<PAGE>   1
--------------------------------------------------------------------------------


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                   FORM 10-K/A

                                  ANNUAL REPORT
                       PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                                 ---------------


     For Fiscal Year Ended                        Commission File Number
       February 2, 1997                                  33-59212


                           FOOD 4 LESS HOLDINGS, INC.
             (Exact name of registrant as specified in its charter)


               DELAWARE                                    33-0642810
    (State or other jurisdiction of                     (I.R.S. Employer
    incorporation or organization)                   Identification Number)


     1100 West Artesia Boulevard.                            90220
          Compton, California                             (Zip code)
(Address of principal executive offices)


                                 (310) 884-9000
              (Registrant's telephone number, including area code)

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

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


        Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s)), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ].


        At April 18, 1997, there were 17,207,882 shares of Common Stock
outstanding. As of such date, none of the outstanding shares of Common Stock
were held by persons other than affiliates and employees of the registrant, and
there was no public market for the Common Stock.


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


<PAGE>   2
                                     PART I

ITEM 1.  BUSINESS

GENERAL

        Food 4 Less Holdings, Inc. ("Holdings," or together with its
subsidiaries, the "Company") was incorporated in California in 1992 and
reincorporated in Delaware in June 1995. On June 14, 1995, Holdings acquired all
of the common stock of Ralphs Supermarkets, Inc. ("RSI") in a transaction
accounted for as a purchase by Food 4 Less Supermarkets, Inc. ("F4L
Supermarkets"). F4L Supermarkets, RSI and RSI's wholly-owned subsidiary, Ralphs
Grocery Company ("RGC"), combined through mergers (the "Merger") in which RSI
remained as the surviving entity and changed its name to Ralphs Grocery Company
("Ralphs"). The Company does not have any business operations of its own and its
assets consist solely of all the outstanding capital stock of Ralphs.

        The Company is a retail supermarket company with a total of 405 stores
which are located in Southern California (342) , Northern California (27) and
certain areas of the Midwest (36). The Company is the largest supermarket
operator in Southern California, with an estimated market share of 26 percent in
Los Angeles and Orange Counties. The Company operates the second largest
conventional supermarket chain in the region under the "Ralphs" name and the
largest warehouse supermarket chain in the region under the "Food 4 Less" name.
The Company has achieved strong competitive positions in each of its marketing
areas by successfully tailoring its merchandising strategy to the particular
needs of the individual communities it serves. In addition, the Company is a
vertically integrated supermarket company with major manufacturing facilities,
including a bakery and creamery operations, and full-line warehouse and
distribution facilities servicing its Southern California operations.


                                        1


<PAGE>   3
        The Company operates both conventional and warehouse format stores
utilizing a retail strategy tailored to the particular needs of the individual
communities it serves. The Company operates in three geographic areas: Southern
California, Northern California and certain areas of the Midwest, under six
different retail formats. The following table sets forth by retail format the
number of stores operated by each of the Company's three divisions at February
2, 1997 (unless otherwise indicated, all references to numbers of stores and
other store data in this Annual Report on Form 10-K are as of February 2, 1997):


<TABLE>
<CAPTION>
                                 Southern     Northern
                                California   California    Midwestern        Total
                                 ------       -----         -----           -----
<S>                                 <C>       <C>          <C>              <C>
        Ralphs                      263           -             -             263
        Cala                          -           8             -               8
        Bell                          -          13             -              13
        Falley's                      -           -             5               5
                                 ------       -----         -----           -----
           Total Conventional       263          21             5             289

        Food 4 Less                  79           -            31             110
        FoodsCo                       -           6             -               6
                                 ------       -----        ------          ------
           Total Warehouse           79           6            31             116
                                 ------       -----         -----           -----
           Total Stores             342          27            36             405
                                 ======       =====         =====           =====
</TABLE>


SOUTHERN CALIFORNIA DIVISION

        The Southern California Division operates 342 supermarkets in eight
counties under the names "Ralphs" and "Food 4 Less." The Company's Southern
California stores accounted for approximately 90 percent of the Company's sales
for the 53 weeks ended February 2, 1997.

        The combination of RGC and F4L Supermarkets created the largest
supermarket operator in Southern California. Since the Merger, the Company has
consolidated all of its stores in the region under its two leading complementary
formats. The Company operates the second largest conventional supermarket chain
in the region under the "Ralphs" name and the largest price impact warehouse
supermarket chain under the "Food 4 Less" name. Management believes the
consolidation of its formats in Southern California has improved the Company's
ability to adapt its stores' merchandising strategy to the local markets in
which they operate while achieving cost savings and other efficiencies.

