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

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

For the fiscal year ended February 28, 1999 or

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

For the transition period from               to

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

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

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

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

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

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

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

                                       None
                                (Title of Class)

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

         The aggregate  market value of the voting stock held by  non-affiliates
of the registrant as of May 27, 1999 was approximately $329,240,770.

<PAGE>

         This figure was calculated by  multiplying  (i) the closing sales price
of the registrant's  common stock on the New York Stock Exchange on May 27, 1999
by (ii) the number of shares of the  registrant's  common  stock not held by the
executive  officers or directors of the  registrant  or any persons known to the
registrant to own more than five percent of the outstanding  common stock of the
registrant.  Such  calculation does not constitute an admission or determination
that any such  officer,  director  or holder of more  than five  percent  of the
outstanding  common  stock  of the  registrant  is in fact an  affiliate  of the
registrant.

         As of May 27, 1999,  there were  outstanding  59,861,182  shares of the
registrant's common stock, $2.00 par value.

DOCUMENTS INCORPORATED BY REFERENCE

Portions  of  the  registrant's  Proxy  Statement  for  its  Annual  Meeting  of
Shareholders  scheduled for June 16, 1999,  are  incorporated  by reference into
Part III.


                                        2
<PAGE>

                                     INDEX

PART 1
ITEM 1.  BUSINESS                                                      Page
         A.  Introduction                                                4
         B.  Industry Segments                                           4
         C.  Nature of Business
                  General                                                5
                  Competition                                            5
         D.  Store Operations
                  General                                                6
                  Merchandising                                          7
                  Advertising and Promotion                              7
                  Credit Operations                                      8
                  Distribution                                           9
                  Customer Service                                       9
         E.  Corporate Expansion                                        10
         F.  Other Factors Affecting the Business of Heilig-Meyers
                  Suppliers                                             11
                  Service Marks, Trademarks and Franchise Operations    11
                  Seasonality                                           11
                  Employees                                             11
                  Foreign Operations and Export Sales                   11

ITEM 2.  PROPERTIES                                                     12

ITEM 3.  LEGAL PROCEEDINGS                                              13

ITEM 4.  SUBMISSION of MATTERS to a VOTE of SECURITY HOLDINGS           13

PART II
ITEM 5.  MARKET for REGISTRANT'S COMMON EQUITY and
               RELATED STOCKHOLDER MATTERS                              15

ITEM 6.  SELECTED FINANCIAL DATA                                        16

ITEM 7.  MANAGEMENT'S DISCUSSION and ANALYSIS of
                  FINANCIAL CONDITION and RESULTS of OPERATIONS         18

ITEM 7A. QUANTITATIVE and QUALITATIVE DISCLOSURES
                  ABOUT MARKET RISK                                     26

ITEM 8.  FINANCIAL STATEMENTS and SUPPLEMENTARY DATA                    27

ITEM 9.  CHANGES in and DISAGREEMENTS with ACCOUNTANTS
                  on ACCOUNTING and FINANCIAL DISCLOSURE                52

PART III
ITEM 10.  DIRECTORS and EXECUTIVE OFFICERS of the REGISTRANT            52

ITEM 11.  EXECUTIVE COMPENSATION                                        52

ITEM 12.  SECURITY OWNERSHIP of CERTAIN BENEFICIAL OWNERS
          and MANAGEMENT                                                52

ITEM 13.  CERTAIN RELATIONSHIPS and RELATED TRANSACTIONS                52

PART IV
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE, and
          REPORTS on FORM 8-K                                           53


                                       3
<PAGE>


                                     PART 1

ITEM 1. BUSINESS

                           A.  Introduction

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

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

         On  March  24,  1999,  the  Company  announced  that  in an  effort  to
substantially  improve  the  overall  financial  position  of the Company and to
refocus  on  its  core  home  furnishings   operation,  a  review  of  strategic
divestiture  options of all non-core operating assets is being made. This review
includes the retention of third parties to advise on possible divestiture of the
Rhodes and Mattress Discounters divisions.  On May 28, 1999, the Company entered
into a  definitive  agreement to sell  substantially  all of its interest in its
Mattress  Discounters  division.  The  transaction,  which is subject to certain
closing  conditions,  is expected to close in the second quarter of fiscal 2000.
The Company will retain a 7% interest in Mattress Discounters. The cash proceeds
from the sale,  net of  transaction  costs,  are estimated at $206.7 million and
will be used to pay down debt.  The Company has continued its  evaluation of the
possible divestiture of all or part of its Rhodes division.

                           B.  Industry Segments

         The  Company  has  significant  operations  aligned  in four  operating
divisions:  Heilig-Meyers,  The RoomStore, Rhodes and Mattress Discounters.  For
the financial results of the Company's operating divisions, see Note 15 of Notes
to  Consolidated  Financial  Statements in Item 8 of Part II found on page 47 of
this annual report.

         The Company's "Heilig-Meyers" division is associated with the Company's
historical  operations.  The  majority of the  Heilig-Meyers  stores  operate in
smaller  markets  with a broad line of  merchandise.  The  "Rhodes"  division is
comprised of 97 stores as of April 30,  1999.  The Rhodes  division's  retailing
strategy  is  selling  quality  furniture  to a  broad  base  of  middle  income
customers.  Stores under "The RoomStore"  division display and sell furniture in
complete room  packages.  The rooms are arranged by  professional  designers and
sell at a value if  purchased as a group.  The  RoomStore  also  includes the 32
stores  operating  in Puerto  Rico  under the  "Berrios"  name,  which  like the
Heilig-Meyers   stores,   offer  a  broad  line  of  furniture.   The  "Mattress
Discounters"  division was acquired in fiscal 1998 and includes 236 stores as of
April 30, 1999.  Mattress  Discounters  is the Nation's  largest  retail bedding
specialist.  Stores are  classified by operating  format rather than by the name
under which a store is operated.


                                       4
<PAGE>
                           C.  Nature of Business

General
         The Company is the Nation's  largest  specialty  retailer of furniture,
bedding and related  items with 1,253  stores (as of April 30,  1999),  1,221 of
which are  located in 35 states and  Washington,  D.C.,  with the  remainder  in
Puerto Rico. The Company's  Heilig-Meyers  stores are primarily located in small
towns and rural markets in the  southern,  mid-western  and western  Continental
United  States.  The 97 Rhodes  stores are  primarily  located in the  mid-sized
markets and  metropolitan  areas of 14 southern and midwestern  states.  The 107
stores of The  RoomStore  are primarily  located in 7 states,  including  Texas,
Illinois and Maryland and in Puerto Rico.  The 236 Mattress  Discounters  stores
are primarily  located in 11 eastern  states,  Washington  D.C.,  California and
Colorado.

         The  Company's  operating  strategies  include:  (1)  offering  a broad
selection of  competitively  priced home  furnishings,  including  furniture and
accessories,  and bedding,  and in the  Heilig-Meyers  stores and in the Berrios
stores in Puerto Rico, consumer electronics, appliances, and other items such as
jewelry,  small appliances and seasonal goods; (2) locating Heilig-Meyers stores
primarily  in small towns and rural  markets  which are at least 25 miles from a
metropolitan  market; (3) offering credit programs to provide flexible financing
to its customers;  (4) utilizing  centralized inventory and distribution systems
in strategic  regional  locations to support  store  inventory  and  merchandise
delivery  operations;  (5) emphasizing  customer  service and repair service for
consumer electronics and other mechanical items.

Competition
         The  retail  home  furnishings  industry  is a highly  competitive  and
fragmented  market.  The  Company,  as a  whole,  competes  with  large  chains,
independent  stores,  discount stores,  furniture  stores,  specialty stores and
others,  some of  which  have  financial  resources  greater  than  those of the
Company,  and some of which derive revenues from the sale of products other than
home furnishings.

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

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

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

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


                                       5
<PAGE>

                           D.  Store Operations

General
         The Company's  Heilig-Meyers stores generally range in size from 12,000
to 35,000 square feet, with the average being approximately  25,000 square feet.
A store's  attached or nearby  warehouse  usually  measures  from 3,000 to 5,000
square feet. A typical store is designed to give the customer an urban  shopping
experience  in a rural  location.  During the last five  years,  the Company has
revised its  Heilig-Meyers  prototype store  construction  program.  The Company
added 8 of these stores in fiscal 1997,  16 in fiscal 1998 and 3 in fiscal 1999.
The  prototype  stores are 27,000  square feet and  feature  the latest  display
techniques and  construction  efficiencies.  Certain features of these prototype
stores are  incorporated  into other  locations  through the  Company's  ongoing
remodeling program. The Company's existing store remodeling program, under which
stores are remodeled on a rotational basis,  provides the Company's older stores
with a fresh look and  up-to-date  displays on a periodic  basis.  During fiscal
1999,   the  Company   remodeled  26  existing   stores  and  plans  to  remodel
approximately  20 existing  stores in fiscal  2000.  The  existing  Rhodes,  The
RoomStore, and Mattress Discounters stores average approximately 34,000, 35,000,
and 4,000  square  feet,  respectively.  The Company  does not have  significant
remodeling activities planned for these formats during fiscal 2000.

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

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

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


                                       6
<PAGE>

Merchandising
         The Company's Heilig-Meyers  merchandising strategy is to offer a broad
selection of  competitively  priced home  furnishings,  including  furniture and
accessories,  consumer electronics,  appliances, bedding and other items such as
jewelry and seasonal  goods.  The  RoomStore and Rhodes  stores  primarily  sell
mid-price-point furniture and accessories, and bedding. The Mattress Discounters
stores are  specialty  bedding  retailers  and sell across the full  spectrum of
bedding price points.  During the three most recent fiscal years, the percentage
of store sales derived from the various merchandising categories were as follows
(by format):

                                   1999              1998             1997
                                   ----              ----             ----

Heilig-Meyers Furniture:
Furniture and accessories           64%               60%              60%
Consumer electronics                 7                 9               10
Bedding                             13                13               12
Appliances                           7                 7                8
Other (e.g. jewelry and
       seasonal goods)               9                11               10

Rhodes:
Furniture and accessories           90                89               89
Bedding                             10                11               11

The RoomStore:
Furniture and accessories           90                90              n/a
Bedding                             10                10              n/a

Mattress Discounters:
Furniture and accessories           10                10              n/a
Bedding                             90                90              n/a


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

         While the basic  merchandise mix within each operating  format remained
fairly  constant  during  fiscal  1999,  the  Company  continued  to refine  its
merchandise  selections to  capitalize  on  variations in customer  preferences.
During   fiscal  1999,   the  Company   continued  to   strengthen   its  vendor
relationships.   In  addition  to   providing   purchasing   advantages,   these
relationships  provide  warehousing and distribution  arrangements  that improve
inventory management.

Advertising and Promotion
         Direct  mail  circulars  are a key  part  of  the  Company's  marketing
program.  The  Company  centrally  designs  its direct  mail  circulars  for its
Heilig-Meyers  stores,  which accounted for  approximately  38% of the Company's
Heilig-Meyers  store  advertising  expenses in fiscal 1999. In fiscal 1999,  the
Heilig-Meyers  format  distributed over 210 million direct mail circulars.  This
included  monthly  circulars  sent  by  direct  mail  to  over  fifteen  million
households on the Heilig-Meyer's mailing list and special private sale circulars
mailed to  approximately  1.3 million of these households each month, as well as
during  special  promotional  periods.  In its  Rhodes  stores,  direct  mailing
comprised  approximately 20% of total advertising  expenses in fiscal 1999, with
circulars being mailed to  approximately  six million  households per promotion.
Included are amounts  associated  with the two color  catalogues  distributed by
Rhodes in the May-June and  October-November  time frame of fiscal 1999.  Direct
mailing expenses accounted for approximately 15% of advertising  expenses at The
RoomStore  during  fiscal 1999,  with  circulars  being mailed to  approximately
900,000 customers per month. Direct mailing expenses comprised approximately 40%
of total advertising  expenses at Mattress  Discounters during fiscal 1999, with
approximately fourteen million circulars mailed each month.

         In  addition to the  Company's  utilization  of direct mail  circulars,
television  and radio  commercials  are  produced  for each  format and aired in
virtually all of the Company's markets.  Newspaper advertising is placed largely
at the store level. The Company also utilizes  Spanish  language  television and
radio in selected markets with  significant  Hispanic  populations.  The Company
regularly conducts  approximately 42 Heilig-Meyers store promotional events each
year.  In addition  to these  events,  individual  stores  periodically  conduct
promotional events locally. The Company generally conducts promotions twice each
month  in its The  RoomStore  format  and  weekly  in its  Rhodes  and  Mattress
Discounters formats.


                                       7
<PAGE>

         During   fiscal  1999,   the  Company   continued  to  utilize   market
segmentation  techniques  to identify  prospective  customers by matching  their
demographics to those of existing customers.  Management believes ongoing market
research and improved mailing  techniques enhance the Company's ability to place
circulars  in the  hands of those  potential  customers  most  likely  to make a
purchase.  The Company  believes that the  availability  as well as the terms of
credit are key  determinants  in the  purchasing  decision at its  Heilig-Meyers
stores,  and  therefore,  promotes  credit  availability  by disclosing  monthly
payment terms in those circulars.

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

         The Company  believes its credit program fosters  customer  loyalty and
repeat business.  Approximately 70% to 80% of sales in the Heilig-Meyers  stores
have been made through the Company's  installment  credit program.  Although the
Company  extends credit for original terms up to 24 months,  the average term of
installment  contracts  at  origination  for the fiscal year ended  February 28,
1999, was approximately 18 months. The Company accepts major credit cards in all
of its stores and, in addition,  offers a revolving credit program featuring its
private label credit cards. The Company promotes this program by direct mailings
to revolving  credit customers of acquired stores and potential new customers in
targeted areas. For the first seven months of fiscal 1999,  credit extension and
collection of Heilig-Meyers  revolving  accounts were handled centrally from the
Company's  Credit Center  located in Richmond,  Virginia.  In October 1998,  the
Company  completed  a  reorganization  of  the  Heilig-Meyers  revolving  credit
program.  At that point,  a new third  party was engaged to provide  this credit
option and to service  the  accounts.  The  Company  does not have any  recourse
obligation related to these accounts.

         The  Company  also  offers  revolving   credit   programs,   which  are
underwritten by third parties, in The RoomStore, Rhodes and Mattress Discounters
formats.  The Company  does not service or generally  provide  recourse on these
accounts. Credit applications, sales, and many payments on account are generally
processed electronically through the point-of-sale systems. Approximately 50% of
The RoomStore,  55% of Rhodes, and 10% of Mattress Discounters fiscal 1999 sales
were made through the revolving credit programs.

         Revenue is recognized on installment and credit sales upon approval and
establishment  of a  delivery  date,  which  does  not  differ  materially  from
recognition  at time of shipment.  The effect of sales returns prior to shipment
date has been immaterial.  Finance charges are included in revenues on a monthly
basis as earned. During fiscal 1999, finance income amounted to $231,369,000, or
approximately  8.5% of total revenues.  Because credit operations are integrated
with  sales  and  store  administration,  management  does not  believe  that an
accurate  allocation  of various  costs and expenses of  operations  can be made
between retail sales and credit operations.  Therefore, the Company is unable to
estimate accurately the contribution of its financing operations to net income.

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


                                       8
<PAGE>

Distribution
         As  of  April  30,  1999,  the  Company  operates  eight  Heilig-Meyers
distribution  centers in the  Continental  U.S.  These  centers  are  located in
Orangeburg, South Carolina; Rocky Mount, North Carolina; Russellville,  Alabama;
Mount Sterling,  Kentucky;  Thomasville,  Georgia; Moberly, Missouri;  Hesperia,
California;   and  Athens,   Texas.  The  Company  relocated  the  Fontana,   CA
Distribution Center during fiscal 1998 to a larger, 400,000 square foot facility
located in Hesperia, CA. The new distribution center also contains the relocated
Fontana  Service  Center as well as an outlet  store.  Currently,  the Company's
Heilig-Meyers  distribution  network has the capacity to service over 900 stores
in the  Continental  U.S.  The Company  also  operates  six Rhodes  distribution
centers,  which collectively have more than 870,000 square feet and include home
delivery  operations in certain markets.  The RoomStore has twelve  distribution
centers,   including  two  centers  in  Puerto  Rico,  which  collectively  have
approximately  1,600,000 square feet. Mattress Discounters has nine distribution
centers which collectively have approximately 390,000 square feet.

         The  Company  utilizes  several  sophisticated  design  and  management
techniques to increase the operational  efficiency of its distribution  network.
These include cantilever racking and computer-controlled random-access inventory
storage.  Use of direct shipping and backhauling  from vendors has also enhanced
distribution  efficiency.  Backhauling  involves routing its trucks so that they
can transport  purchased  inventory from suppliers to the  distribution  centers
while   returning  from  normal  store   deliveries.   The  Company   backhauled
approximately 25% of its purchased inventory in the Heilig-Meyers  stores during
fiscal 1999.

         Typically, each of the Company's Heilig-Meyers stores is located within
250 miles of one of the eight distribution  centers, each Rhodes store is within
100 miles of one of the six Rhodes distribution  centers,  each of The RoomStore
stores is located within 35 miles of the twelve The RoomStore  distribution  and
delivery centers, and each Mattress Discounters store is located within 30 miles
of the nine Mattress Discounters  distribution and delivery centers. The Company
operates  a  fleet  of  trucks  which  generally  delivers  merchandise  to each
Heilig-Meyers  store at least twice a week.  In the Rhodes,  The  RoomStore  and
Mattress  Discounters  formats,  which are located in larger cities, the Company
also  utilizes  centralized  delivery  centers  for home  delivery.  The Company
believes  the use of the  distribution  centers  enables it to make  available a
broader selection of merchandise, to reduce inventory requirements at individual
stores,  to benefit  from  volume  purchasing,  to provide  prompt  delivery  to
customers and to minimize freight costs.

