FLEMING COMPANIES INC /OK/, 10-K405, 1997-03-21

FLEMING COMPANIES INC /OK/
10-K405, 1997-03-21
GROCERIES, GENERAL LINE

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
------------------------

FORM 10-K

(MARK ONE)

<TABLE>
<C> <S> <C>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 1-8140
</TABLE>

FLEMING COMPANIES, INC.

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
OKLAHOMA 48-0222760
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

6301 WATERFORD BOULEVARD, BOX 26647 73126
OKLAHOMA CITY, OKLAHOMA (Zip Code)
(Address of principal executive offices)

Registrant's telephone number, including area (405) 840-7200
code
</TABLE>

<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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<S> <C>
Common Stock, $2.50 Par Value and New York Stock Exchange
Common Stock Purchase Rights Pacific Stock Exchange
Chicago Stock Exchange
9.5% Debentures New York Stock Exchange
</TABLE>

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

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 the
Form 10-K. _X_

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 shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ____

As of February 21, 1997, 37,800,000 common shares were outstanding.

The aggregate market value of the common shares (based upon the closing
price on February 21, 1997 of these shares on the New York Stock Exchange) of
Fleming Companies, Inc. held by nonaffiliates was approximately $637 million.

DOCUMENTS INCORPORATED BY REFERENCE

A portion of Part III has been incorporated by reference from the
registrant's proxy statement dated March 18, 1997, in connection with its annual
meeting of shareholders to be held on April 30, 1997.

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PART I

ITEM 1. BUSINESS

Fleming Companies, Inc. ("Fleming" or the "company") was incorporated in
Kansas in 1915 and reincorporated in Oklahoma in 1981. Company net sales have
grown from $8 billion in 1986 to $16 billion in 1996, largely as a result of
acquisitions of food distributors and retail store operations. Today the company
is one of the largest food distributors in the United States and at year-end
1996 served as the principal source of supply for more than 3,100 supermarkets
(defined as any retail food store with annual sales of at least $2 million).
Fleming is also one of the top 20 food retailers in the United States based on
net sales and owns and operates approximately 270 supermarkets nationwide.
Additional information regarding the company's two operating segments is
contained in the "Segment Information" note to the company's consolidated
financial statements which are included in Item 8 of this Annual Report.

The company's food distribution product offerings include a wide variety of
national brand and store brand items including groceries, meat, dairy and
delicatessen products, frozen foods, produce, bakery goods and a variety of
general merchandise and related items. Store brands, which include both private
labels and controlled labels, offer consumers a quality alternative to national
brands at a reasonable price and represent an important element in the marketing
strategy of the company's retailers. The company's food distribution segment
also offers an extensive selection of retail services designed to enable both
Fleming-owned and Fleming-served retailers to compete more effectively in their
respective markets. The company serves food stores of various sizes operating in
a wide variety of formats, including conventional full-service stores,
supercenters, price impact stores (including warehouse stores) and combination
stores (which typically carry a higher proportion of non-food items). With
customers in 42 states, the company services a geographically diverse area.

Company-owned stores operate as 12 region chains under separate banners and
vary in format from conventional supermarkets to super warehouse stores. Net
sales from retail food operations were $3.7 billion during 1996 having risen
from $.9 billion during 1993, or a four-fold increase. During 1994, the
company's acquisition of Scrivner Inc. ("Scrivner") added more than 175
company-owned supermarkets to Fleming's operations. During 1996, 71 more
supermarkets were acquired and 4 new supermarkets were opened. Today, over 20%
of annual sales are derived from retail operations.

RESPONSE TO A CHANGING INDUSTRY

Traditional consumer patterns throughout the food industry have changed
dramatically in recent years. Warehouse clubs, discount chains, mass marketers,
and convenience stores are challenging traditional supermarkets for market
share. Increased use of "Every Day Low Costing" practices ("EDLC") by
manufacturers, and the related decline of profitable promotional fees and
allowances, are affecting profit margins for retailers and distributors alike.
In a period of relatively static overall demand, more of the consumer's food
dollar is being directed to meals prepared outside the home (or "foodservice"),
including traditional restaurants, fast food venues and specialty foods prepared
for home consumption.

In response to these forces, the company is making fundamental changes to
its food distribution operations to better satisfy evolving consumer needs. In
1994, the company announced a program to consolidate its food distribution
facilities, realign management structures and reengineer the way the company
markets and distributes its goods and services. The company's objective is to
lower the net acquisition cost of products to retailers while providing the
company with a fair and adequate return for its products and services.

The company began implementing its plan in 1994 and by year-end 1995, it had
completed all but one planned facility consolidation, substantially revised its
internal organizational structure and reengineered

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operations serving approximately 40% of the company's customer base. Although
customer response in many areas was positive, sales and financial results were
disappointing.

In response, the company temporarily halted the roll-out of its innovative
marketing plan while it refocused on improving the results of all of its
operations. While the timing of some reengineering initiatives were rescheduled,
others continued to be implemented throughout the company's operations. By the
end of 1996, the company has made significant progress in pursuing its business
strategies in several key areas:

Facilities Consolidation and Cost Controls: Since the beginning of 1994,
the company has consolidated 13 distribution centers, focusing its
operations on larger, more efficient facilities. Over 3 million square
feet of warehouse space has been removed from the system. The company
continues to look for opportunities to remove costs wherever possible.

Flexible Marketing Plan: Fleming has modified the original Flexible
Marketing Plan, now called FlexPro-TM-, and developed two new
options--FlexStar-TM- and FlexMate-TM---to allow retailers to select the
program best suited to their needs. Throughout 1997, the company will
work with its customers in reengineered locations to ensure a good
program fit before offering the new programs in the balance of its
operations across the country.

GMD group: The GMD group, which distributes health and beauty care,
general merchandise and specialty ethnic and seasonal food products from
six regional distribution centers, is one of the largest operations of
its kind in the industry. In 1996, the GMD group developed common product
codes and continued its central procurement project providing greater
accuracy, efficiency, and timeliness in procurement. In 1997, the
emphasis will be on sales growth, expense control and continued financial
improvements.

Retail Services group: As part of its reengineering, Fleming began
unbundling its retail services in 1995 to permit selection of some or all
services as needed by its customers. The Fleming Retail Services group
now independently markets, prices and delivers its retail services. Each
service draws upon Fleming's broad industry experience and is designed to
help retailers improve performance at the store level.

Fleming Brands: Store brands allow the retailer to offer consumers a
quality alternative to national brands at a reasonable price while
generating better margins and reinforcing the store's brand identity at
the same time. The company is consolidating its store brands from 13 to
5--BestYet-Registered Trademark-, Piggly Wiggly-Registered Trademark-,
Rainbow-Registered Trademark-, IGA-Registered Trademark- and a line of
upscale specialty products--so that the company's size can be better
utilized by strengthening marketing and improving product procurement to
lower product costs.

Investing in the Customer Base: The company has de-emphasized investments
in and credit extensions to customers, raised the company's financial
standards for both loans and investments, and began conducting
post-financing reviews more frequently and in greater depth. Primarily
due to these efforts, Fleming's credit loss expense has dropped
dramatically. Because food distributors have traditionally used loans and
investments to enhance sales, the company believes this change of focus
has had a negative effect on overall sales. However, the company also
believes that making credit and investment decisions on objective
criteria, unrelated to marginal volume increases, have proven valuable to
the company's bottom line performance.

Additionally, the company's marketing efforts have focused on regional
chain customers and the new generation retailers. For the first time in
its history, more than half of the company's food distribution revenues
were provided by regional chain customers.

Fleming Retail Group: The company's 12 regional supermarket chains
generate stable business for its food distribution operations and give
Fleming an important first-hand knowledge of the

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consumer and the retail environment. In 1996, the company made solid
progress in earnings improvement in its retail food operations as it:

- sold or closed 62 stores which were unprofitable or inconsistent with
the company's strategy,

- invested in four new stores and 41 remodels and upgrades,

- implemented customer loyalty programs which have become key marketing
tools to help sales, and

- installed computer-based training in many company-owned stores.

In 1996, the company acquired 71 stores in foreclosure from a financially
troubled Arizona customer ("ABCO") and moved quickly in an attempt to
reverse losses. Fleming closed 14 stores, opened two and remodeled five
while eliminating a warehouse and making staff adjustments. By the end of
1996, 59 ABCO supermarkets were operating, and as a group had positive
cash flow, increased same store sales and greatly reduced losses.

The company believes that, while the combined effects of its extensive
facilities consolidation, the integration of Scrivner and its substantial retail
operations, the initial implementation of its Flexible Marketing Plan, and its
reduced willingness to lend money to or invest in marginal customers have
reduced overall sales, the company is better positioned to compete in today's
volatile marketplace than ever before. By delivering cost efficient product
procurement and distribution systems, together with advanced retail services and
store brand programs, to both Fleming-owned and Fleming-served retailers, the
company hopes to provide its retailers with the necessary tools to more
effectively compete in their respective markets.

PRODUCTS

The company supplies its customers with a full line of national brand
products as well as an extensive range of store brands (private and controlled
label products), perishables and non-food items. Controlled labels are those
which the company controls and private labels are those which may be offered
only in stores operating under specific banners, which may or may not be under
the company's control. Among the controlled labels offered by the company with
registered trade names are BestYet-Registered Trademark- and Rainbow-Registered
Trademark-. Among the private labels handled by the company are IGA-Registered
Trademark- and Piggly Wiggly-Registered Trademark-. Store brands offer both the
food distributor and the retailer opportunities to build store image and loyalty
among target customers as well as improve margins as the costs of national
advertising campaigns can be eliminated. The store brand program is augmented
with marketing and promotional support programs developed by the company. The
company is in the process of consolidating the number of store brands or labels
from 13 to 5 to use size to strengthen marketing and procurement efforts for its
customers. Over the next two years, the company plans to develop new logos,
packaging and professional marketing programs to build a consumer franchise for
each brand. In addition, work will continue on expanding products in each brand,
and on strengthening relationships with manufacturers to create a more powerful
supply network.

Certain categories of perishables also offer both the food distributor and
the retailer opportunities for improved margins as consumers are generally
willing to pay relatively higher prices for high quality produce, bakery goods
and frozen foods. Furthermore, retailers compete for business by emphasizing
perishables and store brand products. The emphasis is on fresh and prepared
foods through in-store bakeries, delis, expanded meat and produce offerings,
in-store home meal replacement offerings, and ready-to-cook or heat & serve
offerings.

The company's product mix as a percentage of 1996 sales was 55% groceries,
40% perishables and 5% general merchandise.

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SERVICES TO CUSTOMERS

The company offers value-added retail consulting services to its customers
on a pay-as-you-need them basis. There are 12 services offered--advertising,
education, finance, insurance, promotion, franchising, technology, store
development, store operations, inventory management, pricing and VISIONET-TM-.
See also "Capital Invested in Customers."

The newest of the services is VISIONET-TM-, a proprietary interactive
electronic communications network. The system gives the customer access to
inventory information, financial data, retail support services and on-line
ordering while giving the company rapid communications with its user base at a
low cost. An expanded Windows-based version of the system is scheduled for
release in 1997 and additional enhancements are planned to further develop the
information exchanges between our customers, ourselves and vendors.

SALE TERMS

Customers under the Flexible Marketing Plans, which cover grocery, frozen
and dairy product sales, are offered three different programs--FlexPro-TM-,
FlexStar-TM- and FlexMate-TM-. Product pricing under FlexPro-TM- and
FlexStar-TM- is based on its actual acquisition value. FlexPro-TM- charges to
the retailer are directly related to the handling, storage and delivery
activities that drive costs; whereas, the charges under FlexStar-TM- are based
on average percentages. FlexMate-TM- offers a distinctly different program where
product pricing is based on a quoted sell price plus fee and freight. Payment
from customers is generally made through electronic funds transfer the day
following the customer's statement date.

For customers and products not on one of the Flexible Marketing Plans,
product pricing is generally based on a quoted sell price, to which is added a
fee determined by the volume of the customer's purchase. A delivery charge is
usually added based on order size and mileage from the distribution center to
the customer's store. Payment may be received upon delivery of the order or
within credit terms that generally are weekly or semi-weekly.

DISTRIBUTION

The company currently operates 35 distribution centers which are responsible
for the distribution of national brand and private label groceries, meat, dairy
and delicatessen products, frozen foods, produce, bakery goods and a variety of
related food and non-food items. Six general merchandise distribution centers
distribute health and beauty care items and other items such as general
merchandise and specialty foods. Two distribution centers serve convenience
stores. All facilities are equipped with modern material handling equipment for
receiving, storing and shipping large quantities of merchandise. Since beginning
of 1994, the company has closed thirteen distribution centers as part of the
integration of Scrivner and the consolidation, reorganization and reengineering
plan, and the company plans to close one additional distribution center.

The company's food and general merchandise distribution facilities comprise
more than 20 million square feet of warehouse space. Additionally, the company
rents, on a short-term basis, approximately 5 million square feet of off-site
temporary storage space.

Transportation arrangements and operations vary by distribution center and
at times by customer. Some customers prefer to handle the product delivery
themselves, others prefer the company to deliver it and still others ask the
company to coordinate the delivery with a third party. Accordingly, many
distribution centers operate a truck fleet to deliver products to customers and
several centers also engage dedicated contract carriers to deliver products. The
company increases the utilization of its truck fleet by backhauling products
from many suppliers, thereby reducing the number of empty miles traveled. To
further increase its fleet utilization, the company has made its truck fleet
available to other firms on a for-hire carriage basis.

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RETAIL STORES SERVED

The company serves retail stores that vary in size, format, organization,
sales level and location. The following sentences describe these characteristics
further.

SIZE of the retail stores served is very diverse ranging from small
(4,000 square feet) convenience outlets to large (200,000 square feet)
supercenters. The company estimates the aggregate square feet of retail
stores served is in excess of 90 million.

The FORMAT of the retail stores served is a function of size and
marketing approach and the company serves several formats: convenience
store, conventional supermarket, combination unit, price impact store and
supercenter.

The retail stores served consist of several ORGANIZATION types: single
store operators, multiple store operators and chain store operators. The
company currently serves approximately 940 stores that are organized as
chains.

SALES LEVEL of the retail stores served is quite diverse as measured by
average weekly sales. However, more than 3,100 of the retail stores
served by the company average more than $2 million in sales per year and
are considered supermarkets under industry standards. Supermarkets carry
a wide variety of grocery, meat, produce, frozen food and dairy products
and also handle an assortment of non-food items, including health and
beauty care products and general merchandise such as housewares, soft
goods and stationery. Most supermarkets also operate one or more
specialty departments such as in-store bakeries, delicatessens, seafood
departments or floral departments.

The LOCATION of the retail stores served is national in perspective with
stores in 42 states.

The company also licenses or grants franchises to retailers to use certain
registered trade names such as Piggly Wiggly-Registered Trademark-, Food 4
Less-TM-, Sentry-Registered Trademark- Foods, Super 1 Foods-Registered
Trademark-, Festival Foods-Registered Trademark-, Jubilee Foods-Registered
Trademark-, Jamboree Foods-Registered Trademark-, MEGAMARKET-Registered
Trademark-, Shop 'N Kart-Registered Trademark-, American Family-Registered
Trademark-, BestYet-Registered Trademark-, Big Star-Registered Trademark-, Big
T-Registered Trademark-, Buy for Less-Registered Trademark-, Country Pride-TM-,
Buy Way-Registered Trademark-, Pic-Pac-Registered Trademark-, Rainbow
Foods-Registered Trademark-, Shop N Bag-Registered Trademark-, Super
Duper-Registered Trademark-, Super Foods-TM-, Super Thrift-Registered
Trademark-, Thriftway-Registered Trademark-, and Value King-Registered
Trademark-. There are approximately 1,800 food stores operating under company
franchises or licenses.

The company believes that its 10 largest customers accounted for
approximately 16% of net sales during 1996, with no single customer representing
more than 3% of net sales.

COMPANY-OWNED STORES

The company owns and operates approximately 270 stores at December 28, 1996,
with an aggregate of approximately 10 million square feet. Company-owned stores
are located in 23 states and are all served by the company's distribution
centers. Formats vary from super warehouse stores to conventional supermarkets.
Generally in the industry, an average super warehouse store is 58,000 square
feet and a conventional supermarket is 23,000 square feet. All company-owned
supermarkets are designed and equipped to offer a broad selection of both
national brands as well as private label products at attractive prices while
maintaining high levels of service. Most supermarket formats have extensive
produce sections and complete meat departments together with one or more
specialty departments such as in-store bakeries, delicatessens, seafood
departments or floral departments. Specialty departments generally produce
higher gross margins per selling square foot than general grocery sections.

Company-owned stores provide added purchasing power as they enable the
company to commit to certain promotional efforts at the retail level. The
company, through its owned stores, is able to retain many of the promotional
savings offered by vendors in exchange for volume increases.

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TECHNOLOGY EMPLOYED

The company has played a leading role in employing technology for internal
operations as well as for its retail customers. Radio-frequency terminals have
been implemented in most distribution centers to track inventory, further
improve customer service levels, reduce out-of-stock conditions and obtain other
operational improvements. Most distribution centers are managed by computerized
inventory control systems, such as the company's standardized computer software
system called FOODS (Fleming On-line Operating Distribution System), along with
warehouse productivity monitoring and scheduling systems. By the end of 1997,
all but 8 distribution centers (2 of which serve convenience stores) will be on
the FOODS system. Those systems will be studied for potential modification for
being compliant with the year 2000 requirements as described below or will be
replaced by FOODS. Most of the company's truck fleet is equipped with on-board
computers to monitor the efficiency of deliveries to its customers.

Additionally, the company is marketing VISIONET-TM-, which is the company's
proprietary interactive electronic communications network for its retail
customers. Enhancements to VISIONET-TM- are currently being developed and tested
and are expected to be rolled out in 1997.

The company is in the process of developing workplans for modifying those
systems and applications, including FOODS, that are not capable of processing
with dates beyond the year 1999. In addition, the company has contracted outside
vendors to assist in identifying the required modifications and assisting in
implementing those changes.

SUPPLIERS

The company purchases its products from numerous vendors and growers. As the
largest single customer of many of its suppliers, the company is able to secure
favorable terms and volume discounts on most of its purchases, leading to lower
unit costs. The company purchases products from a diverse group of suppliers and
believes it has adequate and alternative sources of supply for substantially all
of its products.

CAPITAL INVESTED IN CUSTOMERS

As part of its services to retailers, the company provides capital to
certain customers in several ways. In making credit and investment decisions,
the company considers many factors, including estimated return on capital, risk
and the benefits to be derived. Loans are approved by the company's business
development committee following written approval standards.

The company provides capital to certain customers by becoming primarily or
secondarily liable for store leases, by extending credit for inventory
purchases, and by guaranteeing loans and making secured loans to and equity
investments in customers.

STORE LEASES. The company leases stores for sublease to certain customers.
As of December 28, 1996, the company was the primary lessee of approximately 820
retail store locations subleased to and operated by customers. In certain
circumstances, the company also guarantees the lease obligations of certain
customers.

EXTENSION OF CREDIT FOR INVENTORY PURCHASES. Customary trade credit terms
are the day following statement date for customers on a Flexible Marketing Plan
and up to seven days for other marketing plan customers; the company has
extended credit for additional periods under certain circumstances.

GUARANTEES AND SECURED LOANS. The company makes loans to customers
primarily for store expansions or improvements. These loans are typically
secured by inventory and store fixtures, bear interest at rates at or above the
prime rate, and are for terms of up to 10 years. During fiscal year 1996 and
1995, the company sold, with limited recourse, $35 million and $77 million,
respectively, of notes evidencing similar loans. The company believes its loans
to customers are illiquid and would not be investment grade if rated. From time
to time, the company also guarantees the obligations of certain of its
customers.

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EQUITY INVESTMENTS. The company has made equity investments in strategic
multi-store customers, which it refers to as Joint Ventures, and in smaller
operators, referred to as Equity Stores. Equity Store participants typically
retain the right to purchase the company's investment over a five to 10-year
period. Many of the customers in which the company has made equity investments
are highly leveraged, and the company believes its equity investments are highly
illiquid.

The following table sets forth the components of the company's portfolio of
loans to and investments in customers at year-end 1996 and 1995. Amounts are in
millions.
<TABLE>
<CAPTION>
JOINT EQUITY STORES HELD CUSTOMERS WITH NO
VENTURES STORES FOR RESALE SUB-TOTAL EQUITY INVESTMENT
----------- ----------- ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
1996
Loans (a)............................................... $ 16 $ 39 $ 1 $ 56 $ 133
Equity Investments...................................... (2) (1) 27 24 --
Total................................................. $ 14 $ 38 $ 28 $ 80 $ 133
1995
Loans (a)............................................... $ 27 $ 34 $ -- $ 61 $ 177
Equity Investments...................................... 28 (2) 23 49 --
Total................................................. $ 55 $ 32 $ 23 $ 110 $ 177

TOTAL
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<S> <C>
1996
Loans (a)............................................... $ 189
Equity Investments...................................... 24
Total................................................. $ 213
1995
Loans (a)............................................... $ 238
Equity Investments...................................... 49
Total................................................. $ 287
</TABLE>

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(a) Includes current portion of loans, which amounts are included in receivables
on the company's balance sheet. See notes to consolidated financial
statements.

The table does not include the company's investments in customers through
direct financing leases, lease guarantees, operating leases, loan guarantees or
credit extensions for inventory purchases. As of December 28, 1996, the present
value of the company's obligations under direct financing leases and lease
guarantees were $214 million and $82 million, respectively.

Since 1994, tighter credit policies and reduced emphasis on credit
extensions to and investments in customers have resulted in less exposure and a
decrease in credit losses. Fleming's credit loss expense, including from
receivables as well as from investments in customers, was $27 million in the
year ended December 28, 1996, $31 million in 1995 and $61 million in 1994.

COMPETITION

Competition in the food marketing and distribution industry is intense. The
company's primary competitors are national chains who perform their own
distribution (such as The Kroger Co. and Albertson's, Inc.), national food
distributors (such as SUPERVALU Inc.) and regional and local food distributors.
The principal competitive factors include price, quality and assortment of
product lines, schedules and reliability of delivery, and the range and quality
of customer services. The sales volume of food distributors is dependent on the
level of sales achieved by the retail food stores they serve.

The primary competitors of company-owned stores and retail stores served by
the company are national, regional and local chains, as well as independent
supermarkets and convenience stores. Principal competitive factors include
product price, quality and assortment, store location and format, sales
promotions, advertising, availability of parking, hours of operation and store
appeal.

EMPLOYEES

At year-end 1996, the company had approximately 41,200 full-time and
part-time associates. Approximately half of the company's associates are covered
by collective bargaining agreements with the International Brotherhood of
Teamsters; Chauffeurs, Warehousemen and Helpers of America; the United Food and
Commercial Workers; the International Longshoremen's and Warehousemen's Union;
and the Retail Warehouse and Department Store Union. Most of such agreements
expire at various times throughout the next five years. The company believes it
has satisfactory relationships with its unions.

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ITEM 2. PROPERTIES

The following table sets forth information with respect to Fleming's major
distribution facilities.

<TABLE>
<CAPTION>
SIZE, IN
THOUSANDS OF
LOCATION SQUARE FEET OWNED OR LEASED
- ------------------------------------------------------------- ------------- -----------------
<S> <C> <C>
FOOD DISTRIBUTION (1)
Altoona, PA.................................................. 172 Owned
Buffalo, NY.................................................. 417 Leased
El Paso, TX (2).............................................. 465 Leased
Ewa Beach, HI................................................ 196 Leased
Fresno, CA (6)............................................... 380 Owned
Garland, TX.................................................. 1,180 Owned
Geneva, AL................................................... 345 Leased
Houston, TX.................................................. 662 Leased
Huntingdon, PA (7)........................................... 246 Owned
Johnson City, TN (3)......................................... 298 Owned
Kansas City, KS.............................................. 886 Leased
La Crosse, WI................................................ 907 Owned
Lafayette, LA................................................ 432 Owned
Laurens, IA.................................................. 368 Owned
Lincoln, NE.................................................. 300 Leased
Lubbock, TX (2).............................................. 378 Owned
Marshfield, WI............................................... 157 Owned
Massillon, OH (7)............................................ 808 Owned
Memphis, TN.................................................. 780 Owned
Miami, FL.................................................... 763 Owned
Milwaukee, WI................................................ 600 Owned
Minneapolis, MN (4).......................................... 480 Owned
Nashville, TN (3)............................................ 734 Leased
North East, MD (5)........................................... 109 Owned
Oklahoma City, OK (8)........................................ 454 Owned
Oklahoma City, OK (8)........................................ 410 Leased
Peoria, IL................................................... 325 Owned
Philadelphia, PA (5)......................................... 830 Leased
Phoenix, AZ.................................................. 912 Owned
Portland, OR................................................. 324 Owned
Sacramento, CA (6)........................................... 681 Owned
Salt Lake City, UT........................................... 433 Owned
San Antonio, TX.............................................. 514 Leased
Sikeston, MO................................................. 481 Owned
Superior, WI (4)............................................. 371 Owned
Warsaw, NC................................................... 334 Owned/Leased
York, PA..................................................... 450 Owned
------
18,582
</TABLE>

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<TABLE>
<CAPTION>
SIZE, IN
THOUSANDS OF
LOCATION SQUARE FEET OWNED OR LEASED
- ------------------------------------------------------------- ------------- -----------------
<S> <C> <C>
GENERAL MERCHANDISE GROUP
Dallas, TX................................................... 262 Owned/Leased
King of Prussia, PA.......................................... 377 Leased
La Crosse, WI................................................ 163 Owned
Memphis, TN.................................................. 339 Owned/Leased
Sacramento, CA............................................... 294 Leased
Topeka, KS................................................... 179 Leased
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1,614
OUTSIDE STORAGE
Outside storage facilities--typically rented on a short-term
basis...................................................... 4,762
------
Total square feet............................................ 24,958
</TABLE>

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(1) Food distribution includes two convenience store divisions.

