The fiscal year ended February 1, 1997 ("1996") and January 28, 1995
("1994") were 52 weeks each compared with the fiscal year ended February 3, 1996
("1995") which was 53 weeks.

MERCHANDISE INVENTORIES. Inventories are stated at the lower of cost, last-in,
first-out method ("LIFO"), or market. If inventories were valued under the FIFO
method, which approximates replacement cost, inventories would have been $20.5
million and $21.5 million higher than reported at February 1, 1997 and February
3, 1996, respectively. Distribution, buying and occupancy expenses are
included in cost of sales.

CHANGES IN ACCOUNTING PRINCIPLES. As further described under the caption,
"Impairment of Long-Lived Assets," in 1995 the Company adopted Statement of
Financial Accounting Standards No. 121. In 1994, the Company changed its method
of calculating LIFO inventories to provide for a better matching of costs and
revenues, more closely conform the LIFO methods used to the method used for the
majority of its inventories, provide for a LIFO adjustment more representative
of the Company's actual inflation on its inventories and reduce the likelihood
of LIFO layer liquidations during periods of overall growth in inventories. The
change in method consisted of adopting consolidated cost-based inflation indices
applied to inventories grouped into two pools on a consolidated basis. Prior to
1994, the Company calculated its LIFO inventories using a combination of retail
and cost-based indices applied to inventories grouped into six pools. The
underlying methods of computing FIFO inventory values have not changed, only the
method of adjusting inventories for the impact of inflation. The cumulative
effect of the change in method and the pro forma effects of the change on prior
years' results of operations was not determinable. The effect of the change on
results of operations for 1994 was to reduce the net loss by $6.2 million or
$.15 per share.

PROPERTY, FURNITURE AND EQUIPMENT. Depreciation is computed using the
straight-line method over the estimated useful lives of various classes of
assets. Capital leases for stores are amortized on a straight-line basis over
the terms of the respective leases. Property, furniture and equipment are stated
at cost plus capitalized interest. Capitalized interest amounted to $.3 million,
$2.4 million and $3.6 million for the years 1996, 1995 and 1994, respectively.

CASH EQUIVALENTS. The Company considers all investments with a maturity of three
months or less when purchased to be cash equivalents.

DEFERRED RENT. Deferred rent represents the difference between amounts paid and
amounts expensed for operating leases.

PRE-OPENING EXPENSES. Costs related to new store openings are expensed as
incurred and are included in selling, general and administrative expenses.
Pre-opening expenses amounted to $1.9 million, $7.6 million and $8.9 million for
the years 1996, 1995 and 1994, respectively.

ADVERTISING EXPENSES. Advertising costs are expensed as incurred. Advertising
expenses amounted to $38.0 million, $39.7 million and $40.2 million for the
years 1996, 1995 and 1994, respectively.

NET LOSS PER COMMON SHARE. Net loss per common share is calculated by dividing
the net loss, as adjusted where appropriate, by the weighted average shares
outstanding and equivalent shares from Convertible Subordinated Debentures,
performance shares, restricted stocks and stock options, except when
antidilutive. Fully diluted net loss per share is not presented as additional
dilution is less than 3% of the primary net loss per share or is antidilutive
in the three years presented.

     The number of shares used to compute net loss per common share was 42.2
million for the years 1996 and 1995 and 42.0 million for 1994.

AMORTIZATION. Cost in excess of net assets acquired relates principally to the
purchase of Home Quarters. This cost is being amortized using the straight-line
method over a period of 40 years. Accumulated amortization related to cost in
excess of net assets acquired was $15.1 million and $13.4 million as of February
1, 1997 and February 3, 1996, respectively.

     Leasehold acquisition costs relate to the purchase of lease rights to
certain stores. The costs for these leases are being amortized using the
straight-line method over the lives of the various leases, ranging up to 30
years. Accumulated amortization related to leasehold acquisition costs was $16.3
million and $14.0 million as of February 1, 1997 and February 3, 1996,
respectively. 

UNUSUAL CHARGES. Repositioning, exit and related costs have been recognized in
accordance with Emerging Issues Task Force Issue No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity.

