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 29, 2000 or

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

For the transition period from               to

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

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

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

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

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

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

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

                                       None
                                (Title of Class)

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

         The aggregate  market value of the voting stock held by  non-affiliates
of the registrant as of May 1, 2000 was approximately $122,502,762.

<PAGE>

         This figure was calculated by  multiplying  (i) the closing sales price
of the  registrant's  common stock on the New York Stock Exchange on May 1, 2000
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 1, 2000,  there  were  outstanding  60,676,773  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 21, 2000,  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                                           8
                  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                                              12

ITEM 4.  SUBMISSION of MATTERS to a VOTE of SECURITY HOLDINGS           12

PART II
ITEM 5.  MARKET for REGISTRANT'S COMMON EQUITY and
              RELATED STOCKHOLDER MATTERS                               14

ITEM 6.  SELECTED FINANCIAL DATA                                        15

ITEM 7.  MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL
              CONDITION and RESULTS of OPERATIONS                       17

ITEM 7A. QUANTITATIVE and QUALITATIVE DISCLOSURES
              ABOUT MARKET RISK                                         25

ITEM 8.  FINANCIAL STATEMENTS and SUPPLEMENTARY DATA                    26

ITEM 9.  CHANGES in and DISAGREEMENTS with ACCOUNTANTS
              on ACCOUNTING and FINANCIAL DISCLOSURE                    51

PART III
ITEM 10.  DIRECTORS and EXECUTIVE OFFICERS of the REGISTRANT            51

ITEM 11.  EXECUTIVE COMPENSATION                                        51

ITEM 12.  SECURITY OWNERSHIP of CERTAIN BENEFICIAL OWNERS
               and MANAGEMENT                                           51

ITEM 13.  CERTAIN RELATIONSHIPS and RELATED TRANSACTIONS                51

PART IV
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULE, and
               REPORTS on FORM 8-K                                      52


                                       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 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 Products in September 1998.

     During the fiscal year ended  February 29, 2000,  the Company  divested its
Rhodes  Furniture  division  effective  June 30,  1999,  divested  its  Mattress
Discounters  division  on August 6,  1999,  sold the  assets  related to certain
RoomStore operations in the Chicago and Milwaukee markets beginning in September
1999 and sold  substantially  all of the assets of Guardian  Products on January
31, 2000. Additionally,  on April 20, 2000, the sale of the Berrios division was
completed. The transaction will be recorded in the Company's first quarter ended
May 31,  2000 and is not  expected  to have a  significant  effect on results of
operations.  The results of the  divestiture  activity is described in detail in
the Notes to the Consolidated Financial Statements.

B.  Industry Segments

     The  Company  operated  two  primary  segments  for the full fiscal year as
Heilig-Meyers Furniture and The RoomStore. As discussed previously,  the Company
has divested  its Mattress  Discounters  and Rhodes  divisions  and has sold the
assets  related to 18 stores in the Chicago  and  Milwaukee  markets  which were
previously part of The RoomStore division.  Additionally,  the Company announced
its intention to divest of The RoomStore's  remaining Chicago operations as well
as its Puerto Rican  operations,  both of which are reported  within  operations
held  for  sale as of  February  29,  2000.  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 46 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.  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 when  purchased  as a
group. As of February 29, 2000, operations held for sale include three stores in
the Chicago  market and 33 stores  operating in Puerto Rico under the  "Berrios"
name.

                                       4
<PAGE>
C.  Nature of Business

General
     The Company is the Nation's largest specialty  retailer of home furnishings
and related items with 872 stores (as of April 30, 2000) which are located in 30
states. 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 55 stores of The RoomStore are located in 5 states, including Texas,
Virginia,  Oregon,  Maryland and  Washington.  The stores included in Operations
held for sale as of February 29, 2000 include three stores in the Chicago market
and the 33 stores in Puerto Rico operating under the Berrios name, both of which
were previously reported within The RoomStore division.

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

     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. 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  2000,  the Company  remodeled  18  existing  stores and plans to
remodel  approximately  20 existing  stores in fiscal 2001. The remodel plan for
fiscal 2001 is designed  around a new store  format  that  brings  together  new
product and visual presentation  supported by an enhanced  advertising  program.
Decisions   regarding  the   presentations  and  programs  will  be  made  on  a
market-by-market  basis. The existing The RoomStore stores average approximately
30,000 square feet. The Company does not have significant  remodeling activities
planned for this format during fiscal 2001.

     Generally, 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. In certain markets where conditions permit, one
manager  may  have  operating   responsibility   for  two  stores.  See  "Credit
Operations"  regarding  planned  changes  with  respect  to  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 order to increase  the  availability  and  effectiveness  of  management
information,  Heilig-Meyers makes use of just-in-time  ordering and backhauling.
The  Company  also  makes  use of  satellite  systems  which  provide  immediate
communication between the Company's corporate headquarters and the Heilig-Meyers
stores and  distribution  centers.  The  Company  believes  customer  service is
enhanced by providing store management more timely access to information related
to product  availability.  The RoomStore division has 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 stores primarily sell  mid-price-point
furniture  and  accessories,  and bedding.  During the three most recent  fiscal
years,  the  percentage  of store sales  derived from the various  merchandising
categories were as follows (by format):

                                  2000              1999             1998
                                  ----              ----             ----
Heilig-Meyers Furniture:
Furniture and accessories          65%               64%              60%
Consumer electronics                8                 7                9
Bedding                            13                13               13
Appliances                          7                 7                7
Other (e.g. jewelry and
  seasonal goods)                   7                 9               11

The RoomStore:
Furniture and accessories          90                90               90
Bedding                            10                10               10

     The Company's  stores carry a wide variety of items within each merchandise
category to appeal to individual  tastes and  preferences.  The Company believes
this broad  selection  of products  helps to 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  2000,  the  Company  continued  to refine  its
merchandise  selections to  capitalize  on  variations in customer  preferences.
During   fiscal  2000,   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.  The Company also began the implementation of new systems
in fiscal 2000 designed to improve category  management  capabilities and supply
chain  management.  These  systems  will allow the Company to gather and analyze
marketing  and  merchandising  information  more  effectively  in order to build
better assortments and inventory plans. Furthermore,  the systems should provide
the  capability to integrate  this  information  into its  inventory  management
function  and  develop  supply  chain  management  strategies  aimed at lowering
inventory levels while enhancing customer service.

Advertising and Promotion
     Circulars and broadcast advertising are the key components of the Company's
marketing  program.   The  Company  centrally  designs  its  circulars  for  its
Heilig-Meyers  stores,  which accounted for  approximately  32% of the Company's
Heilig-Meyers  store  advertising  expenses in fiscal 2000. In fiscal 2000,  the
Heilig-Meyers format distributed over 150 million circulars.  This included nine
circulars sent by direct mail or newspaper insert to over 16 million  households
in Heilig-Meyers primary trade area and special private sale circulars mailed to
approximately  0.5 million of these  households  each  month,  as well as during
special promotional periods. Direct mailing expenses accounted for approximately
20% of advertising  expenses at The RoomStore during fiscal 2000, with circulars
being mailed to approximately 750,000 customers per month.

     In addition to the Company's utilization of circulars, television and radio
commercials  are  produced  for each  format and aired in  virtually  all of the
Company's markets.  Broadcast advertising accounted for approximately 46% of the
Company's  Heilig-Meyers  store advertising  expenses in fiscal 2000.  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.

                                       7
<PAGE>
     During fiscal 2000, 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 in those circulars.

Credit Operations
     The Company believes that offering  flexible credit options is an important
part  of its  business  strategy.  Approximately  70% to  80%  of  sales  in the
Heilig-Meyers  stores have been made through the  Company's  installment  credit
programs.  The  Company  accepts  major  credit  cards in all  stores and offers
revolving credit featuring private label credit cards.

     Historically,   the  Heilig-Meyers  installment  credit  program  has  been
administered at the store level, allowing terms to 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.  Over
fiscal years 1999 and 2000, the Company implemented credit scoring  capabilities
that provide  local store  management  with an enhanced  tool for making  better
credit decisions. In fiscal 2001, the Company plans to further refine its credit
management  effectiveness by implementing a centralized  billing process for all
installment  credit  customers.  Additionally,  the Company  plans to  implement
centralized  credit  extension and collections in approximately  223 stores.  In
addition to administrative cost savings,  this program should enable the Company
to  more   effectively   evaluate   its  credit   offerings   to  ensure   their
competitiveness  in the  marketplace,  as well as provide the  highest  level of
support to the Company's  operating  strategy.  Based on results achieved in the
initial  implementation  of this program in the 223 stores,  strategies  will be
developed  regarding the credit  offerings and  operations  within the remaining
store base.

     The Company extends credit under installment contracts in its Heilig-Meyers
stores  for  original  terms  up to 24  months,  however,  the  average  term at
origination as of February 29, 2000 was 19 months.  Finance charges are included
in revenues on a monthly basis, as earned, net of costs related to the Company's
asset  securitization  program and totaled  $214,098,000  during fiscal 2000, or
approximately  9.3% of total  revenues.  To provide a source of financing to the
Company,   the  substantial  majority  of  installment  accounts  receivable  is
transferred  to  a  Master  Trust  in  exchange  for  certificates  representing
undivided  interests  in such  receivables.  Certificates  with a face  value of
$826,300,000  have been sold to third  parties  as of  February  29,  2000.  The
Company  continues to service these  accounts.  Because  credit  operations  are
integrated with the sales and store administration,  management does not believe
that an accurate  allocation of various costs and expenses of operations  can be
made between the retail sales and credit operations.  Therefore,  the Company is
unable to estimate  accurately the  contribution of its financing  operations to
net income.

     The Company also offers revolving  credit programs,  which are underwritten
by third  parties,  in The  RoomStore  stores,  and to a lesser  degree,  in the
Heilig-Meyers stores. 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.  During
fiscal 2000,  approximately  45% of The RoomStore sales and  approximately 3% of
Heilig-Meyers sales were made through the revolving credit programs.

Distribution
     As of April 30, 2000, 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. 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   RoomStore   distribution   centers   which   collectively   have
approximately 1,000,000 square feet.

                                       8
<PAGE>
     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 2000.

     Typically, each of the Company's Heilig-Meyers stores is located within 250
miles of one of the eight distribution  centers and each of The RoomStore stores
is located  within 30 miles of the six The RoomStore  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 RoomStore
format 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 647 stores at February 28,  1995,  to 872 stores
at April 30, 2000. The following  table lists the Company's  stores by state and
format as of April 30, 2000:

                              Heilig-       The       Operations
State                         Meyers     RoomStore   Held for Sale   Total
--------------------------------------------------------------------------

Alabama                         33                                     33
Arizona                         15                                     15
California                      81                                     81
Colorado                         4                                      4
Florida                         35                                     35
Georgia                         57                                     57
Idaho                            4                                      4
Illinois                        28                         3           31
Indiana                         21                                     21
Iowa                            19                                     19
Kentucky                        30                                     30
Louisiana                       20                                     20
Maryland                         2           15                        17
Mississippi                     29                                     29
Missouri                        29                                     29
Montana                          2                                      2
Nevada                           5                                      5
New Mexico                      10                                     10
North Carolina                 110                                    110
Ohio                            33                                     33
Oklahoma                        11                                     11
Oregon                           2            5                         7
Pennsylvania                    22                                     22
South Carolina                  43                                     43
Tennessee                       53                                     53
Texas                           33           25                        58
Virginia                        45            9                        54
Washington                      11            1                        12
West Virginia                   27                                     27
                               ---          ---          ---         ----
                               814           55            3          872
                               ===          ===          ===         ====

     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 29, 2000, the
Company  opened 16 stores and closed 8 stores.  The Company  also  divested  236
Mattress  Discounters  stores and 96 Rhodes  stores.  The Company also closed 19
stores in the Chicago and Milwaukee  markets and on April 20, 2000,  the Company
sold the 33 Berrios  stores  located in Puerto  Rico for a net  decrease  of 376
stores. The 16 new stores were opened in refurbished existing retail space.

     The Company plans to continue its slower, selective growth strategy for the
Heilig-Meyers  division with a greater focus on remodeling  existing stores.  In
selecting  new  Heilig-Meyers  locations,  the  Company  intends  to follow  its
established  strategy  of  generally  locating  stores  within  250  miles  of a
distribution  center and in towns with  populations  of 5,000 to 50,000 that are
over 25 miles from the closest metropolitan market.  Growth opportunities of The
RoomStore format are being evaluated. The Company plans to expand this format as
the appropriate markets are identified.

                                       10
<PAGE>
F. Other Factors Affecting the Business of the Company

Suppliers
     During the fiscal year ended  February 29, 2000,  the Company's ten largest
suppliers accounted for approximately 35% 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 "The  RoomStore"  is a federally  registered  service  mark of the
Company which was acquired in fiscal year 1997.