(2) Comprise the Lubbock distribution operation.

(3) Comprise the Nashville distribution operation.

(4) Comprise the Minneapolis distribution operation.

(5) Comprise the Philadelphia distribution operation.

(6) Comprise the Sacramento distribution operation.

(7) Comprise the Massillon distribution operation.

(8) The company operates two distribution operations in Oklahoma City. The
administrative functions of these two distribution operations are
consolidated.

At the end of 1996, Fleming operated a delivery fleet consisting of
approximately 1,400 power units and 3,100 trailers. Most of this equipment is
owned by the company.

Company-owned retail stores are located in 23 states and occupy
approximately 10 million square feet which is primarily leased.

ITEM 3. LEGAL PROCEEDINGS

(1) Tropin v. Thenen, et al., Case No. 93-2502-CIV-Moreno, United States
District Court, Southern District of Florida.

Walco Investments, Inc., et al. v. Thenen, et al., Case No.
93-2534-CIV-Moreno, United States District Court, Southern District of Florida.

The company and several other defendants were named in two suits filed in
U.S. District Court in Miami, Florida, in 1993. The suits involved an allegedly
fraudulent scheme conducted by a failed grocery diverter ("Premium") and others
in which large losses in the Premium-related entities occurred to the detriment
of a class of investors which brought one of the suits. The other suit is by the
receiver/trustee of the estates of Premium and certain of its affiliated
entities (the "Trustee"). Plaintiffs sought actual damages of approximately $300
million, treble damages, punitive damages, attorneys' fees, costs, expenses and
other appropriate relief.

9
<PAGE>
The company entered into a settlement agreement with respect to the Premium
cases in December 1996. Under the agreement, the Trustee, the class of investors
(excluding opt-outs and non-releasing investors) and all other claimants will
dismiss their actions against the company in exchange for a $19.5 million
payment plus $500,000 for costs and expenses, and all related claims involving
the company will be dismissed.

The company recorded a charge of $20 million during the third quarter of
1996 in anticipation of the settlement and deposited that amount into an escrow
account in December pending finalization. The settlement is subject to, among
other conditions, court approval and receipt by the company of releases from
investors, including those who might not be barred by the settlement. The
company has the right to withdraw the escrowed funds and terminate the
settlement if such conditions are not met. As of the date of this report,
non-released claims held by investors who would not otherwise be bound by the
settlement were estimated to be substantial.

In August 1996, four former employees of the company and numerous others
were variously indicted by a U.S. grand jury sitting in the Southern District of
Florida for multiple counts of fraud, conspiracy and other crimes allegedly
committed in furtherance of Premium's fraudulent scheme. Neither the company nor
any of its current employees were indicted, and the company has no reason to
believe any such proceedings are contemplated.

(2) David's Supermarkets, Inc. vs. Fleming Companies, Inc., et al., Case No.
246-93, in the District Court of Johnson County, Texas.

The company, a former subsidiary subsequently merged with the company, and a
retired executive officer were named in a lawsuit filed in the District Court in
Johnson County, Texas ("David's") in 1993 and tried before a jury in February
and March 1996. Plaintiff sought substantial actual damages, treble damages,
exemplary damages, attorney's fees, interest and costs against the company for
allegedly overcharging the plaintiff for products during a three-year period.
The company considered the claims to be without merit. However, following a
four-week trial the jury found against the company in the amount of $72.5
million for breach of contract, $200.9 million for fraud and $207.5 million for
violation of the Texas Deceptive Trade Practices Act ("DTPA"), and against the
executive in the amount of $51 million for fraud and $72.6 million for violation
of the DTPA. On April 12, 1996, judgment was entered against the company in the
amount of $207.5 million for violation of the DTPA plus prejudgment interest of
$3.7 million and post-judgment interest at the rate of 10% per annum. Judgment
jointly and severally against the executive was entered for $72.6 million plus
pre-judgment and post-judgment interest. The company posted a supersedeas bond,
commenced appeal of the judgment, and filed a motion for a new trial and the
recusal of the trial judge on grounds unrelated to the merits. Subsequently, the
trial judge recused himself and a new judge was assigned to the case who vacated
the judgment and granted a new trial, scheduled for May 1997.

(3) Furr's Supermarkets, Inc. vs. Fleming Companies, Inc., et al., Case No.
CV-97-01526, Second Judicial District Court, Bernalillo County, New Mexico.

Furr's Supermarkets, Inc. ("Furr's") filed suit in February 1997 naming as
defendants the company, certain company officers and an employee. Furr's claims
it was overcharged for products under its supply

10
<PAGE>
agreement with the company and alleges various causes of action including breach
of contract, misrepresentation, fraud and violation of certain of New Mexico's
trade practices statutes. Furr's seeks an unspecified monetary award of actual,
consequential, incidental and punitive damages, treble damages, interest,
attorneys' fees and court costs. Furr's also seeks a declaratory judgment
terminating its supply agreement.

(4) In re: Megafoods Stores, Inc. and related proceedings, Case No.
B-94-07411-P8X-RTB, U.S. Bankruptcy Court for the district of Arizona.

Megafoods Stores, Inc. ("Megafoods") and certain of its affiliates filed
Chapter 11 bankruptcy proceedings in Arizona in August 1994. The company filed
claims, including a claim for indebtedness for goods sold on open account,
equipment leases and secured loans, totaling approximately $28 million
(including claims for future payments and other non-recorded assets).
Additionally, the debtor is liable or contingently liable to the company under
store subleases and lease guarantees extended by the company for the debtor's
benefit. The debtor objected to the company's claims and filed an adversary
proceeding against the company seeking subordination of the company's claims,
return of an approximate $12 million deposit and affirmative relief for damages
which was subsequently amended to include allegations similar to those made in
the David's litigation.

In August 1996, the court approved a settlement of both the debtor's
adversary proceeding against the company and the company's disputed claims in
the bankruptcy. The settlement, which is subject to approval by the creditors of
a revised plan which will encompass the settlement, provides that the company
will retain the $12 million deposit, relinquish its secured and unsecured claims
in exchange for the right to receive 10% of distributions, if any, made to the
unsecured creditors and pay the debtor $2.5 million in exchange for the
furniture, fixtures and equipment from 17 Megafoods stores (located primarily in
Texas) and two Texas warehouses. The company agreed to lease the furniture,
fixtures and equipment in 14 of the stores to the reorganized debtor for nine
years (or until, in each case, the expiration of the store lease) at an annual
rental of $18,000 per store.

In October 1996, the debtor announced an agreement to sell its 16 Phoenix
stores to a local retail grocery chain for net proceeds of approximately $22
million. In January 1997, the debtor filed a joint liquidating plan which
incorporates the settlement. While there are apparent inconsistencies between
the liquidating plan and the settlement agreement, the company expects that the
economics of the settlement will remain essentially unchanged.

(5) Rocco Costa, Inc., Rocco N. Costa and Patricia A. Costa v. Fleming
Companies, Inc. and Carroll L. McLarty, Cause No. 9633539, 164th Judicial
District, District Court, Harris County, Texas.

The plaintiffs owned a retail grocery store in Kingwood, Texas, which was
acquired by the company in June 1994 in exchange for satisfaction of a portion
of indebtedness owed to the company (approximately $300,000) and forgiveness of
the balance (approximately $700,000). The individual plaintiffs were guarantors
of the indebtedness who, along with the corporate plaintiff, executed a full
release of the company, its officers, directors, etc., in connection with the
acquisition of the store by the company.

Notwithstanding the release, the plaintiffs sued the company and an
individual executive in July 1996 alleging that the company and the individual
made false representations to the plaintiffs to induce them to enter into the
transactions which included the release. Furthermore, plaintiffs claim that in
connection with the operation of the store, the company overcharged the
plaintiffs for goods and services, misled and deceived them about the cost of
such goods and services and manipulated the prices charged. Plaintiffs seek
actual damages, both economic damages and damages for mental anguish, additional
damages and punitive damages of unstated amounts.

(6) Fleming Foods East v. Red Apple, Inc., et al., Case No. 94-131268,
Supreme Court of New York, New York County.

11
<PAGE>
In November 1994, Red Apple sought declaratory relief from the payment of
the $2.3 million balance of a $5 million promissory note to the company (the
"Red Apple Note") until the company agreed to release its security interest in
Red Apple's collateral. Red Apple also filed a claim seeking in excess of
$600,000 in damages for the company's alleged wrongful failure to release the
collateral and seeking an accounting to determine if the company failed to
provide it with promised allowances (alleged to exceed $1 million). The company
filed a counterclaim seeking, among other things, payment of principal and
interest due under the Red Apple Note and replevin of the collateral securing
the note. The company also filed a third-party action against Di Giorgio
Corporation (to which it partially assigned its security interest in connection
with the company's sale of its perishable business in Woodbridge, New Jersey,
under an Asset Purchase Agreement dated April 1, 1994) seeking indemnification
for any losses it may suffer as a result of Red Apple's claims.

The trial court granted the company's motion for partial summary judgment
and entered judgment for the company on its claim under the Red Apple Note in
1995. The company has received payment in full under the Red Apple Note and is
seeking attorney's fees and costs.

Red Apple's action to obtain an accounting regarding the disputed allowances
and for damage resulting from the alleged failure to release collateral was
dismissed in 1996. However, Red Apple sought leave to file an amended complaint
alleging causes of action for breach of contract for the company's alleged
failure to provide the allowances and for allegedly overcharging Red Apple in a
manner similar to the overcharges alleged to have occurred in the David's
litigation. The company's motion to dismiss the amended complaint was denied in
part and granted in part, and Red Apple was allowed to file a third amended
complaint citing causes of action for the alleged failure to provide allowances
(in excess of the $750,000) and for alleged overcharges (in excess of $1
million).

On February 4, 1997, Di Giorgio made demand on the company for
indemnification under the Asset Purchase Agreement for allegations made in Red
Apple's third amended complaint although no claim has been made by Red Apple
against Di Giorgio to date. The company has rejected the demand of Di Giorgio at
this time as no "loss" (as defined in the Asset Purchase Agreement) has been
sustained which would entitle Di Giorgio to indemnification under the Asset
Purchase Agreement.

(7) Steiner, et al. v. Fleming Companies, Inc., et al., Case No.
CIV-96-480-M, United States District Court, Western District of Oklahoma.

Hollin, et al. v. Fleming Companies, Inc., et al., Case No. CIV-96-484-M,
United States District Court, Western District of Oklahoma.

Goldstein, et al. v. Fleming Companies, Inc., et al., Case No. CIV-96-510-M,
United States District Court, Western District of Oklahoma.

General Telecom Money Purchase Pension Plan & Trust, et al. v. Fleming
Companies, Inc., et al., Case No. CIV-96-593-M, United States District Court,
Western District of Oklahoma.

Bright Trading, Inc., et al. v. Fleming Companies, Inc., et al., Case No.
CIV-96-830-M, United States District Court, Western District of Oklahoma.

City of Philadelphia, et al. v. Fleming Companies, Inc., et al., Case No.
96-853-M, United States District Court, Western District of Oklahoma.

Pindus, et al. v. Fleming Companies, Inc., et al., Case No. CIV-96-869-M,
United States District Court, Western District of Oklahoma.

Hinton, et al. v. Fleming Companies, Inc., et al., Case No. CIV-96-942-C,
United States District Court, Western District of Oklahoma.

Wells, et al. v. Fleming Companies, Inc., et al., Case No. CIV-96-993-L,
United States District Court, Western District of Oklahoma.

12
<PAGE>
Mark, et al. v. Fleming Companies, Inc., et al., Case No. CIV-96-506-M,
United States District Court, Western District of Oklahoma.

In March and April 1996, the company and certain of its present and former
officers and directors, including the chief executive officer, were named as
defendants in nine purported class action lawsuits filed by certain of its
stockholders and one purported class action lawsuit filed by a noteholder, each
in the U.S. District Court for the Western District of Oklahoma, alleging the
company failed to properly disclose and account for the risk associated with the
David's litigation. The plaintiffs in five of the stockholder cases also claim
the company failed to disclose that it was engaged in a deceptive course of
business with its customers that exposed it to substantial liability which would
severely impair the financial condition, performance and value of the company.
The plaintiffs seek undetermined but significant damages. Motions to consolidate
some or all of the cases are pending before the court. Discovery has not yet
commenced.

(8) Cauley, et al. v. Stauth, et al., Case No. CIV-96-1679T, United States
District Court, Western District of Oklahoma.

In October 1996, certain of the company's present and former officers and
directors, including the chief executive officer, were named as defendants in a
purported shareholder's derivative suit in the U.S. District Court for the
Western District of Oklahoma. Plaintiff alleges the defendants breached their
respective fiduciary duties to the company and are variably responsible for
causing the company to (i) become "involved with" Premium Sales and its illegal
course of business resulting in the Premium litigation and the $20 million
settlement agreement discussed above; (ii) "systematically" misrepresent and
overstate the cost of company products sold to its customers in violation of its
sale agreements, resulting in the David's litigation and ultimately leading to
the class action suits discussed above; and (iii) fail to meet its disclosure
obligations under the Securities Exchange Act of 1934, as amended, resulting in
the class action lawsuits discussed above and increased borrowing costs, loss of
customers and loss of market value.

Plaintiff seeks damages from the defendants on behalf of the company in
excess of $50,000, forfeiture by the defendants of their salaries and other
compensation for the period in which they breached their fiduciary duties and
that all monies held by the company as deferred compensation or otherwise on
behalf of the defendants remain in constructive trust for the benefit of the
company, attorney's fees and costs. Discovery has not yet begun.

Rosenberg v. Stauth, et al., Case No. CIV-96-1808M, United States District
Court, Western District of Oklahoma.

The plaintiff in this purported shareholder derivative action filed in
October 1996, similar to the Cauley case described above, has sued the same
present and former officers and directors, including the company's chief
executive officer, but has also sued other present and former officers. In this
case, plaintiff has alleged the defendants caused the company to: (i) violate
certain sale agreements with David's Supermarkets resulting in the David's
litigation, (ii) fail to disclose to the investing public the risks associated
with the David's litigation, (iii) violate certain sale agreements with
Megafoods in a manner similar to that alleged by David's in the David's
litigation, and (iv) defraud persons who invested in the Premium-related
entities resulting in the Premium litigation described above.

Plaintiff demands judgment for money damages in favor of the company for all
losses suffered as the result of the wrongful acts of the defendants, punitive
damages, treble damages, attorneys' fees and costs. Discovery has not yet begun.

(9) Richard E. Ieyoub, Attorney General ex rel., State of Louisiana v. The
American Tobacco Company, et al., Case No. 96-1209, 14th Judicial District Court
for the Parish of Calcasieu, State of Louisiana.

13
<PAGE>
In August 1996, the Attorney General of the State of Louisiana brought this
action against numerous named tobacco companies and distributors (including a
former subsidiary which has been merged into the company) claiming that the
defendants' products and conduct were the cause of thousands of deaths, injuries
and illnesses, and millions of dollars of state health-care and related
expenditures. Plaintiffs seek an injunction, compensatory and punitive damages,
interest and attorney's fees of an unspecified amount. The company has been
indemnified by one of the tobacco companies.

(10) David Chris Morgan v. United States Tobacco Company, et al., Case No.
68-655-B in the 10th Judicial District Court for the Parish of Natchitoches,
State of Louisiana.

This case was brought as a purported class action in January 1997 against
United States Tobacco Company, and numerous others (including a former
subsidiary which has been merged into the company) claiming personal injury
related to the defendant's misrepresentations and omission to disclose the
addictive nature of smokeless tobacco products. Plaintiffs seek compensatory
damages, medical costs, interest and other costs in an unspecified amount. As of
March 1, 1997, the company had not been served in the case. The company has been
indemnified by a substantial corporate co-defendant.

(11) International Brotherhood of Teamsters General Fund v. Fleming
Companies, Inc., Case No. CIV-96-1650A, in the United States District Court for
the Western District of Oklahoma.

In September 1996, the International Brotherhood of Teamsters General Fund
("Teamsters") brought suit against the company to require the company to include
in its 1997 Proxy Statement a proposed resolution to amend the company's
by-laws. The resolution, if passed, would purport to (i) limit the company's
ability to adopt or maintain any share rights plan or other poison pill " . . .
unless such plan be first approved by a MAJORITY shareholder vote" (emphasis in
original, without definition), (ii) direct the company to redeem the existing
share rights and (iii) prohibit the amendment, alteration, deletion or
modification of such bylaw by the Board of Directors without prior shareholder
approval. The company believes such proposed resolution is contrary to the
General Corporation Act of the State of Oklahoma. Nevertheless, on January 24,
1997, the trial judge entered judgment in favor of the Teamsters. The company
has appealed the judgment.

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

Not applicable.

14
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information concerning the executive
officers of the company as of March 1, 1997:

<TABLE>
<CAPTION>
YEAR FIRST
BECAME AN
NAME (AGE) PRESENT POSITION OFFICER
- --------------------------------------- --------------------------------------- ---------------
<S> <C> <C>
Robert E. Stauth (52).................. Chairman and Chief Executive Officer 1987

William J. Dowd (54)................... President and Chief Operating Officer 1995

E. Stephen Davis (56).................. Executive Vice President-- Operations 1981

Harry L. Winn, Jr. (52)................ Executive Vice President and Chief 1994
Financial Officer

David R. Almond (57)................... Senior Vice President--General Counsel 1989
and Secretary

Ronald C. Anderson (54)................ Senior Vice President--General 1993
Merchandise

Mark K. Batenic (48)................... Senior Vice President--Retail Sales & 1994
Marketing

William M. Lawson, Jr. (46)............ Senior Vice President--Corporate 1994
Development/International Operations

Dixon E. Simpson (54).................. Senior Vice President--Retail Services 1993

Larry A. Wagner (50)................... Senior Vice President--Human Resources 1989

Thomas L. Zaricki (52)................. Senior Vice President--Retail 1993
Operations

Nancy E. Del Regno (44)................ Vice President--Communications and 1995
Public Affairs

John Thompson (55)..................... Vice President--Treasurer and Assistant 1982
Secretary

Kevin J. Twomey (46)................... Vice President--Controller 1995
</TABLE>

No family relationship exists among any of the executive officers listed
above.

Executive officers are elected by the board of directors for a term of one
year beginning with the annual meeting of shareholders held in April or May of
each year.

Each of the executive officers has been employed by the company or its
subsidiaries for the preceding five years except for Messrs. Anderson, Dowd,
Lawson, Winn, Zaricki and Ms. Del Regno.

Mr. Anderson joined the company as Vice President--General Merchandise in
July 1993. In March 1995, he was named Senior Vice President--General
Merchandise. Since 1986, until joining the company, he was vice president of
McKesson Corporation, a distributor of pharmaceutical and related products,
where he was responsible for its service merchandising division.

15
<PAGE>
Mr. Dowd joined the company in his present position in July 1995. From 1994
until joining the company, he was Senior Vice President--Operations at Cott
Corporation, a producer of retailer-branded soft drinks. From 1991 to 1994, Mr.
Dowd was executive vice president for Kraft General Foods' KGF Service Company.

Mr. Lawson joined the company in his present position in June 1994. Prior to
that, Mr. Lawson was a practicing attorney in Phoenix for 18 years.

Mr. Winn joined the company in his present position in May 1994. He was with
UtiliCorp United in Kansas City, an energy company, where he was managing senior
vice president and chief financial officer from 1990 to 1993.

Mr. Zaricki joined the company in his present position in October 1993.
Since 1987, until joining the company, Mr. Zaricki was president of Arizona
Supermarkets, Inc., a regional supermarket chain headquartered in Phoenix.

Ms. Del Regno joined the company in her present position in February 1995.
She was with PepsiCo Food Systems where she was Senior Communications Manager
from 1988-1995.

PART II

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

Fleming common stock is traded on the New York, Chicago and Pacific stock
exchanges. The ticker symbol is FLM. As of February 21, 1997, the 37.8 million
outstanding shares were owned by 13,500 shareholders of record and approximately
21,000 beneficial owners whose shares are held in street name by brokerage firms
and financial institutions. According to the New York Stock Exchange Composite
Transactions tables, the high and low prices of Fleming common stock during each
calendar quarter of the past two years are shown below.

<TABLE>
<CAPTION>
1996 1995
-------------------- --------------------
QUARTER HIGH LOW HIGH LOW
- ------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
First.................................................. $ 20.88 $ 13.63 $ 24.88 $ 19.13
Second................................................. 16.38 11.50 27.13 22.75
Third.................................................. 18.38 13.63 29.88 22.63
Fourth................................................. 18.25 15.63 25.75 20.00
</TABLE>

Cash dividends on Fleming common stock have been paid for 80 consecutive
years. Dividends are generally declared on a quarterly basis with holders as of
the record date being entitled to receive the cash dividend on the payment date.
Record and payment dates are normally as shown below:

<TABLE>
<CAPTION>
RECORD DATES: PAYMENT DATES:
- ---------------------------------------------- ----------------------------------------------
<S> <C>
February 20 March 10
May 20 June 10
August 20 September 10
November 20 December 10
</TABLE>

Cash dividends of $.30 per share were paid on or near each of the above four
payment dates in 1995. The company paid a cash dividend of $.30 per share for
the first quarter, and $.02 per share, per quarter for quarters two through four
in 1996.

16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
1996(A) 1995(B) 1994(C) 1993(D) 1992(D)
--------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales.............................. $ 16,487 $ 17,502 $ 15,724 $ 13,096 $ 12,894
Earnings before extraordinary
loss................................. 27 42 56 37 119
Net earnings per common share before
extraordinary loss................... .71 1.12 1.51 1.02 3.33
Total assets........................... 4,055 4,297 4,608 3,103 3,118
Long-term debt and capital leases...... 1,453 1,717 1,995 1,004 1,038
Cash dividends paid per common share... .36 1.20 1.20 1.20 1.20
</TABLE>

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

See Item 3. Legal proceedings, notes to consolidated financial statements and
the financial review included in Items 7. and 8.

(a) Results in 1996 include: a $20 million charge related to the agreement to
settle two related lawsuits pending against the company and a $7 million
charge for the loss on the sale of a retail store group.

(b) In 1995, management changed its estimates with respect to the general
merchandising portion of the reengineering plan and reversed $4 million,
after tax benefits, of the related provision. (See note d below).

(d) In 1993 and 1992, the company recorded an after-tax loss of $2.3 million or
$.06 per share and $5.9 million or $.16 per share, respectively, for early
retirement of debt. The results in 1993 include an after-tax charge of
approximately $62 million for additional facilities consolidations,
re-engineering, impairment of retail-related assets and elimination of
regional operations.

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

GENERAL

In January 1994, the company announced a plan to consolidate food
distribution facilities, reorganize the management group and reengineer the way
it prices and sells grocery, frozen and dairy products and retail services. In
July 1994, the company acquired Scrivner Inc., and its 50 subsidiaries
("Scrivner"), adding $6 billion in annual food distribution sales and more than
175 retail stores. These two events, together with the bankruptcy of a major
customer in 1994, the acquisition in early 1996 of a troubled 71 store customer
in Arizona and several litigation developments in 1996, have dramatically shaped
the company's results of operations and capital and liquidity position in each
of the past three fiscal years. Each of these events is discussed in more detail
below.

Consolidations, Reorganization and Reengineering--Throughout 1994, the
company consolidated 11 food distribution centers, including seven centers
acquired in the Scrivner acquisition. Another two food distribution centers were
consolidated in 1995. Smaller, less efficiently located facilities were closed
and their operations transferred to larger facilities seeking economies of scale
in operations. These consolidations were costly and resulted in loss of sales
because of reluctance by certain customers to change and increased distances
from new centers.

In 1994, the company also eliminated its regional food distribution
organization, added several centralized staff functions and with the acquisition
of Scrivner and its significant retail food operations, established a staff
retail food group in 1994.

The design of reengineering, which includes several programs, began in 1994
and implementation commenced in 1995. The most significant of these programs is
the introduction of the flexible marketing plan which is designed to lower net
acquisition costs of grocery, frozen and dairy product to retail

17
<PAGE>
customers while providing the company with a fair and adequate return. Further,
retail services have been unbundled and are now separately priced. Other
significant reengineering programs include the development and implementation of
VISIONET-TM-, a proprietary interactive electronic communication network for
retail customers, and the installation of a standard food distribution computer
operating system.

Although a significant number of reengineering initiatives have been
completed, much remains to be done. Completion dates are not yet known because
of the dependency on customer acceptance and the need to balance benefits and
costs.