     In 1995, the Company recorded a charge of $25 million related primarily to
the Company's decision to combine its Hechinger and Home Quarters operations
under one management team. The main components of this charge were:

     1. estimated cash expenditures for employee termination costs of
        approximately $13.6 million, including severance pay and related
        benefits. Approximately 300 employees were terminated as a result of
        this decision. Substantially all of these employees were based in the
        Company's administrative offices;

     2. estimated cash expenditures of approximately $7.7 million for costs
        primarily related to terminating the Company's defined benefit pension
        plan as of December 31, 1995 to conform the retirement plans of
        Hechinger and Home Quarters and costs related to eliminating various
        computer systems; and

     3. estimated write-down to net realizable value of equipment and other
        assets to be disposed of approximately $3.7 million.

     The following table reflects the activity recorded for the charge in 1996:

<TABLE>
<CAPTION>

                               Feb. 3, 1996                            Change in     Feb. 1, 1997
                                  Amount         Utilized in 1996       Estimate        Amount
(in millions)                    Remaining      Cash      Non-cash    Decr. (Incr.)    Remaining
-------------------------------------------------------------------------------------------------
<S>                               <C>          <C>          <C>           <C>            <C> 
Employee termination
 costs                            $11.0        $ 8.8        $ --          $ (.2)         $2.4
Pension termination
 and other                          7.1          7.3          --            (.2)           --
Disposal of furniture,
 fixtures and equipment
 and other assets                   2.0           --         1.6             .4            --
                                  -----         ----        ----          -----          ----
Total                             $20.1        $16.1        $1.6          $  --          $2.4
                                  =====        =====        ====          =====          ====
</TABLE>


12
<PAGE>   15

     As of February 1, 1997, all components of the charge have been completed
except for employee termination costs. The Company believes that the remaining
balance of $2.4 million is adequate to cover future costs and has been recorded
as a current liability as of February 1, 1997.

     In 1994, the Company recorded a charge of $61.9 million primarily related
to the Company's decision to close 22 stores in certain markets. The main
components of this charge were costs related to the write-down of inventories
and furniture, fixtures, equipment and other assets to be disposed of, carrying
costs of the closed stores and employee termination costs. All components of
the charge have been completed except for the carrying costs of the closed
stores. During 1996, the Company incurred approximately $11.7 million of
carrying costs for these stores, including rents, utilities and other expenses,
which have been recorded in the reserve. As of February 1, 1997, the remaining
balance of $10.4 million has been recorded as a current liability.

     Disposition of the closed stores is accomplished by subleasing or assigning
the property to a new occupant or reverting possession back to the landlord. It
is currently expected that the Company will dispose of the remaining stores by
January 1999. The Company believes that the balance remaining in the reserve is
adequate to cover future liabilities related to the carrying costs of the closed
stores. The merger charge and store closing charge are based on certain
estimates and as a result, the actual amounts could vary from these estimates.

IMPAIRMENT OF LONG-LIVED ASSETS. Statement of Financial Accounting Standards No.
121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" was issued and adopted by the Company in
1995.

     Management reviews long-lived assets and certain intangible assets for
impairment whenever events or changes in circumstances indicate the carrying
amount of such assets may not be recoverable. Recoverability of these assets is
determined by comparing the forecasted undiscounted net cash flows of the
operation to which the assets relate to the carrying amount, including
associated intangible assets of such operation. If the operation is determined
to be unable to recover the carrying amount of its assets, then intangible
assets are written down first, followed by the other long-lived assets of the
operation, to fair value. Fair value is determined based on discounted cash
flows or appraised values, depending upon the nature of the assets. In 1995,
based on its review, the Company recorded a non-cash charge of $30.3 million
described as follows:

     1. the Company has a number of real estate properties which were acquired
        for future store expansion. As a result of the Company's decision to
        slow down its expansion plans and not to pursue development of these
        properties, the Company plans to dispose of these properties. These
        properties had a carrying value of $24 million and have an estimated
        sales value, net of related costs to sell, of approximately $9 million.
        Accordingly, the Company recorded an impairment loss of approximately
        $15 million; and

     2. the Company reviewed its property, furniture, fixtures and equipment
        and evaluated how these assets will continue to be used in its
        operations. Based on this evaluation, the Company determined that
        certain assets with a carrying value of $33 million were impaired and
        had fair values totaling approximately $18 million. Fair values were
        based on estimated market values. Accordingly, the Company recorded an
        impairment loss of approximately $15 million.