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

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


                                       9
<PAGE>

                           E.  Corporate Expansion

         The Company has grown from 570 stores at February  28,  1994,  to 1,253
stores at April 30,  1999.  Over this time period the Company has  acquired  new
operating  formats  as a  result  of the  Rhodes,  The  RoomStore  and  Mattress
Discounters acquisitions.

         The following  table lists the Company's  stores by state and format as
of April 30, 1999:

                            Heilig-            The      Mattress
State                       Meyers   Rhodes  RoomStore Discounters  Total


Alabama                         33       10                            43
Arizona                         15                                     15
California                      82                             73     155
Colorado                         4                              6      10
District of Columbia                                            2       2
Florida                         35       20                     6      61
Georgia                         57       18                            75
Idaho                            4                                      4
Iowa                            19                                     19
Illinois                        25        2       21           50      98
Indiana                         22        1                     4      27
Kansas                                    1                             1
Kentucky                        30        3                            33
Louisiana                       20                                     20
Maryland                         2                14           26      42
Massachusetts                                                  18      18
Michigan                                                       14      14
Mississippi                     29        1                            30
Missouri                        29        6                            35
Montana                          2                                      2
Nevada                           5                                      5
New Hampshire                                                   3       3
New Mexico                      10                                     10
North Carolina                 109       11                           120
Ohio                            33        9                            42
Oklahoma                        11                                     11
Oregon                           2                 5                    7
Pennsylvania                    22                              8      30
Puerto Rico                                       32                   32
Rhode Island                                                    1       1
South Carolina                  44        6                            50
Tennessee                       53        7                            60
Texas                           33                25                   58
Virginia                        45        2        5           24      76
Washington                      12                 1                   13
West Virginia                   26                                     26
Wisconsin                                          4            1       5
                               ---      ---      ---         ----   -----
                               813       97      107          236   1,253
                               ===      ===      ===         ====   =====


         Stores listed under the RoomStore format include:1)former Heilig-Meyers
stores in  Illinois  which have been  converted  to the  RoomStore  format,  but
continue  to  operate  under  Heilig-Meyers  signage,  2) 3  acquired  stores in
Illinois that operate under the John M. Smyth's Homemakers name and 3) 32 stores
operated under the Berrios name.  All of these stores are under the  supervision
of the RoomStore management team.


                                       10
<PAGE>

         Growth in the number of stores  comes  primarily  from  three  sources:
acquisition of chains or independent  stores,  refurbishing  of existing  retail
space and new construction.  During the fiscal year ended February 28, 1999, the
Company opened 52 stores and closed 56 stores for a net decrease of 4 stores. Of
the 52 new stores,  49 were  operations  begun by the Company in vacant existing
buildings  and  3  were  prototype  stores  built  according  to  the  Company's
specifications.

         The Company constantly evaluates opportunities for further expansion of
its  business.  The Company  plans to  continue  its  slower,  selective  growth
strategy  for  the  Heilig-Meyers   division.  In  selecting  new  Heilig-Meyers
locations,  the Company intends to follow its established  strategy of generally
locating  stores  within  250 miles of a  distribution  center and in towns with
populations  of  5,000 to  50,000  that  are  over 25  miles  from  the  closest
metropolitan  market.  The  Company  believes  that  it has  substantial  growth
potential in certain of its other formats. Growth opportunities of The RoomStore
format  is being  evaluated.  The  Company  plans to expand  this  format as the
appropriate markets are identified.  As noted in the introduction,  however, the
Company is evaluating the possible  divestiture  of the Rhodes  division and has
entered  into  an  agreement  to sell  substantially  all of its interest in the
Mattress Discounters division.

             F. Other Factors Affecting the Business of the Company

Suppliers
         During the fiscal year ended  February  28,  1999,  the  Company's  ten
largest suppliers  accounted for  approximately 33% of consolidated  merchandise
purchases.  In the past, the Company has not experienced difficulty in obtaining
satisfactory sources of supply and believes that adequate alternative sources of
supply  exist for the  types of  merchandise  sold in its  stores.  Neither  the
Company nor its officers or directors have an interest,  direct or indirect,  in
any of its suppliers of  merchandise  other than minor  investments  in publicly
held companies.

Service Marks, Trademarks and Franchise Operations
         The  marks  "Heilig-Meyers",   "MacSaver",   "MacSaver,   design  of  a
Scotsman",  other marks acquired through various  acquisitions and the Company's
distinctive  logo are federally  registered  service  marks of the Company.  The
Company has  registrations  for  numerous  other  trademarks  and service  marks
routinely used in the Company's business.

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

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

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

         These  registrations  can  be  kept  in  force  in  perpetuity  through
continued use of the marks and timely applications for renewal.

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

Employees
         As of April 30, 1999, the Company employed approximately 22,500 persons
full- or part-time  in the  Continental  United  States,  of whom  approximately
21,400 worked in the Company's stores, distribution centers and service centers,
with the balance in the Company's  corporate  offices.  As of February 28, 1999,
the Company  employed  approximately  1,000 persons full- or part-time in Puerto
Rico, of whom  approximately  900 worked in the stores and distribution  center,
with the  balance in the  corporate  office.  The  Company is not a party to any
union contract and considers its relations with its employees to be good.

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


                                       11
<PAGE>



ITEM 2.  PROPERTIES

         As of April  30,  1999,  975 of the  Company's  stores  are on a single
level,  with floor space  devoted to sales as well as a warehouse  primarily for
merchandise being prepared for delivery and for items customers carry with them.
The Heilig-Meyers stores are typically located away from the center of town. The
remaining  278 stores  generally are in older two- or  three-level  buildings in
downtown areas.  Usually there is no warehouse  space in these older  buildings,
and the stores' warehouses are located in nearby buildings.

         As of April 30, 1999, the Company owned 73 of its Heilig- Meyers, 11 of
its  Rhodes  stores  and 1 of  its  Mattress  Discounters  stores,  six  of  its
Heilig-Meyers and three of its Rhodes distribution centers and the Fayetteville,
North Carolina  Service  Center.  The Company leases the remaining  stores,  the
remaining distribution centers, its corporate headquarters located at 12560 West
Creek Parkway, Richmond,  Virginia and other office space. Rentals generally are
fixed  without  reference  to sales  volume,  although  some leases  provide for
increased  rent due to  increases  in taxes,  insurance  premiums or both.  Some
renewal  options are tied to changes in the Consumer  Price Index.  Total rental
payments  for  properties  for the fiscal year ended  February  28,  1999,  were
approximately  $137,900,000.  Most  vehicles,  a  majority  of the  distribution
centers'  material  handling  equipment,  and a majority of the  Company's  data
processing equipment are also leased. In addition, Mattress Discounters operates
a  102,000-square-foot   mattress  manufacturing  facility  in  Maryland  and  a
54,000-square-foot  mattress manufacturing  facility in California.  The Company
believes that its facilities are adequate at present levels of operations.


                                       12
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

     The Company previously  reported  involvement in two cases pending in state
court  regarding  non-filing  fees  charged by the  Company  on  certain  credit
transactions.  Non-filing fees are used to obtain  insurance in lieu of filing a
financing  statement to perfect a security  interest in connection with a credit
transaction.  The  plaintiffs  in the  cases  are  alleging  that the  Company's
charging of the non-filing fees violates  certain state and federal statutes and
are seeking  statutory  damages and  unspecified  punitive  damages.  Eubanks v.
Heilig-Meyers Company and Heilig-Meyers Furniture Company (alleging violation of
Georgia statutes and seeking  certification of a class of Georgia residents) was
filed on March 5, 1997 in Georgia  State Court,  subsequently  removed to United
States District Court for the Southern District of Georgia, and on July 7, 1997,
remanded to the Superior Court of Liberty  County,  Georgia.  On March 25, 1998,
the court in Eubanks entered an order  dismissing the case. The Eubanks case was
refiled on June 23, 1998 and on March 23, 1999, the court in Eubanks  entered an
order  dismissing the case with  prejudice.  Wahl v.  Heilig-Meyers  Company and
Heilig-Meyers  Furniture Company (alleging  violations of Tennessee statutes and
seeking certification of a class of certain individuals who made purchase in the
Company's  Tennessee  stores) was filed on June 23,  1997 in Memphis,  Tennessee
Chancery Court. The Company's motion to dismiss is pending in the Wahl case.
     In  addition,   the  Company  is  party  to  various   legal   actions  and
administrative proceedings and subject to various claims arising in the ordinary
course of business,  including claims relating to its charges in connection with
credit sales.  Based on the best information  presently  available,  the Company
believes that the disposition of these matters will not have a material  adverse
impact on the financial statements of the Company.


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


None.


                                       13
<PAGE>

                      Executive Officers of the Registrant

         The following table sets forth certain  information with respect to the
executive officers of the Company as of May 1, 1999:


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

William C. DeRusha      49          30    Chairman of the Board since April
                                          1986. Chief Executive Officer since
                                          April 1984. Director since January
                                          1983.

Donald S. Shaffer       52           -    President since April 1999.  Chairman
                                          and Chief Executive Officer, Western
                                          Auto Supply Company, a division of
                                          Sears, Roebuck and Company from 1996
                                          to 1999.  President and Chief
                                          Executive Officer, Sears Canada from
                                          1994 to 1996.

James F. Cerza, Jr.     51          11    Executive Vice President, Heilig-
                                          Meyers since April 1998. Executive
                                          Vice President, Operations from June
                                          1996 until April 1998.  Executive Vice
                                          President, from April 1995 to June
                                          1996.  Executive Vice President,
                                          Operations from August 1989 to April
                                          1995.

Irwin L. Lowenstein     63           2    Executive Vice President, Rhodes since
                                          April 1997. Chairman of the Board,
                                          Rhodes, Inc. from 1994 to December
                                          1996. Chief Executive Officer, Rhodes,
                                          Inc. from 1989 to December 1996.
                                          President and Chief Operating Officer,
                                          Rhodes, Inc. from 1973 to 1994.

James R. Riddle         57          14    Executive Vice President,
                                          The RoomStore / Berrios since April
                                          1998. Executive Vice President, from
                                          April 1995 to April 1998. Executive
                                          Vice President, Marketing from January
                                          1988 to April 1995.

Patrick D. Stern        42           1    Executive Vice President,
                                          The RoomStore / Berrios since April
                                          1998.  Executive Vice President, The
                                          RoomStore from June 1997 to April
                                          1998.  Vice President, Merchandising,
                                          Value City Furniture (retailer) from
                                          April 1994 to April 1997.  Vice
                                          President, Sales and Marketing,
                                          SilverOaks Furniture Manufacturing
                                          prior to 1994.

Roy B. Goodman          41          18    Executive Vice President, Chief
                                          Financial Officer since December 1998.
                                          Senior Vice President, Chief Financial
                                          Officer from July 1997 to December
                                          1998. Senior Vice President, Finance
                                          from April 1995 to July 1997.  Vice
                                          President, Secretary and Treasurer
                                          prior to April 1995.

William J. Dieter       59          26    Senior Vice President, Accounting
                                          since April 1986. Chief Accounting
                                          Officer since 1975.


                                       14
<PAGE>

                                     PART II

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


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

         Fiscal Year          High           Low        Dividends
         -----------         ------         -----       ---------
   1999
         4th Quarter        $   8 7/16   $   6 1/16     $  .07
         3rd Quarter           11 1/4        5 5/8         .07
         2nd Quarter           14 5/16      11 3/8         .07
         1st Quarter           15 15/16     11 3/4         .07

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

     There were  approximately  3,300  shareholders of record as of February 28,
1999.

     The Company has paid cash  dividends in every year since  fiscal 1976.  The
Board of  Directors  intends to continue  its present  policy of paying  regular
quarterly  dividends when  justified by the financial  condition of the Company.
The amount of future  dividends,  if any,  will  depend  upon  general  business
conditions,  earnings,  capital requirements and such other factors as the Board
may deem  relevant.  The  Company's  payment of dividends is  restricted,  under
certain  covenants in loan  agreements,  to $74,576,000 plus 75% of net earnings
adjusted for dividend payouts subsequent to February 28, 1999.

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

     On  September  1,  1998,  the  Company  acquired  substantially  all of the
operating assets and liabilities of Guardian Protection Products ("Guardian") in
a transaction in which the  shareholder of Guardian  received  666,667 shares of
the  Company's  common stock.  Unless the  Company's  common stock trades for at
least ten  consecutive  trading  days during the period from  September 1, 1998,
through  August 31,  1999,  at a per share  price of $15.00 or more,  additional
shares will be issued so that the  acquisition  price equals $10 million divided
by the average  closing price per share for the  Company's  common stock for the
ten  trading  days ending on August 31,  1999,  or such  earlier  date as may be
selected by the Company.  The Company has also agreed to issue additional shares
to the former shareholder of Guardian in the event that certain earnings targets
are met over the next two years,  however the aggregate  purchase price will not
exceed $14.5 million.



                                       15
<PAGE>
<TABLE>

ITEM 6.  SELECTED FINANCIAL DATA
<S>                        <C>            <C>           <C>            <C>           <C>
Fiscal Year                     1999(1)        1998(1)       1997(1)        1996          1995
                                     (Dollar amounts in thousands except per share data)

Operations Statement Data:
Sales                      $2,431,152     $2,160,223    $1,342,208     $1,138,506    $  956,004
Annual growth in sales           12.5%          60.9%         17.9%          19.1%         32.1%
Other income               $  295,206     $  309,513    $  250,911     $  220,843    $  196,135
Total revenues              2,726,358      2,469,736     1,593,119      1,359,349     1,152,139
Annual growth in revenues        10.4%          55.0%         17.2%          18.0%         33.4%
Costs of sales             $1,637,901     $1,451,560    $  876,142     $  752,317    $  617,839
Gross profit margin              32.6%          32.8%         34.7%          33.9%         35.4%
Selling, general and
  administrative expense   $  907,913     $  828,105    $  526,369     $  436,361    $  350,093
Interest expense               75,676         67,283        47,800         40,767        32,889
Provision for doubtful
  accounts                    107,916        181,645        80,908         65,379        45,419
Store closing and other
  charges                          --         25,530            --             --            --
Provision (benefit) for
  income taxes                 (1,081)       (29,244)       21,715         23,021        39,086
Effective income tax rate       (35.5)%        (34.7)%        35.1%          35.7%         36.9%
Net earnings (loss)        $   (1,967)    $  (55,143)   $   40,185     $   41,504    $   66,813
Earnings (loss) margin           (0.1)%         (2.6)%         3.0%           3.7%          7.0%
Net earnings (loss) per share:
   Basic(2)                $    (0.03)    $    (0.98)   $     0.81     $     0.85    $     1.38
   Diluted(2)                   (0.03)         (0.98)         0.80           0.84          1.34
Cash dividends per share
  of common stock                0.28           0.28          0.28           0.28          0.24


Balance Sheet Data:
Total assets               $1,947,752     $2,097,513    $1,837,158     $1,288,960    $1,208,937
Average assets per store        1,559          1,674         1,946          1,800         1,869
Accounts receivable, net      254,282        392,765       380,879        518,969       538,208
Retained interest in
  securitized receivables
  at fair value               190,970        182,158       243,427             --            --
Inventories                   493,463        542,868       433,277        293,191       253,529
Property and equipment, net   400,686        398,151       366,749        216,059       203,201
Additions to property and
  equipment                    87,505         70,921        84,137         40,366        49,101
Short-term debt               377,486        282,365       256,413        207,812       167,925
Long-term debt                547,344        715,271       561,489        352,631       370,432
Average debt per store            740            796           866            783           832
Stockholders' equity          605,102        609,154       642,621        518,983       490,390
Stockholders' equity
  per share                     10.11          10.36         11.81          10.69         10.10


                                       16
<PAGE>

SELECTED FINANCIAL DATA, cont.

