<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-K405

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
                                       OR
          [X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
        FOR THE TRANSITION PERIOD FROM AUGUST 2, 1998 TO JANUARY 30, 1999

                         COMMISSION FILE NUMBER: 1-10767

                       VALUE CITY DEPARTMENT STORES, INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                               <C>
                              OHIO                                           NO. 31-1322832
(State or other jurisdiction of incorporation or organization)    (I.R.S. Employer Identification No.)

        3241 WESTERVILLE ROAD, COLUMBUS, OHIO                                   43224
       (Address of principal executive offices)                           (Zip Code)
</TABLE>

Registrant's telephone number, including area code:  (614) 471-4722

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


Title of each class:                 Name of each exchange on which registered:
Common Shares, without par value     New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:    None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 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 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. [X]

Aggregate market value of voting stock held by non-affiliates of the registrant,
12,041,099 Common Shares, based on the $8.9375 closing sale price on April 26,
1999, was $107,617,322.

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: 32,320,817 Common Shares were
outstanding at April 26, 1999.

                       DOCUMENTS INCORPORATED BY REFERENCE
None
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                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                                 FORM
                                                                                                                10-K405
                                                                                                                REPORT
ITEM NO.                                                                                                         PAGE
                                                       PART I
<S>                                                                                                             <C>
1.       Business............................................................................................      3
2.       Properties..........................................................................................     16
3.       Legal Proceedings...................................................................................     17
4.       Submission of Matters to a Vote of Security Holders.................................................     17


                                                       PART II

5.       Market for the Registrant's Common Equity and Related Stockholder Matters...........................     18
6.       Selected Financial Data.............................................................................     19
7.       Management's Discussion and Analysis of Financial Condition and Results of Operations...............     20
7A.      Quantitative and Qualitative Disclosures about Market Risk .........................................     29
8.       Financial Statements and Supplementary Data.........................................................     30
9.       Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................     30


                                                      PART III

10.      Directors and Executive Officers of the Registrant..................................................     31
11.      Executive Officer Compensation......................................................................     35
12.      Security Ownership of Certain Beneficial Owners and Management......................................     38
13.      Certain Relationships and Related Transactions......................................................     39


                                                       PART IV

14.      Exhibits, Financial Statement Schedule and Reports on Form 8-K......................................     43

Signatures...................................................................................................     44


                               TABLE OF CONTENTS TO FINANCIAL STATEMENTS AND SCHEDULES

Independent Auditors' Report.................................................................................    F-1
Consolidated Balance Sheets..................................................................................    F-3
Consolidated Statements of Income............................................................................    F-4
Consolidated Statements of Shareholders' Equity..............................................................    F-5
Consolidated Statements of Cash Flows........................................................................    F-6
Notes to the Consolidated Financial Statements...............................................................    F-7

SCHEDULES
II - Valuation and Qualifying Accounts.......................................................................    S-1
Index to Exhibits............................................................................................    E-1
</TABLE>


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<PAGE>   3

                                     PART I

ITEM 1          BUSINESS.

GENERAL

        Value City Department Stores, Inc. ("VCDS" or the "Company") currently
operates a chain of 97 department stores located in Ohio, Pennsylvania and 13
other Midwestern, Eastern and Southern states, principally under the name "Value
City" as well as 45 DSW Shoe Warehouse Stores ("DSW") located throughout the
United States. For over 80 years, the Company's strategy has been to provide
exceptional value by offering a broad selection of brand name merchandise at
prices substantially below conventional retail prices. The department stores
carry men's, women's and children's apparel, housewares, giftware, home
furnishings, toys, sporting goods, jewelry, shoes and health and beauty care
items, with apparel comprising over 60% of total sales. The Value City stores
average 87,000 square feet which allow them to offer over 100,000 different
items of merchandise similar to the items found in traditional department,
specialty and discount stores. The DSW stores are a chain of upscale shoe stores
located throughout the country, offering a wide selection of dress and casual
footwear below traditional retail prices. These stores average 22,000 square
feet with up to 55,000 pairs of women's and men's designer brand shoes and
athletic footwear per store.

        The Company's pricing strategy is supported by its ability to purchase
large quantities of goods in a variety of special buying opportunities. For many
years, the Company has had a reputation in the marketplace as a leading
purchaser of buy-outs and manufacturers' closeouts.

ORGANIZATION AND HISTORY

        The Company was incorporated on March 15, 1985 and was inactive until
June 18, 1991 when it sold 8,025,000 Common Shares in a public offering and
issued 22,500,000 Common Shares to Schottenstein Stores Corporation ("SSC") in
exchange for substantially all of the net assets of the Value City Department
Store Division of SSC (the "Division"). In connection with the acquisition of
the Division, VCDS entered into a number of agreements with SSC pursuant to Item
13 of this annual report on Form 10-K405.

        In July 1997, the Company entered into agreements with Mazel Stores,
Inc. ("Mazel") to create VCM, Ltd. ("VCM"), a 50/50 joint venture. VCM operates
the health and beauty care and toy and sporting goods departments in the
Company's stores as licensed departments. The Company accounts for its fifty
percent interest in the joint venture under the equity method. See "Licensed
Departments."

        Effective as of May 3, 1998, VCDS purchased 99.9% of the common stock of
Shonac Corporation ("Shonac") from Nacht Management, Inc. and SSC. Shonac had
been the shoe licensee in all of VCDS' stores since its inception in 1969 and
also operated a chain of retail shoe outlets located throughout the United
States principally under the name DSW. Also


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<PAGE>   4

effective as of May 3, 1998 , VCDS acquired the store operations of Valley Fair
Corporation ("Valley Fair") from SSC. Valley Fair operated two department stores
located in Irvington and Little Ferry, New Jersey. VCDS had been a licensee of
certain departments in these two stores for eighteen years.

        VCDS and its wholly owned subsidiaries are herein referred to
collectively as the "Company."


CHANGE IN FISCAL YEAR-END

        On June 10, 1998, the Company determined to change its fiscal year from
a 52/53 week year that ends on the Saturday nearest to July 31 to a 52/53 week
year that ends on the Saturday nearest to January 31. The six-month transition
period of August 2, 1998 through January 30, 1999 (the "Transition Period")
precedes the start of the new fiscal year.


OPERATING SEGMENTS

        See Note 12 of Notes to Consolidated Financial Statements found on page
F-20 of this annual report for information regarding the Company's segments.

BUSINESS STRATEGY

        The Company's strategy is to provide brand name merchandise
substantially below conventional retail prices. The strategy is reflected in its
name, "Value City," and the Company's motto, "Better Living for Less."
Management believes that Value City's large department stores facilitate a
full-line merchandise offering and range of brands, which differentiate them
from other off-price retailers.

        The DSW stores' mission is to be its customers' favorite retailer of
branded footwear by satisfying customer expectations for selection, service and
value. The principal elements of the Value City and DSW business strategies are
discussed below.

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<PAGE>   5

MERCHANDISING

Selection

        Value City is a full-line, off-price retailer carrying men's, women's
and children's apparel, housewares, giftware, home furnishings, toys, sporting
goods, jewelry, shoes and health and beauty care items. Off-price retailing, as
distinguished from traditional full-price retailing and discount or off-brand
merchandising, is characterized by the purchase of primarily high quality brand
name merchandise, at prices below normal cost to most retailers. A portion of
the cost savings is then passed on to customers through lower prices. The Value
City stores strive to offer customers one-stop-shopping in terms of categories
of merchandise carried. The large physical size of the department stores
facilitates the offering of a wide range of merchandise categories with broad,
deep selections of goods within each category. The stores carry over 100,000
different items of merchandise similar to the items found in traditional
department, specialty and discount stores. To improve store profitability and
meet the changing needs of its customers, the Company continuously refines the
Value City merchandise mix eliminating less productive departments and
introducing new merchandise categories.

        The Company believes customers are attracted to the Value City stores
because of continuous new offerings of value-priced merchandise acquired in
special purchases. At the same time, Value City maintains a broad and consistent
range of goods in the stores, purchases continuing lines of merchandise and
draws upon its vendor contacts to ensure constant availability of certain basic
categories of merchandise as well as current fashion trends.

        The DSW stores attract customers because of their wide assortment of top
quality name brand dress and casual footwear together with a regularly changing
selection of more fashion-oriented footwear. Brand name products include Fila,
Reebok, Keds, J. Renee, Lifestride, Naturalizer, Bostonian, Nunn Bush, Florsheim
and Sperry, to name only a few.

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<PAGE>   6

        The following table sets forth relative contributions of each major
merchandise category to total sales.

<TABLE>
<CAPTION>
                                                                       6 Months              Fiscal Years Ended
                                                                        Ended        --------------------------------
                                                                       1/30/99       1998          1997         1996
                                                                       -------       -----         -----        -----
<S>                                                                     <C>         <C>           <C>          <C>

Apparel and Ready-to-Wear - Includes: Men's, Women's
and Children's outerwear, suits, dresses, sportswear,
sleepwear, underwear and accessories; and department
store shoe sales from May 3, 1998 to January 30, 1999 ................   62.8%        62.2%        61.6%        62.2%

Hard goods and Home Furnishings - Includes: domestics;
jewelry; housewares; giftware; small appliances; and for
fiscal years 1997 and 1996, toys and sporting goods ..................   18.8         19.0         23.9         23.3

Licensed Departments - includes: shoes through May 2, 1998;
health and beauty care; toys and sporting goods for periods
subsequent to fiscal 1997 and other incidental departments ...........    7.5         15.2         14.5         14.5

DSW Stores ...........................................................   10.9          3.6           --           --
                                                                        -----       -----         -----        -----
                                                                        100.0%      100.0%        100.0%       100.0%
                                                                        =====       =====         =====        =====
</TABLE>

Value Pricing

        The Value City stores offer quality brand name merchandise at prices
typically 50% to 70% below prices charged by traditional department stores for
similar items and at prices comparable to or lower than prices charged by other
off-price retailers. The Company can offer exceptional values because its buyers
purchase merchandise directly from manufacturers and other vendors generally at
prices substantially below those paid by conventional retailers. This allows the
Company to pass on the savings directly to its customers. See "Supplier
Relationships and Purchasing."

        DSW price points are targeted to be a minimum of 20% to 50% lower than
department stores. DSW continually strives to improve its merchandise sourcing
to maintain quality, lower costs and shortened delivery cycles. Identifying and
building relationships with cost-efficient manufacturers and suppliers of
quality merchandise is essential to DSW's merchandising strategy.

        Well known designer labels, brand names and original retailer names are
prominently displayed throughout the Value City and DSW stores. Many items carry
labels and/or original price tags showing brand names identifiable with major
designers, manufacturers and retail stores, as well as tags showing original
retail, comparable or "nationally advertised" prices. In certain cases suppliers
may require removal of labels or original retail price tags as a condition to a
special purchase arrangement. See "Supplier Relationships and Purchasing."

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<PAGE>   7

Licensed Departments

        All store departments are operated by the Company except for the health
and beauty care and toys and sporting goods, and certain other incidental
departments in the Value City stores. These departments are licensed to others,
including affiliated parties, for a percentage of net sales, generally ranging
from 5% to 11%, for initial periods of up to 10 years with, in some instances,
an option to renew. In addition, the Company receives a fee from some licensees
for general and administrative expenses. The aggregate annual license fees
received by the Company from affiliated licensees for the Transition Period and
for the fiscal years ended August 1, 1998, August 2, 1997 and August 3, 1996
were approximately $4,880,060, $20,674,000, $17,685,000 and $15,162,000,
respectively.

        SSC owned a controlling interest in L. F. Widmann, Inc. ("Widmann"), the
licensee that operated the health and beauty care departments in the Company's
stores. In July 1997, the Company entered into agreements with Mazel to create
VCM, a 50/50 joint venture. Effective August 3, 1997, VCM purchased 100% of
Widmann's capital stock and purchased the assets of the Company's toys and
sporting goods departments. VCM operates the health and beauty care and toys and
sporting goods departments in the Company's stores as licensed departments. The
license agreements provide for fees based on a percentage of sales, as defined,
for license fees, advertising fees and credit and administrative charges. The
Company provides certain personnel, administrative and service functions for
which it receives a monthly fee from VCM to cover the related costs. The license
and joint venture agreements are for a term of ten years ending in 2007 and
contain certain provisions whereby either business partner can initiate
renegotiation of terms if certain minimum requirements are not met.

        SSC also owned 49.9% of the outstanding stock of Shonac, the licensee
that operated the shoe departments in all of the stores until May 1998 when the
Company purchased 99.9% of the common stock of Shonac.

        Licensees supply their own merchandise and generally supply their own
store fixtures but in most instances utilize the Company's associates to operate
their departments. The licensees reimburse the Company for all costs associated
with such associates. Licensees operate their departments under the general
supervision of the Company and are required to abide by the policies of the
Company with regard to pricing, quality of merchandise, refunds and store hours.
Licensed departments complement the operations of the stores and are considered
an integral part of the Company's store operations. The common ownership
interest in licensees facilitates the uniformity of merchandising strategy in
the stores, including the overall emphasis on values resulting from special
purchase opportunities.


                                       7
<PAGE>   8

SUPPLIER RELATIONSHIPS AND PURCHASING

        An important factor in the Company's growth has been its many years of
experience in purchasing merchandise directly from manufacturers and other
vendors at prices substantially below those generally paid by conventional
retailers. The Company believes that over the years its buyers have established
excellent relationships with suppliers and have established a reputation for its
willingness and ability to purchase entire lots of merchandise and to make
prompt payment. The Company continuously seeks to find and negotiate special
purchase opportunities. As a result of the Company's relationships, experience
and reputation for prompt payment, many suppliers offer special purchase
opportunities to the Company prior to attempting to dispose of merchandise
through other channels. Many manufacturers of brand name merchandise are
reluctant to sell merchandise for resale at discounted prices through their
normal channels of distribution or to retailers which may be considered
competitors in their regular distribution channels. By selling such merchandise
through its own retail stores, the Company is able to assure suppliers that the
merchandise will be sold without disturbing the suppliers' regular channels of
distribution.

        Although the Company cannot quantify the amount by which the prices it
pays for its special purchases are lower, if any, than the prices paid by its
competitors for similar purchases, the Company believes that such special
purchases are made at prices sufficiently favorable to enable it to offer
merchandise to its customers at prices significantly lower than those prices
offered by many of its competitors.

        The Company purchases merchandise from more than 4,800 suppliers, none
of which account for a material percentage of purchases during the past fiscal
year. The Company does not maintain any long-term or exclusive commitments to
purchase merchandise from any one supplier. The Company regularly purchases
overstocked or overproduced items from manufacturers and other retailers,
including end-of-season, out-of-season and end-of-run merchandise and
manufacturers' slight irregulars. From time to time, the Company purchases all
or substantially all of the inventories of financially distressed retailers and
makes other special purchases. Also, the Company has begun to more aggressively
seek advantageous buying opportunities overseas, particularly in non-apparel
categories.

        The Company's distribution facilities are designed to enable it to
prioritize the processing of merchandise on short notice and to deliver
merchandise to stores within days of receipt. This allows the Company's buyers
to purchase merchandise very late in the season, when prices are more favorable,
and still deliver the merchandise to stores before the end of the season. At the
same time, the Company has devoted warehouse space to out-of-season goods for
its department stores. This merchandise is held until the most opportune time to
offer it in the Value City stores, which in most cases is the next season. This
ability to purchase and quickly distribute or hold merchandise in substantial
quantities has enabled the Company to offer high-quality merchandise to
customers at prices significantly below usual retail prices. The Company
believes that this ability distinguishes it from the typical discount or
department store and provides it with a

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<PAGE>   9

competitive advantage in making purchases as favorable opportunities arise.

        The relatively large size of the Value City stores provides the Company
with the flexibility to purchase full lots of merchandise that may not be
available to other off-price retailers with smaller stores requiring more
targeted purchases. Although there is growing competition for the kinds of
special purchases that the Company seeks, the Company believes that, because of
the factors discussed above, it will be able to obtain sufficient supplies of
desirable merchandise at favorable prices in the future.

        DSW's merchandising group constantly monitors current fashion trends as
well as historical sales trends to determine the fashion direction for an
upcoming season. Once the styles and merchandise mix is determined, the
merchandising group works to assure that the required quantities are brought in
at the lowest cost with the highest possible quality.

        DSW believes it has good relationships with its vendors. Merchandise is
purchased from both domestic and foreign suppliers directly or through agents.
Vendors include suppliers who either manufacture their own merchandise or supply
merchandise manufactured by others, or both. DSW believes that, consistent with
the retail footwear industry as a whole, most of its domestic vendors import a
large portion of their merchandise from abroad. Quality control programs are in
place under which buyers inspect the product for fit, color and material, as
well as for overall quality of manufacturing. In general, DSW has not
experienced any difficulties with merchandise manufactured overseas. As the
number of DSW locations increase, management believes there will be adequate
sources available to acquire and/or produce a sufficient supply of quality goods
in a timely manner and on satisfactory economic terms.

DISTRIBUTION

        The Company pursues a centralized distribution strategy with eleven
distribution centers, located in Columbus, Ohio and also utilizes a third party
processor located in Secaucus, New Jersey. The aggregate area of the Ohio
facilities is approximately 2,300,000 square feet, however, use of multi-tier
processing levels in some of the distribution centers substantially increases
their operating capacity. The distribution centers are generally organized by
merchandise type, with warehouses for hanging apparel, flat apparel, housewares,
domestics, shoes and overflow and buyout merchandise.

        The Company uses material handling equipment in its warehouses,
including new mechanized conveyor systems to separate and collate shipments to
the stores. The Company's distribution facilities are designed to allow priority
delivery of late season purchases and fast-moving merchandise to have it in the
stores quickly to take full advantage of the remaining selling season. The
Company continues to focus on improving inventory turns by implementing changes
such as expediting the delivery of merchandise from the store receiving area to
the selling floor by distributing goods on hangers. The Company believes that
the existing distribution centers, with certain modifications and additional
equipment, will support store


                                       9
<PAGE>   10

expansion for the foreseeable future.

        Merchandise is processed, ticketed and consolidated prior to shipment to
the stores to ensure full-truck loads to minimize shipping costs. The Company
leases its fleet of road tractors and approximately 40% of its semi-rig trailers
with the remainder being owned. The Company's fleet makes the majority of all
deliveries to the stores.

ADVERTISING AND PROMOTION

        The Company commits substantial resources to advertising and believes
that its marketing strategy is one of the keys to its success. Value City
advertises frequently in print, including newspaper circulars and flyers, and on
television and radio. The promotional strategy is carefully planned and budgeted
to include not only institutional and seasonal promotions, but also weekly
storewide sales events highlighting recent buy-outs and other specially
purchased brand name merchandise designed to maximize customer interest. In some
cases a supplier may prohibit the advertising or non-store promotion of its
brand name. See "Supplier Relationships and Purchasing."

        DSW stores currently use a broadcast campaign, primarily radio, focusing
on the slogan "The shoes of the moment, the deal of a lifetime." This campaign
is supplemented by print promotions. In addition, a valuable marketing tool for
DSW is the "Reward Your Style" loyal customer program. Customers are asked to
join the program when checking out at the cash registers. By analyzing the
member database, as well as the sales transactions of those members, the Company
is able to direct the advertising to encourage repeat shopping and to reach
targeted customers.

STORES

Store Location and Design

        The Value City stores average approximately 87,000 square feet, with
approximately 70% of the total area of each store representing selling space.
The stores are generally laid out on a single level, with central traffic aisles
providing access to major departments. Each department strives to display and
stock large quantities and assortments of merchandise, giving the store a very
full appearance. The stores are generally open from 9:30 am until 9:30 pm Monday
through Saturday and 11:00 am until 6:00 pm on Sunday. All of the stores are
located in leased facilities.

        DSW stores average approximately 22,000 square feet, with about 90% of
the total area of each store representing selling space. The stores' exteriors
feature black and white color schemes and in many cases, windows with striped
awnings. The store interiors are well lit and feature a unique display concept,
an uncomplicated cardboard case presentation which groups the shoes together by
category. Interior signage is tasteful and kept to a minimum. The shoe stores
are generally laid out on a single level, with the cases of shoes forming the
aisles in the stores.


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This allows the customer to view the entire store when they enter. The stores
are generally open from 10:00 a.m. until 9:00 p.m. Monday through Saturday and
12:00 p.m. until 6:00 p.m. on Sunday. The stores are located in leased
facilities, except for one owned location.

        Management believes that customers are attracted to the Company's stores
principally by the wide assortment of quality items at substantial savings. Of
the 97 department stores open as of April 5, 1999, 21 are free-standing and 76
are in shopping centers, 23 of which are enclosed malls in which they serve as
an anchor. Of the 45 shoe stores open as of April 5, 1999, 8 are free-standing
and 37 are in shopping centers. All of the Company's stores are located in
suburban areas, near large residential neighborhoods and away from downtown
commercial centers.

Store Operations

        The Company is committed to offering customers a convenient, pleasurable
shopping experience and a high level of satisfaction. At Value City, a training
program is utilized to assure that every associate maintains the highest level
of professionalism and places customer service at the forefront. At DSW, all
associates receive Retail Results University training in both product knowledge
and sales/service. This in-house training program emphasizes acknowledgment of
all customers, customized levels of service, and realization of sales
opportunities at all moments of customer contact.

        The Company's stores are designed for self-service shopping, although
sales personnel are available to help customers locate merchandise and to assist
in the selection and fitting of apparel and footwear. In all stores, a customer
service desk is conveniently located generally adjacent to the central check-out
area. The Company prides itself on ease of checkout and has invested in point of
sale scanning systems which expedite the checkout process by providing automated
check and credit approval and price lookup. Sales associates are trained to
create a "customer-friendly" environment. The Company accepts all major credit
cards, and also provides a private label credit card program at the department
stores. Private label and other credit card sales are nonrecourse to the
Company, with the servicing agent assuming all of the credit risk. Value City
offers a convenient layaway program in its department stores and maintains a
liberal return policy.

        The Company's stores are organized into separate geographic regions and
districts, each with a regional or district manager. Regional and district
managers are headquartered in their region and spend the majority of their time
in their stores to ensure adherence to the Company's merchandising, operational
and personnel standards. The typical staff for a Value City store consists of a
store manager, an operations manager, two assistant managers, a human resource
administrator, a customer service manager, a receiving manager, and full and
part-time hourly associates. Each store manager reports directly to one of the
regional or district managers, and each of the regional or district managers
reports to a Regional Vice President who in turn reports to the Vice President
of Operations.


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<PAGE>   12

        The typical staff for a DSW store consists of a store manager, an
assistant manager, a lead staff person and full and part-time hourly associates.
Each manager reports directly to one of seven district managers who in turn
report to a national operations manager.

        The Company's store managers function both as administrators and
merchants. All managers are responsible on a day-to-day basis for maintenance of
displays and inventories in all departments, for the overall condition of their
stores, for customer relations, personnel hiring and scheduling, and for all
other operational matters arising in the stores. Each store manager is
compensated, in part, based on the performance of his or her store. The
Company's store managers are an important source of information concerning local
market conditions, trends and customer preferences.