PROPERTY, FURNITURE AND EQUIPMENT. The Company's investments in property,
furniture and equipment consist of the following:

(in thousands)                               FEB. 1, 1997  Feb. 3, 1996
-----------------------------------------------------------------------
Land                                            $  99,091     $  99,982
Buildings                                         197,151       191,338
Leasehold improvements                            120,944       115,937
Furniture, fixtures and equipment                 245,061       232,776
Capital leases                                     24,762        24,875
Construction-in-progress                               --        11,719
                                                ---------     ---------
                                                  687,009       676,627
Less accumulated depreciation and
  amortization                                   (225,257)     (179,050)
                                                ---------     ---------
                                                $ 461,752     $ 497,577
                                                =========     =========

     Accumulated amortization on capital leases was $16.1 million and $14.2
million as of February 1, 1997 and February 3, 1996, respectively.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES. Accounts payable and accrued expenses
consist of the following:

(in thousands)                               FEB. 1, 1997  Feb. 3, 1996
-----------------------------------------------------------------------
Accounts payable                                 $111,851      $176,643
Accrued expenses and other                         77,113       109,820
Accrued compensation and benefits                  31,332        26,604
                                                 --------      --------
                                                 $220,296      $313,067
                                                 ========      ========

     Accrued expenses and other at February 1, 1997 includes
$2.4 million and $10.4 million for the remaining balances of the merger reserve
and store closing reserve, respectively. Accrued expenses and other at February
3, 1996 includes $20.1 million and $13.9 million for the current portions of the
merger reserve and store closing reserve, respectively.

LONG-TERM DEBT AND OTHER CREDIT ARRANGEMENTS. Long-term debt consists of the
following:

(in thousands)                               FEB. 1, 1997  Feb. 3, 1996
-----------------------------------------------------------------------
6.95% Senior Notes, due 2003                     $100,000      $100,000
9.45% Senior Debentures, due 2012                 100,000       100,000
5 1/2% Convertible Subordinated Debentures        123,050       123,050
Mortgage loans                                     43,206        43,637
Other long-term debt                               15,953        18,252
                                                 --------      --------
                                                  382,209       384,939
Less current portion                               (1,341)       (1,230)
                                                 --------      --------
                                                 $380,868      $383,709
                                                 ========      ========

     Under the terms of the 6.95% Senior Notes and 9.45% Senior Debentures, the
Company is restricted, in certain circumstances, from pledging certain Company
assets and entering into sale and leaseback transactions. The 5 1/2%
Convertible Subordinated Debentures are convertible into Class A common stock
of the Company by the holders at any time at a conversion price of $27.84 per
share, subject to adjustments in certain events. The Convertible Subordinated
Debentures are redeemable by the Company at any time. Mandatory sinking fund
payments of $6.6 million, or 5% of the $132 million aggregate principal amount
of Convertible Subordinated Debentures issued, are to be made annually
commencing April 1, 1998, to and including April 1, 2011. Convertible
Subordinated Debentures purchased by the Company in prior years are sufficient
to fulfill the mandatory sinking fund payment scheduled for April 1, 1998 and
partially fulfill the scheduled payment for April 1, 1999.
     

                                                                              13
<PAGE>   16

     The mortgage loans bear interest rates, on average, of approximately 10%
and are due in varying monthly and semi-annual installments of principal and
interest through 2016. These mortgages are collateralized by properties with a
total net book value of $39.9 million.

     Other long-term debt consists primarily of a sale and leaseback transaction
that has been recorded as a financing transaction rather than as a sale. 

     Aggregate principal maturities of all long-term debt are as follows:

Fiscal year                                             (in thousands)
----------------------------------------------------------------------
1997                                                        $  1,341
1998                                                           1,459
1999                                                           5,934
2000                                                           8,572
2001                                                           8,801
Remainder                                                    356,102
                                                            --------
                                                            $382,209
                                                            ========

     In February 1996, the Company's operating subsidiaries entered into a 
senior secured revolving credit facility which permits borrowings of up to $200
million, with preauthorization from the lender to utilize the last $25 million.
This facility replaced a $50 million revolving credit facility and all letter
of credit facilities. This facility is secured by merchandise inventories and
expires in February 1999. Borrowings under this facility bear interest at prime
plus 1% or LIBOR plus 2.75% at the option of management. As of February 1,
1997, the Company had outstanding loans of $84.8 million and had issued and
outstanding letters of credit of $46.7 million under this facility.
     