     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, 2000,  the Company  employed  approximately  16,478 persons
full- or part-time  in the  Continental  United  States,  of whom  approximately
15,800 worked in the Company's stores, distribution centers and service centers,
with the balance in the Company's corporate offices.  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, 2000,  632 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  240 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, 2000, the Company owned 73 of its Heilig-Meyers stores, six
of its Heilig-Meyers  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  29,  2000,  were  approximately
$100,641,000.  Most vehicles,  a majority of the distribution  centers' material
handling  equipment,  and a majority of the Company's data processing  equipment
are also  leased.  The Company  believes  that its  facilities  are  adequate at
present levels of operations.


ITEM 3.  LEGAL PROCEEDINGS

     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.

                                       12
<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, 2000:


                                          Positions with the Company
                                          or Occupation for the Past
                             Years with   Five Years and Other
     Name               Age  the Company  Information
-------------------------------------------------------------------------------
William C. DeRusha       50          31   Chairman of the Board since April
                                          1986. Chief Executive Officer since
                                          April 1984. Director since January
                                          1983.

Donald S. Shaffer        57          1    President and Chief Operating Officer
                                          since April 1999. Chairman and Chief
                                          Executive Officer, Western Auto Supply
                                          Company, a division of Sears, Roebuck
                                          and Company from December 1996 to
                                          December 1998. President and Chief
                                          Executive Officer, Sears Canada from
                                          January 1993 to November 1996.

James F. Cerza, Jr.      52         12    Executive Vice President, Operations
                                          since April 1995.

Roy B. Goodman           42         19    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 E. Helms         51         21    Executive Vice President, Puerto Rican
                                          Operations since August 1999.
                                          Senior Vice President, Corporate
                                          Expansion prior to August 1999.

Curtis C. Kimbrell, III  54         15    Executive Vice President,
                                          Merchandising since August 1999.
                                          Senior Vice President, Marketing from
                                          April 1998 to August 1999. Senior
                                          Vice President, Operations prior to
                                          April 1998.

Thomas F. Crump          43          7    Senior Vice President, Controller
                                          since July 1997.  Vice President,
                                          Controller, prior to July 1997.



                                       13
<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
         -----------         ------         -----       ---------
   2000
         4th Quarter        $   3 5/8   $    2 5/16     $  .02
         3rd Quarter            5 5/16       3 5/8         .02
         2nd Quarter            8            5 5/16        .07
         1st Quarter            7 3/16       4 7/16        .07

   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

     There were  approximately  3,400  shareholders of record as of February 29,
2000.

     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 $19,785,000 plus 75% of net earnings
adjusted for dividend payouts subsequent to February 29, 2000.




                                       14
<PAGE>
<TABLE>

ITEM 6.  SELECTED FINANCIAL DATA
<S>                        <C>            <C>           <C>            <C>           <C>
Fiscal Year                     2000(1)        1999(2)        1998(2)       1997(2)       1996
                                     (Dollar amounts in thousands except per share data)

Operations Statement Data:
Sales                      $2,038,143     $2,431,152     $2,160,223    $1,342,208     $1,138,506
Annual growth in sales          (16.2)%         12.5%          60.9%         17.9%          19.1%
Other income               $  259,509     $  295,206     $  309,513    $  250,911     $  220,843
Total revenues              2,297,652      2,726,358      2,469,736     1,593,119      1,359,349
Annual growth in revenues       (15.7)%         10.4%          55.0%         17.2%          18.0%
Costs of sales             $1,346,503     $1,637,901     $1,451,560    $  876,142     $  752,317
Gross profit margin              33.9%          32.6%          32.8%         34.7%          33.9%
Selling, general and
  administrative expense   $  762,176     $  907,913     $  828,105    $  526,369     $  436,361
Interest expense               62,997         75,676         67,283        47,800         40,767
Provision for doubtful
  accounts                     99,283        107,916        181,645        80,908         65,379
Store closing and other
  charges                          --             --         25,530            --             --
Loss on sale and write-down
  of assets held for sale     (63,052)            --             --            --             --
Provision (benefit) for
  income taxes                 22,284         (1,081)       (29,244)       21,715         23,021
Effective income tax rate        61.3%         (35.5)%        (34.7)%        35.1%          35.7%
Net earnings (loss)        $  (58,643)    $   (1,967)    $  (55,143)   $   40,185     $   41,504
Earnings (loss) margin           (2.9)%         (0.1)%         (2.6)%         3.0%           3.7%
Net earnings (loss) per share:
   Basic(3)                $    (0.97)    $    (0.03)    $    (0.98)   $     0.81     $     0.85
   Diluted(3)                   (0.97)         (0.03)         (0.98)         0.80           0.84
Cash dividends per share
  of common stock                0.18           0.28           0.28          0.28           0.28


Balance Sheet Data:
Total assets               $1,457,685     $1,947,752     $2,097,513    $1,837,158     $1,288,960
Average assets per store        1,609          1,559          1,674         1,946          1,800
Accounts receivable, net      143,132        254,282        392,765       380,879        518,969
Retained interest in
  securitized receivables
  at fair value               165,873        190,970        182,158       243,427             --
Inventories                   336,690        493,463        542,868       433,277        293,191
Property and equipment, net   290,252        400,686        398,151       366,749        216,059
Additions to property and
  equipment                    32,099         87,505         70,921        84,137         40,366
Short-term debt                72,963        377,486        282,365       256,413        207,812
Long-term debt                535,982        547,344        715,271       561,489        352,631
Average debt per store            672            740            796           866            783
Stockholders' equity          534,748        605,102        609,154       642,621        518,983
Stockholders' equity
  per share                      8.81          10.11          10.36         11.81          10.69


                                       15
<PAGE>

SELECTED FINANCIAL DATA, cont.

Fiscal Year                     2000(1)        1999(2)        1998(2)       1997(2)        1996
                                      (Dollar amounts in thousands except per share data)

Other Financial Data:
Working capital              $562,809       $380,333       $591,397      $550,137       $527,849
Current ratio                     2.7x           1.5x           1.8x          1.9x           2.4x
Debt to equity ratio             1.14x          1.53x          1.64x         1.27x          1.08x
Percentage of debt to debt
  and equity                     53.2%          60.4%          62.1%         56.0%          51.9%
Rate of return on average
  assets(4)                      (1.1)%          2.3%          (0.6)%         4.6%           5.4%
Rate of return on average
  equity                        (10.3)%         (0.3)%         (8.8)%         6.9%           8.2%
Number of stores                  906          1,249          1,253           944            716
Number of employees            17,424         23,352         24,374        19,131         14,383
Average sales per employee   $    100       $    103       $     99      $     84       $     83

Weighted average common shares outstanding (in thousands):
   Basic                       60,289         59,331         56,312        49,360         48,560
   Diluted                     60,289         59,331         56,312        50,146         49,604

Price range on common stock per share:
   High                      $  8           $ 15 15/16     $ 20          $ 24 1/8       $ 27 1/4
   Low                          2 5/16         5 5/8         11 15/16      12 5/8         13 1/2
   Close                        3 1/4          6 1/2         15 1/2        14 1/8         14

</TABLE>

(1)  Fiscal  year  2000  results  include  the  operating  results  of  divested
operations  up thorugh  the date of  divestiture.  See the  description  of such
divestitures in the Notes to Consolidated Financial Statements.

(2)  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.

(3) 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.

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


                                       16
<PAGE>
ITEM 7.   MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION and
          RESULTS of OPERATIONS

Overview
     Heilig-Meyers  Company (the "Company") is the Nation's  largest retailer of
home  furnishings  and related items and currently  operates  under two business
segments:  Heilig-Meyers Furniture  ("Heilig-Meyers") and The RoomStore.  During
the current  fiscal year ended  February 29, 2000 ("fiscal  2000"),  the Company
commenced a plan designed to divest of non-core  operations.  In connection with
this plan, the Company divested of two previously  reported  business  segments,
Rhodes and  Mattress  Discounters,  and  certain  stores  within  The  RoomStore
business segment that were located in the Chicago and Milwaukee markets, as more
fully described below.
     The  Heilig-Meyers  division and The RoomStore  division are considered the
Company's core business. The Heilig-Meyers division locates its stores primarily
in small  towns and rural  markets  in the  southern,  mid-western  and  western
Continental  United States.  The  Heilig-Meyers  division offers its customers a
broad selection of competitively priced merchandise and approximately 70% to 80%
of its sales have been made through the Company's installment credit program.
     The  RoomStore  division  employs  a  room-packaging  concept  marketed  to
value-conscious   families  in  large  metropolitan   markets  including  Texas,
Baltimore,  Maryland,  Washington,  D.C.,  Virginia and  Portland,  Oregon.  The
RoomStore  division  originated  with the  acquisition  of stores in the central
Texas region in February 1997 that operated under The RoomStore name.
     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 was being made. This review included the retention of
third parties to advise on the possible  divestiture  of the Rhodes and Mattress
Discounters  divisions.  The results of the divestiture activities are described
in detail below.
     On June 15, 1999, the Company  entered into a definitive  agreement to sell
its  interest in its Rhodes  division.  The  transaction  was closed on July 13,
1999,  with an  effective  date of July 1,  1999.  Under  the  terms of the sale
agreement  the  Company  received  $60.0  million  in cash,  a $40  million  10%
pay-in-kind  subordinated note receivable due 2004 (9.5% interest rate per annum
for  periods  where  interest  is paid in cash) and an  option to  acquire a 10%
equity interest in Rhodes Holdings,  the acquiring entity.  The Company also has
the option to acquire an  additional  10% equity  interest if certain  financial
goals are  achieved  by Rhodes  Holdings.  The  Company  agreed  to  provide  or
guarantee a $20.0 million  standby credit  facility to Rhodes after the closing,
which  may  only be drawn  on in  certain  circumstances  after  utilization  of
availability under Rhodes' primary credit facility. In addition,  under terms of
the  agreement,  Rhodes  assumed  approximately  $10  million in  capital  lease
obligations.  As a result of this sale, the Company recorded a pre-tax charge to
earnings of $99.5 million ($64.5  million net of tax benefit)  during the fiscal
year ended February 29, 2000.  Results for fiscal 2000 include operations of the
Rhodes division through June 30, 1999.
     On May 28, 1999,  the Company  entered into a definitive  agreement to sell
93% of its interest in its Mattress Discounters division, and on August 6, 1999,
the Company completed the transaction.  The Company received  approximately $204
million in cash,  subject to certain  working capital  adjustments,  pay-in-kind
junior  subordinated  notes  valued at $11.4  million  and  retained a 7% equity
interest in Mattress  Discounters.  The Company  incurred  costs  related to the
transaction   of   approximately   $7.7  million  and  assumed   liabilities  of
approximately  $2.9  million.  This  transaction  resulted in a pre-tax  gain of
$138.5 million ($63.2 million net of tax) during fiscal 2000. Results for fiscal
2000 include operations of Mattress Discounters through August 6, 1999.
     On January 31, 2000,  the Company sold  substantially  all of the assets of
Guardian  Products,  Inc. The Company  received  $6.0 million in cash and a $5.1
million note  receivable.  This  transaction  resulted in a pre-tax loss of $0.2
million, however, the sale resulted in a $3.8 million loss after income taxes as
a result of the Company's low tax basis in its investment.
     During the second quarter ended August 31, 1999, the Company  announced its
intent to exit the  Chicago,  Illinois,  Milwaukee,  Wisconsin  and Puerto Rican
markets,  which are not considered to be part of the Company's core  operations.
Pursuant to this plan,  the Company sold the assets  related to 18 stores in the
Chicago  and  Milwaukee  markets  (referred  to  throughout  as The  RoomStore -
Chicago) in September 1999. This transaction resulted in a pre-tax loss of $46.6
million ($28.0 million net of tax benefit)  during fiscal 2000. The Puerto Rican
operations and the remaining  three stores in the Chicago area are classified as
net assets held for sale on the February  29, 2000  consolidated  balance  sheet
with net assets totaling $125.9 million.  The Company  recorded a pre-tax charge
of $55.2 million ($42.5 million net of tax benefit) to write down the associated
assets to their estimated fair value, less costs to sell.

                                       17
<PAGE>
     On April 20, 2000, subsequent to the Company's fiscal year end, the sale of
the Berrios  division was completed.  The total value of the  transaction was in
excess of $120.0 million,  before  transaction costs, of which $18.0 million was
in the form of a  seller's  note and  $12.0  million  was in the form of  excess
working capital. The transaction will be recorded in the Company's first quarter
ended May 31, 2000 and is not expected to have a  significant  effect on results
of operations. Proceeds from the sale will be used to pay down debt obligations.
     The Company expects the  disposition of the remaining  assets held for sale
to be completed within fiscal year 2001. Historical business segment information
presented in  management's  discussion and analysis has been restated to reflect
the current operating segments.