Scrivner--In July 1994, the company purchased Scrivner for approximately
$390 million in cash and the assumption of $670 million of indebtedness while
refinancing approximately $340 million of its own debt. To finance the
transaction, the company entered into a $2.2 billion bank credit agreement, $500
million of which was refinanced with fixed and floating rate senior notes prior
to year end.

Because the company moved quickly and successfully to integrate Scrivner's
operations, it is difficult to estimate the impact Scrivner had on sales, gross
margins or earnings. Additionally, Scrivner's significant retail food presence
substantially increased the company's corporate owned retail stores from 139 at
mid-1994 to the then current count of approximately 345 (including 283
supermarkets). This dramatic increase in retail food operations not only added
to total sales, but also raised both gross margin and selling and administrative
expenses as retail food operations typically operate at higher levels in these
areas than do food distribution operations. Interest expense increased as a
result of increased borrowing levels due to the acquisition and higher interest
rates attributable in substantial part to lower credit ratings for the company's
long-term debt, going from $78 million in 1993 to $120 million in 1994 and $175
million in 1995 before falling to $163 million in 1996. Goodwill amortization
was $23.1 million in 1994, $30.1 million in 1995 and $32.0 million in 1996; the
increase was principally due to Scrivner.

Megafoods--In August 1994, Megafoods, Inc. and certain of its affiliates
("Megafoods" or "debtor"), filed Chapter 11 bankruptcy proceedings in Phoenix,
Arizona. The company estimates that prior to bankruptcy, annualized sales to
Megafoods approximated $335 million. By 1995, sales to Megafoods were
approximately $87 million and by 1996, there were no sales. The company filed
for claims for indebtedness for goods sold on open account, equipment leases and
secured loans totaling approximately $28 million and for substantial contingent
claims for store subleases and lease guarantees extended by the company for the
debtor's benefit. The company recorded losses resulting from deteriorating
collateral values of $6.5 million in 1994 and $3.5 million in 1995, and in 1996
recorded $5.8 million to reflect continuing deterioration and the effects of a
proposed settlement.

ABCO--At year-end 1994, the company was the largest single shareholder, the
major supplier and the second largest creditor of ABCO Markets, Inc. ("ABCO"), a
supermarket chain located in Arizona. By the fall of 1995, the company's
investments in, and loans to, ABCO totaled approximately $39 million. In
September 1995, ABCO defaulted on both its bank debt and its debt to the
company. The company exercised a protective stock warrant to gain an additional
3% of ABCO's capital stock and purchased the bank's preferred position for $21
million. In January 1996, the company foreclosed and acquired all of ABCO's
assets consisting of approximately 71 stores at the time of foreclosure. Certain
of ABCO minority shareholders have challenged this action and are seeking
recision and/or damages.

Litigation--In March 1996, a jury in central Texas returned verdicts against
the company in David's Supermarkets, Inc. v. Fleming ("David's") which resulted
in a judgment of $211 million. In response, the company sought and obtained an
amendment to its bank credit agreement to facilitate posting a partially
collateralized supersedeas bond. Pursuant to the amendment, pricing for
borrowing under the agreement was increased. The judgment was vacated in June
1996, and a new trial is currently scheduled to begin in May 1997.

During the third quarter of 1996, the company recorded a charge of $20
million to reflect an announced settlement agreement reached in an unrelated
lawsuit involving a failed grocery diverter, Premium Sales Corporation. See the
Litigation and Contingencies note to the consolidated financial statements for a
discussion of litigation and other contingent liability issues.

18
<PAGE>
The combination of these events has negatively affected the company's
financial performance during the past three years. While the company believes
the actions it has taken and is taking with respect to its reengineering
programs and flexible marketing plan will improve customer response, there can
be no doubt that the management reorganizations, facilities consolidations and
the introduction and early implementation of the initial version of the flexible
marketing plan adversely affected sales, diverted the company's focus from
prospecting for new customers, and increased general and administrative costs.
While the acquisition of Scrivner was a success, integrating so large an
operation diluted and delayed the execution of the company's reengineering
programs. The financial difficulties experienced by Megafoods and ABCO,
significant in themselves, offer additional evidence of the difficult
competitive environment facing both the company's customers and the company's
food distribution and retail food operations. Further, the company believes the
adverse publicity surrounding the litigation matters and the general uncertainty
regarding their ultimate resolution have had a negative impact on sales and
profitability. There can be no assurance that the company has or can overcome
these forces.

However, starting with the fourth quarter of 1995, a trend of improvement in
the company's adjusted earnings per share began to develop reflecting some
success in countering the negative impact of the events outlined above. After
adjusting for litigation charges, charges for the disposition of retail food
operations and other nonoperating items, adjusted earnings per share for the
past eight quarters were as follows:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
First quarter............................................... $ .40 $ .25
Second quarter.............................................. $ .39 $ .30
Third quarter............................................... $ .10 $ .19
Fourth quarter.............................................. $ .11 $ .27
</TABLE>

RESULTS OF OPERATIONS

Set forth in the following table is information regarding the company's net
sales and certain components of earnings expressed as a percent of sales which
are referred to in the accompanying discussion:

<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net sales..................................................................... 100.00% 100.00% 100.00%
Gross margin.................................................................. 8.99 8.06 7.14
Less:
Selling and administrative.................................................... 7.73 6.79 5.93
Interest expense.............................................................. .99 1.00 .77
Interest income............................................................... (.29) (.33) (.36)
Equity investment results..................................................... .11 .16 .09
Litigation settlement......................................................... .12 -- --
Facilities consolidation...................................................... -- (.05) --
Total......................................................................... 8.66 7.57 6.43
Earnings before taxes......................................................... 0.33 0.49 0.71
Taxes on income............................................................... 0.17 0.25 0.35
Net earnings.................................................................. 0.16% 0.24% 0.36%
</TABLE>

Note: 1994 was a 53-week year. The results of Scrivner are included beginning
the third quarter of 1994 and the consolidated results of ABCO are included
beginning December 1995.

1996 AND 1995

NET SALES. Sales for 1996 decreased by $1.01 billion, or 6%, to $16.49
billion from $17.50 billion for 1995. In addition to the factors mentioned
above, several other factors, none of which are individually material to sales,
adversely affected sales in 1996, including: loss of market share at certain
company-

19
<PAGE>
owned retail stores; the sale or closing of 62 corporate stores; stricter credit
policies; and a reduced amount of new business caused by the adverse publicity
surrounding the David's litigation. See "Litigation and Contingencies".

The company measures inflation using data derived from the average cost of a
ton of product sold by the company. For 1996, food price inflation was 2.3%,
compared to 1.3% in 1995.

GROSS MARGIN. Gross margin for 1996 increased by $71 million, or 5%, to
$1.48 billion from $1.41 billion for 1995 and increased as a percentage of net
sales to 8.99% from 8.06% for 1995. The increase in gross margin was principally
due to new retail operations, primarily the addition of ABCO. Retail operations
typically have a higher gross margin and higher selling and administrative
expenses than food distribution operations. During 1996, the company also
implemented increases in certain charges to its customers and vendors,
increasing gross margin comparisons to 1995. Product handling expenses,
consisting of warehouse, transportation and building expenses, were lower as a
percentage of net sales in 1996 compared to 1995, reflecting the cost controls
and the benefits of the company's facility consolidations and transportation
outsourcing efforts in 1995 and 1994. The company also achieved food
distribution productivity increases during 1996 of 2.6%. Food price inflation
resulted in a LIFO charge in 1996 of $6.0 million compared to a charge of $2.9
million for 1995.

SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
for 1996 increased by $85 million, or 7%, to $1.27 billion from $1.19 billion
for 1995 and increased as a percentage of net sales to 7.73% for 1996 from 6.79%
in 1995. The increase was principally due to: higher retail expenses resulting
from additional retail operations; a $12 million charge related to the
divestiture of retail stores; and higher legal expense in 1996 compared to 1995.
During 1996, a $1.6 million gain from the sale of certain notes receivable was
recorded; a similar gain of $3.9 million was recorded in 1995. The increase in
Corporate expenses under Operating Earnings shown in "Segment Information" in
the notes to consolidated financial statements include the aforementioned
increase in legal expense, a write-down of certain international equity
investments and increased incentive compensation expense.

The company has a significant amount of credit extended to certain customers
through various methods. These methods include customary and extended credit
terms for inventory purchases, secured loans with terms generally up to ten
years, and equity investments in and secured and unsecured loans to certain
customers. In addition, the company guarantees debt and lease obligations of
certain qualified customers.

Credit loss expense is included in selling and administrative expenses and
for 1996 decreased by $4 million to $27 million from $31 million for 1995. Since
1994, tighter credit practices and reduced emphasis on credit extensions to and
investments in customers have resulted in less exposure and a decrease in credit
loss expense. Offsetting the decreases in 1996 from 1995 was $3.8 million of
credit losses related to the bankruptcy of Megafoods, reflecting the estimated
deterioration in the company's collateral. An additional $2.0 million was
recorded to selling and administrative expense, but not credit loss, during the
third quarter of 1996 for the expected loss on the proposed settlement. See
"Litigation and Contingencies".

INTEREST EXPENSE. Interest expense for 1996 decreased $12 million to $163
million from $175 million for 1995. Lower average borrowing levels offset in
part by higher borrowing costs for bank debt in 1996 compared to 1995 primarily
accounted for the improvement. In February and April 1996, the company amended
its bank credit agreement first to provide greater financing flexibility and
subsequently to increase the company's capacity for letters of credit in order
to partially secure a supersedeas bond in connection with the David's
litigation. These amendments effectively increased the company's bank debt
borrowing margin by almost .5%. In August 1996, Moody's Investors Service
("Moody's") lowered its credit ratings on the company's senior unsecured debt to
Ba3 from Ba1. The downgrade resulted in a .25% increase in the company's bank
debt borrowing margin which increased interest expense on borrowing

20
<PAGE>
under the bank credit agreement at an estimated annualized cost of $2 million.
Moody's rating on the company's bank debt is currently Ba2.

In September 1996, Standard & Poor's Ratings Group ("Standard & Poor's")
lowered its credit ratings on the company to BB from BB+, and on the company's
senior unsecured debt to B+ from BB-. The downgrade did not result in an
additional increase in the company's bank debt borrowing margin.

The company's derivative agreements consist of simple "floating-to-fixed
rate" interest rate caps and swaps. For 1996, interest rate hedge agreements
contributed $10 million of interest expense, compared to $7 million in 1995, due
to lower average floating interest rates.

The company enters into interest rate hedge agreements to manage interest
costs and exposure to changing interest rates. The credit agreement with the
company's bank group requires the company to provide interest rate protection on
a substantial portion of the indebtedness outstanding thereunder. The company
has entered into interest rate swaps and caps covering $850 million aggregate
principal amount of floating rate indebtedness. The company's hedged position
exceeds the hedge requirements set forth in the company's bank credit agreement.

The stated interest rate on the company's floating rate indebtedness is
equal to the London interbank offered interest rate ("LIBOR") plus a margin. The
average fixed interest rate paid by the company on the interest rate swaps was
6.95%, covering $600 million of floating rate indebtedness. The interest rate
swap agreements, which were implemented through six counterparty banks and at
year-end 1996 have an average remaining life of two years, provide for the
company to receive substantially the same LIBOR that the company pays on its
floating rate indebtedness. For the remaining $250 million, the company has
purchased interest rate cap agreements from two counterparty banks. The
agreements cap LIBOR at 7.33% over the next 2 years. Payments made or received
under interest rate swap and cap agreements are included in interest expense.

With respect to the interest rate hedge agreements, the company believes its
exposure to potential loss due to counterparty nonperformance is minimized
primarily due to the relatively strong credit ratings of the counterparty banks
for their unsecured long-term debt (A- or higher from Standard & Poor's and A1
or higher from Moody's) and the size and diversity of the counterparty banks.
The hedge agreements are subject to market risk to the extent that market
interest rates for similar instruments decrease and the company terminates the
hedges prior to maturity. See "Long-Term Debt" in the notes to consolidated
financial statements for further discussion.

INTEREST INCOME. Interest income for 1996 was $49 million compared to $58
million in 1995. In 1996, the company sold (with limited recourse) $35 million
of notes receivable late in the third quarter. In 1995, $77 million of notes
receivable were sold with limited recourse in the second quarter. Both of these
sales reduced the amount of notes receivable available to produce interest
income.

EQUITY INVESTMENT RESULTS. The company's portion of operating losses from
equity investments for 1996 decreased by $9 million to $18 million from $27
million for 1995. The results of operations of ABCO, accounted for under the
equity method during most of 1995, are not included in 1996 equity investment
results due to the acquisition of ABCO. This resulted in an improvement in
equity investment results in 1996 compared to 1995. The remainder of the
improvement is due to improved results of operations in certain of the
underlying equity investment entities.

FACILITIES CONSOLIDATION. In the first quarter of 1995, management changed
its facilities consolidation estimates with respect to the general merchandising
operations portion of the consolidation, reorganization and reengineering plan.
The revised estimate reflected reduced expense and cash outflow. Accordingly,
during the first quarter of 1995, the company reversed $9 million of the
provision for facilities consolidation. No changes were made to the estimates in
1996.

21
<PAGE>
In 1993, the company recorded a $108 million facilities consolidation and
restructuring charge. During 1996, $3 million of restructuring and consolidation
costs were charged to the related reserve, compared to $24 million in 1995,
reflecting the lower level of activity occurring in 1996. Additional charges to
the $18 million of remaining reserves are anticipated in 1997, although the
amount is not yet known.

TAXES ON INCOME. The effective tax rate for both 1996 and 1995 was 51.1%.

CERTAIN ACCOUNTING MATTERS. See notes to consolidated financial statements
for a discussion of new accounting standards adopted in 1996, none of which had
a material effect on results of operations or financial position.

OTHER. Several factors negatively affecting cash flows from operations and
earnings in 1996 are likely to continue for the near term. Management believes
that these factors include lower sales, operating losses in certain
company-owned retail stores and litigation-related costs.

1995 AND 1994

NET SALES. Net sales for 1995 increased by $1.78 billion, or 11%, to $17.50
billion from $15.72 billion for 1994. Notwithstanding the positive effects of
the Scrivner acquisition in the third quarter of 1994, net sales in 1995 were
adversely impacted by the combined effects of the organization and operational
changes introduced in 1995. In addition, several other factors, none of which
were individually material to sales, adversely affected sales in 1995,
including: sales lost to normal attrition which were not replaced; the loss of
business from Megafoods; the closing or sale of certain corporate stores; and
the expiration of a temporary sales agreement with Albertson's Inc. as its
Florida distribution center came on line. The company's tighter credit policies
also had a negative effect on generating replacement sales.

Fleming measures inflation using data derived from the average cost of a ton
of product sold by the company. Food price inflation was 1.3% in 1995 compared
to a negligible rate in 1994.

GROSS MARGIN. Gross margin for 1995 increased by $288 million, or 26%, to
$1.41 billion from $1.12 billion for 1994 and increased as a percentage of net
sales to 8.06% for 1995 from 7.14% for 1994. The primary reason for the increase
was additional retail operations, principally related to the Scrivner
acquisition, which typically have a higher gross margin than food distribution.
Product handling expenses, which consist of warehouse, truck and building
expenses, was approximately the same as a percentage of net sales in 1995 as in
1994. In food distribution, reduced vendor income due to the accelerated trend
to Every Day Low Costing ("EDLC") negatively impacted gross margin and certain
other margin items that are passed through to customers under the Flexible
Marketing Plan. This gross margin impact was only partially offset by increases
in related charges to customers.

SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense for
1995 increased by $257 million, or 28%, to $1.19 billion from $933 million for
1994 and increased as a percentage of net sales to 6.79% for 1995 from 5.93% in
1994. Retail operations typically have higher selling and administrative
expenses than food distribution operations and the full year of retail acquired
from Scrivner was the primary reason for the increase. Goodwill amortization
also increased as a result of the acquisition. In addition, the
technology-related aspects of the various reengineering initiatives resulted in
an increase in expense. The increase in corporate expenses under Operating
Earnings shown in "Segment Information" in the notes to consolidated financial
statements is the result of these reengineering initiatives.

Credit loss expense included in selling and administrative expenses
decreased in 1995 by $30 million to $31 million from $61 million for 1994.
Tighter credit practices and reduced emphasis on credit extensions to and
investments in customers resulted in less exposure and a decrease in credit loss
expense.

INTEREST EXPENSE. Interest expense for 1995 increased $55 million to $175
million from $120 million for 1994. The increase was due principally to higher
borrowing due to the Scrivner acquisition, higher

22
<PAGE>
interest rates in the capital and credit markets, and an increase in the
interest rates for the company resulting from changes in the company's credit
rating brought about by increased leverage due to the acquisition and
disappointing performance. Interest rates are fixed on the majority of the
company's debt as a result of hedges.

See "Long-Term Debt" in the notes to consolidated financial statements for
further discussion of the company's derivative agreements, which consist of
simple interest rate caps and swaps. For 1995, the interest rate hedge
agreements contributed $7 million of interest expense, compared to $6 million in
1994.

INTEREST INCOME. Interest income for 1995 increased by $1 million to $58
million from $57 million for 1994. Increases in interest income resulting from
earnings on the notes receivable acquired in the Scrivner loan portfolio were
nearly offset by the June 1995 sale of $77 million of notes receivable with
limited recourse. The sale reduced the amount of notes receivable available to
produce interest income during 1995.

EQUITY INVESTMENT RESULTS. The company's portion of operating losses from
equity investments for 1995 increased by $12 million to $27 million from $15
million for 1994. Certain of the strategic multi-store customers in which the
company has made equity investments under its joint venture program experienced
increased losses when compared to 1994. Additionally, losses from retail stores
which are part of the company's equity store program and are accounted for under
the equity method also increased.

At the end of 1995 with the acquisition of a majority equity position in
ABCO, the company began to consolidate the results of operations and the
financial position of ABCO. In early 1996, the company acquired all the assets
of ABCO through foreclosure in cancellation of $66 million of ABCO indebtedness
to the company.

FACILITIES CONSOLIDATION. In the first quarter of 1995, management changed
its estimates with respect to the general merchandising operations portion of
the reengineering plan. The revised estimate reflects reduced expense and cash
outflow. Accordingly, during the first quarter the company reversed $9 million
of the related provision.

TAXES ON INCOME. The company's effective tax rate for 1995 increased to
51.1% from 50.0% for 1994. The increase was primarily due to increased goodwill
amortization with no related tax deduction, operations in states with higher tax
rates and the significance of certain other nondeductible expenses to pretax
earnings.

LIQUIDITY AND CAPITAL RESOURCES

During 1996, the company continued to reduce long-term debt incurred in
connection with the 1994 acquisition of Scrivner and reduced long-term debt by
$186 million. This level of prepayment exceeded required repayments by $132
million. Set forth below is certain information regarding the company's capital
structure at the end of 1996:

<TABLE>
<CAPTION>
CAPITAL STRUCTURE
----------------------------------------------
1996 1995
---------------------- ----------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Long-term debt........................................................... $ 1,216 45.5% $ 1,402 48.8%
Capital lease obligations................................................ 381 14.2 388 13.5

Total debt............................................................... 1,597 59.7 1,790 62.3
Shareholders' equity..................................................... 1,076 40.3 1,083 37.7
--------- ----- --------- -----

Total capital............................................................ $ 2,673 100.0% $ 2,873 100.0%
--------- ----- --------- -----
--------- ----- --------- -----
</TABLE>

Note: The above table includes current maturities of long-term debt and current
obligations under capital leases.

23
<PAGE>
Operating activities generated $328 million of net cash flows for 1996
compared to $399 million in 1995. The decrease was principally due to the
Premium litigation settlement and a decrease in accounts payable that was
primarily caused by the company's inventory reduction efforts. Working capital
was $221 million at year end, a decrease from $364 million at year-end 1995. The
current ratio decreased to 1.16 to 1, from 1.28 to 1 at year-end 1995.
Management believes that cash flows from operating activities and the company's
ability to borrow under the credit agreement will be adequate to meet working
capital needs, capital expenditures and other cash needs for the foreseeable
future. However, the company's future cash flow from operating activities is
likely to be negatively impacted by certain factors discussed in "Results of
Operations--Other". Furthermore, in the event an unfavorable outcome in one or
more contingent matters referred to in "Litigation and Contingencies" produces a
material adverse effect on the company, or an increase in the likelihood of such
an outcome, the company's access to capital under its bank credit agreement
could be impeded or the company's debt obligations accelerated. In such event,
the company could be forced to seek replacement capital which might not be
available on acceptable terms.

In pursuit of the company's stated goal of reducing the ratio of debt to
equity, the company may seek to sell assets or equity securities and apply the
proceeds to early debt reduction. Additionally, scheduled amortization of the
company's long-term debt obligations requires principal reductions of
approximately $233 million in 1999, $175 million in 2000 and $501 million in
2001. If anticipated net cash flows from operations appear to be insufficient to
satisfy these obligations, the company may seek to liquidate assets, issue
additional debt or equity, or otherwise refinance such obligations.

The company's current capital structure includes bank loans under the
company's bank credit agreement which consists of a $591 million amortizing term
loan with final maturity of June 2000 and a $596 million revolving credit
facility with final maturity of July 1999. Other components of the company's
capital structure consist of $300 million of 10.625% seven-year senior notes,
$200 million of floating rate seven-year senior notes, each of which matures in
December 2001, $99 million of medium-term notes and $6 million of other debt.

The company's principal sources of liquidity are cash flows from operating
activities and borrowings under its bank credit agreement. At year-end 1996,
$591 million was borrowed on the amortizing term loan facility, $92 million of
letters of credit had been issued (reducing bank credit capacity on a
dollar-for-dollar basis) and $20 million was borrowed under the $596 million
revolving credit facility of the bank credit agreement. During 1996, the bank
credit agreement was amended to change certain of the financial covenant
measures reflecting more current business results and conditions and to enable
the company to pursue an appeal of the initial judgment rendered in the David's
litigation. See "Litigation and Contingencies". The more significant provisions
of the amendments increased the amount of allowable letters of credit, reduced
the dividend limit to $.08 per share per quarter, reduced the amount of
permitted capital expenditures, excluded certain litigation costs and noncash
charges from the calculations for certain financial covenants, and adjusted the
borrowing margin, facility and commitment fees, all of which increased the cost
of bank debt for the company.

Borrowings under the credit agreement are guaranteed by substantially all of
the company's subsidiaries and are secured by the company's accounts receivable,
inventories and a pledge of the stock of the subsidiary guarantors. The company
also pledged intercompany receivables as security for its medium-term notes and
to provide guarantees from the subsidiary guarantors. Additionally, the company
has provided guarantees from the subsidiary guarantors in favor of the $500
million senior notes maturing in December 2001.

24
<PAGE>
The bank credit agreement and the indentures for the senior notes contain
customary covenants associated with similar facilities. The bank credit
agreement currently contains the following more significant financial covenants:
maintenance of a consolidated debt-to-net worth ratio of not more than 2.25 to
1; maintenance of a minimum consolidated net worth of at least $903 million;
maintenance of a fixed charge coverage ratio of at least 1.1 to 1; a limitation
on dividend payments of $.08 per share, per quarter; and limitations on capital
expenditures. Covenants associated with the senior notes are generally less
restrictive than those of the bank credit agreement.

At year-end 1996, the company would have been allowed to borrow an
additional $484 million under the company's revolving credit facility contained
in the bank credit agreement. Under the company's most restrictive borrowing
covenant, which is the fixed charge coverage ratio, $55 million of additional
fixed charges could have been incurred. The company is currently in compliance
with all financial covenants under the bank credit agreement and senior notes.
Continued compliance will depend on the company's ability to generate sufficient
earnings and cash flow and on the outcome of certain litigation matters. See
"Litigation and Contingencies".

The company's senior unsecured debt is rated Ba3 by Moody's and B+ by
Standard & Poor's. In addition, the company has a corporate rating of BB by
Standard & Poor's and the company's bank debt is rated Ba2 by Moody's. The
rating by Moody's reflects a downgrade announced in August 1996. Moody's action
resulted from their announced concerns over structural changes in the industry
and lower sales, earnings and cash flow reported by the company. The rating by
Standard & Poor's reflects a downgrade announced in September 1996. Standard &
Poor's action resulted from its announced concerns over lower than anticipated
operating results and continuing difficulties with the implementation of the
company's reengineering program. Pricing under the bank credit agreement
automatically increases or decreases with respect to certain credit rating
declines or improvements, respectively, based upon Moody's and Standard & Poor's
ratings of the company's senior unsecured debt.

The credit agreement may be terminated in the event of a defined change of
control. Under the indentures for the senior notes, the note holders may require
the company to repurchase the notes in the event of a defined change of control
coupled with a defined decline in credit ratings.

At year-end 1996, the company had a total of $96 million of contingent
obligations under undrawn letters of credit (including $92 million issued under
the bank credit agreement), primarily related to insurance reserves associated
with its normal risk management activities. To the extent that any of these
letters of credit would be drawn, payments would be financed by borrowing under
the credit agreement.