FAIR VALUES OF FINANCIAL INSTRUMENTS. The following methods and assumptions were
used by the Company in estimating its fair value disclosures for financial
instruments:

Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and cash equivalents approximated its fair value.

Long-term debt: The fair values of the Company's long-term debt that is traded
publicly are based on quoted and third party estimates of market prices. The
fair values of the privately held debt are estimated using a discounted cash
flow analysis, based on the Company's current incremental borrowing rates for
similar types of borrowing arrangements.

     The carrying amounts and fair values of the Company's financial instruments
are as follows:

                                   FEB. 1, 1997               Feb. 3, 1996
                              CARRYING       MARKET       Carrying      Market
(in thousands)                 VALUES        VALUES        Values       Values
------------------------------------------------------------------------------
Cash and cash equivalents     $ 36,727     $ 36,727      $ 35,785     $ 35,785
Long-term debt:
 Publicly traded debt          323,050      164,452       323,050      197,141
 Privately held debt            57,818       35,984        60,659       42,863
                              --------     --------      --------     --------
Total long-term debt          $380,868     $200,436      $383,709     $240,004
                              ========     ========      ========     ========

INCOME TAXES. The income tax benefits are summarized as follows:

(in thousands)
Year ended                     FEB. 1, 1997   Feb. 3, 1996   Jan. 28, 1995
--------------------------------------------------------------------------
Current                            $(5,444)      $(13,249)       $ 18,540
Deferred                             5,444         10,249         (24,085)
                                   -------       --------        --------
                                   $    --       $ (3,000)       $ (5,545)
                                   =======       ========        ========

     Significant components of the Company's deferred tax liabilities and assets
are as follows:

(in thousands)                              FEB. 1, 1997   Feb. 3, 1996
-----------------------------------------------------------------------
Deferred tax liabilities:
  Depreciation and amortization                  $    --        $ 4,103
  Inventories                                      9,816         12,078
  Other                                            3,342          2,575
                                                 -------        -------
    Total deferred tax liabilities                13,158         18,756
                                                 -------        -------
Deferred tax assets:
  Accrued expenses for unusual charges            10,168         23,363
  Depreciation and amortization                    2,742             --
  Alternative minimum tax and other
   tax credit carryforwards                       11,292         15,419
  Accrued compensation and benefits                8,230          5,515
  Net operating loss carryforward                 18,303          7,086
  Other                                            5,230          4,310
                                                 -------        -------
    Total deferred tax assets                     55,965         55,693
  Valuation allowance                             39,174         27,860
                                                 -------        -------
    Net deferred tax assets                       16,791         27,833
                                                 -------        -------
Net deferred tax assets                          $ 3,633        $ 9,077
                                                 =======        =======

     Reconciliations of the Federal statutory rate to the Company's effective
tax rate are summarized as follows:

Year ended                         FEB. 1, 1997   Feb. 3, 1996   Jan. 28, 1995
------------------------------------------------------------------------------
Statutory rate                          (35.0)%        (35.0)%         (35.0)%
Effect of asset reserve                  39.5           34.6              --
Federal tax credits                      (7.2)            --            (5.3)
Federal tax-exempt
 investment income                         --           (1.0)           (4.7)
Amortization of goodwill                  3.3             .7             4.9
Other                                     (.6)          (3.0)            4.2
                                         ----           ----            ----
                                           --%          (3.7)%         (35.9)%
                                         ====           ====            ====

LEASES AND OTHER COMMITMENTS. The Company leases certain stores and equipment 
from an affiliated entity controlled by the Hechinger and England families, and
nonaffiliated entities. Certain leases require excess rentals based on a
percentage of sales, certain increments in real estate taxes and rent increases
as determined by formulas set forth in the leases. In addition, the Company
pays all other ownership and operating costs related to the leased properties.
Most of the leases provide for renewals for various periods up to 30 years.

     In August 1994, the Company sold 13 stores for $99.3 million, net of
expenses, and concurrently leased the properties back for an initial term of 25
years. The lease is renewable at the Company's option for nine additional terms
of five years each. The Company has recorded the transaction as an operating
lease.