Results of Operations
     As a result of the divestitures of Rhodes,  Mattress Discounters and the 18
stores  in the  Chicago  and  Milwaukee  markets,  total  revenues  for the year
declined to $2,297.7  million from $2,726.4  million for the prior year.  During
the current  fiscal year,  the Company  incurred  pre-tax costs of $63.1 million
($75.7 million net of tax) associated with divestiture  activities and the write
down of assets held for sale.  Including these costs, the Company reported a net
loss of $58.6  million or $.97 per share for the year ended  February  29, 2000.
Absent these charges,  net earnings for the year ended  February 29, 2000,  were
$17.0 million, or $.28 per share. This compares to a net loss of $2.0 million or
$.03 per share for the year ended  February 28, 1999  ("fiscal  1999") and a net
loss of $55.1  million,  or $.98 per share for the year ended  February 28, 1998
("fiscal  1998").  Results  for fiscal  2000  include  operations  of the Rhodes
division through June 30, 1999, the Mattress Discounters division through August
6, 1999 and The RoomStore - Chicago  division  through August 31, 1999. On a pro
forma basis,  net earnings for those  divisions  which were under the  Company's
ownership  for the full year  increased  11.3% to $17.0  million in fiscal  2000
compared to $15.2 million in fiscal 1999. Pro forma  revenues  increased 3.1% to
$2,007.2 million from the fiscal 1999 amount of $1,946.5 million and total costs
and expenses  increased 3.0% to $1,980.6  million from the fiscal 1999 amount of
$1,922.5 million.  Consolidated  results of operations expressed as a percentage
of sales are as follows:
                                                    Fiscal Year
                                     2000              1999              1998
                                     ----------------------------------------
Other income                         12.7%             12.1%             14.3%
Costs of sales                       66.1              67.4              67.2
Selling, general and
   administrative expense            37.4              37.3              38.3
Interest expense                      3.1               3.1               3.1
Provision for doubtful accounts       4.9               4.4               8.4
Store closing and other charges        --                --               1.2
Loss on sale of and write-
   down of assets held for sale      (3.1)               --                --
Loss before provision (benefit)
   for income taxes                  (1.8)             (0.1)             (3.9)
Provision (benefit) for
   income taxes                       1.1                --              (1.4)
Net loss                             (2.9)             (0.1)             (2.6)


     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 from fiscal 1998 to fiscal 1999.  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.

                                       18
<PAGE>
     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 the Profit
Improvement 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 0.2% of sales, due to
inventory liquidations.  Also, approximately $14.8 million, or 0.7% 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,  $2.6 million was utilized  during  fiscal 2000,  with the
remaining  portion related to severance and lease  obligations  that will extend
into fiscal 2001.  Included in the fiscal 1999 results are  operating  losses of
approximately  $5.8 million  incurred as these stores were closed.  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  revolving  credit  financing 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.

Revenues
     Consolidated sales for fiscal 2000 compared to the previous years are shown
below:
                                                     Fiscal Year
                                       2000              1999              1998
                                 ----------------------------------------------
Sales (in thousands)             $2,038,143        $2,431,152        $2,160,223
Sales percentage increase
  (decrease) over prior period        (16.2)%            12.5%             60.9%
Portion of change from
  existing (comparable) stores          2.1               3.0               2.8
Portion of change from
  new (closed/divested) stores        (18.3)              9.5              58.1


     Sales from comparable stores are stores which were open for at least twelve
months.  During the  current  fiscal  year the  Company  divested  236  Mattress
Discounters  stores  and 96  Rhodes  stores.  The  Company  also  closed  19 The
RoomStore  - Chicago  stores  and  transferred  three  stores to  Heilig-Meyers.
Additionally,  The RoomStore netted 11 new stores, stores within operations held
for sale include one new store and Heilig-Meyers  netted four closed stores. The
following  table  shows a  comparison  of sales by  division  for the last three
fiscal years:
                                           Fiscal Year
                         2000                  1999                  1998
               -----------------------------------------------------------------
                                  (Sales amounts in millions)

                  # of          % of    # of          % of    # of          % of
                Stores  Sales  Total  Stores  Sales  Total  Stores  Sales  Total
                ----------------------------------------------------------------
Heilig-Meyers      814 $1,309   64.2     815 $1,296   53.3     833 $1,269   58.8
The RoomStore       56    271   13.3      45    208    8.6      36    106    4.9
Operations held
   for sale         36    183    9.0      35    181    7.4      35    127    5.9
                ----------------------------------------------------------------
                   906  1,763   86.5     895  1,685   69.3     904  1,502   69.6
Divested operations:
The Room Store -
   Chicago          --     18     .9      22     51    2.1      22     46    2.1
Rhodes              --    151    7.4      96    457   18.8     102    479   22.2
Mattress
   Discounters      --    106    5.2     236    238    9.8     225    133    6.1
                ----------------------------------------------------------------
Total              906 $2,038  100.0   1,249 $2,431  100.0   1,253 $2,160  100.0
                ================================================================

                                       19
<PAGE>

     Sales in those divisions  which were under the Company's  ownership for the
full  fiscal  year  increased  4.7% to  $1,762.8  million,  compared to $1,684.4
million for fiscal 1999 and $1,502.3 million for fiscal 1998. As a result of the
divestitures  of Rhodes,  Mattress  Discounters and the 18 stores in the Chicago
and  Milwaukee  markets,  total  sales for the year  declined  16.2% to $2,038.1
million  compared  to sales of  $2,431.2  million in fiscal  1999.  The  overall
increase in sales in the divisions  under the  Company's  ownership for the full
fiscal year was  attributable  to an increase  in  operating  units as well as a
comparable  store  increase of 2.1%. As noted above,  the overall growth rate in
sales decreased in fiscal 2000 as compared to the two previous years. This trend
is reflective of the fiscal 2000 divestitures and the current operating strategy
of limiting new store growth in the Heilig-Meyers division.  Sales in comparable
stores  decreased  compared  to the two  previous  years due to the  divestiture
activity  during  fiscal 2000.  The impact of price changes on sales growth over
the last three fiscal years has been insignificant.

Other income
     The  Heilig-Meyers  division and certain stores within  operations held for
sale  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 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.
     Other income for those divisions  which were under the Company's  ownership
for the full year  decreased  to 13.9% of sales for  fiscal  2000 from  15.6% of
sales in fiscal 1999 and 18.1% of sales in fiscal 1998. This decreasing trend is
primarily  the result of sales growth in stores that do not offer the  Company's
in-house  installment credit program.  On a consolidated basis, other income was
12.7% of sales for fiscal  2000  compared  to 12.1% and 14.3% in fiscal 1999 and
1998, respectively. The increase in consolidated other income as a percentage of
sales in fiscal  2000  compared to fiscal  1999 is  primarily  the result of the
divestiture of the Rhodes and Mattress  Discounters  divisions.  The decrease in
other income as a percentage  of sales in fiscal 1999 compared to fiscal 1998 is
primarily due to the growth in stores 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
                                    2000             1999              1998
                                    ---------------------------------------
Heilig-Meyers                       16.8%            18.2%             19.7%
The RoomStore                        1.2              1.8               1.1
Operations held for sale            12.8             13.0              16.3
                                    ---------------------------------------
                                    13.9             15.6              18.1
Divested operations:
The RoomStore - Chicago             21.3             19.8              18.2
Rhodes                               6.1              4.8               6.2
Mattress Discounters                  .1               .2                .2
                                    ---------------------------------------
     Consolidated                   12.7%            12.1%             14.3%
                                    =======================================

     The  decrease  in other  income as a  percentage  of sales in  fiscal  2000
compared to fiscal 1999 in the  Heilig-Meyers  division is due to an increase in
the amount of receivables  that have been  securitized,  the  elimination of the
previous  revolving  credit card  program in fiscal  1999 and lower  commissions
earned on credit insurance products. 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.

                                       20
<PAGE>
     The  decrease in other  income as a  percentage  of sales in The  RoomStore
division in fiscal 2000 compared to fiscal 1999 is due to the  concentration  of
total sales growth in stores that do not offer in-house credit programs.

Costs and expenses
     Costs of sales for those divisions which were under the Company's ownership
for the full year were  65.9% of sales in  fiscal  2000,  and 66.5% and 66.3% in
fiscal 1999 and 1998,  respectively.  On a  consolidated  basis,  costs of sales
decreased  in fiscal  2000 to 66.1% of sales from 67.4% of sales in fiscal  1999
and  67.2%  of sales in  fiscal  1998.  These  decreases  in costs of sales  are
primarily the result of cost  reductions in  administrative  and overhead areas.
The  following  table  shows  costs of sales as a  percentage  of sales for each
division:

                                                   Fiscal Year
                                    2000              1999              1998
                                    ----------------------------------------
Heilig-Meyers                       66.2%             66.3%             66.6%
The RoomStore                       68.1              69.5              65.9
Operations held for sale            61.3              64.6              63.8
                                    ----------------------------------------
                                    65.9              66.5              66.3
Divested operations:
The RoomStore - Chicago             66.2              70.7              71.8
Rhodes                              70.6              72.6              70.5
Mattress Discounters                62.2              62.6              63.7
                                    ----------------------------------------
     Consolidated                   66.1%             67.4%             67.2%
                                    ========================================

     The costs of sales in the Heilig-Meyers  division  decreased  slightly as a
percentage of sales from fiscal 2000 as compared to fiscal 1999 and fiscal 1998.
These decreases are a result of cost control efforts  primarily in the warehouse
and delivery areas.
     Costs of sales as a  percentage  of sales  for The  RoomStore  division  in
fiscal 2000  decreased  approximately  1.4% of sales from the prior  year.  This
decrease was primarily due to an increase in raw selling margins.
     Selling, general and administrative expenses for those divisions which were
under the  Company's  ownership  for the full year were 37.7% of sales in fiscal
2000, and 38.0% and 40.3% of sales in fiscal 1999 and 1998,  respectively.  On a
consolidated basis, selling,  general and administrative  expenses were 37.4% of
sales in fiscal  2000,  and  37.3%  and 38.3% of sales in fiscal  1999 and 1998,
respectively.  The following table displays selling,  general and administrative
expenses as a percentage of the applicable division's sales:

                                                   Fiscal Year
                                    2000              1999              1998
                                    ----------------------------------------
Heilig-Meyers                       39.1%             39.4%             41.1%
The RoomStore                       29.0              29.7              33.8
Operations held for sale            40.4              37.0              37.8
                                    ----------------------------------------
                                    37.7              38.0              40.3
Divested operations:
The RoomStore- Chicago              75.6              49.1              57.5
Rhodes                              37.1              38.7              33.7
Mattress Discounters                26.9              27.9              26.3
                                    ----------------------------------------
     Consolidated                   37.4%             37.3%             38.3%
                                    ========================================

     Selling,  general and administrative  expenses as a percentage of sales for
the Heilig-Meyers division in fiscal 2000 decreased  approximately 0.3% of sales
from the prior year as a result of decreases in  advertising as well as salaries
and  related  expenses.  Selling,  general  and  administrative  expenses  as  a
percentage  of sales for the  Heilig-Meyers  division in fiscal  1999  decreased
approximately 1.7% of sales from 1998 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.

                                       21
<PAGE>
     The decreasing trend in selling, general and administrative expenses of The
RoomStore division, as a percentage of sales, is primarily due to sales leverage
gained from total sales  growth and also  reflects  the lower cost  structure of
this  division  relative to the  Heilig-Meyers  division  because The  RoomStore
division does not administer installment credit programs.
     Interest  expense  remained flat at 3.1% of sales in fiscal 2000,  1999 and
1998. Weighted average long-term debt decreased to $600.0 million in fiscal 2000
compared  to $714.6  million  in fiscal  1999  primarily  due to the  paydown of
approximately  $166.6 million of long-term debt in fiscal 2000. Weighted average
long-term  interest rates for fiscal 2000 increased to 8.2% from 7.7% during the
prior year.  Weighted  average  short-term  debt  decreased to $143.0 million in
fiscal 2000 from $235.0 million in fiscal 1999.  This decrease was the result of
the use of proceeds from divestitures to paydown notes payable. Weighted average
short-term interest rates increased to 7.1% compared to 6.2% in the prior year.
     The  provision  for  doubtful  accounts  was 4.9% of sales in  fiscal  2000
compared to 4.4% and 8.4% in fiscal 1999 and 1998, respectively. The increase in
the  provision  for doubtful  accounts as a  percentage  of sales in fiscal 2000
compared to fiscal 1999 is due to the reduction in the sales contribution of the
Rhodes and Mattress  Discounters  divisions.  The decrease in the provision 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.
     The volume of accounts  declaring  bankruptcy  was $31.4  million in fiscal
2000 as compared to the prior two years of $35.3 million and $34.4 million.
     Write-offs and  repossession  losses for the on-balance sheet portfolio for
fiscal years 2000,  1999 and 1998 were $95.0  million,  $68.8 million and $106.0
million,  respectively.  Of these amounts,  $1.1 million, $4.3 million and $21.2
million were for purchased accounts.  Management believes that the allowance for
doubtful accounts at February 29, 2000, is adequate.
     The Profit  Improvement  Plan  implemented  in fiscal  1998 has  positively
impacted the portfolio's 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.  Over the past two fiscal years,
the Company has  implemented a credit scoring  product that provides local store
management  with an enhanced tool for making better  credit  decisions.  Looking
forward  to  fiscal  2001,  the  Company  plans to  further  refine  its  credit
management  effectiveness by implementing a centralized  billing process for all
installment  credit  customers.  Additionally,  the Company  plans to  implement
centralized  credit extension and collections in approximately 223 Heilig-Meyers
stores.

