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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-K

(MARK ONE)

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 27, 1997
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 NUMBER 1-8140

FLEMING COMPANIES, INC.

(Exact name of registrant as specified in its charter)

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:

NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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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

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for 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 ____

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/

The aggregate market value of the common shares (based upon the closing
price on February 20, 1998 of these shares on the New York Stock Exchange) of
Fleming Companies, Inc. held by nonaffiliates was approximately $651 million.

As of February 20, 1998, 38,300,000 common shares were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

A portion of Part III has been incorporated by reference from the
registrant's proxy statement in connection with its annual meeting of
shareholders to be held on May 14, 1998.

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PART I

ITEM 1. BUSINESS

Fleming Companies, Inc. ("Fleming" or the "company") began operations in
1915 as a food wholesaler and today is a recognized leader in the food marketing
and distribution industry. Fleming's food distribution business is conducted by
its Food Distribution Segment, which is one of the largest food distributors in
the United States. Fleming's retail business is conducted by its Retail Food
Segment which owns 14 local chains and groups operating under separate banners.
The Retail Food Segment is one of the major food retailers in the United States
based on net sales. Fleming's businesses generated net earnings of $42 million,
$27 million and $25 million for fiscal 1995, 1996 and 1997, respectively.
Additionally, the company generated net cash flows from operations of $399
million, $328 million and $113 million for the same periods, respectively. The
combined businesses generated $448 million, $435 million and $454 million of
Adjusted EBITDA for fiscal 1995, 1996 and 1997, respectively. "Adjusted EBITDA"
is earnings before extraordinary items and accounting changes before taking into
consideration interest expense, income taxes, depreciation and amortization,
equity investment results and one-time adjustments.

Fleming is focused on achieving earnings growth in both its distribution and
retail food businesses. In its food distribution business, the company is (i)
increasing its sales efforts, particularly by emphasizing the company's
marketing plan alternatives and information technology systems, (ii)
streamlining and strengthening Fleming Brands and its offerings of Retail
Services and (iii) broadening its perishables and foodservice offerings. In its
retail food business, Fleming is making significant investments in new and
remodeled stores in its existing retail chains and will seek selective
acquisitions of supermarket groups or chains which can be integrated into
Fleming's distribution infrastructure. The company will continue to implement
cost reduction initiatives in both of its business segments and in its corporate
staff operations.

OPERATING SEGMENTS

FOOD DISTRIBUTION SEGMENT. At year-end 1997, Fleming's Food Distribution
Segment served as the principal source of supply for more than 3,000
supermarkets (including supermarkets owned by Fleming's Retail Food Segment),
which represented approximately 10% of all supermarkets in the United States.
Distribution operations are conducted through a network of 35 full-line food
product supply centers, six general merchandise (including health and beauty
care and specialty food products) distribution centers, and two centers focused
primarily on serving convenience stores. The Food Distribution Segment serves
stores of various sizes located in 42 states. Distribution customers operate in
a wide variety of formats including conventional full-service supermarkets,
supercenters, price impact stores, combination stores and convenience stores.
Net sales for the Food Distribution Segment were $13.9 billion, including $2.0
billion of net sales to the Retail Food Segment, for fiscal 1997.

The Food Distribution Segment offers a complete selection of national brands
and Fleming Brands, including groceries, meat, dairy and delicatessen products,
frozen foods, produce, bakery goods and a variety of general merchandise and
related items. Fleming Brands, which include both private label products and
controlled label products, offer consumers a quality alternative to national
brands at a reasonable price while generating improved margins (for both the
retailer and the Food Distribution Segment) and reinforcing the retailer's
marketing identity. The company is expanding its line of in-store foodservice
products to offer consumers more home meal solutions. The Food Distribution
Segment also offers an extensive menu of individually marketed and priced Retail
Services, which draw on Fleming's broad industry expertise and are designed to
enable both Fleming-owned and Fleming-served retailers to compete more
effectively.

The company is working to encourage independents and small chains to join
one of the Fleming Banner Groups to increase marketing strength and procurement
benefits from vendors. Fleming Banner Group stores are owned by customers, many
of which license their store banner from Fleming. Fleming

Banner Groups are retail stores operating under the IGA-Registered Trademark- or
Piggly Wiggly-Registered Trademark- banner or under one of a number of banners
representing a price impact retail format.

In 1994, the Food Distribution Segment initiated a substantial cost
reduction effort. Through year-end 1997, the Food Distribution Segment has
consolidated 13 distribution centers into larger, more efficient facilities,
eliminated a substantial number of full and part-time positions (see
"--Employees"), eliminated over 3 million square feet of warehouse space and
consolidated information technology data centers. In addition, since 1994 the
Food Distribution Segment has developed the FlexPro-TM-, FlexStar-TM- and
FlexMate-TM- marketing plans for grocery, frozen and dairy products. See
"--Pricing."

RETAIL FOOD SEGMENT. The Fleming Retail Food Segment operates more than 275
supermarkets which are operated as 14 local chains and groups under 13 separate
banners. The Retail Food Segment's supermarkets vary in format from conventional
supermarkets to super warehouse stores and serve consumers in the Minneapolis,
Phoenix, Milwaukee, Omaha, Buffalo, Peoria, Oklahoma City and Salt Lake City
markets as well as important regional areas located in Pennsylvania, Florida,
Maryland, Kansas, Missouri, Arkansas and California. Each Retail Food Segment
supermarket is served by a product supply center operated by the Food
Distribution Segment.

In 1997, the Retail Food Segment improved its performance by:

- selling or closing 21 stores which were unprofitable or inconsistent with
Fleming's strategy,

- acquiring 6 stores, opening 14 new stores and remodeling 22 stores,

- implementing additional customer loyalty programs which have become key
marketing tools, and

- installing computer-based training in many Retail Food Segment
supermarkets.

Net sales of the Retail Food Segment were $3.5 billion for fiscal 1997
compared to $0.7 billion in fiscal 1992. This growth is attributable primarily
to acquisitions, but also to remodeled stores and newly constructed stores.

Additional information regarding the company's two operating segments is
contained in "Segment Information" in the notes to the consolidated financial
statements which are included in Item 8 of this report.

COMPETITIVE STRENGTHS

Fleming believes that its position as a leader in the food marketing and
distribution industry is attributable to a number of competitive strengths:

- Significant Customer Base: As one of the largest food marketing and
distribution companies in the United States, with 43 product supply
centers and more than 275 company-owned stores, the company has access to
millions of consumers who shop at Fleming-supported retail stores.

- Streamlined Operations: During the past three years, the Food Distribution
Segment has significantly enhanced the efficiency of its distribution
network as a result of facilities consolidations, staff reductions
resulting from reorganizations, warehouse space eliminations and
transportation outsourcing. In addition, 30 of the company's full-line
food product supply centers and five general merchandise distribution
centers operate under Fleming's on-line operating distribution system
("FOODS"), an internally developed information technology software system.
Fleming's non-converted general merchandise distribution center and each
of its remaining product supply centers (which were acquired by the
company in acquisitions of local and regional wholesale operations)
operate on its own unique information technology system. Conversion to
FOODS, which will require a separate approach for each such system, is
being undertaken and completed as resources permit and operations require.

- Fleming Retail Food Segment: The Retail Food Segment's portfolio of 14
chains and groups operating under 13 distinct retail banners, each with
its own identity, local management and marketing capabilities, provides a
stable sales volume for the Food Distribution Segment and gives Fleming
important first-hand knowledge of consumer preferences and the retail
environment. Retail sales also offer Fleming the opportunity to earn
attractive margins relative to its distribution operations.

- High Quality Fleming Brands: Fleming Brands generally produce higher
margins than national brands for retailers and the Food Distribution
Segment, and increase consumer loyalty. Capitalizing on its substantial
purchasing power and efficient distribution system, the Food Distribution
Segment offers a wide range of high quality Fleming Brands which are being
marketed through a comprehensive campaign.

- Expertise in Perishables: The company has developed extensive expertise in
handling, marketing, distributing and retailing higher margin perishable
products. The company derived approximately 40% of product sales in 1997
from the sale of perishables.

- Diverse Operations: With customers in 42 states, Fleming is geographically
diverse. It also has broad experience in supplying and in operating retail
food stores across a full spectrum of formats and pricing strategies.

BUSINESS STRATEGY

Fleming's business strategy is to leverage its competitive strengths to
achieve earnings growth in its marketing and distribution business and in its
retail business. As principal elements of its business strategy, Fleming will:

- Focus on Distribution Earnings Growth: The Food Distribution Segment will
continue to pursue profitable sales and the expansion of its customer
base. The company pursues those customers and sales which can be
profitable for the long term, and will manage its costs in accordance with
sales performance. Fleming will strive to be the best-value supplier of
products and services. Our mission statement is "to excel at meeting the
needs of consumers who shop at each Fleming-supported retail store."
Renewed sales efforts are emphasizing regaining customers lost since 1994,
in part by highlighting the advantages of Fleming's marketing plan
alternatives. The company will continue to use activity-based pricing in
order to rationalize its pricing and direct its marketing efforts to
value-added services and products. Efforts to educate retailers about the
advantages of Fleming Retail Services in managing their businesses will
also be increased. Finally, investments in and loans to retailers will
continue to be made on a selective basis.

- Expand Retail Operations: Fleming will seek to increase its ownership of
retail food operations by increasing investments in new and remodeled
stores within the Retail Food Segment and by selective acquisitions of
additional groups and chains, primarily in the markets already served by
the Food Distribution Segment. Retail sales have the potential to generate
attractive gross margins relative to Fleming's food distribution business,
and management believes that its broad expertise in meeting consumer needs
can be leveraged through a larger retailing business. The company will
seek to improve the Retail Food Segment's profitability by increasing
administrative efficiencies and divesting unprofitable stores as needed.

- Aggressively Market Fleming Retail Services: The Food Distribution Segment
will exploit opportunities for growth in Fleming Retail Services. In
conjunction with the development of new marketing plans, Fleming
"unbundled" the Retail Services offered to its distribution customers,
giving them the opportunity to choose the services they wish to receive.
The company has also repriced its Retail Services based on market
analyses. The Retail Services group seeks to increase penetration with

existing customers and to attract new customers. A major component of this
effort is VISIONET-Registered Trademark-, the company's proprietary
interactive electronic information network.

- Emphasize Perishables and Foodservice Offerings: Fleming is increasing its
emphasis on higher margin perishables as consumer demand grows for fresh
and prepared foods, in-store bakeries, delis, and expanded meat and
produce offerings. The company is also developing home meal solutions
under its Chef's Cupboard Concepts-TM- banner. Twenty-eight modular units
were installed in 1996 and 106 in 1997. Also in development is a total
store merchandising program for marketing convenient meal solutions that
can be prepared in 15 minutes or less.

- Streamline and Strengthen Fleming Brands: Fleming believes it has a
substantial opportunity to strengthen Fleming Brands, which currently
account for approximately 5% of Food Distribution Segment sales and
approximately 6% of Retail Food Segment sales. For the average
supermarket, store brand products comprise approximately 17% of sales.
Fleming Brands are targeted to three market segments: premium products,
national quality products and value products. The company is consolidating
its brands to focus on a limited portfolio of brands which include three
national quality brands (BestYet-Registered Trademark-, IGA-Registered
Trademark- and Piggly Wiggly-Registered Trademark-), at least one value
brand (Rainbow-Registered Trademark-), and a multiple-brand group of
premium, upscale products individually tailored to selected market niches.
The increase in purchasing power and marketing strength expected to result
from fewer brands should benefit Fleming's food distribution customers by
further increasing margins, brand recognition and consumer loyalty.
Additionally, the number of products offered in each brand will be
expanded, and Fleming will develop new logos, packaging and marketing
programs over the next two years to strengthen sales for Fleming Brands.
The costs to consolidate the company's brands are expected to be
immaterial. The consolidation program is being managed during the roll-out
to maintain or improve the company's historic earnings level in this area.

- Leverage Information Technology Systems: Fleming will continue to utilize
and to provide its customers with market-leading information technology
systems through retail services. Initiatives currently underway include an
integrated retail management system which will combine point-of-sale
systems, inventory management and shrinkage control systems, frequent
shopper programs and labor scheduling systems. The Food Distribution
Segment will continue to promote VISIONET-Registered Trademark- to attract
and retain retailers, to more efficiently network information exchanges
among vendors, Fleming and retailers. VISIONET-Registered Trademark- gives
retailers access to inventory information, financial data, vendor
promotions, retail support services and on-line ordering. Also, vendors
compensate the company for access to Fleming's customers through
VISIONET-Registered Trademark-. The network currently covers approximately
1,300 retail customer locations and is being upgraded with the
introduction of a third generation. With this new version,
VISIONET-Registered Trademark- will provide greater internet capabilities.
The company's scale allows it to leverage investments in information
technology more broadly than many of its competitors. Fleming will
continue to incorporate state-of-the-art information technology systems in
its own operations to advance its administrative efficiencies.

- Increase Cost Efficiencies: The company will continue to aggressively
exploit opportunities for further consolidation of its operating units and
support systems, capitalize on staff efficiency initiatives, primarily in
its administrative operations, and pursue additional outsourcing
opportunities in transportation to satisfy customer needs.

PRODUCTS

The Food Distribution Segment supplies its customers (including the Retail
Food Segment's supermarkets) with a full line of national brands and Fleming
Brands, including groceries, meat, dairy and delicatessen products, frozen
foods, produce, bakery goods and a variety of general merchandise, health and
beauty care and other related items. Full-line food product supply centers carry
approximately 14,000 stock keeping units (or SKUs), including approximately
4,500 perishable products. General merchandise

and specialty food distribution centers offer more than 65,000 different items
throughout the year. Food and food-related product sales account for over 90
percent of the company's consolidated sales. During each of the last three
fiscal years, the company's product mix as a percentage of product sales was
approximately 55% groceries, 40% perishables and 5% general merchandise.

FLEMING BRANDS. Fleming Brands are store brands which include both private
labels and controlled labels. Private labels are offered only in stores
operating under specific banners (which may or may not be controlled by
Fleming). Controlled labels are Fleming-owned brands which are offered to all
food distribution customers. Fleming Brands are targeted to three market
segments: premium, national quality and value. Each Fleming Brand offers
consumers high quality products within each pricing tier. Fleming-controlled
labels include SuperTru-Registered Trademark- and Marquee-Registered Trademark-,
which are premium brands, BestYet-Registered Trademark-, which is a national
quality brand, and Rainbow-Registered Trademark-, Fleming's value brand. Fleming
offers two private labels, IGA-Registered Trademark- and Piggly
Wiggly-Registered Trademark-, which are national quality brands. Fleming shares
the benefit of reduced acquisition costs of store brand products with its
customers, permitting both the Food Distribution Segment and the retailer to
earn higher margins from the sale of Fleming Brands.

PERISHABLES. Certain categories of perishables offer both the Food
Distribution Segment and the retailers it serves (including the Retail Food
Segment) opportunities for improved margins as consumers are generally willing
to pay relatively higher prices for high quality produce, bakery goods and fresh
prepared foods. Fleming is encouraging its perishables providers to emphasize
more "ready-to-use" packaging alternatives to support consumer demands. The
company believes retailers compete for business by emphasizing perishables and
store brand products. The competitive emphasis is on fresh and prepared foods
through in-store bakeries, delis, expanded meat and produce offerings, in-store
home meal solutions, and ready-to-cook or heat-and-serve offerings.

The company is utilizing its perishables expertise to develop fresh food
in-store meal solutions concepts under its Chef's Cupboard Concepts-TM- banner.
Twenty-eight modular units were installed during 1996 and 106 in 1997. These
in-store shops are offered as turn-key operations and allow retailers to
effectively compete for the rapidly growing foodservice dollar. Five concepts
are currently being licensed under Chef's Cupboard Concepts-TM-:

- Captain Subman-TM-, which offers deli-style sandwiches, soups and salads;

- Baker's Blvd.-Registered Trademark-, with an assortment of premium baked
goods;

- Cinnamon Island-TM-, serving coffee and cinnamon rolls;

- Chicken Store and More-TM-, offering baked chicken and side dishes; and

- s'Italian Specialties-TM-, an Italian specialty food shop.

RETAIL SERVICES

Retail Services are being separately marketed, priced and delivered. Retail
Services marketing and sales personnel look for opportunities to cross-sell
additional Retail Services as well as other Food Distribution Segment products
to their customers. The company offers consulting, administrative and
information technology services to its Food Distribution Segment customers
(including Retail Food Segment supermarkets) and non-customers.

CONSULTING SERVICES: Retailers may call upon Fleming consultants to provide
professional advice regarding most facets of retail operations. Consulting
services include the following:

ADVERTISING. Fleming believes its advertising service group is one of the
largest retail food advertising agencies in the United States, offering full
service advertising production, media buying services, assistance in
promotional development and execution, and marketing consultation.

STORE DEVELOPMENT. This Retail Service uses the latest technology in market
analysis, surveys and store development techniques to assist retailers in
finding new locations as well as gaining operations productivity in existing
physical plants.

PRICING. Fleming consultants involve retailers directly in pricing their own
products through pricing strategy development programs utilizing market
surveys and new technology.

STORE OPERATIONS. Consultants offer assistance in perishables quality
control and standards monitoring, audit training, general supermarket
management, store operations analysis, shrink control and supervision task
outsourcing.

FRANCHISING. Fleming assists retailers in selecting the most suitable
franchising operating format.

INSURANCE. Professional consultants are available for reviewing, pricing and
coordinating retail insurance portfolios.

ADMINISTRATIVE SERVICES: A retailer may use administrative services
provided by Fleming to outsource functions being performed internally or to
install new programs which are not feasible for the retailer to develop:

EDUCATION. Fleming operates retail food education facilities for both
hands-on and classroom training. Among the retail education services
provided are training for all levels of store managers and employees,
including selling skills, general management and perishables department
training, and strategic planning.

FINANCIAL. Fleming helps retailers track their financial performance by
providing full accounting services, operating statements, payroll and
accounts payable systems and tax return preparation. Additionally, it
assists retailers in establishing and managing money order programs,
pre-paid phone card programs and coupon redemption programs.