        The Company prefers to fill management positions through promotion of
existing associates. A store management training program is maintained to
develop the management skills of associates and to provide a source of
management personnel for future store expansion.

Expansion

        The Company has increased its department store base from 74 stores at
the start of fiscal 1994 to 97 stores at the end of the Transition Period. The
Company has expanded both by leasing newly constructed locations and by
acquiring existing locations from other retailers. Effective May 3, 1998, the
Company acquired 43 shoe stores when it purchased the common stock of Shonac and
two Valley Fair stores when it purchased the store operations of Valley Fair
Corporation.

        During fiscal 1999, the Company plans to focus on improving the
profitability of existing stores in addition to opening new stores. The Company
has planned 6 to 10 department stores and 3 to 6 shoe stores to open during
fiscal 1999. Expansion continues to be a central element of the Company's
business strategy with a view towards deepening penetration in existing or
contiguous markets. Factors considered in evaluating new store sites include
store size, configuration, demographics and lease terms. The Company seeks to
cluster stores in targeted metropolitan areas to enhance name recognition, share
advertising costs and achieve economies of scale in management and distribution.

        DSW intends to open additional stores in both existing and new markets
with an emphasis on locating stores in highly visible sites on high traffic
streets in relatively affluent trade areas.


        The table below sets forth certain information relating to the Company's
stores during each of the last five fiscal years and the six month period ended
January 30, 1999:


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<TABLE>
<CAPTION>
                                              Fiscal Year                            6 Months
                             ----------------------------------------------------     Ended
                            1994        1995       1996        1997       1998      1/30/99(3)
                            ----        ----       ----        ----       ----      -------

<S>                        <C>          <C>        <C>         <C>        <C>       <C>
Beginning of Year(1) ...     74          75           79        86          95         142

  Opened(2) ............      3           6            7         9          49           4
Closed .................      2           2            0         0           2           1
 .......................      -           -            -         -           -           -
End of Year ............     75          79           86        95         142         145
                             ==          ==           ==        ==         ===         ===
</TABLE>

(1)     Excludes apparel, domestics and housewares departments operated by the
        Company in two Valley Fair department stores prior to May 3, 1998.

(2)     1998 includes the two department stores obtained in the purchase of
        Valley Fair and the 43 shoe stores obtained in the purchase of Shonac.

(3)     In March 1999, the Company opened one new shoe store.

        Based upon its experience, the Company estimates the average cost of
opening a new department store to range from approximately $4,500,000 to
$6,500,000 and the cost of opening a new shoe store to range from approximately
$1,000,000 to $2,000,000, including leasehold improvements, fixtures, inventory,
pre-opening expenses and other costs. Preparations for opening a department
store generally take between eight and twelve weeks and preparations for opening
a shoe store generally take eight to ten weeks. The Company charges pre-opening
expenses to operations as incurred. It has been the Company's experience that
new stores generally achieve profitability and contribute to net income
following the first year of operations.

        The Company continually refurbishes its stores by updating the
merchandise displays and in-store signage. The costs of refurbishing on a per
store basis are generally not substantial. On an annual basis, the Company
selects stores to be remodeled, which generally involves more significant
changes to the interior or exterior of the store. The Company maintains its own
architectural design staff, construction crews and carpentry shop to assist in
refurbishing and remodeling store interiors and to build in-store display tables
and racks.

MANAGEMENT INFORMATION AND CONTROL SYSTEMS.

        The Company believes that a high level of automation is essential to
maintaining and improving its competitive position. The Company relies upon
computerized data systems to provide information at all levels, including
warehouse operations, store billing, inventory control and automated accounting.
Value City utilizes two IBM AS/400 computer systems, and Shonac utilizes one
additional AS400 computer system.

        The Company utilizes point of sale ("POS") registers with full scanning
capabilities to increase speed and accuracy at customer check-outs and
facilitate inventory restocking. Since layaways represent an important part of
the department store business, an automated system to capture and control
layaways is integrated into the POS system.


                                       13
<PAGE>   14

        See Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations under the liquidity section on page 28 for a
discussion of the Company's Year 2000 status.

ASSOCIATES

        As of March 1999, the Company had approximately 12,900 associates of
which 6,750 were full-time and 6,150 were part-time. Approximately 950 of these
associates in twelve stores are covered by collective bargaining agreements. The
contract with United Food and Commercial Workers Union Local 23 expired in March
1999. Negotiations are progressing satisfactorily for a new contract and no
interruption of operations is anticipated.

        Group hospitalization, surgical, medical, vision, dental, disability and
life insurance benefits and a 401(k) plan are provided to full-time non-union
associates. The Company is a co-sponsor with SSC in these plans. The Company
also sponsors an associate stock purchase plan.

        The Company believes that, in general, it has satisfactory relations
with all of its associates.

COMPETITION

        The retail industry is highly competitive. The Company generally
competes with a variety of conventional and discount retail stores, including
national, regional and local independent department and specialty stores, as
well as with catalog operations, factory outlet stores and other off-price
stores.

        In the discount or off-price retailing segment, the Company
differentiates itself through its store format and its breadth of product
offering. The Company's large stores differ from most other off-price retailers
which tend to operate substantially smaller stores focusing predominantly on
either hard or soft goods. The Company's large stores facilitate its merchandise
offering and broad range of brands and products.

        In addition, because the Company purchases much of its inventory
opportunistically, the Company competes for merchandise with other national and
regional off-price apparel and discount outlets. Many of the Company's
competitors handle identical or similar lines of merchandise and have comparable
locations, and some have greater financial resources than the Company.

        Competitive factors important to the Company's customers include
fashion, value, merchandise selection, brand name recognition and, to a lesser
degree, store location. The Company competes primarily on the basis of value,
merchandise quality and selection. Management believes the Company's competitive
advantages include its reputation in the marketplace for being able to purchase
and promptly pay for entire lots of merchandise, together


                                       14
<PAGE>   15

with its ability to either quickly distribute or hold the merchandise for sale
at the most opportune time, as well as its full-line merchandise offering and
range of brand names.

SERVICE MARKS, TRADEMARKS AND TRADENAMES

        The service mark "Value City" has been registered by SSC in the U.S.
Patent and Trademark Office. The Company's four department stores in Columbus
operate under the tradename "Schottenstein's," which has been registered by the
Company in the state of Ohio. The Company is entitled to use such names for the
sole purpose of operating department stores on an exclusive basis pursuant to a
perpetual, royalty-free license from SSC. SSC also operates a chain of furniture
stores under the name "Value City Furniture." The Company has also registered in
the U.S. Patent and Trademark Office various trademarks used in its private
label program.

        The Company, through the acquisition of Shonac, has registered in the
U.S. Patent and Trademark Office a number of trademarks and service marks,
including: DSW; DSW Shoe Warehouse; Coach and Four; Crown Shoes; Flites;
Jonathan Victor; Kristi G; Lakota Trail; Landmarks; Sander; Shoes by Kari and
Sylvia Cristie.


                                       15
<PAGE>   16

ITEM 2.        PROPERTIES.

        Set forth in the following table are the locations of stores operated by
the Company as of January 30, 1999:

                                      Department            Shoe
                                        Stores             Stores
                                      ----------           ------
Arizona                                    -                  1
Colorado                                   -                  2
Delaware                                   3                  -
Florida                                    -                  2
Georgia                                    3                  2
Illinois                                   6                  3
Indiana                                    7                  1
Kansas                                     -                  2
Kentucky                                   4                  -
Maryland                                   7                  2
Massachusetts                              -                  1
Michigan                                   6                  3
Minnesota                                  -                  1
Missouri                                   1                  1
New Jersey                                 7                  1
New York                                   -                  2
North Carolina                             1                  1
Ohio                                      23                  8
Oklahoma                                   -                  1
Pennsylvania                              19                  2
Tennessee                                  1                  2
Texas                                      -                  5
Virginia                                   4                  -
Washington D.C.                            1                  -
West Virginia                              4                  -
Wisconsin                                   -                 1
                                         ----               ---
                                          97                 44

        The Company maintains buying offices in Columbus, Ohio; Boston,
Massachusetts; and Los Angeles, California. The Company operates eleven
warehouse/distribution complexes located in Columbus, one third party processor
located in Secaucus, New Jersey and occasionally utilizes temporary warehouse
space. One warehouse, previously used by VCM, the 50/50 joint venture between
the Company and Mazel, was returned to the landlord in November 1998. VCM
reimbursed the Company for the cost of maintaining and operating that warehouse.
The Company's executive offices occupy approximately 45,000 square feet in a
building which includes a store and also serves as one of the Company's apparel
distribution centers. Shonac 


                                       16
<PAGE>   17


occupies approximately 33,000 square feet in a building which also serves as the
shoe division's distribution center.

        The stores and all of the warehouse, buying and executive office
facilities are leased or subleased except for one owned store location. As of
January 30, 1999 the Company leased or subleased nineteen stores and three of
its warehouse facilities from SSC or entities affiliated with SSC. The remaining
stores and warehouses were leased from unrelated entities. Most of the store
leases provide for an annual rent based upon a percentage of gross sales, with a
specified minimum rent.

        The Company's office, warehouse and distribution facilities are adequate
for its current needs and the Company believes that such facilities, with
certain modifications and additional equipment will be adequate for its
foreseeable future demands.


ITEM 3.        LEGAL PROCEEDINGS.

        The Company is involved in various legal proceedings that are incidental
to the conduct of its business. In the opinion of management, the amount of any
liability with respect to these proceedings will not be material.


ITEM 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

        Not applicable.


                                       17
<PAGE>   18

                                     PART II

ITEM 5.        MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.

The following table sets forth the high and low sales prices of the Common
Shares as reported on the NYSE Composite Tape during the periods indicated. As
of April 26, 1999, there were 545 shareholders of record.

<TABLE>
<CAPTION>
                                                     HIGH          LOW
Fiscal 1997:
<S>                                                 <C>           <C>
First Quarter  ................................     $13 1/4       $8 1/8
Second Quarter ................................      14 3/8        9 1/8
Third Quarter .................................       9 1/2        7 1/2
Fourth Quarter ................................       9 1/4        8

Fiscal 1998:
First Quarter  ................................     $ 8 1/2       $7 5/8
Second Quarter ................................      10 3/8        7 9/16
Third Quarter .................................      21 1/16       9 1/8
Fourth Quarter.................................      22 3/8       16 7/8

Six Months Ended January 30, 1999:
First Quarter  ................................     $19 1/4       $7 3/4
Second Quarter ................................      14 3/8        8 1/4
</TABLE>

The Company has paid no dividends and presently anticipates that all of its
future earnings will be retained for the development of its business and does
not anticipate paying cash dividends on its Common Shares during fiscal 1999.
The payment of any future dividends will be at the discretion of the Company's
Board of Directors and will depend upon, among other things, future earnings,
operations, capital requirements, general financial condition of the Company and
general business conditions. The payment of dividends under the Company's
long-term unsecured revolving bank credit facility is restricted to the greater
of $5.0 million or 10% of consolidated net income.


                                       18
<PAGE>   19

ITEM 6.   SELECTED FINANCIAL DATA.
          (dollars in thousands, except per share and per square foot amounts)

<TABLE>
<CAPTION>
                                Six Months Ended(1)                        Fiscal Year
                               ---------------------  -------------------------------------------------------
                               1/30/99(2)    1/31/98     1998(2)      1997        1996(2)     1995      1994
------------------------------------------------------------------------------------------------------------
<S>                            <C>         <C>        <C>         <C>           <C>        <C>        <C>
Net Owned Sales (3)             $780,263    $577,612  $1,161,379  $1,073,399    $954,308   $871,949   $864,855
Operating Profit                 $40,799     $26,496     $36,921     $10,513     $36,213    $24,209    $62,237
Net Income (4)                   $20,256     $15,743     $20,359      $3,951     $21,718    $13,819    $38,936
Basic Earnings per Share(4)        $0.63       $0.49       $0.64       $0.12       $0.68      $0.43      $1.21
Diluted Earnings per Share(4)      $0.62       $0.49       $0.63       $0.12       $0.68      $0.43      $1.21
Total Assets                    $573,406    $449,709    $683,057    $457,973    $437,010   $361,887   $358,606
Working Capital                 $166,495    $167,421    $205,752    $158,476    $161,397   $154,112   $164,140
Current Ratio                        2.0        2.43        1.89        2.14        2.21       2.48       2.59
Long-term Obligations           $101,447     $55,706    $165,648     $57,763     $46,942    $20,853    $31,650
Number of Stores (5)
  Department Stores                   97          95          95          95          86         79         75
  Shoe Stores                         44           0          43           -           -          -          -
Department Store Sales per
  Selling Sq. Ft. (6)               $126        $122        $229        $217        $221       $220       $229
Comp Department Store
  Sales Change (7)                   3.3%        2.9%        5.9%        0.1%       (0.1)%     (3.8)%      2.9%
</TABLE>

(1)     The six month periods each include 26 weeks. Fiscal 1996 includes 53
        weeks; all other years contain 52 weeks.

(2)     The 1999 Transition Period and fiscal 1998 include the operations of
        Shonac and Valley Fair Corporation from the date of acquisition, May 3,
        1998.

(3)     Excludes sales of licensed departments. Prior to fiscal 1998, sales from
        the Company's toys and sporting goods departments were included in Net
        Owned Sales. At the start of fiscal 1998 these departments became
        licensed departments operated by VCM, Ltd., a 50/50 joint venture
        between the Company and Mazel Stores, Inc.

(4)     Fiscal 1994 includes a tax benefit of $0.07 per share due primarily to
        the elimination of deferred tax allowances.

(5)     Includes all stores operating at the end of the fiscal year. Years prior
        to 1998 exclude the apparel, domestic and housewares departments
        operated by the Company in two affiliated department stores which were
        acquired effective May 3, 1998.

(6)     Excludes stores not operated during the entire fiscal period and
        licensed departments.

(7)     Comparable Department Store Sales Change excludes licensed departments.
        A store is considered to be comparable in its second full fiscal year of
        operation. For fiscal 1996, comparable store sales are computed using
        like 52-week periods.


                                       19
<PAGE>   20

ITEM 7.         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                CONDITION AND RESULTS OF OPERATIONS.

RESULTS OF OPERATIONS

      The following table sets forth, for the periods indicated, the percentage
relationships to net owned sales of the listed items included in the Company's
Consolidated Statements of Operations, except for the six month period ended
January 31,1998, which is presented here for comparative purposes.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
                                        6 Months Ended
                                     ---------------------         1998        1997           1996
                                     1/30/99       1/31/98      52 Weeks     52 Weeks       53 Weeks
----------------------------------------------------------------------------------------------------

<S>                                  <C>           <C>          <C>          <C>            <C>
Net sales                            100.0%        100.0%        100.0%        100.0%        100.0%

Cost of sales                        (62.0)        (63.6)        (63.1)        (65.0)        (62.8)
                                     -----         -----         -----         -----         -----

Gross profit                          38.0          36.4          36.9          35.0          37.2

Selling, general and
    administrative expenses          (33.9)        (34.5)        (35.8)        (36.0)        (35.3)

License fees from affiliates
    and other operating income         1.1           2.7           2.1           2.0           1.9
                                     -----         -----         -----         -----         -----

Operating profit                       5.2           4.6           3.2           1.0           3.8

Gain on disposal of assets              --            --           0.1            --            --

Interest expense, net                 (0.8)         (0.3)         (0.5)         (0.5)         (0.1)

Other income, net                       --           0.3            --            --            --

Amortization of excess
    net assets over cost                --            --           0.1           0.1           0.1
                                     -----         -----         -----         -----         -----

Equity in income
    (loss) of joint venture             --          (0.1)         (0.1)           --            --
                                     -----         -----         -----         -----         -----

Income before income taxes             4.4           4.5           2.8           0.6           3.8

Provision for income taxes            (1.8)         (1.8)         (1.0)         (0.2)         (1.5)
                                     -----         -----         -----         -----         -----

Net income                             2.6%          2.7%          1.8%          0.4%          2.3%
                                     =====         =====         =====         =====         =====
</TABLE>


                                       20
<PAGE>   21

SIX MONTH PERIOD ENDED JANUARY 30, 1999 COMPARED TO SIX MONTH PERIOD
ENDED JANUARY 31, 1998

      The Company's total sales, which include licensed departments sales,
increased $131.0 million from $712.7 million to $843.7 million. Net owned sales
for the department stores ("Value City") increased $25.9 million, or 4.5% from
$577.6 million to $603.5 million. Value City's comparable store owned sales
increased 3.3%, or $19.2 million. Shonac Corporation ("Shonac") contributed net
owned sales of $176.8 million with comparable store sales increases of 2.4%. For
the Transition Period, apparel sales increased 1.3% and non-apparel owned sales
increased 14.4%. On a comparable store basis, apparel and non-apparel sales
increased 0.4% and 12.7%, respectively.

      Gross profit increased $86.6 million from $210.2 million to $296.8
million, and increased as a percentage of owned sales from 36.4% to 38.0%. The
acquisition of Shonac contributed $76.2 million. Value City's gross profit
increased $10.4 million, or 4.9%, from $210.2 million to $220.6 million, and
increased as a percentage of owned sales from 36.4% to 36.5%. The percentage
increase is due to reduced markdowns and improvement in initial markup.

      Selling, general and administrative expenses ("SG&A") increased $65.6
million from $199.0 million to $264.6 million, but decreased as a percentage of
owned sales from 34.5% to 33.9%, a reduction of 0.6%, due primarily to the
leveraging effect of the Shonac acquisition. Shonac incurred SG&A of $59.6
million, or 33.7% of their owned sales. Value City's SG&A increased $14.9
million and increased as a percentage of owned sales from 34.5% to 35.4%. This
is primarily attributable to increases in distribution, advertising, personnel,
new stores, net of closed stores, and the addition of Valley Fair operations.
However, in total Valley Fair's operations contributed $0.5 million to operating
profit during the period.

      Based upon its experience, the Company estimates the average cost of
opening a new department store to range from approximately $4.5 million to $6.5
million and the cost of opening a new shoe store to range from approximately
$1.0 million to $2.0 million including leasehold improvements, fixtures,
inventory, pre-opening expenses and other costs. Preparations for opening a
department store generally take between eight and twelve weeks, and preparations
for a shoe store generally take eight to ten weeks. Effective in the Transition
Period, pre-opening costs are expensed as incurred in accordance with Accounting
Standards Executive Committee Statement of Position 98-5. Previously, such costs
were amortized ratably over the first twelve months of the store's operations.
It has been the Company's experience that new stores generally achieve
profitability and contribute to net income after the first full year of
operations. Two department stores opened less than twelve months during the
Transition Period had pre-tax operating losses of $0.8 million. The Company
plans to open six to ten Value City stores and three to six shoe stores during
fiscal 1999.


      License fees from affiliates and other operating income decreased $6.7
million, or 43.8%, from $15.3 million to $8.6 million, and decreased as a
percentage of owned sales from 2.7% to 1.1%.This decrease is due primarily to
the reduction of license fees from Shonac resulting from its acquisition


                                       21
<PAGE>   22

and consolidation with Value City. This was partially offset by $0.9 million of
license fees earned from third parties at the two stores purchased from Valley
Fair.

      Operating profit increased $14.3 million from $26.5 million to $40.8
million, and increased as a percentage of owned sales from 4.6% to 5.2% as a
result of the above factors.

      Interest expense, net of interest income, increased from $1.4 million to
$6.7 million and increased as a percentage of owned sales from 0.3% to 0.8%.
This increase is due primarily to the interest on debt incurred to acquire
Shonac and the operations of Valley Fair.

      Gain on disposal of assets, net, decreased $1.6 million. The gain in the
prior period related to the sale of the land, building and improvements of a
site originally purchased for future store development and selling the lease
rights for a store that was closed during the second quarter.

      Equity in the unconsolidated joint venture represents the Company's fifty
percent interest in VCM's operating results. Equity in VCM increased $0.9
million from a loss of $0.8 million to income of $0.1 million.

      Income before provision for income taxes increased $8.3 million from $25.9
million to $34.2 million, and decreased as a percentage of owned sales from 4.5%
to 4.4% as a result of the above factors.

FISCAL YEAR 1998 COMPARED TO FISCAL YEAR 1997

      The Company's total sales, which include licensed departments sales,
increased $112.7 million from $1,255.6 million to $1,368.3 million. Net owned
sales for the department stores increased $1.6 million, or 0.1% from $1,073.4
million to $1,075.0 million. Value City's comparable store owned sales increased
5.9%, or $52.8 million. Reported net owned sales for fiscal 1997 of $1,073.4
million included toys and sporting goods sales of $57.3 million. These
departments are now operated by VCM, Ltd., a 50/50 joint venture between the
Company and Mazel Stores, Inc. and are therefore treated as licensed department
sales. The acquisition of Shonac Corporation effective as of May 3, 1998,
contributed net owned sales since the acquisition date of $86.4 million with
comparable store sales increases of 6.6%. For fiscal 1998, apparel sales
increased 5.4% and non-apparel owned sales increased 7.3%. On a comparable store
basis, apparel and non-apparel sales increased 5.3% and 7.7%, respectively.

      Gross profit increased $52.9 million from $375.6 million to $428.5
million, and increased as a percentage of owned sales from 35.0% to 36.9%. The
acquisition of Shonac contributed $33.9 million. Value City's gross profit
increased $19.0 million, or 5.1%, from $375.6 million to $394.6 million, and
increased as a percentage of owned sales from 35.0% to 36.7%. The percentage
increase is due to reduced markdowns and improvement in initial markup as well
as exclusion of toys and sporting goods gross margin.


                                       22
<PAGE>   23

        Selling, general and administrative expenses ("SG&A") increased $30.3
million from $385.9 million to $416.2 million, but decreased as a percentage of
owned sales from 36.0% to 35.8%, a reduction of 0.2%, due primarily to the
leveraging effect of the Shonac acquisition. Shonac incurred SG&A of $24.3
million, or 28.1% of their owned sales. Value City's SG&A increased $6.0 million
and increased as a percentage of owned sales from 36.0% to 36.5%. This increase
is attributable to higher store and home office expenses, partially offset by
the elimination of certain direct expenses for the toys and sporting goods
operations transferred to VCM.

      Nine department stores opened less than twelve months as of the beginning
of fiscal 1998 had a pre-tax net operating loss of $5.1 million, including $1.5
million of pre-opening expense amortization. Twelve department stores opened
less than twelve months during fiscal 1997 had pre-tax operating losses of $7.0
million in 1997, including $6.3 million of pre-opening expense amortization.

      License fees from affiliates and other operating income increased $3.9
million, or 18.8%, from $20.8 million to $24.7 million, and increased as a
percentage of owned sales from 1.9% to 2.1%. The change is the net result of an
increase in license fees received during the year along with fees from the VCM
venture on toys and sporting goods sales partially offset by the elimination of
license fees related to the acquisition of Shonac for the fourth quarter.

      Operating profit increased $26.4 million from $10.5 million to $36.9
million, and increased as a percentage of owned sales from 1.0% to 3.2% as a
result of the above factors.