Fiscal Year                     1999(1)        1998(1)       1997(1)        1996          1995
                                      (Dollar amounts in thousands except per share data)

Other Financial Data:
Working capital              $380,333       $591,397      $550,137       $527,849      $554,096
Current ratio                     1.5            1.8           1.9            2.4           2.9
Debt to equity ratio             1.53           1.64          1.27           1.08          1.10
Percentage of debt to debt
  and equity                     60.4%          62.1%         56.0%          51.9%         52.3%
Rate of return on average
  assets(3)                       2.3%          (0.6)%         4.6%           5.4%          7.8%
Rate of return on average
  equity                         (0.3)%         (8.8)%         6.9%           8.2%         14.5%
Number of stores                1,249          1,253           944            716           647
Number of employees            23,352         24,374        19,131         14,383        13,063
Average sales per employee   $    103       $     99      $     84       $     83      $     81

Weighted average common shares outstanding (in thousands):
   Basic                       59,331         56,312        49,360         48,560        48,459
   Diluted                     59,331         56,312        50,146         49,604        49,954

Price range on common stock per share:
   High                      $ 15 15/16     $ 20          $ 24 1/8       $ 27 1/4      $ 36
   Low                          5 5/8         11 15/16      12 5/8         13 1/2        23 1/4
   Close                        6 1/2         15 1/2        14 1/8         14            23 5/8

</TABLE>

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

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

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


                                       17
<PAGE>

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

     Heilig-Meyers  Company (the "Company") is the Nation's  largest retailer of
furniture,  bedding and related items and operates under four business segments:
Heilig-Meyers Furniture  ("Heilig-Meyers"),  Rhodes Furniture, The RoomStore and
Mattress  Discounters.  This  combination of business  segments  (referred to as
"divisions")  has been  achieved  over  the  last  three  fiscal  years  through
acquisitions and the reformatting of existing stores between segments.
     The Heilig-Meyers division is considered the Company's core business.  This
division  locates its stores  primarily in small towns and rural  markets in the
southern,  mid-western and western  Continental United States. The Heilig-Meyers
Furniture  division offers its customers the broadest selection of competitively
priced  merchandise  of the four divisions and  approximately  70% to 80% of its
sales have been made through the Company's installment credit program.
     The Rhodes division locates its stores  primarily in mid-sized  markets and
metropolitan  areas of 15 southern,  midwestern and western states.  The Company
acquired the Rhodes division on December 31, 1996. In fiscal 1997,  eight stores
and the related  support  facilities in the South Texas region were converted to
the RoomStore division. Management has completed a thorough review of the Rhodes
operations  and has  implemented a plan to improve the  operating  results going
forward.  In the third  quarter of fiscal  1999,  the eight  stores in Colorado,
which  were  not  performing  at  an  acceptable  level,   were  divested.   For
substantially  all of fiscal 1999,  the Rhodes  division  offered a  merchandise
selection  that was  considered  higher end and more  upscale as compared to the
other divisions. The promotional strategy for Rhodes has been refocused in order
to strengthen and expand its middle-income  customer base. Initiatives have been
implemented  to  provide  a  stronger  focus on major  media  advertising,  more
aggressive price points and event driven promotions.
     The RoomStore division employs a room-packaging  concept to value-conscious
families  in large  metropolitan  markets  and in  Puerto  Rico.  The  RoomStore
division  originated  with the acquisition of stores in the central Texas region
in February  1997 that  operated  under the  RoomStore  name.  This division was
expanded  through  the  conversion  of stores  acquired  in January  1998 in the
Chicago   area  and  in  February   1998  in  the   Washington-Baltimore   area.
Additionally,  stores formerly operated as part of the Heilig-Meyers division in
Chicago and Puerto Rico were transferred to the RoomStore division in the fourth
quarter of fiscal  1998.  The former  Heilig-Meyers  stores and the Puerto Rican
stores,  which operate  under the "Berrios"  name,  offer  in-house  installment
credit  programs  to  their  customers.   Historical  information  presented  in
managements  discussion  and analysis  has been  restated to reflect the current
division alignment.
     Mattress  Discounters,  the Nation's largest  specialty  bedding  retailer,
offers a broad  selection of bedding and bedding  related  merchandise at a wide
range of price  points to  consumers  at all  income  levels.  These  stores are
located in major  urban  markets  across the  Continental  United  States.  This
division resulted from the acquisition of Mattress Discounters in July 1997, and
was expanded into the Chicago market in January 1998 with the acquisition of The
Bedding Experts, Inc.
     On March 24, 1999, the Company announced that in an effort to substantially
improve the overall financial position of the Company and to refocus on its core
home furnishings  operation,  a review of strategic  divestiture  options of all
non-core  operating  assets is being made. This review includes the retention of
third  parties to advise on  possible  divestiture  of the  Rhodes and  Mattress
Discounters  divisions.  On May 28, 1999 the Company  entered  into a definitive
agreement to sell substantially all of its interest in its Mattress  Discounters
division.  The transaction,  which is subject to certain closing conditions,  is
expected to close in the second  quarter of fiscal 2000. The Company will retain
a 7% interest in Mattress  Discounters.  The cash proceeds from the sale, net of
transaction  costs, are estimated at $206.7 million and will be used to pay down
debt. The likelihood of completing the  divestiture of all or part of the Rhodes
division will be dependent on several factors not  controllable by Heilig-Meyers
management  and is uncertain at this time.  As such,  the related  assets of the
Rhodes division were  considered  "held for use" as of February 28, 1999 and are
presented on a consolidated basis. If an agreement to sell the Rhodes division's
is executed, the transaction may result in a loss and, depending on the terms of
such an agreement, the loss may be material to results of operations. Management
believes that, under a held for use classification,  the Rhodes divison's future
undiscounted  cash flows will be in excess of the related  carrying value of its
assets as of February 28, 1999.


                                       18
<PAGE>

Results of Operations
     For the twelve months ended February 28, 1999 (fiscal 1999),  Heilig-Meyers
Company reported a net loss of $2.0 million or $.03 per share.  This compares to
a net loss of $55.1  million,  or $.98 per share for the year ended February 28,
1998 (fiscal 1998) and net income of $40.2 million,  or $.81 per share,  for the
year ended February 28, 1997 (fiscal  1997).  The loss before benefit for income
taxes for fiscal 1999 decreased to .1% of sales from the loss before benefit for
income  taxes of 3.9% of sales in the prior  year,  and was  below the  earnings
before  income  taxes of 4.6% of sales  reported  in  fiscal  1997.  Results  of
operations expressed as a percentage of sales are as follows:

                                                       Fiscal Year
                                         1999              1998            1997
                                         ---------------------------------------
Other income                             12.1%             14.3%           18.7%
Costs of sales                           67.4              67.2            65.3
Selling, general and
         administrative expense          37.3              38.3            39.2
Interest expense                          3.1               3.1             3.6
Provision for doubtful accounts           4.4               8.4             6.0
Store closing and other charges            --               1.2              --
Earnings (loss) before provision
         (benefit) for income taxes      (0.1)             (3.9)            4.6
Provision (benefit) for income
          taxes                            --              (1.4)            1.6
Net earnings (loss)                      (0.1)             (2.6)            3.0

     A significant component of the decrease in the loss reported in fiscal 1999
compared  to fiscal  1998  relates to pre-tax  charges  of  approximately  $45.4
million  recorded in fiscal 1998,  which are more fully described  below,  and a
$73.7 million decrease in the provision for doubtful accounts. Also contributing
to the decrease was a $9.5 million  increase in the earnings before interest and
income taxes of the Mattress  Discounters  division,  which had twelve months of
operations in fiscal 1999 compared to seven months in fiscal 1998.  The earnings
before interest and income taxes of the Rhodes division,  however,  decreased by
$38.5  million.  The  remainder of the change is primarily due to an increase in
interest expense and additional  selling,  general and  administrative  expenses
recorded  by  the  Heilig-Meyers  division  related  to  costs  associated  with
corporate downsizing and early retirement benefits.
     The  Company  recorded  charges  during the fourth  quarter of fiscal  1998
related to a plan (the  "Profit  Improvement  Plan") to close  approximately  40
Heilig-Meyers stores, downsize office and support facilities, and reorganize the
Heilig-Meyers  private label credit card program.  In connection with this plan,
the Company  recorded a pre-tax  charge in the fourth  quarter of fiscal 1998 of
approximately  $25.5 million,  or 1.2% of sales.  Related initiatives caused raw
selling  margins in the fourth quarter of fiscal 1998 to be negatively  impacted
by approximately $5.1 million,  or .2% of sales, due to inventory  liquidations.
Also,  approximately  $14.8 million,  or .7% of sales,  in selling,  general and
administrative  expenses  were  incurred  in the fourth  quarter of fiscal  1998
related to asset write-downs and other reserves.
     During  fiscal 1999,  the Company  completed the store closing plan and the
reorganization  of the private label credit card  program.  Of the $19.5 million
reserve  balance in place at the end of fiscal 1998,  $14.7 million was utilized
during fiscal 1999,  with the remaining  portion  related to severance and lease
obligations  that will  extend  into  fiscal  2000.  Included in the fiscal 1999
results are operating  losses of  approximately  $5.8 million  incurred as these
stores were closed in an orderly  fashion.  In the third quarter of fiscal 1999,
the  Company's  private  label credit card program was  reorganized  through the
establishment  of a new agreement with a third party to offer a revolving credit
financing  option to  certain of the  Company's  customers.  The  Company is not
responsible for servicing  these accounts or for any related credit losses.  The
elimination  of the  previous  program  does not have a  material  impact on the
Company's financial statements.
     The net loss for fiscal 1998 of $55.1 million compared to earnings of $40.2
million for fiscal 1997. The decrease  between years was caused primarily by the
charges  recorded in the fourth quarter of fiscal 1998 discussed  above, as well
as a $100.7  million  increase  in the  provision  for  doubtful  accounts.  The
remaining  decrease  between the years is the result of the  additional  factors
noted in the discussion below.


                                       19
<PAGE>

Revenues
     Sales for fiscal 1999 compared to the previous periods are shown below:

                                                   Fiscal Year
                                         1999            1998            1997
                                   ------------------------------------------
Sales (in thousands)               $2,431,152      $2,160,223      $1,342,208
Sales percentage increase
        over prior period                12.5%           60.9%           17.9%
Portion of increase from
        existing (comparable)
        stores                            3.0             2.8            (0.6)
Portion of increase from
        new stores                        9.5            58.1            18.5

     The  following  table shows a comparison  of sales by division for the last
three fiscal years:

                                            Fiscal Year
                        1999                   1998                 1997
              ------------------------------------------------------------------
                                   (Sales amounts in millions)

                # of           % of    # of           % of   # of
              Stores   Sales  Total  Stores   Sales  Total Stores   Sales  Total
              ------------------------------------------------------------------
Heilig-Meyers    815  $1,296   53.3     833  $1,269   58.8    829  $1,262   94.1
Rhodes            96     457   18.8     102     479   22.2    105      78    5.8
The RoomStore    102     440   18.1      93     279   12.9     10       2    0.1
Mattress
   Discounters   236     238    9.8     225     133    6.1     --      --     --
               -----------------------------------------------------------------
Total          1,249  $2,431  100.0   1,253  $2,160  100.0    944  $1,342  100.0
               =================================================================

     As noted above,  the overall growth rate in sales  decreased in fiscal 1999
as compared to the two previous  years.  This trend is reflective of the current
operating  strategy of limiting  the new store growth in the  Heilig-Meyers  and
Rhodes  divisions  and the impact of  acquisitions  and new store  growth in the
RoomStore and Mattress Discounters divisions.  Sales in comparable stores, which
are stores that were open for at least 12 months,  increased at a higher rate in
fiscal 1999 compared to the two previous  years.  The growth in total sales from
fiscal 1997 to fiscal 1998 is primarily  attributable to the growth in operating
units through acquisitions. The impact of price changes on sales growth over the
last three fiscal years has been insignificant.

Other income
     The  Heilig-Meyers  division  and  part  of the  RoomStore  division  offer
installment  credit as a  financing  option to its  customers.  The  substantial
majority of receivables  generated by this program are  transferred to a special
purpose entity and provide a source of financing to the Company through an asset
securitization  program,  which  is more  fully  described  in the  notes to the
consolidated financial statements.  Included in other income is the compensation
received by the Company for servicing  these  accounts,  the finance and related
income earned on the accounts that have not been  securitized,  and other income
earned related to non-home furnishings merchandise.  The remaining stores in the
RoomStore,  Rhodes and  Mattress  Discounters  divisions  do not offer  in-house
credit programs and, accordingly, make limited contributions to the other income
category.
     On a  consolidated  basis,  other  income  decreased  to 12.1% of sales for
fiscal  1999 from  14.3% of sales in fiscal  1998 and 18.7% of sales for  fiscal
1997.  This trend is primarily a result of the growth in the  divisions in which
the installment  credit program is not offered.  The following table shows other
income as a percentage of sales for each division:

                                      Fiscal Year
                           1999          1998          1997
                           --------------------------------
Heilig-Meyers              18.2%         19.7%         19.6%
Rhodes                      4.8%          6.2%          5.5%
The RoomStore               8.4%         10.9%         17.9%
Mattress Discounters         .2%           .2%           --


                                       20
<PAGE>

     The  decrease  in other  income as a  percentage  of sales in  fiscal  1999
compared to fiscal 1998 in the  Heilig-Meyers  division is due to an increase in
the amount of receivables  that have been securitized and the elimination of the
previous revolving credit card program. Since the proceeds generated by the sale
of accounts under the securitization program are used to reduce debt levels, the
reduction in finance income is offset by lower interest  expense.  Additionally,
the loss of other  income from the  revolving  credit  program is  substantially
offset  by the  elimination  of  administrative  expenses  associated  with  the
servicing of those accounts as well as fees and commissions earned under the new
revolving credit program.
     The Rhodes division  experienced a decrease in other income compared to the
last two fiscal years as a result of the repositioning effort in fiscal 1999. As
part  of  this  change  in  strategy,   less  selling   emphasis  was  place  on
non-furniture  sales.  As a result of plans  implemented  in late  fiscal  1999,
management  expects other income generated in the Rhodes division to increase as
a percentage of sales in fiscal 2000.
     The  declining  trend  in  other  income  as a  percentage  of sales in the
RoomStore  division  is a result of the  increase  in stores over the last three
years  that do not offer an  in-house  installment  credit  program.  The stores
acquired in central Texas in February  1997, in Chicago in January 1998,  and in
the  Washington-Baltimore  area  in  February  1998  do not  offer  an  in-house
installment  credit program.  Management expects other income as a percentage of
sales in this  division  to be  consistent  with the fiscal  1999  levels in the
future.

Costs and expenses
     On a consolidated  basis,  costs of sales increased slightly in fiscal 1999
to 67.4% of sales from 67.2% of sales in fiscal 1998.  Reduced costs of sales in
the Heilig-Meyers and Mattress Discounters  divisions compared to the prior year
were offset by higher costs in the Rhodes and RoomStore divisions. The following
table shows costs of sales as a percentage of sales for each division:

                                      Fiscal Year
                           1999          1998          1997
                           --------------------------------
Heilig-Meyers              66.3%         66.6%         66.0%
Rhodes                     72.6%         70.5%         63.2%
The RoomStore              67.6%         65.9%         63.3%
Mattress Discounters       62.6%         63.7%           --

     The costs of sales in the  Heilig-Meyers  division  include  the  impact of
liquidation sales held in stores closed during the year. The net effect of these
liquidation  events  increased  cost of sales by  approximately  .2% of sales in
fiscal  1999.  The  remaining  decrease  in costs of sales  was a result of cost
control efforts primarily in the delivery area.
     As Rhodes was repositioned to the higher end merchandise  assortment in the
first quarter of fiscal 1999, selling margins were negatively  impacted as goods
from the previous assortment continued to be liquidated. Selling margins in this
division were further reduced during the  repositioning  period in order to spur
consumer demand,  which was below managements  expectation.  As discussed in the
overview section, the Rhodes promotional strategy has been refocused in order to
expand its middle-income  customer base. Based on this plan,  management expects
the costs of sales in the Rhodes division to decrease in fiscal 2000.
     The  increase  in costs of sales in the  RoomStore  division  reflects  the
growth  in  major  metropolitan  markets  over  the  past  three  fiscal  years.
Management  expects  these  levels of cost,  as a  percentage  of  sales,  to be
consistent in fiscal 2000.
     Mattress  Discounters reported lower costs of sales in fiscal 1999 compared
to fiscal  1998 as a result of  improved  buying  power and  increased  sales of
private label merchandise.
     Selling, general and administrative expenses decreased to 37.3% of sales in
fiscal  1999 from 38.3% of sales in fiscal  1998 and 39.2% in fiscal  1997.  The
following  table  displays  selling,  general and  administrative  expenses as a
percentage of the applicable divisions sales:

                                     Fiscal Year
                           1999          1998          1997
                           --------------------------------
Heilig-Meyers              39.4%         41.1%         39.8%
Rhodes                     38.7%         33.7%         25.4%
The RoomStore              34.9%         39.5%         40.5%
Mattress Discounters       27.9%         26.3%           --


                                       21
<PAGE>

     Selling,  general and administrative  expenses as a percentage of sales for
the Heilig-Meyers division in fiscal 1999 decreased  approximately 1.1% of sales
from the prior year as a result of asset write-downs and other reserves recorded
in fiscal 1998 related to the Profit  Improvement Plan. The remaining portion of
the decrease is the result of corporate  downsizing actions taken in late fiscal
1998 and other cost cutting programs aimed at reducing  discretionary  spending.
The increase in selling,  general and administrative expenses as a percentage of
sales in fiscal 1998 over fiscal 1997 was the result of the 1998  charges  noted
above.
     The Rhodes  division  experienced  an  increase  in  selling,  general  and
administrative  expenses as a  percentage  of sales in fiscal  1999  compared to
fiscal 1998 primarily due to increased costs  associated with the  repositioning
initiative  discussed  above.  Major components of these  expenditures  included
employee  training  programs,  costs  to  develop  color  merchandise  catalogs,
customer  amenities  and  the  sponsorship  of a  professional  race  car  team.
Management  has  eliminated  these  programs  and as a result  expects  selling,
general  and  administrative   expenses  in  this  division  to  be  reduced  by
approximately $10 million, or 2.2% of sales, on an annual basis.
     The decreasing trend in selling, general and administrative expenses of the
RoomStore division, as a percentage of sales, reflects the lower cost structures
of the recent additions to this division.  These operations generally have lower
cost structures because they do not administer installment credit programs.
     Selling,  general and  administrative  expenses as a percentage of sales in
the Mattress  Discounters  division  increased  over fiscal 1998  primarily as a
result of costs associated with new store growth.
     Interest  expense  was 3.1% of sales  in  fiscal  1999 and 1998 and 3.6% of
sales in fiscal  1997.  Weighted  average  long-term  debt  increased  to $714.6
million in fiscal  1999  compared  to $675.7  million in fiscal  1998 due to the
issuance of $175 million in public debt during the second quarter of fiscal 1998
and the paydown of  approximately  $22.4  million in the third quarter of fiscal
1999.  Weighted  average  long-term  interest  rates for  fiscal  1998  remained
relatively  consistent at 7.7%, compared to 7.8% during the prior year. Weighted
average  short-term  debt increased to $235.0 million in fiscal 1999 from $229.2
million in fiscal 1998. Weighted average short-term interest rates also remained
consistent at 6.2% compared to 6.1% in the prior year.  The decrease in interest
expense as a  percentage  of sales in fiscal  1998  compared  to fiscal  1997 is
mainly  due to  leverage  on the sales by Rhodes,  The  RoomStore  and  Mattress
Discounters, which were purchased with common stock.
     The  provision  for  doubtful  accounts  was 4.4% of sales in  fiscal  1999
compared to 8.4% and 6.0% in fiscal 1998 and 1997, respectively. The decrease in
the  provision  for doubtful  accounts as a  percentage  of sales in fiscal 1999
compared to fiscal 1998 is a result of charges  totaling 4.1% of sales  recorded
in fiscal 1998 that did not recur in fiscal 1999.  In fiscal  1998,  the Company
provided an additional $38.0 million for doubtful bankrupt accounts. The Company
also provided for increased write-offs of approximately $36.3 million related to
a more critical evaluation of accounts for write-off in fiscal 1998 and to cover
the impact of  transferring  the  servicing  of  accounts  from stores that were
designated to close. In addition,  the Company  provided $15.0 million in fiscal
1998 for an increase in estimated  losses  under the  recourse  provision of the
Heilig-Meyers   private   label   credit  card  program  that  was  planned  for
reorganization.  Excluding  the charges  described  above,  the  decrease in the
provision as a percentage of sales from fiscal 1997 to fiscal 1998 resulted from
an  increase  in  sales  in  the  Rhodes,  RoomStore  and  Mattress  Discounters
divisions, which utilized third party credit and, therefore, do not incur credit
losses.
     The volume of accounts  declaring  bankruptcy  was $35.3  million in fiscal
1999 as compared to the prior two years of $34.4 million and $30.6 million.
     Write-offs and  repossession  losses for the on-balance sheet portfolio for
fiscal years 1999,  1998 and 1997 were $68.8  million,  $106.0 million and $70.4
million,  respectively.  Of these amounts, $4.3 million,  $21.2 million and $6.9
million were for purchased accounts.  Management believes that the allowance for
doubtful accounts at February 28, 1999, is adequate.
     The Profit  Improvement  Plan  implemented  in fiscal  1998 has  positively
impacted the portfolios credit loss performance.  The stores that were closed in
the past two years  included  many of the poorest  performers  related to credit
losses.  Management  believes the  elimination  of these stores will continue to
positively  impact  credit  losses going  forward.  The Company is continuing to
fully implement risk-based scoring models to provide local store management with
better tools in making credit decisions.