RETAIL INVENTORY MANAGEMENT (RIM). Inventory control programs are being used
to more effectively manage product selection, and to provide instant
planogram, perpetual inventory and computer-assisted ordering capability. A
simplified shelf-management version has been developed and is being
implemented.

PROMOTION. Numerous promotional tools are offered to assist retail operators
in improving store traffic, such as frequent shopper programs, kiosk use and
instant savings programs; continuity programs such as games, premium
catalogs, etc.; and controlled markdown programs.

INFORMATION TECHNOLOGY SYSTEMS: Fleming has invested heavily in creating
new information technology products that offer retailers a competitive systems
edge:

RETAIL MANAGEMENT SYSTEMS. These services include POS equipment purchasing
and leasing, including programs with the three largest vendors of scanning
equipment; electronic payment systems; credit/ debit/EBT; direct store
delivery and receiving systems; electronic shelf labels; in-store file
managers; and total store technology solutions.

VISIONET-REGISTERED TRADEMARK-. The company's proprietary interactive
electronic information network gives retailers access to inventory
information, financial data, vendor promotions, retail support services and
on-line ordering.

PRICING

The Food Distribution Segment uses market research and cost analyses as a
basis for pricing its products and services. In all locations, Retail Services
are individually and competitively priced.

In approximately 55% of the Food Distribution Segment's sales base at
year-end 1997, all products are sold under various selling plans. Under these
selling plans, a distribution fee is added to the product price for various
product categories. Under some selling plans, freight charges are also added to
offset in whole or in part the cost of delivery services provided. Any cash
discounts, certain allowances, and service income earned from vendors may be
retained by the Food Distribution Segment. This has been referred to generally
as the "traditional pricing" method.

For the remaining 45% of its sales base at year-end 1997, the Food
Distribution Segment utilized two alternative marketing plans, FlexPro-TM- and
FlexStar-TM-, to market its grocery, frozen and dairy products. Under
FlexPro-TM-, grocery, frozen and dairy products are listed at a price generally
comparable to the net cash price paid by the Food Distribution Segment. Dealer
allowances and service income are passed through to the customer. Service
charges are established using the principles of activity-based pricing modified
by market research. Activity-based pricing attempts to identify Fleming's cost
of providing certain services in connection with the sale of products such as
transportation, storage, handling, etc. Based on these identified costs, and
with a view to market responses, Fleming establishes charges for these
activities designed to recover Fleming's cost and provide the company with a
reasonable profit. These charges are then added to aggregate product price. A
fee is also charged for administrative services provided to arrange and manage
certain allowances and service income offered by vendors and earned by the Food
Distribution Segment and its customers. In all locations, the traditional
pricing method is still applied for meat, produce, bakery goods, delicatessen
products, tobacco supplies, and general merchandise and health and beauty care
products.

FlexPro-TM-, the original flexible marketing plan implemented in 1995, has
been enhanced. FlexStar-TM- is very similar to FlexPro-TM- but generally uses a
less complex presentation for distribution service charges by using
customer-specific average charges. This averaging mechanism lessens the
volatility of charges to the retailer but does not permit the retailer to manage
his own product costs as fully as with FlexPro-TM-. In 1997 the Food
Distribution Segment began to introduce FlexMate-TM-, a marketing plan with a
presentation to customers comparable to the traditional pricing method but which
operates from the same information technology system and data base as
FlexPro-TM- and FlexStar-TM-.

Fleming uses activity-based pricing to support pricing decisions for all
locations using the FlexPro-TM-, FlexStar-TM- and FlexMate-TM- marketing plans.
The company expects that it will have offered its alternative marketing plans to
all customers in the 30 locations that operate under Fleming's on-line operating
distribution system by the end of 1998 for grocery, frozen and dairy products.

FACILITIES AND TRANSPORTATION

The Food Distribution Segment currently operates 35 full-line food product
supply centers which are responsible for the distribution of national brands and
Fleming Brands, including groceries, meat, dairy and delicatessen products,
frozen foods, produce, bakery goods and a variety of related food and non-food
items. Six general merchandise and specialty food distribution centers
distribute health and beauty care items and other items of general merchandise
and specialty foods. Two distribution centers serve convenience stores. Thirty
full-line food product supply centers and five general merchandise distribution
centers operate under Fleming's internally developed on-line operating
distribution system. All facilities are equipped with modern material handling
equipment for receiving, storing and shipping large quantities of merchandise.

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

Since the beginning of 1994, the company has closed 13 distribution centers
removing more than 3 million square feet of warehouse space from its
distribution system.

Transportation arrangements and operations vary by distribution center and
may vary by customer. Some customers prefer to handle product delivery
themselves, others prefer the company to deliver

products, and still others ask the company to coordinate 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 suppliers and others, 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.

FOOD DISTRIBUTION SEGMENT CUSTOMERS

The Food Distribution Segment serves retail stores that vary in size,
format, organization, sales level and location.

The size of retail stores served ranges from small convenience outlets to
large supercenters. The company estimates the aggregate square feet of retail
stores served is in excess of 100 million.

The format of retail stores served is a function of size and marketing
approach. The Food Distribution Segment serves customers operating as
conventional supermarkets (averaging approximately 23,000 total square feet),
superstores (supermarkets of 30,000 square feet or more), supercenters (a
combination of a discount store and a supermarket encompassing 110,000 square
feet or more), warehouse stores ("no-frills" operations of various large sizes),
combination stores (which have a high percentage of non-food offerings) and
convenience stores (generally under 4,000 square feet and offering only a
limited assortment of products and sizes).

The retail stores served are organized as single stores, multiple store
independents and chain stores. At year-end 1997, the company served
approximately 925 supermarkets organized as chains, including more than 275
Retail Food Segment stores. In accordance with customary industry definitions,
11 or more stores are referred to as a "chain" and operations of 10 or fewer are
referred to as "independents."

The company supplies over 6,500 retail stores, 3,000 of which average more
than $2 million in sales per year and are considered "supermarkets" under
industry standards. Supermarkets generally 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 Fleming-supported retail stores 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-Registered Trademark- (a registered servicemark of Food 4 Less
Supermarkets, Inc.), 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-, Big Star-Registered Trademark-, Big T-Registered Trademark-, Buy for
Less-Registered Trademark-, County Pride Markets-Registered Trademark-, Buy
Way-Registered Trademark-, Pic-Pac-Registered Trademark-, Rainbow
Foods-Registered Trademark-, Shop N Bag-Registered Trademark-, Super
Save-Registered Trademark-, Super Duper-Registered Trademark-, Super Foods-TM-,
Super Thrift-Registered Trademark-, Thriftway-Registered Trademark-, and Value
King-Registered Trademark-. There are more than 1,600 food stores operating
under Fleming franchises or licenses, including approximately 150 operated by
the Retail Food Segment.

The company is working to encourage independents and small chains to join
one of the Fleming Banner Groups to receive many of the same marketing and
procurement efficiencies available to larger chains. The Fleming Banner Groups
are retail stores operating under the IGA-Registered Trademark- or Piggly
Wiggly-Registered Trademark- banner or under one of a number of banners
representing a price impact retail format. Fleming Banner Group stores are owned
by customers, many of which license their store banner from Fleming.

The company's three largest external customers accounted for 10.1%, and its
top 10 external customers accounted for 18.5%, of Food Distribution net sales
during 1997. No single customer represented more than 3.6% of Food Distribution
net sales. In October 1997, Furr's, the company's largest customer, and Fleming
entered into an agreement that requires Furr's board to offer Furr's for sale.
In July 1997, Randall's, the company's third largest customer, initiated
arbitration proceedings against the company alleging it had been overcharged for
products. See Item 3. Legal Proceedings.

SUPPLY CONTRACTS

The company supplies goods and services to some of its customers
(particularly to its large customers and to customers in which the company has
made a significant investment) pursuant to supply contracts containing a
"competitiveness" clause. Under this clause, a customer may submit a "qualified
bid" from a third-party supplier to provide the customer with a range of goods
and services comparable to those goods and services offered by Fleming. If the
prices to be charged under the qualifying bid are lower than those charged by
the company by more than an agreed percentage, the company may lower its prices
to come within the agreed percentage or, if the company chooses not to lower its
prices, 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
of its supply contracts prohibit recovery of both punitive and consequential
damages if any dispute ever arises.

RETAIL FOOD SEGMENT

Retail Food Segment supermarkets are operated as 14 distinct local chains or
groups, under 13 banners, each with local management and localized marketing
skills. Retail Food Segment supermarkets also share certain common
administrative and support systems which are centrally monitored and
administered for increased efficiencies. At year-end 1997, the Retail Food
Segment owned and operated more than 275 supermarkets with an aggregate of
approximately 11 million square feet of retail space. The Retail Food Segment's
supermarkets are all served by Food Distribution Segment product supply centers.
Net sales of the Retail Food Segment were $3.5 billion in fiscal 1997 compared
to $0.7 billion in fiscal 1992. This growth is attributable primarily to
acquisitions, but also to remodels and new stores.

Formats of Retail Food Segment stores vary from price impact stores to
conventional supermarkets. All Retail Food Segment supermarkets are designed and
equipped to offer a broad selection of both national brands as well as Fleming
Brands 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.

The Retail Food Segment's supermarkets are operated through the following
local trade names:

ABCO FOODS-TM-. Located in Phoenix and Tucson, ABCO was acquired in January
1996. Previously, ABCO had been a Food Distribution Segment customer in which
Fleming held an equity position. ABCO operates 56 stores, of which a majority
are "Desert Market" format conventional supermarkets, averaging 35,600 square
feet.

BAKER'S-TM-. Located primarily in Omaha, Nebraska and Oklahoma City,
Oklahoma, Baker's-TM- operates 23 stores which are primarily superstores in
format with a value-pricing strategy. Baker's-TM- stores average 52,900 square
feet.

BOOGAARTS-REGISTERED TRADEMARK- FOOD STORES. There are 22 Boogaarts stores,
20 in Kansas and 2 in Nebraska, with an average size of 16,000 square feet. They
are conventional supermarkets with a competitive-pricing strategy.

CONSUMERS FOOD & DRUG-TM-. Headquartered in Springfield, Missouri,
Consumers operates 21 combination stores in Missouri, Arkansas and Kansas, with
an average of 42,800 square feet. Consumers employs a competitive-pricing
strategy.

HYDE PARK MARKET-TM-. Located in south Florida, primarily in Miami, there
are now 13 Hyde Park Market-TM- stores with an average size of 21,500 square
feet. The stores are operated as conventional supermarkets with a value-pricing
strategy.

NEW YORK RETAIL. The two groups consist of 16 Jubilee Foods-Registered
Trademark- stores and 17 Market Basket-TM- stores, operating in western New York
and Pennsylvania. These stores are conventional supermarkets with a

competitive-pricing strategy. The Jubilee Foods-Registered Trademark- stores
average 30,300 square feet and the Market Basket-TM- stores average 14,600
square feet in size.

PENN RETAIL. This group is made up of 16 conventional supermarkets with a
competitive-pricing strategy. It includes Festival Foods-Registered Trademark-
and Jubilee Foods-Registered Trademark-operating primarily in Pennsylvania with
several located in Maryland. The average size is approximately 36,600 square
feet.

RAINBOW FOODS-REGISTERED TRADEMARK-. With 36 stores in Minnesota, primarily
Minneapolis/St. Paul, and Wisconsin, Rainbow Foods operates in a
large-combination format, with a price impact pricing strategy. "Price impact"
stores seek to minimize the retail price of goods by a reduced variety of
product offerings, lower levels of customer services and departments, low
overhead and minimal decor and advertising. The average store size for Rainbow
Foods is 58,400 square feet.

RICHMAR. Fleming owns a 90% equity interest in RichMar, which operates 6
Food 4 Less-Registered Trademark-supermarkets in California. They are operated
as price impact stores and average 54,000 square feet per store.

SENTRY-REGISTERED TRADEMARK- FOODS/SUPERSAVER-TM-. Located in Wisconsin,
these two groups include 13 Sentry-Registered Trademark- Foods stores, which are
conventional-format supermarkets with an average size of 36,600 square feet, and
21 SuPeRSaVeR-TM- stores, which are price impact stores with a
lowest-in-the-area pricing strategy. SuPeRSaVeR-TM- stores average over 62,000
square feet.

THOMPSON FOOD BASKET-REGISTERED TRADEMARK-. Located in Illinois and Iowa,
these 12 stores average 28,900 square feet and are operated as conventional
supermarkets with a competitive-pricing strategy.

UNIVERSITY FOODS. University Foods is a group of 5 Food 4 Less-Registered
Trademark- supermarkets in the Salt Lake City area, with an average size of
56,400 square feet. The supermarkets use a price impact pricing strategy.
Fleming owned a majority interest in this group for a number of years, and in
early 1997 acquired the remaining interest.

Fleming Retail Food Segment stores provide added purchasing power as they
enable Fleming 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.

SUPPLIERS

Fleming purchases its products from numerous vendors and growers. As the
largest single customer of many of its suppliers, Fleming is able to secure
favorable terms and volume discounts on many of its purchases, leading to lower
unit costs. In addition, the company's practice of passing through vendor
promotional fees and allowances under its new marketing plans enhances Fleming's
competitiveness and strengthens its retail customers. The company purchases
products from a diverse group of suppliers and believes it has adequate 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,
Fleming 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 extending credit for
inventory purchases, by becoming primarily or secondarily liable for store
leases, by leasing equipment to retailers, by making secured loans and by making
equity investments in customers.

- EXTENSION OF CREDIT FOR INVENTORY PURCHASES: Customary trade credit terms
are usually the day following statement date for customers on FlexPro-TM-
or FlexStar-TM- and up to seven days for other marketing plan customers.

- STORE AND EQUIPMENT LEASES: The company leases stores for sublease to
certain customers. At year-end 1997, the company was the primary lessee of
more than 700 retail store locations subleased to and operated by
customers. Fleming also leases a substantial amount of equipment to
retailers.

- SECURED LOANS AND LEASE GUARANTEES: 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 above the
prime rate, and are for terms of up to 10 years. During fiscal years 1995,
1996 and 1997, the company sold, with limited recourse, $77 million, $35
million and $29 million, respectively, of notes evidencing such 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 lease obligations of certain of its customers.

- 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. Certain Equity Store
participants may retain the right to purchase the company's investment
over a five to ten 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.

At year-end 1997, Fleming had loans outstanding to customers totaling $121
million ($33 million of which were to retailers in which the company had an
equity investment) and equity investments in customers totaling $23 million. The
company also has investments in customers through direct financing leases, lease
guarantees, operating leases or credit extensions for inventory purchases. The
present value of the company's obligations under direct financing leases and
lease guarantees were $200 million and $62 million, respectively, at year-end
1997. Stricter credit policies and cost/benefit analyses applied to credit
extensions to and investments in customers have resulted in less exposure and a
decrease in credit losses. Fleming's credit loss expense from receivables as
well as from investments in customers was $31 million in 1995, $27 million in
1996 and $24 million in 1997. See notes to consolidated financial statements.

COMPETITION

The Food Distribution Segment faces intense competition. The company's
primary competitors are regional and local food distributors, national chains
which perform their own distribution (such as The Kroger Co. and Albertson's,
Inc.), and national food distributors (such as SUPERVALU Inc.). 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 primary competitors of Retail Food Segment supermarkets and Food
Distribution Segment customers are national, regional and local grocery and drug
chains, as well as independent supermarkets, convenience stores, restaurants and
fast food outlets. 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 1997, the company had approximately 39,700 full-time and
part-time associates, with approximately 12,700 employed by the Food
Distribution Segment, approximately 25,200 by the Retail Food Segment and
approximately 1,800 employed in corporate and other functions. Since year-end
1994, the company's total employment has been reduced by approximately 2,700 on
a net basis. The number of associates employed by the Food Distribution Segment
was reduced by 6,600, from approximately 19,300 at year-end 1994 to
approximately 12,700 at year-end 1997, through facilities consolidation,
elimination of management layers and outsourcing of transportation and other
functions and other cost-cutting measures. The Retail Food Segment employment
has increased on a net basis for the same time period by approximately 3,900
full and part-time associates, due primarily to acquisitions.

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.

ITEM 2. PROPERTIES

The following table sets forth facilities information with respect to
Fleming's Food Distribution segment.

APPROXIMATE
SQUARE FEET
LOCATION (IN 000'S) OWNED OR LEASED
- ------------------------------------------------------------- ------------- -----------------

FOOD DISTRIBUTION (1)
Altoona, PA.................................................. 172 Owned
Buffalo, NY.................................................. 417 Leased
El Paso, TX (2).............................................. 477 Leased
Ewa Beach, HI................................................ 196 Leased
Fresno, CA (6)............................................... 326 Owned
Garland, TX.................................................. 1,180 Owned
Geneva, AL................................................... 345 Leased
Houston, TX.................................................. 662 Leased
Huntingdon, PA (7)........................................... 253 Owned
Johnson City, TN(3).......................................... 298 Owned
Kansas City, KS.............................................. 929 Leased
La Crosse, WI................................................ 907 Owned
Lafayette, LA................................................ 435 Owned
Laurens, IA.................................................. 368 Owned
Lincoln, NE.................................................. 304 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)......................................... 832 Leased
Phoenix, AZ.................................................. 912 Owned
Portland, OR................................................. 337 Owned
Sacramento, CA (6)........................................... 714 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
------
18,645

APPROXIMATE
SQUARE FEET
LOCATION (IN 000'S) OWNED OR LEASED
- ------------------------------------------------------------- ------------- -----------------

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
------
1,614

OUTSIDE STORAGE
Outside storage facilities--typically rented on a short-term
basis...................................................... 5,204
------
Total for Food Distribution.................................. 25,463

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

(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.

The following table sets forth general information with respect to Fleming's
Retail Food segment. These retail stores are primarily leased.