      Interest expense, net of interest income, increased from $5.1 million to
$5.3 million.

      Gain on disposal of assets, net, increased from $0.2 million to $1.6
million due to selling the land, building and improvements of a site originally
purchased for future store development and selling the lease rights for a store
that was closed during the second quarter.

      Equity in loss of unconsolidated joint venture represents the Company's
fifty percent interest in VCM's operating results. These losses are due
primarily to weak sales attributable to transitioning the toys and sporting
goods and health and beauty care departments to a new format.

      Income before provision for income taxes increased $25.4 million from $6.5
million to $31.9 million, and increased as a percentage of owned sales from 0.6%
to 2.7% as a result of the above factors.

FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996

      The Company's total sales increased $139.7 million from $1,115.9 million
to $1,255.6 million. Excluding an additional $18.3 million week in fiscal 1996,
due to the Company's adoption of the National Retail Federation's suggested
retail calendar, total sales increased 14.4% from $1,097.6 million to $1,255.6
million. Net owned sales increased $119.1 million, or 12.5% from $954.3 million


                                       23
<PAGE>   24

to $1,073.4 million. Value City's comparable store owned sales increased 0.1%,
or $1.3 million. For fiscal 1997, apparel sales increased 18.4% and non-apparel
owned sales increased 17.2%. On a comparable store basis apparel decreased 0.7%
and non-apparel increased 2.3%.

      Gross profit increased $20.8 million or 5.8% from $354.8 million to $375.6
million. Expressed as a percentage of owned sales, gross profit decreased from
37.2% to 35.0% due primarily to higher markdowns than last year, especially in
the area of overstocked merchandise, and a less favorable physical inventory
variance than last year.

      SG&A increased $48.8 million, or 14.5%, from $337.1 million to $385.9
million, and increased as a percentage of owned sales from 35.3% to 36.0%. New
stores contributed an increase in expenses of $33.3 million, and stores opened
during the prior fiscal year that were not yet considered comparable increased
$10.4 million. New store SG&A, as a percentage of owned sales, was higher than
that of comparable stores, due primarily to pre-opening expenses and the result
of aggressive advertising to develop name recognition in new markets. Home
office expenses, including distribution costs, increased by approximately $12.0
million, primarily to support the new stores. Comparable store SG&A declined by
approximately $2.1 million. Closed store expenses were $0.4 million. The
remaining $5.2 million decline resulted from the extra week in fiscal 1996.

      Twelve stores opened less than twelve months had a pre-tax operating loss
of $7.0 million for fiscal 1997, including $6.3 million of pre-opening expense
amortization. Seven stores opened less than twelve months during fiscal 1996 had
pre-tax net operating losses of $0.2 million in 1996, including $2.2 million of
pre-opening expense amortization.

      License fees from affiliates increased from $15.2 million to $17.7 million
and remained constant as a percentage of owned sales at 1.6%.

      Operating profit decreased $25.7 million, or 71.0%, from $36.2 million to
$10.5 million and decreased as a percentage of owned sales from 3.8% to 1.0% as
a result of the above factors.

      Amortization of excess net assets over cost decreased from $1.4 million to
$0.9 million due to the amount being fully amortized as of the third quarter of
fiscal 1997.

      Interest expense, net of interest income, increased from $1.3 million to
$5.1 million due to increased borrowings.

      Other income, net, increased from $33,000 to $161,000 due primarily to a
non-cash gain on termination of a capital lease for transportation equipment.

      The Company no longer incurs an expense related to the minority interest
in partnerships due to the Company's purchase of the 25% minority interest in
the partnerships during 1996 for approximately $1.3 million representing the net
book value of the minority interest in those partnerships.


                                       24
<PAGE>   25

      Income before provision for income taxes decreased $29.8 million, or
82.1%, from $36.3 million to $6.5 million and decreased as a percentage of owned
sales from 3.8% to 0.6% as a result of the above factors.

SEASONALITY

      The Company's business is affected by the pattern of seasonality common to
most retail businesses. Historically, the majority of its sales and operating
profit have been generated during the back-to-school and Christmas selling
seasons.

FISCAL YEAR

      During 1996, the Company changed its fiscal year end from the last
Saturday in July to the Saturday closest to July 31 to conform to the National
Retail Federation's suggested retail calendar. As a result, fiscal year 1996 had
53 weeks. In June 1998, the Company decided to change its fiscal year to a 52/53
week year that ends on the Saturday nearest to January 31. This change is being
made to reflect the reporting period common to most retailers.

INCOME TAXES

      The effective tax rate for the Transition Period ended January 30, 1999
was 40.8%. The effective tax rate for the six months ended January 31, 1998 was
39.2%. The 1.6% increase resulted primarily from the effect of non-deductible
goodwill amortization related to the Shonac acquisition. The effective tax rate
for the year ended August 1, 1998 was 36.2%. The effective tax rate for the year
ended August 2, 1997 was 39.0%. The 2.8% reduction reflects the benefits of
several fourth quarter favorable settlements of federal and state income tax
issues. The effective tax rate for fiscal 1999 is expected to be approximately
41.1% due primarily to the effect of non-deductible goodwill amortization
related to the Shonac acquisition.


ADOPTION OF ACCOUNTING STANDARDS

      The Financial Accounting Standards Board ("FASB") periodically issues
Statements on Financial Accounting Standards ("SFAS"), some of which require
implementation by a date falling within or after the close of the Company's
fiscal year.

        SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," establishes accounting and reporting standards for derivative
instruments and for hedging activities. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. The adoption of SFAS No.
133 is not expected to have a significant impact on the Company's financial
statements.

      Effective August 2, 1998, the Company adopted AICPA Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed of
Obtained for Internal Use", which


                                       25
<PAGE>   26
requires the Company to capitalize certain software development costs.
Generally, one the capitalization criteria of the SOP have been met, external
direct costs of materials and services used in development of internal-use
software, payroll and payroll-related costs for employees directly involved in
the development of internal-use software are to be capitalized. The adoption of
this SOP did not have a material effect on the Company's financial statements.

INFLATION

      The results of operations and financial condition are presented based upon
historical cost. While it is difficult to accurately measure the impact of
inflation because of the nature of the estimates required, management believes
that the effect of inflation, if any, on the results of operations and financial
condition has been minor.

LIQUIDITY AND CAPITAL RESOURCES

      Net working capital was $166.5 million, $205.8 million and $158.5 million
at January 30, 1999, August 1, 1998 and August 2, 1997, respectively. Current
ratios at those dates were 2.0, 1.9 and 2.1, respectively.

      Net cash provided from operating activities totaled $93.2 million, $43.3
million, $38.7 million and $21.4 million for the Transition Period and for
fiscal years 1998, 1997 and 1996, respectively. Net income, adjusted for
depreciation and amortization, provided $36.6 million of operating cash flow for
the Transition Period. This was increased by $60.4 million representing a
decrease in inventories net of a decrease in accounts payable. Other changes in
working capital assets and liabilities used $3.8 million.

      During fiscal year 1998, net income adjusted for depreciation and
amortization, provided $48.1 million of operating cash flow. This was reduced by
$23.0 million representing an increase in inventories net of an increase in
accounts payable of $16.3 million. Other changes in working capital assets and
liabilities provided $18.2 million.

      During fiscal year 1997, net income, adjusted for depreciation and
amortization, provided $33.5 million of operating cash flow which was increased
by $13.6 million representing a decrease in inventories including an increase in
accounts payable of $2.9 million. Other changes in working capital assets and
liabilities used $8.4 million.

      Net cash used for investing activities totaled $18.2 million, $127.5
million, $46.8 million and $47.7 million for the Transition Period and fiscal
years 1998, 1997 and 1996, respectively.

      Net cash used for capital expenditures was $17.3 million, $27.2 million,
$46.8 million and $45.4 million for the Transition Period and fiscal years 1998,
1997 and 1996, respectively. During the Transition Period, capital expenditures
included $3.4 million for new stores, $7.6 million for improvements in existing
stores, $1.9 million for renovations in existing warehouses, $4.1 million for
MIS equipment upgrades and new systems and $0.3 million for energy management
systems.


                                       26
<PAGE>   27

Total capital expenditures for 1999 are estimated at approximately
$50.0 million.

        The Company utilizes computer technologies throughout its business to
effectively carry out its day-to-day operations. Computer technologies include
both information technology in the form of hardware and software, as well as
embedded technology in the Company's facilities and equipment. Similar to most
companies, the Company must determine whether its systems are capable of
recognizing and processing date sensitive information properly as the year 2000
approaches. The Company is utilizing a multi-phased concurrent approach to
address this issue. The phases included in the Company's approach are the
awareness, assessment, remediation, validation and implementation phases. The
Company has completed the awareness phase of its project. Furthermore, the
Company has substantially completed the assessment phase and is well into the
remediation, validation and implementation phase. The Company is actively
correcting and replacing those systems which are not year 2000 ready in order to
ensure the Company's ability to continue to meet its internal needs and those of
its suppliers and customers. The Company currently intends to substantially
complete the remediation, validation and implementation phases of the year 2000
project prior to September 1999. This process includes the testing of critical
systems to ensure that year 2000 readiness has been accomplished. The Company
currently believes it will be able to modify, replace, or mitigate its affected
systems in time to avoid any material detrimental impact on its operations. If
the Company determines that it may be unable to remediate and properly test
affected systems on a timely basis, the Company intends to develop appropriate
contingency plans for any such mission-critical systems at the time such
determination is made. While the Company is not presently aware of any
significant exposure that its systems will not be properly remediated on a
timely basis, there can be no assurances that any or all of the Company's
systems are or will be year 2000 compliant. An interruption of the Company's
ability to conduct its business due to a year 2000 readiness problem could have
a material adverse effect on the Company's financial condition.

      The Company estimates that the aggregate costs of its year 2000 project
will be approximately $5.0 million to $6.0 million, including costs already
incurred. A significant portion of these costs are not likely to be incremental
costs, but rather will represent the redeployment of existing employees and
equipment. This reallocation of resources is not expected to have a significant
impact on the day-to-day operations of the Company. Total capital costs of
approximately $0.7 million and $1.5 million were incurred by the Company for
this project during the Transition Period and fiscal 1998, respectively. The
anticipated impact and costs of the project, as well as the date on which the
Company expects to complete the project, are based on management's best
estimates using information currently available and numerous assumptions about
future events. Based on its current estimates and information currently
available, the Company does not anticipate that the costs associated with this
project will have a material adverse effect on the Company's consolidated
financial position, results of operations or cash flows in future periods.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those plans.

      The Company has initiated formal communications with its significant
suppliers, and critical business partners to determine the extent to which the
Company may be vulnerable in the event that those parties fail to properly
remediate their own year 2000 issues. The Company has taken steps to


                                       27
<PAGE>   28

monitor the progress made by those parties, and intends to test critical system
interfaces, as the year 2000 approaches. The Company will develop appropriate
contingency plans in the event that a significant exposure is identified
relative to the dependencies on third-party systems. While the Company is not
presently aware of any such significant exposure, there can be no guarantee that
the systems of third-parties on which the Company relies will be converted in a
timely manner, or that a failure to properly convert by another company would
not have a material adverse effect on the Company.

      Effective May 3, 1998, the Company purchased 99.9% of the common stock of
Shonac from Nacht Management, Inc. and Schottenstein Stores Corporation ("SSC").
SSC owns approximately 56.3% of the Company's outstanding common shares. The
Company also acquired the store operations of Valley Fair Corporation from SSC.
The combined purchase price for both acquisitions was $108.5 million. Shonac had
been the shoe licensee in all of the Company's stores since its inception in
1969 and also operated a chain of retail shoe outlets located throughout the
United States, principally under the name DSW Shoe Warehouse. Valley Fair
Corporation operated two department stores located in Irvington and Little
Ferry, New Jersey. The Company had been a licensee of certain departments in
these two stores for 18 years.

      Both acquisitions were accounted for as purchases. The acquisitions were
funded by cash provided by operations and approximately $88.0 million from the
Company's new $185.0 million long-term unsecured revolving bank credit facility.
This new facility replaced Value City's $100.0 million credit facility and
Shonac's $30.0 million facility. The initial term of the facility is effective
through May 1, 2001 and bears interest primarily at a floating rate of LIBOR
plus 1.5%. The interest rate on $40.0 million has been locked in at a fixed
annual rate of 7.395% for a three year period under a swap agreement. The terms
of the credit facility require the Company to comply with certain restrictive
covenants and financial ratio tests, including minimum tangible net worth; a
maximum consolidated debt to earnings before interest, taxes, depreciation and
amortization ratio; a minimum fixed charge coverage ratio; and, limitations on
dividends, additional incurrence of debt and capital expenditures. At January
30, 1999, the LIBOR rate was 4.96%, borrowings aggregated $55.0 million and
$14.2 million of letters of credit were issued and outstanding for merchandise
purchases under the credit facility.

      The Company believes that the cash generated by its operations, along with
the available proceeds from the credit facility will be sufficient to meet its
future obligations including capital expenditures.


                                       28
<PAGE>   29

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

      The Company cautions that any forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) contained in
this Report, the Form 10-K or made by management of the Company involve risks
and uncertainties, and are subject to change based on various important factors.
The following factors, among others, in some cases have affected and in the
future could affect the Company's financial performance and actual results and
could cause actual results for 1999 and beyond to differ materially from those
expressed or implied in any such forward-looking statements: decline in demand
for the Company's merchandise, the availability of desirable store locations on
suitable terms, changes in consumer spending patterns, consumer preferences and
overall economic conditions, the impact of competition and pricing, changes in
weather patterns, the ability of the Company and its vendors and suppliers to
become year 2000 compliant, changes in existing or potential duties, tariffs or
quotas, paper and printing costs, and the ability to hire and train associates.

      Historically, the Company's operations have been seasonal, with a
disproportionate amount of sales and a majority of net income occurring in the
back-to-school and Christmas selling seasons. As a result of this seasonality,
any factors negatively affecting the Company during this period, including
adverse weather, the timing and level of markdowns or unfavorable economic
conditions, could have a material adverse effect on the Company's financial
condition and results of operations for the entire year.

ITEM 7A.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.

        The Company is exposed to market risk from changes in interest rates
which may adversely affect its financial position, results of operations and
cash flows. In seeking to minimize the risks from interest rate fluctuations,
the Company manages exposures through its regular operating and financing
activities and, when deemed appropriate, through the use of derivative financial
instruments. The Company does not use financial instruments for trading or other
speculative purposes and is not party to any leveraged financial instruments.

        The Company is exposed to interest rate risk primarily through its
borrowings under its unsecured revolving credit facility which permits debt
commitments up to $185.0 million. At January 30, 1999, direct borrowings
aggregated $55.0 million. The facility has a May 1, 2000 maturity date and
generally bears interest at a floating rate of LIBOR plus 1.5%. The interest
rate on $40.0 million has been locked in at a fixed rate of 7.395% until May
2001 under a swap agreement to help manage the Company's exposure to interest
rate movements and reduce borrowing costs.

        At January 30, 1999, the Company performed a sensitivity analysis
assuming an average outstanding principal amount of $90.0 million subject to
variable interest rates. A 10% increase in LIBOR would result in approximately
$0.8 million of additional interest expense annually.

                                       29
<PAGE>   30

At August 1, 1998 the Company performed a sensitivity analysis assuming an
average outstanding principal amount of $140.0 million subject to variable
interest rates. A 10% increase in LIBOR would result in approximately $1.0
million of additional interest expense annually.

ITEM 8.         FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

        The financial statements and financial statement schedules of the
Company and the Independent Auditors' Reports thereon are filed pursuant to this
Item 8 and are included in this report beginning on page F-1.


ITEM 9.         CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.

        None.



                                       30
<PAGE>   31

                                    PART III

ITEM 10.        DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

       The members of the Board of Directors (the "Board") of the Company are
elected at the Annual Meeting. The number of members of the Board has been fixed
at ten by action of the Board pursuant to the Code of Regulations (By-laws) of
the Company. Board members serve until the annual meeting following their
election or until their successors are duly elected and qualified.

        The following table sets forth certain information with respect to each
Director.

NAME                      AGE   PRINCIPAL OCCUPATION

Jay L. Schottenstein       44   Chairman of the Company, American Eagle
                                Outfitters, Inc. and SSC since March 1992 and
                                Chief Executive Officer of the Company from
                                April 1991 to July 1997. Mr. Schottenstein
                                served as Vice Chairman of SSC from 1986 until
                                March 1992, and a director of SSC since 1982. He
                                served SSC as President of the Furniture
                                Division from 1985 through June 1993 and in
                                various other executive capacities since
                                1976.(1)

Saul Schottenstein         76   Vice Chairman of the Company since April 1991.
                                Mr. Schottenstein has served as President of SSC
                                since 1984, a director of SSC since 1982 and
                                served SSC and its predecessors in various
                                executive capacities since 1946. (1)

Martin P. Doolan           59   President and Chief Executive Officer of the
                                Company since July 1997. Mr. Doolan founded
                                Multitech Enterprises in 1982, a firm which
                                specializes in providing CEO management for
                                companies with under performing earnings, and
                                served as its Chairman and Chief Executive
                                Officer. Mr. Doolan has over 25 years experience
                                as a corporate turnaround executive and has
                                provided extensive CEO management and advisory
                                services to several venture invested firms
                                including those owned by First Chicago Venture
                                Capital, Madison Dearborn Partners, Clayton
                                Dubilier & Rice, Weston Presidio Capital, RFE
                                Investment Partners, Security Pacific Venture
                                Capital, Bank One Venture Partners and others.

Robert M. Wysinski         50   Senior Vice President, Chief Financial Officer,
                                Treasurer and Secretary of the Company since
                                April 1991 and served as Vice President of SSC
                                from June 1987 until June 1991, and as Treasurer
                                of SSC from June 1986 until June 1991. Prior to
                                that time, he served as Assistant Secretary and
                                Assistant Treasurer and in a variety of
                                positions in the finance area since joining SSC
                                in 1973.

Ari Deshe                  48   Chairman and Chief Executive Officer since 1996
                                and President and Chief Executive Officer from
                                1993 to 1996 of Safe Auto Insurance Company, a
                                property and casualty insurance company. Prior
                                to that, Mr. Deshe served as President of Safe
                                Auto Insurance Agency from 1992 to 1993 and
                                President of Employee Benefit Systems, Inc.
                                from 1982 to 1992. (1)

Jon P. Diamond             41   President and Chief Operating Officer since
                                1996 and Executive Vice President and Chief
                                Operating Officer from 1993 to 1996 of Safe Auto
                                Insurance Company. Mr. Diamond served as Vice
                                President of SSC from March 1987 to March 1993
                                and served SSC in various management positions
                                since 1983. (1)

                                       31
<PAGE>   32




Richard Gurian            81    Managing Director of Natural Forms Limited
                                since 1995 and President of Richard Gurian
                                Consultants, Inc., formerly Venture Horizons,
                                Inc., since 1980. Prior to 1980, Mr. Gurian
                                served as Board member and Senior Vice President
                                - General Merchandise Manager at Lazarus
                                Department Stores.

Dr. Norman Lamm           71    President of Yeshiva University, New York, New
                                York, since 1976.

Geraldine Schottenstein   66    Director of the Company and SSC since April
                                1992. She has served as a volunteer and board
                                member for a variety of charitable and community
                                organizations for more than the past five years.

Robert L. Shook           61    Author of business-related books since 1978.

(1)          SSC is a controlling shareholder of the Company. For information
             with respect to the beneficial ownership of the voting stock of SSC
             by nominees for election to the Board of the Company and beneficial
             ownership of Common Shares of the Company by such persons and
             officers of the Company, see "Security Ownership of Certain
             Beneficial Owners and Management." Geraldine Schottenstein is the
             mother of Jay L. Schottenstein, the sister-in-law of Saul
             Schottenstein and the mother-in-law of Ari Deshe and Jon P.
             Diamond.

        Jay L. Schottenstein, Saul Schottenstein and Martin Doolan are directors
of American Eagle Outfitters, Inc., which is a company with a class of
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934.



INFORMATION CONCERNING BOARD OF DIRECTORS

        During the six month period ended January 30, 1999, the Board met two
times and acted by unanimous written consent two times.

        The Board has standing Audit and Stock Option Committees.

        The members of the Audit Committee are Richard Gurian, Dr. Norman Lamm
and Robert L. Shook. Its function is to recommend to the Board a firm of
accountants to serve as the Company's auditors and to review with the
independent auditors and the appropriate corporate officers matters relating to
corporate financial reporting and accounting procedures and policies, adequacy
of financial, accounting and operating controls, and the scope of the audit. The
Audit Committee met once during the six month period ended January 30, 1999.

        The members of the Stock Option Committee are Richard Gurian, Dr. Norman
Lamm and Robert L. Shook. Its function is to recommend to the Board the number
and terms of any stock options to be granted under the Company's stock option
plan. The Committee also administers the Company's Incentive Compensation Plan.
The committee met two times during the six month period ended January 30, 1999.

        Directors who are not employees are paid $2,000 for each Board and
Committee meeting attended, with a minimum annual compensation of $8,000, and
are automatically


                                       32
<PAGE>   33
granted options each quarter to purchase 1,000 Common Shares of the Company
pursuant to the Non-employee Director Stock Option Plan. Directors who are also
employees of the Company do not receive additional compensation for serving as
directors.

EXECUTIVE OFFICERS

        The following persons are executive officers of the Company. Information
regarding executive officers who are also directors is set forth above. The
officers of the Company are elected annually by the Board and serve at the
pleasure of the Board.

        Michael J. Tanner, age 52, serves as Chief Merchandising Officer. Mr.
Tanner joined the Company in July 1997 as Chief Operating Officer. Mr. Tanner
formerly served as President and Chief Operating Officer at C.R. Anthony
Company, a specialty name-brand apparel retailer from 1994 to 1997 and as their
General Merchandise Manager from 1990 to 1994. He began his career with Gold
Circle Discount Stores, a division of Federated Department Stores, Inc., where
he held a number of executive positions including Vice President of Marketing.

        Louis S. Virag, Age 52, joined the Company in July of 1997 as Senior
Vice President, Merchandising. Previously, he was Senior Vice President at Bon
Marche, a Federated division based in Seattle, from 1993 to 1997. He previously
held a similar position with Ross Stores and has also served as an executive
with Macy's and Abraham & Strauss.

        Richard L. Walters, age 47, serves as Vice President - Controller, Chief
Accounting Officer, Assistant Treasurer and Assistant Secretary. Mr. Walters
became Vice President of the Company in April 1992, Assistant Secretary of the
Company in June 1991, Assistant Treasurer of Value City Department Stores
Division of SSC (the "Division") in August 1990 and Controller of the Division
in June 1986. Prior to that time, Mr. Walters served as Accounting Manager for
the Division since September 1985 and in a variety of other accounting positions
since joining SSC in 1979.

        Lynn E. Lambrecht, age 41, joined the Company in August 1997 as Vice
President Human Resources. Prior to that Ms. Lambrecht served as Vice President
of Human Resources at Kohl's Corporation from 1992 to 1997 and previously was
with the May Company in a senior Human Resource position.