Capital expenditures for 1996 were approximately $129 million compared to
approximately $114 million in 1995. The $15 million increase from the prior year
is due to a higher level of company-owned retail store expansion and remodel
activity. Management expects that 1997 capital expenditures, excluding
acquisitions, if any, will approximate $145 million.

The company makes investments in and loans to certain retail customers. Net
investments and loans decreased $74 million, from $314 million to $240 million
due primarily to the sale of notes and more restrictive credit policies. In 1996
and 1995, the company sold $35 million and $77 million of notes, respectively,
and may sell additional notes in the future.

Long-term debt and capital lease obligations decreased $193 million to $1.6
billion during 1996 as a result of: reduced working capital requirements and
retailer financing; continued sale of notes, other assets and operations.
Shareholders' equity at the end of 1996 was $1.1 billion which is essentially
unchanged from year-end 1995.

The debt-to-capital ratio at the end of 1996 was 59.7%, a decrease from
year-end 1995, because cash flows available for debt repayment exceeded the
original scheduled maturities of $73 million. The company's long-term target
ratio is between 50% to 55%. Total capital was $2.7 billion at year-end 1996,

25
<PAGE>
lower than at year-end 1995 due to lower total debt outstanding and due to a
decrease in shareholders' equity for an additional pension liability.

The composite interest rate for total funded debt (excluding capital lease
obligations) before the effect of interest rate hedges was 8.3% at year-end
1996, versus 7.8% in 1995. Including the effect of interest rate hedges, the
composite interest rate of debt was 8.9% and 8.4% at the end of 1996 and 1995,
respectively.

Dividend payments in 1996 were $.36 per share or 50% of net earnings per
share, compared to $1.20 per share or 107% of net earnings per share in 1995.
One of the bank credit agreement amendments in 1996 limits dividends per share
to no more than $.08 per share per quarter.

LITIGATION AND CONTINGENCIES

From time to time the company faces litigation or other contingent loss
situations resulting from owning and operating its assets, conducting its
business or complying (or allegedly failing to comply) with federal, state and
local rules, regulations, ordinances and laws which may subject the company to
material contin-gent liabilities. In accordance with applicable accounting
standards, the company records as a liability amounts reflecting such exposure
when a loss is deemed by management to be both "probable" and "quantifiable" or
"reasonably estimable."

During 1996, certain losses associated with litigation matters (excluding
the company's legal fees and other costs) were recorded as follows:

Premium: In the third quarter of 1996, an agreement was reached to
settle two related lawsuits pending against the company, and others, in the
U.S. District Court in Miami related to a failed grocery diverter, Premium
Sales Corporation. Under the agreement, all claims will be dismissed in
exchange for a $19.5 million payment plus $500,000 for costs and expenses.
The company recorded a charge of $20 million during the third quarter of
1996 in anticipation of the settlement and deposited that amount into an
escrow account in December pending finalization. The settlement is subject
to, among other conditions, court approval and receipt by the company of
releases from investors (including those who might not be bound by the
settlement). The company has the right to withdraw the escrowed funds and
terminate the settlement if such conditions are not met. As of the date of
the financial statements, non-released claims held by investors who would
not otherwise be bound by the settlement were estimated to be substantial.
In the event the settlement is not consummated, the company expects the
litigation will resume.

David's: Based on the vacation of the judgment entered against the
company in the David's litigation, the charge recorded during the first
quarter of 1996 of approximately $7 million was reversed during the second
quarter. Although the company denies any liability or wrongdoing, the
company has been unable to document that prices paid by the plaintiff for a
small amount of product during the three years in question conformed to the
terms of plaintiff's agreement with the company. Accordingly, during the
second quarter of 1996, the company recorded a charge of approximately
$650,000, which includes approximately $200,000 of disputed overcharges and
approximately $450,000 of interest, fees and other sums. During the third
and fourth quarters, an additional $14,000 per quarter was recorded as
additional interest.

Megafoods: In August 1996, the court approved a settlement of both the
debtor's adversary proceeding against the company and the company's disputed
claims in the bankruptcy proceedings of a former customer and certain of its
affiliates ("Megafoods"). The settlement is subject to approval by the
creditors of a revised plan which will encompass the settlement. Under the
terms of the settlement, the company will retain the $12 million working
capital deposit, relinquish its secured and unsecured claims in exchange for
the right to receive 10% of distributions, if any, made to the unsecured
creditors and pay the debtor $2.5 million in exchange for the furniture,
fixtures and

26
<PAGE>
equipment from 17 of its stores (located primarily in Texas) and two Texas
warehouses. The company agreed to lease to the reorganized debtor the
furniture, fixtures and equipment in 14 of the stores for nine years (or
until, in each case, the expiration of the store lease) at an annual rental
of $18,000 per store.

In October 1996, the debtor announced an agreement to sell its 16
Phoenix stores to a local retail grocery chain for net proceeds of
approximately $22 million. In January 1997, the debtor filed a joint
liquidating plan which incorporates the settlement. While there are apparent
inconsistencies between the liquidating plan and the settlement agreement,
the company expects that the economics of the settlement will remain
essentially unchanged.

The company recorded charges of $6.5 million in 1994, $3.5 million in
1995 and $5.8 million in 1996. The company remains exposed to contingent
liabilities for stores subleased by the company to Megafoods and for certain
leasehold guarantees extended by the company to third parties on Megafoods'
behalf. If the settlement is consummated, the company will make an
additional payment of $2.5 million to the debtor's estate. Net assets
recorded related to Megafoods at year-end 1996 approximate $2.8 million.

In addition, the company discloses material loss contingencies in the notes
to its financial statements when the likelihood of a material loss has been
determined to be greater than "remote" but less than "probable." Such contingent
matters are discussed in the "Litigation and Contingencies" note to the
consolidated financial statements, which appear elsewhere, and are incorporated
by reference, herein. Also see Part I., Item 3. Legal Proceedings of the
company's Annual Report on Form 10-K for the fiscal year ended December 28,
1996. An adverse outcome experienced in one or more of such matters, or an
increase in the likelihood of such an outcome, could have a material adverse
effect on the company's business, results of operations, cash flow, capital,
access to capital or financial condition.

FORWARD-LOOKING INFORMATION

This annual report contains forward-looking statements of expected future
developments. The company wishes to ensure that such statements are accompanied
by meaningful cautionary statements pursuant to the safe harbor established in
the Private Securities Litigation Reform Act of 1995. The forward-looking
statements in the annual report refer to, among other matters: the company's
ability to implement measures to reverse sales declines, cut costs and improve
earnings; the company's ability to expand portions of its business or enter new
facets of its business which it believes will be more profitable than its food
distribution business; the company's expectations regarding the adequacy of
capital and liquidity; and the receptiveness of the company's customers to its
reengineered programs. These forward-looking statements reflect management's
expectations and are based upon currently available data; however, actual
results are subject to future events and uncertainties which could materially
impact actual performance. The company's future performance also involves a
number of risks and uncertainties. Among the factors that can cause actual
performance to differ materially are: continued competitive pressures with
respect to pricing and the implementation of the company's reengineering
programs, the inability to achieve cost savings due to unexpected developments,
changed plans regarding capital expenditures, adverse developments with respect
to litigation and contingency matters, world and national economic conditions,
and the impact of such conditions on consumer spending.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Part IV, Item 14(a) 1. Financial Statements.

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

None.

27
<PAGE>
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Incorporated herein by reference to pages 4 through 6 of the company's proxy
statement dated March 18, 1997, in connection with its annual meeting of
shareholders to be held on April 30, 1997. Information concerning Executive
Officers of the company is included in Part I herein which is incorporated in
this Part III by reference.

ITEM 11. EXECUTIVE COMPENSATION

Incorporated herein by reference to pages 12 through 23 of the company's
proxy statement dated March 18, 1997, in connection with its annual meeting of
shareholders to be held on April 30, 1997.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated herein by reference to page 9 through 11 of the company's proxy
statement dated March 18, 1997, in connection with its annual meeting of
shareholders to be held on April 30, 1997.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated herein by reference to page 23 of the company's proxy statement
dated March 18, 1997, in connection with its annual meeting of shareholders to
be held on April 30, 1997.

28
<PAGE>
PART IV

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

(a) 1. Financial Statements:

<TABLE>
<CAPTION>
PAGE NUMBER
-----------------

<S> <C>
- - Consolidated Statements of Earnings--For the years ended December 28, 1996, December
30, 1995, and December 31, 1994

- - Consolidated Balance Sheets--At December 28, 1996, and December 30, 1995

- - Consolidated Statements of Shareholders' Equity--For the years ended December 28,
1996, December 30, 1995, and December 31, 1994

- - Consolidated Statements of Cash Flows--For the years ended December 28, 1996,
December 30, 1995, and December 31, 1994

- - Notes to Consolidated Financial Statements--For the years ended December 28, 1996,
December 30, 1995, and December 31, 1994

- - Independent Auditors' Report

- - Quarterly Financial Information (Unaudited)
</TABLE>

(a) 2. Financial Statement Schedule:

Schedule II--Valuation and Qualifying Accounts

(a) 3. (c) Exhibits:

<TABLE>
<CAPTION>
EXHIBIT PAGE NUMBER OR INCORPORATION
NUMBER BY REFERENCE TO
- ---------- -----------------------------

<C> <S> <C>
3.1 Certificate of Incorporation Exhibit 4.1 to Form S-8 dated
September 3, 1996

3.2 By-Laws Exhibit 4.2 to Form S-8 dated
September 3, 1996

4.0 Credit Agreement, dated as of July 19, 1994, among Exhibit 4.0 to Form 8-K dated
Fleming Companies, Inc., the Banks listed therein and July 19, 1994
Morgan Guaranty Trust Company of New York, as Managing
Agent

4.1 Pledge Agreement, dated as of July 19, 1994, among Exhibit 4.1 to Form 8-K dated
Fleming Companies, Inc. and Morgan Guaranty Trust Company July 19, 1994
of New York, as Collateral Agent

4.2 Security Agreement dated as of July 19, 1994, between Exhibit 4.2 to Form 8-K dated
Fleming Companies, Inc. in favor of Morgan Guaranty Trust July 19, 1994
Company of New York, as Collateral Agent

4.3 Amendment No. 1 to Credit Agreement, dated as of July 21, Exhibit 4.3 to Form 8-K dated
1994 July 19, 1994

4.4 Amendment No. 2 to Credit Agreement dated as of November Exhibit 4.4 to Form 10-K for
14, 1994 year ended December 31, 1994
</TABLE>

29
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE NUMBER OR INCORPORATION
NUMBER BY REFERENCE TO
- ---------- -----------------------------
4.5 Amendment No. 3 to Credit Agreement dated as of June 30, Exhibit 4.5 to Form 10-K for
1995 year ended December 30, 1995
<C> <S> <C>

4.6 Amendment No. 4 to Credit Agreement dated as of February Exhibit 4.6 to Form 10-K for
15, 1996 year ended December 30, 1995

4.7 Waiver to Credit Agreement dated as of April 1, 1996 Exhibit 4.14 to Form 10-K for
year ended December 30, 1995

4.8 Amendment No. 5 to Credit Agreement dated as of April 4, Exhibit 4.15 to Form 10-K for
1996 year ended December 30, 1995

4.9 Amendment No. 6 to Credit Agreement dated as of October Exhibit 4.0 to Form 10-Q for
21, 1996 quarter ended October 5, 1996

4.10 Indenture dated as of December 1, 1989, between the Exhibit 4 to Registration
Registrant and Morgan Guaranty Trust Company of New York, Statement No. 33-29633
as trustee

4.11 Indenture dated as of December 15, 1994, between the Exhibit 4.9 to Form 10-K for
Registrant, Subsidiary Guarantors and Texas Commerce Bank year ended December 31, 1994
National Association, as Trustee, regarding $300 million
of 10 5/8% Senior Notes

4.12 Indenture dated as of December 15, 1994, between the Exhibit 4.10 to Form 10-K for
Registrant, Subsidiary Guarantors and the Texas Commerce year ended December 31, 1994
Bank National Association, as Trustee, regarding $200
million of Floating Rate Senior Notes

4.13 Rights Agreement dated as of February 27, 1996 between Exhibit 4.0 to Form 8-K dated
Fleming Companies, Inc. And Liberty Bank and Trust February 27, 1996
Company of Oklahoma City, N. A. Effective as of the close
of business on July 6, 1996

4.14 First Amendment to Rights Agreement

4.15 Agreement to furnish copies of other long-term debt
instruments

10.0 Dividend Reinvestment and Stock Purchase Plan, as amended Exhibit 28.1 to Registration
Statement No. 33-26648 and
Exhibit 28.3 to Registration
Statement No. 33-45190

10.1* 1985 Stock Option Plan Exhibit 28(a) to Registration
Statement No. 2-98602
</TABLE>

30
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE NUMBER OR INCORPORATION
NUMBER BY REFERENCE TO
- ---------- -----------------------------
10.2* Form of Award Agreement for 1985 Stock Option Plan (1994) Exhibit 10.6 to Form 10-K for
year ended December 25, 1993
<C> <S> <C>

10.3* 1990 Stock Option Plan Exhibit 28.2 to Registration
Statement No. 33-36586

10.4* Form of Award Agreement for 1990 Stock Option Plan (1994) Exhibit 10.8 to Form 10-K for
year ended December 25, 1993

10.5* Fleming Management Incentive Compensation Plan Exhibit 10.4 to Registration
Statement No. 33-51312

10.6* Directors' Deferred Compensation Plan Exhibit 10.5 to Registration
Statement No. 33-51312

10.7* Amended and Restated Supplemental Retirement Plan Exhibit 10.10 to Form 10-K
for year ended December 31,
1994

10.8* Form of Amended and Restated Supplemental Retirement Exhibit 10.11 to Form 10-K
Income Agreement for year ended December 31,
1994

10.9* Godfrey Company 1984 Non-qualified Stock Option Plan Appendix II to Registration
Statement No. 33-18867

10.10* Form of Amended and Restated Severance Agreement between Exhibit 10.13 to Form 10-K
the Registrant and certain of its officers for year ended December 31,
1994

10.11* Fleming Companies, Inc. 1990 Stock Incentive Plan dated Exhibit B to Proxy Statement
February 20, 1990 for year ended December 30,
1989

10.12* Fleming Companies, Inc. 1996 Stock Incentive Plan dated Exhibit A to Proxy Statement
February 27, 1996 for year ended December 30,
1995

10.13* Phase I of Fleming Companies, Inc. Stock Incentive Plan Exhibit 10.16 to Form 10-K
and Form of Awards Agreement for year ended December 30,
1989
</TABLE>

31
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE NUMBER OR INCORPORATION
NUMBER BY REFERENCE TO
- ---------- -----------------------------
10.14* Phase II of Fleming Companies, Inc. Stock Incentive Plan Exhibit 10.12 to Form 10-K
for year ended December 26,
1992
<C> <S> <C>

10.15* Phase III of Fleming Companies, Inc. Stock Incentive Plan Exhibit 10.17 to Form 10-K
for year ended December 25,
1993

10.16* Amendment No. 1 to the Fleming Companies, Inc 1996 Stock
Incentive Plan

10.17* Fleming Companies, Inc. Directors' Stock Equivalent Plan Exhibit 10.14 to Form 10-K
for year ended December 28,
1991

10.18* Supplemental Income Trust Exhibit 10.20 to Form 10-K
for year ended December 31,
1994

10.19* First Amendment to Fleming Companies, Inc. Supplemental
Income Trust

10.20* Form of Employment Agreement between Registrant and Exhibit 10.20 to Form 10-K
certain of the employees for year ended December 31,
1994

10.21* Economic Value Added Incentive Bonus Plan Exhibit A to Proxy Statement
for year ended December 31,
1994

10.22* Agreement between the Registrant and William J. Dowd Exhibit 10.24 to Form 10-K
for year ended December 30,
1995

10.23* Amended and Restated Supplemental Retirement Income
Agreement for Robert E. Stauth

10.24* Supplemental Retirement Income Agreement of Fleming
Companies, Inc. And William J. Dowd

12 Computation of ratio of earnings to fixed charges

21 Subsidiaries of the Registrant
</TABLE>

32
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE NUMBER OR INCORPORATION
NUMBER BY REFERENCE TO
- ---------- -----------------------------
23 Consent of Deloitte & Touche LLP
<C> <S> <C>

24 Power of attorney instruments signed by certain directors
and officers of the Registrant appointing Harry L. Winn,
Jr., Executive Vice President and Chief Financial
Officer, as attorney-in-fact and agent to sign the Annual
Report on Form 10-K on behalf of said directors and
officers

27 Financial Data Schedule
</TABLE>

* Management contract, compensatory plan or arrangement.

(b) Reports on Form 8-K:

Registrant filed under Item 5. dated February 28, 1997 disclosing that a
significant customer had filed suit against the registrant and certain officers
and an employee of the registrant in New Mexico claiming it has been overcharged
for products under its supply agreement and alleges various causes of action,
among them breach of contract, misrepresentation, fraud and violation of certain
of New Mexico's trade practice statutes. The customer seeks an unspecified
monetary award, including punitive and treble damages, and a declaratory
judgment terminating the supply agreement.

33
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Fleming has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 20th day of March
1997.

<TABLE>
<S> <C> <C>
FLEMING COMPANIES, INC.

By: /s/ ROBERT E. STAUTH
-----------------------------------------
Robert E. Stauth
CHAIRMAN AND
CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)

By: /s/ HARRY L. WINN, JR.
-----------------------------------------
Harry L. Winn, Jr
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)

By: /s/ KEVIN J. TWOMEY
-----------------------------------------
Kevin J. Twomey
VICE PRESIDENT--CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
</TABLE>

34
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 20th day of March 1997.

<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------------------------------ ---------------------------------
<C> <S> <C>

/s/ ROBERT E. STAUTH
------------------------------------------- (Chairman of the Board)
Robert E. Stauth

/s/ CAROL B. HALLETT*
------------------------------------------- (Director)
Carol B. Hallett

/s/ EDWARD C. JOULLIAN III*
------------------------------------------- (Director)
Edward C. Joullian III

/s/ HOWARD H. LEACH*
------------------------------------------- (Director)
Howard H. Leach

/s/ JOHN A. MCMILLAN*
------------------------------------------- (Director)
John A. McMillan

/s/ GUY A. OSBORN*
------------------------------------------- (Director)
Guy A. Osborn

/s/ ARCHIE R. DYKES*
------------------------------------------- (Director)
Archie R. Dykes
</TABLE>

<TABLE>
<S> <C> <C> <C>
*By: /s/ HARRY L. WINN, JR.
--------------------------------------
Harry L. Winn, Jr.
ATTORNEY-IN-FACT
</TABLE>

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

* A Power of Attorney authorizing Harry L. Winn, Jr. to sign the Annual Report
on Form 10-K on behalf of each of the indicated directors of Fleming
Companies, Inc. has been filed herein as Exhibit 24.

35
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS

FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Net sales........................................................... $ 16,486,739 $ 17,501,572 $ 15,723,691
Costs and expenses (income):
Cost of sales..................................................... 15,004,715 16,091,039 14,601,050
Selling and administrative........................................ 1,274,649 1,189,199 932,588
Interest expense.................................................. 163,466 175,390 120,071
Interest income................................................... (49,122) (58,206) (57,148)
Equity investment results......................................... 18,458 27,240 14,793
Litigation settlement............................................. 20,000 -- --
Facilities consolidation.......................................... -- (8,982) --
------------- ------------- -------------
Total costs and expenses........................................ 16,432,166 17,415,680 15,611,354
------------- ------------- -------------
Earnings before taxes............................................... 54,573 85,892 112,337
Taxes on income..................................................... 27,887 43,891 56,168
------------- ------------- -------------
Net earnings........................................................ $ 26,686 $ 42,001 $ 56,169
------------- ------------- -------------
------------- ------------- -------------
Net earnings per share.............................................. $ .71 $ 1.12 $ 1.51
------------- ------------- -------------
------------- ------------- -------------
Weighted average shares outstanding................................. 37,774 37,577 37,254
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

Sales to customers accounted for under the equity method were approximately
$1.0 billion, $1.5 billion and $1.6 billion in 1996, 1995 and 1994,
respectively.

See notes to consolidated financial statements.

F-1
<PAGE>
CONSOLIDATED BALANCE SHEETS

AT DECEMBER 28, 1996, AND DECEMBER 30, 1995

(IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................................ $ 63,667 $ 4,426
Receivables.......................................................................... 329,505 340,215
Inventories.......................................................................... 1,051,313 1,207,329
Other current assets................................................................. 119,123 98,801
----------- -----------
Total current assets............................................................. 1,563,608 1,650,771
Investments and notes receivable....................................................... 205,683 271,763
Investment in direct financing leases.................................................. 212,202 225,552
Property and equipment:
Land................................................................................. 60,867 59,364
Buildings............................................................................ 416,188 406,302
Fixtures and equipment............................................................... 661,654 667,087
Leasehold improvements............................................................... 220,182 202,751
Leased assets under capital leases................................................... 203,491 192,022
----------- -----------
1,562,382 1,527,526
Less accumulated depreciation and amortization..................................... (603,241) (532,364)
----------- -----------
Net property and equipment....................................................... 959,141 995,162
Other assets........................................................................... 118,096 132,338
Goodwill, net.......................................................................... 996,446 1,021,099
----------- -----------
Total assets........................................................................... $ 4,055,176 $ 4,296,685
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................................... $ 952,769 $ 1,001,123
Current maturities of long-term debt................................................. 124,613 53,917
Current obligations under capital leases............................................. 19,715 19,452
Other current liabilities............................................................ 245,774 211,863
----------- -----------
Total current liabilities........................................................ 1,342,871 1,286,355
Long-term debt......................................................................... 1,091,606 1,347,987
Long-term obligations under capital leases............................................. 361,685 368,876
Deferred income taxes.................................................................. 37,729 40,179
Other liabilities...................................................................... 145,327 169,966
Commitments and contingencies
Shareholders' equity:
Common stock, $2.50 par value, authorized--100,000 shares, issued and
outstanding--37,798 and 37,716 shares.............................................. 94,494 94,291
Capital in excess of par value....................................................... 503,595 501,474
Reinvested earnings.................................................................. 514,408 501,214
Cumulative currency translation adjustment........................................... (4,700) (4,549)
----------- -----------
1,107,797 1,092,430
Less ESOP note..................................................................... (6,942) (9,108)
Less additional minimum pension liability.......................................... (24,897) --
----------- -----------
Total shareholders' equity....................................................... 1,075,958 1,083,322
----------- -----------
Total liabilities and shareholders' equity............................................. $ 4,055,176 $ 4,296,685
----------- -----------
----------- -----------
</TABLE>

Receivables include $27 million and $34 million in 1996 and 1995, respectively,
due from customers accounted for under the equity method.

See notes to consolidated financial statements.

F-2
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1996 1995 1994
----------------------- ----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------------ --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Common stock:
Beginning of year....................... 37,716 $ 94,291 37,480 $ 93,705 36,940 $ 92,350
Incentive stock and stock ownership
plans................................. 82 203 236 586 540 1,355
--------- ------------ --------- ------------ --------- ------------
End of year............................. 37,798 94,494 37,716 94,291 37,480 93,705
--------- ------------ --------- ------------ --------- ------------
--------- --------- ---------
Capital in excess of par value:
Beginning of year....................... 501,474 494,966 489,044
Incentive stock and stock ownership
plans................................. 2,121 6,508 5,922
------------ ------------ ------------
End of year............................. 503,595 501,474 494,966
------------ ------------ ------------
Reinvested earnings:
Beginning of year....................... 501,214 503,962 492,250
Net earnings............................ 26,686 42,001 56,169
Cash dividends, $.36 per share in 1996,
$1.20 per share in 1995 and 1994...... (13,492) (44,749) (44,457)
------------ ------------ ------------
End of year............................. 514,408 501,214 503,962
------------ ------------ ------------
Cumulative currency translation
adjustment:
Beginning of year....................... (4,549) (2,972) (288)
Currency translation adjustment......... (151) (1,577) (2,684)
------------ ------------ ------------
End of year............................. (4,700) (4,549) (2,972)
------------ ------------ ------------
ESOP note:
Beginning of year....................... (9,108) (11,106) (12,950)
Payments................................ 2,166 1,998 1,844
------------ ------------ ------------
End of year............................. (6,942) (9,108) (11,106)
------------ ------------ ------------
Additional minimum pension liability:
Beginning of year....................... --
Additional minimum liability
recognized............................ (24,897)
------------
End of year............................. (24,897)
------------
Total shareholders' equity, end of year... $ 1,075,958 $ 1,083,322 $ 1,078,555
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994

(IN THOUSANDS)

<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings........................................................... $ 26,686 $ 42,001 $ 56,169
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization........................................ 187,617 180,796 145,910
Credit losses........................................................ 26,921 30,513 61,218
Deferred income taxes................................................ (5,451) 12,052 30,430
Equity investment results............................................ 18,458 27,240 14,793
Consolidation and reserve activities, net............................ (18,042) (44,375) (29,304)
Change in assets and liabilities, excluding effect of acquisitions:
Receivables........................................................ (13,955) 7,156 1,964
Inventories........................................................ 150,524 149,676 57,689
Accounts payable................................................... (45,666) 6,390 30,691
Other assets and liabilities....................................... (191) (7,494) (36,737)
Other adjustments, net............................................... 612 (4,956) 39
----------- ----------- -------------
Net cash provided by operating activities............................ 327,513 398,999 332,862
----------- ----------- -------------
Cash flows from investing activities:
Collections on notes receivable........................................ 64,028 88,441 111,149
Notes receivable funded................................................ (66,298) (103,771) (122,206)
Notes receivable sold.................................................. 34,980 77,063 --
Businesses acquired.................................................... -- (10,654) (387,488)
Proceeds from sale of businesses....................................... 13,300 -- 6,682
Purchase of property and equipment..................................... (128,552) (116,769) (150,057)
Proceeds from sale of property and equipment........................... 15,796 29,907 14,917
Investments in customers............................................... (365) (11,298) (12,764)
Proceeds from sale of investments...................................... 15,020 17,649 4,933
Other investing activities............................................. (4,479) (4,169) (2,793)
----------- ----------- -------------
Net cash used in investing activities................................ (56,570) (33,601) (537,627)
----------- ----------- -------------
Cash flows from financing activities:
Proceeds from long-term borrowings..................................... 171,000 93,000 2,225,751
Principal payments on long-term debt................................... (356,685) (452,690) (1,912,717)
Principal payments on capital lease obligations........................ (19,622) (17,269) (13,990)
Sale of common stock under incentive stock and stock ownership plans... 2,195 7,094 7,277
Dividends paid......................................................... (13,447) (44,749) (44,457)
Other financing activities............................................. 4,857 25,290 (30,381)
----------- ----------- -------------
Net cash provided by (used in) financing activities.................. (211,702) (389,324) 231,483
----------- ----------- -------------
Net increase (decrease) in cash and cash equivalents..................... 59,241 (23,926) 26,718
Cash and cash equivalents, beginning of year............................. 4,426 28,352 1,634
----------- ----------- -------------
Cash and cash equivalents, end of year................................... $ 63,667 $ 4,426 $ 28,352
----------- ----------- -------------
----------- ----------- -------------
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

The company markets food and related products and offers retail services to
supermarkets in 42 states and several other countries. The company also operates
approximately 270 company-owned retail food stores in several geographic areas.
The company's activities encompass two major businesses: food distribution and
company-owned retail food operations.