APPROXIMATE
COMBINED
LOCATION OF NUMBER OF SQUARE FEET
RETAIL CHAIN OR GROUP STORES STORES (IN 000'S)
- --------------------------------------------------- ---------------- ------------- -------------

ABCO Foods......................................... AZ 56 1,995
Baker's............................................ NE, OK 23 1,216
Boogaarts.......................................... KS, NE 22 353
Jubilee Foods...................................... NY, PA 16 484
Market Basket...................................... NY, PA 17 249
Consumers.......................................... MO, AR, KS 21 898
Penn Retail........................................ PA, MD 16 585
Hyde Park Market................................... FL 13 279
Rainbow Foods...................................... MN, WI 36 2,103
Sentry Foods....................................... WI 13 476
SuPeRSaVeR......................................... WI 21 1,303
Thompson Food Basket............................... IL, IA 12 364
RichMar............................................ CA 6 324
University Foods................................... UT 5 282
--- ------
Total for Retail Foods............................. 277 10,911

Fleming's corporate offices are located in Oklahoma City, Oklahoma in leased
office space totaling approximately 326,000 square feet.

Fleming owns and leases other significant assets, such as inventories,
fixtures and equipment, capital leases, etc., which are reflected in the
company's consolidated balance sheets which are included in Item 8. of this
report.

For information regarding lease commitments and long-term debt relating to
properties or other assets, see "Lease Agreements" and "Long-term Debt" in the
notes to the consolidated financial statements which are included in Item 8. of
this report.

ITEM 3. LEGAL PROCEEDINGS

The following describes various pending legal proceedings to which Fleming
is subject. For additional information, see "Litigation and Contingencies" in
the notes to the consolidated financial statements which are included in Item 8.
of this report.

(1) RANDALL'S. In July 1997, Randall's Food Markets, Inc. ("Randall's")
initiated arbitration proceedings against Fleming before the American
Arbitration Association in Dallas, Texas. Randall's has been a Fleming customer
for over 30 years. In 1997 Randall's purchased approximately $450 million of
products from Fleming under an eight-year supply contract entered into in 1993
in connection with Fleming's purchase of certain distribution assets from
Randall's. Prior to initiating the arbitration proceeding, Randall's
unsuccessfully sought to terminate its supply contract.

Randall's alleges that Fleming conspired with a group of manufacturers and
vendors to defraud Randall's by inflating prices and that Fleming impermissibly
modified the pricing mechanism of its supply contract. Randall's claims it was
overcharged by approximately $54 million during a 4 1/2 year period. Randall's
alleges breach of contract, fraud and RICO violations, and seeks actual,
punitive and treble damages, termination of its supply contract, attorneys' fees
and costs. The contract on which Randall's bases its claim prohibits either
party from recovering any amount other than actual damages; recovery of
consequential damages, punitive damages and all similar forms of damages are
expressly prohibited. Randall's asserts that such provision is contrary to
public policy and therefore not binding on it.

(2) CLASS ACTION SUITS. In 1996 certain stockholders (Kenneth Steiner,
Lawrence B. Hollin, Ronald T. Goldstein, General Telcom Money Purchase Perscon
Plan & Trust, Bright Trading, Inc., City of Philadelphia, Gerald Pindus, Charles
Hinton and Lawrence M. Wells, among others) and one bondholder (Robert Mark)
filed purported class action lawsuits against the company and certain of its
present and former officers and directors [Robert E. Stauth, Harry L. Winn, Jr.,
Kevin J. Twomey, Donald N. Eyler (a former executive officer) and, as to the
stock cases only, R. Randolph Devening (a former executive officer and former
director)], each in the U.S. District Court for the Western District of
Oklahoma. In April 1997, the court consolidated the stockholder cases as City of
Philadelphia, et al. v. Fleming Companies, Inc., et al.; the noteholder case was
also consolidated, but only for pre-trial purposes. A complaint has been filed
in the consolidated cases asserting liability for the company's alleged failure
to properly account for and disclose the contingent liability created by the
litigation brought against the company by David's Supermarkets, Inc. ("David's")
and by the company's alleged "deceptive business practices." The plaintiffs
claim that these alleged failures and practices led to the David's litigation
and to other material contingent liabilities, caused the company to change its
manner of doing business at great cost and loss of profit, and materially
inflated the trading price of the company's common stock. The plaintiffs seek
undetermined but significant damages.

D&O policies written by the insurance carriers (aggregating $60 million) and
that the "larger settlement rule" will be applicable to the case. According to
the trial court, under the larger settlement rule a D&O insurer is liable for
the entire amount of coverage available under a policy even if there is some
overlap in the liability created by insured individuals and an uninsured
corporation. If a corporation's liability is increased by uninsured parties
beyond that of the insured individuals, then that portion of the liability is
the sole obligation of the corporation. The court also held that allocation is
not available to the insurance carriers as an affirmative defense. The insurance
carriers have appealed.

(3) DERIVATIVE SUITS. In October 1996, certain of the company's present
and former officers and directors [Robert E. Stauth, Harry L. Winn, Jr., Kevin
J. Twomey, Archie R. Dykes, Carol B. Hallett, Edward C. Joullian III, John A.
McMillan, Guy A. Osborn, Howard H. Leach (a former director), R.D. Harrison
(subsequently dismissed), Lawrence M. Jones (a former director), R. Randolph
Devening (a former executive officer and former director), Donald N. Eyler (a
former executive officer), E. Dean Werries (a former executive officer and
former director) and James E. Stuard (a former 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 (Cauley, et al. v. Stauth, et al.).
Plaintiffs' complaint contains allegations that the defendants breached their
respective fiduciary duties to the company and were variably responsible for
causing the company to (i) become "involved with" Premium Sales Corporation and
its illegal course of business resulting in a $20 million settlement paid by
Fleming; (ii) "systematically misrepresent and overstate" the cost of company
products, resulting in litigation by David's Supermarkets (which was settled by
the company for $20 million) and ultimately leading to the class action suits
discussed above; and (iii) fail to meet its disclosure obligations under the law
resulting in the class action lawsuits and increased borrowing costs, loss of
customers and loss of market value.

In another purported shareholder derivative action filed in October 1996 in
the U.S. District Court for the Western District of Oklahoma (Rosenburger v.
Stauth, et al.), the plaintiff sued the same and additional officers and
directors [E. Stephen Davis, Thomas L. Zaricki, Gerald G. Austin (a former
executive officer) and Glenn E. Mealman (a former executive officer)]. In this
case, the plaintiff 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 Supermarkets, and (iv)
defraud persons who invested in the Premium-related entities resulting in
litigation.

Plaintiffs' sought damages from the defendants on behalf of Fleming in
excess of $50,000, forfeiture by the defendants of their salaries and other
compensation for the period in which they allegedly breached their fiduciary
duties, retention of all monies held by the company as deferred compensation or
otherwise on behalf of the defendants as a constructive trust for the benefit of
the company, and attorney's fees and costs. On September 30, 1997, both
derivative suits were dismissed, without prejudice, for failure to make demand
on the company's Board of Directors prior to instigating the litigation.
Plaintiffs have filed a motion seeking leave to file an amended complaint.

(4) TOBACCO CASES. In August 1996, Richard E. Ieyoub, the Attorney General
of the State of Louisiana, brought an action in the 14th Judicial District Court
of Louisiana against The American Tobacco Company and numerous defendants
including the company. Since then 16 actions have been filed by individual
plaintiffs (Joseph Aezen, Najiyya El-Haddi, Victoria Lynn Katz, Robert R.
Applebaum, Carla Boyce, Robert J. Ruiz, Rosalind K. Orr, Florence Ferguson, Ella
Daly, Janet Anes, Kym Glasser, Welton Lee Upshur, Donald G. Teti, George
Thompson, Ronald Folkman, and Sandy and Howard Greenfield) against major tobacco
companies (R.J. Reynolds Tobacco Company, Phillip Morris Companies and Lorillard
Tobacco Company) and others including the company (or one of its predecessors)
in the Court of Common Pleas, Philadelphia County, Pennsylvania; two individuals
(Doyle Smith and Gloria Schultz) commenced separate actions in the Court of
Common Pleas, Dauphin County, Pennsylvania against Phillip Morris Companies and
others including the company; and one individual (Olanda Carter) commenced an

action against R.J. Reynolds Tobacco Company and a predecessor of the company in
the Circuit Court for Shelby County, Tennessee. Each of these cases alleges
substantial monetary liability for Fleming's participation in the distribution
of tobacco products. The company is being indemnified and defended by
substantial third party co-defendants with respect to these cases. The
indemnifications are unconditional and unlimited.

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

Not applicable.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information concerning the executive
officers of the company as of March 2, 1998:

YEAR FIRST
BECAME AN
NAME (AGE) PRESENT POSITION OFFICER
- -------------------------------------------- -------------------------------------------- ---------------

Robert E. Stauth (53)....................... Chairman and Chief Executive Officer 1987

William J. Dowd (55)........................ President and Chief Operating Officer 1995

E. Stephen Davis (57)....................... Executive Vice President--Food Distribution 1981

Harry L. Winn, Jr. (53)..................... Executive Vice President and Chief Financial 1994
Officer

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

Ronald C. Anderson (55)..................... Senior Vice President--General Merchandise 1993

Mark K. Batenic (49)........................ Senior Vice President--Sales and Business 1994
Development, Food Distribution

Craig A. Grant (50)......................... Senior Vice President--Organizational 1998
Strategies/Management Development

William M. Lawson, Jr. (47)................. Senior Vice President--Corporate Development 1994

Dixon E. Simpson (55)....................... Senior Vice President--Retail Services 1993

Larry A. Wagner (51)........................ Senior Vice President--Human Resources 1989

Thomas L. Zaricki (53)...................... Senior Vice President--Retail Operations 1993

Nancy E. Del Regno (45)..................... Vice President--Communications and Public 1995
Affairs

John M. Thompson (56)....................... Vice President--Treasurer and Assistant 1982
Secretary

Kevin J. Twomey (47)........................ Vice President--Controller 1995

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,
Grant, Lawson, Winn and 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 President of McKesson
Corporation, a distributor of pharmaceutical and related products, where he was
responsible for its service merchandising division.

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. Grant joined the company in his present position in March 1998. From
1991 to 1998, he was Vice President--Human Resources for Interlake Corporation
in Lisle, Illinois.

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 to 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 20, 1998, the 38.3 million
outstanding shares were owned by 12,000 shareholders of record and approximately
11,000 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.

1997 1996
-------------------- --------------------
QUARTER HIGH LOW HIGH LOW
- ------------------------------------------------------- --------- --------- --------- ---------

First.................................................. $ 18.75 $ 15.75 $ 20.88 $ 13.63
Second................................................. 20.38 15.50 16.38 11.50
Third.................................................. 19.50 15.75 18.38 13.63
Fourth................................................. 18.94 13.38 18.25 15.63

Cash dividends on Fleming common stock have been paid for 81 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:

RECORD DATES: PAYMENT DATES:
- ---------------------------------- ----------------------------------

February 20 March 10
May 20 June 10
August 20 September 10
November 20 December 10

Cash dividends of $.02 per share were paid on or near each of the above four
payment dates in 1997. 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.

ITEM 6. SELECTED FINANCIAL DATA

1993(A) 1994(B) 1995(C) 1996(D) 1997(E)
--------- --------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

Net sales.............................. $ 13,096 $ 15,724 $ 17,502 $ 16,487 $ 15,373
Earnings before extraordinary charge... 37 56 42 27 39
Net Earnings........................... 35 56 42 27 25
Diluted net earnings per common share
before extraordinary charge(f)....... 1.02 1.51 1.12 .71 1.02
Diluted net earnings per share(f)...... .96 1.51 1.12 .71 .67
Total assets........................... 3,103 4,608 4,297 4,055 3,924
Long-term debt and capital leases...... 1,004 1,995 1,717 1,453 1,494
Cash dividends declared per common
share................................ 1.20 1.20 1.20 .36 .08

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

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

(a) The results in 1993 include a charge of approximately $108 million ($66
million after-tax or $1.79 per share) for additional facilities
consolidations, reengineering, impairment of retail-related assets and
elimination of regional operations. 1993 also reflected an extraordinary
charge of $4 million ($2 million after-tax or $.06 per share) for the early
retirement of debt.

(b) The results in 1994 reflect the July 1994 acquisition of Scrivner Inc.

(c) In 1995, management changed its estimates with respect to the general
merchandising portion of the reengineering plan and reversed $9 million ($4
million after-tax or $.12 per share) of the related provision. (See note "a"
above).

(d) Results in 1996 include a charge of $20 million ($10 million after-tax or
$.26 per share) related to the settlement of two related lawsuits against
the company.

(e) The results in 1997 reflect a charge of $19 million ($9 million after-tax or
$.24 per share) related to the settlement of a lawsuit against the company.
1997 also reflected an extraordinary charge of $22 million ($13 million
after-tax or $.35 per share) related to the recapitalization program.

(f) All earnings per share amounts have been restated and are reflected as
diluted as defined under SFAS No. 128-Earnings Per Share.

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

GENERAL

Several events have shaped Fleming's results of operations and capital and
liquidity position during each of the past three fiscal years. Changes in the
food marketing and distribution industry have reduced sales and increased
competitive pressures for the company and many of its customers. In January
1994, the company announced a strategic plan to transform its operations to
better serve its customers and achieve higher profitability. As part of this
plan, the company consolidated food distribution facilities, reorganized its
management group and reengineered the way it prices and sells grocery, frozen
and dairy products and retail services. In July 1994, the company acquired
Scrivner Inc. ("Scrivner"), adding $6 billion in annual sales from food
distribution and more than 175 retail stores. The company also dealt with
business and

litigation challenges during this period: the bankruptcy of a major customer in
1994, the addition by foreclosure in early 1996 of a 71-store customer in
Arizona and several litigation developments. Each of these events is discussed
in more detail below:

CHANGING INDUSTRY ENVIRONMENT. The food marketing and distribution
industry is undergoing accelerated change as producers, manufacturers,
distributors and retailers seek to lower costs and increase services in an
increasingly competitive environment of relatively static overall demand.
Alternative format food stores (such as warehouse stores and supercenters)
have gained retail food market share at the expense of traditional
supermarket operators, including independent grocers, many of whom are
Fleming customers. Vendors, seeking to ensure that more of their promotional
fees and allowances are used by retailers to increase sales volume,
increasingly direct promotional dollars to large self-distributing chains,
alternative formats and other channels of distribution. The company believes
that these changes have led to reduced sales, reduced margins and lower
profitability among many of its customers and at the company itself.

CONSOLIDATIONS, REORGANIZATION AND REENGINEERING. In the fourth quarter
of 1993, the company developed a comprehensive plan to consolidate five
wholesale food facilities, reorganize its operational and managerial
structure and reengineer the way it prices and markets certain goods and
retail services (the "1993 Plan"). The company's goals were: (i) to gain
operational efficiencies by closing certain facilities and consolidating
operations into larger, more efficient facilities; (ii) to reduce costs by
removing a layer of management and closing regional operations; and (iii) to
combat negative industry trends by offering a flexible marketing plan
designed to permit customers to reduce the cost of the goods and services
purchased from the company and thereby gain a competitive advantage for
Fleming. The estimated costs of significant actions believed necessary to
implement the 1993 Plan were identified (such as asset impairments and
severance costs) and a pre-tax charge totaling $108 million was recorded
along with related reserves. Certain additional costs (such as employee
training expenses and the costs of designing and implementing the flexible
marketing plan) were anticipated but were not included in the charge. These
additional costs are being expensed as incurred. By year-end 1993,
approximately $24 million of consolidation and severance costs were charged
to the 1993 reserve leaving a balance of approximately $81 million.

At inception, the company expected the 1993 Plan to be completed and the
reserve to be fully utilized by the end of 1996. The acquisition of Scrivner
in mid-1994 (which was not anticipated when the 1993 Plan was established)
and the subsequent integration of Scrivner into Fleming's operations delayed
implementation of many components of the 1993 Plan. During 1994, $28 million
was charged to the reserve as the company consolidated (or partially
consolidated) four facilities, recognized impairments related to asset
dispositions and made some planned reductions in work force.

During 1995, the company charged $21 million against the 1993 reserve as
continuing expenses were recognized in completing four of the planned five
facilities consolidations and the anticipated asset impairments relating to
retail store dispositions were recognized. During the year, the company
noted certain customer resistance to transferring operations to consolidated
facilities. To reduce these disruptive logistical changes, the company
targeted an alternative facility for consolidation. The closure of the
alternate site will be less expensive than initially estimated. Accordingly,
$9 million of the 1993 reserve was reversed in the third quarter of 1995 and
taken into income as a change in estimate.

Many of the 1993 Plan's components are interdependent and certain
actions could not begin until other actions were completed. For example,
full work force reductions and certain transportation initiatives could not
be implemented until the company's new marketing plan was available at the
respective product supply center. During 1995 and early 1996, the company
experienced unanticipated customer resistance to the changes required by the
new flexible marketing plan and the pace of implementing the 1993 Plan
slowed as the company developed alternatives to overcome this resistance.
Consequently, actions dependent on the implementation of the new marketing
plan were also

slowed and, in some cases, rescheduled to 1997. During 1996, only $3 million
was charged against the reserve, but during 1997, $13 million was charged
against the reserve. Alternative marketing plans have been developed and
implementation of the 1993 Plan is expected to accelerate so as to be
substantially complete by the end of 1998.

While customer reaction to the initial implementation of the flexible
marketing plan (which is a critical component of reengineering) caused some
operational disruption and loss of sales, the company believes that the 1993
Plan will reduce costs throughout the company and strengthen the company's
overall competitive position.

SCRIVNER. In July 1994, Fleming purchased Scrivner, with annual sales
exceeding $6 billion, for approximately $390 million in cash and the
assumption of $670 million of indebtedness. During 1994 and 1995, the
company consolidated nine distribution centers acquired in the Scrivner
acquisition (in addition to the consolidations which were anticipated as
part of the 1993 Plan). The costs of these consolidations were charged to
separate purchase accounting reserves established at the time of the
acquisition. The acquisition of Scrivner and its integration into Fleming
caused significant delays in implementing the 1993 Plan.

MEGAFOODS. In August 1994, Megafoods, Inc. and certain of its
affiliates ("Megafoods" or the "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 claims for indebtedness for goods sold on
open account, equipment leases and secured loans. Megafoods brought an
adversary proceeding seeking, among other things, damages against the
company. The company recorded losses resulting from deteriorating collateral
values of $6.5 million in 1994 and $3.5 million in 1995, and in 1996 and
1997 recorded $5.8 million and $.8 million, respectively, to reflect
continuing deterioration and the effects of the settlement of the company's
claim and the debtor's allegations. At year-end 1997, approximately $2
million in assets relating to Megafoods remained on the company's books.