Provision for Income Taxes
     Before divestiture activity,  the effective income tax rate for fiscal 2000
was 36.3% compared to an income tax benefit of 35.5% in fiscal 1999 and 34.7% in
fiscal 1998. For fiscal year 2000, the divestiture activity caused the provision
for income  taxes to be an expense of $22.3  million on a pre-tax  loss of $36.4
million.  Because the Company's tax basis in the Mattress  Discounters  division
was minimal,  the sale of the division  resulted in a tax gain  significantly in
excess of the gain recorded for financial reporting purposes. The lower rate for
fiscal  1998  compared  to fiscal 1999 was  primarily  due to the loss  incurred
during 1998.

                                       22
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

     The Company  decreased its cash position  $52.2 million to $15.1 million at
February  29, 2000 from $67.3  million at  February  28,  1999,  which was $18.5
million higher than the $48.8 million position at February 28, 1998.
     Net cash  outflow from  operating  activities  during  fiscal 2000 was $0.8
million,  compared to an inflow of $194.7 million in fiscal 1999. The prior year
amount includes $159.3 million from the sale of accounts  receivable through the
Company's asset securitization  program.  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.
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  cash  flows of $266.8  million  during the
twelve  months ended  February 29, 2000 compared to negative cash flows of $87.1
million in the prior year  period.  The  increase  in cash flows from  investing
activities is primarily due to cash proceeds  received from the  divestitures of
Rhodes,  Mattress  Discounters  and the 18 stores in the Chicago  and  Milwaukee
markets.  In accordance with management's plan to slow the growth of the capital
intensive Heilig-Meyers division and lower overall spending on capital projects,
additions to property and equipment in fiscal 2000 decreased  $36.1 million from
fiscal 1999. The remaining  portion of the decrease in additions to property and
equipment  was  due to  the  divestitures  previously  mentioned.  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 1998 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 $318.1 million during
the twelve  months ended  February 29, 2000  compared to negative  cash flows of
$89.1 million in the prior year period. The increase in negative cash flows from
financing activities in the current year is due to the payments of debt from the
proceeds of the divestitures of Rhodes,  Mattress  Discounters and the 18 stores
in  the  Chicago  and  Milwaukee  markets.  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 29, 2000.  As of February 29,  2000,  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 29, 2000, the Company had a
$200.0 million  revolving credit facility in place.  This facility  includes ten
banks and had  $72.3  million  outstanding  and  $127.7  million  undrawn  as of
February 29, 2000. On March 22, 2000, the Company obtained commitments,  subject
to final  documentation  requirements which were satisfied in May 2000, from its
current bank group to extend its revolving  credit facility as described in Note
7 that was set to expire in July 2000. The facility  expiration  date is set 364
days after the  satisfaction  of  documentation  requirements,  and the facility
contains  certain  provisions  under which the facility  expiration  date may be
extended to July 2001. As a result of the  application of proceeds  generated by
the sale of the Berrios  division,  the  committed  amount of the  facility  was
reduced from $200.0 million to $140.0 million. In addition, the Company pledged,
within the provisions of certain other long-term debt agreements, certain assets
as partial security.
     As a result of losses  incurred  during  fiscal  years  2000 and 1999,  the
Company  amended  its  bank  debt  agreements  in  order  to  maintain  covenant
compliance.
     Total debt as a  percentage  of debt and equity was 53.2% at  February  29,
2000,  compared to 60.4% at February 28,  1999.  The decrease in total debt as a
percentage  of debt and  equity is  primarily  due to the  paydown  of debt from
proceeds of  divestitures as well as the write-down of assets held for sale. The
current  ratio was 2.7x at February 29,  2000,  compared to 1.5x at February 28,
1999.  The increase in the current  ratio from February 28, 1999 to February 29,
2000 is primarily  attributed to the paydown of debt and the reclassification of
assets held for sale.
     In the event  the  Company's  long term  senior  unsecured  debt  rating is
reduced  below  BB- by  Standard  & Poor's  or below  Ba3 by  Moody's  Investors
Service, Inc., the Company may need to reduce expenses or sell additional assets
to provide a source of working  capital of  approximately  $20.0  million  which
would  otherwise  be  obtained  under two asset  securitizations,  unless  these
securitizations  are otherwise  restructured.  The Company expects that any such
assets would be  non-operational  assets. As of May 26, 2000, the Company's long
term  senior  unsecured  debt is rated BB- by Standard & Poor's and Ba2 on watch
for possible downgrade by Moody's Investors Service, Inc.

                                       23
<PAGE>

Other Information

Year 2000 Issue
     The Year 2000 issue arose  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.
     Since the  project's  beginning  in fiscal  1997,  the Company has incurred
approximately  $3.0 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,
auditing costs,  software upgrade costs, software testing costs, and contingency
planning costs.
     To date the Company has not  experienced any material  difficulties  due to
the Year 2000  issue.  The  Company  will  continue  to monitor  its systems and
address  any  issues  that  might  arise.  Management  believes  the  Year  2000
compliance  issue has been  addressed  properly  by the  Company to prevent  any
material adverse operational or financial impacts.

Forward-Looking Statements
     Certain  statements  included  in  this  Annual  Report  are not  based  on
historical facts, but are  forward-looking  statements.  These statements can be
identified  by the  use  of  forward-looking  terminology  such  as  "believes,"
"expects,"  "may," "will," "should," or "anticipates" or the negative thereof or
other  variations  thereon  or  comparable  terminology,  or by  discussions  of
strategy.  See,  e.g.,   "Management's  Discussion  and  Analysis  of  Financial
Condition and Results of  Operations."  These  statements  reflect the Company's
reasonable  judgments with respect to future events and are subject to risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking  statements.  Such risks and uncertainties  include, but are
not  limited  to, the  customer's  willingness,  need and  financial  ability to
purchase home  furnishings  and related items,  the Company's  ability to extend
credit to its customers,  the costs and effectiveness of promotional activities,
the Company's access to, and cost of, capital,  the Company's ability to attract
buyers and obtain satisfactory  valuations for certain assets held for sale, and
the  successful  implementation  of  the  Company's  credit  centralization  and
merchandising  management  plans.  Payments under guarantees of Rhodes leases or
other  obligations  or the  standby  credit  facility  as a result of lower than
expected Rhodes operating results or defaults by Rhodes could impact the outcome
of  forward  looking  statements.  Other  factors  such as  changes in tax laws,
consumer credit and bankruptcy  trends,  recessionary or expansive trends in the
Company's markets, 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.
                                       24
<PAGE>


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



<TABLE>
<S>                         <C>        <C>        <C>        <C>        <C>       <C>          <C>         <C>
                                                                                                           Fair Value
(Amounts in thousands)          2001       2002       2003       2004       2005  Thereafter      Total    at 2/29/00
----------------------------------------------------------------------------------------------------------------------
Assets:
Other receivables           $ 44,376         --         --         --         --          --   $ 44,376      $ 44,376
 Average interest rate           5.5%        --         --         --         --          --        5.5%           --

Liabilities:
Notes payable               $ 72,257         --         --         --         --          --   $ 72,257      $ 72,257
 Average interest rate           7.9%        --         --         --         --          --        7.9%           --
Long-term debt
 Fixed rate                 $    157   $160,081     $   82   $200,083     $   83    $175,049   $535,535      $319,601
 Average interest rate           8.6%       9.1%       7.5%       7.9%       7.4%        7.6%       8.2%           --
 Variable rate              $     37   $      8                                                $     45      $     45
 Average interest rate           6.2%       6.0%        --         --         --          --        6.1%           --

Interest Rate Derivative
Financial Instruments
Relating to Asset
Securitizations:
 Pay fixed/receive variable $100,000         --         --         --         --          --   $100,000      $   (281)
 Average pay rate                7.0%        --         --         --         --          --        7.0%           --
 Average receive rate            5.9%        --         --         --         --          --        5.9%           --

</TABLE>


                                       25
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS and SUPPLEMENTARY DATA

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

Fiscal Year                             2000              1999            1998
                                       ------            ------          ------
Revenues:
   Sales                           $2,038,143        $2,431,152      $2,160,223
   Other income                       259,509           295,206         309,513
                                   ----------        ----------      ----------
        Total revenues              2,297,652         2,726,358       2,469,736

Costs and expenses:
   Costs of sales                   1,346,503         1,637,901       1,451,560
   Selling, general and
     administrative                   762,176           907,913         828,105
   Interest, net                       62,997            75,676          67,283
   Provision for doubtful accounts     99,283           107,916         181,645
   Store closing and other charges         --                --          25,530
                                   ----------        ----------      ----------
        Total costs and expenses    2,270,959         2,729,406       2,554,123
                                   ----------        ----------      ----------

Loss on sale and write-down
   of assets held for sale            (63,052)               --              --
Loss before provision
   (benefit) for income taxes         (36,359)           (3,048)        (84,387)
Provision (benefit) for income taxes   22,284            (1,081)        (29,244)
                                   ----------        ----------      ----------
Net loss                           $  (58,643)       $   (1,967)     $  (55,143)
                                   ==========        ==========      ==========

Net loss per share:
   Basic                           $    (0.97)       $    (0.03)     $    (0.98)
                                   ===========       ===========     ==========
   Diluted                         $    (0.97)       $    (0.03)     $    (0.98)
                                   ===========       ===========     ==========

Weighted average common shares outstanding:

   Basic                               60,289            59,331          56,312
   Diluted                             60,289            59,331          56,312
                                   ==========         =========       =========

Cash dividends per share of common
     stock                         $     0.18        $     0.28       $    0.28
                                   ==========        ==========       =========


See Notes to Consolidated Financial Statements.


                                       26
<PAGE>


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

February 29, (28),                                       2000             1999
                                                        ------           ------
Assets:
Current assets:
     Cash                                            $   15,073       $   67,254
     Accounts receivable, net                           143,132          254,282
     Retained interest in securitized
          receivables at fair value                     165,873          190,970
     Inventories                                        336,690          493,463
     Other current assets                               116,792          124,305
     Net assets held for sale                           125,917               --
                                                     ----------       ----------
          Total current assets                          903,477        1,130,274

Property and equipment, net                             290,252          400,686
Other assets                                            121,031           72,632
Excess costs over net assets acquired, net              142,925          344,160
                                                     ----------       ----------
                                                     $1,457,685       $1,947,752
                                                     ==========       ==========
Liabilities And Stockholders' Equity:
Current liabilities:
     Notes payable                                   $   72,257       $  210,000
     Long-term debt due within one year                     706          167,486
     Accounts payable                                   125,464          193,799
     Accrued expenses                                   142,241          178,656
                                                     ----------       ----------
          Total current liabilities                     340,668          749,941

Long-term debt                                          535,982          547,344
Deferred income taxes                                    46,287           45,365

Stockholders' equity:
     Preferred stock, $10 par value                          --               --
     Common stock, $2 par value (250,000
          shares authorized; 60,677 and
          59,861 shares issued and
          outstanding, respectively)                    121,354          119,722
     Capital in excess of par value                     240,871          242,346
     Unrealized gain on investments                       4,169            5,228
     Retained earnings                                  168,354          237,806
                                                     ----------       ----------
          Total stockholders' equity                    534,748          605,102
                                                     ----------       ----------
                                                     $1,457,685       $1,947,752
                                                     ==========       ==========


See Notes to Consolidated Financial Statements.


                                       27
<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 (Loss)  Earnings        Equity
-------------------------------------------------------------------------------------------
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
 Net loss                 --          --          --           --     (58,643)     (58,643)
 Unrealized gain
  on investments          --          --          --       (1,059)         --       (1,059)
                                                                                  --------
    Comprehensive loss                                                             (59,702)
 Cash dividends           --          --          --           --     (10,809)     (10,809)
 Common stock issued
  for acquisitions       803       1,606      (1,537)          --          --           69
 Exercise of stock
  options, net            13          26          62           --          --           88
                     ----------------------------------------------------------------------
Balances at
 February 29, 2000    60,677    $121,354    $240,871      $ 4,169    $168,354     $534,748
                     ======================================================================

See Notes to Consolidated Financial Statements.