Provision for Income Taxes
     The income  tax  benefit  for  fiscal  1999 was  calculated  by  applying a
percentage  of 35.5%  compared to 34.7% in fiscal  1998.  The income tax rate in
fiscal 1997 was 35.1%.  The lower rate for fiscal  1998  compared to fiscal 1999
and fiscal 1997 was primarily due to the loss incurred during 1998. Overall, the
income  tax rate has  increased  from the  fiscal  1997 level as a result of the
carryover tax attributes of acquired assets and liabilities.


                                       22
<PAGE>

LIQUIDITY  AND CAPITAL  RESOURCES

     The Company  increased its cash position  $18.5 million to $67.3 million at
February  28, 1999 from $48.8  million at  February  28,  1998,  which was $33.8
million higher than the $15.0 million position at February 28, 1997.
     Net cash inflow from  operating  activities  during  fiscal 1999 was $194.7
million, compared to an outflow of $22.8 million in fiscal 1998. The Company has
continued  to slow the  expansion  of its  store  base,  which has  resulted  in
improved cash flows  provided by operating  activities.  Additionally,  proceeds
from the sales of interests in the  Company's  installment  accounts  receivable
through the asset securitization program provided cash inflows of $159.3 million
in fiscal 1999  compared to $60.0 million in fiscal 1998.  Absent  proceeds from
securitizations,  the Company  traditionally  produces  minimal or negative cash
flow  from  operating  activities  because  it  extends  in-house  credit in its
Heilig-Meyers   stores  and  certain  RoomStore  stores.   During  fiscal  1999,
installment  accounts receivable  increased at a slower rate than the prior year
period primarily due to the closing of certain  Heilig-Meyers stores pursuant to
the Profit Improvement Plan. During fiscal 1999, inventory decreased compared to
an increase in the prior year period.  The  variation in the change in inventory
between  years is primarily  the result of the closing of certain  Heilig-Meyers
stores pursuant to the Profit  Improvement Plan, prior year purchases related to
newly acquired stores and generally lower inventory levels compared to the prior
year across all divisions.
     Investing  activities  produced negative cash flows of $87.1 million during
the twelve  months ended  February 28, 1999  compared to negative  cash flows of
$106.5  million in the prior year period.  The  decrease in negative  cash flows
from   investing   activities   resulted  from  a  decrease  in  cash  used  for
acquisitions.  Pursuant to the Profit  Improvement  Plan,  management  has taken
steps to slow the growth of the capital  intensive  Heilig-Meyers  division  and
lower overall spending on capital projects.  Additions to property and equipment
during fiscal 1999 include the acquisition of properties and equipment  totaling
$46.9 million that were  previously  leased under  operating  lease  agreements.
During the prior year period cash used for  additions to property and  equipment
for  fiscal  1998  resulted  from  the  opening  of 36 new  Heilig-Meyers  store
locations  and  related  support  facilities  as  well  as  the  remodeling  and
improvement  of existing  and  acquired  locations.  Capital  expenditures  will
continue to be financed by cash flows from  operations  and external  sources of
funds.
     Financing  activities  produced negative cash flows of $89.1 million during
the twelve months ended February 28, 1999 compared to a $163.1 million  positive
cash  flow in the prior  year  period.  The  negative  cash flow from  financing
activities  in the  current  year is due to the  decrease  in notes  payable and
payments  of  long-term  debt.  In June 1997,  the  Company  and a  wholly-owned
subsidiary filed a joint Registration  Statement on Form S-3 with the Securities
and Exchange  Commission  relating to up to $400.0 million  aggregate  principal
amount of  securities.  There were no  issuances  of debt  pursuant to the joint
Registration  Statement  during the twelve months ended February 28, 1999. As of
February 28, 1999, long-term notes payable with an aggregate principal amount of
$175.0 million have been issued to the public under this Registration Statement.
As of February  28,  1999,  the Company had a $400.0  million  revolving  credit
facility in place,  which expires in July 2000. This facility includes ten banks
and had $210.0 million  outstanding and $190.0 million unused as of February 28,
1999.  Subsequent  to February  28,  1999,  this  facility was reduced to $298.1
million.  During the year, the Company had additional lines of credit with banks
that totaled $60.0  million.  These lines of credit were  eliminated  during the
fourth quarter of fiscal 1999.
     As a result of losses  incurred  during  fiscal  years  1999 and 1998,  the
Company  obtained  amendments  to its bank debt  agreements in order to maintain
covenant  compliance.  The most  recent  amendment  includes a revised  covenant
package and a provision whereby the revolving credit facility commitment will be
reduced,  on a dollar for dollar basis, with proceeds from asset sales until the
commitment  is reduced to $200.0  million.  In  addition,  current  senior  note
maturities of $95.5 million were extended and become payable in September  1999.
The  Company  expects to repay these  notes with the  proceeds  from the sale of
assets or other financing activities.
     Total debt as a  percentage  of debt and equity was 60.4% at  February  28,
1999,  compared to 62.1% at February 28,  1998.  The decrease in total debt as a
percentage  of debt  and  equity  is  primarily  the  result  of the use of cash
generated from operating  activities  including  securitizations to reduce notes
payable  outstanding.  The current ratio was 1.5X at February 28, 1999, compared
to 1.8X at February 28, 1998.  The decrease in the current  ratio from  February
28, 1998 to February 28, 1999 is primarily attributed to the reclassification of
an additional $145.1 million from long-term notes payable to the current portion
as a result of the maturity of these amounts within the next twelve months.


                                       23
<PAGE>

OTHER INFORMATION

Year 2000 Issue
     The Year 2000 issue arises  because many  computer  programs use two digits
rather than four to define the applicable year. Using two digits could result in
system failure or  miscalculations  that cause  disruptions  of  operations.  In
addition to computer  systems,  any  equipment  with  embedded  technology  that
involves date sensitive functions is at risk if two digits have been used rather
than four.
     During  fiscal  year 1997,  management  established  a team to oversee  the
Company's  Year 2000 date  conversion  project.  The  project is composed of the
following stages: 1) assessment of the problem, 2) prioritization of systems, 3)
remediation  activities and 4) compliance  testing.  A plan of corrective action
using both internal and external resources to enhance or replace the systems for
Year  2000  compliance  has been  implemented.  Internal  resources  consist  of
permanent employees of the Company's  Information  Systems  department,  whereas
external  resources  are  composed of contract  programming  personnel  that are
directed  by the  Company's  management.  The team has  continued  to assess the
systems of  subsidiaries as the Company has expanded.  Management  completed the
remediation  stage for the  critical  systems  of the  Heilig-Meyers  operations
during fiscal year 1999.  Completion of remediation  for all other  subsidiaries
critical  systems is  expected in the second  quarter of fiscal  year 2000.  The
testing stage for critical  systems within the entire Company is planned for the
first and second  quarters  of fiscal  year 2000.  The  Company is in the middle
stage of inventorying and making an assessment of its non-information technology
systems  (such as telephone  and alarm  systems).  Managers of such systems have
been  instructed  to contact the  appropriate  third party  vendors to determine
their Year 2000 compliance.
     Since the  project's  beginning  in fiscal  1997,  the Company has incurred
approximately  $1.2 million in expenses in updating its  management  information
system to alleviate potential Year 2000 problems.  These expenditures  represent
personnel  costs related to software  remediation of major impact  systems.  The
Company had previously  initiated a hardware upgrade plan for desktop  computers
that was  independent  of the Year 2000 issue,  and,  therefore,  most  hardware
upgrades were completed under this plan. The remaining expenditures are expected
to be approximately $1.69 million, which will be expensed as incurred.  Expected
future expenditures can be broken down as follows:

(Amounts in thousands)
Task:
Hardware Remediation               $ 700       42%
Internal Personnel Resources         640       38%
Software Upgrades-Remediation/
     Auditing/Testing                350       20%
                                  ----------------
                Total             $1,690      100%
                                  ================

     The  remaining  cost of the  Company's  Year 2000  project and the dates on
which the Company plans to complete the Year 2000  compliance  program are based
on  managements   current  estimates,   which  are  derived  utilizing  numerous
assumptions.  Such  assumptions  include,  but are not limited to, the continued
availability of certain resources,  the readiness of third-parties through their
own remediation  plans, the absence of costs associated with  implementation  of
any  contingency  plan and the lack of  acquisitions  by the  Company  requiring
additional  remediation efforts.  These assumptions are inherently uncertain and
actual events could differ significantly from those anticipated.
     The team is  communicating  with other  companies,  on which the  Company's
systems rely and is planning to obtain  compliance  letters from these entities.
There can be no assurance,  however,  that the systems of these other  companies
will be  converted  in a timely  manner,  or that any such failure to convert by
another company would not have an adverse effect on the Company's systems.
     Management  believes  the Year  2000  compliance  issue is being  addressed
properly by the Company to prevent any material adverse operational or financial
impacts. However, if such enhancements are not completed in a timely manner, the
Year 2000  issue may have a material  adverse  impact on the  operations  of the
Company.  The Company is currently  assessing the  consequences of its Year 2000
project not being  completed  on schedule or its  remediation  efforts not being
successful.  Management is developing  contingency plans to mitigate the effects
of problems experienced by the Company, key vendors or service providers related
to the Year 2000.  Management  is ranking  suppliers  based on how critical each
supplier  is  believed  to  be to  the  Company's  operations.  The  Company  is
requesting a copy of the Year 2000 project plan under which these  suppliers are
operating.  The Company's  Year 2000 project team will review these plans.  If a
supplier is deemed to be critical and has a project plan that does not meet the


                                       24
<PAGE>

Company's  expectations  for  completion,  the Company  will  examine all of the
circumstances and develop a contingency plan.  Contingency plans may include the
identification  and use of an alternate  supplier of the product or service that
is Year 2000  compliant or the purchase of  additional  levels of inventory as a
precaution based on the Company's expected needs. Management expects to complete
its Year 2000 contingency planning during the second quarter of fiscal 2000.

FORWARD-LOOKING STATEMENTS

     Certain  statements  included  in  this  Annual  Report  are not  based  on
historical facts, but are  forward-looking  statements.  These statements can be
identified  by the  use  of  forward-looking  terminology  such  as  "believes,"
"expects,"  "may," "will," "should," or "anticipates" or the negative thereof or
other  variations  thereon  or  comparable  terminology,  or by  discussions  of
strategy. See, e.g., "Managements Discussion and Analysis of Financial Condition
and Results of Operations," "Business" and "Legal Proceedings." These statements
reflect the Company's reasonable judgments with respect to future events and are
subject to risks and  uncertainties  that could cause  actual  results to differ
materially  from  those  in  the  forward-looking  statements.  Such  risks  and
uncertainties include, but are not limited to, the customers  willingness,  need
and  financial  ability to purchase  home  furnishings  and related  items,  the
Company's ability to extend credit to its customers, the costs and effectiveness
of promotional  activities  and format  realignments,  the Company's  ability to
realize cost savings and other synergies from recent acquisitions, the Company's
ability to complete  asset sales at  reasonable  valuations,  the ability of the
investment group acquiring Mattress Discounters to obtain satisfactory financing
for their purchase of  substantially  all of the Company's  interest in Mattress
Discounters,  as well as the Company's  access to, and cost of,  capital.  Other
factors  such as changes in tax laws,  consumer  credit and  bankruptcy  trends,
recessionary or expansive  trends in the Company's  markets,  the ability of the
Company,  its key vendors and service providers to effectively  correct the Year
2000  issue,  and  inflation  rates and  regulations  and laws which  affect the
Company's  ability to do  business in its markets may also impact the outcome of
forward-looking statements.


                                       25
<PAGE>

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The following  table provides  information  about the Company's  derivative
financial  instruments  and other  financial  instruments  that are sensitive to
changes in interest rates.  The Company's policy is to manage interest rate risk
through the strategic use of fixed rate debt,  variable rate debt,  and interest
rate derivatives.  As a means of reducing the risk of  credit-related  losses on
interest  rate  derivatives,  the Company as a matter of policy only enters into
transactions with counterparties rates "A" or higher.  Weighted average variable
rates are based on rates in effect at the most recent  reset date.  For interest
rate  derivatives,  the table  presents  notional  amounts and weighted  average
interest rates by contractual  maturity  dates.  The fair value of the Company's
long-term,  fixed  rate  debt is based on the  discounted  cash flow of the debt
using current rates and  remaining  maturities.  The fair value of interest rate
derivative financial  instruments is the estimated amount that the Company would
receive or pay upon termination of the agreements,  based on estimates  obtained
from  counterparties.  The  carrying  amounts of notes  payable  and  long-term,
variable  rate debt  approximate  fair value.  All items  described in the table
below are non-trading.

<TABLE>
<S>                         <C>        <C>        <C>        <C>        <C>       <C>          <C>         <C>
                                                                                                           Fair Value
(Amounts in thousands)          2000       2001       2002       2003       2004  Thereafter      Total    at 2/28/99
----------------------------------------------------------------------------------------------------------------------
Liabilities:
Notes payable               $210,000         --         --         --         --          --   $210,000      $210,000
 Average interest rate           5.7%        --         --         --         --          --        5.7%           --
Long-term debt
 Fixed rate                 $130,000         --   $160,000         --   $200,000    $175,000   $655,000      $571,861
 Average interest rate         10.04%        --       9.12%        --       7.88%       7.60%      8.59%           --
 Variable rate              $ 35,745   $    204   $     89   $     82   $     82    $    123   $ 36,325      $    501
 Average interest rate           7.2%       7.4%       7.1%       7.2%       6.7%        6.5%       7.2%           --
Interest Rate Derivative
Financial Instruments
Relating to Debt:
 Pay fixed/receive variable $ 74,000         --         --         --         --          --   $ 74,000      $   (824)
 Average pay rate                7.6%        --         --         --         --          --         --            --
 Average receive rate            5.2%        --         --         --         --          --         --            --
Interest Rate Derivative
Financial Instruments
Relating to Asset
Securitizations:
 Pay fixed/receive variable $145,000   $100,000         --         --         --          --   $245,000      $ (2,270)
 Average pay rate                6.9%       7.0%        --         --         --          --         --            --
 Average receive rate            5.0%       4.9%        --         --         --          --         --            --

</TABLE>


                                       26
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS and SUPPLEMENTARY DATA

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

Fiscal Year                             1999              1998             1997
                                       ------            ------           ------
Revenues:
   Sales                           $2,431,152        $2,160,223       $1,342,208
   Other income                       295,206           309,513          250,911
                                   ----------        ----------       ----------
        Total revenues              2,726,358         2,469,736        1,593,119

Costs and expenses:
   Costs of sales                   1,637,901         1,451,560          876,142
   Selling, general and
     administrative                   907,913           828,105          526,369
   Interest                            75,676            67,283           47,800
   Provision for doubtful accounts    107,916           181,645           80,908
   Store closing and other charges         --            25,530               --
                                   ----------        ----------       ----------
        Total costs and expenses    2,729,406         2,554,123        1,531,219
                                   ----------        ----------       ----------

Earnings (loss) before provision
   (benefit) for income taxes          (3,048)          (84,387)          61,900
Provision (benefit) for income taxes   (1,081)          (29,244)          21,715
                                   -----------       -----------      ----------
Net earnings (loss)                $   (1,967)       $  (55,143)      $   40,185
                                   ===========       ===========      ==========

Net earnings (loss) per share:
   Basic                           $    (0.03)       $    (0.98)      $     0.81
                                   ===========       ===========      ==========
   Diluted                         $    (0.03)       $    (0.98)      $     0.80
                                   ===========       ===========      ==========

Weighted average common shares outstanding:

   Basic                               59,331            56,312           49,360
   Diluted                             59,331            56,312           50,146
                                   ==========         =========       ==========

Cash dividends per share of common
     stock                         $     0.28        $     0.28       $     0.28
                                   ==========        ==========       ==========


See notes to consolidated financial statements.