ABCO. At year-end 1994, the company was the largest single shareholder
(approximately 48%), the major supplier and the second largest creditor of
ABCO Holding, 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 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's minority shareholders have
brought suit seeking rescission and/or damages.

LITIGATION. In March 1996, a jury in central Texas returned verdicts in
David's Supermarkets, Inc. v. Fleming ("David's") which resulted in a
judgment of $211 million against Fleming. In response, the company
established a reserve of $7.1 million and amended its former bank credit
agreement to facilitate posting a partially collateralized supersedeas bond.
Pursuant to the amendment, pricing for borrowing under the former credit
agreement was increased. The judgment was vacated in June 1996, and the
company's reserve was reduced to $650,000. During the first quarter of 1997,
the company recorded a charge of $19.2 million to reflect the settlement of
the David's case. During the third quarter of 1996, the company recorded a
charge of $20 million to reflect the settlement of two lawsuits involving a
failed grocery diverter, Premium Sales Corporation. During the fourth
quarter of 1997, the company reached a settlement of a business dispute with
its largest customer, Furr's, Inc. ("Furr's"). Pursuant to the settlement,
the company will refund $800,000 per month during the remaining life of its
supply contract with Furr's. See "--Litigation and Contingencies" below and
"Litigation and Contingencies" in the notes to the consolidated financial
statements for a further discussion of certain litigation and contingent
liability issues.

COMPANY-OWNED STORE CLOSINGS. In the past two years, the company has
divested over 80 stores. The divestitures were based on the stores' poor
performance or inconsistency with the company's strategy.

CREDIT POLICIES. In 1995, Fleming began imposing stricter credit
policies and applying cost/ benefit analyses to loans to and investments
made in its distribution customers. Traditionally, food distributors have
used the availability of financial assistance as a competitive tool. Fleming
believes that its stricter credit policies have resulted in decreased sales.

Management believes that the combination of these events has negatively
affected the company's financial performance during the past three years.
However, management also believes that the company's ultimate success will
depend on its ability to continue to cut costs while expanding profitable
operations. The company has revised its marketing plans and is taking other
steps to reverse sales declines. These initiatives include increased marketing
emphasis and expanded offerings of Fleming Retail Services, streamlining and
expanding Fleming Brands, developing and marketing additional foodservice
products and growing retail food operations through remodels, new store
development and selective acquisitions. While the company believes considerable
progress has been made to date, no assurance can be given that the company will
be successful in continuing to cut costs, in reversing sales declines or in
increasing higher margin activities.

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 twelve quarters were as follows:

1995 1996 1997
--------- --------- ---------

First quarter.................................... $ .40 $ .25 $ .39
Second quarter................................... $ .39 $ .30 $ .35
Third quarter.................................... $ .10 $ .19 $ .23
Fourth quarter................................... $ .11 $ .27 $ .34
Year............................................. $ 1.00 $ 1.01 $ 1.32

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:

1995 1996 1997
--------- --------- ---------

Net sales........................................................................ 100.00% 100.00% 100.00%
Gross margin..................................................................... 8.06 8.99 9.31
Less:
Selling and administrative....................................................... 6.79 7.73 7.76
Interest expense................................................................. 1.00 .99 1.06
Interest income.................................................................. (.33) (.29) (.30)
Equity investment results........................................................ .16 .11 .11
Litigation charge................................................................ -- .12 .14
Facilities consolidation......................................................... (.05) -- --
--------- --------- ---------
Total............................................................................ 7.57 8.66 8.77
--------- --------- ---------
Earnings before taxes............................................................ .49 .33 .54
Taxes on income.................................................................. .25 .17 .29
--------- --------- ---------
Earnings before extraordinary charge............................................. .24 .16 .25
Extraordinary charge............................................................. -- -- .09
--------- --------- ---------
Net earnings..................................................................... .24% .16% .16%
--------- --------- ---------
--------- --------- ---------

Note: The consolidated results of ABCO are included beginning December 1995.

1997 AND 1996

NET SALES. Sales for 1997 decreased by $1.1 billion, or 7%, to $15.37
billion from $16.49 billion for 1996. See "--General."

Retail segment sales generated by the same stores in 1997 compared to 1996
decreased by 3.4%. The decrease was attributable, in part to new stores opened
by competitors in some markets and aggressive marketing initiatives by certain
competitors.

The company measures inflation using data derived from the average cost of a
ton of product sold by the company. For 1997, food price inflation was 1.3%,
compared to 2.3% in 1996.

GROSS MARGIN. Gross margin for 1997 decreased by $51 million, or 3%, to
$1.43 billion from $1.48 billion for 1996, but increased as a percentage of net
sales to 9.31% from 8.99% for 1996. The decrease in dollars followed the decline
in sales. The increase in gross margin percentage was due to improved gross
margins in both segments of the business brought about by numerous margin
improvement initiatives. The company also achieved food distribution
productivity increases during 1997 of 3.9%.

SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
for 1997 decreased by $79 million, or 6%, to $1.19 billion from $1.27 billion
for 1996, but increased as a percentage of net sales to 7.76% for 1997 from
7.73% in 1996. The decrease in dollars was principally due to improvements in
operating efficiencies for company-owned stores and reductions in administrative
and support functions offset in part by an increase in incentive compensation
expense. The increase as a percentage of net sales is the result of the rate of
sales decline being greater than the rate of expense reduction.

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 and equity investments in and secured and
unsecured loans to certain customers. Secured loans generally have terms up to
ten years.

Credit loss expense is included in selling and administrative expenses and
for 1997 decreased by approximately $3 million to $24 million from $27 million
for 1996. 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.

INTEREST EXPENSE. Interest expense remained unchanged for 1997 compared to
1996 at $163 million. Lower average debt levels in 1997 compared to 1996 caused
interest expense to decline, but this was offset in the last half of 1997 due to
interest rates on the new senior subordinated notes being higher than the rates
on the refinanced debt.

The company's derivative agreements have consisted of simple
"floating-to-fixed rate" interest rate caps and swaps. For 1997, interest rate
hedge agreements contributed $7.2 million of interest expense compared to $9.6
million in 1996, or $2.4 million lower, primarily due to a lower average amount
of notional principal of debt referenced by interest rate hedges. For a
description of these derivatives see "Long-term Debt" in the notes to the
consolidated financial statements.

INTEREST INCOME. Interest income for 1997 was $47 million compared to $49
million in 1996. The company's investment in direct financing leases decreased
from 1996 to 1997 thereby decreasing interest income. Further in 1997 and 1996
the company sold (with limited recourse) $29 million and $35 million
respectively, of notes receivable which also reduced interest income.

EQUITY INVESTMENT RESULTS. The company's portion of operating losses from
equity investments for 1997 decreased by approximately $1 million to $17 million
from $18 million for 1996. The reduction in losses is due to improved results of
operations in certain of the underlying equity investments.

LITIGATION CHARGE. In October 1997, the company began paying Furr's
$800,000 per month as part of a settlement agreement. Such payments may continue
for up to 19 months. In the first quarter of 1997, the company expensed $19.2
million ($9 million after-tax or $.24 per share) in settlement of the David's
litigation. In the first quarter of 1996, the company accrued $7.1 million as
the result of a jury verdict

regarding the David's case. In the second quarter of 1996, the accrual was
reversed following the vacation of the judgment resulting from the jury verdict,
and a new accrual for $650,000 was established. In the third quarter of 1996,
the company accrued $20 million ($10 million after-tax or $.26 per share)
related to an agreement reached to settle the Premium lawsuits. See "Litigation
and Contingencies" in the notes to the consolidated financial statements.

TAXES ON INCOME. The effective tax rate for 1997 is 58.0% versus 51.1% for
1996. The presentation of the 1997 tax is split by reflecting a tax benefit at
the statutory rate of 40% for the extraordinary charge and reflecting the
balance of the tax amount on the taxes on income line. The 1996 effective rate
was lower than the 1997 rate due primarily to favorable resolutions of tax
assessments in 1996.

EXTRAORDINARY CHARGE FROM EARLY RETIREMENT OF DEBT. During 1997, the
company undertook a recapitalization program which culminated in an $850 million
senior secured credit facility and the sale of $500 million of senior
subordinated notes. The recapitalization program resulted in an extraordinary
charge of $13.3 million, after income tax benefits of $8.9 million, or $.35 per
share, in the company's third quarter ended October 4, 1997. Almost all of the
charge represents a non-cash write-off of unamortized financing costs related to
debt which was prepaid. See "--Liquidity and Capital Resources" for a further
discussion of the recapitalization program.

CERTAIN ACCOUNTING MATTERS. See notes to consolidated financial statements
for a discussion of new accounting standards adopted in 1997, none of which had
a material effect on disclosures, results of operations or financial position.

OTHER. Several factors negatively affecting earnings in 1997 are likely to
continue for the near term. Management believes that these factors include lower
sales and operating losses in certain company-owned stores. Additionally, the
continuing commitments under the Furr's agreement will negatively impact
earnings compared to 1997. See "--Litigation and Contingencies" below and
"Litigation and Contingencies" in the notes to the consolidated financial
statements.

1996 AND 1995

NET SALES. Sales for 1996 decreased by $1.0 billion, or 6%, to $16.49
billion from $17.50 billion for 1995. See "--General."

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.

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.
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.

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.
The downgrade resulted in a .25% increase in the company's bank debt borrowing
margin which increased interest expense on borrowing under the bank credit
agreement at an estimated annualized cost of $2 million. In September 1996,
Standard & Poor's Ratings Group ("S&P") lowered its credit ratings on the
company and on the company's senior unsecured debt. The downgrade did not result
in an additional increase in the company's bank debt borrowing margin.

The company's derivative agreements consisted 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. See "Long-term Debt" in the notes to
the 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.

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

LIQUIDITY AND CAPITAL RESOURCES

Set forth below is certain information regarding the company's capital
structure at the end of fiscal years 1996 and 1997:

CAPITAL STRUCTURE
----------------------------------------------
1996 1997
---------------------- ----------------------
(IN MILLIONS)

Long-term debt........................................................... $ 1,216 45.5% $ 1,175 44.3%
Capital lease obligations................................................ 381 14.2 388 14.6
--------- ----- --------- -----
Total debt............................................................... 1,597 59.7 1,563 58.9
Shareholders' equity..................................................... 1,076 40.3 1,090 41.1
--------- ----- --------- -----
Total capital............................................................ $ 2,673 100.0% $ 2,653 100.0%
--------- ----- --------- -----
--------- ----- --------- -----

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

Long-term debt was $41 million lower at year-end 1997 compared to 1996
primarily because net cash provided from operations plus a reduction in the cash
balance exceeded net cash required for investing activities and payments on
capital leases. Capital lease obligations increased $7 million in 1997 because
leases added for new retail stores exceeded repayments.

The debt-to-capital ratio at year-end 1997 was 58.9%, down from 59.7% at
year-end 1996. The company's long-term target ratio is between 50% and 55%.

Operating activities generated $113 million of net cash flows for 1997
compared to $328 million in 1996. The difference was principally due to changes
in working capital: a lower reduction in inventories, a higher reduction in
accounts payable, and a higher increase in accounts receivable. Working capital
was $340 million at year-end 1997, an increase from $221 million at year-end
1996. The current ratio increased to 1.29 to 1, from 1.16 to 1 at year-end 1996.

Capital expenditures were $129 million for 1997 and 1996. Total capital
expenditures for 1998 are expected to be approximately $230 million. Completion
of the company's recapitalization program will permit the company to increase
its total spending for capital expenditures and acquisitions. The company
intends to increase its retail operations by increasing investments in new and
remodeled stores in the company's existing retail chains and by making selective
acquisitions of supermarket chains or groups as opportunities arise.

The company makes investments in and loans to certain retail customers. Net
investments and loans decreased $72 million, from $240 million to $168 million
due primarily to the sale of notes receivable and more restrictive credit
policies. In 1997 and 1996, the company sold $29 million and $35 million of
notes receivable, respectively.

The company's principal sources of liquidity and capital have been cash
flows from operating activities, borrowing under its credit facility, sale of
notes receivable and the public and private debt capital markets.

On July 25, 1997, the company entered into a new $850 million senior secured
credit facility and sold $500 million of senior subordinated notes. Proceeds
from the initial borrowings under the credit agreement and the sale of the
subordinated notes were used to repay all outstanding bank debt under the
previous credit facility and the balance, together with additional revolver
borrowings, was used to redeem the company's $200 million floating rate senior
notes due 2001. The recapitalization program provides the company with increased
flexibility to redeploy assets and pursue increased business investment, such as
the expansion of the company's retail food operations, strengthens Fleming's
capital structure by reducing senior secured bank loans and repaying the
floating rate senior notes, extends the average life of total debt outstanding,
and reduces annual scheduled debt maturities.

The new $850 million senior secured credit facility consists of a $600
million revolving credit facility, with a final maturity of July 25, 2003, and a
$250 million amortizing term loan, with a maturity of July 25, 2004. Up to $300
million of the revolver may be used for issuing letters of credit. Borrowings
and letters of credit issued under the new credit facility may be used for
general corporate purposes and are secured by a first priority security interest
in the accounts receivable and inventories of the company and its subsidiaries
and in the capital stock or other equity interests owned by the company in its
subsidiaries. In addition, the new credit facility is guaranteed by
substantially all company subsidiaries (see "Long-term Debt" in the notes to the
consolidated financial statements). The stated interest rate on borrowings under
the credit agreement is equal to a referenced index rate, normally the London
interbank offered interest rate ("LIBOR"), plus a margin. The level of the
margin is dependent on credit ratings on the company's senior secured bank debt.

The $500 million of senior subordinated notes consists of two issues: $250
million of 10 1/2% Notes due December 1, 2004 and $250 million of 10 5/8% Notes
due July 31, 2007. The subordinated notes are general unsecured obligations of
the company, subordinated in right of payment to all existing and future senior
indebtedness of the company, and senior to or of equal rank with all future
subordinated indebtedness of the company. The company currently has no other
subordinated indebtedness outstanding.

The credit agreement and the indentures under which other company debt
instruments were issued contain customary covenants associated with similar
facilities. The credit agreement currently contains the following more
significant financial covenants: maintenance of a fixed charge coverage ratio of
at least 1.7 to 1, based on earnings before interest, taxes, depreciation and
amortization and net rent expense; maintenance of a ratio of
inventory-plus-accounts receivable to funded bank debt (including letters of
credit) of at least 1.4 to 1; and a limitation on restricted payments, including
dividends. Covenants contained in the company's indentures under which other
company debt instruments were issued are generally less restrictive than those
of the credit agreement. The company is in compliance with all financial
covenants under the credit agreement and its indentures.

In addition, the credit facility may be terminated in the event of a defined
change of control. Under the company's indentures, noteholders may require the
company to repurchase notes in the event of a defined change of control coupled
with a defined decline in credit ratings.

At year-end 1997, borrowings under the credit facility totaled $250 million
in term loans and $30 million of revolver borrowings, and $88 million of letters
of credit had been issued. Letters of credit are needed primarily for insurance
reserves associated with the company's normal risk management activities. To the
extent that any of these letters of credit would be drawn, payments would be
financed by borrowings under the credit agreement.

At year-end 1997, the company would have been allowed to borrow an
additional $482 million under the revolving credit facility contained in the
credit agreement based on the actual borrowings and letters of credit
outstanding. Under the company's most restrictive borrowing covenant, which is
the fixed charges coverage ratio contained in the credit agreement, $41 million
of additional fixed charges could have been incurred.

The composite interest rate for total debt (including capital lease
obligations) before the effect of interest rate hedges was 9.9% for 1997, versus
8.6% in 1996. Including the effect of interest rate hedges, the composite
interest rate of debt was 10.4% and 9.1% at the end of 1997 and 1996,
respectively.

At year-end 1997, the company employed interest rate swaps covering a total
of $250 million of floating rate indebtedness with three counterparty banks
possessing investment grade credit ratings. The swaps have an average fixed
interest rate of 7.22% and an average remaining term of 2.4 years. Net interest
payments made or received under interest rate swaps are included in interest
expense. See "--Results of Operations-Interest Expense" above and "Long-term
Debt" in the notes to the consolidated financial statements.

On June 27, 1997, Moody's Investors Service ("Moody's") announced it had
revised its credit ratings for Fleming. Moody's downgraded its rating for the
company's senior secured credit facility to Ba3 from Ba2, senior unsecured notes
to B1 from Ba3, and counterparty ratings to B1 from Ba3. Moody's assigned a Ba3
rating to the company's new $850 million credit agreement, and a B3 rating for
the new $500 million of senior subordinated notes.

On June 30, 1997, Standard & Poor's Rating Group ("S&P") announced it had
revised its outlook on Fleming to stable from negative and had affirmed the
company's BB corporate credit rating. Additionally, S&P raised its rating on the
company's senior unsecured notes to BB- from B+. It also assigned a B+ rating to
the company's new $500 million senior subordinated notes. On July 2, 1997, S&P
announced it had assigned a BB+ rating to the company's new $850 million credit
facility.

Dividend payments in 1997 were $.08 per share or 12% of net earnings per
share, compared to $.36 per share or 50% of net earnings per share in 1996. The
credit agreement and the indentures for the $500 million of senior subordinated
notes limit restricted payments, including dividends, to $58 million at year-end
1997, based on a formula tied to net earnings and equity issuances.

For the foreseeable future, cash flows from operating activities and the
company's ability to borrow under its credit agreement are expected to be the
company's principal sources of liquidity and capital. In addition, lease
financing may be employed for new stores and certain equipment. Management
believes these sources will be adequate to meet working capital needs, capital
expenditures (including expenditures for acquisitions, if any) and other capital
needs for the next 12 months.

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 laws, rules and regulations which may subject the company to material
contingent liabilities. In accordance with applicable accounting standards, the
company records as a liability amounts reflecting such exposure when a material
loss is deemed by management to be both "probable" and "quantifiable" or
"reasonably estimable." See ("--General").