</TABLE>

                                       28
<PAGE>

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)

Fiscal Year                                1999            1998            1997
                                       -----------------------------------------
Cash flows from operating activities:
 Net loss                             $ (58,643)      $  (1,967)      $ (55,143)

  Adjustments  to reconcile net loss
  to net cash provided (used) by
  operating activities:
    Depreciation and amortization        53,533          58,840          54,043
    Provision for doubtful accounts      99,283         107,916         181,645
    Store closing and other charges
     provision                               --              --          25,530
    Store closing and other charges
     payments                            (2,610)        (10,013)         (1,452)
    Loss, net of tax on sale and
     write-down of net assets held
     for sale                            75,656              --              --
    Other, net                              604          (2,527)          2,616
    Change in operating assets and
     liabilities, net of the effects
     of acquisitions:
      Accounts receivable              (107,762)         25,342        (195,141)
      Retained interest in securitized
       receivables at cost               24,038          (7,784)         50,533
      Inventories                        (2,065)         51,601         (77,115)
      Other current assets              (30,984)         10,050         (65,218)
      Accounts payable                  (17,601)         (9,819)         14,788
      Accrued expenses                  (34,271)        (26,958)         42,106
                                     -------------------------------------------
       Net cash provided (used)
        by operating activities            (822)        194,681         (22,808)
                                     -------------------------------------------

Cash flows from investing activities:
 Proceeds from sale of subsidiaries     284,688              --              --
 Acquisitions, net of cash acquired          --              --         (40,186)
 Additions to property and equipment    (32,099)        (87,505)        (70,921)
 Disposals of property and equipment      8,193          22,797          15,107
 Miscellaneous investments                6,008         (22,416)        (10,467)
                                     -------------------------------------------
       Net cash provided (used) by
        investing activities            266,790         (87,124)       (106,467)
                                     -------------------------------------------

Cash flows from financing activities:
 Issuance of stock                        1,632             697             912
 Proceeds from long-term debt                --              --         174,767
 Increase (decrease) in notes
  payable, net                         (137,743)        (50,000)        104,000
 Payments of long-term debt            (166,562)        (23,142)       (100,335)
 Debt structuring costs                  (4,667)             --              --
 Dividends paid                         (10,809)        (16,637)        (16,249)
                                     -------------------------------------------
       Net cash provided (used)
        by financing activities        (318,149)        (89,082)        163,095
                                     -------------------------------------------

Net increase (decrease) in cash         (52,181)         18,475          33,820
Cash at beginning of year                67,254          48,779          14,959
                                     -------------------------------------------
Cash at end of year                   $  15,073       $  67,254       $  48,779
                                     ===========================================


See Notes to Consolidated Financial Statements.


                                       29
<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 906 stores as of February 29, 2000 of which 873
are located in 30 states and 33 are located in Puerto Rico. The Company operated
two primary  retail  formats for the full current  fiscal year as  Heilig-Meyers
Furniture  ("Heilig-Meyers")  and The RoomStore.  During the current fiscal year
the Company divested its Mattress Discounters and Rhodes Furniture divisions and
sold the assets related to certain RoomStore operations in the Chicago, Illinois
and  Milwaukee,  Wisconsin  markets.  Additionally,  the Company  announced  its
intention  to divest the  remaining  operations  in Chicago and the Puerto Rican
operations.  Data with respect to these  operating  segments has been separately
reported herein.
     The Company's  operating  strategy  includes  offering a broad selection of
home  furnishings  and bedding.  The  Heilig-Meyers  format also offers consumer
electronics,  appliances, and floor coverings as well as an in-house installment
credit  program.  The Company also offers third party  private label credit card
programs to provide financing to its customers.

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 2000, 1999 and 1998 represent the years ended February 29, 2000,  February
28, 1999 and February 28, 1998, respectively.

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  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 or on which the Company has
received a bankruptcy notice indicating an unsecured position 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 906 stores  throughout  30 states 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.

                                       30
<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  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 29, 2000 and February 28, 1999,  there were 60,677,000
and 59,861,000 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.

                                       31
<PAGE>
New Accounting Standards
     In June 1998 the Financial  Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative  Instruments and Hedging Activities," which,
as amended by FASB Statement 137, is effective for fiscal years  beginning after
June 15, 2000.  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.
     During  fiscal  year 2000,  the  Company  adopted  the AICPA  Statement  of
Position ("SOP") 98-1,  "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use," which 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.  The  adoption  of this SOP did not have a  material  effect on the
Company's consolidated financial position, results of operations or cash flows.
     During the current fiscal year the Company also adopted the AICPA SOP 98-5,
"Reporting  on the  Costs  of  Start-Up  Activities,"  which  requires  costs of
start-up activities and organization costs to be expensed as incurred.  Adoption
of  this  SOP did not  have a  material  effect  on the  Company's  consolidated
financial position, results of operations or cash flows.

Revenues and Costs of Sales
     Currently,   revenue  is  generally   recognized  upon  determination  that
merchandise  is  in  stock,  the  establishment  of a  delivery  date,  and,  if
applicable,  upon  approval  of  consumer  credit.  Sales are  presented  net of
returns.  Historically,  the effect of returns  prior to shipment  date has been
immaterial.  In December 1999 the SEC issued Staff  Accounting  Bulletin ("SAB")
101, "Revenue Recognition in Financial  Statements," which is effective no later
than the second fiscal quarter of the fiscal year  beginning  after December 15,
1999.  This SAB  provides  additional  guidance in applying  generally  accepted
accounting   principles  for  revenue  recognition  in  consolidated   financial
statements.  Effective  March 1, 2000,  the  Company  will  change its method of
accounting  to  record   merchandise  sales  upon  delivery  of  merchandise  to
customers,  rather  than prior to delivery  in order to be  consistent  with the
provisions of SAB 101. The pre-tax amount of the one-time  non-cash charge to be
recorded as of March 1, 2000 is estimated to be $24.0 to $29.0 million ($15.0 to
$18.5 million after tax).  The  cumulative  effect of the change  represents the
deferral  of  previously  recorded  revenue,  net of direct  costs,  related  to
merchandise that has not been delivered to the customer as of February 29, 2000.
This change in accounting  will impact future  interim and fiscal year reporting
periods based on seasonal  trends in sales and  corresponding  delivery  cycles.
However,  there will be no impact on the Company's cash flows from operations as
a result of this change.
     Other  income  consists  primarily  of finance and other  income  earned on
accounts  receivable.  Finance  charges  were  $214,098,000,  $231,369,000,  and
$231,612,000  during fiscal 2000, 1999 and 1998,  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  include
occupancy and delivery expenses.

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

Interest
     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. Interest is presented net
of interest income of $6.0 million for the year ended February 29, 2000.

                                       32
<PAGE>
(2) Expansion
--------------------------------------------------------------------------------

     On  September  1,  1998,  the  Company  acquired  substantially  all of the
operating  assets and liabilities of Guardian  Products,  Inc.  ("Guardian"),  a
manufacturer  of fabric  protection  and related  products,  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  traded  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 would
be issued so that the  acquisition  price would equal $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 an earlier date if selected by the
Company.  In August  1999,  the Company  issued the former  owner of Guardian an
additional  802,592 shares of the Company's common stock in connection with this
agreement. See Note 3 regarding the divestiture of Guardian.
     All  acquisitions  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  have not been  presented  because the effects were not  significant.
Other  acquisitions  completed during fiscal year 1999 are not discussed because
they are not considered material to the consolidated financial statements.
     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 $142,925,000 and  $344,160,000,  net of
accumulated  amortization of $30,431,000 and  $38,248,000,  at February 29, 2000
and February 28, 1999, respectively.


(3) Divestitures
--------------------------------------------------------------------------------

     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 was being made. This review included the retention of
third parties to advise on the possible  divestiture  of the Rhodes and Mattress
Discounters  divisions.  The results of the divestiture activity is described in
detail below.
     On June 15, 1999, the Company  entered into a definitive  agreement to sell
its  interest in its Rhodes  division.  The  transaction  was closed on July 13,
1999,  with an  effective  date of July 1,  1999.  Under  the  terms of the sale
agreement  the  Company  received  $60.0  million  in cash,  a $40  million  10%
pay-in-kind  subordinated note receivable due 2004 (9.5% interest rate per annum
for  periods  where  interest  is paid in cash) and an  option to  acquire a 10%
equity interest in Rhodes Holdings,  the acquiring entity.  The Company also has
the option to acquire an  additional  10% equity  interest if certain  financial
goals are  achieved  by Rhodes  Holdings.  The  Company  agreed  to  provide  or
guarantee a $20.0 million  standby credit  facility to Rhodes after the closing,
which  may  only be drawn  on in  certain  circumstances  after  utilization  of
availability under Rhodes' primary credit facility. In addition,  under terms of
the  agreement,  Rhodes  assumed  approximately  $10  million in  capital  lease
obligations.  As a result of this sale, the Company recorded a pre-tax charge to
earnings of $99.5 million ($64.5  million net of tax benefit)  during the fiscal
year ended February 29, 2000.  Results for fiscal 2000 include operations of the
Rhodes division through June 30, 1999.
     On May 28, 1999,  the Company  entered into a definitive  agreement to sell
93% of its interest in its Mattress Discounters division, and on August 6, 1999,
the Company completed the transaction.  The Company received  approximately $204
million in cash,  subject to certain  working capital  adjustments,  pay-in-kind
junior  subordinated  notes  valued at $11.4  million  and  retained a 7% equity
interest in Mattress  Discounters.  The Company  incurred  costs  related to the
transaction   of   approximately   $7.7  million  and  assumed   liabilities  of
approximately  $2.9  million.  This  transaction  resulted in a pre-tax  gain of
$138.5 million ($63.2 million net of tax) during fiscal 2000. Results for fiscal
2000 include operations of Mattress Discounters through August 6, 1999.
     On January 31, 2000,  the Company sold  substantially  all of the assets of
Guardian  Products,  Inc. The Company  received  $6.0 million in cash and a $5.1
million note  receivable.  This  transaction  resulted in a pre-tax loss of $0.2
million, however, the sale resulted in a $3.8 million loss after income taxes as
a result of the Company's low tax basis in its investment.

                                       33
<PAGE>
     During the second quarter ended August 31, 1999, the Company  announced its
intent to exit the  Chicago,  Illinois,  Milwaukee,  Wisconsin  and Puerto Rican
markets,  which are not considered to be part of the Company's core  operations.
Pursuant to this plan,  the Company sold the assets  related to 18 stores in the
Chicago and Milwaukee markets (referred to throughout as The RoomStore- Chicago)
in September 1999. This  transaction  resulted in a pretax loss of $46.6 million
($28.0  million  net of tax  benefit)  during  fiscal  2000.  The  Puerto  Rican
operations and the remaining  three stores in the Chicago area are classified as
operations  held for sale on the February 29, 2000  consolidated  balance  sheet
with net assets totaling $125.9 million.  The Company  recorded a pre-tax charge
of $55.2 million ($42.5 million net of tax benefit) to write down the associated
assets to their estimated fair value, less costs to sell.
     The Company expects the  disposition of the remaining  assets held for sale
to be completed during fiscal year 2001. See Note 18 regarding events subsequent
to the balance sheet date.


(4) Store Closing and 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 by
$16,683,000 or $.30 per share. The pre-tax charge is summarized as follows:

<TABLE>
<S>                        <C>     <C>          <C>          <C>          <C>          <C>          <C>
                                        Amount    Remaining       Amount    Remaining       Amount    Remaining
                                      Utilized      Reserve     Utilized      Reserve     Utilized      Reserve
                                       through        as of      through        as of      through        as of
                           Pre-Tax February 28, February 28, February 28, February 28, February 29, February 29,
(Amounts in thousands)      Charge        1998         1998         1999         1999         2000         2000
                          -------------------------------------------------------------------------------------
Severance                  $ 8,100      $1,452      $ 6,648      $ 5,150       $1,498       $  859       $  639
Lease & facility exit cost   7,680           -        7,680        4,386        3,294        1,752        1,542
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       $2,611       $2,181
                          =====================================================================================
</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  2001 with some  amounts  related  to  long-term  lease
obligations extending beyond fiscal 2001.
     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.


(5)  Accounts Receivable and Retainted 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 $26,453,000 and
$42,745,000  and unearned  finance  income was  $12,266,000  and  $31,775,000 at
February  29, 2000 and  February 28,  1999,  respectively.  Accounts  receivable
having balances due after one year were $39,954,000 and $64,496,000 at February
29, 2000 and February 28, 1999, respectively.