     Under the terms of the sale and leaseback transactions completed in 1992,
the Company is restricted from taking certain actions that would result in its
net worth falling below $200 million. Under the terms of the sale and leaseback
transaction completed in 1990, the Company is restricted from taking certain
actions that would result in its net worth, less goodwill, falling below $175
million. Under the 1994, 1992 and 1990 sale and leaseback transactions, the
Company has a right of first refusal to repurchase the properties.

14
<PAGE>   17

     At February 1, 1997, the minimum fixed rental commitments related to all
noncancelable leases together with the present value of the net minimum lease
payments for capital leases were as follows:

OPERATING LEASES
(in thousands)
Fiscal year                            Total     Affiliated   Nonaffiliated
---------------------------------------------------------------------------
1997                                 $   76,124     $ 1,360      $   74,764
1998                                     76,667       1,360          75,307
1999                                     76,938       1,360          75,578
2000                                     77,134       1,374          75,760
2001                                     75,458       1,027          74,431
Remainder                               900,667       6,060         894,607
                                     ----------     -------      ----------
Total minimum lease payments          1,282,988      12,541       1,270,447
Minimum sublease rentals due
 to the Company                        (161,817)         --        (161,817)
                                     ----------     -------      ----------
Total minimum lease payments, net    $1,121,171     $12,541      $1,108,630
                                     ==========     =======      ==========

CAPITAL LEASES
(in thousands)
Fiscal year                             Total    Affiliated   Nonaffiliated
---------------------------------------------------------------------------
1997                                   $  4,030     $ 1,091         $ 2,939
1998                                      3,328       1,091           2,237
1999                                      2,856       1,091           1,765
2000                                      2,670       1,048           1,622
2001                                      2,399         962           1,437
Remainder                                12,528       2,793           9,735
                                       --------     -------         -------
Total minimum lease payments             27,811       8,076          19,735
Less imputed interest                   (11,885)     (2,533)         (9,352)
                                       --------     -------         -------
Present value of net minimum
 lease payments (including current
 portion of $2,316)                    $ 15,926     $ 5,543         $10,383
                                       ========     =======         =======

     Capital lease obligations bear imputed interest at rates ranging from 7.0%
to 17.3%. Amortization of assets recorded under capital lease obligations is
included in depreciation and amortization expense.

     Net rent expense charged to operations was as follows:

(in thousands)
Year ended                          FEB. 1, 1997    Feb. 3, 1996   Jan. 28,1995
-------------------------------------------------------------------------------
Minimum operating lease rentals         $ 70,535        $ 66,174       $ 62,794
Excess rentals:
  Capital leases                           1,047           1,238          1,352
  Operating leases                           487             676            591
                                        --------        --------       --------
                                          72,069          68,088         64,737
Less sublease income                     (20,552)        (16,623)       (13,192)
                                        --------        --------       --------
Net rent expense                        $ 51,517        $ 51,465       $ 51,545
                                        ========        ========       ========
Net rent expense paid to affiliates     $  3,329        $  3,811       $  3,840
                                        ========        ========       ========

     The net rent expense charged to operations does not include approximately
$6.1 million, $5.7 million and $.6 million charged to the store closing reserve
for 1996, 1995 and 1994, respectively.

CONTINGENCIES. The Company and its subsidiaries are parties to legal proceedings
and claims arising in the ordinary course of business. Although the outcome of
such proceedings and claims cannot be determined with certainty, based upon
evaluation by legal counsel, management believes that the outcome of such
proceedings and claims will not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.

STOCKHOLDERS' EQUITY. The Company has two classes of common stock, designated as
Class A and Class B. The Company also has authorized 20 million shares of $1.00
par value preferred stock, none of which has been issued.

     Class A and B shares are identical in all respects except that (1) when
dividends are paid, Class A stockholders receive preference as to cash
dividends; and (2) Class A stockholders have one vote per share, whereas Class B
stockholders have ten votes per share. Class B shares are convertible to Class A
shares on a share-for-share basis at any time at no cost to the stockholder.

     In 1996, the Company suspended dividends on its Class A and Class B common
shares.