        Ralphs Conventional Format. The Company operates 263 Ralphs stores in
Southern California. All of the Company's conventional stores in the region use
the "Ralphs" name and are operated under a single format. Each store is
merchandised to appeal to the local community it serves and offers competitive
pricing with emphasis on overall value. Ralphs' substantial supermarket product
selection is a significant aspect of its marketing efforts. Ralphs stores stock
between 35,000 and 45,000 merchandise items, including approximately 2,800
private label products. Ralphs stores offer name-brand grocery products; quality
and freshness in its produce, meat, seafood, delicatessen and bakery products;
and broad selection in all departments. Most Ralphs stores offer service
delicatessen departments, on-premises bakery facilities and seafood departments.
Ralphs emphasizes store ambiance and cleanliness, fast and friendly service, the
convenience of debit and credit card payment (including many in-store branch
banks) and 24-hour operations in most stores.

        Food 4 Less Warehouse Format. The Company operates 79 stores in Southern
California which target the price-conscious segment of the market in both urban
and suburban areas under the name "Food 4 Less." Food 4 Less is a
warehouse-style, price impact store which is positioned


                                        2


<PAGE>   4
to offer the lowest overall prices in its marketing areas by passing on to the
consumer savings achieved through labor efficiencies and lower overhead and
advertising costs associated with the warehouse format, while providing the
product selection and variety associated with a conventional format. In-store
operations are designed to allow customers to perform certain labor-intensive
services usually offered in conventional supermarkets; for example, merchandise
is presented on warehouse style racks in full cartons, reducing labor intensive
unpacking, and customers bag their own groceries. Labor costs are also reduced
because the stores generally do not have labor-intensive service departments
such as delicatessens, bakeries and fresh seafood departments, although they do
offer a complete line of fresh meat, fish, produce and baked goods.

        The Food 4 Less format generally consists of large facilities
constructed with high ceilings to accommodate warehouse racking with overhead
pallet storage. Wide aisles accommodate forklifts and, compared to conventional
supermarkets, a higher percentage of total store space is devoted to retail
selling because the top of the warehouse-style grocery racks on the sales floor
are used to store inventory, which reduces the need for large backroom storage.
The Food 4 Less warehouse format supermarkets have brightly painted walls and
inexpensive signage in lieu of more expensive graphics. In addition, a "Wall of
Values" located at the entrance of each store presents the customer with a
selection of specially priced merchandise. Management believes that there is a
significant segment of the market, encompassing a wide range of demographic
groups, which prefers to shop in a warehouse format supermarket because of its
lowest overall pricing.

     Marketing and Merchandising

        As a result of the consolidation of conventional format stores in
Southern California under the "Ralphs" name, the Company eliminated most of the
separate advertising associated with F4L Supermarkets' conventional Alpha Beta,
Boys and Viva formats. Because the Company's advertising program covers the
Southern California region, the Company has been able to expand the number of
Ralphs stores without significantly increasing advertising costs.

        The Company utilizes innovative and aggressive marketing programs in an
effort to increase sales, market share and profitability. In September 1996, the
Company launched its "First in Southern California" marketing program, which
emphasizes Ralphs' lower regular retail prices in conjunction with its premier
quality, wide selection and enhanced customer service. The new marketing
campaign also highlights the Company's belief that more shoppers are choosing
Ralphs than any other supermarket in Southern California. The program is
designed to increase store traffic and sales by a coordinated use of media
advertisement and targeted use of price promotions and double coupon offerings.
Management believes that consumers' favorable response to the "First in Southern
California" marketing campaign has resulted in increased customer traffic at its
stores and has contributed to the increase in 1996 fourth quarter comparable
store sales in Southern California of 3.5 percent. The Company continues to
emphasize its successful merchandising programs and exceptional product mix,
including its home meal replacement program and strong private label program.
The Company intends to continue to expand its home meal replacement program in
its conventional supermarkets. The Company's home meal replacement program
offers a wide range of pre-packaged fresh, refrigerated and frozen food items.