                                       34
<PAGE>
     As discussed in Note 1, the Company  transfers the substantial  majority 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)                    2000        1999
----------------------------------------------------------

Series 1997-1
   Senior class floating
    rate certificates                 $115,000    $100,000
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     230,000
   Class B floating rate certificates   50,000      50,000
   Floating rate collateral
      indebtedness interest             31,300      31,300
                                    ----------------------
                                      $826,300    $811,300
                                    ======================

     The  weighted  average  rates in effect on the Series  1997-1  senior class
certificates were 6.5% and 5.2% for fiscal 2000 and 1999,  respectively.  Unless
extended,   the  commitment  termination  date  related  to  the  Series  1997-1
certificates  is July 18,  2000.  The  weighted  average  rates in effect on the
Series 1998-1 floating rate Collateral  Indebtedness Interest were 6.2% and 6.3%
for fiscal  2000 and 1999,  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 weighted  average rates in effect on the Series 1998-2 Class A floating rate
certificates,   Class  B  floating  rate  certificates  and  the  floating  rate
Collateral  Indebtedness  Interest were 5.6%, 5.9% and 6.6%,  respectively,  for
fiscal  2000,  and 5.5%,  5.7% and 6.4%,  respectively,  for fiscal  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 is
recorded  because  contractual  rates  are at  estimated  market  rates  and are
considered adequate  compensation for servicing.  The cost of retained interests
is  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 Extinquishment of Liabilities." Quoted market prices are

                                       35
<PAGE>
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 12.5% over the estimated  remaining  term (13
months) 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 29, 2000:
Contractually
   required seller's
   interest           $116,395      $5,257      $  --      $121,652
Excess seller's
   interest             13,551          --         --        13,551
Interest-only strip     28,991       1,679         --        30,670
                     ----------------------------------------------
                      $158,937      $6,936      $  --      $165,873
                     ==============================================
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
                     ==============================================


(6) Property and Equipment
--------------------------------------------------------------------------------

     Property and equipment consists of the following:

                                         2000        1999
                                     ----------------------
                                     (Amounts in thousands)

Land and buildings                    $142,718    $184,127
Fixtures, equipment and vehicles       116,585     158,383
Leasehold improvements                 213,079     249,238
Construction in progress                 2,321      14,210
                                      --------------------
                                       474,703     605,958
Less accumulated depreciation          184,451     205,272
                                      --------------------
                                      $290,252    $400,686
                                      ====================


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

     As of February 29,  2000,  the Company was in the final year of a five-year
revolving  credit  facility  set to  expire  on July  19,  2000.  The  facility,
comprised of ten banks, provided for commitments totaling $200,000,000. See Note
18 regarding events subsequent to the balance sheet date.
     At February 29, 2000, the Company had $72,257,000 of outstanding short-term
borrowings  compared to $210,000,000 at February 28, 1999. The average  interest
rate on this debt was approximately 7.9% at February 29, 2000, and 5.7% and 6.2%
at February 28, 1999 and 1998,  respectively.  The Company's maximum  short-term
borrowings were $222,221,000  during fiscal 2000 and $288,500,000  during fiscal
1999. The average  short-term debt  outstanding for fiscal 2000 was $142,258,000
compared to  $235,018,000  for fiscal 1999.  The  approximate  weighted  average
interest  rates  were  7.3%,  6.2%  and 6.1% in  fiscal  2000,  1999  and  1998,
respectively.  The revolving  credit  facility also supports  various letters of
credit relating to the Company's workers'  compensation  obligations and certain
lease  agreements.   The  outstanding  amount  of  letters  of  credits  totaled
$44,106,000  and  $29,200,000  as of February  29, 2000 and  February  28, 1999,
respectively. There were no compensating balance requirements.

                                       36
<PAGE>
     Long-term debt consists of the following:

(Amounts in thousands)                    2000        1999
                                      --------------------
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 11.99%, unsecured   60,000     225,000

   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                                 380         495

   Term loans, maturing through
      2007, interest ranging to 9.80%,
      primarily collateralized by
      deeds of trust                       200         830

   Capital lease obligations, maturing
      through 2009, interest ranging
      from 76% of prime to 12.80%        1,108      13,505
                                     ---------------------
                                       536,688     714,830
   Less amounts due within one year        706     167,486
                                     ---------------------
                                      $535,982    $547,344
                                     =====================

     Principal  payments  are due for the four years after  February 28, 2001 as
follows:  2002,  $160,200,000;  2003, $209,000;  2004,  $200,204,000;  and 2005,
$204,000.   The  aggregate   net  carrying   value  of  property  and  equipment
collateralization at February 29, 2000, was $9,062,000.  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 August 2007 were
issued under the shelf registration with the remaining  $225,000,000 unissued at
February 29, 2000. During fiscal 1997, the Company issued $200,000,000 unsecured
7.88% notes due August 2003 and $100,000,000  unsecured 7.40% notes due February
2002 under a previous shelf registration.
     Notes payable to insurance  companies and banks contain certain restrictive
covenants.  Under these covenants,  the Company must maintain certain  leverage,
fixed  charge and minimum net worth  tests.  As a result of the losses  incurred
during fiscal years 2000 and 1999, the Company  obtained  amendments to its bank
debt agreements in order to maintain covenant compliance.
     During the fiscal year ended February 29, 2000, the Company obtained policy
loans from an insurance company on life insurance policies owned by the Company.
The  outstanding  balance of these loans was $22,680,000 as of February 29, 2000
and is netted against the cash surrender values of the related  policies,  which
are included in other assets on the consolidated  balance sheet. The Company has
the right to offset  these loans  against the  maturity or  cancellation  of the
related policies and has no intention to repay these loans prior to February 28,
2001.
     Interest  payments  of  $72,739,000,  $77,743,000  and  $65,404,000  net of
capitalized  interest of $213,000,  $1,658,000 and  $3,762,000  were made during
fiscal 2000, 1999 and 1998, respectively.

                                       37
<PAGE>
(8) Income Taxes

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

(Amounts in thousands)        2000        1999        1998
                           -------------------------------
Current:
   Federal                 $29,878    $(12,711)   $(21,250)
   State                     6,453      (1,910)     (4,911)
   Puerto Rico                (500)       (740)      2,238
                           -------------------------------
                            35,831     (15,361)    (23,923)
Deferred:
   Federal                 (14,474)      8,138      (2,178)
   State                    (2,025)      4,951        (573)
   Puerto Rico               2,952       1,191      (2,570)
                           -------------------------------
                           (13,547)     14,280      (5,321)
                           -------------------------------
                           $22,284    $ (1,081)   $(29,244)
                           ===============================

     The  income  tax  effects  of  temporary  differences  that  gave  rise  to
significant  portions of the net deferred tax  liability as of February 29, 2000
and February 28, 1999, consist of the following:


(Amounts in thousands)                     2000        1999
                                      ---------------------
Deferred tax assets:
   Allowance for doubtful accounts     $ 12,002    $ 20,672
   Store closing and other charges           --       7,537
   Accrued liabilities                   38,183      13,318
   Alternative minimum tax credit
      carryforward                        1,713       2,689
   Federal tax credits                    4,247      10,429
   Net operating loss carryforward       10,000      26,539
   Other                                    509         806
   Restructuring costs                    8,380          --
                                      ---------------------
                                         75,034      81,990
                                      ---------------------
Deferred tax liabilities:
   Excess costs over net assets
     acquired                            55,662      60,135
   Accounts receivable                   18,655      28,034
   Depreciation                          13,278      13,339
   Asset securitizations                 20,624      20,625
   Inventory                              7,299       9,107
   Deferred revenues                        252       6,598
   Costs capitalized on constructed
      assets                              9,189       8,322
   Other                                  4,632       6,045
                                       --------------------
                                        129,591     152,205
                                       --------------------
                                       $ 54,557    $ 70,215
                                       ====================

Balance sheet classification:
   Other current liabilities           $  8,270    $ 24,850
   Deferred income tax liability         46,287      45,365
                                       --------------------
                                       $ 54,557    $ 70,215
                                       ====================

                                       38
<PAGE>
     A reconciliation  of the statutory federal income tax rate to the Company's
effective tax rate is provided below:

                                2000        1999        1998
                              -------------------------------

Statutory federal income
   tax rate                    (35.0)%     (35.0)%     (35.0)%
State income taxes, net of
   federal income tax benefit    6.7        (3.8)       (2.8)
Tax credits                    (11.7)     (131.8)       (4.9)
Goodwill amortization and
   other, net                   14.8       135.1         8.0
Divestiture activity,
   permanent differences        86.5          --          --
                              -------------------------------
                                61.3%      (35.5)%     (34.7)%
                              ===============================

     Divestiture activity recorded in fiscal 2000 resulted in a pretax charge to
earnings of $63,052,000  and a provision for income tax expense of  $12,604,000.
On a pro forma basis before divestiture  transactions,  the Company's  effective
tax rate would have been 36.3%.
     Federal  and state  income tax  payments  of  $21,160,000,  $5,762,000  and
$8,427,000  were made during  fiscal 2000,  1999 and 1998,  respectively.  As of
February 29, 2000 the Company has an  alternative  minimum tax and other federal
tax  credit   carryforwards   of   approximately   $1,713,000  and   $4,247,000,
respectively.  Net  operating  losses  and tax  credit  carryforwards  expire at
various dates up through fiscal year 2018.


(9) Retirement Plans
--------------------------------------------------------------------------------

     During  fiscal  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 2000, 1999
and 1998 was $4,023,000, $3,958,000 and $3,052,000, 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 2000,  1999 and 1998 was  $425,000,  $489,000 and
$445,000, 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 the executive's 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 is supported
through the purchase of life  insurance  contracts  covering the  executives and
owned by the  Company.  For fiscal years 2000 and 1999,  the Company  recognized
expense of $720,000 and $540,000,  respectively,  and for fiscal year 1998 there
was no charge to earnings.

                                       39
<PAGE>
     The responsibility for three employee benefit plans covering certain groups
of employees of Rhodes, Inc. was assumed by the purchaser of the Rhodes division
effective  July 1,  1999.  These  plans  included 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.  As of February 29, 2000,
the Company has no further financial obligations relating to these plans.
     The following  tables represent  activity in the qualified  defined benefit
plan:
                                                        2000           1999
                                                 --------------------------
                                                   (Amounts in thousands)
Change in projected benefit obligation:
   Projected benefit obligation at
     beginning of year                              $ 15,898       $ 15,280
   Interest cost                                         372          1,077
   Actuarial loss (gain)                                (283)           729
   Benefits paid                                        (372)        (1,188)
   Rhodes divestiture                                (15,615)            --
                                                    -----------------------
      Projected benefit obligation at end of year   $     --       $ 15,898
                                                    =======================
Change in plan assets:
   Fair value of plan assets at
     beginning of year                              $ 15,607       $ 15,205
   Actual return on plan assets                          423          1,590
   Benefits paid                                        (372)        (1,188)
   Rhodes divestiture                                (15,658)            --
                                                    -----------------------
      Fair value of plan assets at end of year      $     --       $ 15,607
                                                    =======================

   Funded status                                    $     --       $   (291)
   Unrecognized net transition asset                      --           (862)
   Unrecognized net actuarial loss                        --            389
                                                    -----------------------
      Accrued benefit cost                          $     --      $    (764)
                                                    =======================


                                             2000           1999           1998
                                          --------------------------------------
                                                  (Amounts in thousands)
Weighted-average assumptions at end of year:
   Discount Rate                             7.75%          7.25%          7.25%
   Expected return on plan assets            7.75%          7.25%          8.50%

Components of net periodic benefit cost:
   Service cost                           $    --        $    --        $   355
   Interest cost                              372          1,077          1,109
   Expected return on plan assets            (365)        (1,072)        (1,100)
   Amortization of transition asset           (66)          (197)          (197)
   Amortization of prior service cost          --             --              5
                                          --------------------------------------
      Charge (benefit) to operations      $   (59)       $  (192)       $   172
                                          ======================================

     Assets of the plan were  generally  invested in equities  and fixed  income
instruments.
     There was no projected benefit obligation of the non-qualified pension plan
at February 29, 2000.  The projected  benefit  obligation  of the  non-qualified
pension plan totaled  $1,935,000 at February 28, 1999. There were no plan assets
in the non-qualified plan due to the nature of the plan.

                                       40
<PAGE>
(10) 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 9,594,000 shares have been
authorized to be reserved for issuance. All options granted have ten-year terms.
Certain  options granted during fiscal year 2000 vest  immediately  while others
vest and  become  fully  exercisable  after  one year of  continued  employment.
Options granted during fiscal years 1999 and 1998 immediately  vested and became
exercisable when granted.
     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 2000,  1999 and 1998,  respectively:  risk-free  interest
rates of 6.5%,  5.2% and 6.5%; a dividend yield of 1.5%;  volatility  factors of
the expected market price of the Company's common stock of 50%, 48% and 46%; and
a weighted-average expected option life of 3.93, 4.55 and 3.61 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:

                               2000           1999            1998
                         (Amounts in thousands, except per share data)
                         ---------------------------------------------
Pro forma net loss          $(59,102)       $(3,494)       $(55,837)
Pro forma loss per share:
      Basic                     (.98)          (.06)           (.99)
      Diluted                   (.98)          (.06)           (.99)


     A summary of the Company's  stock option  activity and related  information
for the years ended February 29, 2000, and February 28, 1999 and 1998 follows:

                                                     Weighted
                                                      Average
                                    Options    Exercise Price
                                  ---------    --------------
Outstanding at March 1, 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
Granted                             347,380              3.30
Exercised                                --                --
Forfeited                          (238,448)            15.83
                                  ---------            ------
Outstanding at February 29, 2000  5,335,402            $14.72
                                  =========            ======

                                       41
<PAGE>
Range of                             $3.06     $10.01     $17.01     $27.01
Exercise                              to         to         to         to
Prices                              $10.00     $17.00     $27.00     $35.06
                                    ------     ------     ------     ------
Options outstanding at
   February 29, 2000             2,067,514    689,898   2,565,990    12,000

Weighted averageremaining
   contract life,outstanding
   options                            4.21       6.98        3.95      3.94

Weighted average exercise
   price, outstanding
   options                          $ 7.58     $14.41      $20.46    $35.06

Options exercisable at
   February 29, 2000             2,027,514    689,898   2,565,990    12,000

Weighted average exercise
   price, exercisable
   options                          $ 7.63     $14.41      $20.46    $35.06

     Options  exercisable  at  year  end  and the  respective  weighted  average
exercise  prices were 5,295,402 at $14.79,  5,226,470 at $15.53 and 4,831,095 at
$15.96 for fiscal 2000, 1999 and 1998, respectively.
     The weighted  average fair values of options granted were $1.35,  $2.68 and
$5.82 for fiscal 2000, 1999 and 1998, respectively.