FISCAL YEAR

The company's fiscal year ends on the last Saturday in December. Fiscal
years 1996 and 1995 were 52 weeks; 1994 was 53 weeks. The impact of the
additional week in 1994 is not material to the results of operations or
financial position.

BASIS OF PRESENTATION

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

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include all material subsidiaries.
Material intercompany items have been eliminated. The equity method of
accounting is usually used for investments in certain entities in which the
company has an investment in common stock of between 20% and 50%. Under the
equity method, original investments are recorded at cost and adjusted by the
company's share of earnings or losses of these entities and for declines in
estimated realizable values deemed to be other than temporary.

CASH AND CASH EQUIVALENTS

Cash equivalents consist of liquid investments readily convertible to cash
with an original maturity of three months or less. The carrying amount for cash
equivalents is a reasonable estimate of fair value.

RECEIVABLES

Receivables include the current portion of customer notes receivable of $34
million in 1996 and $42 million in 1995. Receivables are shown net of allowance
for doubtful accounts of $25 million in 1996 and $35 million in 1995. The
company extends credit to its retail customers located over a broad geographic
base. Regional concentrations of credit risk are limited. Interest income on
impaired loans is recognized only when payments are received.

INVENTORIES

Inventories are valued at the lower of cost or market. Most grocery and
certain perishable inventories, aggregating approximately 70% and 80% of total
inventories in 1996 and 1995, respectively, are valued on a last-in, first-out
(LIFO) method. The cost for the remaining inventories is determined by the
first-in,

F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994

first-out (FIFO) method. Current replacement cost of LIFO inventories was
greater than the carrying amounts by approximately $28 million and $22 million
at year-end 1996 and 1995, respectively.

LONG-LIVED ASSETS

Asset impairments are recorded when events or changes in circumstances
indicate that the carrying amount of assets may not be recoverable. In 1996, the
company adopted SFAS No. 121--Accounting for the Impairment of Long-Lived Assets
to be Disposed Of. The adoption did not have a material impact on the company's
financial position or results of operations.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost or, for leased assets under
capital leases, at the present value of minimum lease payments. Depreciation, as
well as amortization of assets under capital leases, are based on the estimated
useful asset lives using the straight-line method. The estimated useful lives
used in computing depreciation and amortization are: buildings and major
improvements--20 to 40 years; warehouse, transportation and other equipment--3
to 10 years; and data processing equipment and software-- 5 to 7 years.

GOODWILL

The excess of purchase price over the value of net assets of businesses
acquired is amortized on the straight-line method over periods not exceeding 40
years. Goodwill is shown net of accumulated amortization of $159 million and
$127 million in 1996 and 1995, respectively.

FINANCIAL INSTRUMENTS

Interest rate hedge transactions and other financial instruments are
utilized to manage interest rate exposure. The methods and assumptions used to
estimate the fair value of significant financial instruments are discussed in
the Investments and Notes Receivable and Long-Term Debt notes.

TAXES ON INCOME

Deferred income taxes arise from temporary differences between financial and
tax bases of certain assets and liabilities.

FOREIGN CURRENCY TRANSLATION

Adjustments resulting from the translation of assets and liabilities of an
international investment are included in shareholders' equity.

NET EARNINGS PER SHARE

Earnings per share are computed based on net earnings divided by the
weighted average shares outstanding. The impact of common stock options on
earnings per share is immaterial.

F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994

SIGNIFICANT ACQUISITIONS

In July 1994, the company acquired all the outstanding stock of Haniel
Corporation, the parent of Scrivner Inc. ("Scrivner"). The company paid $388
million in cash and refinanced substantially all of Scrivner's existing $670
million indebtedness.

The acquisition was accounted for as a purchase and the results of
operations of Scrivner are included in the consolidated financial statements
since the beginning of the third quarter of 1994. The purchase price was
allocated based on estimated fair values of assets acquired and liabilities
assumed at the date of the acquisition. The excess of purchase price over the
fair value of net assets acquired of $583 million is being amortized on a
straight-line basis over 40 years.

Unaudited pro forma information for 1994 summarizing consolidated results of
operations of the company and Scrivner as if the acquisition had occurred at the
beginning of 1994, with pro forma adjustments to give effect to amortization of
goodwill, interest expense on acquisition debt and certain other adjustments,
together with related income tax effects, is as follows: net sales--$18.9
billion; net earnings--$43 million; net earnings per share--$1.15.

INVESTMENTS AND NOTES RECEIVABLE

Investments and notes receivable consist of the following:

<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
Investments in and advances to customers.............................. $ 72,246 $ 103,941
Notes receivable from customers....................................... 107,811 142,015
Other investments and receivables..................................... 25,626 25,807
---------- ----------
Investments and notes receivable...................................... $ 205,683 $ 271,763
---------- ----------
---------- ----------
</TABLE>

Investments and notes receivable are shown net of reserves of $24 million
and $18 million in 1996 and 1995, respectively.

The company extends long-term credit to certain retail customers. Loans are
primarily collateralized by inventory and fixtures. Interest rates are above
prime with terms up to 10 years. The carrying amount of notes receivable
approximates fair value because of the variable interest rates charged on the
notes.

Components of the company's recorded investment in notes receivable are as
follows:

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
(IN MILLIONS)
Impaired notes, including current portion............................... $ 21 $ 28
Credit loss allowance on impaired notes................................. $ 6 $ 17
--------- ---------
--------- ---------
</TABLE>

F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994

Activity in the allowance for credit losses is as follows:

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS)
Balance, beginning of year................................... $ 53 $ 49 $ 63
Charged to costs and expenses................................ 27 31 61
Uncollectible accounts written off, net of recoveries........ (36) (27) (101)
Asset Impairment............................................. 5 -- --
Acquired reserves............................................ -- -- 26
--------- --------- ---------
Balance, end of year......................................... $ 49 $ 53 $ 49
--------- --------- ---------
--------- --------- ---------
</TABLE>

The company has sold certain notes receivable at face value with limited
recourse. The outstanding balance at year-end 1996 on all notes sold is $102
million, of which the company is contingently liable for $18 million should all
the notes become uncollectible.

LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
(IN THOUSANDS)
Term bank loans, due 1997 to 2000, average interest rates of 7.3% and
6.7%...................................................................... $ 591,253 $ 659,497
10.625% senior notes due 2001............................................... 300,000 300,000
Floating rate senior notes due 2001, annual payments of $1,000 in 1999 and
2000, interest rates of 7.9% and 8.1%..................................... 200,000 200,000
Medium-term notes, due 1997 to 2003, average interest rates of 7.1% for both
years..................................................................... 99,000 99,000
Revolving bank credit, average interest rate of 6.5% and 6.6%............... 20,000 76,000
Uncommitted credit lines, average interest rate of 6.4% in 1995............. -- 50,000
Mortgaged real estate notes and other debt, net of asset sale proceeds
escrow, varying interest rates from 4% to 14.4%, due 1997 to 2003......... 5,966 17,407
------------ ------------
1,216,219 1,401,904
Less current maturities..................................................... (124,613) (53,917)
------------ ------------
Long-term debt.............................................................. $ 1,091,606 $ 1,347,987
------------ ------------
------------ ------------
</TABLE>

FIVE-YEAR MATURITIES

Aggregate maturities of long-term debt for the next five years are as
follows: 1997-$125 million; 1998-$175 million; 1999-$233 million; 2000-$175
million and 2001-$501 million.

REVOLVING CREDIT AND TERM LOAN AGREEMENT

The company has a $1.19 billion committed revolving credit and term loan
agreement with a group of banks. The bank credit agreement carries an annual
facility fee on the total revolving credit portion and a

F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994

commitment fee on the unused amount of the revolving credit portion. Interest
rates are based on various money market rate options selected by the company at
the time of borrowing. Borrowings and commitments by the bank under the
revolving credit portion of the bank credit agreement mature in 1999 and the
amortizing term bank loan matures in 2000.

The bank credit agreement and the indentures for the senior notes contain
certain financial covenants. The bank credit agreement currently contains the
following more significant financial covenants: maintenance of a consolidated
debt-to-net worth ratio of not more than 2.25 to 1; maintenance of a minimum
consolidated net worth of at least $903 million; maintenance of a fixed charge
coverage ratio of at least 1.1 to 1; a limitation on dividend payments of $.08
per share, per quarter; and limitations on capital expenditures. Covenants
associated with the senior notes are generally less restrictive than those of
the bank credit agreement.

The bank credit agreement and the senior note indentures also place
significant restrictions on the company's ability to incur additional
indebtedness, to create liens or other encumbrances, to make certain payments,
investments, loans and guarantees and to sell or otherwise dispose of a
substantial portion of assets to, or merge or consolidate with, an unaffiliated
entity.

The bank credit agreement contains a provision that, in the event of a
defined change of control, the agreement may be terminated. The indentures for
the senior notes provide an option for the note holders to require the company
to repurchase the notes in the event of a defined change of control and defined
decline in credit ratings.

MEDIUM-TERM NOTES

The company has registered $565 million in medium-term notes. Of this, $290
million may be issued from time to time, at fixed or floating rates, as
determined at the time of issuance. Under the bank credit agreement, new issues
of certain kinds of debt must have a maturity after December 2000. The security
provisions for the bank credit agreement required the company to equitably and
ratably secure the medium-term notes. Security for the medium-term notes
consists of a pledge of intercompany receivables.

F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994

INTEREST EXPENSE

Components of interest expense are as follows:

<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
(IN THOUSANDS)
Interest costs incurred:
Long-term debt......................................... $ 122,859 $ 135,254 $ 83,748
Capital lease obligations.............................. 35,656 36,132 33,718
Other.................................................. 5,055 4,712 2,969
---------- ---------- ----------
Total incurred......................................... 163,570 176,098 120,435
Less interest capitalized................................ (104) (708) (364)
---------- ---------- ----------
Interest expense......................................... $ 163,466 $ 175,390 $ 120,071
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

DERIVATIVES

The company enters into interest rate hedge agreements with the objective of
managing interest costs and exposure to changing interest rates. The classes of
derivative financial instruments used include interest rate swaps and caps. The
company's policy regarding derivatives is to engage in a financial risk
management process to manage its defined exposures to uncertain future changes
in interest rates which impact net earnings. The primary purpose of the
financial risk management process is to control and limit the potential impact
on net earnings, according to pre-established targets, of rate changes in a
manner which does not incur unreasonable or unmanageable additional risks or
expense.

The bank credit agreement requires the company to provide interest rate
protection on a substantial portion of the related outstanding indebtedness.
Strategies for achieving the company's objectives have resulted in the company
maintaining interest rate swaps and caps covering $850 million aggregate
principal amount of floating rate indebtedness at year-end 1996 and 1995. These
amounts exceed the requirements set forth in the bank credit agreement. The
maturities for hedge agreements range from 1997 to 2000. The counterparties to
these agreements are major national and international financial institutions.

The interest rate employed on most of the company's floating rate
indebtedness is equal to the London interbank offered rate ("LIBOR") plus a
margin. The average fixed interest rate paid by the company on the interest rate
swaps is 6.95%, covering $600 million of floating rate indebtedness. The
interest rate swap agreements, which were implemented through six counterparty
banks, and which have an average remaining life of two years, provide for the
company to receive substantially the same LIBOR that the company pays on its
floating rate indebtedness. The company has purchased interest rate cap
agreements from two counterparty banks for an additional $250 million of its
floating rate indebtedness. The agreements cap LIBOR at 7.33% over the next two
years.

The notional amounts of interest rate swaps and caps do not represent
amounts exchanged by the parties and are not a measure of the company's exposure
to credit or market risks. The amounts exchanged are calculated on the basis of
the notional amounts and the other terms of the hedge agreements. Notional
amounts are not included in the consolidated balance sheet.

The company believes its exposure to potential loss due to counterparty
nonperformance is minimized primarily due to the relatively strong credit
ratings of the counterparty banks for their unsecured long-term

F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994

debt (A- or higher from Standard & Poor's Ratings Group or A2 or higher from
Moody's Investor Service, Inc.) and the size and diversity of the counterparty
banks.

Derivative financial instruments are reported in the balance sheet where the
company has made a cash payment upon entering into or terminating the
transaction. The carrying amount is amortized over the initial life of the hedge
agreement. The company had a financial basis of $3 million and $5 million in the
interest rate cap agreements at year-end 1996 and 1995, respectively. In
addition, accrued interest payable or receivable for the interest rate
agreements is included in the balance sheet. Payments made or received under
interest rate swap or cap agreements are included in interest expense.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of long-term debt was determined using valuation techniques
that considered cash flows discounted at current market rates and management's
best estimate for instruments without quoted market prices. At year-end 1996 and
1995, the carrying value of debt exceeded the fair value by $30 million and $38
million, respectively.

For derivatives, the fair value was estimated using termination cash values.
At year-end 1996, interest rate hedge agreement values would represent an
obligation of $20 million, and at year-end 1995, an obligation of $27 million.

SUBSIDIARY GUARANTEE OF SENIOR NOTES

The senior notes are guaranteed by all direct and indirect subsidiaries of
the company (except for certain inconsequential subsidiaries), all of which are
wholly owned. The guarantees are joint and several, full, complete and
unconditional. There are currently no restrictions on the ability of the
subsidiary guarantors to transfer funds to the company in the form of cash
dividends, loans or advances. Financial statements for the subsidiary guarantors
are not presented herein because the operations and financial position of such
subsidiaries are not material.

The summarized financial information, which includes allocations of material
corporate-related expenses, for the combined subsidiary guarantors may not
necessarily be indicative of the results of operations or financial position had
the subsidiary guarantors been operated as independent entities.
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C> <C>
(IN MILLIONS)
Current assets..................................................... $ 25 $ 251
Noncurrent assets.................................................. $ 57 $ 487
Current liabilities................................................ $ 8 $ 104
Noncurrent liabilities............................................. $ 1 $ 1
--------- ---------
--------- ---------

1996 1995 1994
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Net sales.......................................................... $ 298 $ 2,842 $ 3,318
Costs and expenses................................................. $ 314 $ 2,787 $ 3,341
Net earnings (loss)................................................ $ (8) $ 27 $ (12)
--------- --------- ---------
--------- --------- ---------
</TABLE>

A significant number of subsidiaries have been merged into the parent
company beginning in 1994, resulting in a substantial reduction in the amounts
appearing in the summarized financial information.

F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994

LEASE AGREEMENTS

Capital And Operating Leases: The company leases certain distribution
facilities with terms generally ranging from 20 to 25 years, while lease terms
for other operating facilities range from 1 to 15 years. The leases normally
provide for minimum annual rentals plus executory costs and usually include
provisions for one to five renewal options of five years.

The company leases company-owned retail store facilities with terms
generally ranging from 15 to 20 years. These agreements normally provide for
contingent rentals based on sales performance in excess of specified minimums.
The leases usually include provisions for one to four renewal options of two to
five years. Certain equipment is leased under agreements ranging from two to
eight years with no renewal options.

Accumulated amortization related to leased assets under capital leases was
$64 million and $53 million at year-end 1996 and 1995, respectively.

Future minimum lease payment obligations for leased assets under capital
leases as of year-end 1996 are set forth below:

<TABLE>
<CAPTION>
YEARS
- ------------------------------------------------------------------------------ LEASE
OBLIGATIONS
--------------
(IN THOUSANDS)
<S> <C>
1997.......................................................................... $ 25,298
1998.......................................................................... 24,821
1999.......................................................................... 24,611
2000.......................................................................... 23,427
2001.......................................................................... 22,628
Later......................................................................... 185,129
--------------
Total minimum lease payments.................................................. 305,914
Less estimated executory costs................................................ (161)
--------------
Net minimum lease payments.................................................... 305,753
Less interest................................................................. (137,891)
--------------
Present value of net minimum lease payments................................... 167,862
Less current obligations...................................................... (8,866)
--------------
Long-term obligations......................................................... $ 158,996
--------------
--------------
</TABLE>

F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994

Future minimum lease payments required at year-end 1996 under operating
leases that have initial noncancelable lease terms exceeding one year are
presented in the following table:

<TABLE>
<CAPTION>
FACILITY FACILITIES EQUIPMENT EQUIPMENT NET
YEARS RENTALS SUBLEASED RENTALS SUBLEASED RENTALS
- ----------------------------- ------------ ----------- ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1997......................... $ 160,097 $ (70,905) $ 22,625 $ (2,328) $ 109,489
1998......................... 148,825 (63,283) 15,320 (1,546) 99,316
1999......................... 133,388 (51,822) 8,795 (839) 89,522
2000......................... 120,259 (41,993) 3,456 (570) 81,152
2001......................... 110,891 (34,329) 363 (62) 76,863
Later........................ 683,862 (142,122) 63 -- 541,803
------------ ----------- ----------- ----------- ----------
Total lease payments......... $ 1,357,322 $ (404,454) $ 50,622 $ (5,345) $ 998,145
------------ ----------- ----------- ----------- ----------
------------ ----------- ----------- ----------- ----------
</TABLE>

The following table shows the composition of total annual rental expense
under noncancelable operating leases and subleases with initial terms of one
year or greater:

<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Minimum rentals.......................................... $ 208,250 $ 199,834 $ 160,065
Contingent rentals....................................... 1,874 1,654 866
Less sublease income..................................... (88,014) (92,108) (77,684)
---------- ---------- ----------
Rental expense........................................... $ 122,110 $ 109,380 $ 83,247
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

DIRECT FINANCING LEASES

The company leases retail store facilities for sublease to customers with
terms generally ranging from 15 to 20 years. Most leases provide for a
contingent rental based on sales performance in excess of specified minimums.
The leases and subleases usually contain provisions for one to four renewal
options of two to five years.

F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994

The following table shows the future minimum rentals receivable under direct
financing leases and future minimum lease payment obligations under capital
leases in effect at year-end 1996:

<TABLE>
<CAPTION>
LEASE RENTALS LEASE
YEARS RECEIVABLE OBLIGATIONS
- ------------------------------------------------------------------ ------------- -----------
(IN THOUSANDS)
<S> <C> <C>
1997.............................................................. $ 36,854 $ 30,950
1998.............................................................. 34,399 30,934
1999.............................................................. 32,232 30,863
2000.............................................................. 30,996 29,624
2001.............................................................. 30,582 28,443
Later............................................................. 238,046 220,551
------------- -----------
Total minimum lease payments...................................... 403,109 371,365
Less estimated executory costs.................................... (1,341) (1,334)
------------- -----------
Net minimum lease payments........................................ 401,768 370,031
Less interest..................................................... (172,392) (156,493)
------------- -----------
Present value of net minimum lease payments....................... 229,376 213,538
Less current portion.............................................. (17,174) (10,849)
------------- -----------
Long-term portion................................................. $ 212,202 $ 202,689
------------- -----------
------------- -----------
</TABLE>

Contingent rental income and contingent rental expense are not material.

FACILITIES CONSOLIDATION AND RESTRUCTURING

In 1993 the company recorded a charge of $108 million for facilities
consolidations, reengineering, impairment of retail-related assets and
elimination of regional operations. Components of the charge provided for
severance costs, impaired property and equipment, product handling and damage,
and impaired other assets. Four distribution centers have been closed and one
additional facility will be closed as part of the facilities consolidation plan.
Reengineering has occurred with respect to approximately 40% of its food
distribution sales base, or 17 of its 35 operating units. Most impaired
retail-related assets have been disposed or subleased. Regional operations have
been eliminated. In 1995 management changed its estimates with respect to the
general merchandising operations portion of the reengineering plan and reversed
$9 million of the related provision.

F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994

Facilities consolidation and restructuring reserve activities are:

<TABLE>
<CAPTION>
REENGINEERING/ CONSOLIDATION
SEVERANCE COSTS/ASSET
TOTAL COSTS IMPAIRMENTS
---------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, year-end 1993............................. $ 85,521 $ 25,136 $ 60,385
Expenditures and write-offs........................ (31,142) (2,686) (28,456)
---------- ------------- -------------
Balance, year-end 1994............................. 54,379 22,450 31,929
Credited to income................................. (8,982) -- (8,982)
Expenditures and write-offs........................ (24,080) (6,690) (17,390)
---------- ------------- -------------
Balance, year-end 1995............................. 21,317 15,760 5,557
Expenditures and write-offs........................ (2,865) (2,642) (223)
---------- ------------- -------------
Balance, year-end 1996............................. $ 18,452 $ 13,118 $ 5,334
---------- ------------- -------------
---------- ------------- -------------
</TABLE>

TAXES ON INCOME

Components of taxes on income (tax benefit) are as follows:

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Current:
Federal.................................................... $ 24,729 $ 24,817 $ 18,536
State...................................................... 8,609 7,022 7,202
--------- --------- ---------
Total current................................................ 33,338 31,839 25,738
--------- --------- ---------
Deferred:
Federal.................................................... (4,388) 9,850 22,188
State...................................................... (1,063) 2,202 8,242
--------- --------- ---------
Total deferred............................................... (5,451) 12,052 30,430
--------- --------- ---------
Taxes on income.............................................. $ 27,887 $ 43,891 $ 56,168
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994

Deferred tax expense (benefit) relating to temporary differences includes
the following components:

<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Depreciation and amortization.............................. $ (12,561) $ (23,398) $ (4,967)
Inventory.................................................. (6,586) (2,113) 382
Capital losses............................................. (2,494) (854) --
Asset valuations and reserves.............................. 13,567 26,040 20,396
Equity investment results.................................. 526 (312) 6,255
Credit losses.............................................. 3,995 2,897 11,728
Lease transactions......................................... (1,298) (1,170) (1,448)
Associate benefits......................................... (478) 2,249 (4,215)
Note sales................................................. 315 (144) (2,547)
Acquired loss carryforwards................................ 1,616 4,422 1,616
Other...................................................... (2,053) 4,435 3,230
---------- ---------- ---------
Deferred tax expense (benefit)............................. $ (5,451) $ 12,052 $ 30,430
---------- ---------- ---------
---------- ---------- ---------
</TABLE>

F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994

Temporary differences that give rise to deferred tax assets and liabilities
as of year-end 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
Deferred tax assets:
Depreciation and amortization......................................... $ 9,187 $ 8,709
Asset valuations and reserve activities............................... 60,008 75,215
Associate benefits.................................................... 83,408 68,783
Credit losses......................................................... 19,891 23,885
Equity investment results............................................. 9,202 9,440
Lease transactions.................................................... 13,308 11,840
Inventory............................................................. 16,013 15,954
Acquired loss carryforwards........................................... 4,581 6,198
Capital losses........................................................ 3,354 860
Other................................................................. 20,926 18,323
---------- ----------
Gross deferred tax assets............................................. 239,878 239,207
Less valuation allowance.............................................. (4,514) (4,514)
---------- ----------
Total deferred tax assets............................................. 235,364 234,693
---------- ----------
Deferred tax liabilities:
Depreciation and amortization......................................... 116,842 128,924
Equity investment results............................................. 2,455 2,166
Lease transactions.................................................... 1,995 1,825
Inventory............................................................. 52,586 59,113
Associate benefits.................................................... 20,931 23,402
Asset valuations and reserve activities............................... 535 8,025
Note sales............................................................ 3,754 3,495
Prepaid expenses...................................................... 3,162 3,578
Other................................................................. 18,644 17,620
---------- ----------
Total deferred tax liabilities........................................ 220,904 248,148
---------- ----------
Net deferred tax asset (liability).................................... $ 14,460 $ (13,455)
---------- ----------
---------- ----------
</TABLE>

The change in net deferred asset/liability from 1995 to 1996 is allocated
$5.4 million to deferred income tax benefit, $16.6 million to stockholders'
equity, and $5.8 million to purchase price allocations.