        Through its private label program, the Company offers a diverse array of
grocery and general merchandise items under its own brand names which include
"Ralphs," "Private Selection," "Perfect Choice," "Plain Wrap" and "Equality."
The Company has entered into several private label licensing arrangements which
allow it to utilize recognized brand names on an exclusive basis in connection
with certain goods it manufactures or purchases from others, including
"Carnation" and "Sunnyside Farms" (dairy products) and "Van de Kamps" (baked
goods). In addition, the Company has entered into an agreement to distribute
private label dry grocery and frozen products under the "Sunny Select" and
"Grocers Pride" labels. The Company's private label program provides quality

                                              3

<PAGE>   5
comparable to that of national brands at significantly lower prices, while the
Company's gross margins on private label products are generally higher than on
national brands. The Company believes that its private label program is one of
the most successful in the supermarket industry, and the Company intends to
continue the growth of its private label program in the future.

        Ralphs stores promote sales through the use of product coupons,
consisting of manufacturers' coupons and Ralphs' own promotional coupons. Ralphs
offers a double coupon program in all stores with Ralphs matching the price
reduction offered by the manufacturer up to certain limits. Ralphs also
generates store traffic through weekly advertised specials, special sales
promotions such as discounts on recreational activities, seasonal and holiday
promotions, increased private label selection, club pack items and exclusive
product offerings.

        The Food 4 Less warehouse stores utilize print and radio advertising
which emphasizes Food 4 Less' low-price leadership, rather than promoting
special prices on individual items. The Food 4 Less warehouse stores also
utilize weekly advertising circulars, customized to local communities, which
highlight the merchandise offered in each store.

     Warehousing, Distribution and Manufacturing

        In March 1996, the Company commenced operations in a state-of-the-art
distribution and creamery facility located in Riverside, California (the
"Riverside Facility") which was acquired from Smith's Food & Drug Center, Inc
("Smith's") in December 1995. The technologically-advanced 90- acre complex has
improved the quality, service and productivity of the Company's distribution and
manufacturing operations. The Riverside Facility, which was originally opened in
1994 by Smith's, has more than one million square feet of warehousing and
manufacturing space consisting of a 675,000 square foot dry grocery service
center, a 270,000 square foot refrigerated and frozen food facility and a
115,000 square foot creamery facility. The Riverside Facility sublease runs for
approximately 23 years, with renewal options through 2043, and provides for
annual rent of approximately $8.8 million. The Company also acquired certain
operating assets and inventory at the Riverside Facility when it entered into
the sublease for a purchase price of approximately $20.2 million.

        The acquisition of the Riverside Facility allowed the Company to
eliminate certain of its smaller and less efficient warehouse facilities and to
consolidate its distribution operations into the Riverside Facility and two
other modern, efficient facilities located in Compton and Glendale, California.
The consolidation of the distribution operations allowed the Company to reduce
transportation costs, management overhead and outside storage costs and to
improve its inventory management.

        The Riverside Facility also increases distribution capacity of the
Company by increasing storage capacity to 120,000 pallets and increasing the
assortment of items that are internally supported (increasing dry grocery from
10,000 to 14,000 SKUs and perishable and frozen items by 1,500 SKUs).

        The Company also operates a 17 million cubic foot high-rise automated
storage and retrieval system ("ASRS") warehouse for non-perishable items, near
Glendale, California. The ASRS warehouse has a ground floor area of 170,000
square feet and capacity of approximately 50,000 pallets. Guided by computer
software, ten-story high cranes move pallets from the receiving dock to
programmed locations in the ASRS warehouse while recording the location and time
of storage. Goods are retrieved and delivered by the cranes to conveyors leading
to an adjacent "picking" warehouse where individual store orders are filled and
shipped. The Company's Glendale "picking" warehouse (together with the ASRS, the
"Glendale Facility") was damaged in the Northridge earthquake. Its operations
were transferred to the Riverside Facility while it was being renovated.

                                        4

<PAGE>   6
The Company completed its renovation of the Glendale "picking" warehouse in
March 1997. The Glendale Facility can hold substantially more inventory and
requires fewer employees to operate than a conventional warehouse of equal size.

        The Company's third major Southern California distribution center is its
5.4 million cubic foot facility in Compton, California designed to process and
store all perishable products (the "Compton Facility"). This facility was
constructed in 1992 and has provided the Company with the ability to deliver
perishable products to its stores on a daily basis, thereby improving the
freshness and quality of these products.