On October 23, 1997, Fleming and Furr's entered into an agreement providing
for the settlement of their business dispute. Under the agreement, Furr's is
being offered for sale through a six-month auction process which began on
October 29, 1997. Fleming's El Paso product supply center (the "El Paso PSC"),
together with related equipment and inventory, will be offered for sale with
Furr's. Upon the sale of Furr's to a third party, Fleming would receive
approximately 30% of the net proceeds.

If the successful bidder does not purchase the El Paso PSC, Fleming will
receive payment of certain liquidation costs for the orderly liquidation of the
El Paso PSC. If Furr's is not sold during the six-month period, Furr's will have
30 days within which to elect to purchase the El Paso PSC or to pay the
liquidation costs (after a nine-month transition period).

Under the agreement, Fleming is paying Furr's $800,000 per month as a refund
of fees and charges. The payments will cease with the expiration of the supply
contract which will occur upon the earlier of (i) the sale of the El Paso PSC or
(ii) the completion of the orderly liquidation of the El Paso PSC on or before
June 1, 1999.

While Fleming and Furr's have agreed to cooperate in the sale of Furr's, the
ultimate outcome of their joint efforts cannot be predicted. However, Fleming
expects that on or before June 1, 1999, the company will cease to supply Furr's,
the El Paso PSC will be sold or liquidated and Fleming's substantial equity
investment in Furr's will be sold and a gain realized. The settlement agreement
did not cause an impairment in value of any recorded balances. While the
premature loss of Furr's business will be significant in the near term, Fleming
believes that the reinvestment of its employed capital in other profitable
operations will offset the lost business. However, if Furr's is not sold,
Fleming may experience an impairment of $8-$10 million. During 1997, Furr's
purchased approximately $500 million of products from Fleming.

Furthermore, 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." These and other
such contingent matters are discussed in "Litigation and Contingencies" in the
notes to the consolidated financial statements, which appear elsewhere herein.
Also see Item 3. Legal Proceedings. 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.

Fleming has numerous computer systems which were developed employing six
digit date structures (i.e., two digits each for month, day and year). Where
date logic requires the year 2000 or beyond, such date structures may produce
inaccurate results. Management has implemented a program to comply with year
2000 requirements on a system-by-system basis. Fleming's plan includes extensive
systems testing and is expected to be substantially completed by the first
quarter of 1999. The solution for each system is potentially unique and may be
dependent on third-party software providers and developers. Failure to ensure
that the company's computer systems are year 2000 compliant could have a
material adverse effect on the company's operations. Additionally, failure of
the company's suppliers or its customers to become year 2000 compliant might
have a material adverse impact on the company's operations.

Program costs to comply with year 2000 requirements are being expensed as
incurred. Expenditures with third parties are not expected to exceed $10 million
over the next two years. To compensate for the dilutive effect on results of
operations, the company has delayed other non-critical development and support
initiatives. Accordingly, the company expects that annual information technology
expenses will not differ significantly from prior years.

FORWARD-LOOKING INFORMATION

This 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 its
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.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Incorporated herein by reference to the company's proxy statement in
connection with its annual meeting of shareholders to be held on May 14, 1998.
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 the company's proxy statement in
connection with its annual meeting of shareholders to be held on May 14, 1998.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated herein by reference to the company's proxy statement in
connection with its annual meeting of shareholders to be held on May 14, 1998.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated herein by reference to the company's proxy statement in
connection with its annual meeting of shareholders to be held on May 14, 1998.

PART IV

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

(a) 1. Financial Statements:

PAGE NUMBER
-----------------

- - Consolidated Statements of Earnings--For the years ended December 27, 1997, December
28, 1996, and December 30, 1995

- - Consolidated Balance Sheets--At December 27, 1997, and December 28, 1996

- - Consolidated Statements of Cash Flows--For the years ended December 27, 1997,
December 28, 1996, and December 30, 1995

- - Consolidated Statements of Shareholders' Equity--For the years ended December 27,
1997, December 28, 1996, and December 30, 1995

- - Notes to Consolidated Financial Statements--For the years ended December 27, 1997,
December 28, 1996, and December 30, 1995

- - Independent Auditors' Report

- - Quarterly Financial Information (Unaudited)

CONSOLIDATED STATEMENTS OF EARNINGS

FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996,
AND DECEMBER 30, 1995

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1997 1996 1995
------------- ------------- -------------

Net sales........................................................... $ 15,372,666 $ 16,486,739 $ 17,501,572
Costs and expenses (income):
Cost of sales..................................................... 13,941,838 15,004,715 16,091,039
Selling and administrative........................................ 1,194,570 1,273,999 1,189,199
Interest expense.................................................. 162,506 163,466 175,390
Interest income................................................... (46,638) (49,122) (58,206)
Equity investment results......................................... 16,746 18,458 27,240
Litigation charge................................................. 20,959 20,650 --
Facilities consolidation.......................................... -- -- (8,982)
------------- ------------- -------------
Total costs and expenses........................................ 15,289,981 16,432,166 17,415,680
------------- ------------- -------------
Earnings before taxes............................................... 82,685 54,573 85,892
Taxes on income..................................................... 43,963 27,887 43,891
------------- ------------- -------------
Earnings before extraordinary charge................................ 38,722 26,686 42,001
Extraordinary charge from early retirement of debt (net of
taxes).......................................................... 13,330 -- --
------------- ------------- -------------
Net earnings........................................................ $ 25,392 $ 26,686 $ 42,001
------------- ------------- -------------
------------- ------------- -------------
Earnings per share:
Basic and diluted before extraordinary charge..................... $1.02 $.71 $1.12
Extraordinary charge.............................................. .35 -- --
------------- ------------- -------------
Basic and diluted net earnings.................................... $ .67 $.71 $1.12
------------- ------------- -------------
------------- ------------- -------------
Weighted average shares outstanding:
Basic............................................................. 37,803 37,774 37,577
------------- ------------- -------------
------------- ------------- -------------
Diluted........................................................... 37,862 37,777 37,581
------------- ------------- -------------
------------- ------------- -------------

Sales to customers accounted for under the equity method were approximately
$0.9 billion, $1.0 billion and $1.5 billion in 1997, 1996 and 1995,
respectively.

See notes to consolidated financial statements.

CONSOLIDATED BALANCE SHEETS

AT DECEMBER 27, 1997, AND DECEMBER 28, 1996

(IN THOUSANDS)

ASSETS

1997 1996
----------- -----------

Current assets:
Cash and cash equivalents............................................................ $ 30,316 $ 63,667
Receivables, net..................................................................... 334,278 329,505
Inventories.......................................................................... 1,018,666 1,051,313
Other current assets................................................................. 111,730 119,123
----------- -----------
Total current assets............................................................. 1,494,990 1,563,608
Investments and notes receivable....................................................... 150,221 205,683
Investment in direct financing leases.................................................. 201,588 212,202
Property and equipment:
Land................................................................................. 57,746 60,867
Buildings............................................................................ 426,302 416,188
Fixtures and equipment............................................................... 652,039 661,654
Leasehold improvements............................................................... 234,805 220,182
Leased assets under capital leases................................................... 227,894 203,491
----------- -----------
1,598,786 1,562,382
Less accumulated depreciation and amortization..................................... (648,943) (603,241)
----------- -----------
Net property and equipment....................................................... 949,843 959,141
Other assets........................................................................... 164,295 118,096
Goodwill, net.......................................................................... 963,034 996,446
----------- -----------
Total assets........................................................................... $ 3,923,971 $ 4,055,176
----------- -----------
----------- -----------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................................... $ 831,339 $ 952,769
Current maturities of long-term debt................................................. 47,608 124,613
Current obligations under capital leases............................................. 21,196 19,715
Other current liabilities............................................................ 254,454 245,774
----------- -----------
Total current liabilities........................................................ 1,154,597 1,342,871
Long-term debt......................................................................... 1,127,311 1,091,606
Long-term obligations under capital leases............................................. 367,068 361,685
Deferred income taxes.................................................................. 61,425 37,729
Other liabilities...................................................................... 123,898 145,327
Commitments and contingencies
Shareholders' equity:
Common stock, $2.50 par value, authorized--100,000 shares, issued and
outstanding--38,264 and 37,798 shares.............................................. 95,660 94,494
Capital in excess of par value....................................................... 504,451 503,595
Reinvested earnings.................................................................. 536,792 514,408
Accumulated other comprehensive income:
Cumulative currency translation adjustment......................................... (4,922) (4,700)
Additional minimum pension liability............................................... (37,715) (24,897)
----------- -----------
Accumulated other comprehensive income........................................... (42,637) (29,597)
Less ESOP note....................................................................... (4,594) (6,942)
----------- -----------
Total shareholders' equity....................................................... 1,089,672 1,075,958
----------- -----------
Total liabilities and shareholders' equity............................................. $ 3,923,971 $ 4,055,176
----------- -----------
----------- -----------

Receivables include $17 million and $27 million in 1997 and 1996, respectively,
due from customers accounted for under the equity method.

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996,
AND DECEMBER 30, 1995

(IN THOUSANDS)

1997 1996 1995
----------- ----------- -------------

Cash flows from operating activities:
Net earnings........................................................... $ 25,392 $ 26,686 $ 42,001
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization........................................ 181,357 187,617 180,796
Credit losses........................................................ 24,484 26,921 30,513
Deferred income taxes................................................ 40,301 (5,451) 12,052
Equity investment results............................................ 16,746 18,458 27,240
Cost of early debt retirement........................................ 22,227 -- --
Consolidation and restructuring reserve activity..................... (12,724) (2,865) (33,062)
Change in assets and liabilities, excluding effect of acquisitions:
Receivables........................................................ (41,347) (13,955) 7,156
Inventories........................................................ 31,315 150,524 149,676
Accounts payable................................................... (117,219) (45,666) 6,390
Other assets and liabilities....................................... (53,116) (15,368) (18,807)
Other adjustments, net............................................... (4,448) 612 (4,956)
----------- ----------- -------------
Net cash provided by operating activities............................ 112,968 327,513 398,999
----------- ----------- -------------
Cash flows from investing activities:
Collections on notes receivable........................................ 59,011 64,028 88,441
Notes receivable funded................................................ (37,537) (66,298) (103,771)
Notes receivable sold.................................................. 29,272 34,980 77,063
Businesses acquired.................................................... (9,572) -- (10,654)
Proceeds from sale of businesses....................................... 13,093 13,300 --
Purchase of property and equipment..................................... (129,386) (128,552) (116,769)
Proceeds from sale of property and equipment........................... 15,845 15,796 29,907
Investments in customers............................................... (1,694) (365) (11,298)
Proceeds from sale of investments...................................... 4,970 15,020 17,649
Other investing activities............................................. 1,895 6,843 7,297
----------- ----------- -------------
Net cash used in investing activities................................ (54,103) (45,248) (22,135)
----------- ----------- -------------
Cash flows from financing activities:
Proceeds from long-term borrowings..................................... 914,477 171,000 93,000
Principal payments on long-term debt................................... (982,982) (356,685) (452,690)
Principal payments on capital lease obligations........................ (20,102) (19,622) (17,269)
Sale of common stock under incentive stock and stock ownership plans... 593 2,195 7,094
Dividends paid......................................................... (3,007) (13,447) (44,749)
Other financing activities............................................. (1,195) (6,465) 13,824
----------- ----------- -------------
Net cash used in financing activities................................ (92,216) (223,024) (400,790)
----------- ----------- -------------
Net increase (decrease) in cash and cash equivalents..................... (33,351) 59,241 (23,926)
Cash and cash equivalents, beginning of year............................. 63,667 4,426 28,352
----------- ----------- -------------
Cash and cash equivalents, end of year................................... $ 30,316 $ 63,667 $ 4,426
----------- ----------- -------------
----------- ----------- -------------

See notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996,
AND DECEMBER 30, 1995

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

COMMON STOCK CAPITAL IN
-------------------- EXCESS OF REINVESTED COMPREHENSIVE
TOTAL SHARES AMOUNT PAR VALUE EARNINGS INCOME
----------- --------- --------- ------------ ----------- --------------

Balance at January 1, 1995..................... $ 1,078,555 37,480 $ 93,705 $ 494,966 $ 503,962
Comprehensive income
Net earnings................................. 42,001 42,001 $ 42,001
Other comprehensive income, net of tax:
Currency translation adjustment (net of $0
taxes)................................... (1,577) (1,577)
--------------
Comprehensive income......................... $ 40,424
--------------
--------------

Incentive stock and stock ownership plans...... 7,094 236 586 6,508
Cash dividends, $1.20 per share................ (44,749) (44,749)
ESOP note payments............................. 1,998
----------- --------- --------- ------------ -----------

Balance at December 30, 1995................... 1,083,322 37,716 94,291 501,474 501,214
Comprehensive income
Net earnings................................. 26,686 26,686 $ 26,686
Other comprehensive income, net of tax:
Currency translation adjustment (net of $0
taxes)................................... (151) (151)
Minimum pension liability adjustment (net
of $16,619 of taxes)..................... (24,897) (24,897)
--------------
Comprehensive income......................... $ 1,638
--------------
--------------

Incentive stock and stock ownership plans...... 2,324 82 203 2,121
Cash dividends, $.36 per share................. (13,492) (13,492)
ESOP note payments............................. 2,166
----------- --------- --------- ------------ -----------

Balance at December 28, 1996................... 1,075,958 37,798 94,494 503,595 514,408
Comprehensive income
Net earnings................................. 25,392 25,392 $ 25,392
Other comprehensive income, net of tax:
Currency translation adjustment (net of $0
taxes)................................... (222) (222)
Minimum pension liability adjustment (net
of $8,556 of taxes)...................... (12,818) (12,818)
--------------
Comprehensive income......................... $ 12,352
--------------
--------------

Incentive stock and stock ownership plans...... 2,022 466 1,166 856
Cash dividends, $0.08 per share................ (3,008) (3,008)
ESOP note payments............................. 2,348
----------- --------- --------- ------------ -----------
Balance at December 27, 1997................... $ 1,089,672 38,264 $ 95,660 $ 504,451 $ 536,792
----------- --------- --------- ------------ -----------
----------- --------- --------- ------------ -----------

ACCUMULATED
OTHER
COMPREHENSIVE ESOP
INCOME NOTE
-------------- ---------

Balance at January 1, 1995..................... $ (2,972) $ (11,106)
Comprehensive income
Net earnings.................................
Other comprehensive income, net of tax:
Currency translation adjustment (net of $0
taxes)................................... (1,577)

Comprehensive income.........................

Incentive stock and stock ownership plans......
Cash dividends, $1.20 per share................
ESOP note payments............................. 1,998
-------------- ---------
Balance at December 30, 1995................... (4,549) (9,108)
Comprehensive income
Net earnings.................................
Other comprehensive income, net of tax:
Currency translation adjustment (net of $0
taxes)................................... (151)
Minimum pension liability adjustment (net
of $16,619 of taxes)..................... (24,897)

Comprehensive income.........................

Incentive stock and stock ownership plans......
Cash dividends, $.36 per share.................
ESOP note payments............................. 2,166
-------------- ---------
Balance at December 28, 1996................... (29,597) (6,942)
Comprehensive income
Net earnings.................................
Other comprehensive income, net of tax:
Currency translation adjustment (net of $0
taxes)................................... (222)
Minimum pension liability adjustment (net
of $8,556 of taxes)...................... (12,818)

Comprehensive income.........................

Incentive stock and stock ownership plans......
Cash dividends, $0.08 per share................
ESOP note payments............................. 2,348
-------------- ---------
Balance at December 27, 1997................... $ (42,637) $ (4,594)
-------------- ---------
-------------- ---------

See notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS: The company markets food and related products and
offers retail services to supermarkets in 42 states. The company also operates
more than 275 company-owned stores in several geographic areas. The company's
activities encompass two major businesses: food distribution and company-owned
retail food operations. Food and food-related product sales account for over 90
percent of the company's consolidated sales. No one customer accounts for 10
percent or more of consolidated sales.

FISCAL YEAR: The company's fiscal year ends on the last Saturday in
December.

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 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% or
such investment is temporary. 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.

RECLASSIFICATIONS: Certain reclassifications have been made to prior year
amounts to conform to current year classifications.

BASIC AND DILUTED NET EARNINGS PER SHARE: In 1997, the company adopted SFAS
No. 128-Earnings Per Share. Both basic and diluted earnings per share are
computed based on net earnings divided by weighted average shares as appropriate
for each calculation. As reflected in the Consolidated Statements of Earnings,
differences between basic and diluted earnings per share are immaterial.

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

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 $18 million in 1997 and $34 million in 1996. Receivables are shown
net of allowance for doubtful accounts of $19 million in 1997 and $25 million in
1996. 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. Grocery
and certain perishable inventories, aggregating approximately 70% of total
inventories in 1997 and 1996 are valued on a last-in, first-out (LIFO) method.
The cost for the remaining inventories is determined by the first-in, first-out
(FIFO) method. Current replacement cost of LIFO inventories was greater than the
carrying amounts by approximately $36 million and $30 million at year-end 1997
and 1996, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995

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,
is 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 $189
million and $159 million in 1997 and 1996, respectively.

IMPAIRMENT: Asset impairments are recorded when events or changes in
circumstances indicate that the carrying amount of assets may not be
recoverable. Impairment is assessed and measured, by asset type, as follows:
notes receivable--fair value of the collateral for each note; and, long-lived
assets, goodwill and other intangibles--estimate of the future cash flows
expected to result from the use of the asset and its eventual disposition
aggregated to a business unit level.

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.

STOCK-BASED COMPENSATION: The company applies APB Opinion No.
25--Accounting for Stock Issued to Employees and related Interpretations in
accounting for its plans.

COMPREHENSIVE INCOME: In 1997, the company adopted SFAS No. 130-Reporting
Comprehensive Income. Comprehensive income is reflected in the Consolidated
Statements of Shareholders' Equity. Other comprehensive income is comprised of
foreign currency translation adjustments and minimum pension liability
adjustments. The cumulative affect of other comprehensive income is reflected in
the Shareholders' Equity section of the Consolidated Balance Sheets.