The valuation allowance relates to $4 million of acquired loss carryforwards
that, if utilized, will be reversed to goodwill in future years. Management
believes it is more likely than not that all other deferred tax assets will be
realized.

F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994

The effective income tax rates are different from the statutory federal
income tax rates for the following reasons:

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Statutory rate....................................... 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit....... 9.0 7.0 8.9
Acquisition-related differences...................... 6.1 8.4 6.9
Other................................................ 1.0 .7 (.8)
--------- --------- ---------
Effective rate....................................... 51.1% 51.1% 50.0%
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994

SEGMENT INFORMATION

The following table sets forth the composition of the company's net sales,
operating earnings, depreciation and amortization, capital expenditures and
identifiable assets. Food distribution includes food and general merchandise
distribution.

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
NET SALES
Food distribution............................................ $ 14,904 $ 16,665 $ 15,543
Less sales elimination....................................... (2,123) (2,529) (1,953)
--------- --------- ---------
Net food distribution........................................ 12,781 14,136 13,590
Retail food.................................................. 3,706 3,366 2,134
--------- --------- ---------
Total........................................................ $ 16,487 $ 17,502 $ 15,724
--------- --------- ---------
--------- --------- ---------
OPERATING EARNINGS
Food distribution............................................ $ 299 $ 288 $ 263
Retail food.................................................. 47 46 27
Corporate.................................................... (139) (119) (100)
--------- --------- ---------
Total operating earnings..................................... 207 215 190
Interest expense............................................. (163) (175) (120)
Interest income.............................................. 49 58 57
Equity investment results.................................... (18) (21) (15)
Litigation settlement........................................ (20) -- --
Facilities consolidation..................................... -- 9 --
--------- --------- ---------
Earnings before taxes........................................ $ 55 $ 86 $ 112
--------- --------- ---------
--------- --------- ---------
DEPRECIATION AND AMORTIZATION
Food distribution............................................ $ 107 $ 117 $ 99
Retail food.................................................. 56 43 33
Corporate.................................................... 25 21 14
--------- --------- ---------
Total........................................................ $ 188 $ 181 $ 146
--------- --------- ---------
--------- --------- ---------
CAPITAL EXPENDITURES
Food distribution............................................ $ 59 $ 70 $ 107
Retail food.................................................. 50 30 26
Corporate.................................................... 20 14 7
--------- --------- ---------
Total........................................................ $ 129 $ 114 $ 140
--------- --------- ---------
--------- --------- ---------
IDENTIFIABLE ASSETS
Food distribution............................................ $ 2,647 $ 3,021 $ 3,262
Retail food.................................................. 647 588 547
Corporate.................................................... 761 688 799
--------- --------- ---------
Total........................................................ $ 4,055 $ 4,297 $ 4,608
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994

Certain reclassifications have been made to the 1995 information. Equity
investment results representing a joint venture in 1995 have been reclassified
to retail operating earnings to compare to the 1996 consolidation of that joint
venture.

SHAREHOLDERS' EQUITY

The company offers a Dividend Reinvestment and Stock Purchase Plan which
offers shareholders the opportunity to automatically reinvest their dividends in
common stock at a 5% discount from market value. Shareholders also may purchase
shares at market value by making cash payments up to $5,000 per calendar
quarter. Such programs resulted in issuing 125,000 and 283,000 new shares in
1996 and 1995, respectively.

The company has a rights plan designed to protect stockholders should the
company become the target of coercive and unfair takeover tactics. Stockholders
have one right for each share of common stock held. In the event of certain
defined events that constitute a change of control, each right entitles
stockholders (other than any defined acquiror) to purchase 1/100 of a share of
new preferred stock at an exercise price of $75 (the "Exercise Price") or to
exchange the right upon the payment of the Exercise Price for that number of
shares of company common stock determined by dividing twice the Exercise Price
($150) by the then current market price of the common stock. Furthermore, if the
company is involved in a merger or other business combination or sale of a
specified percentage of assets or earning power, the rights (other than those
held by the acquiror) may be used to purchase, for the Exercise Price, that
number of shares of the acquiror's common stock determined by dividing twice the
Exercise Price by the then current market price of the acquiror's common stock.
The rights expire on July 6, 2006. The company is currently involved in
litigation regarding a shareholder-proposed bylaw amendment which would require
that any rights plan be first approved by shareholders and that the current
rights plan be terminated.

The company has severance agreements with certain management associates. The
agreements generally provide two years' salary to these associates if the
associate's employment terminates within two years after a change of control. In
the event of a change of control, a supplemental trust will be funded to provide
for these salary obligations.

The company's employee stock ownership plan (ESOP) established in 1990
allows substantially all associates to participate. In 1990, the ESOP entered
into a note with a bank to finance purchase of the shares. In 1994, the company
paid off the note and entered into a note from the ESOP. The ESOP will repay to
the company the remaining loan balance with proceeds from company contributions.
The receivable from the ESOP is presented as a reduction of shareholders'
equity.

The company makes contributions to the ESOP based on fixed debt service
requirements of the ESOP note. Such contributions were approximately $2 million
per year in 1996, 1995 and 1994. Dividends used by the ESOP for debt service and
interest and compensation expense recognized by the company were not material.

In 1996 and 1995, options with SARs were exercisable for 7,000 and 14,000
shares, respectively. At year-end 1996, there were 210,000 shares available for
grant under the unrestricted stock option plans.

The company has a stock incentive plan that allows awards to key associates
of up to 760,000 restricted shares of common stock and phantom stock units. At
year-end 1996, 684,000 shares were available for grant under the stock incentive
plan. Shares granted are recorded at the market value when issued and amortized
to expense as earned. The unamortized portion was $3 million at year-end 1996
and is netted against capital in excess of par value within shareholders'
equity.

F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994

Stock option and stock incentive transactions are as follows:

<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE PRICE RANGE
----------- ----------------- ----------------
(SHARES IN THOUSANDS)
<S> <C> <C> <C>
Outstanding, year-end 1993....................... 983 $ 35.16 $ 4.72 - 42.13
Granted........................................ 1,782 $ 25.57 $ 24.81 - 29.75
Exercised...................................... (7) $ 19.50 $ 4.72 - 25.19
Canceled and forfeited......................... (288) $ 32.83 $ 24.94 - 42.13
----- ------ ----------------
Outstanding, year-end 1994....................... 2,470 $ 28.56 $ 10.29 - 42.13
Granted........................................ 118 $ 25.52 $ 19.44 - 26.44
Exercised...................................... (10) $ 18.09 $ 10.29 - 24.94
Canceled and forfeited......................... (457) $ 30.31 $ 24.81 - 42.13
----- ------ ----------------
Outstanding, year-end 1995....................... 2,121 $ 28.06 $ 19.44 - 42.13
Granted........................................ 1,005 $ 16.67 $ 16.38 - 19.75
Canceled and forfeited......................... (290) $ 29.07 $ 24.81 - 42.13
----- ------ ----------------
Outstanding, year-end 1996....................... 2,836 $ 23.93 $ 16.38 - 42.13
----- ------ ----------------
----- ------ ----------------
</TABLE>

Information regarding options outstanding at year-end 1996 is as follows:

<TABLE>
<CAPTION>
ALL OUTSTANDING OPTIONS CURRENTLY
OPTIONS EXERCISABLE
--------------- -----------------
(SHARES IN THOUSANDS)
<S> <C> <C>
Option price $37.06 - $42.13:
Number of options....................................... 297 297
Weighted average exercise price......................... $ 38.51 $ 38.51
Weighted average remaining life in years................ 3
------ ------
------ ------
Option price $24.81 - $32.90:
Number of options....................................... 1,519 393
Weighted average exercise price......................... $ 25.91 $ 26.78
Weighted average remaining life in years................ 7
------ ------
------ ------
Option price $16.38 - $19.44:
Number of options....................................... 1,020 1
Weighted average exercise price......................... $ 16.71 $ 19.44
Weighted average remaining life in years................ 10
------ ------
------ ------
</TABLE>

In the event of a change of control, the company may accelerate the vesting
and payment of any award or make a payment in lieu of an award.

The company applies APB Opinion No. 25 -- Accounting for Stock Issued to
Employees, and related Interpretations in accounting for its plans. Accordingly,
no compensation cost has been recognized for the plans. If compensation cost had
been recognized for the stock-based compensation plans based on fair values of
the awards at the grant dates consistent with the method of SFAS No. 123 --
Accounting for Stock-Based Compensation, there would have been no material
effect on reported net earnings and earnings per share.

F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994

Significant assumptions used to estimate the fair values of awards using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for 1996 and 1995 are: risk-free interest rate -- approximately 7%;
expected lives of options -- 10 years; expected volatility -- 35% to 50%; and
expected dividend yield of .5% to 6%.

ASSOCIATE RETIREMENT PLANS

The company sponsors retirement and profit sharing plans for substantially
all non-union and some union associates.

Benefit calculations for the company's defined benefit retirement plans are
primarily a function of years of service and final average earnings at the time
of retirement. Final average earnings are the average of the highest five years
of compensation during the last 10 years of employment. The company funds these
plans by contributing the actuarially computed amounts that meet funding
requirements.

The following table sets forth the company's major qualified defined benefit
retirement plans' funded status and the amounts recognized in the statements of
earnings. Substantially all the plans' assets are invested in listed stocks,
short-term investments and bonds. The significant actuarial assumptions used in
the calculation of funded status for 1996 and 1995, respectively are: discount
rate -- 7.75% and 7.25%; compensation increases -- 4.5% and 4.0%; and return on
assets -- 9.5% for both years.

<TABLE>
<CAPTION>
1996
----------------------------
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS 1995
------------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Actuarial present value of accumulated benefit
obligations:
Vested.......................................... $ 5,440 $ 238,154 $ 207,731
Total........................................... $ 5,590 $ 245,014 $ 213,390
------------- ------------- ----------
------------- ------------- ----------
Projected benefit obligations..................... $ 5,590 $ 274,494 $ 229,649
Plan assets at fair value......................... 8,457 228,679 222,434
------------- ------------- ----------
Projected benefit obligation in excess of (less
than) plan assets............................... (2,867) 45,815 7,215
Unrecognized net loss............................. (282) (63,583) (37,330)
Unrecognized prior service cost................... (2) (434) (1,039)
Unrecognized net asset............................ 83 1,041 1,391
Additional liability.............................. -- 33,497 --
------------- ------------- ----------
Accrued (prepaid) pension cost.................... $ (3,068) $ 16,336 $ (29,763)
------------- ------------- ----------
------------- ------------- ----------
</TABLE>

F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994

Net pension expense includes the following components:

<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost.............................................. $ 10,802 $ 11,348 $ 7,288
Interest cost............................................. 19,764 16,367 15,258
Actual (return) loss on plan assets....................... (22,986) (45,217) 5,064
---------- ---------- ----------
Net amortization and deferral............................. 10,265 29,807 (17,036)
---------- ---------- ----------
Net pension expense....................................... $ 17,845 $ 12,305 $ 10,574
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

The company also has nonqualified supplemental retirement plans for selected
associates. These plans are unfunded with a projected benefit obligation of $24
million and $23 million; and unrecognized prior service and actuarial losses of
$9 million and $11 million at year-end 1996 and 1995, respectively, based on
actuarial assumptions consistent with the funded plans. The net pension expense
for the unfunded plans was $3 million each year in 1996 and 1995, and $2 million
for 1994.

At year-end 1996, the consolidated balance sheet reflects a $42 million
additional minimum liability relating to unfunded accumulated benefit
obligations for all of the company's defined benefit plans, a $.9 million
related intangible asset, and a $25 million reduction of shareholders' equity,
net of future tax benefits.

Contributory profit sharing plans maintained by the company are for
associates who meet certain types of employment and length of service
requirements. Company contributions under these defined contribution plans are
made at the discretion of the board of directors. Expenses for these plans were
$3 million each year in 1996 and 1995, and $6 million in 1994.

Certain associates have pension and health care benefits provided under
collectively bargained multiemployer agreements. Expenses for these benefits
were $84 million, $75 million and $56 million for 1996, 1995 and 1994,
respectively.

ASSOCIATE POSTRETIREMENT HEALTH CARE BENEFITS

The company offers a comprehensive major medical plan to eligible retired
associates who meet certain age and years of service requirements. This unfunded
defined benefit plan generally provides medical benefits until Medicare
insurance commences.

Components of postretirement benefits expense are as follows:

<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost..................................................... $ 147 $ 137 $ 223
Interest cost.................................................... 1,443 1,642 1,542
Amortization of net loss......................................... -- 141 196
--------- --------- ---------
Postretirement expense........................................... $ 1,590 $ 1,920 $ 1,961
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994

The composition of the accumulated postretirement benefit obligation (APBO)
and the amounts recognized in the balance sheets are presented below.

<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Retirees................................................................ $ 15,843 $ 17,197
Fully eligible actives.................................................. 689 811
Others.................................................................. 1,767 2,216
--------- ---------
APBO.................................................................... 18,299 20,224
Unrecognized net (gain) loss............................................ 100 (587)
--------- ---------
Accrued postretirement benefit cost..................................... $ 18,399 $ 19,637
--------- ---------
--------- ---------
</TABLE>

The weighted average discount rate used in determining the APBO was 7.75%
and 7.25% for 1996 and 1995, respectively. For measurement purposes in 1996 and
1995, a 9% and 12%, respectively, annual rate of increase in the per capita cost
of covered medical care benefits was assumed. The rate was assumed to decrease
to 5% and 6.5% in 1996 and 1995, respectively, by the year 2003, then remain
level. If the assumed health care cost increased by 1% for each future year, the
current cost and the APBO would have increased by approximately 5% to 6% for all
periods presented.

The company also provides other benefits for certain inactive associates.
Expenses related to these benefits are immaterial.

SUPPLEMENTAL CASH FLOWS INFORMATION

<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Acquisitions:
Fair value of assets acquired........................ $ 142,458 $ 1,575,323
Less:
Liabilities assumed or created....................... (63,873) (1,198,050)
Existing company investment........................ (51,126) 15,281
Cash acquired...................................... (16,805) (5,066)
---------- -------------
Cash paid, net of cash acquired...................... $ 10,654 $ 387,488
---------- -------------
---------- -------------
Cash paid during the year for:
Interest, net of amounts capitalized................. $ 152,846 $ 171,141 $ 98,254
Income taxes, net of refunds......................... $ 32,291 $ (9,593) $ 40,414
Direct financing leases and related obligations........ $ 17,062 $ 28,568 $ 15,640
Property and equipment additions by capital leases..... $ 11,111 $ 8,840 $ 30,606
---------- ---------- -------------
---------- ---------- -------------
</TABLE>

LITIGATION AND CONTINGENCIES

PREMIUM

F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994

diverter -- Premium Sales Corporation ("Premium") and others in which large
losses in the Premium-related entities occurred to the detriment of a class of
investors which brought one of the suits. The other suit is by the
receiver/trustee of the estates of Premium and certain of its affiliated
entities (the "Trustee"). Plaintiffs sought actual damages of approximately $300
million, treble damages, punitive damages, attorneys' fees, costs, expenses and
other appropriate relief.

The company denies plaintiffs' accusations and allegations, and denies all
wrongdoing, liability, fault or responsibility for loss, if any, with respect to
the claims made against it in the Premium litigation. However, to avoid future
costs and eliminate uncertainty, the company entered into a settlement agreement
with respect to the Premium cases in December 1996. Under the agreement, the
plaintiffs (excluding class member opt-outs and non-releasing investors) and all
other claimants will dismiss their actions against the company in exchange for a
$19.5 million payment plus $500,000 for costs and expenses, and all related
claims involving the company will be dismissed.

The company recorded a charge of $20 million, or $.26 per share, during the
third quarter of 1996 in anticipation of the settlement and deposited that
amount into an escrow account in December pending finalization. The settlement
is subject to, among other conditions, court approval and receipt by the company
of releases from investors, including those who might not be bound by the
settlement. The company has the right to withdraw the escrowed funds and
terminate the settlement if such conditions are not met. As of the date of these
financial statements, non-released claims held by investors who would not
otherwise be bound by the settlement were estimated to be substantial. In the
event the settlement is not consummated, the company expects the litigation will
resume. In that event, while management is unable to predict the potential range
of monetary exposure to the company, if any, an unfavorable outcome could have a
material adverse effect on the company and its financial statements.

DAVID'S

The company, a former subsidiary subsequently merged with the company, and a
retired executive officer were named in a lawsuit filed by David's Supermarkets,
Inc. in the District Court of Johnson County, Texas in 1993 ("David's") alleging
product overcharges during a three year period. A jury trial was held in
February and March 1996, and on April 12, 1996, judgment was entered against the
company in the amount of $207.5 million for violation of the Texas Deceptive
Trade Practice Act ("DTPA") plus pre-judgment interest of $3.7 million and
post-judgment interest at the rate of 10% per annum. Judgment jointly and
severally against the executive was entered for $72.6 million plus pre-judgment
and post-judgment interest.

The company posted a supersedeas bond, commenced appeal of the judgment, and
filed a motion for a new trial and recusal of the trial judge on grounds
unrelated to the merits. Subsequently, the trial judge recused himself and a new
judge was assigned to the case who vacated the judgment and granted a new trial,
currently scheduled for May 1997. As a result, letters of credit which had
partially secured the supersedeas bond were canceled, thereby restoring $135
million to the company's bank facility.

Plaintiff continues to allege liability on the part of the company (and its
co-defendant) as the result of breach of contract, fraud, conspiracy and
violation of the DTPA, and seeks substantial actual damages, treble damages,
exemplary damages, attorneys' fees, interest and costs, totaling hundreds of
millions of dollars. Management is unable to predict the potential range of
additional monetary exposure, if any, to the company. However, based upon the
large recovery sought and the unexpected result of the first trial, an
unfavorable outcome resulting from the new trial could have a material adverse
effect on the company and its financial statements.

F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994

Since the announcement of the initial judgment in the David's litigation,
other customers involved in disputes with the company have added allegations of
overcharges purporting to be similar to those made in the David's case. Such
allegations may also be made by others. Management is unable to predict the
potential range of monetary exposure to the company from such allegations, if
any. However, if the plaintiff in any of such cases were to be successful in
these assertions, the outcome could have a material adverse effect on the
company and its financial statements.

MEGAFOODS

In August 1994, a former customer, Megafoods Stores, Inc. ("Megafoods" or
"debtor"), and certain of its affiliates filed chapter 11 bankruptcy proceedings
in Arizona. The company filed claims, including a claim for indebtedness for
goods sold on open account, equipment leases and secured loans, totaling
approximately $28 million (including claims for future payments and other
non-recorded assets). Additionally, the debtor is liable or contingently liable
to the company under store subleases and lease guarantees extended by the
company for the debtor's benefit. The debtor objected to the company's claims
and filed an adversary proceeding against the company seeking subordination of
the company's claims, return of an approximate $12 million deposit and
affirmative relief for damages which was subsequently amended to include
allegations purporting to be similar to those made in the David's litigation.

In August 1996, the court approved a settlement of both the debtor's
adversary proceeding against the company and the company's disputed claims in
the bankruptcy. The settlement, which is subject to approval by the creditors of
a revised plan which will encompass the settlement, provides that the company
will retain the $12 million deposit, relinquish its secured and unsecured claims
in exchange for the right to receive 10% of distributions, if any, made to the
unsecured creditors and pay the debtor $2.5 million in exchange for the
furniture, fixtures and equipment from 17 of its stores (located primarily in
Texas) and two Texas warehouses. The company agreed to lease to the reorganized
debtor the furniture, fixtures and equipment in fourteen of the stores for nine
years (or until, in each case, the expiration of the store lease) at an annual
rental of $18 thousand per store.

The company recorded charges of approximately $6.5 million in 1994, $3.5
million in 1995 and $5.8 million in 1996, and at year-end 1996 had approximately
$2.8 million of recorded net assets relating to Megafoods. If the settlement is
consummated, the company will make the $2.5 million payment as provided for in
the settlement agreement. The company remains contingently liable for stores
subleased by the company to Megafoods and for certain leasehold guarantees
extended by the company to third parties on Megafoods' behalf.

CLASS ACTION SUITS

The company and certain of its present and former officers and directors,
including the chief executive officer, have been named as defendants in nine
purported class action lawsuits filed by certain of its stockholders and one
purported class action lawsuit filed by a noteholder, alleging the company
failed to properly disclose and account for the risk associated with the David's
litigation. The plaintiffs in five of the stockholder cases also claim the
company failed to disclose that it was engaged in an allegedly "deceptive

F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994

course of business" with its customers that exposed the company to substantial
liability which would severely impair the financial condition, performance and
value of the company. The plaintiffs seek undetermined but significant damages.
Management is unable to predict the ultimate outcome or a potential range of
monetary exposure, if any, to the company from these actions. However, an
unfavorable outcome in any of them could have a material adverse effect on the
company and its financial statements.

FURR'S

Furr's Supermarkets, Inc. ("Furr's"), who purchased $546 million of products
in 1996 under a supply agreement expiring in 2001, filed a lawsuit in the
District Court of Bernalillo County, New Mexico in February 1997 naming as
defendants the company, certain company officers and an employee. Furr's claims
it has been overcharged for products under the agreement and alleges various
causes of action, among them breach of contract, misrepresentation, fraud and
violation of certain of New Mexico's trade practices statutes. Furr's seeks an
unspecified monetary award of actual, consequential, incidental and punitive
damages, treble damages, interest, attorneys' fees and court costs, and also
seeks a declaratory judgment terminating the supply agreement. Prior to filing
the lawsuit, Furr's was seeking to exercise the agreement's competitiveness
clause and was examining the company's pricing under the agreement. The company
believes it has substantially complied with its obligations to Furr's in good
faith. Furr's has submitted what it asserts is a qualified competitive bid; the
company is examining the submission and, as of the date of these financial
statements, had not yet reached any conclusion as to competitiveness. Management
is unable to predict the potential range of monetary exposure, if any, to the
company. However, the effect of an unfavorable outcome or the loss of the
customer's business for any reason could have a material adverse effect on the
company and its financial statements.

OTHER

The company supplies goods and services to some of its customers
(particularly to its large customers) pursuant to supply agreements containing a
"competitiveness" clause. Under this clause, the customer may submit to the
company a qualified bid from another supplier to provide a comparable range of
goods and services at prices lower than those charged by the company by more
than an agreed percentage. The company has the right to lower its prices to come
within the agreed percentage; if it chooses not to, the customer may accept the
competitor's bid. The competitiveness clause is not exercised frequently and
disputes regarding the clause must generally be submitted to binding
arbitration. Additionally, the company believes that most supply agreements
prohibit recovery of both punitive and consequential damages if any litigation
ever arises. From time to time, customers of the company may seek to renegotiate
the terms of their supply agreements, or exercise the competitiveness clause of
such agreements or otherwise alter the terms of their contractual obligations to
the company to obtain financial concessions. The company does not believe such
efforts have had a material adverse effect on its operations or financial
condition.

The company has purchased insurance to secure its obligation to indemnify
its officers and directors against certain liabilities which may result from
actions taken on behalf of the company. The company believes this insurance
covers potential exposure arising from some of the allegations made in the
David's litigation, as well as allegations made in other lawsuits. The company
is pursuing a declaratory judgment action against certain of its insurance
carriers to resolve certain coverage issues. While the company intends to
vigorously assert its rights under the policies, there can be no assurance as to
the amount of coverage which may ultimately be available.

F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 28, 1996, DECEMBER 30, 1995,
AND DECEMBER 31, 1994

The company's facilities are subject to various laws and regulations
regarding the discharge of materials into the environment. In conformity with
these provisions, the company has a comprehensive program for testing and
removal, replacement or repair of its underground fuel storage tanks and for
site remediation where necessary. The company has established reserves that it
believes will be sufficient to satisfy anticipated costs of all known
remediation requirements. In addition, the company is addressing several other
environmental cleanup matters involving its properties, all of which the company
believes are immaterial.

The company has been designated by the U.S. Environmental Protection Agency
("EPA") as a potentially responsible party under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA") with others, with respect to
EPA-designated Superfund sites. While liability under CERCLA for remediation at
such sites is joint and several with other responsible parties, the company
believes that, to the extent it is ultimately determined to be liable for clean
up at any site, such liability will not result in a material adverse effect on
its consolidated financial position or results of operations. The company is
committed to maintaining the environment and protecting natural resources and to
achieving full compliance with all applicable laws and regulations.

At year-end 1996, the company has aggregate contingent liabilities for
future minimum rental commitments made on behalf of customers with a present
value of approximately $82 million.