     Class A and Class B common and treasury shares outstanding and related
changes for the three years ended February 1, 1997 were as follows:
<TABLE>
<CAPTION>

                                               Issued                     Treasury
                                       Class A        Class B        Class A      Class B
-----------------------------------------------------------------------------------------
<S>                                   <C>            <C>             <C>          <C>     
Balance, Jan. 29, 1994                28,812,090     13,312,356      (92,769)     (14,497)
Performance stock awards earned           45,157             --           --           --
Exercise of stock options                145,741             --       92,670           --
Conversions from Class B to Class A    1,793,627     (1,793,627)          --           --
Conversion of 5 1/2% Convertible
  Subordinated Debentures                    897             --           --           --
Purchase of treasury                          --             --      (17,114)          --
                                      ----------     ----------      --------     -------
Balance, Jan. 28, 1995                30,797,512     11,518,729      (17,213)     (14,497)
Exercise of stock options                  8,269             --        5,279           --
Conversions from Class B to Class A       86,800        (86,800)          --           --
Purchase of treasury                          --             --      (27,391)          --
                                      ----------     ----------      -------      -------
Balance, Feb. 3, 1996                 30,892,581     11,431,929      (39,325)     (14,497)
CONVERSIONS FROM CLASS B TO CLASS A    1,715,558     (1,715,558)          --           --
PURCHASE OF TREASURY                          --             --      (57,940)          --
                                      ----------     ----------      -------      -------
BALANCE, FEB. 1, 1997                 32,608,139      9,716,371      (97,265)     (14,497)
                                      ==========     ==========      =======      =======
</TABLE>

EMPLOYEE BENEFIT PLANS AND RETIREMENT AGREEMENTS. As of December 31, 1995, the
Company terminated its defined benefit pension plan. In 1996, the Company
completed distribution of the plan assets to all qualified participants. The
cost of the pension curtailment and benefit settlement was accrued as a
component of the 1995 merger reserve. See discussion of Unusual Charges above.

     The Company maintains a 401(k) plan and a profit sharing plan for all
qualified employees. The 401(k) plan allows for employee contributions of up to
16% of the employee's salary and a matching contribution of 50% from the Company
on employee pretax contributions of up to 6%. The profit sharing plan allows for
discretionary annual contributions as determined by the Board of Directors.

     The Company also has a nonqualified supplemental retirement plan which
covers certain key employees and pays benefits, which supplement any benefits
paid under the above plans. The projected benefit obligation under this plan was
$1.6 million and $3.9 million at February 1, 1997 and February 3, 1996,
respectively.

     Total expenses related to all of the above plans amounted to $4.0 million,
$3.8 million and $6.3 million, for the years 1996, 1995 and 1994, respectively.

STOCK COMPENSATION PLANS. In 1991, stockholders approved the Hechinger Company
1991 Stock Incentive Plan (the "Incentive Plan"). The Incentive Plan authorizes
the issuance of Class A common stock as incentive and nonqualified stock options
and as restricted stock to eligible employees of the Company. Such grants can be
made at any time through June 2001. In 1995, stockholders approved an amendment
to the Incentive Plan authorizing an increase in the number of shares of the
Company's stock authorized for issuance upon exercise of options. At February 1,
1997, 3.3 million shares were available for future grants.

                                                                              15
<PAGE>   18

     Incentive stock options granted must be at the fair market value on the
date of the grant. Nonqualified stock options may be granted at a price not less
than 40% of the fair market value at the date of the grant. Generally, options
granted under the plan are exercisable beginning two years after the date of the
grant and over the succeeding eight years, after which time they expire. In each
of the last three fiscal years ended February 1, 1997, nonqualified options were
granted. At February 1, 1997, options to purchase 2.4 million shares were
exercisable under the Incentive Plan and its predecessor, The 1982 Stock Option
Plan.

     A summary of stock options is as follows:

                                   FEB. 1, 1997               Feb. 3, 1996
                                            WEIGHTED                   Weighted
                                             AVERAGE                    Average
                                            EXERCISE                   Exercise
(shares in thousands)           SHARES        PRICE        Shares        Price
--------------------------------------------------------------------------------
Beginning balance                4,618        $10.01        3,314        $12.30
Granted                            779          3.88        1,948          7.00
Canceled                          (348)        13.41         (635)        12.75
Exercised                           --            --           (9)         8.86
                                 -----        ------        -----        ------
Ending balance                   5,049        $ 8.83        4,618        $10.01
                                 =====        ======        =====        ======
Weighted average fair
 value of options granted
 during the year                              $ 1.97                     $ 2.73
                                              ======                     ======

     The exercise prices for options outstanding as of February 1, 1997, ranged
from $3 7/8 to $22. The weighted average remaining contractual life of those
options is 6.9 years.
     