        Combined shipments from the Company's Southern California warehouse
facilities accounted for approximately 78 percent of the Southern California
Division's total purchases during the 53 weeks ended February 2, 1997.
Additional purchases, consisting of mostly general merchandise, approximating
one percent of the division's total during this same period, were made through
Certified Grocers of California, Ltd. ("Certified"), a food distribution
cooperative in which the Company is a member.

        The Riverside Facility's creamery is the production point for all fluid
milk products bound for sale in the Company's Food 4 Less warehouse stores.
Bottled water, fruit juice and ice for the entire Company are processed and
packaged at the Riverside Facility creamery. Milk bound for the Company's Ralphs
conventional stores, as well as all ice cream and ice cream products, are
processed at the Company's existing creamery in Compton, California. The Company
also processes selected delicatessen items, including packaged salads and
cheeses, and produces cultured products, including sour cream and yogurt in
Compton.

        In October 1996, the Company finalized an agreement (the "Agreement")
with American Stores Company ("American Stores") which resulted in termination
of the Company's leases for the La Habra facility and two stores leased from
American Stores. In addition, as required by the Company's settlement agreement
with the State of California entered into at the date of the Merger, the Company
sold one store to American Stores. The Company also entered into a new lease for
the bakery facility at La Habra, which it will continue to operate, and modified
the terms of two other store leases. Operations at the La Habra distribution
facility were previously discontinued as part of the Company's ongoing
consolidation of warehouse and distribution facilities which began with the
acquisition of the Riverside Facility in December 1995.

     Store Operations and Retail Systems

        The Company has a modern store base with over 60 percent of its stores
having been either opened or remodeled in the last five years. Since the Merger,
the Company has closed 74 smaller, underperforming stores, opened 37 stores, and
expanded or remodeled 23 stores. During fiscal 1996, the Company opened 26 new
stores and remodeled 20 stores. These improvements to its store base have
resulted in an increase in Southern California average store size of
approximately 11.6 percent. In addition, as a result of Ralphs' 124 year history
in Southern California, the Company has valuable and well-established store
locations, many of which are in densely populated metropolitan areas.

        The Southern California Division's store equipment and facilities are
generally in excellent condition. The Ralphs stores range in size from
approximately 18,900 square feet to 87,000 square feet and average approximately
37,700 square feet. The Southern California Food 4 Less stores are generally
larger and range in size from approximately 27,400 square feet to 109,300 square
feet, and average approximately 55,200 square feet. The Company believes the
Southern California Division's warehouse and distribution system and the design
of its stores permit the Company to decrease in-store stockroom space and
thereby increase available selling area.

                                              5

<PAGE>   7
        The Southern California Division's management information systems and
optical scanning technology reduce the labor costs attributable to product
pricing and customer check-out, and provide the Company's management with
information that facilitates purchasing and receiving, inventory management,
warehouse reordering and management of accounts payable. All of the Company's
Southern California Division stores currently offer an electronic funds transfer
system which allows customers to make purchases as well as obtain cash or check
approvals in transactions linked to their bank accounts. In addition, the
Company's stores now offer customers the convenience of making purchases with
major credit cards.

     Expansion and Development

        The Company's merger, expansion, remodeling and conversion efforts have
required, and will continue to require, the funding of significant capital
expenditures. Remodels and new store openings, among other things, are subject
to the availability of developers' financing, agreements with developers and
landlords, local zoning regulations, construction schedules and other factors,
including costs, often beyond the Company's control. Accordingly, there can be
no assurance that the Company's anticipated expansion schedule will be met.
Further, there is competition for new store sites, and it is possible that this
competition might adversely affect the timing of its new store program. From
time to time, the Company also closes or sells marginal stores. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

NORTHERN CALIFORNIA AND MIDWESTERN DIVISIONS

        The Northern California Division of the Company operates 21 conventional
supermarkets in the greater San Francisco Bay area under the "Cala" and "Bell"
names, and six warehouse format stores under the "FoodsCo" name. Management
believes that the Northern California Division has excellent store locations in
the city of San Francisco that would be very difficult to replicate. The
Midwestern Division of the Company operates 36 stores, of which 31, including
ten former "Food Barn" stores which the Company acquired in March 1994, are
warehouse format stores operated under the "Food 4 Less" name, and five of which
are conventional supermarkets operated under the "Falley's" name. Of these 36
stores, 32 are located in Kansas and four are located in Missouri. Management
believes the Food 4 Less warehouse format stores are the low-price leaders in
each of the markets in which they compete.