                                       27
<PAGE>


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

February 28,                                              1999             1998
                                                        ------           ------
Assets:
Current assets:
     Cash                                            $   67,254       $   48,779
     Accounts receivable, net                           254,282          392,765
     Retained interest in securitized
          receivables at fair value                     190,970          182,158
     Inventories                                        493,463          542,868
     Other current assets                               124,305          126,978
                                                     ----------       ----------
          Total current assets                        1,130,274        1,293,548

Property and equipment, net                             400,686          398,151
Other assets                                             72,632           55,321
Excess costs over net assets acquired, net              344,160          350,493
                                                     ----------       ----------
                                                     $1,947,752       $2,097,513
                                                     ==========       ==========
Liabilities And Stockholders' Equity:
Current liabilities:
     Notes payable                                   $  210,000       $  260,000
     Long-term debt due within one year                 167,486           22,365
     Accounts payable                                   193,799          203,048
     Accrued expenses                                   178,656          216,738
                                                     ----------       ----------
          Total current liabilities                     749,941          702,151

Long-term debt                                          547,344          715,271
Deferred income taxes                                    45,365           70,937

Stockholders' equity:
     Preferred stock, $10 par value                          --               --
     Common stock, $2 par value (250,000
          shares authorized; 59,861 and
          58,808 shares issued and
          outstanding, respectively)                    119,722          117,616
     Capital in excess of par value                     242,346          230,580
     Unrealized gain on investments                       5,228            4,548
     Retained earnings                                  237,806          256,410
                                                     ----------       ----------
          Total stockholders' equity                    605,102          609,154
                                                     ----------       ----------
                                                     $1,947,752       $2,097,513
                                                     ==========       ==========


See notes to consolidated financial statements.


                                       28
<PAGE>
<TABLE>
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                             (Amounts in thousands)
<S>              <C>            <C>       <C>         <C>            <C>      <C>
                   Number of                            Accumulated
                      Common              Capital in          Other                   Total
                      Shares      Common   Excess of  Comprehensive  Retained Stockholders'
                 Outstanding       Stock   Par Value         Income  Earnings        Equity
-------------------------------------------------------------------------------------------

Balances at
 February 29, 1996    48,571    $ 97,143    $120,769      $    --    $301,071     $518,983
 Net earnings             --          --          --           --      40,185       40,185
 Unrealized gain
  on investments          --          --          --       10,797          --       10,797
                                                                                  --------
    Comprehensive income                                                            50,982
 Cash dividends           --          --          --           --     (13,612)     (13,612)
 Common stock issued
  for acquisitions     5,791      11,582      73,842           --          --       85,424
 Exercise of stock
  options, net            52         103         741           --          --          844
                     ----------------------------------------------------------------------

Balances at
 February 28, 1997    54,414     108,828     195,352       10,797     327,644      642,621
  Net loss                --          --          --           --     (55,143)     (55,143)
  Change in
   unrealized gain
   on investments         --          --          --       (6,249)         --       (6,249)
                                                                                  --------
     Comprehensive loss                                                            (61,392)
  Cash dividends          --          --          --           --     (16,249)     (16,249)
  Common stock issued
   for acquisitions    4,279       8,558      34,578           --          --       43,136
  Exercise of stock
   options, net          115         230         650           --          --          880
  Other                   --          --          --           --         158          158
                     ----------------------------------------------------------------------

Balances at
 February 28, 1998    58,808     117,616     230,580        4,548     256,410      609,154
 Net loss                 --          --          --           --      (1,967)      (1,967)
 Change in
  unrealized gain
  on investments          --          --          --          680          --          680
                                                                                  --------
    Comprehensive loss                                                              (1,287)
 Cash dividends           --          --          --           --     (16,637)     (16,637)
 Common stock issued
  for acquisitions       931       1,862      11,336           --          --       13,198
 Exercise of stock
  options, net           122         244         430           --          --          674
                     ----------------------------------------------------------------------

Balances at
 February 28, 1999    59,861    $119,722    $242,346      $ 5,228    $237,806     $605,102
                     ======================================================================


See notes to consolidated financial statements.

</TABLE>

                                       29
<PAGE>

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)

Fiscal Year                                1999            1998            1997
                                       -----------------------------------------
Cash flows from operating activities:
 Net earnings (loss)                  $  (1,967)      $ (55,143)      $  40,185

  Adjustments  to reconcile net earnings  (loss) to net cash provided  (used) by
  operating activities:
    Depreciation and amortization        58,840          54,043          33,874
    Provision for doubtful accounts     107,914         181,645          80,908
    Store closing and other charges
     provision                               --          25,530              --
    Store closing and other charges
     payments                           (10,013)         (1,452)             --
    Other, net                           (2,525)          2,616             588
    Change in operating assets and
     liabilities, net of the effects
     of acquisitions:
      Accounts receivable                25,342        (195,141)         (4,331)
      Sale of accounts receivable            --              --          60,500
      Retained interest in securitized
       receivables at cost               (7,784)         50,533        (198,786)
      Inventories                        51,601         (77,115)        (35,154)
      Other current assets               10,050         (65,218)        (11,749)
      Accounts payable                   (9,819)         14,788          18,017
      Accrued expenses                  (26,958)         42,106          12,948
                                     -------------------------------------------
       Net cash provided (used)
        by operating activities         194,681         (22,808)         (3,000)
                                     -------------------------------------------

Cash flows from investing activities:
 Acquisitions, net of cash acquired          --         (40,186)        (58,842)
 Additions to property and equipment    (87,505)        (70,921)        (84,137)
 Disposals of property and equipment     22,797          15,107           3,423
 Miscellaneous investments              (22,416)        (10,467)         (6,907)
                                     -------------------------------------------
       Net cash used by
        investing activities            (87,124)       (106,467)       (146,463)
                                     -------------------------------------------

Cash flows from financing activities:
 Issuance of stock                          697             912             683
 Proceeds from long-term debt                --         174,767         299,444
 Increase (decrease) in notes
  payable, net                          (50,000)        104,000         (34,000)
 Payments of long-term debt             (23,142)       (100,335)       (104,110)
 Dividends paid                         (16,637)        (16,249)        (13,612)
                                     -------------------------------------------
       Net cash provided (used)
        by financing activities         (89,082)        163,095         148,405
                                     -------------------------------------------

Net increase (decrease) in cash          18,475          33,820          (1,058)
Cash at beginning of year                48,779          14,959          16,017
                                     -------------------------------------------
Cash at end of year                   $  67,254       $  48,779       $  14,959
                                     ===========================================


See notes to consolidated financial statements.


                                       30
<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

Nature of Operations

     Heilig-Meyers  Company and  subsidiaries  (the  "Company") is a retailer of
home  furnishings  that  operated  1,249 stores as of February 28, 1999 of which
1,217 are located in 35 states and Washington, D.C. and 32 are located in Puerto
Rico.  The Company has four primary retail  formats  operating as  Heilig-Meyers
Furniture  ("Heilig-Meyers"),  Rhodes  Furniture,  The  RoomStore  and  Mattress
Discounters.   The  Company's  operating  strategy  includes  offering  a  broad
selection  of home  furnishings  and  bedding.  The Company  offers  third party
private label credit card programs to provide  financing to its  customers.  The
Heilig-Meyers  format also offers consumer  electronics,  appliances,  and floor
coverings as well as an in-house installment credit program.

Principles of Consolidation

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

Fiscal Year

     Fiscal years are designated in the consolidated financial statements by the
calendar  year in which the fiscal  year ends.  Accordingly,  results for fiscal
years 1999, 1998 and 1997 represent the years ended February 28, 1999,  February
28, 1998 and February 28, 1997, respectively. Certain amounts in the fiscal 1997
consolidated  financial  statements  have been  reclassified  to  conform to the
fiscal 1999 and 1998 presentation.

Segment Information

     Effective December 1, 1998, the Company adopted the provisions of Statement
of Financial  Accounting  Standards No. 131,  "Disclosures  about Segments of an
Enterprise  and Related  Information."  The Company has  significant  operations
aligned in four operating  formats:  Heilig-Meyers,  The  RoomStore,  Rhodes and
Mattress  Discounters  divisions.  Accordingly,  data with  respect to  industry
segments has been reported separately herein.

Use of Estimates in the Preparation of Financial Statements

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

Accounts Receivable

     Accounts  receivable  arise  primarily from  closed-end  installment  sales
contracts  used by customers to finance  purchases of  merchandise  and services
offered by the Company.  These contracts are at fixed rates and terms with level
payments of principal and interest. In accordance with trade practice,  payments
due after one year are  included  in current  assets.  Provisions  for  doubtful
accounts are made to maintain an adequate allowance to cover anticipated losses.
Credit operations are generally  maintained at each store to evaluate the credit
worthiness of its customers and to manage the  collection  process.  The Company
reviews customer accounts on an individual basis in reaching decisions regarding
methods of collection or write-off of doubtful accounts.  Generally, accounts on
which  payments  have  not been  received  for six  months  are  charged  to the
allowance for doubtful accounts. The Company generally requires down payments on
credit sales and offers credit insurance to its customers,  both of which lessen
credit risk.
     The Company also offers certain of its customers  revolving  credit through
private label credit facilities with various commercial banks. Where applicable,
provisions for recourse  obligations are made to maintain an adequate  allowance
to cover anticipated losses.
     The Company  operates its 1,249 stores  throughout  35 states,  Washington,
D.C., and Puerto Rico and, therefore,  is not dependent on any given industry or
business for its customer base and has no  significant  concentration  of credit
risk.


                                       31
<PAGE>

Retained Interest in Securitized Receivables

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

Inventories

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

Property and Equipment

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

Excess Costs Over Net Assets Acquired

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

Stockholders' Equity

     The  Company  is  authorized  to issue  250,000,000  shares of $2 par value
common  stock.  At  February  28,  1999 and  1998,  there  were  59,861,000  and
58,808,000 shares outstanding,  respectively. The Company is authorized to issue
3,000,000 shares of $10 par value preferred stock. To date, none of these shares
have been issued.
     On February  10,  1998 the Board of  Directors  of the  Company  declared a
dividend  distribution of one preferred share purchase right (a "Right") on each
outstanding  share of Common Stock pursuant to a Shareholders'  Rights Plan. The
action  replaced  a  similar  plan  expiring  in fiscal  1998.  The  Rights  are
exercisable  only after the attainment of, or the commencement of a tender offer
to attain, a specified  ownership  interest in the Company by a person or group.
When exercisable,  each Right would entitle its holder to purchase one-hundredth
of a newly issued share of Cumulative  Participating  Preferred Stock, Series A,
par value $10.00 per share (the "Series A Preferred  Stock") at an initial price
of $110, subject to adjustment.  A total of 750,000 shares of Series A Preferred
Stock have been  reserved.  Each share of Series A Preferred  Stock will entitle
the  holder  to 100 votes and has an  aggregate  dividend  rate of 100 times the
amount paid to holders of the Common Stock.  Upon  occurrence of certain events,
each holder of a Right (other than those which are void pursuant to the terms of
the plan) will become entitled to purchase shares of Common Stock having a value
of twice the Right's then current  exercise  price in lieu of Series A Preferred
Stock.

                                       32
<PAGE>

New  Accounting  Standards

     During  fiscal  year 1999,  the  Company  adopted  Statement  of  Financial
Accounting  Standards (SFAS) No. 130,  "Reporting  Comprehensive  Income," which
requires  presentation  of total  nonowner  changes  in equity  for all  periods
displayed.  This  information  is displayed in the  consolidated  statements  of
stockholders' equity.
     During   fiscal  year  1999,   the  Company  also  adopted  SFAS  No.  131,
"Disclosures  about  Segments of an Enterprise and Related  Information,"  which
redefines  how  operating  segments are  determined  and requires  disclosure of
certain  financial  and  descriptive  information  about a  company's  operating
segments.   The  adoption  of  this  statement  did  not  affect  the  Company's
consolidated  financial  position,  results of operations or cash flows,  and is
limited to the form and content of its disclosures. This information is provided
in Note 15.
     The  Company  also  adopted  SFAS No.  132,  "Employers  Disclosures  about
Pensions and Other Postretirement  Benefits," during fiscal 1999. This statement
changes  disclosure  requirements  related to pension  and other  postretirement
benefit  obligations.  Adoption of this  statement  did not impact the Company's
consolidated financial position, results of operations or cash flows. The effect
of the new statement is limited to the form and content of disclosures.
     In June 1998 the FASB  issued  SFAS No.  133,  "Accounting  for  Derivative
Instruments  and  Hedging  Activities,"  which is  effective  for  fiscal  years
beginning after June 15, 1999. The new statement  requires that every derivative
instrument   (including  certain  derivative   instruments   embedded  in  other
contracts)  be  recorded in the  balance  sheet as either an asset or  liability
measured  at  its  fair  value.  SFAS  No.  133  requires  the  changes  in  the
derivative's  fair value to be recognized  currently in earnings unless specific
hedge accounting criteria are met. The Company has not yet determined the effect
this statement will have on the  consolidated  financial  position or results of
operations of the Company.
     In March  1998  the  AICPA  issued  Statement  of  Position  ("SOP")  98-1,
"Accounting  for the  Costs of  Computer  Software  Developed  or  Obtained  for
Internal Use," which is effective for fiscal years  beginning after December 15,
1998. SOP 98-1 requires  certain software  development  costs to be capitalized.
Generally,  once the capitalization  criteria of the SOP have been met, external
direct costs of materials and services used in the  development of  internal-use
software,  payroll and payroll related costs for employees  directly involved in
the  development  of  internal-use  software,  and interest  costs incurred when
developing software for internal use are to be capitalized.  Management does not
expect  the  adoption  of the SOP to have a  material  effect  on the  Company's
consolidated financial position, results of operations or cash flows.
     In April  1998 the  AICPA  issued  SOP  98-5,  "Reporting  on the  Costs of
Start-Up  Activities,"  which is  effective  for fiscal  years  beginning  after
December  15,  1998.  SOP  98-5  requires  costs  of  start-up   activities  and
organization  costs to be expensed as incurred.  Management  does not expect the
adoption  of the SOP to have a  material  effect on the  Company's  consolidated
financial position, results of operations or cash flows.

Revenues and Costs of Sales

     Sales revenue is generally  recognized upon  determination that merchandise
is in stock and  establishment  of a delivery  date,  and, if  applicable,  upon
approval of customer credit.  Sales are presented net of returns.  The effect of
sales returns prior to shipment date has been immaterial.  Other income consists
primarily of finance and other  income  earned on accounts  receivable.  Finance
charges were $231,369,000,  $231,612,000,  and $209,491,000  during fiscal 1999,
1998 and 1997,  respectively.  Finance  charges  are  included  in revenues on a
monthly  basis as earned.  The Company  sells  substantially  all of its service
policies to third parties and  recognizes  service policy income on these at the
time of sale.  Revenue from service  policies  and extended  warranty  contracts
retained  by the  Company  are  deferred  and  recognized  over  the life of the
contract period. Costs of sales includes occupancy and delivery expenses.

Earnings Per Share

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

                                       33
<PAGE>

Interest Rate Swap Agreements

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


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

     During  fiscal  years  1999 and 1998,  the  Company  made the  acquisitions
described below. All acquisitions,  except for the Bedding Experts  transaction,
have been  accounted for by the purchase  method,  and  accordingly,  operations
subsequent  to the  respective  acquisition  dates  have  been  included  in the
accompanying  financial statements.  Pro forma results of operations for certain
acquisitions  have not been presented  because the effects were not significant.
Other acquisitions completed during fiscal years 1999 and 1998 are not discussed
below because they are not  considered  material to the  consolidated  financial
statements.
     On  September  1,  1998  the  Company  acquired  substantially  all  of the
operating assets and liabilities of Guardian Protection Products ("Guardian") in
a transaction in which the  shareholder of Guardian  received  666,667 shares of
the  Company's  common stock.  Unless the  Company's  common stock trades for at
least ten  consecutive  trading  days during the period from  September 1, 1998,
through  August 31,  1999,  at a per share  price of $15.00 or more,  additional
shares will be issued so that the  acquisition  price equals $10 million divided
by the average  closing price per share for the  Company's  common stock for the
ten  trading  days ending on August 31,  1999,  or such  earlier  date as may be
selected by the Company.  The Company has also agreed to issue additional shares
to the former shareholder of Guardian in the event that certain earnings targets
are met over the next two years,  however the aggregate  purchase price will not
exceed $14.5  million.  The  unamortized  excess of purchase price over the fair
market value of the net assets  acquired from Guardian,  as of February 28, 1999
was $9,575,000.
     During July 1997, the Company acquired all of the outstanding capital stock
of  Mattress  Discounters  Corporation  and  a  related  corporation  ("Mattress
Discounters")  with 169 stores in 10 states and  Washington,  D.C.  The  initial
purchase  price was valued at  approximately  $42,900,000.  The  Company  issued
2,269,839  shares of its common stock at the time of closing and 264,550  shares
of  common  stock  twelve  months  after  the  time  of  closing  to the  former
shareholders of Mattress Discounters, in accordance with the purchase agreement,
based on the achievement by the acquired stores of certain earnings targets. The
unamortized  excess of  purchase  price  over the fair  market  value of the net
assets acquired,  as of February 28, 1999 was  $58,136,000.  Adjustments made to
the preliminary purchase price allocation were not material.
     During January 1998, the Company  acquired all of the  outstanding  capital
stock of Bedding  Experts,  Inc.  with 54 stores in  Chicago,  Illinois  and the
surrounding area. The Company issued 2,019,182 shares of its common stock in the
transaction   valued  at   $25,000,000.   The  transaction  was  recorded  as  a
pooling-of-interests, however prior periods have not been restated as the effect
is not considered material to the consolidated financial statements.
     During  January 1998,  the Company  acquired  certain  assets  related to 5
stores,  3 of which will  remain in  operation,  of John M.  Smyth's  Homemakers
("Homemakers")  in Chicago,  Illinois.  The  purchase  price of these assets was
approximately  $11,959,000.  The  unamortized  excess of purchase price over the
fair market value of the net assets  acquired from Homemakers as of February 28,
1999 was not significant.
     During  February  1998, the Company  acquired  certain assets related to 24
stores of Reliable,  Inc. of  Columbia,  Maryland.  The purchase  price of these
assets was approximately  $18,164,000.  The unamortized excess of purchase price
over the fair market value of the net assets acquired from Reliable,  Inc. as of
February 28, 1999 was $4,939,000.
     The Company  amortizes the excess of purchase  price over fair market value
of net assets  acquired on a  straight-line  basis over periods not exceeding 40
years.  The unamortized  excess of purchase price over the fair value of the net
assets acquired for all acquisitions was $344,160,000 and  $350,493,000,  net of
accumulated  amortization of $38,248,000 and  $29,050,000,  at February 28, 1999
and 1998, respectively.