The company is a party to various other litigation, tax assessments and
other matters, some of which are for substantial amounts, arising in the
ordinary course of business. The ultimate effect of such actions cannot be
predicted with certainty. Although the settlement of any of these matters may
have a material adverse impact on interim or annual results of operations, the
company expects that the outcome of these matters will not result in a material
adverse effect on liquidity or consolidated financial position.

SUBSEQUENT EVENT

The company has terminated its share rights plan to be effective on the date
the company holds its 1997 annual meeting of shareholders.

F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders
Fleming Companies, Inc.

We have audited the accompanying consolidated balance sheets of Fleming
Companies, Inc. and subsidiaries as of December 28, 1996 and December 30, 1995,
and the related consolidated statements of earnings, shareholders' equity, and
cash flows for each of the three years in the period ended December 28, 1996.
Our audits also included the financial statement schedule listed in the Index at
Item 14. 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 Fleming Companies,
Inc. and subsidiaries at December 28, 1996 and December 30, 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 28, 1996, in conformity with generally accepted
accounting principles. Also in our opinion, such financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.

DELOITTE & TOUCHE LLP
Oklahoma City, Oklahoma
March 4, 1997

F-29
<PAGE>
QUARTERLY FINANCIAL INFORMATION

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)
<TABLE>
<CAPTION>
1996 FIRST SECOND THIRD FOURTH YEAR
- ------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Net sales............................................. $ 5,168,234 $ 3,742,331 $ 3,705,970 $ 3,870,204 $ 16,486,739
Costs and expenses (income):
Cost of sales....................................... 4,711,114 3,397,509 3,373,525 3,522,567 15,004,715
Selling and administrative.......................... 401,523 298,402 281,316 293,408 1,274,649
Interest expense.................................... 55,760 34,330 34,955 38,421 163,466
Interest income..................................... (15,424) (11,301) (11,610) (10,787) (49,122)
Equity investment results........................... 3,165 4,099 5,708 5,486 18,458
Litigation settlement............................... -- -- 20,000 -- 20,000
------------ ------------ ------------ ------------ -------------
Total costs and expenses.......................... 5,156,138 3,723,039 3,703,894 3,849,095 16,432,166
------------ ------------ ------------ ------------ -------------
Earnings before taxes................................. 12,096 19,292 2,076 21,109 54,573
Taxes on income....................................... 6,181 9,858 1,061 10,787 27,887
------------ ------------ ------------ ------------ -------------
Net earnings.......................................... $ 5,915 $ 9,434 $ 1,015 $ 10,322 $ 26,686
------------ ------------ ------------ ------------ -------------
Net earnings per share................................ $ .16 $ .25 $ .03 $ .27 $ .71
Dividends paid per share.............................. $ .30 $ .02 $ .02 $ .02 $ .36
Weighted average shares outstanding................... 37,739 37,788 37,788 037,794 37,774
------------ ------------ ------------ ------------ -------------
------------ ------------ ------------ ------------ -------------

1995 FIRST SECOND THIRD FOURTH YEAR
- ------------------------------------------------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Net sales............................................. $ 5,458,982 $ 4,000,070 $ 3,898,361 $ 4,144,159 $ 17,501,572
Costs and expenses (income):
Cost of sales....................................... 5,020,518 3,676,391 3,599,252 3,794,878 16,091,039
Selling and administrative.......................... 364,081 264,817 258,020 302,281 1,189,199
Interest expense.................................... 56,397 40,046 38,603 40,344 175,390
Interest income..................................... (19,481) (14,393) (11,673) (12,659) (58,206)
Equity investment results........................... 6,473 3,074 6,658 11,035 27,240
Facilities consolidation............................ (8,982) -- -- -- (8,982)
------------ ------------ ------------ ------------ -------------
Total costs and expenses.......................... 5,419,006 3,969,935 3,890,860 4,135,879 17,415,680
------------ ------------ ------------ ------------ -------------
Earnings before taxes................................. 39,976 30,135 7,501 8,280 85,892
Taxes on income....................................... 20,428 15,399 3,833 4,231 43,891
------------ ------------ ------------ ------------ -------------
Net earnings.......................................... $ 19,548 $ 14,736 $ 3,668 $ 4,049 $ 42,001
------------ ------------ ------------ ------------ -------------
Net earnings per share................................ $ .52 $ .39 $ .10 $ .11 $ 1.12
Dividends paid per share.............................. $ .30 $ .30 $ .30 $ .30 $ 1.20
Weighted average shares outstanding................... 37,497 37,546 37,619 37,675 37,577
------------ ------------ ------------ ------------ -------------
------------ ------------ ------------ ------------ -------------
</TABLE>

The first quarter of 1996 includes a $7 million charge related to a judgment
in the David's litigation. The charge was classified as follows: $4 million as
selling and administrative expenses and $3 million as interest expense. During
the second quarter of 1996, this judgment was set aside and vacated, and the
charge was reversed. A new charge of $650,000 was recorded. The fourth quarter
of 1996 includes a $5 million impairment charge, classified as selling and
administrative expense, related to an international investment.

The first quarter of both years consists of 16 weeks; all other quarters are
12 weeks.

F-30
<PAGE>

SCHEDULE II

FLEMING COMPANIES, INC.
AND CONSOLIDATED SUBSIDIARIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 28, 1996,
DECEMBER 30, 1995, AND DECEMBER 31, 1994

(in thousands)

Allowance
for
Credit Losses Current Noncurrent
------------- ------- ----------
BALANCE, December 25, 1993 $ 62,595 $44,320 $18,275

Acquired reserves,
Scrivner acquisition, July 19, 1994 25,950

Charged to costs and expenses 61,218

Uncollectible accounts written off,
less recoveries (101,196)

BALANCE, December 31, 1994 48,567 $39,506 $ 9,061

Charged to costs and expenses 30,513

Uncollectible accounts written off,
less recoveries (25,676)

BALANCE, December 30, 1995 53,404 $35,136 $18,268

Charged to costs and expenses 26,921

Uncollectible accounts written off,
less recoveries (35,963)

Asset Impairment 5,000

BALANCE, December 28, 1996 $ 49,632 $24,659 $24,973

<PAGE>

Exhibit 4.14

FIRST AMENDMENT TO RIGHTS AGREEMENT

This First Amendment to Rights Agreement dated as of March 4, 1997 (the
"Amendment"), by and between Fleming Companies, Inc., an Oklahoma corporation
(the "Company") and Liberty Bank and Trust Company of Oklahoma City, N.A. (the
"Rights Agent").

WHEREAS, the Company and the Rights Agent entered into that certain Rights
Agreement dated as of February 27, 1996 and effective as of the close of
business on July 6, 1996 (the "Rights Agreement"); and

WHEREAS, the purpose of this Amendment is to accelerate the Final Expiration
Date of the Rights Agreement from close of business on July 5, 2006 to close of
business on April 30, 1997; and

WHEREAS, the Company and the Rights Agent mutually desire to amend the Rights
Agreement.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements set forth herein, the Company and the Rights Agent hereby amend the
Rights Agreement as follows:

1. The Amendment. Section 7(a) of the Rights Agreement is amended in its
entirety as follows:

"Section 7 Exercise of Rights; Purchase Price; Expiration Date of Rights.
(a) The registered holder of any Right Certificate may exercise the Rights
evidenced thereby (except as otherwise provided herein) in whole or in part
at any time after the Distribution Date upon surrender of the Right
Certificate, with the form of election to purchase on the reverse side
thereof duly executed, to the Rights Agent at the principal office of the
Rights Agent, together with payment of the Purchase Price for each one
one-hundredth of a Preferred Share as to which the Rights are exercised, at
or prior to the earliest of (i) the close of business on April 30, 1997 (the
"Final Expiration Date"), (ii) the time at which the Rights are redeemed as
provided in Section 23 hereof (the "Redemption Date"), or (iii) the time at
which such Rights are exchanged as provided in Section 24 hereof."

2. The Agreement. The term "Agreement", as used in the Rights Agreement and in
this Amendment shall hereafter mean the Rights Agreement as amended by this
Amendment. The Rights Agreement, as amended hereby, shall continue in full
force and effect in accordance with the terms thereof.

3. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of Oklahoma.

4. Counterparts. This Amendment may be executed in one or more counterparts,
all of which shall be considered one and the same instrument, and shall become
effective when one or more of the counterparts have been signed by each of the
parties and delivered to the other parties.

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed
on the date first above written.

FLEMING COMPANIES, INC.
Attest:

By /s/ David R. Almond By /s/ Robert E. Stauth
David R. Almond, Senior Robert E. Stauth, Chairman

<PAGE>

Vice President, General and Chief Executive Officer
Counsel and Secretary

LIBERTY BANK AND TRUST COMPANY
OF OKLAHOMA CITY, N.A.
Attest:

By By /s/ John H. Brown
John H. Brown
Assistant Secretary Senior Vice President

-2-

<PAGE>

Exhibit 4.15

INSTRUMENTS DEFINING THE RIGHTS OF
SECURITY HOLDERS, INCLUDING INDENTURES

The Registrant has various long-term debt agreements which define the rights of
the holders of the related debt securities of the Registrant. No agreement with
respect to the Registrant's long-term debt exceeds 10% of total assets, except
the $1.19 billion Credit Agreement dated as of October 21, 1996 (as amended)
(incorporated by reference) and the Indentures dated as of December 15, 1994
(incorporated by reference). Debt agreements that do not exceed 10% of total
assets have not been filed. The Registrant agrees to furnish copies of any
unfiled debt agreements to the Commission upon request.

FLEMING COMPANIES, INC.
(Registrant)

Date March 20, 1997 By Kevin J. Twomey
Vice President-Controller
(Principal Accounting Officer)

<PAGE>

Exhibit 10.16

AMENDMENT NO. 1
TO THE FLEMING COMPANIES, INC.
1996 STOCK OPTION PLAN

WHEREAS, Fleming Companies, Inc. (the "Company") presently has in existence
the Fleming Companies, Inc. 1996 Stock Incentive Plan (the "Plan"); and

WHEREAS, the Securities and Exchange Commission has promulgated amendments to
certain rules under Section 16 of the Securities Exchange Act of 1923, as
amended; and

WHEREAS, the Company believes that the Plan should be amended to comply with
the new Section 16 rules; and

WHEREAS, the Board of Directors of the Company has authorized and approved
this Amendment No. 1 to the Plan at its meeting held on October 22, 1996;

NOW, THEREFORE, BE IT RESOLVED, that the Plan be, and is hereby, amended as
follows:

1. Section 2.6. Section 2.6 of the Plan is hereby amended to deleting the last
sentence thereof and replacing it with the following:

"The Committee shall consist of not less than two members, each of whom meets
the definition of the term "non-employee director" in Rule 16b-3 (or any
successor rule) promulgated under Section 16 of the Exchange Act."

2. Section 6.2(b). Section 6.2(b) of the Plan is hereby amended by deleting
the proviso in the penultimate sentence thereof.

3. Section 9.5. Section 9.5 of the Plan is hereby amended by deleting the
proviso at the end of Section 9.5.

Except as provided in this Amendment No. 1, in all other respects the Plan is
hereby ratified and confirmed. The effective date of this Amendment No. 1 shall
be November 1, 1996.

<PAGE>

Exhibit 10.19

FIRST AMENDMENT TO
FLEMING COMPANIES, INC.
SUPPLEMENTAL INCOME TRUST

This First Amendment to Fleming Companies, Inc. Supplemental Income Trust dated
as of this 25th day of February, 1997 (the "Amendment"), by and among Fleming
Companies, Inc., an Oklahoma corporation (the "Company"), and BANCOKLAHOMA TRUST
COMPANY, an Oklahoma corporation (the "Trustee").

W I T N E S S E T H:

WHEREAS, the Company and the Trustee entered into that certain Fleming
Companies, Inc. Supplemental Income Trust dated as of March 16, 1995 (the "Trust
Agreement").

WHEREAS, the Company and the Trustee desire to amend the Trust Agreement.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements set forth herein, the Company and the Trustee hereby amend the Trust
Agreement as follows:

1. The Amendments.

(a) Exhibit "A". Exhibit "A" to the Trust Agreement is hereby amended by
adding the following:

"5. The Supplemental Retirement Income Agreement by and between William J. Dowd
and the Company, dated as of February 25, 1997."

(b) Section 1(f). Section 1(f) of the Trust Agreement is hereby amended to
read in its entirety as follows:

"(f) Upon a Change of Control, Company shall, as soon as possible, but in no
event longer than sixty (60) days following the Change of Control, make an
irrevocable contribution to the Trust in an amount that is sufficient to pay the
Participants or their beneficiaries the benefits to which the Participants or
their beneficiaries would be entitled pursuant to the terms of the Amended and
Restated Supplemental Retirement Income Plan of Fleming Companies, Inc. and Its
subsidiaries (the "Supplemental Plan") and the Supplemental Retirement Income
Agreement between the Company and William J. Dowd dated as of February 25, 1997
(the "Dowd Agreement") as of the date on which the Change of Control occurred
assuming the Participants have each been terminated other than for "cause" (as
such term is defined in the Supplemental Plan and in the Dowd Agreement), death
or disability or the Participants terminate their employment for "good reason"
as such term is defined in the Supplemental Plan and in the Dowd Agreement."

2. The Agreement. The term "Agreement", as used in the Trust Agreement and in
this Amendment shall hereafter mean the Trust Agreement as amended by this
Amendment. The Trust Agreement, as amended hereby, shall continue in full force
and effect in accordance with the terms thereof.

3. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of Oklahoma.

<PAGE>

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed
on the date first above written.

FLEMING COMPANIES, INC., an Oklahoma corporation

By /s/ Larry A. Wagner
Larry A. Wagner
Senior Vice President -
Associate Support

BANCOKLAHOMA TRUST COMPANY

By /s/ Ellen D. Fleming
Ellen D. Fleming
Senior Vice President &
Senior Trust Officer

-2-

<PAGE>

EXHIBIT 10.23

AMENDED AND RESTATED
SUPPLEMENTAL RETIREMENT INCOME AGREEMENT

FOR

ROBERT E. STAUTH

AMENDED AND RESTATED
AGREEMENT FOR SUPPLEMENTAL RETIREMENT INCOME

THIS AMENDED AND RESTATED AGREEMENT FOR SUPPLEMENTAL RETIREMENT INCOME (the
"Agreement") is made as of this 24th day of February, 1997 by and between ROBERT
E. STAUTH, an individual (the "Participant") and FLEMING COMPANIES, INC. (the
"Company") with respect to the following:

WHEREAS, the Company and the Participant are parties to that certain Agreement
for Supplemental Retirement Income (the "Old Agreement") which Agreement was
adopted pursuant to the Supplemental Retirement Income Plan of Fleming
Companies, Inc. and Its Subsidiaries; and

WHEREAS, the Board of Directors of the Company has adopted the Amended and
Restated Supplemental Plan effective January 1, 1995 (the "Supplemental Plan");
and

WHEREAS, the Company and the Participant desire to terminate the Old Agreement
and replace it with this Agreement.

NOW, THEREFORE, in consideration of mutual covenants hereinafter contained,
the parties hereto agree as follows. All capitalized words used in this
Agreement shall have the same meaning as such terms are used in the Supplemental
Plan unless specifically denoted otherwise.

1. Purpose of Supplemental Plan. The purpose of the Supplemental Plan and this
Agreement is to provide to you, the Participant, the opportunity to earn a
Supplemental Income as provided in this Agreement in order to retain you, as a
key management associate, with the Company. Payment of the Supplemental Normal
Retirement Income shall be made to you in consideration of future services
rendered by you and shall be paid to you or your Beneficiary as hereinafter
provided.

2. Maximum Amount of Target Benefit. The maximum amount of Target Benefit to
which you will be entitled at your Normal Retirement Date will be seventy-seven
percent (77%) of your Annual Final Compensation. This is your Target Benefit.
This assumes that you will earn thirty-seven years (37) Years of Credited
Service as of your Normal Retirement Date.

3. Calculation and Manner of Payment of Supplemental Normal Retirement Income.

(a) General. You, as a Participant, are also a participant in the Qualified
Retirement Plan sponsored by the Company. Further, you have also earned a
benefit in the form of a Basic Retirement Income pursuant to the terms of the
Qualified Retirement Plan as of the Effective Date or a date subsequent thereto.
Your Supplemental Normal Retirement Income will equal the difference between the
applicable Target Benefit selected for you by the Committee and the Offset
Amounts otherwise payable to you as of your applicable Retirement Date,
consisting of the following:

(1) the amount payable to you under Fleming's Qualified Retirement Plan; and

(2) Social Security amount payable to you and your spouse.

<PAGE>

(b) Manner of Payment of Supplemental Normal Retirement Income. The
Supplemental Normal Retirement Income will be paid to you and your Beneficiary,
if applicable, in the manner elected by you below: (Check One Box Only)

Methods of Payment

1. [ ] Life of Participant Only

2. [ ] 50% Joint Annuitant Survivor Benefit

3. [ ] 75% Joint Annuitant Survivor Benefit

4. [ ] 100% Joint Annuitant Survivor Benefit

5. [ ] 5 Year Period Certain

6. [X] 10 Year Period Certain

7. [ ] 15 Year Period Certain

The actual amounts payable at retirement or death will depend upon your age
and/or your Beneficiary. Refer to Exhibit "A" for a complete description of the
Methods of Payment.

(c) Calculation. Exhibit "B" hereto contains an example calculation of
Supplemental Normal Retirement Income assuming a retirement at age 65 and
Exhibit "C" hereto contains an example calculation of Supplemental Early
Retirement Income assuming retirement at age 55.

4. Commencement of Supplemental Retirement Income. Subject to the provisions of
Section 9.2 of the Supplemental Plan, based upon the manner of payment elected
by you for payment of your Supplemental Normal Retirement Income, payments shall
actually commence as of your Early Retirement Date (only with the consent of the
Committee), Normal Retirement Date, Disability Retirement Date, Postponed
Retirement Date, or date of death, as the case may be, and shall be payable
monthly to you or your Beneficiary, as the case may be, until payments cease as
provided hereafter.

5. Amendment or Termination. This Agreement may be amended or terminated only
with the consent of the Company and you, the Participant.

6. Expenses. The expenses of administering this Agreement shall be borne by
the Company and shall not be charged against your Supplemental Normal Retirement
Income.

7. Applicable Law. The provisions of this Agreement shall be construed,
administered and enforced according to the laws of the State of Oklahoma.

8. No Trust. No action under this Agreement by the Company or its Board of
Directors shall be construed as creating a trust, escrow or other secured or
segregated fund, in favor of you or your Beneficiary, or any other person
otherwise entitled to your Supplemental Normal Retirement Income and accruals
thereon. The status of you and your Beneficiary with respect to any liabilities
assumed by the Company hereunder shall be solely those of unsecured creditors of
the Company. Any asset acquired or held by the Company in connection with
liabilities assumed by it hereunder, shall not be deemed to be held under any
trust, escrow or other secured or segregated fund for the benefit of the you or
your Beneficiary or to be security for the performance of the obligations of the
Company, but shall be, and remain a general,

-2-
<PAGE>

unpledged, unrestricted asset of the Company at all times subject to the
claims of general creditors of the Company.

9. No Assignability. Neither you, your Beneficiary, nor any other person shall
acquire any right to or interest in any Supplemental Normal Retirement Income
and accruals thereon, otherwise than by actual payment in accordance with the
provisions of this Agreement, or have any power to transfer, assign, anticipate,
pledge, mortgage or otherwise encumber, alienate or transfer any rights
hereunder in advance of any of the payments to be made pursuant to the Agreement
or any portion thereof which is expressly declared to be nonassignable and
nontransferable. No right or benefit hereunder shall in any manner be liable
for or subject to the debts, contracts, liabilities, or torts of the person
entitled to such benefit. If you or your Beneficiary should become bankrupt or
attempt to anticipate, alienate, sell, assign, pledge, encumber, or charge any
right to a benefit hereunder or under the Supplemental Plan, then such right or
benefit shall, in the discretion of the Committee, cease and terminate, and, in
such event, the Committee may hold or apply the same or any part thereof for the
benefit of you and your Beneficiary, in such manner and in such portion as the
Committee, in its sole and absolute discretion, may deem proper.

10. Agreement Does Not Guarantee Continued Employment of Participant. The
execution of this Agreement by the Company and you, as the Participant, in no
way whatsoever guarantees the continuation of employment of you with the
Company. Further, notwithstanding any provision contained in this Agreement or
the Supplemental Plan which may imply or specify to the contrary, except as
provided in the Supplemental Plan, your right to receive a Supplemental Normal
Retirement Income (or any other benefit) under this Agreement or the
Supplemental Plan shall at all times be forfeitable prior to the specific date
that you first satisfy the requirements for actually retiring on your applicable
Retirement Date or as of the date of your death, as the case may be.
Accordingly, in the event of termination of employment of Participant prior to
such applicable date (except as specifically provided in the Supplemental Plan)
neither you nor your Beneficiary, or any other person shall be entitled to any
benefit pursuant to the terms of this Agreement or the Supplemental Plan.

11. Withholding. The Company and the Participant shall comply with all federal
and state laws and regulations respecting the withholding, deposit and payment
of any income, employment or other taxes relating to any payments or rights to
payments under this Agreement.

12. Designation of Beneficiary.

(a) You, as the Participant, hereby designate the following individual as your
Beneficiary to receive any Supplemental Death Benefit (including any benefit to
be paid to such Beneficiary as the surviving "joint annuitant" pursuant to
Section 3(b) hereof) payable to you under this Agreement or the Supplemental
Plan in the event of your death:

Name Address Relationship

Carol E. Stauth 12501 Bocage Drive Wife
Oklahoma City, OK

(b) You understand that during your lifetime, you may at any time change the
Beneficiary designated herein by delivering to the Committee a new designation
of a Beneficiary.

-3-
<PAGE>

13. Relationship Between Agreement and Supplemental Plan. This Agreement has
been entered into by and between Company and Participant in accordance with and
pursuant to authority granted to the Committee pursuant to the terms and
provisions of the Supplemental Plan. In the event that there develops a
conflict between this Agreement and the terms and provisions of the Supplemental
Plan, the terms and provisions of the Supplemental Plan, as interpreted by the
Committee in its sole discretion, shall control and be final and conclusive.

14. Limitation on Payment of Benefits. The payment of the Supplemental Normal
Retirement Income as provided in this Agreement shall accrue and be payable to
you or your Beneficiary, as the case may be, only at such times and upon the
occurrence of such conditions as heretofore described. In no event whatsoever
shall you or your Beneficiary have any right, claim, or interest of any kind
whatsoever in any future payments of such Supplemental Normal Retirement Income
and such payments shall accrue and be payable only on a monthly basis as
provided hereinabove. In no event may you or your Beneficiary be entitled to
receive a lump sum payment or other sum approximating the right to receive any
future payments of Supplemental Normal Retirement Income hereunder.

15. Termination of Old Agreement. Effective as of the date of the execution
and delivery of this Agreement, the Old Agreement shall be terminated and of no
further force and effect.

16. Effective Date. This Agreement shall be effective from and after the day
and year first above written.

DATED the day and year first above written.

FLEMING COMPANIES, INC., an Oklahoma corporation

By /s/ Larry A. Wagner
Larry A. Wagner
Senior Vice President-
Human Resources

"COMPANY"

/s/ Robert E. Stauth
Robert E. Stauth

"PARTICIPANT"

-4-
<PAGE>

EXHIBIT "A"

Description of Methods of Payment

METHOD 1 - Life of A Supplemental Normal Retirement Income will
Participant Only: be paid for your life only. Upon your death,
all payments of Supplemental Normal Retirement
Income shall cease.

METHOD 2 - 50% A reduced amount of Supplemental Normal
Joint Annuitant Retirement Income will be paid to you for your
Survivor Benefit: life, then, at your death 50% of such amount
shall be paid to your surviving Beneficiary.
In the event that your surviving Beneficiary
has predeceased you, or should otherwise die
after your death, then no further payments
will be paid under Method 2 or this Agreement.

METHOD 3 - 75% A reduced amount of Supplemental Normal
Joint Annuitant Retirement Income will be paid to you for your
Survivor Benefit: life, then, at your death 75% of such amount
shall be paid to your surviving Beneficiary.
In the event that your surviving Beneficiary
has predeceased you, or should otherwise die
after your death, then no further payments
will be due under Method 3 or this Agreement.

METHOD 4 - 100% A reduced amount of Supplemental Normal
Joint Annuitant Retirement Income will be paid to you for your
Survivor Benefit: life, then, at your death 100% of such amount
shall be paid to your surviving Beneficiary.
In the event that your surviving Beneficiary
has predeceased you, or should otherwise die
after your death, then no further payments
will be due under Method 4 or this Agreement.

METHOD 5 - 5 Year A reduced amount of Supplemental Normal
Period Certain: Retirement Income will be paid for a period of
5 years certain. After the expiration of such
5 year period, payments shall then continue
for your life in the same amount. In the
event of your death during the 5 year period
certain, then, the balance of such payments
due only during such 5 year period will be
paid to your surviving Beneficiary. After the
expiration of such 5 year period, then all
payments shall cease. In the event of the
expiration of such 5 year period, and you die,
then, no further benefits will be paid under
METHOD 5 or this Agreement.