(11) 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:

                                          2000        1999
                                     (Amounts in thousands)
                                     ----------------------
Land and buildings                     $ 6,426     $12,098
Fixtures and equipment                   1,221       2,164
                                     ----------------------
                                         7,647      14,262
Less accumulated depreciation
   and amortization                      4,565       7,095
                                     ----------------------
                                       $ 3,082     $ 7,167
                                     ======================

     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 29, 2000, are as follows:

                                       Capital   Operating
Fiscal Years                            Leases     Leases
                                     (Amounts in thousands)
                                     ---------------------
2001                                    $  616    $105,328
2002                                       191      95,400
2003                                       192      86,643
2004                                       171      78,737
2005                                       156      80,820
After 2005                                 135     396,672
                                       -------------------
Total minimum lease payments            $1,461    $843,600
                                                  ========
Less:
   Executory costs                          66
   Imputed interest                        287
                                        ------
Present value of minimum
   lease payments                       $1,108
                                        ======

                                       42
<PAGE>
     Total rental expense under operating  leases for fiscal 2000, 1999 and 1998
was  $125,414,000,  $165,005,000  and  $138,128,000,   respectively.  Contingent
rentals and sublease rentals are negligible.
     Payments to affiliated  entities  under  capital and operating  leases were
$285,000 for fiscal 2000,  which included  payments to limited  partnerships  in
which the Company has equity  interests.  Lease payments to affiliated  entities
for fiscal 1999 and 1998 were $269,000 and $327,000, 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.

Guarantees
     In  connection  with its sale of Rhodes,  Inc.,  the  Company has agreed to
provide or guarantee a $20.0 million  standby credit  facility to Rhodes,  which
may only be drawn on in certain  circumstances after utilization of availability
under Rhodes' primary credit facility.


(12) 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  29, 2000 and  February  28,  1999,  were as
follows:
                                        2000        1999
                                    (Amounts in thousands)
                                    ----------------------
On notes payable and other            $     --    $ 74,000
On securitized receivables             100,000     145,000


     Interest  rates  that the  Company  paid per the  swap  agreements  related
primarily to notes payable were fixed at an average rate of 7.6% at February 28,
1999.  The variable rates  received per these  agreements  were tied to LIBOR or
commercial  paper rates and averaged  5.2% at February  28,  1999.  All of these
agreements expired in fiscal 2000.
     Interest  rates  that  the  Company  paid on  swap  agreements  related  to
securitized  receivables  were  fixed  at an  average  rate of 7.0%  and 6.9% at
February  29, 2000 and  February 28,  1999,  respectively.  The  variable  rates
received per these  agreements were tied to LIBOR or commercial  paper rates and
averaged 5.9% and 5.0% at February 29, 2000 and February 28, 1999, respectively.
The remaining terms for these agreements are less than 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. Although there have been none to
date, losses on disposals would be recognized immediately.
     All swaps are held for purposes other than trading.


(13) Financial Instruments
--------------------------------------------------------------------------------

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.

                                       43
<PAGE>
     The  estimated  fair  values  of the  Company's  financial  instruments  at
February 29, 2000 and February 28, 1999 are as follows:

                                            2000                    1999
                                    Carrying      Fair      Carrying      Fair
(Amounts in thousands)               Amount       Value      Amount       Value
                                   ---------------------------------------------
Assets:
   Cash                            $ 15,073    $ 15,073     $ 67,254    $ 67,254
   Accounts receivable, net         143,132     143,132      254,282     254,282
   Other receivables                 44,376      44,376       18,861      18,861
   Retained interest in
     securitized receivables        165,873     165,873      190,970     190,970

Liabilities:
   Accounts payable                 125,464     125,464      193,799     193,799
   Notes payable                     72,257      72,257      210,000     210,000
   Long-term debt                   535,580     319,646      701,325     572,362

Off-balance-sheet financial
 instruments:
   Interest rate swap agreements:
   Assets                                --          --           --          --
   Liabilities                           --        (281)          --       3,095


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

Cash, Accounts Receivable and Other Receivables
     The  carrying  amount  approximates  fair value  because of the  short-term
maturity of these assets.  Other receivables  consist primarily of cash balances
maintained  in  collateral  accounts  associated  with  the  Company's  accounts
receivable securitization program.

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.


Debt Securities

     As described in Note 3, the Company  holds notes  receivable  in connection
with its divestitures of Rhodes, Mattress Discounters and Guardian, all of which
are classified as held to maturity.  Accordingly,  these investments are carried
at amortized cost, which approximates fair value. The amortized costs, including
accrued interest, of the notes receivable from Rhodes,  Mattress Discounters and
Guardian were  $42,755,000,  $11,729,000 and $5,100,000 as of February 29, 2000,
respectively,  and are  included  in other  assets on the  consolidated  balance
sheet.

                                       44
<PAGE>

(14) 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 which  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            2000        1999        1998
   except per share data)   ---------------------------------

Numerator:
   Net loss                  $(58,643)   $ (1,967)   $(55,143)

Denominator:
   Denominator for
    basic earnings (loss)
    per share - average
    common shares
    outstanding                60,289      59,331      56,312
   Effect of potentially
    dilutive stock options         --          --          --
   Denominator for
    diluted earnings
    (loss) per share           60,289      59,331      56,312

Basic EPS                    $  (0.97)   $  (0.03)   $  (0.98)
Diluted EPS                     (0.97)      (0.03)      (0.98)


     The  computation  for  fiscal  2000  does  not  assume  the  conversion  of
outstanding  options  to  purchase  5,335,000  shares of common  stock at prices
ranging  from $3.06 to $35.06,  with  expiration  dates  between  April 2000 and
February  2010  since  the  result  would  be  antidilutive  to  the  loss  from
operations.  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 were outstanding during
fiscal 1999,  however,  were excluded from the diluted EPS calculation since the
result would be  antidilutive 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 to the loss
from operations.

                                       45
<PAGE>

(15) Quarterly Financial Data (Unaudited)
--------------------------------------------------------------------------------

     The following is a summary of quarterly  financial data for fiscal 2000 and
1999:

Three months ended                May 31    August 31      Nov. 30  Feb. 29(28)
--------------------------------------------------------------------------------
                                  (Amounts in thousands except per share data)
2000
Revenues                        $689,203     $572,950     $528,904     $506,595
Gross profit(                    214,768      169,289      162,151      145,432
Earnings (loss) before taxes     (99,641)      53,913        7,558        1,811
Net earnings (loss)(3)           (70,540)       2,842        4,739        4,316
Earnings (loss) per share of
 common stock(2)(3):
   Basic                           (1.18)        0.05         0.08         0.07
   Diluted                         (1.18)        0.05         0.08         0.07
Cash dividends per share of
 common stock                       0.07         0.07         0.02         0.02

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


(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 earnings (loss) per common share is calculated  independently
for each quarter.

(3) Fiscal year 2000 net  earnings  (loss)  includes the gain (loss) on sale and
write-down  of assets  held for sale of  $(79,552)  or $(1.33)  per share in the
first quarter, $649 or $0.01 per share in the second quarter and $3,247 or $0.05
per share in the fourth quarter.


(16) Segment Information
--------------------------------------------------------------------------------

     During fiscal year 2000 the Company  changed the manner in which it reports
operating  segments.  The Company  operated  two primary  segments  for the full
fiscal year as Heilig-Meyers  Furniture and The RoomStore.  As discussed in Note
3, the Company has divested its Mattress  Discounters  and Rhodes  divisions and
has sold the assets  related to 18 stores in the Chicago and  Milwaukee  markets
which were previously part of The RoomStore division.  Additionally, the Company
announced  its  intention  to  divest  of  The  RoomStore's   remaining  Chicago
operations  as well as its  Puerto  Rican  operations,  both  of  which  are now
reported within  operations held for sale.  Results for fiscal year 2000 include
operations  of the  Rhodes  division  through  June 30,  1999  and the  Mattress
Discounters  division through August 6, 1999.  Information for prior periods has
been restated to reflect these changes.  See Note 18 regarding events subsequent
to balance sheet date.
     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  RoomStore  division
includes 56 stores primarily operating in Texas, Oregon,  Maryland and Virginia.
Operations held for sale includes three stores in the Chicago area and 33 stores
in Puerto Rico operating  under the "Berrios" name, all of which were previously
part of The  RoomStore  operating  division.  The  RoomStore - Chicago  division
includes 18 stores that were located in Chicago and Milwaukee.
     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 pre-tax earnings (loss) before interest and income taxes

                                       46
<PAGE>
(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)                       2000           1999           1998
--------------------------------------------------------------------------------

Revenues:
   Heilig-Meyers                       $1,528,356     $1,531,291     $1,518,415
   The RoomStore                          274,613        211,938        107,050
   Operations held for sale               206,181        203,768        148,132
                                       ----------     ----------     ----------
                                        2,009,150      1,946,997      1,773,597
   Divested operations:
   Rhodes                                 160,048        479,620        509,474
   Mattress Discounters                   106,733        238,648        132,183
   The RoomStore - Chicago                 21,721         61,093         54,482
                                       ----------     ----------     ----------
       Total revenues from external
          customers                    $2,297,652     $2,726,358     $2,469,736
                                       ==========     ==========     ==========

Earnings (loss) before interest and taxes:
   Heilig-Meyers                       $   60,471     $   66,159     $  (17,648)
   The RoomStore                           11,053          5,357          1,393
   Operations held for sale                14,175         13,673         11,488
                                       ----------     ----------     ----------
                                           85,699         85,189         (4,767)
   Divested operations:
   Rhodes                                  (2,390)       (29,279)         9,181
   Mattress Discounters                    11,650         22,971         13,479
   The RoomStore - Chicago                 (5,994)        (5,700)        (9,176)
   Intersegment earnings (loss)               725           (553)          (291)
                                       ----------     ----------     ----------
       Total earnings before interest
           and taxes                   $   89,690     $   72,628     $    8,426

   Store closing and other charges             --             --        (25,530)
   Interest expense                       (62,997)       (75,676)       (67,283)
   Loss on sale and write-down of
      assets held for sale                (63,052)            --             --
                                       ----------     ----------     ----------
      Consolidated loss before provision
         (benefit) for income taxes    $  (36,359)    $   (3,048)    $  (84,387)
                                       ==========     ==========     ==========

Depreciation and amortization expense:
   Heilig-Meyers                       $   40,392     $   35,564     $   32,740
   The RoomStore                            3,319          2,672          2,282
   Operations held for sale                 3,231          2,696          1,948
                                       ----------     ----------     ----------
                                           46,942         40,932         36,970
   Divested operations:
   Rhodes                                   3,918         12,468         13,998
   Mattress Discounters                     2,111          4,762          2,397
   The RoomStore - Chicago                    562            678            678
                                       ----------     ----------     ----------
      Total depreciation and
          amortization expense         $   53,533     $   58,840     $   54,043
                                       ==========     ==========     ==========

Capital expenditures:
   Heilig-Meyers                       $   18,307     $   53,135     $   51,069
   The RoomStore                            6,167          8,630          8,146
   Operations held for sale                 4,690          3,456          5,900
                                       ----------     ----------     ----------
                                           29,164         65,221         65,115
   Divested operations:
   Rhodes                                   1,665         12,784          3,381
   Mattress Discounters                     1,195          5,149          1,623
   The RoomStore - Chicago                     75          4,351            802
                                       ----------     ----------     ----------
      Total capital expenditures       $   32,099     $   87,505     $   70,921
                                       ==========     ==========     ==========