        Lawrence J. Murray, age 57, joined the Company in February 1998 as
Senior Vice President-Chief Information Officer. Prior to that time, Mr. Murray
served as Chief Information Officer at C. R. Anthony Company from 1996 to 1998,
CEO and President of Leading Software Technologies, a software development and
executive information technology consulting company, from 1989 to 1996; and
served as CEO and President of a wholly owned subsidiary of Revco D.S. Inc. for
five years from 1984 to 1989.


                                       33
<PAGE>   34

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

        Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who are beneficial owners of
more than ten percent of the Company's Common Stock ("reporting persons") to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Reporting persons are required by Securities and Exchange
Commission regulations to furnish the Company with copies of all Section 16(a)
forms filed by them. Based on its review of the copies of Section 16(a) forms
received by it, the Company believes that, during the Transition Period, all
filing requirements applicable to reporting persons were complied with.



                                       34
<PAGE>   35

ITEM 11.        EXECUTIVE OFFICER COMPENSATION.


         The following table sets forth certain information regarding
compensation paid during each of the Company's last three full fiscal years and
the Transition Period to the Company's Chief Executive Officer and to each of
the Company's four most highly compensated executive officers serving at the end
of the current fiscal year and one former executive officer.

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                                                                                    LONG TERM COMPENSATION
                                                                                  ---------------------------
                                              ANNUAL COMPENSATION                 RESTRICTED
                                     -------------------------------------           STOCK                            ALL OTHER
NAME AND                             FISCAL      SALARY(2)           BONUS          AWARDS(3)         OPTIONS/      COMPENSATION(4)
PRINCIPAL POSITION                   YEAR(1)         $                 $               $               SARs(#)              $
------------------                   -----       --------          --------         --------           -------          ---------
<S>                                  <C>         <C>               <C>             <C>                 <C>           <C>
Jay L. Schottenstein                 1999T       $135,340              None             None              None              None
Chairman                             1998        $250,025              None             None              None              None
                                     1997        $250,000              None             None              None           $50,000
                                     1996        $250,000              None             None              None              None

Martin P. Doolan(5)                  1999T       $300,000          $780,000             None              None          $127,579
President and                        1998        $600,000          $350,000             None              None           $80,572
Chief Executive Officer              1997         $50,000              None         $618,750           325,000            $2,230
                                     1996             N/A               N/A              N/A               N/A               N/A

Robert M. Wysinski                   1999T       $142,500          $143,000             None              None            $6,430
Senior Vice President,               1998        $275,000           $95,000             None              None            $8,177
Chief Financial Officer,             1997        $240,000           $95,000             None            37,500            $7,996
Treasurer and Secretary              1996        $226,667           $85,000             None              None            $7,996

Michael J. Tanner(6)                 1999T       $200,000          $249,167             None              None           $16,775
Chief Merchandising                  1998        $383,333           $35,000         $117,188            50,000           $72,278
Officer                              1997         $19,167              None          $82,500            25,000            $1,609
                                     1996             N/A               N/A              N/A               N/A               N/A

Louis S. Virag(7)                    1999T       $225,000          $275,000             None              None          $127,855
Senior Vice President,               1998        $450,000              None             None              None           $61,682
Merchandising                        1997         $18,750              None         $206,250            75,000            $1,075
                                     1996             N/A               N/A              N/A               N/A               N/A

James E. Feldt(8)                    1999T       $225,000          $273,541             None              None          $100,230
Former Executive Vice President      1998        $420,833           $90,000         $207,188              None           $71,487
and General Merchandise              1997         $42,222              None          $82,500            75,000            $2,610
Manager                              1996             N/A               N/A              N/A               N/A               N/A
</TABLE>

(1)     1999T represents the six month transition period of August 2, 1998
        through January 30, 1999.

(2)     Includes amounts deferred by the executive officer pursuant to the
        Deferred Compensation Plan established in 1998, SSC's Associates Profit
        Sharing/401(k) Plan (the "401(k) Plan"), which was adopted effective as
        of August 1, 1989, and in which associates of the Company are eligible
        to participate. The 401(k) Plan is a prototype defined contribution plan
        that qualifies for favorable tax treatment under Sections 401(a) and
        401(k) of the Internal Revenue Code of 1986, as amended. The 401(k) Plan
        permits eligible associates of the Company to contribute a percentage of
        their pre-tax wages to the plan and the Company will match the
        contributions up to a maximum of 3% of covered wages. The Company also
        may contribute up to an additional 1.5% of covered wages as a profit
        sharing contribution.

(3)     The amounts reflected in the table represent the value of such shares on
        the date of grant. The number and value (in thousands of dollars) of
        aggregate restricted stock holdings of each of the named executives on
        January 30, 1999  was: Mr Schottenstein, none; Mr. Doolan, 75,000

                                       35
<PAGE>   36
        shares ($872); Mr. Wysinski, 20,587 shares ($239); Mr. Tanner, 25,000
        shares ($291); Mr Virag, 25,000 shares ($291) and Mr. Feldt, 2,000
        shares ($23). The value of the restricted stock is determined by
        multiplying the total shares held by each named executive by the closing
        price on the New York Stock Exchange on January 30, 1999 ($11.625).
        Restricted stock awards are granted pursuant to restricted stock
        agreements conditioning the vesting of the shares upon continued
        employment with the Company and vesting at 20% per year.

(4)     Represents amounts contributed by the Company to the 401(k) Plan,
        including both matching contributions and any profit-sharing
        contributions, personal living expenses, tax reimbursements, relocation
        reimbursements, auto reimbursements and the value of Company paid life
        insurance. The 401(k) Plan contributions for the Transition Period
        were: Mr. Schottenstein, none; Mr. Doolan, none; Mr. Wysinski, $3,113;
        Mr. Tanner, $4,181; Mr. Virag, $5,089 and Mr. Feldt, $3,775. Personal
        living expenses were: Mr. Schottenstein, none; Mr. Doolan, $59,199; Mr.
        Wysinski, none; Mr. Tanner, none; Mr. Virag, none and Mr. Feldt,
        $43,624. Tax reimbursements were: Mr. Schottenstein, none; Mr. Doolan,
        $60,881; Mr. Wysinski, none; Mr. Tanner, $5,094; Mr. Virag, $41,930 and
        Mr. Feldt, $45,631. Mr. Virag had $86,057 of relocation reimbursement.
        The remainder for Mr. Doolan, Mr. Tanner, Mr. Virag and Mr. Feldt is
        auto reimbursements. The balance for Mr. Wysinski represents the value
        of Company paid life insurance.

(5)     Mr. Doolan has entered into an employment agreement with the Company
        effective July 1, 1997, for a term ending June 30, 1999. The agreement
        provides for an annual salary of $600,000, a signing bonus of $350,000
        and a bonus of up to 100% of salary based upon Board approved,
        predetermined, performance measures set annually. The bonus provisions
        were changed effective for fiscal 1998 to conform to the Value City
        Incentive Compensation Plan which was approved by a vote of shareholders
        on December 8, 1998.

(6)     Mr. Tanner has entered into an employment agreement with the Company
        effective July 8, 1997 for a term ending July 7, 1999. The agreement
        provides for an annual salary of $300,000, a signing bonus of $35,000,
        and a bonus of up to 50% of his base salary based upon Board approved,
        predetermined, performance measures set annually. Mr. Tanner's base
        salary was increased to $400,000 in October 1997. The bonus provisions
        were changed effective for fiscal 1998 to conform to the Value City
        Incentive Compensation Plan which was approved by a vote of shareholders
        on December 8, 1998.

(7)     Mr Virag has entered into an employment agreement with the Company
        effective July 14, 1997 for a term ending July 13, 2000. The agreement
        provides for an annual salary of $450,000, a signing bonus of $50,000,
        and a bonus of up to 50% of his base salary based upon Board approved,
        predetermined, performance measures set annually. The bonus provisions
        were changed effective for fiscal 1998 to conform to the Value City
        Incentive Compensation Plan which was approved by a vote of shareholders
        on December 8, 1998.

(8)     Mr. Feldt resigned effective January 15, 1999.

       AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE

None of the executive officers named in the Summary Compensation Table exercised
options during the six months ended January 30, 1999. The following table
provides certain information on the number and value of stock options held by
the executive officers named in the Summary Compensation Table at January 30,
1999.
<TABLE>
<CAPTION>
                                                                                                   VALUE OF UNEXERCISED
                                                                        NUMBER OF                       IN-THE-MONEY
                          SHARES           VALUE                   UNEXERCISED OPTIONS                   OPTIONS AT
                        ACQUIRED ON       REALIZED               AT JANUARY 30, 1999 (#)          JANUARY 30, 1999 ($) (1)
NAME                    EXERCISE (#)        ($)            EXERCISABLE          UNEXERCISABLE     EXERCISABLE   UNEXERCISABLE
----                    ------------        ----            -----------         -------------     -----------   -------------

<S>                     <C>               <C>          <C>                      <C>               <C>           <C>
Jay L. Schottenstein         --             --                152,000              48,000            $470,580       $ 64,170
Martin P. Doolan             --             --                 65,000             260,000            $182,325       $729,300
Robert M. Wysinski           --             --                 37,600              31,900            $111,659       $ 86,571
Michael J. Tanner            --             --                 15,000              60,000            $ 53,075       $212,300
Louis S. Virag               --             --                 15,000              60,000            $ 42,075       $168,300
James E. Feldt               --             --                     --                  --                  --             --
</TABLE>

(1)     Represents the total gain which would be realized if all in-the-money
        options held at year end were exercised, determined by multiplying the
        number of shares underlying the options by the difference between the
        per share option exercise price and the per share fair market value at
        year end of $11.625. An option is in-the-money if the fair market value
        of the underlying shares exceeds the exercise price of the option.


                                       36
<PAGE>   37

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

    Martin P. Doolan and Robert M. Wysinski each of whom is an executive officer
of the Company, are also members of the Company's Board of Directors. The
Company's Chairman, Jay L. Schottenstein, with the input of its President,
Martin P. Doolan, determined the annual salary of the executive officers of the
Company, other than the Chairman, and such determination was not formally
considered and ratified by the Board of Directors. Jay L. Schottenstein is also
Chairman and Chief Executive Officer of SSC. For information regarding the
relationships between the Company and SSC, see Item 13.

The Stock Option Committee administers and grants options under the Company's
1991 Stock Option Plan and administers the Company's Incentive Compensation
Plan. The Stock Option Committee consists of Messrs. Gurian, Lamm and Shook.
None of the members of the Committee are present or former officers of the
Company or are themselves or have affiliates that are parties to agreements with
the Company.


                                       37
<PAGE>   38

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
            MANAGEMENT.

OWNERSHIP OF COMMON SHARES

        The following table sets forth, as of March 30, 1999, certain
information with regard to the beneficial ownership of the Company's Common
Shares by each holder of 5% of such shares, each director individually and all
executive officers and directors as a group.

<TABLE>
<CAPTION>
Name of                                                 Amount and Nature of             Percent of
Beneficial Owner                                        Beneficial Ownership (1)   Outstanding Shares (2)
----------------                                        ------------------------   ----------------------
<S>                                                     <C>                        <C>
Ari Deshe (5)(6)(8)                                               27,000                    *
Jon P. Diamond (3)(5)(6)                                          27,700                    *
Martin Doolan (4)                                                190,000                    *
Richard Gurian                                                    19,300                    *
Dr. Norman Lamm                                                   20,400                    *
Geraldine Schottenstein (5)(6)(7)                                 49,000                    *
Jay L. Schottenstein (5)(6)(7)                                   188,000                    *
Saul Schottenstein (5)(6)                                         65,000                    *
Robert L. Shook (8)                                               31,500                    *
Robert M. Wysinski (4)                                            66,521                    *
All directors and executive officers as a group
   (15 persons)(4)(5)(6)                                          853,109                  2.6%
Tweedy, Browne Company LLC (9)                                  1,850,630                  5.7%
Schottenstein Stores Corporation (6)                           18,189,166                 56.3%
</TABLE>

--------------
* Represents less than 1% of outstanding Common Shares, net of Treasury Shares.

(1)     Except as otherwise noted, the persons named in this table have sole
        power to vote and dispose of the shares listed and includes the
        following number of Common Shares as to which the named person has the
        right to acquire beneficial ownership upon the exercise of stock options
        within 60 days of March 30, 1999: Mr. Deshe, 14,000; Mr. Diamond,
        24,000; Mr. Doolan, 65,000; Mr. Gurian, 19,000; Dr. Lamm, 18,000; Mrs.
        Schottenstein, 19,000; Mr. J. Schottenstein, 158,000; Mr. S.
        Schottenstein, 45,000; Mr. Shook, 19,000; Mr. Wysinski, 37,600 and all
        directors and officers as a group, 490,200.

(2)     The percent is based upon the 32,320,817 Common Shares outstanding, net
        of Treasury Shares at March 30, 1999.

(3)     Includes 2,000 shares held by Mr. Diamond's wife.

(4)     Includes 75,000 shares for Mr. Doolan, 20,587 shares for Mr. Wysinski
        and 127,666 shares for all directors and executive officers as a group,
        which are owned subject to a risk of forfeiture on termination of
        employment with vesting over a period of years pursuant to the terms of
        Restricted Stock Agreements with the Company.

(5)      Does not include the 18,189,166 Common Shares owned by Schottenstein
         Stores Corporation ("SSC") of 1800 Moler Road, Columbus, Ohio 43207.
         Jay L. Schottenstein is the Chairman and Chief Executive Officer of
         SSC. Jay L. Schottenstein, Saul Schottenstein, Geraldine Schottenstein,
         Ari Deshe and Jon P. Diamond are members of the Board of Directors of
         SSC. See "Ownership of SSC," below.

(6)      Does not include 123,372 shares owned by the Jay and Jean Schottenstein
         Foundation, 67,944 shares held by the Ann and Ari Deshe Foundation,
         67,944 shares held by the Jon and Susan Diamond Family Foundation and
         40,740 shares held by the Lori Schottenstein Foundation, all being
         private charitable foundations, and 1,312,500 Common Shares owned by GB
         Stores, a Pennsylvania limited partnership. Combined, the shares owned
         by the foundations and GB Stores represent 5.0% of the Company's
         outstanding Common Shares. SSC owns a 96% limited partnership interest
         in GB Stores and its corporate general partner is an affiliate of SSC.
         The sole trustees and officers of the Jay and Jean Schottenstein
         foundation are Saul, Geraldine and Jay Schottenstein. The remaining
         foundations' trustees and officers consist of at least one of the
         following persons: Geraldine Schottenstein, Jay Schottenstein, Jon
         Diamond and/or Ari Deshe; in conjunction with other Schottenstein
         family members.

(7)     Includes 30,000 shares as to which Geraldine Schottenstein and Jay L.
        Schottenstein share voting and investment power as trustees of a trust
        which owns the shares. Geraldine Schottenstein is also a beneficiary of
        the trust.

(8)     Includes 10,000 shares held by Mr. Deshe's minor children. Includes 
        3,000 shares held by Mr. Shook's spouse and 1,500 shares held by Shook
        Associates, Inc. of which Mr. Shook is a 50% shareholder.

(9)     Includes 125,400 shares held by TBK, L.P. ("TBK") and 34,800 shares held
        by Vanderbilt Partners, L.P. ("Vanderbilt"). By reason of their
        positions as such, the members of Tweedy, Browne Company LLC (TBC") may
        be deemed to control TBC and the general partners of TBK and Vanderbilt
        may be deemed to control TBK and Vanderbilt, respectively. Based on
        information in Schedule 13D filed by TBC on April 12, 1999.



                                       38
<PAGE>   39

OWNERSHIP OF SSC

The following table indicates the shares of SSC common stock beneficially owned
by each nominee for election to the Board of Directors of the Company and by all
directors and officers of the Company as a group, as of April 5, 1999:


                                             SHARES OF SSC       PERCENT
                                             COMMON STOCK        OF CLASS

        Jay L. Schottenstein (1)                 299.38139        78.4%

        Geraldine Schottenstein (2)              27.41707          7.2%

        Jon P. Diamond (3)                       27.41707          7.2%

        Ari Deshe (4)                            27.41707          7.2%

        Directors and officers as a group        381.6326        100.0%

(1)  Represents sole voting and investment power over 299.38139 shares held in
     irrevocable trusts for family members as to which Jay L. Schottenstein is
     trustee and as to which shares Mr. Schottenstein may be deemed to be the
     beneficial owner.

(2)  Represents sole voting and investment power over 27.41707 shares held by
     Geraldine Schottenstein as trustee of an irrevocable trust for family
     members as to which shares Geraldine Schottenstein may be deemed to be the
     beneficial owner.

(3)  Represents sole voting and investment power over 27.41707 shares held by
     Susan Schottenstein Diamond, the wife of Jon Diamond, as trustee, and by
     Jon Diamond, as trustee, of irrevocable trusts for family members, as to
     which shares Mr. Diamond may be deemed to be the beneficial owner.

(4)  Represents sole voting and investment power over 27.41707 shares held by
     Ari Deshe, as trustee of irrevocable trusts for family members, as to
     which shares Mr. Deshe may be deemed to be the beneficial owner.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

        Prior to the completion of its initial public offering on June 18, 1991,
        the Company was operated as the Department Store Division of SSC. On
        that date, SSC transferred substantially all of the net assets of the
        Division to the Company in exchange for 22,500,000 Common Shares of the
        Company. At March 30, 1999, SSC owned 56.3% of the Company's
        outstanding Common Shares. So long as SSC owns more than 50% of the
        Company's voting shares, it will continue to have the power acting alone
        to approve any action requiring a vote of the majority of the voting
        shares of the Company and to elect all of the Company's directors. For
        information with respect to the beneficial ownership of the voting stock
        of SSC by nominees for election to the Board of the Company and
        beneficial ownership of Common Shares of the Company by such persons and
        officers of the Company, see Item 12.

REAL ESTATE LEASES AND SUBLEASES

        The Company leases or subleases from SSC or affiliates of SSC nineteen
        store locations, three warehouses and a parcel of land. Generally, the
        agreements require the Company to pay for insurance, taxes, common area
        maintenance and other costs associated with the properties on a "triple
        net" basis for freestanding locations, and on a pro rata share basis for
        locations that are part of a larger parcel.

        SSC leases to the Company five store locations under the terms of a
        Master Store Lease Agreement. The Master Store Lease, as amended,
        provides for certain base rentals which 



                                       39
<PAGE>   40

        approximate $2.96 per square foot. Beginning in fiscal 1997, the Master
        Store Lease also provides for the payment of percentage rent equal to 2%
        of gross total sales in excess of the base rent. For the Transition
        Period, the Company recorded expense to SSC, including contingent rent,
        of $1,116,109 pursuant to the Master Store Lease.

        SSC subleases to the Company two store locations that are owned by
        affiliates of SSC under a Master Sublease. The Master Sublease provides
        for an annual base rent of the greater of 2% of gross sales or minimum
        rent of $2.39 and $2.29 per square foot. For the Transition Period the
        Company recorded expense to SSC, including contingent rent, of $389,962
        pursuant to the Master Sublease.

        Both the Master Lease and the Master Sublease have a term of five years
        which began in June 1996, and are renewable thereafter, by individual
        location, at the option of the Company, for four additional renewal
        terms of five years each. Each renewal term in the aforementioned leases
        and subleases will be on the same terms as the initial term, except for
        rent. The Master store lease and Master Sublease provide for an increase
        in minimum percentage rent of $0.50 per square foot in each succeeding
        five-year renewal term. In no event, commencing fiscal 1997, shall total
        rent be less than 2% of total sales.

        The Company also leases or subleases three warehouse facilities and a
        trailer yard from SSC or affiliates of SSC. The warehouse facilities
        consist of approximately 725,000 square feet for base rentals of $1.50
        to $3.35 per square foot with lease control ranging from 2004 through
        2017. Generally, the lease renewal terms are at the same terms and
        conditions as the original term except rent which increases by $0.25 per
        square foot for the renewal terms. One of these facilities aggregating
        140,000 square feet was partially subleased to VCM at amounts equal to
        the Company's cost of the related facility. The Company also leases,
        from an affiliate of SSC, a trailer yard of approximately 19 acres with
        lease control through April 2009 having rents that range from $25,000 to
        $30,000 per year during the period of lease control. During the
        Transition Period, the Company recorded net expenses to SSC and
        affiliates of SSC of $1,250,219 pursuant to these leases and
        assignments.

        Additionally, the Company leases ten store locations from SSC or
        affiliates of SSC. Generally, the leases provide for percentage rent
        equal to 2% of total sales in excess of a specified sales level or base
        rent with base rents ranging from $2.37 to $7.00 per square foot for the
        initial term and provide lease control ranging from 2007 through 2038.
        Generally, the renewal terms are at the same terms and conditions as the
        original term except rent which may increase for the renewal terms.
        During the Transition Period the Company recorded expenses in the
        aggregate to SSC and affiliates of SSC of $2,772,424 pursuant to these
        leases.

        In addition to the foregoing, SSC subleases one store location to the
        Company under an agreement that provides for the payment of additional
        rent to SSC in order for SSC to recover the costs of the initial
        acquisition of the leasehold interest. The sublease has a term expiring
        in 2004 and provides for rent in the amount of 2% of total sales, with a
        minimum rent equal to $2.00 per square foot and provides four additional
        five-year renewal terms. During the Transition Period, the Company
        recorded expenses in the aggregate to SSC of $129,725 pursuant to this
        sublease.

        The Company also subleases from SSC a store location. The sublease
        expires December 31, 


                                       40
<PAGE>   41

        2007 and provides for percentage rent equal to 2% of total sales in
        excess of a minimum base rent of $4.69 per square foot with three
        additional renewal terms of five years each. During the Transition
        Period, the Company recorded expenses to SSC of $248,904 for this
        sublease.

        SSC operates a chain of furniture stores, five of which operate in
        separate space subleased from the Company at five of its store
        locations. Three of these furniture store subleases (the "Furniture
        Subleases") are for a term concurrent with the respective lease between
        the Company and a third party landlord. These Furniture Subleases
        provide for the payment by SSC of base rent and other charges in amounts
        at least equal to its pro rata share based on square footage and its pro
        rata share of any percentage rent based on its gross sales. Two
        additional furniture store subleases are for periods shorter than the
        Company's lease. During the Transition Period, SSC paid to the Company
        an aggregate of $842,735 pursuant to these subleases.

    LICENSE AGREEMENTS WITH AFFILIATES

        The Company operated as licensee the apparel, housewares and domestic
        departments in two department stores operated by The Valley Fair
        Corporation ("Valley Fair") in New Jersey through May 2, 1998. SSC
        controlled Valley Fair by virtue of certain common officers and
        directors and its combined ownership with affiliates of substantially
        all of the outstanding stock of Valley Fair. Effective May 3, 1998, the
        Company purchased the operating assets of Valley Fair. The Company paid
        Valley Fair a license fee of 11.0% of net sales for rent, against an
        annual aggregate minimum of $733,000 for both stores. The Company used
        employees of Valley Fair to operate the departments and reimbursed
        Valley Fair for all costs associated with such employees.