-1-

<PAGE>

METHOD 6 - 10 Year A reduced amount of Supplemental Normal
Period Certain: Retirement Income shall be paid for a period
of 10 years certain. After the expiration of
such 10 year period, payments shall then
continue for your life in the same amount. In
the event of your death during the 10 year
period certain, then, the balance of such
payments due only during such 10 year period
will be paid to your surviving Beneficiary.
After the expiration of such 10 year period,
then all payments shall cease. In the event
of the expiration of such 10 year period, and
you die, then, no further benefits will be
paid under METHOD 6 or this Agreement.

METHOD 7 - 15 Year A reduced amount of Supplemental Normal
Period Certain: Retirement Income shall be paid for a period
of 15 years certain. After the expiration of
such 15 year period, payments shall then
continue for your life in the same amount. In
the event of your death during the 15 year
period certain, then, the balance of such
payments due only during such 15 year period
will be paid to your surviving Beneficiary.
After the expiration of such 15 year period,
then all payments shall cease. In the event
of the expiration of such 15 year period, and
you die, then, no further benefits will be
paid under METHOD 7 or this Agreement.

-2-
<PAGE>

EXHIBIT "B"

EXAMPLE OF CALCULATION OF SUPPLEMENTAL NORMAL
RETIREMENT INCOME ASSUMING RETIREMENT AT AGE 65

Assumptions:

- - Final Average Earnings = $200,000
- - Category I Participant
- - 28 Years Service
- - Retire at 65
- - Estimated SSA = 13,610
- - Spousal SSA = 6,805
- - "B" Account = 120,000
- - Annual Pension = $ 53,582

Calculations:

Final Average Earnings $200,000
SERP Target x .68

$136,000
Less "B" Acct. Equivalent - 14,748
Less Pension - 53,582
Less Age 65 Primary SSA - 13,610
Less Spousal SSA - 6,805

Annual Life Only SERP $ 47,255

-3-
<PAGE>

EXHIBIT "C"

EXAMPLE OF CALCULATION OF SUPPLEMENTAL EARLY
RETIREMENT INCOME ASSUMING RETIREMENT AT AGE 55

Assumptions:

- - Final Average Earnings = $200,000
- - Category I Participant
- - 28 Years Service
- - Retire at 55
- - Estimated SSA = 13,610
- - Spousal SSA = 6,805
- - "B" Account = 120,000
- - Annual Pension = $ 24,899

Calculations:

Final Average Earnings $200,000
SERP Target x .68

$136,000
Less 42% Early Retire. Reduct.- 57,120

78,880
Less "B" Acct. Equivalent - 12,024
Less Pension - 24,899
Less Age 65 Primary SSA - 13,610
Less Spousal SSA - 6,805

Annual Life Only SERP $ 21,542

-4-

<PAGE>
EXHIBIT 10.24

SUPPLEMENTAL RETIREMENT INCOME AGREEMENT OF

FLEMING COMPANIES, INC.

AND WILLIAM J. DOWD

(Execution Date: February 25, 1997)

SUPPLEMENTAL RETIREMENT INCOME AGREEMENT

THIS SUPPLEMENTAL RETIREMENT INCOME AGREEMENT by and between FLEMING
COMPANIES, INC., an Oklahoma corporation (the "Company") and WILLIAM J. DOWD, an
individual (the "Executive") dated this 25th day of February, 1997 (the
"Agreement").

WITNESSETH:

WHEREAS, the Executive has previously executed that certain Offer For
Compensation dated July 7, 1995 (the "Offer") which provided the Executive a
"supplemental retirement income" (the "Prior Benefit") in addition to other
benefits; and

WHEREAS, subsequent to the Offer, the Company selected the Executive to be a
participant in that certain nonqualified retirement plan entitled "Supplemental
Retirement Income Plan of Fleming Companies, Inc. and Its Subsidiaries" (the
"Prior Plan"); and

WHEREAS, the Company and the Executive never executed an agreement to evidence
the participation of the Executive in the Prior Plan; and

WHEREAS, the Executive and the Company desire to cancel that portion of the
Offer which provided for the Prior Benefit upon the execution of this Agreement;
and

WHEREAS, the Company desires to provide a "supplemental retirement income"
pursuant to the terms of this Agreement.

NOW, THEREFORE, in consideration of the covenants, provisions and other
valuable consideration, the receipt of which is hereby acknowledged by the
Executive, the parties hereto agree as follows:

1. Supplemental Retirement Income and Cancellation of Prior Benefit.

(a) Supplemental Retirement Income. The Executive shall be entitled to receive
annual supplemental retirement income (the "Supplemental Retirement Income")
upon his termination from the employ of the Company or any subsidiary (the
"Subsidiary") of which the Company owns 80% or more of the outstanding voting
common stock, provided, he remains continuously employed as of the following
applicable dates:

Vested
Attained Date Annual Supplemental
Year of Employment Retirement Income

<PAGE>

After year 1 7/24/1996 -0-
2 7/24/1997 -0-
3 7/24/1998 -0-
4 7/24/1999 -0-
5 7/24/2000 $ 81,000
6 7/24/2001 92,570
7 7/24/2002 104,140
8 7/24/2003 115,710
9 7/24/2004 127,280
10 7/24/2005 138,850
11 7/24/2006 150,420
12 7/24/2007 162,000

Further, in the event that the Executive terminates employment between any of
the applicable required attained dates of employment, the Executive's
Supplemental Retirement Income will be interpolated by subtracting the most
recent vested amount of Supplemental Retirement Income from the next vested
amount of Supplemental Retirement Income, dividing such difference by 12 and
multiplying the quotient by the number of completed whole months of employment
between the last attained date of employment and the date of termination of
employment of the Executive.

For example, if the Executive terminates employment with the Company or a
Subsidiary on October 15th, 2000, then, the Executive's Supplemental Retirement
Income would equal $82,928.32 calculated as follows:

Supplemental Retirement Income at 7/24/2001: $92,570

Supplemental Retirement Income at 7/24/2000 = $81,000
Difference 11,570

Divided by 12 = $964.17
Completed months of service from 7/24/2000-10/15/2000 x 2
Additional Supplemental Retirement Income $1,928.34

Vested Supplemental Retirement Income @ 7/24/2000 81,000.00
Total Supplemental Retirement Income $82,928.34

(b) Cancellation of Prior Benefit. In consideration of the Supplemental
Retirement Income provided in this Agreement, the Prior Benefit is hereby
cancelled and rescinded in all respects. Except to the extent that the Offer
has been amended to delete the Prior Benefit, the Offer shall continue in
accordance with its terms.

2. Manner of Payment of Supplemental Retirement Income. The Supplemental
Retirement Income will be paid to the Executive and his designated beneficiary
(the "Beneficiary"), if applicable, in the manner elected below: (Check and
initial One Box Only)

Methods of Payment

Option 1. [ ] Life of Executive Only (Single Life Basis)
Option 2. [ ] 50% Joint Annuitant Survivor Benefit
Option 3. [ ] 75% Joint Annuitant Survivor Benefit
Option 4. [ ] 100% Joint Annuitant Survivor Benefit
Option 5. [ ] 5 Year Period Certain
Option 6. [ ] 10 Year Period Certain
Option 7. [ ] 15 Year Period Certain

-2-
<PAGE>

The actual amounts payable to the Executive will depend upon the date that the
Executive terminates employment. The Supplemental Retirement Income will be
paid at least quarterly as determined by the Compensation and Organization
Committee (the "Committee") of the Company. If no election is made, the benefit
will automatically be paid on a "single life basis" under Option 1, above.
Refer to Exhibit "A" for a complete description of the Methods of Payment.

3. Termination of Employment.

(a) Termination Prior to July 24, 2000. In the event that the Executive
terminates employment for any reason prior to July 24, 2000, then, except as
provided in Section (b) below, the Executive shall have no rights of any kind
whatsoever in the Supplemental Retirement Income (or any other benefit)
otherwise paid pursuant to this Agreement.

(b) Acceleration of Accrual of Supplemental Retirement Income Upon Change of
Control. In the event that there is a "change of control" ("Change of Control")
as defined in the Prior Plan (or any successor plan thereto), and within three
years following such Change of Control, the Executive's employment is terminated
for any reason by either the Company or the Executive, the Executive shall be
entitled to his Supplemental Retirement Income earned by such Executive as of
his date of termination of employment but in no event will the amount be less
than the benefit which the Executive would have been entitled to if the
Executive remained in the continuous employ of the Company until July 24, 2000
($81,000 paid annually on a single life basis), with such Supplemental
Retirement Income to be paid beginning immediately upon the termination of
employment.

4. Restrictions on Alienation of Benefits. No right or benefit under this
Agreement shall be subject to anticipation, alienation, sale, assignment,
pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell,
assign, pledge, encumber, or charge the same shall be void. No right or benefit
hereunder shall in any manner be liable for or subject to the debts, contracts,
liabilities, or torts of the person entitled to such benefit. If the Executive
or Beneficiary under this Agreement should become bankrupt or attempt to
anticipate, alienate, sell, assign, pledge, encumber, or charge any right to a
benefit under this Agreement, then such right or benefit shall, in the
discretion of the Committee, be held or applied for the benefit of the Executive
or Beneficiary, his spouse, children, or other dependents, or any of them, in
such manner and in such portion as the Committee, in its sole and absolute
discretion, may deem proper.

5. No Trust. No action under this Agreement by the Company, its Board of
Directors or the Committee shall be construed as creating a trust, escrow or
other secured or segregated fund in favor of the Executive, his Beneficiary, or
any other persons otherwise entitled to his Supplemental Retirement Income. The
status of the Executive and his Beneficiary with respect to any liabilities
assumed by the Company hereunder shall be solely those of unsecured creditors of
the Company and/or any Subsidiary. Any asset acquired or held by the Company or
any Subsidiary in connection with liabilities assumed by it hereunder, shall not
be deemed to be held under any trust, escrow or other secured or segregated fund
for the benefit of the Executive or his Beneficiaries or to be security for the
performance of the obligations of the Company or any Subsidiary, but shall be,
and remain a general, unpledged, unrestricted asset of the Company or any
Subsidiary at all times subject to the claims of general creditors of the
Company or any Subsidiary.

6. Withholding and Other Employment Taxes. The Company shall comply with all
federal and state laws and regulations respecting the withholding, deposit and

-3-
<PAGE>

payment of any income or other taxes relating to any payments made under this
Agreement.

7. Claims Procedure.

(a) The Committee shall make all determinations as to the right of any person
to benefits. If any request for a benefit is wholly or partially denied, the
Committee shall notify the person requesting the pension benefits, in writing,
of such denial, including in such notification the following information:

(b) the specific reason or reasons for such denial;

(d) a description of any additional material and information which may be
needed to clarify the request, including an explanation of why such information
is required; and

(e) an examination of this Agreement's review procedure with respect to denial
of benefits.

Provided, that any such notice to be delivered to any Executive or Beneficiary
shall be mailed by certified or registered mail and shall be written to the best
of the Committee's ability in a manner that may be understood without legal
counsel.

8. Review Procedure. The Executive or Beneficiary whose claim has been denied
in accordance with Section 7 herein may appeal to the Committee for review of
such denial by making a written request therefor within 60 days of receipt of
the notification of such denial. The Executive or Beneficiary may examine
documents pertinent to the review and may submit to the Committee written issues
and comments. Within 60 days after receipt of the request for review, the
Committee shall communicate to the claimant, in writing, its decision, and the
communication shall set forth the reason or reasons for the decision and
specific reference to those Agreement provisions upon which the decision is
based.

9. Records and Reports. The Committee shall exercise such authority and
responsibility as it deems appropriate in order to comply with governmental
regulations relating to records of the Executive's accounts and benefits which
may be paid under the Agreement; and to notify the Executive and Beneficiaries
as required.

10. Other Committee Powers and Duties. The Committee shall have such duties
and powers as may be necessary to discharge its duties hereunder, including, but
not by way of limitation, the following:

(a) to construe and interpret the Agreement in its sole and absolute
discretion, decide all questions of eligibility and determine the amount, manner
and time of payment of any benefits hereunder;

(b) to prescribe procedures to be followed by the Executive or Beneficiary
filing applications for benefits;

(c) to prepare and distribute, in such manner as the Committee determines to be
appropriate, information explaining the Agreement;

(d) to receive from the Company and from the Executive and Beneficiaries such
information as shall be necessary for the proper administration of the
Agreement;

-4-
<PAGE>

(e) to furnish the Company, upon request, such reports with respect to the
administration of the Agreement as are reasonable and appropriate;

(f) to appoint and employ individuals and any other agents it deems advisable,
including legal counsel, to assist in the administration of the Agreement and to
render advice with respect to any responsibility of the Committee, or any of its
individual members, under the Agreement;

(g) to allocate among themselves who shall be responsible for specific duties
and to designate fiduciaries (other than Committee members) to carry out
responsibilities under the Agreement; provided that any such allocations shall
be reduced to writing, signed by all Committee members, and filed in a permanent
Committee minute book; and

(h) to maintain continuing review of applicable laws, implementing regulations
thereto and suggest changes and modifications to the Company in connection with
delegations of responsibility, as appropriate, and amendments to the Agreement.

11. Rules and Decisions. The Committee may adopt such rules as it deems
necessary, desirable, or appropriate. When making a determination or
calculation, the Committee shall be entitled to rely upon information furnished
by a Executive or Beneficiary, the Company or the legal counsel of the Company.

12. Committee Procedures. The Committee may act at a meeting or in writing
without a meeting. The Committee shall have a chairman, and appoint a
secretary, who may or may not be a Committee member. The secretary shall keep a
record of all meetings in a permanent Committee minute book and forward all
necessary communications to the Company. The Committee may adopt such bylaws
and regulations as it deems desirable for the conduct of its affairs. All
decisions of the Committee shall be made by the vote of the majority including
actions in writing taken without a meeting. A dissenting Committee member who,
within a reasonable time after he has knowledge of any action or failure to act
by the majority, registers his dissent in writing delivered to the other
Committee members, to the extent permitted by law, shall not be responsible for
any such action or failure to act.

13. Assumption of Agreement. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform the Company's and any Subsidiary's obligations under
this Agreement in the same manner and to the same extent that the Company or
such Subsidiary would be required to perform if no such succession had taken
place. Failure of the Company to obtain such assumption and agreement prior to
the effectiveness of any succession shall be a breach by the Company of its
obligations under this Agreement and shall entitle the Executive to payment from
the Company in the same amount and on the same terms as the Executive would be
entitled to hereunder if the Executive's employment was terminated immediately
following a Change of Control, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the date of termination of employment.

14. Forfeiture of All Benefits. In the event that (i) the Executive is
discharged from employment service with the Company for acts of dishonesty,
fraud, theft, embezzlement, (ii) upon the conviction by a court of competent
jurisdiction of a crime that is deemed to be a felony under the laws of the
State of Oklahoma (or any other state) or laws of the United States, or (iii) in
the event the Executive commits any other act or acts which are injurious and
adversely impacts the Company in any manner whatsoever, then, in such events,
the Committee, in its sole discretion, may determine that any benefit

-5-
<PAGE>

which would otherwise be provided to the Executive under the Agreement or the
Agreement shall be forfeited in its entirety, and it shall thereafter be
deemed as if the Executive never was selected for participation in the
Agreement.

15. Minimum Benefit. Notwithstanding any provision of this Agreement to the
contrary, in the event that the Company selects and the Executive agrees to be a
participant in the Prior Plan or any successor thereto, then, the Supplemental
Retirement Income accrued under this Agreement shall be the minimum benefits to
be provided to the Executive under such Prior Plan.

16. Miscellaneous.

16.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Oklahoma, without reference to
principles of conflict of laws.

16.2 Headings. The captions of this Agreement are not part of the provisions
hereof and shall have no force and effect.

16.3 Taxes. The Executive acknowledges that the payments and benefits to which
he is entitled to under this Agreement will be includable in his taxable income.
Accordingly, Executive agrees (i) to pay all required income, employment and
other taxes attributable to such payments and benefits and (ii) that the Company
may be required to withhold all applicable taxes from such payments and
benefits.

16.4 Amendment. This Agreement may not be amended or modified otherwise than
by a written agreement executed by the parties hereto or their respective heirs,
successors, assigns or the legal representatives, as the case may be.

16.5 Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:

If to Executive:

William J. Dowd
18701 Woody Creek Drive
Oklahoma City, Oklahoma 73003

If to the Company:

Fleming Companies, Inc.
6301 Waterford Boulevard
P.O. Box 26647
Oklahoma City, Oklahoma 73126

Attention: Robert E. Stauth
Chairman and Chief Executive Officer

or such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.

16.6 Severability. The invalidity or enforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.

-6-
<PAGE>

16.7 No Waiver. The Company's or the Executive's failure to insist upon strict
compliance with any provision hereof shall not be deemed to be a waiver of such
provision or any other provision hereof.

16.8 Entire Agreement. This Agreement contains the entire understanding of the
Company and Executive with respect to the subject matter hereof.

16.9 Binding Effect. This Agreement shall inure to the benefit of and be
binding upon the Company, Executive, their respective heirs, successors, assigns
or legal representatives, as the case may be.

IN WITNESS WHEREOF, Executive has hereunto set his hand and, pursuant to the
authorization from its Board of Directors, the Company has caused these presents
to be executed in its name on its behalf, all as of the day and year first above
written.

EXECUTED the date and year first above written.

FLEMING COMPANIES, INC., a corporation

By: /s/ Robert E. Stauth
Robert E. Stauth,
Chairman and
Chief Executive Officer

"COMPANY"

/s/ William J. Dowd
William J. Dowd

"EXECUTIVE"

-7-
<PAGE>

EXHIBIT "A"

Description of Methods of Payment

METHOD 1 - Life of A Supplemental Retirement Income will be
Participant Only: paid for the Executive's life only. Upon the
Executive's death, all payments of Supplemental
Normal Retirement Income shall cease.

METHOD 2 - 50% A reduced amount of Supplemental Retirement
Joint Annuitant Income will be paid to the Executive for his
Survivor Benefit: life, then, at the Executive's death 50% of such
amount shall be paid to the Executive's
surviving Beneficiary. In the event that the
Executive's surviving Beneficiary has prede-
ceased him, or should otherwise die after the
Executive's death, then no further payments will
be paid under Method 2 or this Agreement.

METHOD 3 - 75% A reduced amount of Supplemental Retirement
Joint Annuitant Income will be paid to the Executive for his
Survivor Benefit: life, then, at the Executive's death 75% of
such amount shall be paid to the Executive's
surviving Beneficiary. In the event that the
Executive's surviving Beneficiary has
predeceased him, or should otherwise die after
the Executive's death, then no further
payments will be due under Method 3 or this
Agreement.

METHOD 4 - 100% A reduced amount of Supplemental Retirement
Joint Annuitant Income will be paid to the Executive for his
Survivor Benefit: life, then, at the Executive's death 100% of
such amount shall be paid to the Executive's
surviving Beneficiary. In the event that the
Executive's surviving Beneficiary has
predeceased him, or should otherwise die after
the Executive's death, then no further
payments will be due under Method 4 or this
Agreement.

-1-
<PAGE>

METHOD 5 - 5 Year A reduced amount of Supplemental Retirement
Period Certain: Income will be paid for a period of 5 years
certain. After the expiration of such 5 year
period, payments shall then continue for the
Executive's life in the same amount. In the
event of the Executive's death during the 5
year period certain, then, the balance of such
payments due only during such 5 year period
will be paid to the Executive's surviving
Beneficiary. After the expiration of such 5
year period, then all payments shall cease.
In the event of the expiration of such 5 year
period, and the Executive dies, then, no
further benefits will be paid under METHOD 5
or this Agreement.

METHOD 6 - 10 Year A reduced amount of Supplemental Retirement
Period Certain: Income shall be paid for a period of 10 years
certain. After the expiration of such 10 year
period, payments shall then continue for the
Executive's life in the same amount. In the
event of the Executive's death during the 10
year period certain, then, the balance of such
payments due only during such 10 year period
will be paid to the Executive's surviving
Beneficiary. After the expiration of such 10
year period, then all payments shall cease.
In the event of the expiration of such 10 year
period, and the Executive dies, then, no
further benefits will be paid under METHOD 6
or this Agreement.

METHOD 7 - 15 Year A reduced amount of Supplemental Retirement
Period Certain: Income shall be paid for a period of 15 years
certain. After the expiration of such 15 year
period, payments shall then continue for the
Executive's life in the same amount. In the
event of the Executive's death during the 15
year period certain, then, the balance of such
payments due only during such 15 year period
will be paid to the Executive's surviving
Beneficiary. After the expiration of such 15
year period, then all payments shall cease.
In the event of the expiration of such 15 year
period, and the Executive dies, then, no
further benefits will be paid under METHOD 7
or this Agreement.

-2-

<PAGE>

Exhibit 12

FLEMING COMPANIES, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

<TABLE>
FISCAL YEAR ENDED THE LAST SATURDAY IN DECEMBER
------------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Earnings:
Pretax income $194,941 $ 72,078 $112,337 $ 85,892 $ 54,573
Fixed charges, net 105,724 102,311 148,125 212,173 204,527

Total earnings $300,665 $174,389 $260,462 $298,065 $259,100

Fixed charges:
Interest expense $ 81,102 $ 78,029 $120,071 $175,390 $163,466
Portion of rental charges
deemed to be interest 23,027 22,969 27,746 36,456 40,699
Capitalized interest and
debt issuance cost
amortization 1,287 1,005 364 708 104

Total fixed charges $105,416 $102,003 $148,181 $212,554 $204,269

Ratio of earnings
to fixed charges 2.85 1.71 1.76 1.40 1.27
</TABLE>

"Earnings" consist of income from continuing operations before income taxes and
fixed charges excluding capitalized interest. Capitalized interest amortized
during the respective periods is added back to earnings.

"Fixed charges, net" consist of interest expense, an estimated amount of rental
expense which is deemed to be representative of the interest factor and
amortization of capitalized interest and debt issuance cost.

The pro forma ratio of earnings to fixed charges is omitted as it is not
applicable.

<PAGE>

Exhibit 21

FLEMING COMPANIES, INC. AND CONSOLIDATED SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT

The company has subsidiaries that are not reflected herein. In the aggregate,
these are not significant.

<PAGE>

Exhibit 23

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in:

(i) Registration Statement No. 2-98602 (1985 Stock Option Plan) on Form
S-8;

(ii) Registration Statement No. 33-18867 (Godfrey Company 1981 Stock
Option Plan and 1984 Nonqualified Stock Option Plan) on Form S-8;

(iii) Registration Statement No. 33-36586 (1990 Fleming Stock Option Plan)
on Form S-8;

(iv) Registration Statement No. 33-56241 (Dividend Reinvestment and Stock
Purchase Plan) on Form S-3;

(v) Registration Statement No. 33-61860 (Debt Securities, Series C) on
Form S-3;

(vi) Registration Statement No. 33-55369 (Senior Notes) on Form S-3

(vii) Registration Statement No. 333-11317 (1996 Fleming Incentive Stock
Option Plan) on Form S-8.

of our report dated March 4, 1997 appearing in this Annual Report on Form 10-K
of Fleming Companies, Inc. for the year ended December 28, 1996.

DELOITTE & TOUCHE LLP

Oklahoma City, Oklahoma
March 20, 1997

<PAGE>

Exhibit 24

POWER OF ATTORNEY

We, the undersigned officers and directors of Fleming Companies, Inc.
(hereinafter the "Company"), hereby severally constitute Robert E. Stauth, Harry
L. Winn, Jr. and David R. Almond, and each of them severally, our true and
lawful attorneys with full power to them and each of them to sign for us, and in
our names as officers or directors, or both, of the Company, the Annual Report
on Form 10-K for the fiscal year ended December 28, 1996, and any and all
amendments thereto, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and to perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.

Dated this 25th day of February, 1997.

Signature Title

Chairman and Chief Executive
Robert E. Stauth Officer (principal executive
officer)

Executive Vice President and
Harry L. Winn, Jr. Chief Financial Officer (principal
financial officer)

Kevin J. Twomey Vice President - Controller
(principal accounting officer)

Jack W. Baker Director

Archie R. Dykes Director

Carol B. Hallett Director

Edward C. Joullian III Director

Howard H. Leach Director

John A. McMillan Director

Guy A. Osborn Director

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR DECEMBER 28, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> DEC-28-1996
<CASH> 63,667
<SECURITIES> 0
<RECEIVABLES> 354,164
<ALLOWANCES> 24,659
<INVENTORY> 1,051,313
<CURRENT-ASSETS> 1,563,608
<PP&E> 1,562,382
<DEPRECIATION> 603,241
<TOTAL-ASSETS> 4,055,176
<CURRENT-LIABILITIES> 1,342,871
<BONDS> 1,091,606
0
0
<COMMON> 94,494
<OTHER-SE> 981,464
<TOTAL-LIABILITY-AND-EQUITY> 4,055,176
<SALES> 16,486,739
<TOTAL-REVENUES> 16,486,739
<CGS> 15,004,715
<TOTAL-COSTS> 16,241,779
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 26,921
<INTEREST-EXPENSE> 163,466
<INCOME-PRETAX> 54,573
<INCOME-TAX> 27,887
<INCOME-CONTINUING> 26,686
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,686
<EPS-PRIMARY> .71
<EPS-DILUTED> .71

</TABLE>