EXTRAORDINARY CHARGE

During 1997, the company undertook a recapitalization program which
culminated in an $850 million senior secured credit facility and the sale of
$500 million of senior subordinated notes on July 25, 1997. The recapitalization
program resulted in an extraordinary charge of $13.3 million, after income tax
benefits of $8.9 million, or $.35 per share, in the company's third quarter
ended October 4, 1997. Almost all of the charge represents a non-cash write-off
of unamortized financing costs related to debt which was prepaid. See the
"Long-term Debt" note for further discussion of the recapitalization program.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995

EARNINGS PER SHARE

The following table sets forth the basic and diluted earnings per share
computation for income before extraordinary charge.

1997 1996 1995
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)

Numerator:
Basic and diluted earnings before extraordinary
charge.............................................. $ 38,722 $ 26,686 $ 42,001
--------- --------- ---------
--------- --------- ---------
Denominator:
Weighted average shares for basic earnings per
share............................................... 37,803 37,774 37,577
--------- --------- ---------
Effect of dilutive securities:
Employee stock options.............................. 21 3 4
Restricted stock compensation....................... 38 -- --
--------- --------- ---------
Dilutive potential common shares.................. 59 3 4
--------- --------- ---------
Weighted average shares for diluted earnings per
share............................................... 37,862 37,777 37,581
--------- --------- ---------
--------- --------- ---------
Basic and diluted earnings per share before
extraordinary charge................................ $1.02 $.71 $1.12
--------- --------- ---------
--------- --------- ---------

Options to purchase 2,410,000 shares of common stock at a weighted average
exercise price of $22.81 per share were outstanding during 1997 but were not
included in the computation of diluted earnings per share because the options'
exercise price was greater than the average market price of the common shares
and, therefore, the effect would be antidilutive.

SEGMENT INFORMATION

In 1997, the company adopted SFAS No. 131-Disclosures about Segments of an
Enterprise and Related Information.

The company derives over 90% of its net sales and operating profits from the
sale of food and food-related products to external customers. Further, over 90%
of the company's assets are based in and net sales derived from 42 states and no
single customer amounts to 10% or more of net sales. Considering the customer
types and the processes for meeting the needs of customers, senior management
manages the business as two segments: food distribution and company-owned retail
food operations.

The food distribution segment represents the aggregation of retail services
and the distribution and marketing of the following products: food, general
merchandise, health and beauty care, and Fleming Brands. The aggregation is
based primarily on the common customer base and the interdependent marketing and
distribution efforts.

The company's senior management utilizes more than one measurement and
multiple views of data to assess segment performance and to allocate resources
to the segments. However, the dominant measurements are consistent with the
company's consolidated financial statements and, accordingly, are reported on
the same basis herein. Interest expense, interest income, equity investments,
corporate expenses and

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995

income taxes are managed separately by senior management and those items are not
allocated to the business segments. Intersegment transactions are reflected at
cost.

The following table sets forth the composition of the segment's and total
company's net sales, operating earnings, depreciation and amortization, capital
expenditures and identifiable assets.

1997 1996 1995
--------- --------- ---------
(IN MILLIONS)

NET SALES
Food distribution............................................ $ 13,864 $ 14,904 $ 16,665
Intersegment elimination..................................... (1,950) (2,123) (2,529)
--------- --------- ---------
Net food distribution........................................ 11,914 12,781 14,136
Retail food.................................................. 3,459 3,706 3,366
--------- --------- ---------
Total........................................................ $ 15,373 $ 16,487 $ 17,502
--------- --------- ---------
--------- --------- ---------

OPERATING EARNINGS

Food distribution............................................ $283 $302 $290
Retail food.................................................. 80 50 47
Corporate.................................................... (127) (144) (122)
--------- --------- ---------
Total operating earnings..................................... 236 208 215
Interest expense............................................. (162) (163) (175)
Interest income.............................................. 47 49 58
Equity investment results.................................... (17) (18) (21)
Litigation charge............................................ (21) (21) --
Facilities consolidation..................................... -- -- 9
--------- --------- ---------
Earnings before taxes........................................ $ 83 $ 55 $ 86
--------- --------- ---------
--------- --------- ---------

DEPRECIATION AND AMORTIZATION

Food distribution............................................ $105 $107 $117
Retail food.................................................. 55 56 43
Corporate.................................................... 21 25 21
--------- --------- ---------
Total........................................................ $181 $188 $181
--------- --------- ---------
--------- --------- ---------

CAPITAL EXPENDITURES

Food distribution............................................ $ 51 $ 59 $ 70
Retail food.................................................. 77 50 30
Corporate.................................................... 1 20 14
--------- --------- ---------
Total........................................................ $129 $129 $114
--------- --------- ---------
--------- --------- ---------

IDENTIFIABLE ASSETS

Food distribution............................................ $2,864 $3,048 $3,398
Retail food.................................................. 708 627 662
Corporate.................................................... 352 380 237
--------- --------- ---------
Total........................................................ $3,924 $4,055 $4,297
--------- --------- ---------
--------- --------- ---------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995

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

TAXES ON INCOME

Components of taxes on income are as follows:

1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)

Current:
Federal.................................................... $ (4,761) $ 24,729 $ 24,817
State...................................................... (474) 8,609 7,022
--------- --------- ---------
Total current................................................ (5,235) 33,338 31,839
--------- --------- ---------
Deferred:
Federal.................................................... 32,519 (4,388) 9,850
State...................................................... 7,782 (1,063) 2,202
--------- --------- ---------
Total deferred............................................... 40,301 (5,451) 12,052
--------- --------- ---------
Taxes on income.............................................. $ 35,066 $ 27,887 $ 43,891
--------- --------- ---------
--------- --------- ---------

Taxes on income in the above table includes a tax benefit of $8,897,000 in
1997 which is reported net in the extraordinary charge from the early retirement
of debt in the consolidated statement of earnings.

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

1997 1996 1995
--------- ---------- ----------
(IN THOUSANDS)

Depreciation and amortization.............................. $ (4,818) $ (12,561) $ (23,398)
Inventory.................................................. (6,228) (6,586) (2,113)
Capital losses............................................. (357) (2,494) (854)
Asset valuations and reserves.............................. 22,498 13,567 26,040
Equity investment results.................................. 821 526 (312)
Credit losses.............................................. 23,184 3,995 2,897
Lease transactions......................................... (757) (1,298) (1,170)
Associate benefits......................................... 2,727 (478) 2,249
Note sales................................................. (1,843) 315 (144)
Acquired loss carryforwards................................ -- 1,616 4,422
Other...................................................... 5,074 (2,053) 4,435
--------- ---------- ----------
Deferred tax expense (benefit)............................. $ 40,301 $ (5,451) $ 12,052
--------- ---------- ----------
--------- ---------- ----------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995

Temporary differences that give rise to deferred tax assets and liabilities
as of year-end 1997 and 1996 are as follows:

1997 1996
---------- ----------
(IN THOUSANDS)

Deferred tax assets:
Depreciation and amortization......................................... $ 9,171 $ 9,187
Asset valuations and reserve activities............................... 39,126 60,008
Associate benefits.................................................... 93,454 83,408
Credit losses......................................................... 16,368 19,891
Equity investment results............................................. 8,440 9,202
Lease transactions.................................................... 14,067 13,308
Inventory............................................................. 22,168 16,013
Acquired loss carryforwards........................................... 4,987 4,581
Capital losses........................................................ 4,798 3,354
Other................................................................. 17,350 20,926
---------- ----------
Gross deferred tax assets............................................. 229,929 239,878
Less valuation allowance.............................................. (4,920) (4,514)
---------- ----------
Total deferred tax assets............................................. 225,009 235,364
---------- ----------

Deferred tax liabilities:
Depreciation and amortization......................................... 112,007 116,842
Equity investment results............................................. 2,514 2,455
Lease transactions.................................................... 1,996 1,995
Inventory............................................................. 52,513 52,586
Associate benefits.................................................... 25,385 20,931
Asset valuations and reserve activities............................... 2,151 535
Note sales............................................................ 3,412 3,754
Prepaid expenses...................................................... 3,887 3,162
Other................................................................. 38,429 18,644
---------- ----------
Total deferred tax liabilities........................................ 242,294 220,904
---------- ----------
Net deferred tax asset (liability).................................... $ (17,285) $ 14,460
---------- ----------
---------- ----------

The change in net deferred asset/liability from 1996 to 1997 is allocated
$40.3 million to deferred income tax expense and $8.6 million benefit to
stockholders' equity.

The valuation allowance relates to $4.9 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995

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

1997 1996 1995
--------- --------- ---------

Statutory rate................................................. 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit................. 7.9 9.0 7.0
Acquisition-related differences................................ 14.5 6.1 8.4
Other.......................................................... .6 1.0 .7
--------- --------- ---------
Effective rate................................................. 58.0% 51.1% 51.1%
--------- --------- ---------
--------- --------- ---------

INVESTMENTS AND NOTES RECEIVABLE

Investments and notes receivable consist of the following:

1997 1996
---------- ----------
(IN THOUSANDS)

Investments in and advances to customers.............................. $ 52,019 $ 72,246
Notes receivable from customers....................................... 75,759 107,811
Other investments and receivables..................................... 22,443 25,626
---------- ----------
Investments and notes receivable...................................... $ 150,221 $ 205,683
---------- ----------
---------- ----------

Investments and notes receivable are shown net of reserves of $25 million
and $24 million in 1997 and 1996, 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.

The company's impaired notes receivable (including current portion) are as
follows:

1997 1996
--------- -----
(IN MILLIONS)

Impaired notes with related allowances....................................... $16 $ 9
Credit loss allowance on impaired notes...................................... (10) (6 )
Impaired notes with no related allowances.................................... 1 12
--- ---
Net impaired notes receivable................................................ $ 7 $15
--- ---
--- ---

Average investments in impaired notes were as follows: 1997-$13 million;
1996-$21 million; and 1995-$30 million.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995

Activity in the allowance for credit losses is as follows:

1997 1996 1995
--------- --------- ---------
(IN MILLIONS)

Balance, beginning of year....................................... $50 $53 $49
Charged to costs and expenses.................................... 24 27 31
Uncollectible accounts written off, net of recoveries............ (32) (35) (27)
Asset impairment................................................. 2 5 --
--- --- ---
Balance, end of year............................................. $44 $50 $53
--- --- ---
--- --- ---

The company has sold certain notes receivable at face value with limited
recourse. The outstanding balance at year-end 1997 on all notes sold is $84
million, of which the company is contingently liable for $15 million should all
the notes become uncollectible.

LONG-TERM DEBT

Long-term debt consists of the following:

1997 1996
------------ ------------
(IN THOUSANDS)

10.625% senior notes due 2001..................................... $ 300,000 $ 300,000
10.5% senior subordinated notes due 2004.......................... 250,000 --
10.625% senior subordinated notes due 2007........................ 250,000 --
Term loans, due 1998 to 2004, average interest rate of 7.3%....... 249,731 591,253
Medium-term notes, due 1998 to 2003, average interest rates of
7.3% and 7.1%................................................... 89,000 99,000
Revolving credit, average interest rates of 7.1% and 6.5%, due
2003............................................................ 30,000 20,000
Mortgaged real estate notes and other debt, net of asset sale
proceeds escrow, varying interest rates from 4% to 14.4%, due
1998 to 2003.................................................... 6,188 5,966
Floating rate senior notes due 2001, interest rate of 7.9%........ -- 200,000
------------ ------------
1,174,919 1,216,219
Less current maturities........................................... (47,608) (124,613)
------------ ------------
Long-term debt.................................................... $ 1,127,311 $ 1,091,606
------------ ------------
------------ ------------

FIVE-YEAR MATURITIES: Aggregate maturities of long-term debt for the next
five years are as follows: 1998-$48 million; 1999-$42 million; 2000-$72 million;
2001-$338 million; and 2002-$51 million.

RECAPITALIZATION PROGRAM: On July 25, 1997, the company entered into a new
$850 million senior secured credit facility and sold $500 million of senior
subordinated notes. Proceeds from the initial borrowings under the credit
agreement and the sale of the subordinated notes were used to repay all
outstanding bank debt under the previous credit facility and the balance,
together with additional revolver borrowings, were used to redeem the company's
$200 million floating rate senior notes due in 2001. The recapitalization
program provides the company with increased flexibility to redeploy assets and
pursue increased business investment, such as the expansion of the company's
retail food operations, strengthens

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995

Fleming's capital structure by reducing senior secured bank loans and repaying
the floating rate senior notes, extends the average life of total debt
outstanding, and reduces annual scheduled debt maturities.

The new $850 million senior secured credit facility consists of a $600
million revolving credit facility, with a final maturity of July 25, 2003, and a
$250 million amortizing term loan, with a maturity of July 25, 2004. Up to $300
million of the revolver may be used for issuing letters of credit. Borrowings
and letters of credit issued under the new credit facility may be used for
general corporate purposes and are secured by a first priority security interest
in the accounts receivable and inventories of the company and its subsidiaries
and in the capital stock or other equity interests owned by the company in its
subsidiaries. In addition, the new credit facility is guaranteed by
substantially all company subsidiaries. The stated interest rate on borrowings
under the credit agreement is equal to a referenced index interest rate,
normally the London interbank offered interest rate ("LIBOR"), plus a margin.
The level of the margin is dependent on credit ratings on the company's senior
secured bank debt.

THE $500 MILLION OF SENIOR SUBORDINATED NOTES CONSISTS OF TWO ISSUES: $250
million of 10 1/22% Notes due December 1, 2004 and $250 million of 10 5/8% Notes
due July 31, 2007. The subordinated notes are general unsecured obligations of
the company, subordinated in right of payment to all existing and future senior
indebtedness of the company, and senior to or of equal rank with all future
subordinated indebtedness of the company. The company currently has no other
subordinated indebtedness outstanding.

The credit agreement and the indentures under which other company debt
instruments were issued contain customary covenants associated with similar
facilities. The credit agreement currently contains the following more
significant financial covenants: maintenance of a fixed charge coverage ratio of
at least 1.7 to 1, based on earnings before interest, taxes, depreciation and
amortization and net rent expense; maintenance of a ratio of
inventory-plus-accounts receivable to funded bank debt (including letters of
credit) of at least 1.4 to 1; and a limitation on restricted payments, including
dividends, up to $58 million at year-end 1997, based on a formula tied to net
earnings and equity issuances. Covenants contained in the company's indentures
under which other company debt instruments were issued are generally less
restrictive than those of the credit agreement. The company is in compliance
with all financial covenants under the credit agreement and its indentures.

MEDIUM-TERM NOTES: Between 1990 and 1993, the company registered $565
million in medium-term notes. During that period, a total of $275 million was
issued. The company has no plans to issue additional medium-term notes at this
time. Under the credit agreement, new issues of certain kinds of debt must have
a maturity after January 2005.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995

CREDIT RATINGS: On June 27, 1997, Moody's Investors Service ("Moody's")
announced it had revised its credit ratings for Fleming. Moody's downgraded its
rating for the company's senior secured credit facility to Ba3 from Ba2, senior
unsecured notes to B1 from Ba3, and counterparty ratings to B1 from Ba3. Moody's
assigned a Ba3 rating to the company's new $850 million credit agreement, and a
B3 rating for the new $500 million of senior subordinated notes.

AVERAGE INTEREST RATES: The composite interest rate for total debt
(including capital lease obligations) before the effect of interest rate hedges
was 9.9% for 1997, versus 8.6% in 1996. Including the effect of interest rate
hedges, the composite interest rate of debt was 10.4% and 9.1% at the end of
1997 and 1996, respectively.

INTEREST EXPENSE: Components of interest expense are as follows:

1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)

Interest costs incurred:
Long-term debt......................................... $ 121,356 $ 122,859 $ 135,254
Capital lease obligations.............................. 36,414 35,656 36,132
Other.................................................. 5,922 5,055 4,712
---------- ---------- ----------
Total incurred......................................... 163,692 163,570 176,098
Less interest capitalized................................ (1,186) (104) (708)
---------- ---------- ----------
Interest expense......................................... $ 162,506 $ 163,466 $ 175,390
---------- ---------- ----------
---------- ---------- ----------

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 have included
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.

Strategies for achieving the company's objectives have resulted in the
company maintaining interest rate swaps covering $250 million aggregate
principal amount of floating rate indebtedness at year-end 1997, and interest
rate swaps and caps covering $850 million of floating rate indebtedness at year
end 1996. The agreements all mature in 2000. The counterparties to these
agreements are major U.S. and international financial institutions.

The interest rate applicable to 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 at year-end 1997 was 7.22%, covering $250 million of floating rate
indebtedness. The interest rate swap agreements, which were implemented through
three counterparty banks, and which had an average remaining life of 2.4 years
at year-end 1997, provide for the company to receive substantially the same
LIBOR that the company pays on its floating rate indebtedness.

The notional amounts of interest rate swaps and caps did 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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995

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 debt (AA- or
higher from S&P or AA3 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.

In 1997, interest rate hedge agreements for swaps and caps covering a total
of $600 million of indebtedness were terminated. Most ($400 million) of the
terminations were related to the floating-rate debt which was prepaid as part of
the recapitalization program. Termination costs of $2.1 million for hedges
covering debt permanently repaid were included in the extraordinary charge for
early debt retirement. The remaining terminations covered hedges which
management determined were no longer needed. The other termination costs are
being amortized over the remaining life of the hedges terminated.

Fleming's financial risk management policy requires that any interest rate
hedge agreement be matched to designated interest-bearing assets or debt
instruments. All of the company's hedge agreements have been matched to its
floating rate indebtedness. At year-end 1997, the company's floating rate
indebtedness consisted primarily of the term loans and revolver loans under the
credit agreement.

Accordingly, all outstanding swaps are matched swaps and the settlement
accounting method is employed. Derivative financial instruments are reported in
the balance sheet where the company has made or received a cash payment upon
entering into or terminating the transaction. The carrying amount is amortized
over the shorter of the initial life of the hedge agreement or the maturity of
the hedged item. The company had a financial basis of $.3 million and $3 million
at year-end 1997 and 1996, 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 market prices for actively
traded debt, and cash flows discounted at current market rates for management's
best estimate for instruments without quoted market prices. At year-end 1997,
the carrying value of debt was lower than the fair value by $44 million, or 3.7%
of the carrying value. At year-end 1996, the carrying value of debt exceeded the
fair value by $30 million, or 2.4% of the carrying value.