     In 1995, the Company awarded rights to earn 260,000 shares of Class A 
common stock to certain key executives of the Company if certain performance
goals are met. Under the terms of the award, once the rights are earned, the
stock will vest over a two-year period.

     In 1990, the Company established a performance share plan to award officers
and key employees of the Company rights to earn shares of Class A common stock
at no cost if certain performance goals are met. In 1996, no shares were
reserved for distribution under the plan. At February 1, 1997, 711,000 shares
were available for future awards.

     Total charges to earnings for these plans amounted to $.5 million, $.8
million and $1.0 million for the years 1996, 1995 and 1994, respectively.

     Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting and Disclosure of Stock-Based Compensation" was issued in 1995. The
statement relates to the measurement of compensation of stock options issued to
employees and requires either the expense recognition based on the fair value
method or the continued application of APB 25, "Accounting for Stock Issued to
Employees" and disclose pro forma net income/loss as if the recognition and
measurement provisions of SFAS 123 had been adopted.

     The Company currently accounts for its stock compensation arrangements
under the provisions of APB 25 and intends to continue to do so. The pro forma
information regarding net loss and net loss per share has been determined as if
the Company had accounted for its employee stock options under the fair value
method of SFAS 123. The fair value for these options was estimated at the date
of grant using a Black-Scholes option pricing model with the following
weighted average assumptions:
     
Year ended                                   FEB. 1, 1997  Feb. 3, 1996
-----------------------------------------------------------------------
Risk-free interest rates                             6.1%          6.4%
Dividend yields                                       .0%          2.7%
Volatility factors of the expected market
 price of common stock                               .50           .43
Expected life of the option in years                   5             5

     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. In management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options 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.

     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period of two years.
The Company's pro forma information is as follows:

Year ended                                   FEB. 1, 1997   Feb. 3, 1996
------------------------------------------------------------------------
Pro forma net loss ($ in millions)                 $(27.1)       $(78.9)
Pro forma net loss per share                       $ (.64)       $(1.87)





REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Hechinger Company

We have audited the accompanying consolidated balance sheets of Hechinger
Company and subsidiaries as of February 1, 1997 and February 3, 1996 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended February 1, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Hechinger
Company and subsidiaries at February 1, 1997 and February 3, 1996 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended February 1, 1997, in conformity with generally
accepted accounting principles.

     As discussed in the notes to the consolidated financial statements, in the
fiscal year ended February 3, 1996, the Company adopted SFAS 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," and in the fiscal year ended January 28, 1995, the Company changed its
method of calculating LIFO inventories.


/S/ ERNST & YOUNG LLP

Ernst & Young LLP
Washington, DC
February 27, 1997



16
<PAGE>   19



Hechinger Company

DIRECTORS AND OFFICERS


DIRECTORS
JOHN W. HECHINGER, JR.
Chairman of the Board and 
Chief Executive Officer
Hechinger Company

KENNETH J. CORT
President and Chief
Operating Officer
Hechinger Company

JOHN W. HECHINGER
Chairman of the Executive 
Committee of the
Board of Directors
Hechinger Company

S. ROSS HECHINGER
Senior Vice President, 
Corporate Administration 
Hechinger Company

ANN D. JORDAN
Former Associate Fieldwork 
Professor, SSA, University of 
Chicago, Consultant

W. CLARK MCCLELLAND
Executive Vice President
and Chief Financial Officer 
Hechinger Company

ROBERT S. PARKER, PH.D.
Dean of the School of Business
Georgetown University

MELVIN A. WILMORE
President and Chief
Operating Officer
Ross Stores, Inc.