                                       34
<PAGE>

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

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

<TABLE>
<S>                        <C>     <C>          <C>          <C>          <C>
                                         Amount    Remaining       Amount    Remaining
                                       Utilized      Reserve     Utilized      Reserve
                                        through        as of      through        as of
                           Pre-Tax February 28, February 28, February 28, February 28,
(Amounts in thousands)      Charge         1998         1998         1999         1999
                          ------------------------------------------------------------

Severance                  $ 8,100       $1,452      $ 6,648      $ 5,150       $1,498
Lease & facility exit cost   7,680           --        7,680        4,386        3,294
Fixed asset impairment       7,250        2,117        5,133        5,133           --
Goodwill impairment          2,500        2,500           --           --           --
                           -----------------------------------------------------------
Total                      $25,530       $6,069      $19,461      $14,669       $4,792
                           ===========================================================
</TABLE>

     The Company completed the store closings,  office  downsizing,  and private
label credit card program reorganization associated with this plan during fiscal
1999.  The  substantial  majority of the  remaining  reserves are expected to be
utilized  during  fiscal  2000 with some  amounts  related  to  long-term  lease
obligations extending beyond fiscal 2000.
     Operations of stores closed during fiscal 1999 generated a net loss of $5.8
million on sales of $4.8 million.  These amounts are reported in the fiscal 1999
statement of operations.
     Charges  associated  with actions  taken during fiscal 1999 to close stores
and related support facilities totaled $2.1 million.  Because these charges were
not associated with a comprehensive  restructuring plan, this amount is reported
as selling,  general and administrative  expense in the fiscal 1999 statement of
operations.


(4)   Accounts Receivable and Retained Interest in Securitized Receivables
--------------------------------------------------------------------------------

     Accounts receivable are shown net of an allowance for doubtful accounts and
unearned finance income. The allowance for doubtful accounts was $42,745,000 and
$60,306,000  and unearned  finance  income was  $31,775,000  and  $46,980,000 at
February 28, 1999 and 1998,  respectively.  Accounts  receivable having balances
due after one year were  $64,496,000  and  $94,676,000  at February 28, 1999 and
1998, respectively.
     As discussed in Note 1, the Company  transfers a portion of its installment
accounts  receivable  to a Master Trust  ("Trust") in exchange for  certificates
representing  undivided  interests in such  receivables.  Certificates that have
been sold to third parties are as follows:

(Amounts in thousands)                       1999        1998
--------------------------------------------------------------

Series 1997-1
   Senior class floating
    rate certificates                    $100,000    $252,000
Series 1998-1
   Class A 6.125% certificates            307,000     307,000
   Class B 6.35% certificates              61,000      61,000
   Floating rate collateral
      indebtedness interest                32,000      32,000
 Series 1998-2
   Class A floating rate certificates     230,000          --
   Class B floating rate certificates      50,000          --
   Floating rate collateral
      indebtedness interest                31,300          --
                                      ------------------------
                                         $811,300    $652,000
                                      ========================

                                       35
<PAGE>

     The rates in effect on the Series  1997-1  Senior class  certificates  were
5.2% and 6.1% as of February 28, 1999 and 1998,  respectively.  Unless extended,
the commitment  termination  date related to the Series 1997-1  certificates  is
September  30,1999.  The rates in  effect on the  Series  1998-1  floating  rate
Collateral  Indebtedness Interest were 6.3% and 6.5% as of February 28, 1999 and
1998  respectively.  With respect to the Series 1998-1  certificates,  the final
distribution date for the Class A certificates is scheduled to occur in December
2002,  at which  time the Class A  certificate  holders  will  begin to  receive
principal payments.  The final distribution date for the Class B certificates is
scheduled  to occur in  February  2003,  at which  time the Class B  certificate
holders  will  begin  to  receive  principal  payments  provided  that  Class  A
certificates  have been paid in full. The holder of the Collateral  Indebtedness
Interest will receive principal  payments  beginning one month subsequent to the
final principal payment to Class B certificate  holders.  The rates in effect on
the Series  1998-2 Class A floating  rate  certificates,  Class B floating  rate
certificates,  and the floating rate Collateral  Indebtedness  certificates were
5.5%, 5.7% and 6.4%, respectively,  as of February 28, 1999. With respect to the
Series  1998-2  certificates,  the  final  distribution  date  for  the  Class A
certificates is scheduled to occur in August 2001. The final  distribution  date
for the Class B certificates is scheduled to occur in October 2001 provided that
the Class A  certificates  have been paid in full.  The holder of the Collateral
Indebtedness  Interest  will  receive  principal  payments  beginning  one month
subsequent to the final payment to Class B certificate holders.
     The Company,  through a bankruptcy-remote  special purpose entity, retained
the remaining  undivided  interests in the Trust's  receivables.  This remaining
undivided interest is not available to the creditors of the Company. The Company
will continue to service all accounts in the Trust.  No servicing asset resulted
because  contractual  rates are at  estimated  market  rates and are  considered
adequate compensation for servicing. The cost of retained interests are based on
an allocation of the total cost of accounts  securitized in accordance with SFAS
No. 125,  "Accounting  for  Transfers  and  Servicing  of  Financial  Assets and
Extinguishment of Liabilities." Quoted market prices are not available for these
retained  interests.  The fair value of the  contractually  required  and excess
seller's  interest is based on the present value of future cash flows associated
with the  underlying  receivables.  The fair value of the interest only strip is
based on the  present  value of  estimated  future  cash flows to be received in
excess  of  contractually   specified  servicing  fees  less  estimated  losses,
discounted  at  12%  over  the  estimated   remaining  term  of  the  underlying
receivables.  Retained  interests  are carried at fair value and are  summarized
below:

                                     Unrealized  Unrealized
(Amounts in thousands)         Cost        Gain        Loss    Fair Value
                           ----------------------------------------------
February 28, 1999:
Contractually required
   seller's interest       $112,967     $ 5,163     $   --       $118,130
Excess seller's interest     41,071          --         --         41,071
Interest-only strip          28,500       3,269         --         31,769
                           ----------------------------------------------
                           $182,538     $ 8,432     $   --       $190,970
                           ==============================================
February 28, 1998:
Contractually required
   seller's interest       $110,193     $ 7,242     $   --       $117,435
Excess seller's interest     36,706          --         --         36,706
Interest-only strip          27,925          92         --         28,017
                           ----------------------------------------------
                           $174,824     $ 7,334     $   --       $182,158
                           ==============================================


                                       36
<PAGE>

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

     Property and equipment consists of the following:

                                                 1999        1998
                                             --------------------
                                            (Amounts in thousands)

Land and buildings                           $184,127    $135,857
Fixtures, equipment and vehicles              158,383     150,259
Leasehold improvements                        249,238     254,363
Construction in progress                       14,210      30,998
                                             --------------------
                                              605,958     571,477
Less accumulated depreciation                 205,272     173,326
                                             --------------------
                                             $400,686    $398,151
                                             ====================


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

     The Company is currently in the fourth year of a five-year revolving credit
facility  dated  July  19,  1995.  Comprised  of ten  banks,  the  facility  had
$210,000,000  outstanding  and  $190,000,000  unused as of  February  28,  1999.
Subsequent  to the balance sheet date this facility  which was  $400,000,000  at
February 28, 1999 was reduced to $298,063,000.  Going forward, the facility will
be reduced on a dollar for dollar basis with proceeds from asset sales until the
amount  available  reached $200.0  million.  During fiscal 1999, the Company had
additional lines of credit with banks that totaled  $60,000,000.  These lines of
credit were  eliminated  during the fourth quarter of fiscal 1999. The Company's
maximum  short-term   borrowings  were  $288,500,000   during  fiscal  1999  and
$342,100,000  during fiscal 1998. The average  short-term  debt  outstanding for
fiscal 1999 was  $235,018,000  compared to  $229,213,000  for fiscal  1998.  The
approximate  weighted  average interest rates were 6.2%, 6.1% and 5.8% in fiscal
1999, 1998 and 1997, respectively.
     At  February  28,  1999,  the  Company  had   $210,000,000  of  outstanding
short-term borrowings compared to $260,000,000 at February 28, 1998. The average
interest rate on this debt was approximately 5.7% at February 28, 1999, and 6.2%
and 5.8% at February 28, 1998 and 1997, respectively. There were no compensating
balance requirements.
     Long-term debt consists of the following:

                                                   1999        1998
                                            -----------------------
                             (Amounts in thousands)
Shelf registration issues:
   7.60% unsecured notes due 2007              $175,000    $175,000
   7.88% unsecured notes due 2003               200,000     200,000
   7.40% unsecured notes due 2002               100,000     100,000

Other issues:
   Notes payable to insurance
   companies and banks, maturing
   through 2002, interest ranging
   from 5.74% to 8.99%,unsecured                225,000     245,000

   Notes, collateralizing industrial development revenue bonds, maturing through
   2005, interest ranging from a floating rate of 67% of prime to an 8.50% fixed
   rate 495 906

   Term loans, maturing through
   2007, interest ranging to 9.80%,
   primarily collateralized by deeds
   of trust                                         830       1,026

   Capital lease obligations, maturing
   through 2009, interest ranging
   from 76% of prime to 12.80%                   13,505      15,704
                                               --------------------
                                                714,830     737,636
   Less amounts due within one year             167,486      22,365
                                               --------------------
                                               $547,344    $715,271
                                               ====================

                                       37
<PAGE>

     Principal  payments  are due for the four years after  February 28, 2000 as
follows:  2001,  $1,053,000;  2002,  $160,200,000;  2003,  $209,000;  and  2004,
$200,204,000.  The  aggregate  net  carrying  value of  property  and  equipment
collateralization at February 28, 1999, was $9,267,000.  The Company has on file
a shelf  registration to issue up to $400,000,000 of common stock,  warrants and
debt  securities.  The  $175,000,000  unsecured 7.60% notes due 2007 were issued
under  the  shelf  registration  with the  remaining  $225,000,000  unissued  at
February 28, 1999. During fiscal 1997, the Company issued $200,000,000 unsecured
7.88%  notes due 2003 and  $100,000,000  unsecured  7.40% notes due 2002 under a
previous shelf registration.
     Notes payable to insurance  companies and banks contain certain restrictive
covenants.  Under these  covenants,  the payment of cash dividends is limited to
$74,576,000 plus 75% of net earnings adjusted for dividend payouts subsequent to
February 28, 1999. Other covenants relate to the maintenance of working capital,
pre-tax  earnings  coverage of fixed  charges,  limitations  on total and funded
indebtedness and maintenance of stockholders'  equity. As a result of the losses
incurred during fiscal years 1999 and 1998, the Company  obtained  amendments to
its bank debt agreements in order to maintain covenant compliance.
     Interest  payments  of  $77,743,000,  $65,404,000  and  $46,710,000  net of
capitalized  interest of $1,658,000,  $3,762,000 and $2,360,000 were made during
fiscal 1999, 1998 and 1997, respectively.


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

     The provision (benefit) for income taxes consists of the following:

                              1999        1998        1997
                                 (Amounts in thousands)
                          --------------------------------
Current:
   Federal                $(12,711)   $(21,250)    $ 5,481
   State                    (1,910)     (4,911)      3,006
   Puerto Rico                (740)      2,238       2,160
                          --------------------------------
                           (15,361)    (23,923)     10,647
Deferred:
   Federal                   8,138      (2,178)      7,758
   State                     4,951       ( 573)      1,618
   Puerto Rico               1,191      (2,570)      1,692
                          --------------------------------
                            14,280      (5,321)     11,068
                          --------------------------------
                          $ (1,081)   $(29,244)    $21,715
                          ================================


                                       38
<PAGE>

     The  income  tax  effects  of  temporary  differences  that  gave  rise  to
significant  portions of the net deferred tax  liability as of February 28, 1999
and 1998, consist of the following:

                                         1999         1998
                                    (Amounts in thousands)
                                    ----------------------
Deferred tax assets:
   Allowance for doubtful accounts    $ 20,672    $ 20,613
   Store closing and other charges       7,537      15,521
   Accrued liabilities                  13,318      12,400
   Alternative minimum tax credit
      carryforward                       2,689       7,973
   Federal tax credits                  10,429       6,655
   Net operating loss carryforward      26,539       1,977
   Other                                   806         247
                                    ----------------------
                                        81,990      65,386
                                    ----------------------
Deferred tax liabilities:
   Excess costs over net assets
     acquired                           60,135      46,536
   Accounts receivable                  28,034      20,586
   Depreciation                         13,339      17,520
   Asset securitizations                20,625      17,436
   Inventory                             9,107       9,264
   Deferred revenues                     6,598       8,962
   Costs capitalized on constructed
      assets                             8,322       6,525
   Other                                 6,045       3,580
                                    ----------------------
                                       152,205     130,409
                                    ----------------------
                                      $ 70,215    $ 65,023
                                    ======================
Balance sheet classification:
   Other current assets               $     --    $  5,914
   Other current liabilities            24,850          --
   Deferred income tax liability        45,365      70,937
                                    ----------------------
                                      $ 70,215    $ 65,023
                                    ======================

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

                                    1999        1998        1997
                                ---------------------------------
Statutory federal income
   tax rate                        (35.0)%     (35.0)%      35.0%
State income taxes, net of
   federal income tax benefit       (3.8)       (2.8)        3.7
Tax credits                       (131.8)       (4.9)       (5.3)
Goodwill amortization and
   other, net                      135.1         8.0         1.7
                                ---------------------------------
                                   (35.5)%     (34.7)%      35.1%
                                =================================


                                       39
<PAGE>

     Federal  and state  income  tax  payments  of  $5,762,000,  $8,427,000  and
$18,447,000  were made during  fiscal  1999,  1998 and 1997,  respectively.  The
Company  has  an   alternative   minimum  tax  and  other   federal  tax  credit
carryforwards  of  approximately   $2,690,000  and  $10,429,000,   respectively.
Additionally,  the Company  has a federal net  operating  loss  carryforward  of
approximately  $36,872,000.  The  federal  net  operating  loss  and tax  credit
carryforwards will expire fiscal year 2019.


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

     During  1999,  the Company  adopted FASB No. 132,  "Employer's  Disclosures
about Pensions and Other  Postretirement  Benefits," which revised the Company's
disclosure about pension and other postretirement benefit plans.
     The Company has a qualified  profit  sharing and  retirement  savings plan,
which  includes  a cash or  deferred  arrangement  under  Section  401(k) of the
Internal  Revenue Code (the "Code") and covers  substantially  all the Company's
employees.  Eligible employees may elect to contribute specified  percentages of
their compensation to the plan. The Company guarantees a dollar-for-dollar match
on the first two percent of the employee's compensation contributed to the plan.
The Company will make an additional  matching  contribution if and to the extent
that four percent of the Company's  estimated  consolidated  income before taxes
exceeds the two percent  dollar-for-dollar  match described  above.  The Company
may,  at the  discretion  of its Board of  Directors,  make  additional  Company
matching  contributions  subject  to  certain  limitations.   The  plan  may  be
terminated  at the  discretion  of the  Board  of  Directors.  If  the  plan  is
terminated,  the Company will not be required to make any further  contributions
to  the  plan  and   participants   will  become  100%  vested  in  any  Company
contributions made to the plan. The plan expense recognized in fiscal 1999, 1998
and 1997 was $3,958,000, $3,052,000 and $2,507,000, respectively.
     In addition,  a  non-qualified  supplemental  profit sharing and retirement
savings plan was  established  as of March 1, 1991, for the purpose of providing
deferred  compensation  for certain  employees whose benefits and  contributions
under the  qualified  plan are limited by the Code.  The  deferred  compensation
expense  recognized  in fiscal 1999,  1998 and 1997 was  $489,000,  $445,000 and
$283,000, respectively.
     The Company has an executive income  continuation plan which covers certain
executive  officers.  The  plan is  intended  to  provide  certain  supplemental
pre-retirement death benefits and retirement benefits to its key executives.  In
the event an executive  dies prior to age 65 in the  employment  of the Company,
the executive's beneficiary will receive annual benefits of 100% of salary for a
period  of two  years and 50% of  salary  for a period  of eight  years.  If the
executive  retires  at age 65,  either the  executive  or his  beneficiary  will
receive an annual  retirement  benefit of 20% to 25% of the  executive's  salary
increased  4%  annually  for a period  of 15 years.  This  plan has been  funded
through the purchase of life  insurance  contracts  covering the  executives and
owned by the Company.  For the fiscal year 1999, the Company  recognized expense
of  $540,000,  and for  fiscal  years  1998 and  1997,  there  was no  charge to
earnings.
     As of February 28, 1999, the Company continued to operate separate employee
benefit plans covering certain groups of employees of Rhodes, which was acquired
on December 31, 1996. These plans include a qualified  non-contributory  defined
benefit plan, a  non-qualified  unfunded  defined  benefit plan, and a qualified
defined  contribution  savings plan.  During fiscal 1998, these three plans were
amended in order to cease future benefit accruals and contributions.  As of that
date, no new participants could be added.