For derivatives, the fair value was estimated using termination cash values.
At year-end 1997, interest rate hedge agreement values would represent an
obligation of $9 million, and at year-end 1996, an obligation of $20 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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995

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.

1997 1996
----- -----
(IN MILLIONS)

Current assets............................................................... $ 33 $ 25
Noncurrent assets............................................................ $ 80 $ 57
Current liabilities.......................................................... $14 $8
Noncurrent liabilities....................................................... $6 $1

1997 1996 1995
--------- --------- ---------
(IN MILLIONS)

Net sales............................................................ $ 379 $ 298 $ 2,842
Costs and expenses................................................... $ 388 $ 314 $ 2,787
Net earnings (loss).................................................. $(4) $(8) $27

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.

LEASE AGREEMENTS

CAPITAL AND OPERATING LEASES: The company leases certain distribution
facilities with terms generally ranging from 20 to 35 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 each.

The company leases company-owned 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
each. 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
$71 million and $64 million at year-end 1997 and 1996, respectively.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995

Future minimum lease payment obligations for leased assets under capital
leases as of year-end 1997 are set forth below:

YEARS
- ------------------------------------------------------------------------------ LEASE
OBLIGATIONS
--------------
(IN THOUSANDS)

1998.......................................................................... $ 28,261
1999.......................................................................... 28,153
2000.......................................................................... 27,071
2001.......................................................................... 26,467
2002.......................................................................... 25,236
Later......................................................................... 220,159
--------------
Total minimum lease payments.................................................. 355,347
Less estimated executory costs................................................ (132)
--------------
Net minimum lease payments.................................................... 355,215
Less interest................................................................. (167,027)
--------------
Present value of net minimum lease payments................................... 188,188
Less current obligations...................................................... (9,571)
--------------
Long-term obligations......................................................... $178,617
--------------
--------------

Future minimum lease payments required at year-end 1997 under operating
leases that have initial noncancelable lease terms exceeding one year are
presented in the following table:

FACILITY FACILITIES EQUIPMENT EQUIPMENT NET
YEARS RENTALS SUBLEASED RENTALS SUBLEASED RENTALS
- ----------------------------- ------------ ----------- ----------- ----------- ----------
(IN THOUSANDS)

1998......................... $ 155,414 $ (67,606) $ 24,291 $ (1,546) $ 110,553
1999......................... 139,353 (57,006) 16,487 (839) 97,995
2000......................... 125,489 (46,750) 7,941 (570) 86,110
2001......................... 115,222 (39,055) 2,870 (62) 78,975
2002......................... 107,637 (33,274) 1,459 -- 75,822
Later........................ 607,083 (127,757) 34 -- 479,360
------------ ----------- ----------- ----------- ----------
Total lease payments......... $ 1,250,198 $ (371,448) $ 53,082 $ (3,017) $ 928,815
------------ ----------- ----------- ----------- ----------
------------ ----------- ----------- ----------- ----------

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:

1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)

Minimum rentals.......................................... $ 192,698 $ 208,250 $ 199,834
Contingent rentals....................................... 2,002 1,874 1,654
Less sublease income..................................... (75,592) (88,014) (92,108)
---------- ---------- ----------
Rental expense........................................... $ 119,108 $ 122,110 $ 109,380
---------- ---------- ----------
---------- ---------- ----------

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995

performance in excess of specified minimums. The leases and subleases usually
contain provisions for one to four renewal options of two to five years each.

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 1997:

LEASE RENTALS LEASE
YEARS RECEIVABLE OBLIGATIONS
- ------------------------------------------------------------------ ------------- -----------
(IN THOUSANDS)

1998.............................................................. $ 39,310 $ 30,325
1999.............................................................. 36,856 30,263
2000.............................................................. 33,817 29,029
2001.............................................................. 31,690 27,855
2002.............................................................. 29,786 27,720
Later............................................................. 202,520 190,544
------------- -----------
Total minimum lease payments...................................... 373,979 335,736
Less estimated executory costs.................................... (1,145 ) (1,140)
------------- -----------
Net minimum lease payments........................................ 372,834 334,596
Less interest..................................................... (153,455 ) (134,520)
------------- -----------
Present value of net minimum lease payments....................... 219,379 200,076
Less current portion.............................................. (17,791 ) (11,625)
------------- -----------
Long-term portion................................................. $201,588 $188,451
------------- -----------
------------- -----------

Contingent rental income and contingent rental expense are not material.

SHAREHOLDERS' EQUITY

The company offers a Dividend Reinvestment and Stock Purchase Plan which
provides 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 29,000 and 125,000 new
shares in 1997 and 1996, respectively.

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 the purchase of the shares. In 1994, the
company paid off the note and received 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 1997, 1996 and 1995. Dividends used by the ESOP for debt service and
interest and compensation expense recognized by the company were not material.

The company issues shares of restricted stock to key employees under plans
approved by the stockholders. Performance goals and periods of restriction are
established for each award.

The fair value of the restricted stock at the time of the grant is recorded
as unearned compensation-- restricted stock which is netted against capital in
excess of par within shareholders' equity. Compensation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995

is amortized to expense when earned. At year-end 1997, 7,000 shares remained
available for award under all plans.

Information regarding restricted stock balances is as follows (in
thousands):

1997 1996
--------- ---------

Awarded restricted shares outstanding................................. 638 217
--------- ---------
--------- ---------
Unearned compensation--restricted stock............................... $ 11,052 $ 5,474
--------- ---------
--------- ---------

The company may grant stock options to key employees through unrestricted
non-qualified stock option plans. In 1997, there were no exercisable outstanding
options with stock appreciation rights and in 1996 there were 7,000 shares. At
year-end 1997, there were 373,000 shares available for grant under the
unrestricted stock option plans. Stock option transactions are as follows:

WEIGHTED AVERAGE
SHARES EXERCISE PRICE PRICE RANGE
----------- ----------------- --------------
(SHARES IN THOUSANDS)

Outstanding, year-end 1994......................... 2,206 $ 28.56 $ 10.29-42.13
Granted.......................................... 99 $ 25.52 $ 19.44-26.44
Exercised........................................ (10) $ 18.09 $ 10.29-24.94
Canceled and forfeited........................... (408) $ 30.31 $ 24.81-42.13
----- ------ --------------
Outstanding, year-end 1995......................... 1,887 $ 28.06 $ 19.44-42.13
Granted.......................................... 1,005 $ 16.67 $ 16.38-19.75
Canceled and forfeited........................... (261) $ 29.07 $ 24.81-42.13
----- ------ --------------
Outstanding, year-end 1996......................... 2,631 $ 23.93 $ 16.38-42.13
Granted.......................................... 80 $ 17.58 $ 17.50-18.13
Exercised........................................ (8) $ 16.38 $ 16.38-16.38
Canceled and forfeited........................... (437) $ 28.48 $ 16.38-42.13
----- ------ --------------
Outstanding, year-end 1997......................... 2,266 $ 22.65 $ 16.38-38.38
----- ------ --------------
----- ------ --------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995

Information regarding options outstanding at year-end 1997 is as follows:

ALL OUTSTANDING OPTIONS CURRENTLY
OPTIONS EXERCISABLE
--------------- -----------------
(SHARES IN THOUSANDS)

Option price $37.06--$38.38:
Number of options....................................... 178 178
Weighted average exercise price......................... $ 37.07 $ 37.07
Weighted average remaining life in years................ 2 --
------ ------
------ ------
Option price $24.81--$29.81:
Number of options....................................... 1,082 400
Weighted average exercise price......................... $ 25.71 $ 26.27
Weighted average remaining life in years................ 6 --
------ ------
------ ------
Option price $16.38--$19.75:
Number of options....................................... 1,006 230
Weighted average exercise price......................... $ 16.81 $ 16.73
Weighted average remaining life in years................ 9 --
------ ------
------ ------

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, reported net earnings and earnings
per share, both before extraordinary charge, would have been $37.9 million and
$1.00 for 1997, $26.5 million and $.70 for 1996 and $42.0 million and $1.12 for
1995, respectively.

Significant assumptions used to estimate the fair values of awards using the
Black-Scholes option-pricing model with the following weighted average
assumptions for 1997, 1996 and 1995 are: risk-free interest rate--6.25% to
7.00%; expected lives of options--10 years; expected volatility--30% to 50%; and
expected dividend yield of 0.5% (6% for 1995 only).

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 securities,
short-term investments and bonds. The significant actuarial assumptions used

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995

in the calculation of funded status for 1997 and 1996, respectively are:
discount rate--7.00% and 7.75%; compensation increases--4.0% and 4.5%; and
return on assets--9.5% for both years.

1997 1996
---------------------------- ----------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
------------- ------------- ------------- -------------
(IN THOUSANDS)

Actuarial present value of accumulated
benefit obligations:
Vested.................................... $6,040 $275,199 $5,440 $238,154
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Total..................................... $6,150 $286,619 $5,590 $245,014
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Projected benefit obligations............... $ 6,150 $ 316,271 $ 5,590 $ 274,494
Plan assets at fair value................... 10,297 252,187 8,457 228,679
------------- ------------- ------------- -------------
Projected benefit obligation in excess of
(less than) plan assets................... (4,147 ) 64,084 (2,867 ) 45,815
Unrecognized net loss....................... (25 ) (83,257 ) (282 ) (63,583 )
Unrecognized prior service cost............. (1 ) (37 ) (2 ) (434 )
Unrecognized net asset...................... 44 811 83 1,041
Additional liability........................ -- 52,830 -- 33,497
------------- ------------- ------------- -------------
Accrued (prepaid) pension cost.............. $ (4,129 ) $ 34,431 $ (3,068 ) $ 16,336
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------

Net pension expense includes the following components:

1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)

Service cost........................................................ $10,835 $10,802 $11,348
Interest cost....................................................... 21,551 19,764 16,367
Actual return on plan assets........................................ (28,008) (22,986) (45,217)
Net amortization and deferral....................................... 10,595 10,265 29,807
---------- ---------- ----------
Net pension expense................................................. $14,973 $17,845 $12,305
---------- ---------- ----------
---------- ---------- ----------

The company also has nonqualified supplemental retirement plans for selected
associates. These plans are unfunded with a projected benefit obligation of $29
million and $24 million, and unrecognized prior service and actuarial losses of
$11 million and $9 million, at year-end 1997 and 1996, respectively, based on
actuarial assumptions consistent with the funded plans. The net pension expense
for the unfunded plans was $4 million for 1997 and $3 million for both 1996 and
1995.

At year-end 1997, the consolidated balance sheet reflects a $63 million
additional minimum liability relating to unfunded accumulated benefit
obligations for all of the company's defined benefit plans, a $.4 million
related intangible asset, and a $38 million reduction of shareholders' equity,
net of future tax benefits. At year-end 1996, the additional minimum liability
relating to unfunded accumulated benefit obligations was $42 million with 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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995

contribution plans are made at the discretion of the board of directors.
Expenses for these plans were $6 million in 1997 and $3 million in both 1996 and
1995.

Certain associates have pension and health care benefits provided under
collectively bargained multiemployer agreements. Expenses for these benefits
were $72 million, $84 million and $75 million for 1997, 1996 and 1995,
respectively.

In February 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 132-- Employers' Disclosures about Pensions and Other Postretirement
Benefits. SFAS No. 132 revises the disclosure requirements for pensions and
other postretirement benefits. The company will adopt SFAS No. 132 for the
fiscal year ending December 26, 1998 and expects the future disclosures to be
less comprehensive.

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:

1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)

Service cost..................................................... $ 137 $ 147 $ 137
Interest cost.................................................... 1,185 1,443 1,642
Amortization of net loss (gain).................................. (44) -- 141
--------- --------- ---------
Postretirement expense........................................... $ 1,278 $ 1,590 $ 1,920
--------- --------- ---------
--------- --------- ---------

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

1997 1996
--------- ---------
(IN THOUSANDS)

Retirees................................................................ $ 13,480 $ 15,843
Fully eligible actives.................................................. 785 689
Others.................................................................. 2,176 1,767
APBO.................................................................... 16,441 18,299
Unrecognized net gain (loss)............................................ (848) 100
--------- ---------
Accrued postretirement benefit cost..................................... $ 15,593 $ 18,399
--------- ---------
--------- ---------

The weighted average discount rate used in determining the APBO was 7% and
7.75% for 1997 and 1996, respectively. For measurement purposes in 1997 and
1996, a 9% annual rate of increase in the per capita cost of covered medical
care benefits was assumed. The rate was assumed to decrease to 5% in both 1997
and 1996 by the year 2005 and 2003, respectively, then remain level. An increase
of 1% in the health care cost trend would increase the APBO as of December 27,
1997 by 11% and the service and interest cost components of the postretirement
expense by 8%.

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995

See "Associate Retirement Plans" note for timing of company adoption of SFAS
No. 132--Employers' Disclosures about Pensions and Other Postretirement
Benefits.

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.
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 reserve.

Although there have been no changes to the plans for consolidation and
restructuring as contemplated at the end of 1993, there have been significant
delays, primarily due to the integration of Scrivner, acceptance of the changes
by customers and management of labor relations. Customer acceptance and labor
relations continue to be important and unpredictable. The company believes that
the remaining accruals are still required and estimates that the majority of the
remaining balance will be utilized in 1998.

Facilities consolidation and restructuring reserve activities are:

REENGINEERING/ CONSOLIDATION
SEVERANCE COSTS/ASSET
TOTAL COSTS IMPAIRMENTS
---------- ------------- -------------
(IN THOUSANDS)

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
Expenditures and write-offs........................ (12,724) (10,846 ) (1,878 )
---------- ------------- -------------
Balance, year-end 1997............................. $ 5,728 $ 2,272 $ 3,456
---------- ------------- -------------
---------- ------------- -------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995

SUPPLEMENTAL CASH FLOWS INFORMATION

1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)

Acquisitions:
Fair value of assets acquired.......................... $9,572 $142,458
Less:
Liabilities assumed or created......................... -- (63,873)
Existing company investment.......................... -- (51,126)
Cash acquired........................................ -- (16,805)
---------- ---------- ----------
Cash paid, net of cash acquired...................... $9,572 -- $ 10,654
---------- ---------- ----------
---------- ---------- ----------
Cash paid during the year for:
Interest, net of amounts capitalized................... $ 179,180 $ 152,846 $ 171,141
---------- ---------- ----------
---------- ---------- ----------
Income taxes, net of refunds........................... $30,664 $32,291 $(9,593)
---------- ---------- ----------
---------- ---------- ----------
Direct financing leases and related obligations.......... $5,092 $17,062 $28,568
---------- ---------- ----------
---------- ---------- ----------
Property and equipment additions by capital leases....... $28,990 $11,111 $8,840
---------- ---------- ----------
---------- ---------- ----------

LITIGATION AND CONTINGENCIES

In accordance with applicable accounting standards, the company records a
charge reflecting contingent liabilities (including those associated with
litigation matters) when management determines that a material loss is
"probable" and either "quantifiable" or "reasonably estimable". Additionally,
the company discloses material loss contingencies when the likelihood of a
material loss is deemed to be greater than "remote" but less than "probable".
Set forth below is information regarding certain material loss contingencies and
charges related to litigation matters:

PREMIUM. In 1996, the company recorded a charge of $20 million ($10 million
after-tax or $.26 per share) for the settlement of two related lawsuits
involving an allegedly fraudulent scheme conducted by a failed grocery diverter,
Premium Sales Corporation. The settlement was consummated in 1997.

DAVID'S. The company was sued by David's Supermarkets, Inc. ("David's") in
1993 for allegedly overcharging for products during a three-year period. In
April 1996, judgment of $211 million was entered against the company and the
company recorded a $7.1 million liability. During the second quarter of 1996,
the judgment was vacated, a new trial was granted and the accrual was reduced to
$650,000. The company denied the plaintiff's allegations; however, to eliminate
the uncertainty and expense of protracted litigation, the company paid $19.9
million to the plaintiff in April 1997 in exchange for dismissal, with
prejudice, of all plaintiff's claims against the company, resulting in a charge
to first quarter 1997 earnings of $19.2 million($9 million after-tax or $.24 per
share).

MEGAFOODS. In 1994, a former customer, Megafoods Stores, Inc. and certain
of its affiliates ("Megafoods" or the "debtor") filed Chapter 11 bankruptcy
proceedings. The debtor objected to the company's claims and brought adversary
proceedings against the company seeking subordination of the company's claims
and damages for alleged overcharges. In August 1996, the court approved a
settlement of both the debtor's allegations against the company and the
company's disputed claims in the bankruptcy. The debtor's plan of liquidation
became effective and the settlement agreement was consummated in January 1998.
The company recorded charges of approximately $3.5 million in 1995, $5.8 million
in 1996

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995

and $.8 million in 1997 relating to the bankruptcy. Approximately $2 million of
net assets relating to Megafoods (consisting of equipment leased to the debtor's
successor) remain on the company's books.

FURR'S. Furr's Supermarkets, Inc. ("Furr's"), which purchased approximately
$500 million of products from the company in 1997 under a supply contract
originally set to expire in 2001, filed a lawsuit against the company in
February 1997 claiming it was overcharged for products. Fleming denied Furr's
allegations.

In October 1997, Fleming and Furr's reached an agreement dismissing all
litigation between the parties. Pursuant to the agreement, Furr's is being
offered for sale through a six-month auction process which began on October 29,
1997. Fleming's El Paso product supply center (the "El Paso PSC"), together with
related equipment and inventory, is being offered for sale with Furr's. Upon the
sale of Furr's to a third party, Fleming would receive approximately 30% of the
net proceeds.

Under the agreement, Fleming is paying Furr's $800,000 per month as a refund
of fees and charges. The payments will cease upon the expiration of the supply
contract which will occur upon the earlier of (i) the sale of the El Paso PSC or
(ii) the completion of the orderly liquidation of the El Paso PSC on or before
June 1, 1999. The settlement did not cause an impairment in value of any
recorded balances. However, if Furr's is not sold, Fleming will experience an
impairment of $8-$10 million.