        SSC owned 49.9% of the stock of Shonac Corporation ("Shonac"), and 50.0%
        was owned by certain members of the management of Shonac and their
        families. Effective May 3, 1998, the Company purchased 99.9% of the
        common stock of Shonac. Through May 2, 1998, the Company had license
        agreements with Shonac for the operation of the shoe departments in all
        of the Company's stores. Under the terms of the agreements as amended,
        Shonac paid a license fee to the Company in an amount approximating 11%
        of its net sales in the Company's stores. Shonac was required to
        reimburse the Company 0.9% of its sales for selling, general and
        administrative expenses. Shonac was also required to reimburse the
        Company 10% of the Company's aggregate costs for advertising expenses.

        In July 1997, the Company entered into agreements to form a 50/50 joint
        venture with Mazel Stores, Inc. to create VCM, Ltd. ("VCM") to operate
        the Company's health and beauty care and toys and sporting goods
        departments as licensed departments. Pursuant to operating agreements
        between VCM and the Company, VCM will pay annual license fees to the
        Company based on 5% and 11% of net sales and will reimburse the Company
        2% and 4% of its sales for advertising and 2.9% and 1% of its sales for
        administrative expenses for the health and beauty care and the toys and
        sporting goods departments, respectively. The Company will also provide
        certain personnel, administrative and service functions for which it
        will receive a monthly fee from VCM to cover the related costs. The
        license and operating agreements are for a term of ten years ending in
        July 2007 and contain certain provisions whereby either business partner
        can initiate renegotiations of terms if certain minimum requirements are
        not met. The aggregate license fees paid by VCM to the Company for the
        Transition Period were $4,880,059.


                                       41
<PAGE>   42

    MERCHANDISE TRANSACTIONS WITH AFFILIATES

        The Company from time to time purchases merchandise from affiliates of
        SSC. Some of such affiliates manufacture, import and wholesale apparel
        as their principal business. The members of the Company's merchandising
        staff use these sources and make their purchasing decisions in the same
        manner as with unaffiliated sources. Any merchandise purchased from such
        sources is on terms at least as favorable to the Company as could be
        obtained in an arm's-length transaction with an unaffiliated third
        party, and in certain instances, the Company is given terms preferential
        to those available to unaffiliated customers. Total purchases by the
        Company from SSC and affiliates for the Transition Period were
        $1,470,880, representing 0.46% of the Company's total purchases during
        the six month period.

    SERVICES AGREEMENTS

        The Company shares with SSC and its affiliates certain incidental
        support personnel and services for the purpose of achieving economies of
        scale and cost savings. These shared services include certain
        architectural, legal, advertising and administrative services. The
        Company and SSC have entered into a Corporate Services Agreement that
        sets forth the terms for payment of the costs of these shared services.
        The Company believes that it is able to obtain such services at a cost
        which is equal to or below the cost of providing such services by itself
        or obtaining such services from unaffiliated third parties. For the
        Transition Period, the Company paid SSC or its affiliates $601,391 for
        such services and the Company was reimbursed $59,929 by SSC and its
        affiliates for such services. The Corporate Services Agreement also
        provides for participation by the Company in the self-insurance program
        maintained by SSC on the same basis as previous participation by the
        Division. Under that program, the Company is self-insured for purposes
        of personal injury and property damage, motor vehicle and Ohio workers'
        compensation claims up to various specified amounts, and for casualty
        losses up to $100,000. Claims and losses in excess of the specified
        amounts are covered by stop-loss or excess liability policies maintained
        by SSC, which include the Company as a named insured. SSC maintains
        reserves and pays claims for self-insured amounts under the program and
        will continue to do so with respect to the Company's participation in
        the program. SSC charges its affiliates, divisions and the Company
        premiums based, among other factors, on loss experience and its actual
        payroll and related costs for administering the program. During the
        Transition Period, the Company accrued net premiums payable to SSC of
        $4,000,592 for participation in the program.

        The Company also provides certain administrative and service functions
        for VCM. These functions include accounting, MIS and merchandise
        delivery. During the Transition Period, the Company charged VCM
        $1,409,988 for these services.


                                       42
<PAGE>   43

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K.

    14(a)(1) FINANCIAL STATEMENTS
    The documents listed below are filed as part of this Form 10-K:

                                                                       Page in
                                                                      Form 10-K
                                                                      ---------

Independent Auditors' Report                                            F - 1
Consolidated Balance Sheets at January 30, 1999, August 1, 1998 and
   August 2, 1997                                                       F - 3
Consolidated Statements of Income for the six months ended
   January 30, 1999 and for the years ended August 1, 1998,
   August 2, 1997 and August 3, 1996                                    F - 4
Consolidated Statements of Shareholders' Equity for the six months
   ended January 30, 1999 and for the years ended August 1, 1998,
   August 2, 1997 and August 3, 1996                                    F - 5
Consolidated Statements of Cash Flows for the six months ended
   January 30, 1999 and for the years ended August 1, 1998,
   August 2, 1997 and August 3, 1996                                    F - 6
Notes to the Consolidated Financial Statements                          F - 7

    14(a)(2)   CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:
    The schedule listed below is filed as part of this Form 10-K:

       Schedule II.    Valuation and Qualifying Accounts                S - 1

    Schedules not listed above are omitted because of the absence of the
    conditions under which they are required or because the required information
    is included in the financial statements or the notes thereto.

    14(a)(3)   EXHIBITS:

               See Index to Exhibits which begins on Page E-1.

    14(b)      REPORTS ON FORM 8-K

               None

                                       43
<PAGE>   44

                                   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.


                                        VALUE CITY DEPARTMENT STORES, INC.
Date: April 28, 1999                     By:                     *     
                                            ---------------------------
                                           (Martin P. Doolan, President and CEO)


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

<TABLE>
<CAPTION>
SIGNATURE                     TITLE                                                          DATE
<S>                           <C>                                                           <C>  
            *                 Chairman of the                                               4/28/99
-------------------------     Board of Directors
(Jay L. Schottenstein)        

            *                 Vice Chairman of the Board of Directors                       4/28/99   
-------------------------     Director
(Saul Schottenstein)                                                                          

            *                 President, Chief Executive Officer                            4/28/99   
-------------------------     (Principal Executive Officer) and Director 
(Martin P. Doolan)                                         

                                                                                                      
/s/ Robert M. Wysinski        Senior Vice President, Secretary and                          4/28/99   
---------------------         Treasurer (Principal Financial Officer), Director 
(Robert M. Wysinski)                                          
                                                                                             
                                                                                                      
            *                 Controller, Assistant Treasurer                               4/28/99   
-------------------------      and Assistant Secretary (Principal Accounting Officer)
(Richard L. Walters)                                    
                                                                                              
                                                                                                      
            *                 Director                                                      4/28/99   
-------------------------
(Geraldine Schottenstein)                                                                             
                                                                                                      
            *                 Director                                                      4/28/99   
-------------------------
(Jon P. Diamond)                                                                                      
                                                                                                      
            *                 Director                                                      4/28/99   
-------------------------
(Norman Lamm)                                                                                         
                                                                                                      
            *                 Director                                                      4/28/99   
-------------------------
(Richard Gurian)                                                                                      
                                                                                                      
            *                 Director                                                      4/28/99   
-------------------------
(Robert L. Shook)                                                                                     
                                                                                                      
            *                 Director                                                      4/28/99   
-------------------------
(Ari Deshe)                                                                                           
</TABLE>


*By: /s/ Robert M. Wysinski    
     --------------------------------------
     Robert M. Wysinski, (Attorney-in-Fact)


                                       44
<PAGE>   45

                          INDEPENDENT AUDITORS' REPORT


To the Board of Directors and
Shareholders of Value City
Department Stores, Inc.:

        We have audited the accompanying consolidated balance sheets of Value
City Department Stores, Inc. (a majority owned subsidiary of Schottenstein
Stores Corporation) and its wholly owned subsidiaries (the Company) as of
January 30, 1999, August 1, 1998 and August 2, 1997 and the related consolidated
statements of income, shareholders' equity and cash flows for the six months
ended January 30, 1999 and for each of the two years in the period ended August
1, 1998. Our audits also included the financial statement schedule for the six
months ended January 30, 1999 and for the years ended August 1, 1998 and August
2, 1997 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, such consolidated financial statements present fairly,
in all material respects, the consolidated financial position of Value City
Department Stores, Inc. and its wholly owned subsidiaries at January 30, 1999,
August 1, 1998 and August 2, 1997 and the consolidated results of their
operations and their cash flows for the six months ended January 30, 1999 and
for each of the two years in the period ended August 1, 1998 in conformity with
generally accepted accounting principles. Also, in our opinion, such 1999, 1998
and 1997 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 required to be included therein.


Deloitte & Touche LLP



Columbus, Ohio
March 23, 1999



                                      F - 1

<PAGE>   46



                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and
Shareholders of Value City
Department Stores, Inc.:

         We have audited the consolidated statements of income, shareholders'
equity and cash flow of Value City Department Stores, Inc. (a majority owned
subsidiary of Schottenstein Stores Corporation), its partnerships and its wholly
owned subsidiaries (the Company) for the year in the period ended August 3,
1996. We have also audited the financial statement schedule for the year in the
period ended August 3, 1996, listed in item 14(a)(2) of this Form 10-K. 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 audit.

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

        In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated results of operations, cash
flows, and changes in shareholders' equity of Value City Department Stores,
Inc., its partnerships and its wholly owned subsidiaries for the year in the
period ended August 3, 1996 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be included therein.


Coopers & Lybrand L.L.P.




Columbus, Ohio
October 28, 1996



                                      F - 2

<PAGE>   47



                        VALUE CITY DEPARTMENT STORES, INC
                           CONSOLIDATED BALANCE SHEETS
             at January 30, 1999, August 1, 1998 and August 2, 1997
                      (in thousands, except share amounts)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                              ASSETS                                       January 30, 1999      August 1, 1998     August 2, 1997
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                   <C>                <C>     
CURRENT ASSETS:
    Cash and equivalents                                                           $20,895             $32,802           $11,614
    Accounts receivable, net                                                         6,996               5,458             5,683
    Receivables from affiliates                                                        587                 636             1,084
    Inventories                                                                    286,029             373,175           236,784
    Prepaid expenses and other assets                                                4,384               8,192            12,137
    Assets held for sale                                                               -                    -             20,776
    Deferred income taxes                                                           14,441              17,687             9,208
                                                                                 ---------          ----------          --------
         TOTAL CURRENT ASSETS                                                      333,332             437,950           297,286

PROPERTY AND EQUIPMENT, AT COST:
    Furniture, fixtures and equipment                                              168,270             165,261           141,588
    Leasehold improvements                                                         126,857             122,011            97,798
    Land and building                                                                  986               1,001                -
    Capital leases                                                                  15,276              15,276            15,213
                                                                                 ---------          ----------          --------
                                                                                   311,389             303,549           254,599
    Accumulated depreciation and amortization                                     (143,208)           (133,707)         (101,148)
                                                                                  ---------           ---------          --------
         Property and equipment, net                                               168,181             169,842           153,451

INVESTMENT IN JOINT VENTURE                                                          8,391               8,260                -
GOODWILL AND TRADENAMES, NET                                                        45,519              46,717                -
OTHER ASSETS                                                                        17,983              20,288             7,236
                                                                                 ---------          ----------          --------

         TOTAL ASSETS                                                             $573,406            $683,057          $457,973
                                                                                  ========            ========          ========
</TABLE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
                                                    LIABILITIES AND SHAREHOLDERS' EQUITY
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                               <C>                 <C>                <C>    
CURRENT LIABILITIES:
    Accounts payable                                                              $110,312            $133,539           $69,649
    Accounts payable to affiliates                                                   3,687               7,235            11,344
    Accrued expenses:
        Compensation                                                                 6,617              13,524             8,882
        Taxes                                                                       12,925              17,646            11,753
        Other                                                                       24,037              28,030            22,901
    Demand note payable                                                                -                   -              12,000
    Current maturities of long-term obligations                                      9,259              32,224             2,281
                                                                                     -----              ------             -----
         TOTAL CURRENT LIABILITIES                                                 166,837             232,198           138,810

LONG-TERM OBLIGATIONS, NET OF CURRENT MATURITIES                                   101,447             165,648            57,763

DEFERRED INCOME TAXES AND OTHER NONCURRENT LIABILITIES                               3,204               4,460             4,960

SHAREHOLDERS' EQUITY:
    Common shares, without par value;
        80,000,000 authorized; issued, including treasury shares, 32,637,617
        shares, 32,619,767 shares
        and 32,259,045 shares, respectively                                        113,073             112,749           110,068
    Contributed capital                                                             12,083              12,097            10,728
    Retained earnings                                                              180,070             159,814           139,455
    Deferred compensation expense, net                                                (671)             (1,080)             (982)
    Treasury shares, at cost, 343,600, 368,600 and 368,600 shares, respectively     (2,637)             (2,829)           (2,829)
                                                                                    -------             ------            ------
         TOTAL SHAREHOLDERS' EQUITY                                                301,918             280,751           256,440
                                                                                   -------             -------           -------

         TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                               $573,406            $683,057          $457,973
                                                                                  ========            ========          ========
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.

                                      F - 3

<PAGE>   48
                       VALUE CITY DEPARTMENT STORES, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                          Six Months Ended January 30,
                   1999 and Years Ended August 1, 1998, August
                           2, 1997 and August 3, 1996
                    (in thousands, except per share amounts)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                                  6 MONTHS ENDED            1998                  1997                  1996
                                                     1/30/99             52 Weeks               52 Weeks               53 Weeks   
------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>                   <C>                   <C>                   <C>        
TOTAL SALES                                         $ 843,743           $ 1,368,349           $ 1,255,632           $ 1,115,900
Less licensed department sales                        (63,480)             (206,970)             (182,233)             (161,592)
                                                    ---------           -----------           -----------           -----------
  Net owned sales                                     780,263             1,161,379             1,073,399               954,308

Cost of sales                                        (483,502)             (732,902)             (697,822)             (599,460)
                                                    ---------           -----------           -----------           -----------

   GROSS PROFIT                                       296,761               428,477               375,577               354,848

Selling, general and
  administrative expenses                            (264,590)             (416,218)             (385,911)             (337,097)
License fees from affiliates                            4,880                20,674                17,685                15,162
Other operating income                                  3,748                 3,988                 3,162                 3,300
                                                    ---------           -----------           -----------           -----------

   OPERATING PROFIT                                    40,799                36,921                10,513                36,213

Interest expense, net                                  (6,702)               (5,267)               (5,126)               (1,328)
Gain on disposal of assets, net                            16                 1,623                   161                    33
Amortization of excess net
assets over cost                                           --                    --                   927                 1,390
                                                    ---------           -----------           -----------           -----------

  INCOME BEFORE EQUITY IN INCOME (LOSS)
     OF JOINT VENTURE, MINORITY INTEREST
     AND PROVISION FOR INCOME TAXES                    34,113                33,277                 6,475                36,308

Equity in income (loss) of joint venture                  131                (1,377)                   --                    --
Minority interest in partnerships                          --                    --                    --                   (41)
                                                    ---------           -----------           -----------           -----------

  INCOME BEFORE PROVISION FOR INCOME TAXES             34,244                31,900                 6,475                36,267

Provision for income taxes                            (13,988)              (11,541)               (2,524)              (14,549)
                                                    ---------           -----------           -----------           -----------

  NET INCOME                                        $  20,256           $    20,359           $     3,951           $    21,718
                                                    =========           ===========           ===========           ===========


  BASIC EARNINGS PER SHARE                          $    0.63           $      0.64           $      0.12           $      0.68
                                                    =========           ===========           ===========           ===========

  DILUTED EARNINGS PER SHARE                        $    0.62           $      0.63           $      0.12           $      0.68
                                                    =========           ===========           ===========           ===========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.


                                      F - 4

<PAGE>   49
                       VALUE CITY DEPARTMENT STORES, INC.
                           CONSOLIDATED STATEMENTS OF
                              SHAREHOLDERS' EQUITY
                          Six months ended January 30,
                    1999 and the Years Ended August 1, 1998,
                       August 2, 1997, and August 3, 1996
                                 (in thousands)

<TABLE>
<CAPTION>
                                      Number of Shares
                                   ----------------------
                                                 Common                                           Deferred
                                   Common        Shares    Common    Contributed   Retained     Compensation  Treasury
                                   Shares     in Treasury  Shares      Capital     Earnings        Expense      Shares     Total
                                   ------     -----------  ------    -----------   --------     ------------  --------     -----
<S>                                <C>        <C>         <C>        <C>           <C>           <C>          <C>        <C>     
BALANCE, JULY 29, 1995             32,051          149    $109,385     $9,704      $113,786       $(1,043)    $(1,231)   $230,601

  Net income                                                                         21,718                                21,718
  Exercise of stock options             8                       65          7                                                  72
  Tax liability incurred on
      vested restricted shares                                            (23)                                                (23)
  Repurchase of common shares                      220                                                         (1,598)     (1,598)
  Amortization of deferred
      compensation expense                                                                            675                     675
                                  -------      -------     -------    -------       -------       -------     -------     -------
BALANCE, AUGUST 3, 1996            32,059          369     109,450      9,688       135,504          (368)     (2,829)    251,445

  Net income                                                                          3,951                                 3,951
  Exercise of stock options            80                      618        102                                                 720
  Tax liability incurred on
      vested restricted shares                                            (52)                                                (52)
  Grant of restricted shares          120                                 990                        (990)                     --
  Amortization of deferred
      compensation expense                                                                            376                     376
                                  -------      -------     -------    -------       -------       -------     -------     -------
BALANCE, AUGUST 2, 1997            32,259          369     110,068     10,728       139,455          (982)     (2,829)    256,440

  Net income                                                                         20,359                                20,359
  Exercise of stock options           331                    2,681        921                                               3,602
  Tax benefit incurred on
      vested restricted shares                                            120                                                 120
  Grant of restricted shares           30                                 328                        (328)                     --
  Amortization of deferred
      compensation expense                                                                            230                     230
                                  -------      -------     -------    -------       -------       -------     -------     -------
BALANCE, AUGUST 1, 1998            32,620          369     112,749     12,097       159,814        (1,080)     (2,829)    280,751

  Net income                                                                         20,256                                20,256
  Sale of treasury shares                          (25)                   119                                     192         311
  Exercise of stock options            41                      324                                                            324
  Tax benefit incurred on
      vested restricted shares                                            145                                                 145
  Forfeiture of restricted shares     (23)                               (278)                        278                      --
  Amortization of deferred
      compensation expense                                                                            131                     131
                                  -------      -------     -------    -------       -------       -------     -------     -------
BALANCE, JANUARY 30, 1999          32,638          344    $113,073    $12,083      $180,070         $(671)    $(2,637)   $301,918
                                  =======      =======     =======    =======       =======       =======     =======     =======
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.


                                      F - 5

<PAGE>   50
                       VALUE CITY DEPARTMENT STORES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        Six Months Ended January 30, 1999
                 and Years ended August 1, 1998, August 2, 1997
                               and August 3, 1996
                                 (in thousands)


<TABLE>
<CAPTION>                                                               6 Month Ended     1998          1997         1996
                                                                            1/30/99     52 Weeks      52 Weeks     53 Weeks
                                                                           --------     ---------     --------     --------   

<S>                                                                        <C>          <C>           <C>          <C>     
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                                             $ 20,256     $  20,359     $  3,951     $ 21,718
    Adjustments to reconcile net income to
        net cash provided by (used in)operating activities:
           Depreciation and amortization                                     16,299        27,773       29,583       23,903
           Amortization of excess net assets over cost                           --            --         (927)      (1,390)
           Minority interest in partnerships                                     --            --           --           41
           Deferred income taxes and other noncurrent liabilities             1,990        (1,920)         232         (562)
           Equity in (gain) loss of joint venture                              (131)        1,377           --           --
           Gain on disposal of assets                                           (16)       (1,623)        (161)         (33)
           Change in working capital, assets and liabilities:
               Receivables                                                   (1,490)        1,504          402         (632)
               Inventories                                                   87,146       (39,223)      10,710      (41,894)
               Prepaid expenses and other assets                              3,808         6,383      (10,511)      (3,045)
               Accounts payable                                             (26,775)       16,269        2,880       22,646
               Accrued expenses                                              (7,908)       12,358        2,584          674
                                                                           --------     ---------     --------     --------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                    93,179        43,257       38,743       21,426
                                                                           --------     ---------     --------     --------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Capital expenditures                                                    (17,305)      (27,165)     (46,750)     (45,407)
    Investment in joint venture                                                  --        (9,637)          --           --
    Proceeds from sale of assets                                                 24        22,388           85           65
    Acquisitions                                                                 --      (108,473)          --           --

    Notes receivable                                                             --         1,906          738       (1,960)
    Other assets                                                               (963)       (6,532)        (900)        (376)
                                                                           --------     ---------     --------     --------
NET CASH USED IN INVESTING ACTIVITIES                                       (18,244)     (127,513)     (46,827)     (47,678)
                                                                           --------     ---------     --------     --------

CASH FLOWS FROM FINANCING ACTIVITIES:

    Proceeds from issuance of common shares                                     324         2,681          618           65
    Net payments (borrowings) under demand note facility                         --       (12,000)     (21,000)      33,000
    Net proceeds from issuance of long-term obligations                          --       137,225       50,000           --
    Net principal payments under long-term obligations                      (87,166)      (22,462)     (20,404)     (10,777)
    Purchases of treasury shares                                                 --            --           --       (1,598)
    Distributions to partners in minority partnerships, net                      --            --           --       (1,328)
                                                                           --------     ---------     --------     --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                         (86,842)      105,444        9,214       19,362
                                                                           --------     ---------     --------     --------

NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS                             (11,907)       21,188        1,130       (6,890)
CASH AND EQUIVALENTS, BEGINNING OF YEAR                                      32,802        11,614       10,484       17,374
                                                                           --------     ---------     --------     --------
CASH AND EQUIVALENTS, END OF YEAR                                          $ 20,895     $  32,802     $ 11,614     $ 10,484
                                                                           ========     =========     ========     ========
</TABLE>



The accompanying notes are an integral part of the consolidated financial
statements.




                                      F - 6

<PAGE>   51


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       BUSINESS OPERATIONS AND BASIS OF PRESENTATION

The accompanying consolidated financial statements include the accounts of Value
City Department Stores, Inc. ("VCDS") and its wholly owned subsidiaries. These
entities are herein referred to collectively as the "Company." The Company
operates a chain of full-line, off-price department stores, principally under
the name "Value City," as well as off-price shoe stores, principally under the
name "DSW Shoe Warehouse." As of January 30, 1999 a total of 145 stores were
open, including 97 Value City stores located principally in Ohio (23 stores) and
Pennsylvania (19 stores) with the remaining stores dispersed throughout the
Midwest, East and South and 48 shoe stores throughout the United States.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

FISCAL YEAR 
On June 10, 1998, the Company determined to change its fiscal year from a 52/53
week year that ends on the Saturday nearest to July 31 to a 52/53 week year that
ends on the Saturday nearest to January 31. The six-month transition period of
August 3, 1998 through January 30, 1999 (the "Transition Period") contains 26
weeks and precedes the start of the new fiscal year. Unaudited summarized
consolidated financial information for the six months ended January 31, 1998 is
as follows (in thousands, except per share amount):

        Net sales                                        $577,612
        Gross profit                                     $210,171
        Provision for income taxes                        $10,131
        Net income                                        $15,743
        Basic and diluted earnings per share                $0.49

CONSOLIDATION
The consolidated financial statements include the accounts of the Company after
elimination of significant intercompany transactions and balances.