        The Northern California Division's conventional store strategy is to
attract customers through its convenient locations, broad product line and
emphasis on quality and service, and its advertising and promotion strategy
highlights the reduced price specials offered in its stores. In contrast, the
Company's warehouse format stores emphasize lowest overall prices rather than
promoting special prices on individual items. The Northern California Division's
conventional stores range in size from approximately 8,900 square feet to 32,800
square feet, and average approximately 19,300 square feet. The Northern
California Division's warehouse stores range in size from approximately 29,100
square feet to 59,700 square feet, and average approximately 43,300 square feet.
The Midwestern Division's conventional stores range in size from approximately
18,100 square feet to 30,900 square feet, and average approximately 25,000
square feet. The Midwestern Division's warehouse format stores range in size
from approximately 8,800 square feet to 60,200 square feet and average
approximately 37,900 square feet.

        The Northern California Division purchases merchandise from a number of
suppliers; however, approximately 36 percent of its purchases are made through
Certified Grocers of California, Ltd. ("Certified"), a food distribution
cooperative, pursuant to supply contracts. The Northern California Division does
not operate its own warehouse facilities, relying instead on direct

                                        6

<PAGE>   8
delivery to its stores by Certified and other vendors. The Company's Southern
California warehouse facilities supply a portion of the merchandise sold in the
Northern California Division stores.

        The Company is party to a joint venture with a subsidiary of Certified
which operates a general merchandise warehouse in Fresno, California. Management
has been holding discussions with Certified concerning the possible termination
of the joint venture.

        The Midwestern Division's primary supplier is Associated Wholesale
Grocers ("AWG"), a member-owned wholesale grocery cooperative based in Kansas
City. The Midwestern Division does not operate a central warehouse, but
purchases approximately 70 percent of the merchandise sold in its stores from
AWG. Management believes that, as AWG's largest single customer, the Midwestern
Division has significant buying power, allowing it to provide a broader product
line more economically than it could if it maintained its own full-line
warehouse. The Midwestern Division produces approximately 50 percent of all
case-ready fresh meat items sold in its stores at its central meat plant located
in Topeka, Kansas.

        Since the beginning of fiscal 1991, the Northern California Division has
remodeled 15 stores, opened seven new stores and, in fiscal 1995, acquired three
stores from Roger Wilco, now operated as Bell stores. The Northern California
Division Food 4 Less warehouse stores were renamed as FoodsCo warehouse stores
in fiscal 1994 following the sale by the Company of the exclusive rights to use
the "Food 4 Less" name in Northern California to Fleming Companies, Inc.
("Fleming"), which previously held a non-exclusive license. See "Licensing
Operations" for further discussion of the amendment to the Fleming license.

COMPETITION

        The supermarket industry is highly competitive and characterized by
narrow profit margins. The Company's competitors in each of its operating
divisions include national and regional supermarket chains, independent and
specialty grocers, drug and convenience stores, and the newer "alternative
format" food stores, including warehouse club stores, deep discount drug stores
and "super centers." Supermarket chains generally compete on the basis of
location, quality of products, service, price, product variety and store
condition. The Company regularly monitors its competitors' prices and adjusts
its prices and marketing strategy as management deems appropriate.

        The Southern California Division competes with several large national
and regional chains, principally Albertson's, Hughes, Lucky, Stater Bros., and
Vons, and with smaller independent supermarkets and grocery stores as well as
warehouse clubs and other "alternative format" food stores. The Company's
primary competitor in Southern California was recently acquired by a multi-
regional supermarket chain, which may increase competitive pressure for the
Company. The Northern California Division competes with large national and
regional chains, principally Lucky and Safeway, and with independent supermarket
and grocery store operators and other retailers, including "alternative format"
stores. The Midwestern Division's supermarkets compete with several national and
regional supermarket chains, principally Albertson's and Dillons, as well as
independent grocery and "alternative format" stores such as Hypermarket USA. The
Company positions its warehouse format supermarkets as the overall low-price
leaders in each marketing area in which they operate.