Total identifiable assets:
   Heilig-Meyers                       $1,238,136     $1,211,106     $1,366,556
   The RoomStore                           93,632         75,856         57,508
   Operations held for sale               125,917        206,268        197,293
                                       ----------     ----------     ----------
                                        1,457,685      1,493,230      1,621,357
   Divested operations:
   Rhodes                                      --        287,595        331,845
   Mattress Discounters                        --         97,481         93,033
   The RoomStore - Chicago                     --         69,446         51,278
                                       ----------     ----------     ----------
   Total identifiable assets           $1,457,685     $1,947,752     $2,097,513
                                       ==========     ==========     ==========

                                       47
<PAGE>
(17) 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. 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  receivables  (See  Notes 1 and 5).
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 29, (28),
                                 2000          1999          1998
                           --------------------------------------
                                  (Amounts in thousands)

Net revenues                 $289,644      $302,418      $267,386
Operating expenses            252,691       252,699       292,493
                           --------------------------------------
Earnings (loss) before
   taxes                       36,953        49,719       (25,107)
                           --------------------------------------
Net earnings (loss)          $ 24,020      $ 32,317      $(16,320)
                           ======================================


MacSaver Financial Services
Summarized Balance Sheets
                                        February 29, (28),
                                          2000        1999
                                     ---------------------
(Amounts in thousands)
Current assets                        $ 53,332  $   57,148
Accounts receivable, net               119,953     145,211
Retained interest in securitized
   receivables at fair value           165,873     190,970
Due from affiliates                    485,639     716,867
                                     ---------------------
   Total assets                       $824,797  $1,110,196
                                     =====================

Current liabilities                   $ 18,134  $  188,750
Notes payable                           72,257     210,000
Long-term debt                         535,000     535,000
Stockholder's equity                   199,406     176,446
                                     ---------------------
   Total liabilities and
   stockholder's equity               $824,797  $1,110,196
                                     =====================

                                       48
<PAGE>
(18) Subsequent Events
--------------------------------------------------------------------------------

     On March 22,  2000,  the  Company  obtained  commitments,  subject to final
documentation requirements,  from its current bank group to extend its revolving
credit  facility as described in Note 7 that is currently  set to expire in July
2000. The facility  expiration date will be set 364 days after the  satisfaction
of documentation  requirements  and will contain certain  provisions under which
the  facility  may be  extended  to July  2001.  Upon  application  of  proceeds
generated by the sale of the Berrios division, the Company expects the committed
amount of the facility to be reduced from the current level of $200.0 million to
approximately $140.0 million. In addition, the Company expects to pledge, within
the  provisions of certain other  long-term debt  agreements,  certain assets as
partial security.
     On April 20,  2000,  the sale of the Berrios  division was  completed.  The
total  value  of the  transaction  was  in  excess  of  $120.0  million,  before
transaction  costs,  including seller's notes with a face value of $18.0 million
and excess working capital of approximately $12.0 million.  The transaction will
be  recorded  in the  Company's  first  quarter  ended  May 31,  2000 and is not
expected to have a significant  effect on results of  operations.  Proceeds from
the sale will be used to pay down debt obligations.


                                       49
<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 29, 2000 and February 28,
1999,  and the related  consolidated  statements  of  operations,  stockholders'
equity,  and cash flows for each of the three  fiscal  years in the period ended
February 29, 2000.  Our audits also  included the financial  statement  schedule
listed in the Index at Item 14(a)2.  These  financial  statements  and financial
statement  schedule are the  responsibility  of the  Company's  management.  Our
responsibility  is to  express  an opinion  on these  financial  statements  and
financial statement schedule based on our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States of America.  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 29, 2000 and February 28, 1999,  and the results of
their  operations and their cash flows for each of the three fiscal years in the
period  ended  February  29,  2000  in  conformity  with  accounting  principles
generally accepted in the United States of America.  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 22, 2000
(April 20, 2000 as to the sale of the Berrios division described in Note 18).


                                       50
<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 15, 2000 (the "2000 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 2000 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 pages 4-5 of the 2000 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 6-7 of the 2000
Proxy  Statement,   "Executive  Supplemental  Retirement  Plan"  and  "Executive
Severance  Plan"  appearing  on  page  13  of  the  2000  Proxy  Statement,  and
"Director's  Compensation"  and "Compensation  Committee  Interlocks and Insider
Participation" appearing on pages 13-14 of the 2000 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 1-4 of the 2000
Proxy  Statement and "Principal  Shareholders"  appearing on page 15 of the 2000
Proxy Statement.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The  information  required by this item is incorporated by reference to the
sections entitled "Principal  Shareholders" appearing on pages 15-16 of the 2000
Proxy Statement and the last paragraph under the section  entitled  "Election of
Directors" on page 4.


                                       51
<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  2000 Annual
         Report to Shareholders are included in Item 8 herein:

             Independent Auditors' Report

             Consolidated Balance Sheets -
               February 29, 2000 and February 28, 1999

             Consolidated Statements of Operations -
               Year Ended February 29, 2000,
               Year Ended February 28, 1999, and
               Year Ended February 28, 1998

             Consolidated Statements of Stockholders' Equity -
               Year Ended February 29, 2000,
               Year Ended February 28, 1999, and
               Year Ended February 28, 1998

             Consolidated Statements of Cash Flows -
               Year Ended February 29, 2000,
               Year Ended February 28, 1999, and
               Year Ended February 28, 1998

             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
          29, 2000.

             There  were no Current  Reports  on Form 8-K filed  during the last
             quarter of the fiscal year ended February 29, 2000.

                                       52
<PAGE>

                                   SIGNATURES

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

                                          HEILIG-MEYERS COMPANY


       Date:  May 30, 2000                by  /s/William C. DeRusha
                                          -------------------------
                                          William C. DeRusha
                                          Chairman of the Board
                                          and Chief Executive Officer


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


       Date:  May 30, 2000                /s/William C. DeRusha
                                          ---------------------
                                          William C. DeRusha
                                          Chairman of the Board
                                          Principal Executive Officer
                                          Director


       Date:  May 30, 2000                /s/Roy B. Goodman
                                          -----------------
                                          Roy B. Goodman
                                          Executive Vice President
                                          Principal Financial Officer


       Date:  May 30, 2000                /s/Thomas F. Crump
                                          ------------------
                                          Thomas F. Crump
                                          Senior Vice President,
                                          Controller


       Date:  May 30, 2000                /s/Alexander Alexander
                                          ----------------------
                                          Alexander Alexander, Director


       Date:  May 30, 2000                /s/Robert L. Burrus, Jr.
                                          ------------------------
                                          Robert L. Burrus, Jr., Director


       Date:  May 30, 2000                /s/Beverley E. Dalton
                                          ---------------------
                                          Beverley E. Dalton, Director


       Date:  May 30, 2000                /s/Benjamin F. Edwards, III
                                          ---------------------------
                                          Benjamin F. Edwards, III, Director


       Date:  May 30, 2000                /s/Robert M. Freeman
                                          --------------------
                                          Robert M. Freeman, Director

                                       53
<PAGE>

       Date:  May 30, 2000                /s/Lawrence N. Smith
                                          --------------------
                                          Lawrence N. Smith, Director


       Date:  May 30, 2000                /s/Eugene P. Trani
                                          ------------------
                                          Eugene P. Trani, Director


       Date:  May 30, 2000                /s/L. Douglas Wilder
                                          --------------------
                                          L. Douglas Wilder, Director

                                       54
<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             Reclassed/
               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 29,
 2000          $42,745     $ 99,618  $ 3,587 (A) $ 55,892  $ 2,161(D)  $41,819    $26,453
                                     $  (224)(B)                       $19,401(C)
Year Ended
 February 28,
 1999          $60,306     $108,216  $ 3,470 (A) $ 68,779  $ 4,295(D)  $47,947    $42,745
                                     $(8,226)(B)
Year Ended
 February 28,
 1998          $41,120     $181,136  $ 1,817 (A) $106,029  $21,156(D)  $38,148    $60,306
                                     $ 1,566 (B)


(A)  Represents  recoveries  on accounts  previously  written off.
(B)  Allowance applicable  to purchased  accounts  receivable.
(C)  Related to Berrios  balance which was classified as assets held for sale
     as of February 29, 2000 and subsequently sold on April, 20 2000.
(D)  Deductions from reserve applicable to purchased accounts receivable, as
     follows:

                                           2000          1999          1998
                                         --------      --------      ------

Write-offs of Uncollectible Accounts     $ 2,161       $ 4,295       $21,156

</TABLE>

                                       55
<PAGE>
Index to Exhibits

2.       Plans of Acquisition, Reorganization, Arrangement, Liquidation
         or Succession.

          a.   Agreement  of Sale dated as of April 19, 2000 among  HMPR,  Inc.,
               MacManufacturing,  Inc., the Registrant,  Empresas Berrios,  Inc.
               and  Empresa  Manufacturera,  Inc.  filed as  Exhibit  2.1 to the
               Registrant's  Amended  Current  Report on Form 8-K/A filed May 8,
               2000 (No. 1-8484) is incorporated herein by this reference.

          b.   Transaction   Agreement  among  the   Registrant,   Heilig-Meyers
               associates,  Inc. and MD Acquisition  Corporation dated as of May
               28, 1999,  as amended by Amendment No. 1 thereto dated as of July
               14, 1999 and Amendment No. 2 dated as of July 29, 1999,  filed as
               Exhibit 2.1 to  Registrant's  Current Report on Form 8-K filed on
               August 23, 1999 (No. 1-8484)  is  incorporated   herein  by  this
               reference.

          c.   Stock Purchase  Agreement among the Registrant,  Rhodes Holdings,
               Inc. and Rhodes  Holdings II, Inc.  dated as of June 15, 1999, as
               amended by the First Amendment thereto dated as of July 13, 1999,
               filed as Exhibit 2.1 to  Registrant's  Current Report on Form 8-K
               filed on July 28,  1999 (No.  1-8484) is  incorporated  herein by
               this reference.

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.   Bylaws  of  Registrant  as  Amended  December  16,1999,  filed as
               Exhibit 3 to Registrant's  Quarterly  Report on Form 10-Q for the
               quarter ended November 30, 1999, 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.      Material Contracts

          a.   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.*

          b.   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.*

          c.   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.*

                                       56
<PAGE>
          d.   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.*

          e.   Employees  Supplemental  Profit-Sharing  and  Retirement  Savings
               Plan, adopted effective as of March 1, 1991, amended and restated
               effective  as of  January  1,  1999.  filed as  exhibit  10(o) to
               Registrant's Annual Report on Form 10-K for the fiscal year ended
               February  28, 1999 (No.  1-8484) is  incorporated  herein by this
               reference.*

          f.   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.*

          g.   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.*

          h.   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.*

          i.   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.*

          j.   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.*

          k.   Form of Executive  Supplemental  Retirement Agreement between the
               Registrant  and William C. DeRusha 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. *

          l.   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. *

          m.   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. *

          n.   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.*

          o.   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.*

                                       57
<PAGE>
          p.   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.*

          q.   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.*

          r.   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.*

          s.   $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.

          t.   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.

          u.   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.

          v.   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.

          w.   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.

          x.   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.

          y.   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.

          z.   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.

                                       58
<PAGE>
          aa.  Amendment No. 6 to the Credit  Facility  dated as of February 24,
               1999 filed as Exhibit  10(uu) to  Registrant's  Annual  Report on
               Form  10-K for the  fiscal  year  ended  February  28,  1999 (No.
               1-8484) is incorporated herein by this reference.

          bb.  Amendment No. 7 to the Credit Facility dated as of April 15, 1999
               filed as Exhibit  10(vv) to  Registrant's  Annual  Report on Form
               10-K for the fiscal year ended  February 28, 1999 (No. 1-8484) is
               incorporated herein by this reference.

          cc.  Employment  Agreement  dated as of  September  22,  1999  between
               Donald S.  Shaffer and the  Registrant  filed as Exhibit  10.2 to
               Registrant's  Quarterly Report on Form 10-Q for the quarter ended
               November  30, 1999 (No.  1-8484) is  incorporated  herein by this
               reference.*

          dd.  Heilig-Meyers  Company  Director Stock  Ownership Plan as amended
               effective  July 1, 1999  filed as  Exhibit  10.1 to  Registrant's
               Quarterly  Report on Form 10-Q for the quarter  ended  August 31,
               1999 (No. 1-8484) is incorporated herein by this reference.

          ee.  Heilig-Meyers   Company   Severance   Plan  1999   Amendment  and
               Restatement  filed  as  Exhibit  10.2 to  Registrant's  Quarterly
               Report on Form 10-Q for the  quarter  ended  August 31, 1999 (No.
               1-8484) is incorporated herein by this reference.*

          ff.  Amendment No. 8 to the Credit  Facility dated as of September 24,
               1999 filed as Exhibit 10.1 to  Registrant's  Quarterly  Report on
               Form 10-Q for the quarter ended November 30, 1999 (No. 1-8484) is
               incorporated herein by this reference.*

          gg.  Amendment No. 9 to the Credit Facility dated May 25, 2000.


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.


                                       59
<PAGE>