CASH AND EQUIVALENTS
Cash and equivalents represent cash and highly liquid investments with
maturities when purchased of three months or less.

INVENTORIES
Merchandise inventories are stated at the lower of cost or market using the
retail method.

ASSETS HELD FOR SALE
Assets held for sale, stated at lower of cost or market, represent: 1) land,
building and leasehold improvements related to a site originally purchased for
store development which were sold in September 1997; 2) leasehold improvements
at an existing store for which the lease rights were sold; and 3) inventory and
fixed assets related to the Company's toys and sporting goods departments which
were sold in August 1997 at net book value (see Note 3, Related Party
Transactions).

PRE-OPENING EXPENSES
Effective in the Transition Period, pre-opening expenses are expensed as
incurred. In prior periods, pre-opening costs were charged to operations ratably
over the first twelve months of a new store's

                                      F - 7

<PAGE>   52


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


operations. Pre-opening costs expensed were $1,308,000, $1,434,000, $6,943,000
and $4,059,000 for the Transition Period and for the fiscal years 1998, 1997 and
1996, respectively.

INVESTMENT IN JOINT VENTURE

VCM, Ltd. ("VCM") operates the health and beauty care and toy and sporting goods
departments in the Company's stores as licensed departments. VCM is a 50/50
joint venture with Mazel Stores, Inc. ("Mazel"). The Company accounts for its
fifty percent interest in the joint venture under the equity method. See Note 3,
Related Party Transactions.

PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
recognized principally on the straight-line method in amounts adequate to
amortize costs over the estimated useful lives of the respective assets.
Leasehold improvements are amortized over the shorter of their useful lives or
lease term. The estimated useful lives by class of asset are:

     Buildings                                                 31 years
     Furniture, fixtures and equipment                         3 to 10 years
     Leasehold improvements                                    10 years

LONG-LIVED ASSETS
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that full
recoverability is questionable.

GOODWILL AND TRADENAMES
Goodwill represents the excess cost over the estimated fair values of net assets
and identifiable intangible assets acquired and is being amortized over 15
years. Tradenames represent the values assigned to names that the Company
acquired and is being amortized over 15 years. The accumulated amortization for
these assets was $2,294,000 and $766,000 at January 30, 1999 and August 1, 1998,
respectively.

REVENUE RECOGNITION
Sales of merchandise and services are net of returns and allowances and exclude
sales tax. Layaway sales are recognized when the merchandise has been paid for
in full.

ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. During the Transition Period
and during fiscal years 1998, 1997 and 1996, advertising expense was
$29,741,000, $38,245,000, $39,005,000, and $36,020,000, respectively.

INTEREST RATE SWAP AGREEMENT
The Company utilizes an interest rate swap agreement to manage the interest rate
risk associated with a portion of its borrowings. The counterparty to this
instrument is a major financial institution. This agreement is used to reduce
the potential impact of increases in interest rates on variable rate long-term
debt. The differential to be paid or received is accrued as interest rates
change and is recognized as an adjustment to interest expense.


                                      F - 8

<PAGE>   53


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


EARNINGS PER SHARE
Basic earnings per share is based on a simple weighted average of common shares
outstanding. Diluted earnings per share reflects the potential dilution of
common equivalent shares (stock options), calculated using the treasury stock
method. In accordance with the provisions of SFAS No. 128, all prior periods
presented have been restated. The numerator for the calculation of basic and
diluted earnings per share is net income. The denominator is summarized as
follows (in thousands):

<TABLE>
<CAPTION>
                                                 6 Months                 Fiscal Years Ended         
                                                   Ended          ----------------------------------------
                                                 1/30/99           1998             1997          1996     
----------------------------------------------------------------------------------------------------------

<S>                                              <C>              <C>              <C>           <C>   
Weighted average shares outstanding                32,285          31,997           31,740        31,722
Assumed exercise of dilutive stock
   options                                            350             364              277           135
                                                      ---             ---              ---           ---
Number of shares for computation of
   diluted earnings per share                      32,635          32,361           32,017        31,857
                                                   ======          ======           ======        ======
</TABLE>

Options to purchase 394,800 shares of stock at prices ranging from $11.06 to
$21.44 per share were outstanding during the year ended 1998 but were not
included in the computation of diluted earnings per share because the options'
exercise prices were greater than the average market price of the stock.

USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Although these estimates are based on management's knowledge of current events
and actions it may undertake in the future, actual results could differ from
these estimates.

RECENT ACCOUNTING PRONOUNCEMENTS
During 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. SFAS
No. 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. The adoption of SFAS No. 133 is not expected to have a
significant impact on the Company's financial statements.

Effective August 2, 1998, the Company adopted AICPA Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed of
Obtained for Internal Use", which requires the Company to capitalize certain
software development costs. Generally, once the capitalization criteria of the
SOP have been met, external direct costs of materials and services used in
development of internal-use software, payroll and payroll-related costs for
employees directly involved in the development of internal-use software are to
be capitalized. The adoption of this SOP did not have a material effect on the
Company's financial statements.



                                      F - 9

<PAGE>   54


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


3.      RELATED PARTY TRANSACTIONS

The Company purchases merchandise from and sells merchandise to affiliates of
Schottenstein Stores Corporation ("SSC"), direct owner of approximately 56.3% of
the Company's common shares, and VCM. The related party transactions are as
follows (in thousands):

                                                           
<TABLE>
<CAPTION>
                                                           6 Months           Fiscal Years Ended 
                                                             Ended        -------------------------  
                                                           1/30/99        1998      1997      1996    
---------------------------------------------------------------------------------------------------
<S>                                                        <C>           <C>       <C>       <C>   
Purchases of merchandise
 from affiliates                                            $1,471       $4,898    $4,477    $6,621
Merchandise sold to affiliates at cost,
 including handling charges                                     --          333        12       354
Merchandise purchased on behalf of
 and shipped directly to affiliates, at
 cost plus delivery charges                                     --        3,935         4        46
</TABLE>


Not included in the preceding table are purchases made through SSC's Importing
Division which charges the Company its cost plus an administrative charge.

The Company had license agreements with Shonac prior to its acquisition. The
license agreement was for the operation of shoe departments in all of the
Company's stores and provided for fees based on a percentage of sales, as
defined.

Prior to fiscal 1998, L.F. Widmann, Inc. ("Widmann"), a related party as a
result of significant ownership by SSC, operated the health and beauty care
departments in the Company's stores as licensed departments. In July 1997, the
Company entered into agreements to create VCM. An asset and stock purchase
agreement along with an operating agreement were signed on July 14, 1997
pursuant to which VCM would purchase 100% of Widmann's capital stock and
purchase the inventory and other assets of the Company's owned toys and sporting
goods departments. These transactions were completed in August 1997. VCM
operates the health and beauty care and toys and sporting goods departments in
the Company's stores as licensed departments. The license and operating
agreements are for a term of ten years ending in fiscal 2007 and contain certain
provisions whereby either business partner can initiate renegotiation of terms
if certain minimum requirements are not met. All license agreements provide for
fees based on percentages of sales, as defined.



                                     F - 10

<PAGE>   55


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Sales by licensed departments and the related license fees earned are as follows
(in thousands):

<TABLE>
<CAPTION>
                               6 Months            Fiscal Years Ended
                                 Ended     ----------------------------------
                                1/30/99      1998        1997        1996 
-----------------------------------------------------------------------------
<S>                            <C>         <C>         <C>         <C>
VCM
 Sales                          $63,480    $ 87,651          --          --
 License fees                     4,880       7,540          --          --

Widmann
  Sales                              --          --    $ 38,198    $ 40,643
  License fees                       --          --       1,841       1,942

Shonac
  Sales                              --    $119,319    $144,035    $120,949
  License fees                       --      13,134      15,844      13,220
</TABLE>


Prior to the May 1998 acquisition of the operations of Valley Fair Corporation
("Valley Fair"), the Company operated apparel, houseware and domestic
departments in the two stores owned by Valley Fair, a related party, under a
license agreement and paid a license fee of 11% of sales against an aggregate
minimum license fee of $733,000 per annum.

The Company also leases certain store and warehouse locations owned by SSC as
described in Note 4.

Accounts receivable from and payable to affiliates principally result from
commercial transactions with entities owned or controlled by SSC or intercompany
transactions with SSC.

The Company shares certain personnel, administrative and service costs with SSC
and its affiliates. The costs of providing these services are allocated among
the Company, SSC and its affiliates without a premium. The allocated amounts are
not significant. SSC does not charge the Company for general corporate
management services. In the opinion of the Company and SSC management, the
aforementioned charges are reasonable.

The Company participates in SSC's self insurance program for general liability,
casualty loss and Ohio workers' compensation. The Company expensed $4,000,592,
$7,265,000, $6,101,000 and $6,696,000 in the Transition Period and in fiscal
years 1998, 1997 and 1996, respectively, for such coverage.

During the Transition Period and the fiscal years 1998, 1997 and 1996, the
Company contributed $1,120,000 each period to a private charitable foundation
controlled by the Schottenstein family.

4.      LEASES

The Company operates stores and warehouses under various arrangements with
related and unrelated parties. Such leases expire through 2018 and in most cases
provide for renewal options. Generally, the Company is required to pay real
estate taxes, maintenance, insurance and contingent rentals based on

                                     F - 11

<PAGE>   56


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


sales in excess of specified levels.

The Company has entered into several leasing agreements with SSC and affiliates.
Under a Master Lease Agreement, as amended, the Company leases five store
locations owned by SSC for an annual minimum rent of $1,314,000 and additional
contingent rents based on aggregate sales in excess of specified sales levels
for the store locations. The Company also leased or subleased from SSC and
affiliates fourteen store locations, three warehouse facilities and a parcel of
land for specified minimum rentals, plus contingent rents based on sales in
excess of specified sales levels for the store locations. Leases and subleases
with related parties are for initial periods generally ranging from five to
twenty years, provide for renewal options and require the Company to pay real
estate taxes, maintenance and insurance.

On August 12, 1997, seventeen related party leases (thirteen stores and four
other facilities) were renegotiated and became unrelated party leases pursuant
to a sale-leaseback transaction between SSC and a third party. All of the new
leases for the thirteen stores covered by the SSC sale-leaseback transaction
eliminated percentage rents and provided for increased fixed rents for an
initial twenty year term.

The Company had a capital lease agreement for transportation equipment that
expired in 1997. Similar equipment was obtained under a new operating lease
agreement. The Company incurred new capital lease obligations, including one
with a related party, aggregating $9,400,000 and $5,800,000 in 1997 and 1996,
respectively, to obtain store facilities. Assets held under capital leases are
amortized over the terms of the related leases. The accumulated amortization for
these assets was $1,299,000, $1,017,000 and $442,000 at January 30, 1999, August
1, 1998 and August 2, 1997, respectively.

Future minimum lease payments required under the aforementioned leases,
exclusive of real estate taxes, insurance and maintenance costs, at January 30,
1999 are as follows (in thousands):

<TABLE>
<CAPTION>
                                Operating Leases      
Fiscal              -----------------------------------------
Year                               Unrelated          Related         Capital
Ending               Total          Party              Party          Leases     
------              ------         ---------         --------        ---------
<S>                 <C>             <C>               <C>            <C> 
2000               $58,627          $49,686           $8,941           $945
2001                58,831           49,796            9,035            945
2002                51,750           43,448            8,302            945
2003                45,212           37,929            7,283            996
2004                42,376           35,396            6,980            996
Future Years       319,460          251,866           67,594         20,587
                                                                     ------
</TABLE>


<TABLE>

<S>                                                                  <C>     
               Total minimum lease payments                           25,414
               Less amount representing interest                     (15,422)
                                                                     -------
               Present value of minimum lease payments                 9,992
                     Less current portion                               (116)
                                                                     -------
                 Total net                                            $9,876
                                                                     =======
</TABLE>

The composition of rental expense (in thousands):

                                     F - 12

<PAGE>   57

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                                   
<TABLE>
<CAPTION>
                                   6 Months                             Fiscal Years Ended
                                     Ended              ------------------------------------------------
                                    1/30/99             1998                1997                1996    
--------------------------------------------------------------------------------------------------------
<S>                                <C>                <C>                  <C>                 <C>    
Minimum rentals:
 Unrelated parties                 $20,421            $27,618              $14,878             $13,222
 Related parties                     4,093              8,307               15,043              11,400

Contingent rentals:
 Unrelated parties                   1,585              2,681                2,469               2,288
 Related parties                       357              1,556                2,366               1,757
                                 ----------           -------               ------             -------

 Total                             $26,456            $40,162              $34,756             $28,667
                                   =======            =======              =======             =======
</TABLE>


Many of the Company's leases contain fixed escalations of the minimum annual
lease payments during the original term of the lease. For these leases, the
Company recognizes rental expense on a straight-line basis and records the
difference between the average rental amount charged to expense and the amount
payable under the lease as deferred rent. At the end of the Transition Period
and fiscal 1998 and 1997 the balance of deferred rent was $2,560,000, $2,124,000
and $856,000, respectively, and is included in other noncurrent liabilities.

5.      LONG-TERM OBLIGATIONS AND NOTES PAYABLE

Long-term obligations consist of the following (in thousands):

<TABLE>
<CAPTION>
                                  1/30/99        8/1/98       8/2/97
---------------------------------------------------------------------

<S>                              <C>           <C>           <C>     
Senior unsecured notes           $  45,714     $  47,857     $ 50,000
Credit facility                     55,000       140,000           --
Capital lease obligations            9,992        10,015        9,984
Other                                   --           --            60
                                 ---------     ---------     --------
                                                                   
                                   110,706       197,872       60,044
Less current maturities             (9,259)      (32,224)      (2,281)
                                 ---------     ---------     --------
                                 $ 101,447     $ 165,648     $ 57,763
                                 =========     =========     ========
</TABLE>


During 1997, the Company completed a private placement for $50.0 million of
senior unsecured notes. The proceeds were used to repay demand notes payable.
The senior unsecured notes require payments of $9,143,000 annually beginning
December 1999 through December 2003 and bear interest at an average fixed rate
of 7.2% per annum.

The terms of the senior unsecured notes require the Company to comply with
certain restrictive covenants, maintain minimum income and net worth levels and
meet certain financial ratio tests during the terms of the debt. The most
restrictive of these covenants is that the Company's consolidated funded debt
(as defined in the debt agreement) may not exceed 50% of consolidated total
capitalization (as defined).

                                     F - 13

<PAGE>   58


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



In conjunction with the acquisition of Shonac and Valley Fair, the Company
replaced its $100.0 million credit facility and Shonac's $30.0 million facility
with a new $185.0 million three-year unsecured revolving bank credit facility.
The facility generally bears interest at a floating rate of LIBOR plus 1.5%. The
interest rate on $40.0 million has been locked in at a fixed annual rate of
7.395% for a three year period ending on May 1, 2001 under a swap agreement. The
fair market value of the swap agreement at January 30, 1999 was ($797,000). At
January 30, 1999, direct borrowings aggregated $55.0 million and $14.2 million
of letters of credit were issued and outstanding for merchandise under the
credit facility. The weighted average interest rate on borrowings under the
Company's credit facilities during the Transition Period and the fiscal years
1998 and 1997 was 8.3%, 8.56% and 7.11%, respectively. During the Transition
Period, underwriting fees, unused commitment fees and rate swap costs for the
new credit facility increased the effective weighted average interest rate by
1.1%. The terms of the credit facility require the Company to comply with
certain restrictive covenants and financial ratio tests, including minimum
tangible net worth; a maximum consolidated debt to earnings before interest,
taxes, depreciation and amortization ratio; a minimum fixed charge coverage
ratio; and, limitations on dividends, additional incurrence of debt and capital
expenditures.

In addition, the Company has provided an unconditional guarantee of 50% of
amounts outstanding on VCM's $25.0 million revolving line of credit. At January
30, 1999 and August 1, 1998, the aggregate amounts guaranteed were $3.8 million
and $8.6 million, respectively.

The book value of notes payable and long-term debt approximates fair value.

6.      BENEFIT PLANS

The Company participates in the SSC sponsored 401(k) savings plan (the "401(k)
Plan"). Employees who attained twenty and one-half years of age and completed
one year of service could contribute up to fifteen percent of their salaries to
the 401(k) Plan on a pre-tax basis, subject to IRS limitations. The Company
matched up to three percent of participants' eligible compensation. Effective as
of April 1, 1999, employees are eligible to participate in the 401K Plan after
60 days of service, with the Company matching contributions beginning after one
full year of service. Employees who work less than 20 hours per week continue to
participate under the pre-April 1999 rules. Additionally, the Company has
contributed a discretionary profit sharing amount to the 401(k) Plan each year.
The Company incurred costs associated with the 401(k) Plan of $1,591,000,
$3,907,000, $3,540,000 and $3,197,000 for the Transition Period and for fiscal
years 1998, 1997 and 1996, respectively. In 1998 the Company recognized the
benefit of approximately $1,639,000 of forfeitures attributable to employer
contributions pursuant to an amendment to the plan.

The Company provides an Associate Stock Purchase Plan. Eligibility requirements
are similar to the 401(k) Plan. Eligible employees can purchase common shares of
the Company through payroll deductions. The Company will match 15% of employee
investments up to a maximum investment level. Plan costs to the Company for
fiscal years 1998, 1997 and 1996 are not material to the consolidated financial
statements.

        Certain employees of the Company are covered by union-sponsored,
collectively bargained, multi-employer pension plans, the costs of which are not
material to the consolidated financial statements.

                                     F - 14

<PAGE>   59


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


Certain employees of the Company participate in the Schottenstein Stores
Corporation Deferred Compensation Plan which is a non-qualified, pre-tax, income
deferral plan. The cost of the plan is not material to the consolidated
financial statements.

7.      SHAREHOLDERS' EQUITY

During fiscal years 1997 and 1998, the Company issued common shares to certain
key employees pursuant to individual employment agreements. The agreements and
grants were approved by the Board of Directors and each consists of a one time
grant of restricted shares. As a result, the Company recorded the market value
of the shares at the date of grant of $990,000 and $328,000 in 1997 and 1998,
respectively, as deferred compensation expense. The agreements condition the
vesting of the shares upon continued employment with the Company with such
restrictions expiring as to 20% of the shares on each of the five anniversary
dates of the grants. Deferred compensation is charged to income on a
straight-line basis over the period during which the restrictions lapse.

8.      STOCK OPTION PLANS

The Company has a Non-employee Director Stock Option Plan (the "Non-employee
Director Plan") which provides for the issuance of options to purchase up to
130,000 common shares. One option to purchase 1,000 common shares is
automatically granted to each non-employee director on the first New York Stock
Exchange ("NYSE") trading day in each calendar quarter. The exercise price for
each option is the fair market value of the common shares on the date of grant.
All options become exercisable one year after the grant date and remain
exercisable for a period of ten years from the grant date, subject to
continuation of the option-holder's service as a director of the Company.

The Company has a 1991 Stock Option Plan which provides for the grant of options
to purchase up to 3,000,000 common shares. Such options are exercisable 20% per
year on a cumulative basis and remain exercisable for a period of ten years from
the date of grant.

The following table summarizes the Company's stock option plans and related
Weighted Average Exercise Prices ("WAEP") (shares in thousands):
                                                      
<TABLE>
<CAPTION>
                                              6 Months                                   Fiscal Year Ended                 
                                               Ended                 ------------------------------------------------
                                          January 30, 1999            1998                 1997                       1996       
                                         -----------------   ----------------- ---------------------       ------------------
                                        Shares      WAEP     Shares       WAEP   Shares       WAEP         Shares      WAEP
-----------------------------------------------------------------------------------------------------------------------------

<S>                                     <C>       <C>       <C>      <C>       <C>          <C>            <C>       <C>    
Outstanding beginning of year            2,331    $   9.27  2,398    $  8.90   1,603        $  7.91        1,374     $  8.20
Granted                                     48       11.56    357      10.71   1,043          10.26          378        6.98
Exercised                                  (41)       8.05   (331)      8.12     (80)          7.69           (8)       8.06
Cancelled                                  (42)      11.08    (93)      9.40    (168)          8.44         (141)       8.14
                                         -----              -----              -----                       -----            
Outstanding end of year                  2,296        9.31  2,331       9.27   2,398           8.90        1,603        7.91
                                         =====              =====              =====                       =====            
Options exercisable end of  year         1,028    $   8.77    885    $  8.61     808        $  8.22          679     $  8.28
                                         =====              =====              =====                       =====            
Shares available for  additional grants    310                316                 80                         174
                                         =====              =====              =====                       =====            
</TABLE>


                                     F - 15

<PAGE>   60
The following table summarizes information about stock options outstanding as of
January 30, 1999 (shares in thousands):

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


<TABLE>
<CAPTION>
                              Options Outstanding                                 Options Exercisable              
                   -------------------------------------------------            -----------------------
                                      Weighted              Weighted                           Weighted
Range of                              Average               Average                            Average
exercise                              Remaining             Exercise                           Exercise
prices             Shares             Contract Life         Price                Shares        Price    
--------           ------             -------------         --------             ------        --------
<S>                <C>                <C>                   <C>                  <C>           <C>  
$5.87-
   $7.94              229                 7yrs                 $6.93                   94          $6.85

$8.06-
   $11.56           1,728                 7yrs                 $8.63                  839          $8.32

$13.69-
   $21.44             339                 8yrs                $14.39                   95         $14.64
</TABLE>

The Company has adopted the disclosure provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation," and accordingly has elected to retain the
intrinsic value method of accounting for stock-based compensation. Had the
compensation cost for the Company's stock-option plans been determined based on
the fair value at the grant dates for awards under those plans consistent with
the methods of SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below (in thousands,
except per share data):

                               
<TABLE>
<CAPTION>
                                6 Months            Fiscal Years Ended         
                                 Ended      -------------------------------
                                1/30/99     1998        1997      1996      
----------------------------------------------------------------------------
<S>                             <C>        <C>         <C>        <C>    
Net income:
     As reported                $20,256    $20,359     $3,951     $21,718
     Pro forma                  $19,519    $18,817     $3,373     $21,548
Basic earnings per share:
     As reported                  $0.63      $0.64      $0.12       $0.68
     Pro forma                    $0.61      $0.59      $0.11       $0.68

Diluted earnings per share
     As reported                  $0.62      $0.63      $0.12       $0.68
     Pro forma                    $0.60      $0.58      $0.11       $0.68
</TABLE>


To determine the pro forma amounts, the fair value of each stock option has been
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions used for grants in the Transition
Period and fiscal 1998, 1997 and 1996, respectively: expected volatility of
67.8%, 38.6%, 37.6% and 40.6%; dividend yield of 0%; risk-free interest rates of
4.9%, 5.6%, 6.3% and 6.5%; and, expected lives of 5.8, 5.1, 6.5 and 6.5 years.
The weighted average fair value of options

                                     F - 16

<PAGE>   61


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


granted in the Transition Period and in 1998, 1997 and 1996 was $7.43, $6.17,
$5.06 and $3.68, respectively.