LICENSING OPERATIONS

        The Company owns the "Food 4 Less" trademark and service mark and
licenses the "Food 4 Less" name for use by others. In fiscal 1996, earnings from
licensing operations were approximately $244,000. An exclusive license with the
right to sublicense the "Food 4 Less" name

                                        7

<PAGE>   9
in all areas of the United States except Arkansas, Iowa, Illinois, Minnesota,
Nebraska, North Dakota, South Dakota, Wisconsin, the upper peninsula of
Michigan, certain portions of Kansas, Missouri, and Tennessee has been granted
to Fleming, a major food wholesaler and retailer. In August of 1993, the Company
amended its licensing agreement with Fleming to give Fleming exclusive use of
the Food 4 Less name in Northern California and the Company exclusive use in
Southern California (the "Amendment"). With the exception of Northern
California, and subject to the Amendment and certain proximity restrictions, the
Company retains the right to open and operate its own "Food 4 Less" warehouse
supermarkets throughout the United States. As of February 2, 1997, there were
179 Food 4 Less warehouse supermarkets in 12 states, including the 110 stores
owned or leased and operated by the Company. Of the remaining 69 stores, 7 are
operated by Fleming under licenses, 10 are operated under sublicenses from
Fleming and 52 are operated by other licensees.

GOVERNMENTAL REGULATION

        The Company is subject to regulation by a variety of governmental
agencies, including, but not limited to, the California Department of Alcoholic
Beverage Control, the California Department of Agriculture, the U.S. Food and
Drug Administration, the U.S. Department of Agriculture and state and local
health departments.

EMPLOYEES

        The Company believes that its relationship with its employees is
excellent. At February 2, 1997, the Company had a total of 27,254 employees, as
shown in the table below.


<TABLE>
<CAPTION>
                                          Southern      Northern
                                         California    California   Midwestern   Total
                                           ------         -----       -----     ------
<S>                                         <C>        <C>          <C>         <C>  
Administrative                              1,138            61          48      1,247
Warehouse, manufacturing and
   transportation                           3,350             -          58      3,408
Stores                                     20,097         1,144       1,358     22,599
                                           ------         -----       -----     ------
     Total                                 24,585         1,205       1,464     27,254
                                           ======         =====       =====     ======
</TABLE>

                                        8

<PAGE>   10
        Of the Company's 27,254 total employees at February 2, 1997, there were
23,419 employees covered by union contracts, principally with the United Food
and Commercial Workers Union (the "UFCW"). The table below sets forth
information regarding the Company's union contracts which cover more than 100
employees.


<TABLE>
<CAPTION>
UNION                                           NUMBER OF EMPLOYEES COVERED              DATE(S) OF EXPIRATION
-----                                           ---------------------------              ---------------------
<S>                                             <C>                                      <C>    
UFCW                                            14,214 Southern California                  October 3, 1999
                                                Division clerks and
                                                meatcutters

UFCW                                            3,690 Southern California                   February 26, 2000
                                                Division clerks and
                                                meatcutters

International Brotherhood of Teamsters          2,867 Southern California                   September 13, 1998
                                                Division drivers
                                                and warehousemen

UFCW                                            1,054 Northern California                   March 7, 1998
                                                Division clerks and
                                                meatcutters

Hotel Employees and Restaurant Workers          839 Southern California                     September 11, 2000
                                                Division culinary workers

Hospital and Service Employees                  549 Southern California                     January 19, 1997 (a)
                                                Division store porters

Bakery and Confectionery Workers                206 Southern California                     July 7, 2000
                                                Division bakers
</TABLE>

(a)     Although negotiations for a new union contract are in progress, there
        can be no assurance that a new contract will be reached on terms
        satisfactory to the Company or that labor costs will not increase.

                                        9

<PAGE>   11
ITEM 2.  PROPERTIES

        At February 2, 1997, the Company operated 405 supermarkets, as set forth
in the table below:

<TABLE>
<CAPTION>
                                         Number of 
                                       Supermarkets                       Aveeraage
                                     ------------------       Total      Square Feet/
Division                             Owned       Leased    Square Feet     Facility
--------                             -----       ------    -----------     --------
<S>                                  <C>         <C>       <C>             <C>   
Southern California                   62(a)        280      14,237,000       41,600
Northern California                      -          27         665,000       24,600
Midwestern                             2(b)         34       1,299,000       36,100
</TABLE>

----------------------
(a)     Includes fifteen stores located on real property subject to ground
        leases.
(b)     Includes one store that is partially owned and partially leased.