ALAN J. ZAKON
Vice Chairman
Autotote Corporation


OFFICERS

JOHN W. HECHINGER, JR.
Chairman of the Board and 
Chief Executive Officer

KENNETH J. CORT
President and Chief
Operating Officer

W. CLARK MCCLELLAND
Executive Vice President and 
Chief Financial Officer

MARK R. ADAMS
Senior Vice President, 
Treasurer and Secretary

JOANNE M. BARRETT
Senior Vice President, 
Divisional Merchandise 
Manager

SUZANNE G. BEAR
Senior Vice President, 
Marketing and Advertising

J. WAYNE COLLEY
Senior Vice President, 
Logistics, Distribution and 
Merchandise Presentation

SALLY A. COURTNEY
Senior Vice President, General 
Merchandise Manager

NOEL H. GOULSTON
Senior Vice President,
Strategic Planning

RICHARD S. GROSS
Senior Vice President, 
Controller

HAROLD R. HALL
Senior Vice President, Finance

S. ROSS HECHINGER
Senior Vice President, 
Corporate Administration

GARY E. MERCER
Senior Vice President,
Store Operations

CAROL A. STEVENS
Senior Vice President,
Human Resources

ROGER K. WRIGHT
Senior Vice President,
Real Estate and Development

BETSY A. BLACKMON
Vice President, Divisional 
Merchandise Manager

ARTHUR R. BURKE
Vice President, Divisional 
Merchandise Manager

RICHARD M. DOW
Area Vice President

MICHAEL P. GOOD
Vice President, Finance

STEPHEN F. GUARALDO
Vice President,
Commercial Business

RICHARD A. HAYS
Vice President, Divisional 
Merchandise Manager

JAMES F. IAMPIERI
Vice President, Merchandise 
Administration

G. MICHAEL KING
Area Vice President

WARREN L. MARTIN
Vice President, Divisional 
Merchandise Manager

RICHARD A. POVLAK
Vice President, Loss 
Prevention

MAX S. ROBUCK
Vice President, Divisional 
Merchandise Manager

COMPANY INFORMATION


GENERAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY  10022

INDEPENDENT AUDITORS
Ernst & Young LLP
1225 Connecticut Avenue, N.W.
Washington, DC  20036

STOCK TRANSFER AGENT
American Stock Transfer &
 Trust Company
Shareholder Relations
40 Wall Street
New York, NY  10005

Information contact:
Barry S. Rosenthal
800-937-5449

COMPANY MAILING ADDRESS
Hechinger Company
1801 McCormick Drive
Largo, MD  20774
301-341-1000

STOCK LISTING
Nasdaq National Market tier of
The Nasdaq Stock Market

TRADING SYMBOLS
HECHA and HECHB

FORM 10-K
Copies of the Company's Annual Report 
on Form 10-K Report as filed with the
Securities and Exchange Commission 
will be sent to stockholders upon 
request in writing to:

Hechinger Company
Investor Relations
1801 McCormick Drive
Largo, MD 20774


PRICE RANGE OF COMMON STOCK

Hechinger Company common stock trades on the National Market tier of the Nasdaq
Stock Market under the symbols HECHA and HECHB. The following table sets forth
high and low prices on the Company's stock, as reported by Nasdaq for the
periods designated. The Company currently has approximately 3,229 Class A and
977 Class B stockholders of record.

     In 1996, the Company suspended dividend payments for both the Class A
common and Class B common shares. In 1995, the Company declared quarterly cash
dividends of $.04 per share on its Class A common and $.016 per share on its
Class B common.

Year ended                              FEB. 1, 1997            Feb. 3, 1996
--------------------------------------------------------------------------------
Period                                 HIGH       LOW          High       Low
--------------------------------------------------------------------------------
1st Quarter
  Class A                             $6        $3 1/2        $13 1/2    $9 5/8
  Class B                              6 1/4     3 3/4         13 1/2     9 3/4
2nd Quarter
  Class A                              5 1/4     3 1/4          9 7/8     6 1/4
  Class B                              7         5 1/4         10         6 1/4
3rd Quarter
  Class A                              4 1/4     3 1/8          7 1/8     3 3/8
  Class B                              5 3/4     4 1/2          7 1/4     3 7/8
4th Quarter
  Class A                              3 5/16    1 15/16        6 1/8     4
  Class B                              4 3/4     3 1/2          6 1/8     4 1/8


[RECYCLE LOGO]
Printed entirely on recycled paper. At Hechinger, we believe saving and
protecting the environment is everyone's business.




Design: Financial Communications, Inc., Bethesda, MD 
(C) 1997 Hechinger Company

<PAGE>   20

                                [HECHINGER LOGO]

 Hechinger Company  1801 McCormick Drive  Largo, Maryland 20774  301-341-1000