Consistent with SFAS No. 123, pro-forma net income and earnings per share have
not been calculated for options granted prior to July 30, 1995. Pro forma
disclosures may not be representative of that to be expected in future years.

9.      COMMITMENTS AND CONTINGENCIES

The Company is involved in various legal proceedings that are incidental to the
conduct of its business. In the opinion of management, the amount of any
liability with respect to these proceedings will not be material.

10.     INCOME TAXES

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

<TABLE>
<CAPTION>
                                                 6 Months                  Fiscal Years Ended           
                                                   Ended         ----------------------------------------
                                                  1/30/99          1998            1997           1996 
                                                 --------        --------        --------        -------
<S>                                              <C>             <C>             <C>             <C>    
Current:
  Federal                                        $ 10,323        $ 12,174        $  2,417        $11,315
  State and local                                   2,510           1,912             699          2,588
                                                 --------        --------        --------        -------
                                                   12,833          14,086           3,116         13,903
Deferred:
  Federal                                           1,015          (2,227)           (533)           474
  State and local                                     140            (318)            (59)           172
                                                 --------        --------        --------        -------
                                                    1,155          (2,545)           (592)           646
                                                 --------        --------        --------        -------
Income tax expense                               $ 13,988        $ 11,541        $  2,524        $14,549
                                                 ========        ========        ========        =======
</TABLE>



The provision (benefit) for deferred income taxes includes the following amounts
(in thousands):

<TABLE>
<CAPTION>
                                              6 Months              Fiscal Years Ended         
                                                Ended        ---------------------------------
                                              1/30/99        1998            1997        1996   
----------------------------------------------------------------------------------------------

Type of temporary differences:
<S>                                           <C>           <C>             <C>         <C>   
  Basis differences in inventory               $2,778      $  (586)         $(950)       $(279)
  Depreciation                                 (1,376)      (1,003)           186          526
  Deferred bonus                                1,107       (1,030)           288           89
  Other                                        (1,354)          74           (116)         310
                                               ------      -------            ----         ---
                                               $1,155      $(2,545)         $(592)        $646
                                               ======      =======          =====        =====
</TABLE>

                                     F - 17

<PAGE>   62


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


A reconciliation of the expected income taxes based upon the statutory federal
rate are as follows (in thousands):
                                             
<TABLE>
<CAPTION>
                                       6 Months                   Fiscal Years Ended        
                                        Ended           -------------------------------------
                                       1/30/99          1998              1997         1996  
---------------------------------------------------------------------------------------------
<S>                                   <C>             <C>             <C>             <C>    
Income tax expense at
   federal statutory rate             $ 11,986        $ 11,165        $  2,266        $12,693
Jobs credit                               (235)           (164)            (59)            --
State and local taxes, net               1,753           1,548             161          1,794

Resolution of income tax issues             --          (1,410)
Non-deductible goodwill                    388             273              --             --
Other                                       96             129             156             62
                                      --------        --------        --------        -------

                                      $ 13,988        $ 11,541        $  2,524        $14,549
                                      ========        ========        ========        =======
</TABLE>



The components of the net deferred tax asset as of January 30, 1999, August 1,
1998 and August 2, 1997 are (in thousands):

<TABLE>
<CAPTION>
                                              6 Months
                                                Ended
                                               1/30/99          8/1/98          8/2/97
---------------------------------------------------------------------------------------
Deferred tax assets:
<S>                                            <C>             <C>             <C>     
   Basis differences in inventory              $ 10,481        $ 14,320        $  8,187
   Basis differences in fixed assets              2,409           2,333           2,302
   State and local taxes                          1,578           1,096           1,847
   Deferred compensation                            289             281             150
   Amortization of lease acquisition costs        2,575           2,434           2,174
   Other                                          3,008           3,942           1,501
                                               --------        --------        --------
                                                 20,340          24,406          16,161

Deferred tax liabilities:
   Depreciation                                  (4,249)         (5,957)         (7,508)
   Capital leases                                (2,120)         (1,723)         (1,915)
   Other                                           (174)         (1,374)         (1,633)
                                               --------        --------        --------
                                                 (6,543)         (9,054)        (11,056)
                                               --------        --------        --------
Total net                                      $ 13,797        $ 15,352        $  5,105
                                               ========        ========        ========
</TABLE>




                                     F - 18

<PAGE>   63


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


The net deferred tax asset is recorded on the Company's consolidated balance
sheet as follows (in thousands):

<TABLE>
<CAPTION>
                                           6 Months
                                             Ended
                                            1/30/99         8/1/98         8/2/97
                                            -------         ------         ------
<S>                                        <C>             <C>             <C>    
Current deferred tax asset                 $ 14,441        $ 17,687        $ 9,208

Non-current deferred tax liability             (644)         (2,335)        (4,103)
                                           --------        --------        -------

Net deferred tax asset                     $ 13,797        $ 15,352        $ 5,105
                                           ========        ========        =======
</TABLE>


11.     ACQUISITIONS

Effective May 3, 1998, the Company purchased 99.9% of the common stock of Shonac
from Nacht Management, Inc. and SSC. SSC owned approximately 60% of the
Company's outstanding common shares at the time of the acquisition. The Company
also acquired the store operations of Valley Fair from SSC. Shonac had operated,
as licensee, the shoe departments in the Company's department stores since
Shonac's inception in 1969. Shonac also operated a chain of retail shoe outlets
located throughout the United States, principally under the name DSW Shoe
Warehouse. Valley Fair operated two department stores located in Irvington and
Little Ferry, New Jersey. The Company had been a licensee of certain departments
in these two stores for 18 years. The negotiated purchase price for Shonac and
Valley Fair was $108,473,000. The acquisitions were funded by cash provided by
operations and approximately $88,000,000 of borrowings.

The acquisitions have been accounted for using the purchase method of accounting
and accordingly, the purchase price has been allocated to the net assets and
identifiable intangible assets acquired based upon their estimated fair values
at the date of acquisition. The purchase price agreement requires the Company to
reimburse one of the selling shareholders for certain costs that may be incurred
as a result of the acquisition. Such costs, if any, will be accounted for as an
increase to goodwill. The allocation of purchase price in fiscal 1998 is
summarized below (in thousands):



<TABLE>
<S>                                          <C>     
Current assets                               $107,778
Property, plant and equipment                  16,861
Goodwill                                       33,645
Tradenames                                     13,870
Other assets                                    7,616
Current liabilities                           (70,637)
Other long term liabilities                      (660)
                                             --------

Total purchase price                         $108,473
                                             ========
</TABLE>


                                     F - 19

<PAGE>   64


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


The operating results of Shonac and Valley Fair have been included in the
consolidated results of the Company from the date of acquisition. The following
unaudited pro forma consolidated financial results for the fiscal years ended
August 1, 1998 and August 2, 1997 are presented as if the acquisitions had taken
place at the beginning of the applicable periods (in thousands, except per share
amounts):



<TABLE>
<CAPTION>
                                          1998              1997
------------------------------------------------------------------

<S>                                  <C>                <C>       
Net Owned Sales                      $1,408,800         $1,345,986
Net Income                              $22,427            $7,749


Basic earnings per share                  $0.70             $0.24
Diluted earnings per share                $0.69             $0.24
</TABLE>



12.                  SEGMENT REPORTING

The Company has adopted FASB Statement No. 131, "Disclosure about Segments of a
Business Enterprise and Related Information." The Company is managed in two
operating segments: Value City Department Stores and DSW Stores. All of the
operations are located in the United States. The Company has identified such
segments based on the management responsibility and measures segment profit as
operating profit which is defined as income before interest expense and income
taxes. Corporate assets include goodwill and loan costs related to the Shonac
acquisition. Prior to the acquisition of Shonac effective May 3, 1998, the
Company was managed as one operating segment.

SIX MONTH PERIOD ENDED JANUARY 30, 1999 (in thousands):

<TABLE>
<CAPTION>
                                            Value City         DSW       Corporate         Total
                                            ----------       -------     ---------       ---------
<S>                                         <C>              <C>         <C>             <C>     
        Net owned sales                      $688,103        $92,160         -           $780,263
        Operating profit                       35,380          5,419         -             40,799
        Identifiable assets                   485,221         54,473      $33,712         573,406
        Capital expenditures                   16,377            928         -             17,305
        Depreciation and amortization          13,655            942        1,702          16,299
</TABLE>

YEAR ENDED AUGUST 1, 1998 (in thousands):

<TABLE>
<CAPTION>
                                            Value City         DSW      Corporate         Total
                                            ----------      -------     ---------     -----------
<S>                                        <C>               <C>         <C>               <C>
        Net owned sales                    $1,113,893       $47,485         -         $1,161,378
        Operating profit                       35,173         1,748         -             36,921
        Identifiable assets                   608,185        39,556      $35,317         683,058
        Capital expenditures                   26,501           664         -             27,165
        Depreciation and amortization          24,641           444        1,021          26,106
</TABLE>

                                     F - 20

<PAGE>   65


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


  The following sets forth sales by each major merchandise category (in
thousands):

<TABLE>
<CAPTION>
                                                            
                                                            6 Months                Fiscal Years Ended  
                                                              Ended        ------------------------------------------
                                                             1/30/99           1998             1997           1996
                                                            --------       ----------       ----------       --------
<S>                                                         <C>            <C>              <C>              <C>     
Apparel and ready to wear                                   $529,401       $  853,458       $  772,853       $693,742
Hard goods and home furnishings                              158,702          260,436          300,546        260,566
DSW Stores                                                    92,160           47,486               --             -- 
                                                            --------       ----------       ----------       --------
        Total                                               $780,263       $1,161,380       $1,073,399       $954,308
                                                            ========       ==========       ==========       ========
</TABLE>



 13.    QUARTERLY FINANCIAL DATA (UNAUDITED)

                   QUARTERLY CONSOLIDATED STATEMENTS OF INCOME
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
SIX MONTHS ENDED JANUARY 30, 1999
                                                              1st Qtr.         2nd Qtr.
                                                              10/31/98        1/30/99(1)
----------------------------------------------------------------------------------------
<S>                                                          <C>              <C>      
Net owned sales                                              $ 356,755        $ 423,508
Cost of sales                                                 (219,575)        (263,927)
                                                             ---------        ---------
    GROSS PROFIT                                               137,180          159,581
Selling, general and
    administrative expenses                                   (129,172)        (135,418)
License fees and other
    operating income                                             3,417            5,211
                                                             ---------        ---------
    OPERATING PROFIT                                            11,425           29,374
Interest expense, net                                           (3,557)          (3,145)
Gain on sale of assets, net                                          3               13
                                                             ---------        ---------
    INCOME BEFORE EQUITY IN INCOME
        (LOSS) OF JOINT VENTURE AND
        PROVISION FOR INCOME TAXES                               7,871           26,242
Equity in income (loss)
    of joint venture                                            (1,113)           1,244
                                                             ---------        ---------
INCOME BEFORE PROVISION
    FOR INCOME TAXES                                             6,758           27,486
Provision for income taxes                                      (2,740)         (11,248)
                                                             ---------        ---------
    NET INCOME                                               $   4,018        $  16,238
                                                             =========        =========
BASIC  EARNINGS PER SHARE                                    $    0.12        $    0.51
                                                             =========        =========
DILUTED EARNINGS PER SHARE                                   $    0.12        $    0.50
                                                             =========        =========
</TABLE>




                                     F - 21

<PAGE>   66


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 1, 1998
                                                               1st Qtr.        2nd Qtr.         3rd Qtr.        4th Qtr.
                                                               11/1/97        1/31/98(1)         5/2/98         8/1/98(2)
-------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>              <C>              <C>              <C>      
Net owned sales                                              $ 264,385        $ 313,227        $ 244,789        $ 338,978
Cost of sales                                                 (166,955)        (200,486)        (154,475)        (210,986)
                                                             ---------        ---------        ---------        ---------
    GROSS PROFIT                                                97,430          112,741           90,314          127,992
Selling, general and
    administrative expenses                                    (97,764)        (101,232)         (93,028)        (124,194)
License fees and other
    operating income                                             7,089            8,232            6,268            3,073
                                                             ---------        ---------        ---------        ---------
    OPERATING PROFIT                                             6,755           19,741            3,554            6,871
Interest expense, net                                           (1,049)            (391)            (556)          (3,271)
Gain on sale of assets, net                                        852              748                5               18
                                                             ---------        ---------        ---------        ---------
    INCOME BEFORE EQUITY IN LOSS
        OF JOINT VENTURE AND
        PROVISION FOR INCOME TAXES                               6,558           20,098            3,003            3,618
Equity in loss of
    joint venture                                               (1,109)             327             (136)            (459)
                                                             ---------        ---------        ---------        ---------
  INCOME BEFORE PROVISION
    FOR INCOME TAXES                                             5,449           20,425            2,867            3,159
Provision for income taxes                                      (2,171)          (7,960)          (1,178)            (232)
                                                             ---------        ---------        ---------        ---------
    NET INCOME                                               $   3,278        $  12,465        $   1,689        $   2,927
                                                             =========        =========        =========        =========
BASIC EARNINGS PER SHARE                                     $    0.10        $    0.39        $    0.05        $    0.10
                                                             =========        =========        =========        =========
DILUTED EARNINGS PER SHARE                                   $    0.10        $    0.39        $    0.05        $    0.09
                                                             =========        =========        =========        =========
</TABLE>


<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 2, 1997
                                                              1st Qtr.         2nd Qtr.         3rd Qtr.         4th Qtr.
                                                               11/2/96        2/1/97(1)          5/3/97           8/2/97
--------------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>              <C>              <C>              <C>      
Net owned sales                                              $ 266,076        $ 322,995        $ 233,660        $ 250,668
Cost of sales                                                 (167,619)        (204,706)        (153,686)        (171,811)
                                                             ---------        ---------        ---------        ---------
    GROSS PROFIT                                                98,457          118,289           79,974           78,857
Selling, general and
    administrative expenses                                    (93,591)        (102,085)         (91,825)         (98,410)
License fees and other
    operating income                                             5,301            5,541            4,990            5,015
                                                             ---------        ---------        ---------        ---------
    OPERATING PROFIT (LOSS)                                     10,167           21,745           (6,861)         (14,538)
Interest expense, net                                           (1,194)          (1,147)          (1,271)          (1,514)
Amortization of excess
    net assets over cost                                           348              347              232               --
Gain (loss) on sale of
    assets, net                                                    153              (19)               4               23
                                                             ---------        ---------        ---------        ---------
    INCOME (LOSS) BEFORE (PROVISION)
        BENEFIT FOR INCOME TAXES                                 9,474           20,926           (7,896)         (16,029)
(Provision) benefit for
    income taxes                                                (3,772)          (7,987)           3,034            6,201
                                                             ---------        ---------        ---------        ---------
  NET INCOME (LOSS)                                          $   5,702        $  12,939        $  (4,862)       $  (9,828)
                                                             =========        =========        =========        =========
  BASIC EARNINGS (LOSS)
    PER SHARE                                                $    0.18        $    0.41        $   (0.15)       $   (0.31)
                                                             =========        =========        =========        =========
  DILUTED EARNINGS (LOSS)
    PER SHARE                                                $    0.18        $    0.40        $   (0.15)       $   (0.31)
                                                             =========        =========        =========        =========
</TABLE>


(1)The results of operations for the quarters ended 1/30/99, 1/31/98 and 2/1/97
include reductions of $1.8 million, $1.5 million and $1.9 million, respectively,
to cost of sales representing the annual book to physical adjustment for the
physical inventory completed in the respective quarters.

(2)The provision for income taxes for the quarter ended August 1, 1998 includes
reductions of approximately $1.4 million relating to the resolution of federal
and state income tax issues.


                                     F - 22

<PAGE>   67


             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


14.     SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (IN THOUSANDS):


                                     
<TABLE>
<CAPTION>
                                      6 Months                       Fiscal Years Ended       
                                       Ended            ------------------------------------
                                      1/30/99            1998            1997          1996       
--------------------------------------------------------------------------------------------

Cash paid during the year for:
<S>                                   <C>               <C>            <C>           <C>   
    Interest                           $7,586           $5,911          $5,700        $2,255
                                     ========           ======         =======        ======
    Income taxes                      $15,465           $9,018         $10,365        $8,972
                                      =======           ======         =======        ======
</TABLE>

Supplemental schedule of non-cash investing and financing activities:

In December 1998, the Company exchanged 25,000 of its treasury shares with a
fair market value of $311,000 for the right to acquire several leases.

During 1997 the Company incurred capital lease obligations to obtain new store
facilities. Non-cash amounts of $6,155,000 were capitalized as of August 2, 1997
under the captions of property and equipment and long-term obligations in
relation to these leases.

Amounts of $490,000, $2,126,000 and $3,297,000 were recorded under the captions
of property and equipment and accounts payable for real estate improvements and
construction at new stores as of January 30, 1999, August 1, 1998 and August 2,
1997, respectively.




                                     F - 23

<PAGE>   68



                       VALUE CITY DEPARTMENT STORES, INC.

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

<TABLE>
<CAPTION>
COLUMN A                             COLUMN B             COLUMN C                COLUMN D          COLUMN E
--------                             --------             --------                --------          --------
                                    Balance at     Charge to     Charges to                        Balance at
                                     Beginning     Costs and        Other                              End
Description                          Of Period     Expenses      Accounts(1)     Deductions (2)     Of Period
-------------------------------------------------------------------------------------------------------------
<S>                                 <C>            <C>           <C>             <C>               <C>   
Allowance deducted
   from asset to which
   it applies:
     Allowance for doubtful
         accounts:
     Year ended:
        August 3, 1996                  $473         $294            $0                 $276            $491
        August 2, 1997                   491          531             0                  659             363
        August 1, 1998                   363          716            95                  832             342
        Six month period
           ended January 30, 1999        342          195             0                  227             310

Allowance for Markdowns:
     Year ended:
        August 3, 1996                    $0           $0            $0                   $0              $0
        August 2, 1997                     0        4,311             0                    0           4,311
        August 1, 1998                 4,311        2,828         8,893                4,203          11,829
        Six month period
           ended January 30, 1999     11,829        4,460             0                5,897          10,392

Reserves
     Store Closing
     Reserve:

     Year ended:
        August 3, 1996                   $115       $(21)            $0                  $94              $0
        August 2, 1997                      0         400             0                    5             395
        August 1, 1998                    395         511           721                  722             905
        Six month period
           ended January 30, 1999        905          145             0                  973              77
</TABLE>


(1) The charges to other accounts represent balances resulting from the
acquisition of Shonac.

(2) The deductions in Column D are amounts written off against the respective
reserve.


                                      S - 1

<PAGE>   69



                                           INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
   No.  Description                                   Exhibit Page No.
<S>                                               <C> 
   2.1  Stock Purchase Agreement entered into     Previously filed as Exhibit 2.1 to Form 8-K
        as of May 1, 1998 between the             (file no. 1-10767) filed May 22, 1998, and 
        Company and Schottenstein Stores          incorporated herein by reference.
        Corporation and Nacht Management,
        Inc.

   2.2  Asset Purchase Agreement entered into     Previously filed as Exhibit 2.2 to Form 8-K 
        as of May 1, 1998 between the             (file no. 1-10767) filed May 22, 1998, and 
        Company and Valley Fair Corporation,      incorporated herein by reference. 
        an affiliate of Schottenstein Stores 
        Corporation.

   3.1  First Amended and Restated Articles       Previously filed as Exhibit 3.2 to Registration 
        of Incorporation of the Company.          Statement on Form S-1 (file no. 33-40214)
                                                  filed April 29, 1991, and incorporated herein
                                                  by reference.

   3.2  Code of Regulations of the                Previously filed as Exhibit 3.3 to Registration
        Company.                                  Statement on Form S-1 (file no. 33-40214)
                                                  filed April 29, 1991, and incorporated herein
                                                  by reference.

10.1.1  Corporate Services Agreement, dated       Previously filed on Exhibit 10.1.1 to Form 
        October 12, 1994, between the Company     10-Q (file no. 1-10767) filed December 12, 
        and Schottenstein Stores Corporation.     1994, and incorporated herein by reference.

10.1.2  Corporate Services Agreement, dated       Previously filed as Exhibit 10.1.2 to
        September 27, 1995 between the Company    Form 10-K (file no. 1-10767) filed
        and SSC.                                  October 27, 1995, and incorporated
                                                  herein by reference.

10.1.3  Corporate Services Agreement, dated       Previously filed as Exhibit 10.1.3 to
        October 1996 between the Company          Form 10-K (file no. 1-10767) filed
        and SSC.                                  November 1, 1996, and incorporated
                                                  herein by reference.

10.1.4  Corporate Services Agreement, dated       Previously filed as Exhibit 10.1.4 to Form 10-Q
        October 13, 1997, between the Company     (file no. 1-10767) filed December 16, 1997, and
        and SSC.                                  incorporated herein by reference.
</TABLE>



                                      E - 1

<PAGE>   70


<TABLE>
<S>                                                    <C>
  10.2  License Agreement, dated June 5, 1991,         Previously filed as Exhibit 10.2 to
        between the Company and SSC                    Amendment No. 1 to Form S-1
        re Service Marks.                              Registration Statement (file no. 33-40214)
                                                       filed June 6, 1991, and incorporated herein
                                                       by reference.

  10.3  License Agreement, dated July 1989,            Previously filed as Exhibit 10.3 to
        between the Company, by assignment             Form S-1 Registration Statement ( file no.
        from SSC, and Shonac Corporation               33-40214) filed April 29, 1991, and
        re shoe departments.                           incorporated herein by reference.

10.3.1  Amendments dated November 9, 1993              Previously filed as Exhibit 10.3.1 to 
        to License Agreement dated in July             Form 10-K (file no. 1-10767) filed
        1989, between the Company and Shonac           October 26, 1994, and incorporated
        Corporation re shoe departments.               herein by reference.

10.3.2  Amendment dated 1995, to                       Previously filed as Exhibit 10.3.2 to 
        License Agreement dated in July 1989,          Form 10-Q (file no. 1-10767) filed 
        between the Company and Shonac                 December 12, 1995, and incorporated 
        Corporation re shoe departments.               herein by reference.

  10.4   License Agreement, dated July 1, 1987,        Previously filed as Exhibit 10.4 to 
         as amended, between the Company, by           Form S-1 Registration Statement (file no.
         assignment from SSC, and L.F. Widmann,        33-40214) filed April 29, 1991, and
         Inc. re health and beauty aids departments.   incorporated herein by reference.