        Most of the Southern California Division's store locations are held
pursuant to long-term leases, many of which, in the opinion of management, have
below-market rental rates or other favorable lease terms. The average remaining
term (including all renewal options) of the Company's supermarket leases is
approximately 30 years.

        In addition to the supermarkets, the Company operates three main
warehouse and distribution centers in Southern California. The newly-acquired
90-acre Riverside Facility has more than one million square feet of warehousing
and manufacturing space consisting of a creamery and several warehouses for dry
grocery, dairy/deli and frozen food storage. The Riverside Facility sublease
runs for approximately 23 years, with renewal options through 2043, and provides
for annual rent of approximately $8.8 million. The Glendale Facility, consisting
of a 170,000 square foot high-rise automated storage and retrieval system
warehouse and adjacent "picking" warehouse located in the Atwater District of
Los Angeles near Glendale, California, was opened in 1987 and handles
non-perishable items. It is ten stories high and has a capacity of approximately
50,000 pallets. The Compton facility was opened in 1992 and is a 5.4 million
cubic foot facility designed to process and store all perishable products.

        The Company also has manufacturing operations located in Compton that
produce a variety of dairy and other products, including fluid milk, ice cream,
yogurt and bottled waters and juices, as well as packaged ice, cheese and
packaged salads. The bakery operation is located at the La Habra complex and
measures 316,000 square feet.

        The Company's former central office, manufacturing and warehouse
facility in La Habra, California was leased for a term ending 2001. Operations
at the La Habra facility were discontinued as part of the Company's
consolidation of warehouse and distribution facilities which began with the
acquisition of the Riverside Facility in December 1995. On October 29, 1996, the
Company finalized an agreement (the "Agreement") with American Stores Company
("American Stores") which resulted in termination of the Company's leases for
the La Habra facility and two stores leased from American Stores. In addition,
as required by the Company's settlement agreement with the State of California
entered into at the date of the Merger, the Company sold one store to American
Stores. In addition, the Company entered into a new lease for the bakery
facility at La Habra, which it will continue to operate, and modified the terms
of two other store leases. In fiscal 1995, the Company recorded a restructuring
charge which includes a $29.6 million provision for lease termination expenses
in connection with the closure of the La Habra and other warehouses (as well as
certain other properties). See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 4 of "Notes to
Consolidated Financial Statements."

                                       10

<PAGE>   12
ITEM 3.  LEGAL PROCEEDINGS

        In December 1992, three California state antitrust class action suits
were commenced in Los Angeles Superior Court against the Company and other major
supermarket chains located in Southern California, alleging that they conspired
to refrain from competing in the retail market for fluid milk and to fix the
retail price of fluid milk above competitive prices. Specifically, class actions
were commenced by Diane Barela and Neila Ross, Ron Moliare and Paul C. Pfeifle
on December 7, December 14 and December 23, 1992, respectively. A class has been
certified consisting of all purchasers of milk in Los Angeles from December 7,
1988. The plaintiffs seek unspecified damages. Most defendants in the actions,
not including the Company, have reached tentative settlement agreements, and
certain of the settlements have been approved by the trial court, subject to a
pending appeal. The Company is continuing to actively defend itself in these
class action suits.

        On September 13, 1996 a class action lawsuit titled McCampbell, et al.
v. Ralphs Grocery Company, et al. was filed in the Superior Court of the State
of California, County of San Diego, against the Company and two other grocery
store chains operating in the Southern California area. The complaint alleges,
among other things, that the Company and others conspired to fix the retail
price of eggs in Southern California. The plaintiffs claim that the defendants'
actions violate provisions of the California Cartwright Act and constitute
unfair competition. The Plaintiffs seek unspecified damages they purport to have
sustained as a result of the defendants' alleged actions, which damages may be
trebled under the applicable statute, and an injunction from future actions in
restraint of trade and unfair competition. Discovery has commenced and the
action has been certified as a class. Management of the Company intends to
defend this action vigorously and the Company has filed an answer to the
complaint denying the plaintiffs' allegations and setting forth several
defenses.

        On December 20, 1996, a lawsuit titled Bundy, et al. v. Ralphs Grocery
Company, et al. was filed in the Los Angeles Superior Court against the Company.
The complaint was filed by eight individual plaintiffs who were terminated in
conjunction with the Company's restructuring. The plaintiffs claim that they
were wrongfully terminated for discriminatory reasons and that the Company
engaged in various fraudulent practices. The plaintiffs seek compensatory
damages in excess of $15 million, special and punitive damages. Management of
the Company believes that the plaintiff's claims are without merit and intends
to defend this action vigorously.