RANDALL'S. In July 1997, Randall's Food Markets, Inc. ("Randall's"),
initiated arbitration proceedings against Fleming. Randall's has been a Fleming
customer for over 30 years. In 1997, Randall's purchased approximately $450
million of products from Fleming under an eight-year supply contract entered
into in 1993 in connection with Fleming's purchase of certain distribution
assets from Randall's. Prior to initiating the arbitration proceeding, Randall's
unsuccessfully sought to terminate the supply contract.

Randall's alleges that Fleming conspired with a group of manufacturers and
vendors to defraud Randall's by inflating prices. Randall's also alleges that
Fleming impermissibly modified the pricing mechanism of its supply contract.
Randall's claims it was overcharged by approximately $54 million during a 4 1/2
year period. Randall's alleges breach of contract, fraud and RICO violations,
and seeks actual, punitive and treble damages, termination of its supply
contract, attorneys' fees and costs. The contract on which Randall's bases its
claim prohibits either party from recovering any amount other than actual
damages; recovery of consequential damages, punitive damages and all similar
forms of damages are expressly prohibited. Randall's asserts that such provision
is contrary to public policy and therefore not binding on it.

The company believes it has complied with its obligations to Randall's in
good faith and that punitive and consequential damages are not recoverable under
the supply contract. The company will vigorously defend its interests. While
management is unable to predict the potential range of monetary exposure to
Randall's, if any, the effect of an unfavorable outcome in the arbitration or
the premature loss of Randall's business could have a material adverse effect on
the company.

CLASS ACTION SUITS. In 1996, the company and certain of its present and
former officers and directors were named as defendants in nine purported class
action lawsuits filed by certain stockholders and one purported class action
lawsuit filed by a noteholder. In April 1997, the court consolidated the
stockholder cases as City of Philadelphia, et al. v. Fleming Companies, Inc., et
al.; the noteholder case was also consolidated, but only for pre-trial purposes.
A complaint has been filed in the consolidated cases asserting liability for the
company's alleged failure to properly account for and disclose the contingent
liability created by the David's litigation and by the company's alleged
"deceptive business practices." The plaintiffs claim that these alleged failures
and practices led to the David's litigation and to other material contingent
liabilities, caused the company to change its manner of doing business at great
cost and loss of

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995

profit, and materially inflated the trading price of the company's common stock.
The company denies each of these allegations.

The plaintiffs seek undetermined but significant damages and management is
unable to predict the ultimate outcome of these cases. However, while management
believes that the cases could have a material adverse impact on interim or
annual results of operations, based upon the ruling of the U.S. District Court
for the Western District of Oklahoma described below, Fleming believes the cases
will not have a material adverse effect on the company's liquidity or
consolidated financial position.

In November 1997, the company won a declaratory judgment against certain of
its insurance carriers regarding directors and officers ("D&O") insurance
policies issued to Fleming for the benefit of its officers and directors. On
motion for summary judgment, the court ruled that the company's exposure, if
any, under the class action suits is covered by certain D&O policies written by
the insurance carriers (aggregating $60 million) and that the "larger settlement
rule" will be applicable to the case. According to the trial court, under the
larger settlement rule a D&O insurer is liable for the entire amount of coverage
available under a policy even if there is some overlap in the liability created
by the insured individuals and the uninsured corporation. If a corporation's
liability is increased by uninsured parties beyond that of the insured
individuals, then that portion of the liability is the sole obligation of the
corporation. The court also held that allocation is not available to the
insurance carriers as an affirmative defense. The insurance carriers have
appealed.

CENTURY. Century Shopping Center Fund I ("Century Fund I") commenced an
action in November 1988 in the Milwaukee County Circuit Court, State of
Wisconsin, seeking injunctive relief and monetary damages of an unspecified
amount. The plaintiff originally obtained a temporary restraining order
preventing the defendant from closing a store at the Howell Plaza Shopping
Center, for which the plaintiff was the landlord, and from opening a new store
at a competing shopping center located nearby. Shortly thereafter, the order was
dissolved by the court and the stores opened and closed as scheduled. Following
the closure of the store, a number of shopping center tenants and Century Fund I
experienced financial difficulty ultimately resulting in bankruptcy.

In June 1993, three former tenants of the Howell Plaza Shopping Center filed
another case in the same court and in September 1993, the trustee in bankruptcy
for Howell Plaza, Inc. (the predecessor to Century Fund I and its successor as
defendant's landlord) filed a third case. The allegations of these cases are
very similar to the allegations made in the Century Fund I case.

In November 1993, Century Fund I amended its complaint to allege breach of
contract, tortious interference with contract, tortious interference to
business, defamation, attempted monopolization, conspiracy to monopolize,
conspiracy to restrain trade and monopolization. Plaintiff claims that defendant
and defendant's new landlord conspired to force the Howell Plaza Shopping Center
out of business. The cases have been consolidated and are set for trial in
October 1998.

Plaintiffs seek actual, consequential, treble and punitive damages,
attorneys' fees, court costs and other relief. In March 1997, plaintiffs
supplied the company with an analysis of damages alleging actual damages, after
trebling but excluding any estimated punitive damages, of approximately $18
million.

In July 1997, the trial court granted plaintiffs' motion for summary
judgment with respect to their breach of contract claim against Fleming (as to
liability only, not as to damages). Plaintiffs have alleged $1.7 million of
actual damages resulted from the breach of contract. Management is unable to
predict the ultimate outcome of this matter. However, an unfavorable outcome in
the litigation could have a material adverse effect on the company.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 30, 1995

TRU DISCOUNT FOODS. Fleming initially brought suit on a note and an open
account against its former customer, Tru Discount Foods. In December 1997, the
defendant amended its counter claim against the company alleging fraud,
overcharges for products and violations of the Oklahoma Deceptive Trade
Practices Act. Although Tru Discount Foods has not quantified damages, it has
made demand in the amount of $8 million. Management is unable to predict the
ultimate outcome of this matter. However, an unfavorable outcome in the
litigation could have a material adverse effect on the company.

OTHER. The company utilizes numerous computer systems which were developed
employing six digit date structures (i.e., two digits each for the month, day
and year). Where date logic requires the year 2000 or beyond, such date
structures may produce inaccurate results. Management has implemented a program
to comply with year 2000 requirements on a system-by-system basis. Fleming's
plan includes extensive systems testing and is expected to be substantially
completed by the first quarter of 1999. The solution for each system is
potentially unique and may be dependent on third-party software providers and
developers. Failure to ensure that the company's computer systems are year 2000
compliant could have a material adverse effect on the company's operations.
Additionally, failure of the company's suppliers or its customers to become year
2000 compliant might also have a material adverse impact on the company's
operations.

The company's facilities and operations are subject to various laws,
regulations and judicial and administrative orders concerning protection of the
environment and human health, including provisions regarding the transportation,
storage, distribution, disposal or discharge of certain materials. 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 the anticipated costs of all known
remediation requirements.

The company and others have been designated by the U.S. Environmental
Protection Agency ("EPA") and by similar state agencies as potentially
responsible parties under the Comprehensive Environmental Response, Compensation
and Liability Act ("CERCLA") or similar state laws, as applicable, with respect
to EPA-designated Superfund sites. While liability under CERCLA for remediation
at such sites is generally joint and several with other responsible parties, the
company believes that, to the extent it is ultimately determined to be liable
for the expense of remediation 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 human health and to achieving full compliance
with all applicable laws, regulations and orders.

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.

At year-end 1997, the company has aggregate contingent liabilities for
future minimum rental commitments made on behalf of customers with a present
value of approximately $62 million.

The company is a party to various other litigation and contingent loss
situations arising in the ordinary course of its business including: disputes
with customers and former customers; disputes with owners and former owners of
financially troubled or failed customers; disputes with employees regarding
labor conditions, wages, workers' compensation matters and alleged
discriminatory practices; tax assessments and other matters, some of which are
for substantial amounts. However, the company does not believe any such action
will result in a material adverse effect on the company.

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 27, 1997, and December 28, 1996,
and the related consolidated statements of earnings, cash flows, and
shareholders' equity for each of the three years in the period ended December
27, 1997. 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 27, 1997, and December 28, 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 27, 1997, 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
February 19, 1998

QUARTERLY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

1997 FIRST SECOND THIRD FOURTH YEAR
- -------------------------------------------- ----------- ----------- ----------- ----------- -------------

Net sales................................... $ 4,752,031 $ 3,550,654 $ 3,453,261 $ 3,616,720 $ 15,372,666
Costs and expenses (income):
Cost of sales............................. 4,319,349 3,219,989 3,131,023 3,271,477 13,941,838
Selling and administrative................ 363,716 274,878 272,826 283,150 1,194,570
Interest expense.......................... 48,822 36,223 39,084 38,377 162,506
Interest income........................... (14,354) (10,940) (11,116) (10,228) (46,638)
Equity investment results................. 4,078 3,239 3,710 5,719 16,746
Litigation charge......................... 19,218 -- -- 1,741 20,959
----------- ----------- ----------- ----------- -------------
Total costs and expenses................ 4,740,829 3,523,389 3,435,527 3,590,236 15,289,981
----------- ----------- ----------- ----------- -------------
Earnings before taxes....................... 11,202 27,265 17,734 26,484 82,685
Taxes on income............................. 5,938 14,450 8,214 15,361 43,963
----------- ----------- ----------- ----------- -------------
Earnings before extraordinary charge........ 5,264 12,815 9,520 11,123 38,722
Extraordinary charge........................ -- -- 13,330 -- 13,330
----------- ----------- ----------- ----------- -------------
Net earnings................................ $ 5,264 $ 12,815 $ (3,810) $ 11,123 $ 25,392
----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- -------------
Earnings per share:
Basic and diluted before extraordinary
charge.................................. $.14 $.34 $ .25 $.29 $1.02
Extraordinary charge...................... .35 .35
----------- ----------- ----------- ----------- -------------
Basic and diluted net earnings............ $.14 $.34 $(.10) $.29 $ .67
----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- -------------
Dividends paid per share.................... $.02 $.02 $.02 $.02 $.08
----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- -------------
Weighted average shares outstanding:
Basic..................................... 37,801 37,804 37,804 37,804 37,803
----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- -------------
Diluted................................... 37,810 37,829 37,840 37,970 37,862
----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- -------------

1996 FIRST SECOND THIRD FOURTH YEAR
- -------------------------------------------- ----------- ----------- ----------- ----------- -------------

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................ 397,743 301,532 281,316 293,408 1,273,999
Interest expense.......................... 52,430 37,660 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 charge......................... 7,110 (6,460) 20,000 -- 20,650
----------- ----------- ----------- ----------- -------------
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
----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- -------------
Basic and diluted net earnings per share.... $.16 $.25 $.03 $.27 $.71
----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- -------------
Dividends paid per share.................... $.30 $.02 $.02 $.02 $.36
----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- -------------
Weighted average shares outstanding:
Basic..................................... 37,739 37,788 37,788 37,794 37,774
----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- -------------
Diluted................................... 37,739 37,788 37,794 37,800 37,777
----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- -------------

The first quarter of 1997 includes a charge of $19 million ($9 million after
income tax benefits or $.24 per share) reflecting the settlement of the David's
litigation. See "Litigation and Contingencies" in the notes to the consolidated
financial statements. The third quarter of 1997 reflects an extraordinary charge
of $22 million ($13 million after income tax benefits or $.35 per share) related
to the recapitalization program.

The first quarter of 1996 includes a charge of $7 million ($3 million after
income tax benefits or $.09 per share) related to a judgment in the David's
litigation. During the second quarter of 1996, this judgment was set aside and
vacated, and the charge was reversed. A new charge of $650,000 ($318,000 after
income tax benefits or $.01 per share) was recorded. The third quarter of 1996
includes a charge of $20 million ($10 million after income tax benefits or $.26
per share) related to a settlement agreement involving Premium Sales
Corporation. See "Litigation and Contingencies" in the notes to the consolidated
financial statements. The fourth quarter of 1996 includes an impairment charge
of $5 million ($2 million after income tax benefits or $.06 per share)
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.

(a) 2. Financial Statement Schedule:

Schedule II--Valuation and Qualifying Accounts

(a) 3. (c) Exhibits:

EXHIBIT PAGE NUMBER OR INCORPORATION
NUMBER BY REFERENCE TO
- ---------- ------------------------------

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

3.2 By-Laws

4.0 Credit Agreement, dated as of July 25, 1997, among Fleming Exhibit 4.16 to Form 10-Q for
Companies, Inc., the Lenders party thereto, BancAmerica quarter ended July 12, 1997
Securities, Inc., as syndication agent, Societe Generale, as
documentation agent and The Chase Manhattan Bank, as
administrative agent

4.1 Security Agreement dated as of July 25, 1997, between Exhibit 4.17 to Form 10-Q for
Fleming Companies, Inc., the company subsidiaries party quarter ended July 12, 1997
thereto and The Chase Manhattan Bank, as collateral agent

4.2 Pledge Agreement, dated as of July 25, 1997, among Fleming Exhibit 4.18 to Form 10-Q for
Companies, Inc., the company subsidiaries party thereto and quarter ended July 12, 1997
The Chase Manhattan Bank, as collateral agent

4.3 Guarantee Agreement among the company subsidiaries party Exhibit 4.19 to Form 10-Q for
thereto and The Chase Manhattan Bank, as collateral agent quarter ended July 12, 1997

4.4 Indenture dated as of December 15, 1994, among Fleming, the Exhibit 4.9 to Form 10-K for
Subsidiary Guarantors named therein and Texas Commerce Bank year ended December 31, 1994
National Association, as Trustee, Regarding $300 million of
10 5/8% Senior Notes

4.5 Indenture, dated as of July 25, 1997, among Fleming Exhibit 4.20 to Form 10-Q for
Companies, Inc., the Subsidiary Guarantors named therein and quarter ended July 12, 1997
Manufacturers and Traders Trust Company, as Trustee,
regarding 10 5/8% Senior Subordinated Notes due 2007

4.6 Indenture, dated as of July 25, 1997, among Fleming Exhibit 4.21 to Form 10-Q for
Companies, Inc., the Subsidiary Guarantors named therein and quarter ended July 12, 1997
Manufacturers and Traders Trust Company regarding 10 1/2%
Senior Subordinated Notes due 2004

4.7 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

EXHIBIT PAGE NUMBER OR INCORPORATION
NUMBER BY REFERENCE TO
- ---------- ------------------------------
10.1* 1985 Stock Option Plan Exhibit 28(a) to Registration
Statement No. 2-98602

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

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* Form of Restricted Stock Award Agreement for 1990 Stock
Option Plan (1997)

10.6* Fleming Management Incentive Compensation Plan Exhibit 10.4 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 Income Exhibit 10.11 to Form 10-K for
Agreement year ended December 31, 1994

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

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

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

10.12* Form of Restricted Award Agreement for 1996 Stock Incentive
Plan (1997)

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

10.14* Amendment No. 1 to the Fleming Companies, Inc. 1996 Stock Exhibit 10.16 to Form 10-K for
Incentive Plan 1996 year ended December 28,

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

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

EXHIBIT PAGE NUMBER OR INCORPORATION
NUMBER BY REFERENCE TO
- ---------- ------------------------------
10.17* First Amendment to Fleming Companies, Inc. Supplemental Exhibit 10.19 to Form 10-K for
Income Trust year ended December 28, 1996

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

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

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

10.21* Amended and Restated Supplemental Retirement Income Exhibit 10.23 to Form 10-K for
Agreement for Robert E. Stauth 1996 year ended December 28, 1996

10.22* Supplemental Retirement Income Agreement of Fleming Exhibit 10.24 to Form 10-K for
Companies, Inc. And William J. Dowd year ended December 28, 1996

10.23* Executive Past Service Benefit Plan (November 1997)

10.24* Form of Agreement for Executive Past Service Benefit Plan
(November 1997)

10.25* Executive Deferred Compensation Plan (November 1997)

10.26* Executive Deferred Compensation Trust (November 1997)

10.27* Form of Agreement for Executive Deferred Compensation Plan
(November 1997)

10.28 Fleming Companies, Inc. Associate Stock Purchase Plan

10.29 Settlement Agreement between Fleming Companies, Inc. and Exhibit 10.25 to Form 10-Q for
Furr's Supermarkets, Inc. dated October 23, 1997 quarter ended October 4, 1997

12 Computation of ratio of earnings to fixed charges

21 Subsidiaries of the Registrant

23 Consent of Deloitte & Touche LLP

24 Power of Attorney

27 Financial Data Schedule

*Management contract, compensatory plan or arrangement.

(b) Reports on Form 8-K:

None

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 11th day of March
1998.

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)

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 11th day of March 1998.

NAME TITLE
- ------------------------------------------------------ ---------------------------------

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

/s/ JACK W. BAKER*
------------------------------------------- (Director)
Jack W. Baker

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

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

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

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

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

------------------------------------------- (Director)
Alice M. Peterson

/s/ DAVID A. RISMILLER
------------------------------------------- (Director)
David A. Rismiller

*By: /s/ HARRY L. WINN, JR.
--------------------------------------
Harry L. Winn, Jr.
ATTORNEY-IN-FACT

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

* 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.

SCHEDULE II

FLEMING COMPANIES, INC.
AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 27, 1997 DECEMBER 28, 1996,
AND DECEMBER 30, 1995

(IN THOUSANDS)

ALLOWANCE
FOR CREDIT
LOSSES CURRENT NONCURRENT
------------ ---------- -----------

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

Charged to costs and expenses............................................. 30,513 21,611 8,902

Uncollectible accounts written-off, less recoveries....................... (25,676 ) (25,981) 305
------------ ---------- -----------

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

Charged to costs and expenses............................................. 26,921 19,406 7,515

Uncollectible accounts written-off, less recoveries....................... (35,693 ) (29,883) (5,810 )

Asset Impairment.......................................................... 5,000 -- 5,000
------------ ---------- -----------

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

Charged to cost and expenses.............................................. 24,484 11,989 12,495

Uncollectible accounts written-off, less recoveries....................... (32,655 ) (17,636) (15,019 )

Asset impairment.......................................................... 2,387 -- 2,387
------------ ---------- -----------

BALANCE, December 27, 1997................................................ $43,848 $19,012 $24,836
------------ ---------- -----------
------------ ---------- -----------