10.4.1  Amendment dated June 23, 1993 to               Previously filed as Exhibit 10.4.1 to
        License Agreement, dated July 1, 1987,         Form 10-K (file no. 1-10767) filed 
        as amended, between the Company, by            October 26, 1993, and incorporated 
        assignment from SSC, and L.F. Widmann,         herein by reference. 
        Inc. re health and beauty aids departments.

10.4.2  Amendment dated September 2, 1993 to           Previously filed as Exhibit 10.3.1 to 
        License Agreement dated July 1, 1987, as       Form 10-K (file no. 1-10767) filed 
        amended, between the Company, by               October 26, 1994, and incorporated 
        assignment from SSC, and L.F. Widmann,         herein by reference.
        Inc. re health and beauty aids departments.

10.4.3  Amendment dated December 5, 1995 to            Previously filed as Exhibit 10.4.3 to 
        License Agreement dated July 1, 1987, as       Form 10-Q (file no. 1-10767) filed 
        as amended, between the Company by             December 12, 1995, and incorporated
        assignment from SSC, and                       herein by reference.
        L.F. Widmann, Inc. re health and beauty
        aids departments.
</TABLE>




                                      E - 2

<PAGE>   71



<TABLE>
<S>                                                    <C> 
10.4.4  Letter Agreement dated May 1, 1996,           Previously filed as Exhibit 10.4.4 to 
        between the Company and L.F. Widmann,         Form 10-K (file no. 1-10767) filed 
        Inc. extending the license agreement dated    November 1, 1997, and incorporated 
        July 1, 1987 to June 30, 1997.                herein by reference.

  10.6  Employment Agreement, dated April 26,         Previously filed as Exhibit 10.6 to
        1991, between George Iacono and               Form S-1 Registration Statement (file no.
        the Company.                                  33-40214) filed April 29, 1991, and
                                                      incorporated herein by reference.

10.6.1  Agreement, effective as of May 13, 1997       Previously filed as Exhibit 10.6.1 to
        between George Iacono and the Company         Form 10-K (file no. 1-10767) filed
        re non-renewal of employment contract.        October 31, 1997, and incorporated
                                                      herein by reference.

  10.7  Form of Indemnification Agreement,            Previously filed as Exhibit 10.7 to
        dated 1991, between the Company               Amendment No. 1 to Form S-1
        and its directors and executive officers.     Registration Statement (file no. 33-40214)
                                                      filed June 6, 1991, and incorporated herein
                                                      by reference.

  10.8  Form of Company's 1991 Stock                  Previously filed as Exhibit 10.8 to
        Option Plan.                                  Amendment No. 1 to Form S-1
                                                      Registration Statement (file no. 33-40214)
                                                      filed June 6, 1991, and incorporated herein
                                                      by reference.

  10.9  Master Store Lease, dated April 25, 1991,     Previously filed as Exhibit 10.9 to
        between the Company, as lessee, and SSC,      Form S-1 Registration Statement (file no.
        as lessor, re fourteen stores.                33-40214) filed April 29, 1991, and
                                                      incorporated herein by reference.

10.9.1  First Amendment to Master Store Lease,         Previously filed as Exhibit 10.9.1 to 
        dated February 1991, between the               Form S-1 Registration Statement (file no. \
        Company, as lessee, and SSC,                   33-47252) filed April 16, 1992, and 
        as lessor, re fourteen stores.                 incorporated herein by reference.

10.9.2  Lease Modification Agreement to Master         Previously filed as Exhibit 10.9.2 to 
        Store Lease, dated June 5, 1995, between       Form 10-K (file no. 1-10767) filed 
        the Company, as lessee, and SSC,               October 27, 1995, and incorporated 
        as lessor, re Beckley, West Virginia.          herein by reference.
</TABLE>

                                      E - 3

<PAGE>   72

<TABLE>
<S>                                                    <C>       
10.9.3  Exercise of the first five-year renewal        Previously filed as Exhibit 10.9.3 to 
        option commencing August 1, 1996               Form 10-Q (file no. 1-10767) filed 
        under Master Store Lease, dated                March 19, 1996, and incorporated 
        June 5, 1995, as amended, between              herein by reference.
        the Company, as lessee, and SSC, as
        lessor, re fourteen stores.

 10.10  Master Warehouse Lease, dated April 25,        Previously filed as Exhibit 10.10 to 
        1991, between the Company, as lessee,          Form S-1 Registration Statement (file no. 
        and SSC, as lessor, re three warehouses,       33-40214) filed April 29, 1991, and 
        office, and shop locations.                    incorporated herein by reference.

10.10.1 First Amendment to Master Warehouse            Previously filed as Exhibit 10.10.1 to 
        Lease, dated February 1992, between the        Form S-1 Registration Statement (file no. 
        Company, as lessee, and SSC, as lessor, re     33-47252) filed April 16, 1992, and 
        three warehouse, office, and shop.             incorporated herein by reference.
        locations.

10.10.2 Second Amendment to Master Warehouse           Previously filed as Exhibit 10.10.2 to 
        Lease, dated June 1993, between the            Form 10-K (file no. 1-10767) filed
        Company, as lessee, and SSC, as lessor, re     October 26, 1993, and incorporated
        three warehouse, office, and shop              herein by reference.
        locations.

10.10.3 Exercise of the first five-year renewal        Previously filed as Exhibit 10.10.3 to 
        option commencing August 1, 1996               Form 10-Q (filed no. 1-10767) filed 
        under Master Store Lease, dated                March 19, 1996, and incorporated 
        April 25, 1991, as amended, between            herein by reference.
        the Company, as lessee and SSC, as
        lessor, re three warehouse
        locations.

 10.11  Master Sublease, dated April 25, 1991,         Previously filed as Exhibit 10.11 to 
        between the Company, as sublessee, and         Form S-1 Registration Statement (file no. 
        SSC, as sublessor, re three stores.            33-40214) filed April 29, 1991, and
                                                       incorporated herein by reference.

 10.12  Sublease, dated April 25, 1991, between        Previously filed as Exhibit 10.12 to 
        the Company, as sublessor, and SSC, as         Form S-1 Registration Statement (file no. 
        sublessee, re one warehouse, with              33-40214) filed April 29, 1991 and 
        underlying Lease, dated July 15, 1981,         incorporated herein by reference.
        between SSC, as lessee, and J.A.L. Realty
        Co., an affiliate of SSC, as lessor.
</TABLE>


                                      E - 4

<PAGE>   73

<TABLE>
<S>                                                    <C>        
10.12.1 Exercise of five-year renewal option          Previously filed as Exhibit 10.12.1 to 
        commencing July 16, 1996 under                Form 10-Q (file no. 1-10767) filed 
        Sublease, dated April 25, 1991 between        March 19, 1996, and incorporated 
        the Company, as sublessee, and SSC, as        herein by reference.
        sublessor, re 3681 Westerville
        Road warehouse.

 10.13  Lease, dated July 7, 1987, between the        Previously filed as Exhibit 10.13 to
        Company, by assignment from SSC, as           Amendment No. 1 to Form S-1
        lessee, and Schottenstein Trustees, an        Registration Statement (file no.
        affiliate of SSC, as lessor, re one store.    33-40214) filed June 6, 1991, and
                                                      incorporated herein by reference.

10.14.1 Lease, dated June 28, 1989, between           Previously filed as Exhibit 10.14.1 to
        the Company, by assignment from SSC,          Form S-1 Registration Statement (file no.
        as lessor, re one warehouse.                  33-40214) filed April 29, 1991, and
                                                      incorporated herein by reference.

10.14.2 Lease, dated October 27, 1989, between         Previously filed as Exhibit 10.14.2 to 
        the Company, by assignment from SSC,           Form S-1 Registration Statement (file no. 
        as lessee, and Southeast Industrial            33-40214) filed April 29, 1991, and 
        Park Realty Company, an affiliate of           incorporated herein by reference.
        SSC, as lessor, re one warehouse.

10.14.3 Lease, dated March 7, 1989, between            Previously filed as Exhibit 10.14.3 to 
        the Company, by assignment from SSC,           Form S-1 Registration Statement (file no. 
        as lessee, and Southeast Industrial Park       33-40214) filed April 29, 1991, and 
        Realty Company, an affiliate of SSC,           incorporated herein by reference.
        as lessor, re one warehouse.

10.15.1 Sublease, dated April 25, 1991, between        Previously filed as Exhibit 10.15.1 to 
        the Company, as sublessor, and SSC, as         Form S-1 Registration Statement (file no. 
        sublessee, re Baltimore, MD (Eastpoint)        33-40214) filed April 29, 1991, and 
        furniture store location.                      incorporated herein by reference.

10.15.2 Sublease, dated April 25, 1991, between        Previously filed as Exhibit 10.15.2 to 
        the Company, as sublessor, and SSC, as         Form S-1 Registration Statement (file no. 
        sublessee, re Baltimore, MD (Westview)         33-40214) filed April 29, 1991, and 
        furniture store location.                      incorporated herein by reference.

10.15.3 Sublease, dated April 25, 1991, between        Previously filed as Exhibit 10.15.3 to 
        the Company, as sublessor, and SSC, as         Form S-1 Registration Statement (file no. 
        sublessee, re Lansing, MI furniture            33-40214) filed April 29, 1991, and  
        store location.                                incorporated herein by reference.
</TABLE>


                                      E - 5

<PAGE>   74



<TABLE>
<S>                                                   <C> 
10.15.4 Sublease, dated April 25, 1991, between       Previously filed as Exhibit 10.15.4 to 
        the Company, as sublessor, and SSC, as        Form S-1 Registration Statement (file no. 
        sublessee, re Louisville, KY (Preston         33-40214) filed April 29, 1991, 
        and Highway) furniture store location.        incorporated herein by reference.

 10.16  Form of Assignment and Assumption             Previously filed as Exhibit 10.16 to
        Agreement between the Company, as             Form S-1 Registration Statement (file no.
        assignee, and SSC, as assignor, re            33-40214) filed April 29, 1991, and
        separate assignments of leases                incorporated herein by reference.
        for 31 stores.

 10.17  Form of Restricted Stock Agreement,           Previously filed as Exhibit 10.17 to
        dated 1991, among SSC, the                    Amendment No. 1 to Form S-1
        Company and certain officers.                 Registration Statement (file no. 33-40214)
                                                      filed June 6, 1991, and incorporated herein
                                                      by reference.

 10.18  License Agreements, dated April 13,           Previously filed as Exhibit 10.18 to 
        1984, as amended, between the Company,        Form S-1 Registration Statement (file no. 
        by assignment from SSC, and the Valley        33-40214) filed April 29, 1991, and 
        Fair Corporation for licensed apparel         incorporated herein by reference.
        departments operated by the Company.

 10.19  Lease Agreement, dated as of July 1,          Previously filed as Exhibit 10.19 to 
        1988, between SSC as sublessor and the        Form 10-K (file no.1-10767) filed 
        Company as sublessee, by assignment           October 24, 1991, and incorporated 
        dated April 25, 1991, re Benwood, W.V.        herein by reference.
        store location.

 10.20  Lease, dated July 2, 1991, between the        Previously filed as Exhibit 10.20 to 
        Company as lessee and Allied Company/         Form 10-K (file no.1-10767) filed 
        Saul Schottenstein Realty Company             October 24, 1991, and incorporated 
        as lessor re Springfield, Ohio store.         herein by reference.

10.20.1 Exercise of the first five-year renewal       Previously filed as Exhibit 10.20.1 to 
        option commencing November 1, 1996            Form 10-Q (file no. 1-10767) filed 
        under Lease dated July 2, 1991                March 19, 1996, and incorporated 
        between the Company, as lessee, and           herein by reference. 
        Allied Company/Saul Schottenstein 
        Realty Company, as lessor, re
        Springfield, Ohio store.

 10.27  Form of Restricted Stock Agreement,           Previously filed as Exhibit 10.27 to
        dated 1992, between the Company               Amendment No. 1 to Form S-1 Registration
        and certain employees                         Statement (file no. 33-47252) filed April 27,
                                                      1992, and incorporated herein by reference.
</TABLE>

                                      E - 6

<PAGE>   75


<TABLE>
<S>                                                    <C>     
 10.28  The Company's Non-employee Director            Previously filed as Exhibit 10.28 to
        Stock Option Plan                              Form 10-K (file no.1-10767) filed
                                                       October 22, 1992, and incorporated
                                                       herein by  reference.

 10.29  Lease, dated September 1, 1992, between        Previously filed as Exhibit 10.29 to 
        the Company, as lessee, and SSC, as            Form 10-K (file no.1-10767) filed 
        lessor, re South Bend, IN store.               October 22, 1992, and incorporated
                                                       herein by reference.

 10.30  Lease, dated January 27, 1992, between         Previously filed as Exhibit 10.30 to  
        the Company, as lessee, and J.A.L. Realty      Form 10-K (file no.1-10767) filed 
        Company, as lessor, as amended on July         October 22, 1992, and incorporated 
        29, 1992, re 3080 Alum Creek warehouse.        herein by reference.

10.30.1 Exercise of the first five-year renewal        Previously filed as Exhibit 10.30.1 to 
        option commencing February 1, 1997             Form 10-Q (file no. 1-10767) filed 
        under lease, dated January 27, 1992,           March 19, 1996, and incorporated
        as amended, between the Company, as            herein by reference. 
        lessee, and J.A.L. Realty Company, as 
        lessor, re 3080 Alum Creek warehouse.

 10.31  Lease, dated July 29, 1992, between the        Previously filed as Exhibit 10.31 to 
        Company, as lessee, and J.A.L. Realty          Form 10-K (file no.1-10767) filed 
        Company, as lessor, re 3232 Alum Creek         October 22, 1992, and incorporated warehouse. 
        herein by reference.

 10.32  License Agreements, dated as of June 1,        Previously filed as Exhibit 10.32 to 
        1992, between the Company, as licensee,        Form 10-K (file no.1-10767) filed 
        and Valley Fair, as licensor, re Linen         October 22, 1992, and incorporated
        Depts.                                         herein by reference.
       

10.32.1 Letter Agreement, dated December 18,           Previously filed as Exhibit 10.32.1 to 
        1995, extending License Agreements,            Form 10-Q (file no. 1-10767) filed 
        dated as of June 1, 1992 and as of             March 19, 1996, and incorporated 
        January 12, 1994, between the Company,         herein by reference.
        as licensee, and Valley Fair Corporation,
        as licensor, re Apparel and Linen
        Departments and Housewares
        Departments, respectively.

 10.33  Lease, dated October 26, 1993 between         Previously filed as Exhibit 10.33 to
        the Company, as lessee, and J.A.L. Realty     Form 10-Q (file no. 1-10767) filed
        Company, as lessor. re 2560 Valueway,         March 14, 1994, and incorporated
        Columbus, OH 43224.                           herein by reference.
</TABLE>

                                      E - 7
<PAGE>   76
<TABLE>
<S>     <C>                                                 <C>
10.33.1 Lease Modification Agreement dated                  Previously filed as Exhibit 10.33.1
        June 16, 1995 to Lease, dated October               to Form 10-K (file no.1-10767) filed
        26, 1993, between the Company, as                   October 27, 1995, and incorporated
        lessee, and J.A.L. Realty Company,                  herein by reference.
        as lessor, re 2560 Valueway, Columbus,
        Ohio 43224.

 10.34  License Agreement dated as of January               Previously filed as Exhibit 10.34
        12, 1994 between the Company, as                    to Form 10-K (file no. 1-10767) filed
        licensee, and Valley Fair Corporation,              October 26, 1994, and incorporated
        as licensor, re Housewares Depts.                   herein by reference.

 10.35  Ground lease, dated April 15, 1994,                 Previously filed as Exhibit 10.35 to
        between the Company, as lessee, and                 Form 10-K (file no 1-10767) filed
        J.A.L. Realty Company, as lessor, re                October 26, 1994, and incorporated
        19 acres.                                           herein by reference.

 10.36  Agreement of Lease dated September 1,               Previously filed as Exhibit 10.36 to Form 10-Q
        1994, between Company, as tenant,                  (file no. 1-10767) filed December 12, 1994, and 
        and  Jubilee Limited                                incorporated herein by reference.
        Partnership, as landlord,         
        re Carol Stream, IL store.

 10.37  Agreement of Lease, dated March 1, 1994,            Previously filed as Exhibit 10.37 to Form 10-Q 
        between the Company, as tenant, and                 (file no. 1-10767) filed December 12, 1994, 
        Jubilee Limited Partnership, as                      and incorporated herein by reference.
        landlord, re Hobart, IN store.

 10.38  Agreement of Lease, date February 10,               Previously filed as Exhibit 10.38 to Form 10-Q 
        1995, between the Company, as tenant,               (file no. 1-10767) filed March 14, 1995 and 
        and Jubilee Limited Partnership, as                 incorporated herein by reference.
        landlord, re Gurnee Mills, IL store.

 10.39  Agreement of Lease, dated January 13,               Previously filed as Exhibit 10.39 to Form 10-Q 
        1995, between the Company, as tenant,               (file no. 1-10767) filed March 14, 1995 and 
        and Westland Partners, as landlord, re              incorporated herein by reference. 
        Westland, MI store

 10.40  Agreement of Lease, dated January 31,               Previously filed as Exhibit 10.40 to Form 10-Q 
        1995, between the Company, as tenant,               (file no. 1-10767) filed March 14, 1995 and 
        and Taylor Partners, as landlord, re                 incorporated herein by reference.       
        Taylor, MI store.


 10.41  Sublease, dated December 28, 1994,                  Previously filed as Exhibit 10.41 to Form 10-Q 
        between the Company, as subtenant, and              (file no. 1-10767) filed March 14, 1995 and 
        Shonac Corporation, as sublandlord, re              incorporated herein by reference.
        Alum Creek Drive warehouse space.
</TABLE>


                                      E - 8
<PAGE>   77
<TABLE>
<S>     <C>                                                 <C>
 10.43  Analysis sheet for Lease re Ft. Wayne,              Previously filed as Exhibit 10.43 to 
        Indiana acquired by SSC pursuant to                 Form 10-K (file no. 1-10767) filed 
        Assignment and Assumption Agreement                 October 27, 1995, and incorporated 
        dated July 21, 1995.                                herein by reference.

 10.44  Merchandise Royalty Agreement, dated                Previously filed as Exhibit 10.44 to 
        July 15, 1995, between American Eagle               Form 10-Q (file no. 1-10767) filed 
        Outfitters, Inc., and the Company                   December 12, 1995, and incorporated 
        re American Eagle merchandise sold                  herein by reference.
        to Value City Department Stores, Inc.

 10.45  Agreement of Lease, dated April 10, 1995,           Previously filed as Exhibit 10.45 to 
        between the Company as tenant, and                  Form 10-Q (file no. 1-10767) filed 
        Independence Limited Liability Company,             December 12, 1995, and incorporated 
        as landlord, re Charlotte, North Carolina           herein by reference.
        Store.

 10.46  Sublease and Occupancy Agreement,                   Previously filed as Exhibit 10.46 to
        dated December 15, 1995, between the                Form 10-Q (file no. 1-10767) filed
        Company, SSC and SSC dba Value City                 March 19, 1996, and incorporated
        Furniture, re Louisville, Kentucky                  herein by reference.
        (Preston Highway) store.

 10.47  Agreement of Lease, dated March 13,                 Previously filed as Exhibit 10.47 to
        1996, between the Company as tenant,                Form 10-Q (file no. 1-10767) filed
        and Jubilee Limited Partnership, as                 March 19, 1996, and incorporated
        landlord, re Saginaw, Michigan                      herein by reference.
        store.

 10.48  Asset Purchase Agreement, dated as of               Previously filed as Exhibit 10.48 to
        April 24, 1996, between the Company,                Form 10-Q (file no. 1-10767) filed
        as buyer and Steinbach Stores, Inc., a              June 18, 1996 and incorporated
        subsidiary of SSC, as seller, re the                herein by reference.
        Seaview, Shore Mall, Paramus and
        Manalapan, NJ Stores.

 10.49  Agreement of lease, dated 1996                      Previously filed as Exhibit 10.49 to
        between the Company, as tenant,                     Form 10-K (file no. 1-10767) filed
        and SSC, as landlord, re the Melrose                November 1, 1997 and incorporated
        Park, IL store.                                     herein by reference.

 10.50  Agreement of Lease, dated October 4,                Previously filed as Exhibit 10.50 to 
        1996, between the Company, as tenant,               Form 10-K (file no. 1-10767) filed 
        and Hickory Ridge Pavilion, Ltd., as                November 1, 1997 and incorporated 
        landlord, re the Memphis, TN store.                 herein by reference.
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<S>     <C>                                           <C>
 10.51  Asset and Stock Purchase Agreement,           Previously filed as Exhibit 10.51 to
        dated as of July 14, 1997, by and among       Form 10-K (file no. 1-10767) filed
        VCM, LTD., Mazel Stores, Inc., Valley         October 31, 1997, and incorporated
        Fair Corporation L.F. Widmann, Inc. and       herein by reference.
        Value City Department Stores, Inc.

 10.52  Employment Agreement, dated July 15,          Previously filed as Exhibit 10.52 to
        1997, between Martin P. Doolan and the        Form 10-K (file no. 1-10767) filed
        Company.                                      October 31, 1997, and incorporated
                                                      herein by reference.

10.52.1 First Amendment to Employment                 Previously filed as Exhibit 10.52.1 to
        Agreement, effective as of July 1, 1997,      Form 10-K (file no. 1-10767) filed
        between Marin P. Doolan and the               October 30, 1998, and incorporated
        Company.                                      herein by reference.

 10.53  Restricted Stock Agreement dated              Previously filed as Exhibit 10.53 to
        July 14, 1997 between Martin P.               Form 10-K (file no. 1-10767) filed
        Doolan and the Company.                       October 31, 1997, and incorporated
                                                      herein by reference.

 10.54  Employment Agreement, dated July 2,           Previously filed as Exhibit 10.54 to
        1997 between Michael J. Tanner and the        Form 10-K (file no. 1-10767) filed
        Company.                                      October 30, 1009, and incorporated
                                                      herein by reference.

 10.55  Employment Agreement, dated July 2,           Previously filed as Exhibit 10.55 to
        1997 between James E. Feldt and the           Form 10-K (file no. 1-10767) filed
        Company.                                      October 30, 1998, and incorporated
                                                      herein by reference.

10.56   Lease, dated ________, 1998 between the 
        Company, as tenant, and Jubilee Limited 
        Partnership, as landlord, re River Oaks West 
        Shopping Center, Calumet City, Illinois.

 10.57  Lease, dated May 3, 1998 between the 
        Company, as tenant, and Valley Fair 
        Corporation, as landlord, re Irvington, NJ

10.58   Employment Agreement, dated July 2, 
        1997 between Louis Virag and the
        Company.

 16.1   Letter re change in certifying Accountant     Previously filed as Exhibit 16.1 to 
                                                      Form 8-K (file no. 1-10767) filed
                                                      May 27, 1997 and incorporated 
                                                      herein by reference.

   21   List of  Subsidiaries                         
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    23  Consent of Deloitte & Touche LLP              

    27  Financial Data Schedule                       



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