                                       40
<PAGE>

     The following tables represent activity in the Company's  qualified defined
benefit plan:
                                                           1999            1998
                                                          (Amounts in thousands)
                                                        ------------------------
Change in projected benefits obligation:
   Projected benefit obligation at beginning of year       $15,280      $14,811
   Service cost                                                 --          355
   Interest cost                                             1,077        1,109
   Actuarial loss (gain)                                       729         (199)
   Benefits paid                                            (1,188)        (796)
                                                           ---------------------
      Projected benefit obligation at end of year          $15,898      $15,280
                                                           =====================
Change in plan assets:
   Fair value of plan assets at beginning of year          $15,205      $13,020
   Actual return on plan assets                              1,590        2,316
   Employer contribution                                        --          665
   Benefits paid                                            (1,188)        (796)
                                                           ---------------------
      Fair value of plan assets at end of year             $15,607      $15,205
                                                           =====================

   Funded status                                           $  (291)     $   (75)
   Unrecognized net transition asset                          (862)      (1,059)
   Unrecognized net actuarial loss                             389          178
                                                           ---------------------
      Accrued benefit cost                                 $  (764)     $  (956)
                                                           =====================

Weighted-average assumptions as of February 28:
   Discount Rate                                              7.25%        7.25%
   Expected return on plan assets                             7.25%        8.50%

Components of net periodic benefit cost:
   Service cost                                            $    --      $   355
   Interest cost                                             1,077        1,109
   Expected return on plan assets                           (1,072)      (1,100)
   Amortization of transition asset                           (197)        (197)
   Amortization of prior service cost                           --            5
                                                           ---------------------
      Charge (benefit) to operations                       $  (192)     $   172
                                                           =====================

     Assets of the plan are  generally  invested  in equities  and fixed  income
instruments.
     The projected benefit obligation of the non-qualified  pension plan totaled
$1,935,000 and $1,796,000 at February 28, 1999 and 1998, respectively. There are
no plan assets in the non-qualified plan due to the nature of the plan.


                                       41
<PAGE>

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

     The Company has elected to follow  Accounting  Principles Board Opinion No.
25,   "Accounting   for  Stock  Issued  to  Employees"   (APB  25)  and  related
Interpretations  in accounting for its employee  stock  options.  In electing to
account for its stock  options under APB 25, the Company is required by SFAS No.
123, "Accounting for Stock-Based  Compensation" to provide pro forma information
regarding net income and earnings per share.
     The 1983, 1990, 1994 and 1998 Stock Option Plans provide that key employees
of the Company  are  eligible to receive  common  stock  options (at an exercise
price  of no less  than  fair  market  value  at the date of  grant)  and  stock
appreciation rights. Under these plans, approximately 8,094,000 shares have been
authorized to be reserved for issuance. All options granted have ten-year terms.
Options granted during fiscal years 1999 and 1998 immediately  vested and became
exercisable when granted.  Previously  granted options vest on a graduated basis
and become fully exercisable at the end of two years of continued employment.
     Pro forma  information  regarding  net  income  and  earnings  per share as
required by SFAS No. 123 has been determined as if the Company had accounted for
its employee  stock options under the fair value method of that  statement.  The
fair  value  for  these  options  was  estimated  at the date of  grant  using a
Black-Scholes  option  valuation  model  with  the  following   weighted-average
assumptions for fiscal 1999,  1998 and 1997,  respectively:  risk-free  interest
rates of 5.2%,  6.5% and 6.1%; a dividend yield of 1.9%;  volatility  factors of
the expected market price of the Company's common stock of 48%, 46% and 41%; and
a weighted-average expected option life of 4.55, 3.61 and 3.48 years.
     The  Black-Scholes   option  valuation  model  was  developed  for  use  in
estimating the fair value of traded  options which have no vesting  restrictions
and are fully  transferable.  In addition,  option  valuation models require the
input of highly  subjective  assumptions  including  the  expected  stock  price
volatility.  Because the Company's  employee stock options have  characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially  affect the fair value estimate,  in
management's  opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
     For  purposes of pro forma  disclosures,  the  estimated  fair value of the
options is amortized to expense over the options' vesting period.  The Company's
pro forma information follows:

                                          1999        1998        1997
                                  (Amounts in thousands except per share data)
                                  --------------------------------------------
Pro forma net income (loss)            $(3,494)    $(55,837)    $37,072
Pro forma earnings (loss) per share:
      Basic                               (.06)        (.99)        .75
      Diluted                             (.06)        (.99)        .74

     A summary of the Company's  stock option  activity and related  information
for the years ended February 28, 1999, 1998 and 1997 follows:

                                          Weighted
                                           Average
                                           Options      Exercise Price
                                        ----------      --------------
Outstanding at March 1, 1996             4,431,904              $18.49
Granted                                    816,480               14.55
Exercised                                  (51,500)              13.25
                                        ----------             -------
Outstanding at February 28, 1997         5,196,884               15.55
Granted                                     28,008               15.53
Exercised                                 (116,435)               7.81
Forfeited                                 (100,000)              15.63
                                        ----------             -------
Outstanding at February 28, 1998         5,008,457               15.98
Granted                                    385,030                6.72
Exercised                                 (122,155)               5.52
Forfeited                                  (44,862)              17.55
                                        ----------             -------
Outstanding at February 28, 1999         5,226,470              $15.53
                                        ==========             =======


                                       42
<PAGE>

Range of                           $6.02     $10.01      $17.01     $27.01
Exercise                             to         to          to         to
Prices                            $10.00     $17.00      $27.00     $35.06
                                  ------     ------      ------     ------
Options outstanding at
  February 28, 1999            1,774,134    743,596    2,696,740    12,000

Weighted average remaining
  contract life, outstanding
  options                           3.98       7.98         4.95      4.95

Weighted average exercise
  price,outstanding options       $ 8.42     $14.41       $20.43    $35.06

Options exercisable at
  February 28, 1999            1,774,134    743,596    2,696,740    12,000

Weighted average exercise
  price, exercisable options      $ 8.42     $14.41       $20.43    $35.06

     Options  exercisable  at  year  end  and the  respective  weighted  average
exercise  prices were 5,226,470 at $15.53,  4,831,095 at $15.96 and 4,762,846 at
$15.50 for fiscal 1999, 1998 and 1997, respectively.
     The weighted  average fair values of options granted were $2.68,  $5.82 and
$4.88 for fiscal 1999, 1998 and 1997, respectively.


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

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

                                         1999         1998
                                    (Amounts in thousands)
                                    ----------------------

Land and buildings                     $12,098     $12,098
Fixtures and equipment                   2,164       1,955
                                    ----------------------
                                        14,262      14,053
Less accumulated depreciation
   and amortization                      7,095       5,219
                                    ----------------------
                                       $ 7,167     $ 8,834
                                    ======================

     Capitalized lease amortization is included in depreciation expense.
     Future minimum lease  payments  under capital  leases and operating  leases
having initial or remaining  noncancellable lease terms in excess of one year at
February 28, 1999, are as follows:

                                  Capital Leases     Operating Leases
Fiscal Years                            (Amounts in thousands)
                                     ---------------------------
2000                                  $ 3,521         $  160,360
2001                                    3,516            153,204
2002                                    3,010            143,557
2003                                    2,965            133,534
2004                                    2,229            112,044
After 2004                              2,912            587,404
                                      --------------------------
Total minimum lease payments          $18,153         $1,290,103
                                                      ==========
Less:
   Executory costs                         77
   Imputed interest                     4,571
                                      -------
Present value of minimum
   lease payments                     $13,505
                                      =======


                                       43
<PAGE>

     Total rental expense under operating  leases for fiscal 1999, 1998 and 1997
was $165,005,000, $138,128,000 and $83,888,000, respectively. Contingent rentals
and sublease rentals are negligible.
     Payments to affiliated  entities  under  capital and operating  leases were
$269,000 for fiscal 1999,  which included  payments to limited  partnerships  in
which the Company has equity  interests.  Lease payments to affiliated  entities
for fiscal 1998 and 1997 were $327,000 and $314,000, respectively.

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


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

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

                                          1999        1998
                                       (Amounts in thousands)
                                      -----------------------
On notes payable and other            $ 74,000     $168,300
On securitized receivables             145,000      185,000

     Interest  rates  that the  Company  paid per the  swap  agreements  related
primarily  to notes  payable  were fixed at an average  rate of 7.6% and 7.0% at
February 28, 1999 and 1998, respectively.  The variable rates received per these
agreements  were tied to LIBOR or  commercial  paper rates and averaged 5.2% and
5.7% at February 28, 1999 and 1998, respectively. All of these agreements expire
in fiscal 2000.
     Interest  rates  that  the  Company  paid on  swap  agreements  related  to
securitized  receivables  were  fixed  at an  average  rate of 6.9%  and 6.8% at
February 28, 1999 and 1998, respectively.  The variable rates received per these
agreements  were tied to LIBOR and  averaged  5.0% and 5.7% at February 28, 1999
and 1998,  respectively.  The  remaining  terms for these  agreements  are up to
approximately one year.
     Resulting  changes in interest  are  recorded as  increases or decreases to
interest expense. The accrued interest liability is correspondingly increased or
decreased.
     The Company  believes  its risk of  credit-related  losses  resulting  from
nonperformance by a counterparty is remote. The amount of any such loss would be
limited to a small percentage of the notional amount of each swap. As a means of
reducing  this  risk,  the  Company  as a matter  of  policy  only  enters  into
transactions with counterparties rated "A" or higher.
     The Company does not mark its swaps to market and therefore does not record
a gain or loss with  interest  rate  changes.  Gains on  disposals  of swaps are
recognized over the remaining life of the swap. Losses on disposals, which there
have been none to date, would be recognized immediately.
     All swaps are held for purposes other than trading.


                                       44
<PAGE>

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

     The estimated fair values of financial  instruments have been determined by
using available market information. The estimates are not necessarily indicative
of the amounts the Company could realize in a current market  exchange.  The use
of different  market  assumptions  and/or  estimation  methodologies  may have a
material effect on the estimated fair value amounts.
     The  estimated  fair  values  of the  Company's  financial  instruments  at
February 28, 1999 and 1998 are as follows:

                                          1999                   1998
                                   ------------------     ------------------
                                   Carrying    Fair       Carrying    Fair
(Amounts in thousands)              Amount     Value       Amount     Value
Assets:
   Cash                            $ 67,254  $ 67,254     $ 48,779  $ 48,779
   Accounts receivable, net         254,282   254,282      392,765   392,765
   Retained interest in
    securitized receivables         190,970   190,970      182,158   182,158

Liabilities:
   Accounts payable                 193,799   193,799      203,048   203,048
   Notes payable                    210,000   210,000      260,000   260,000
   Long-term debt                   701,325   572,362      721,932   725,997

Off-balance-sheet financial
 instruments:
   Interest rate swap agreements:
       Assets                            --        --           --        86
       Liabilities                       --     3,095           --     6,570

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

Cash and Accounts Receivable

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

Retained Interest in Securitized Receivables

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

Accounts Payable and Notes Payable

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

Long-Term Debt

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

Interest Rate Swap Agreements

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

                                       45
<PAGE>

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

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

(Amounts in thousands except             1999        1998        1997
    per share data)                   --------------------------------

Numerator:
   Net earnings (loss)               $ (1,967)   $(55,143)   $ 40,185

Denominator:
   Denominator for
    basic earnings (loss)
    per share - average
    common shares
    outstanding                        59,331      56,312      49,360
   Effect of potentially
    dilutive stock options                 --          --         786
   Denominator for
    diluted earnings
    (loss) per share                   59,331      56,312      50,146

Basic EPS                            $  (0.03)   $  (0.98)   $   0.81
Diluted EPS                             (0.03)      (0.98)       0.80

     The  computation  for  fiscal  1999  does  not  assume  the  conversion  of
outstanding  options  to  purchase  5,226,000  shares of common  stock at prices
ranging from $6.02 to $35.06,  with expiration  dates between  February 2000 and
February 2009 and 911,000  contingently  issuable shares, since the result would
be antidilutive due to the loss from operations.  Options to purchase  5,008,000
shares of common stock at prices ranging from $5.52 to $35.06,  with  expiration
dates  between  January  1999 and June 2007 and  265,000  contingently  issuable
shares were  outstanding  during  fiscal 1998,  however,  were excluded from the
diluted EPS calculation  since the result would be antidilutive  due to the loss
from operations.  Options to purchase 1,723,000 shares of common stock at prices
ranging from $20.29 to $35.06,  with expiration  dates between February 2003 and
August 2004, were outstanding  during fiscal 1997,  however,  were excluded from
the diluted EPS  calculation  because the options'  exercise prices were greater
than the average market price of the common shares.


                                       46
<PAGE>

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

     The following is a summary of quarterly  financial data for fiscal 1999 and
1998:


Three months ended                May 31    August 31  November 30  February 28
--------------------------------------------------------------------------------
                  (Amounts in thousands except per share data)
1999
Revenues                        $668,939     $675,007     $728,209     $654,203
Gross profit(1)                  200,363      190,529      219,697      182,662
Earnings (loss) before taxes      15,872       13,761        9,896      (42,577)
Net earnings (loss)               10,194        8,758        6,274      (27,193)

Earnings (loss) per share of common stock(2):
   Basic                            0.17         0.15         0.11        (0.45)
   Diluted                          0.17         0.15         0.10        (0.45)

Cash dividends per share of
 common stock                       0.07         0.07         0.07         0.07

1998
Revenues                        $566,325     $590,212     $678,468     $634,732
Gross profit(1)                  169,058      171,201      202,796      165,609
Store closing and other charges       --           --           --       25,530
Earnings (loss) before taxes      22,000       14,402      (75,467)     (45,322)
Net earnings (loss)               13,761        9,279      (49,122)     (29,061)

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

Cash dividends per share of
 common stock                       0.07         0.07         0.07         0.07


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

(2) Total of quarterly earnings (loss) per common share may not equal the annual
amount  because net income (loss) per common share is  calculated  independently
for each quarter.


(15)   Segment Information
--------------------------------------------------------------------------------

     Effective December 1, 1998, the Company adopted the provisions of Financial
Accounting  Standards No. 131,  "Disclosures about Segments of an Enterprise and
Related  Information."  The Company has significant  operations  aligned in four
operating formats: Heilig-Meyers, The RoomStore, Rhodes and Mattress Discounters
divisions.
     The  Company's  Heilig-Meyers  division is  associated  with the  Company's
historical  operations.  The  majority of the  Heilig-Meyers  stores  operate in
smaller markets with a broad line of merchandise.  The Rhodes division comprises
the 96 stores operating under the "Rhodes" name. The Rhodes  retailing  strategy
is selling quality furniture to a broad base of middle income customers.  Stores
operating under The RoomStore division include the 70 stores primarily operating
in Texas,  Oregon,  Maryland  and  Illinois  and the 32  stores  in Puerto  Rico
operating  under the "Berrios"  name. The Mattress  Discounters  division is the
Nation's largest retail bedding specialist.


                                       47
<PAGE>

     The accounting  policies of the segments are the same as those described in
Note  1  to  the  Consolidated  Financial  Statements.   The  Company  evaluates
performance  based on earnings  (loss)  before  interest and income taxes (based
upon generally accepted accounting  principles).  The Company generally accounts
for intersegment sales and transfers at current market prices as if the sales or
transfers were to unaffiliated  third parties.  General  corporate  expenses are
allocated between the divisions.

(Amounts in thousands)                       1999           1998           1997
--------------------------------------------------------------------------------

Revenues:
  Heilig-Meyers                        $1,531,766     $1,518,415     $1,333,468
  Rhodes                                  479,620        509,474         82,409
  The RoomStore                           476,324        309,664        177,242
  Mattress Discounters                    238,648        132,183             --
                                       ----------     ----------     ----------
      Total revenues from external
        customers                      $2,726,358     $2,469,736     $1,593,119
                                       ==========     ==========     ==========

Earnings (loss) before interest and taxes:
  Heilig-Meyers                        $   66,634     $  (17,648)    $   88,660
  Rhodes                                  (29,279)         9,181          2,944
  The RoomStore                            12,855          3,705         18,096
  Mattress Discounters                     22,971         13,479             --
  Intersegment earnings (loss)               (553)          (291)            --
                                       ----------     ----------     ----------
      Total earnings (loss) before
        interest and taxes             $   72,628     $    8,426     $  109,700
                                       ----------     ----------     ----------
   Store closing and other charges             --        (25,530)            --
   Interest expense                       (75,676)       (67,283)       (47,800)
                                       ----------     ----------     ----------
      Consolidated earnings (loss)
        before provision (benefit)
        for income taxes               $   (3,048)    $  (84,387)    $   61,900
                                       ==========     ==========     ==========

Depreciation expense:
  Heilig-Meyers                        $   35,774     $   32,739     $   30,226
  Rhodes                                   12,468         13,998          2,116
  The RoomStore                             5,836          4,909          1,532
  Mattress Discounters                      4,762          2,397             --
                                       ----------     ----------     ----------
     Total depreciation expense        $   58,840     $   54,043     $   33,874
                                       ==========     ==========     ==========
Capital expenditures:
  Heilig-Meyers                        $   57,486     $   51,871     $   79,369
  Rhodes                                   12,784          3,381            869
  The RoomStore                            12,086         14,046          3,899
  Mattress Discounters                      5,149          1,623             --
                                       ----------     ----------     ----------
     Total capital expenditures        $   87,505     $   70,921     $   84,137
                                       ==========     ==========     ==========
Total identifiable assets:
  Heilig-Meyers                        $1,292,770     $1,417,834     $1,383,912
  Rhodes                                  287,595        331,845        261,895
  The RoomStore                           269,906        254,801        191,351
  Mattress Discounters                     97,481         93,033             --
                                       ----------     ----------     ----------
     Total identifiable assets         $1,947,752     $2,097,513     $1,837,158
                                       ==========     ==========     ==========


                                       48
<PAGE>

(16)   MacSaver Financial Services
--------------------------------------------------------------------------------

     MacSaver Financial  Services  ("MacSaver"),  is the Company's  wholly-owned
subsidiary  whose  principal  business  activity is to obtain  financing for the
operations  of the Company,  and in  connection  therewith,  MacSaver  generally
acquires and holds the aggregate principal amount of installment credit accounts
generated  by the  Company's  operating  subsidiaries,  and issues  and  carries
substantially  all of the Company's notes payable and long-term  debt.  MacSaver
also transfers the substantial  majority of its installment accounts receivable,
through a wholly-owned  subsidiary,  to a Master Trust which issues certificates
representing  undivided  interests  in such  certificates  (See  Notes 1 and 4).
Substantially  all of the net  revenues  generated  by MacSaver  are pursuant to
operating   agreements  with  the  Company  and  certain  of  its   wholly-owned
subsidiaries.  In June 1997, the Company and MacSaver filed a joint Registration
Statement on Form S-3 with the Securities and Exchange Commission relating to up
to $400,000,000 aggregate principal amount of securities.
     MacSaver has issued $175,000,000 in aggregate principal amount of its notes
at 7.60% due 2007. In fiscal 1997,  MacSaver  issued  $300,000,000  in aggregate
principal  amount of its notes  under a previous  Registration  Statement  filed
jointly  by the  Company  and  MacSaver;  $200,000,000  at  7.88%  due  2003 and
$100,000,000 at 7.40% due 2002. These notes are unconditionally guaranteed as to
payment of principal and interest by the Company.  The Company has not presented
separate financial statements and other disclosures  concerning MacSaver because
management  has determined  that such  information is not material to holders of
the debt  securities.  However,  as  required  by the 1934 Act,  the  summarized
financial information concerning MacSaver is as follows:

MacSaver Financial Services Summarized Statements of Operations

                          Twelve months ended February 28,
                              1999        1998        1997
                          --------------------------------
                                (Amounts in thousands)

Net revenues              $302,418    $267,386    $158,306
Operating expenses         252,699     292,493     102,706
                          --------------------------------
Earnings (loss) before
   taxes                    49,719     (25,107)     55,600
                          --------------------------------
Net earnings (loss)       $ 32,317    $(16,320)   $ 36,140
                          ================================


MacSaver Financial Services Summarized Balance Sheets

                                         February 28,
                                       1999        1998
                                 ----------------------
                                 (Amounts in thousands)

Current assets                   $   57,151  $   29,545
Accounts receivable, net            145,211     295,405
Retained interest in securitized
   receivables at fair value        190,967     182,158
Due from affiliates                 714,372     645,291
                                 ----------------------
  Total assets                   $1,107,701  $1,152,399
                                 ======================

Current liabilities              $  186,255  $   48,951
Notes payable                       210,000     260,000
Long-term debt                      535,000     700,000
Stockholders' equity                176,446     143,448
                                 ----------------------
   Total liabilities and
   stockholders' equity          $1,107,701  $1,152,399
                                 ======================


                                       49
<PAGE>

(17)   Subsequent Event
--------------------------------------------------------------------------------

     On May 28, 1999,  the Company  entered into a definitive  agreement to sell
substantially  all of its  interest in its Mattress  Discounters  division to an
investment group, including certain key managers of Mattress Discounters, led by
Bain  Capital,  a Boston  based  capital  investment  group.  The sale  price is
approximately  $225.5 million,  subject to final adjustment,  including net cash
proceeds of approximately $206.7 million.  The transaction,  which is subject to
certain closing conditions, is expected to close in the second quarter of fiscal
2000 and result in a gain, net of income taxes, of approximately  $68.0 million,
or  $1.12  per  share.  The  Company  will  retain  a 7%  interest  in  Mattress
Discounters. The net cash proceeds will be used to pay down debt.

     The Company has continued its evaluation of the possible divestiture of all
or part of its Rhodes  division.  Because of the  uncertainties  surrounding the
ability of the Company to  consummate a sale of the Rhodes  division  within the
fiscal year ending  February 29, 2000, the related assets of the Rhodes division
were  considered  "held for use" as of February 28, 1999 and are  presented on a
consolidated basis. If an agreement to sell the Rhodes division is executed, the
transaction  may  result  in a loss  and,  depending  on the  terms  of  such an
agreement,  the  loss may be  material  to  results  of  operations.  Management
believes that, under a held for use classification, the Rhodes division's future
undiscounted  cash flows will be in excess of the related  carrying value of its
assets as of February 28, 1999.






                                       50
<PAGE>





Independent Auditors' Report

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

     We  have  audited  the   accompanying   consolidated   balance   sheets  of
Heilig-Meyers Company and subsidiaries as of February 28, 1999 and 1998, and the
related consolidated  statements of operations,  stockholders'  equity, and cash
flows for each of the three fiscal years in the period ended  February 28, 1999.
Our audits also included the financial statement schedule listed in the Index at
Item 14(a)2.  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,  such consolidated  financial statements present fairly, in
all material  respects,  the  financial  position of  Heilig-Meyers  Company and
subsidiaries  as of  February  28,  1999  and  1998,  and the  results  of their
operations and their cash flows for each of the three fiscal years in the period
ended  February  28,  1999 in  conformity  with  generally  accepted  accounting
principles.  Also,  in our opinion,  such  financial  statement  schedule,  when
considered in relation to the basic consolidated financial statements taken as a
whole,  presents  fairly in all  material  respects  the  information  set forth
therein.

/s/ Deloitte & Touche LLP


Richmond, Virginia
March 24, 1999, except for note 17, as to which the date is June 1, 1999.


                                       51
<PAGE>

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

  None.



                                    PART III

     With the exception of the  information  incorporated  by reference from the
Company's  Proxy Statement in Items 10, 11 and 12 of Part III of this Form 10-K,
the Company's Proxy  Statement dated May 19, 1999 (the "1999 Proxy  Statement"),
is not to be deemed filed as a part of this Report.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information concerning the Company's directors required by this Item is
incorporated  by  reference  to the section  entitled  "Election  of  Directors"
appearing on pages 2-4 of the 1999 Proxy Statement.
     The information  concerning the Company's  executive  officers  required by
this Item is  incorporated by reference to the section in Part I hereof entitled
"Executive Officers of the Registrant."
     The information  concerning compliance with Section 16(a) of the Securities
Exchange Act of 1934 required by this Item is  incorporated  by reference to the
section  entitled  "Section 16(a)  Beneficial  Ownership  Reporting  Compliance"
appearing on page 6 of the 1999 Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

     The  information  required by this Item is incorporated by reference to the
sections entitled  "Executive  Compensation"  appearing on pages 7-8 of the 1999
Proxy  Statement,   "Executive  Supplemental  Retirement  Plan"  and  "Executive
Severance  Plan"  appearing  on pages  14-15 of the 1999  Proxy  Statement,  and
"Director's  Compensation"  and "Compensation  Committee  Interlocks and Insider
Participation" appearing on pages 15-16 of the 1999 Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  information  required by this Item is incorporated by reference to the
section  entitled  "Election  of  Directors"  appearing on pages 2-5 of the 1999
Proxy  Statement and "Principal  Shareholders"  appearing on page 18 of the 1999
Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The  information  required by the item is  incorporated by reference to the
section  entitled  "Certain  Transactions"  appearing on pages 16-17 of the 1999
Proxy Statement and the last paragraph under the section  entitled  "Election of
Directors - Nominees" on page 5.

                                       52
<PAGE>

                                     PART IV

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

      (a)  1.   Financial Statements

          The  following  consolidated  financial  statements  of  Heilig-Meyers
          Company  and  Subsidiaries  included in the  registrant's  1999 Annual
          Report to Shareholders are included in item 8 herein:

             Independent Auditors' Report

             Consolidated Balance Sheets -
               February 28, 1999 and 1998

             Consolidated Statements of Operations -
               Year Ended February 28, 1999,
               Year Ended February 28, 1998, and
               Year Ended February 28, 1997

             Consolidated Statements of Stockholders' Equity -
               Year Ended February 28, 1999,
               Year Ended February 28, 1998, and
               Year Ended February 28, 1997


             Consolidated Statements of Cash Flows -
               Year Ended February 28, 1999,
               Year Ended February 28, 1998, and
               Year Ended February 28, 1997

             Notes to Consolidated Financial Statements


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

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

             Schedule II - Valuation and Qualifying Accounts

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

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

             See INDEX TO EXHIBITS

      (b)    Reports  on Form  8-K  Filed  During  Last  Quarter  of Year  Ended
             February 28, 1999.

               There were  three  Current  Reports on Form 8-K filed  during the
               last  quarter of the fiscal  year ended  February  28,  1999.  On
               December  3,  1998,  Registrant  filed  a Form  8-K in  which  it
               reported that Troy A. Perry,  Jr.,  President and Chief Operating
               Officer, would retire from the Company and its Board of Directors
               effective March 1, 1999. On December 8, 1998, Registrant filed an
               8-K in which it reported  November  1998 sales.  On December  17,
               1998,  Registrant  filed a Form  8-K in  which  it  reported  the
               results for the third  quarter of fiscal 1999 and  announced  the
               retirement of certain officers.


                                       53
<PAGE>


                                   SIGNATURES

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

                                             HEILIG-MEYERS COMPANY


       Date:  June 1, 1999                by  /s/William C. DeRusha
                                          ----------------------------
                                          William C. DeRusha
                                          Chairman of the Board
                                          and Chief Executive Officer


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


       Date:  June 1, 1999                /s/William C. DeRusha
                                          ---------------------
                                          William C. DeRusha
                                          Chairman of the Board
                                          Principal Executive Officer
                                          Director


       Date:  June 1, 1999                /s/Roy B. Goodman
                                          -----------------
                                          Roy B. Goodman
                                          Executive Vice President
                                          Principal Financial Officer


       Date:  June 1, 1999                /s/William J. Dieter
                                          --------------------
                                          William J. Dieter
                                          Senior Vice President,
                                          Accounting and Principal
                                          Accounting Officer


       Date:  June 1, 1999                /s/Alexander Alexander
                                          -----------------------
                                          Alexander Alexander, Director


       Date:  June 1, 1999                /s/Robert L. Burrus, Jr.
                                          ------------------------
                                          Robert L. Burrus, Jr., Director


       Date:  June 1, 1999                /s/Beverley E. Dalton
                                          ---------------------
                                          Beverley E. Dalton, Director


       Date:  June 1, 1999                /s/Charles A. Davis
                                          ----------------------
                                          Charles A. Davis, Director


       Date:  June 1, 1999
                                          -----------------------------
                                          Benjamin F. Edwards, III, Director


       Date:  June 1, 1999                /s/Alan G. Fleischer
                                          --------------------
                                          Alan G. Fleischer, Director


                                       54
<PAGE>




       Date:  June 1, 1999               /s/Nathaniel Krumbein
                                         ------------------------
                                         Nathaniel Krumbein, Director


       Date:  June 1, 1999               /s/Hyman Meyers
                                         -------------------
                                         Hyman Meyers, Director


       Date:  June 1, 1999               /s/S. Sidney Meyers
                                         --------------------
                                         S. Sidney Meyers, Director


       Date:  June 1, 1999               /s/Lawrence N. Smith
                                         ---------------------
                                         Lawrence N. Smith, Director


       Date:  June 1, 1999               /s/Eugene P. Trani
                                         ------------------
                                         Eugene P. Trani, Director


       Date:  June 1, 1999               /s/L. Douglas Wilder
                                         --------------------
                                         L. Douglas Wilder, Director


                                       55
<PAGE>
<TABLE>

                     HEILIG-MEYERS COMPANY AND SUBSIDIARIES

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


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

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

Allowance for
 Doubtful Accounts:

Year Ended
 February 28,
 1999          $60,306     $108,216  $ 3,470 (A) $ 68,779  $ 4,295(C)  $47,947   $42,745
                                     $(8,226)(B)
Year Ended
 February 28,
 1998          $41,120     $181,136  $ 1,817(A)  $106,029  $21,156(C)  $38,148   $60,306
                                     $ 1,566(B)
Year Ended
 February 28,
 1997          $54,714     $ 80,908  $ 1,330(A)  $ 70,438  $ 6,912(C)  $33,940   $41,120
                                     $15,458(B)


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


                                           1999          1998          1997
                                         --------      --------      ------

Write-offs of Uncollectible Accounts     $ 4,295       $21,156       $ 6,912

</TABLE>



                                       56
<PAGE>

Index to Exhibits


3.       Articles of Incorporation and Bylaws.

         a.       Registrant's  Restated Articles of Incorporation,  as amended,
                  filed as Exhibit 3a to Registrant's Annual Report on Form 10-K
                  for the  fiscal  year  ended  February  28,  1998,  is  hereby
                  incorporated by this reference.

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

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


         a.       The long-term debt as shown on the consolidated  balance sheet
                  of the  Registrant  at  February  28,  1999  includes  various
                  obligations  each  of  which  is  evidenced  by an  instrument
                  authorizing  an  amount  that is less  than  10% of the  total
                  assets  of  the   Registrant   and  its   subsidiaries   on  a
                  consolidated basis. The documents evidencing these obligations
                  are  accordingly  omitted  pursuant to  Regulation  S-K,  Item
                  601(b)(4)(iii)  and will be furnished to the  Commission  upon
                  request.

10.      Contracts

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

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

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

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

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

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


                                       57
<PAGE>

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

         d.       Intentionally omitted.

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

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

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


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

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

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

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

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

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

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

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


                                       58
<PAGE>

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

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

         o.       Employees  Supplemental  Profit-Sharing and Retirement Savings
                  Plan,  adopted  effective  as of March 1,  1991,  amended  and
                  restated effective as of January 1, 1999.*

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

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

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

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

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

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

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

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

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

                                       59
<PAGE>

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

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

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

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

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

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

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

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

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

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

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


                                       60
<PAGE>

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

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

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

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

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

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

         nn.      First Amendment and  Restatement of Credit  Agreement dated as
                  of May 14,  1996,  filed as  Exhibit  10(oo)  to  Registrant's
                  Annual Report on Form 10-K for the fiscal year ended  February
                  28, 1998, is incorporated herein by this reference.

         oo.      Second  Amendment and Restatement of Credit Agreement dated as
                  of January 8, 1997,  filed as Exhibit  10(pp) to  Registrant's
                  Annual Report on Form 10-K for the fiscal year ended  February
                  28, 1998, is incorporated herein by this reference.

         pp.      Third Amendment and  Restatement of Credit  Agreement dated as
                  of May 23,  1997,  filed as  Exhibit  10(qq)  to  Registrant's
                  Annual Report on Form 10-K for the fiscal year ended  February
                  28, 1998, is incorporated herein by this reference.

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

         rr.      Amendment No. 5 to the Credit Facility dated as of April 22,
                  1998, filed as Exhibit 10(ss) to Registrant's Annual
                  Report on Form 10-K for the fiscal year ended February 28,
                  1998, is incorporated herein by this reference.

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


                                       61
<PAGE>

         tt.      Rhodes Inc. Supplemental Employees Pension Plan, effective as
                  of March 1, 1995, filed as Exhibit 10(uu) to Registrant's
                  Annual Report on Form 10-K for the fiscal year ended February
                  28, 1998, is incorporated herein by this reference.

         uu.      Amendment No. 6 to the Credit Facility dated as of February
                  24, 1999.

         vv.      Amendment No. 7 to the Credit Facility dated as of April 15,
                  1999.

         ww.      Agreement of Lease commencing November 1, 1990 between Hyman
                  Meyers, Agent and the Registrant.

         xx.      Agreement of Lease  commencing  November 1, 1990 between Hyman
                  Meyers, Agent and the Registrant.

         yy.      Lease dated August 30, 1986 between Meyers-Thornton Investment
                  Co. and Registrant.

         zz.      Agreement of Lease dated December 16, 1997 between Meyers-
                  Thornton Investment Co. and Registrant.

        aaa.      Lease dated August 30, 1986 between Meyers-Thornton Investment
                  Co. and Registrant.


21.               Subsidiaries of Registrant.


23.               Consents of experts and counsel.

                  a.       Consent of Deloitte & Touche LLP to  incorporation by
                           reference of Accountants'  Reports into  Registrant's
                           Registration Statements on Forms S-8 and S-3.

27.               Financial Data Schedule


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



                                       62
<PAGE>