        In addition, the Company or its subsidiaries are defendants in a number
of other cases currently in litigation or are the subject of potential claims
encountered in the normal course of business which are being vigorously
defended. In the opinion of management, the resolutions of these matters will
not have a material effect on the Company's financial position or results of
operations.

ENVIRONMENTAL MATTERS

        In January 1991, the California Regional Water Quality Control Board for
the Los Angeles Region (the "Regional Board") requested that the Company conduct
a subsurface characterization of its Glendale Facility property located in the
Atwater District of Los Angeles, near Glendale, California. This request was
part of an ongoing effort by the Regional Board, in connection with the U.S.
Environmental Protection Agency (the "EPA"), to identify contributors to
groundwater contamination in the San Fernando Valley. Significant parts of the
San Fernando Valley, including the area where the Glendale Facility is located,
have been designated federal Superfund sites requiring response actions under
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, because of regional groundwater contamination. On June 18,
1991, the EPA made its own request for information concerning the Company's
Glendale Facility. Since that time, the Regional Board has requested further
investigation by the Company. The

                                       11

<PAGE>   13
Company conducted the requested investigations and reported the results to the
Regional Board. Approximately 25 companies have entered into a Consent Order
(EPA Docket No. 94-11) with the EPA to investigate and design a remediation
system for contaminated groundwater beneath an area which includes the Glendale
Facility. The Company is not a party to the Consent Order, but is cooperating
with requests of the subject companies to allow installation of monitoring or
recovery wells on its property. On or about October 12, 1995, the EPA mailed a
Special Notice Letter to 44 parties, including the Company as owner and operator
of the Glendale Facility property, naming them as potentially responsible
parties ("PRPs"). On November 26, 1996, the EPA issued an Administrative Order
for Remedial Action (EPA Docket No. 97-06) against more than 60 respondents,
including the Company, in connection with the Superfund site. Under the order,
these PRP's are required to take certain actions, over an approximately 270-day
period, in connection with the implementation of interim remedies for the
treatment of groundwater.

        Pursuant to the terms of the EPA's order, the PRPs have submitted a plan
for construction of an interim remedy to extract and remediate groundwater over
the next fourteen years. The PRPs have also submitted an offer to the EPA for
the reimbursement of a portion of the EPA's past costs. Estimates given to the
PRPs by environmental consultants and attorneys are that the total costs for the
remedy, including construction, operation and reimbursement to the government,
will most likely range between $55 million and $75 million in present value 1997
dollars.

        In April 1997, an arbitration award allocation of 58.8% of such costs to
Lockheed Martin Corporation ("Lockheed") was confirmed by the Superior Court,
Los Angeles County. That judgment is now on appeal to California Court of
Appeal, seeking to reduce the Lockheed allocation. The remaining 26 current
Glendale PRPs have been engaged in Alternative Dispute Resolution ("ADR")
efforts. The Company believes that taking into account the Lockheed appeal, the
range of remediation costs and the results of the ADR allocation process, the
Company's allocable share of remedy costs, in present value 1997 dollars, will
likely fall within a range of $0.5 million to $2.0 million, with the likely
range from $0.5 million to $0.8 million.

        It is anticipated that the EPA will issue a further administrative order
to PRPs for the construction of the remedy some time in 1997, to be followed by
negotiation of a consent decree with the PRPs. Such a consent decree would
provide contribution protection from lawsuits by other non-signatory PRPs.
Although responsibilities for compliance under federal CERCLA law are joint and
several, the Glendale PRPs include many very substantial companies as members,
such that the Company anticipates that the results of the PRPs' ADR allocation
process will be enforceable to limit the Company's exposure.

        The Company removed underground storage tanks and remediated soil
contamination at the Glendale Facility property. In some instances, the removals
and the contamination were associated with grocery business operations; in
others, they were associated with prior property users. The Company has received
correspondence from the Regional Board confirming the successful completion of
the remediation.

        Apart from the Glendale Facility, the Company has had environmental
assessments performed on most of its facilities, including warehouse and
distribution facilities. The Company believes that any responsive actions
required at the examined properties as a result of such assessments will not
have a material adverse effect on its financial condition or results of
operations.

        The Company is subject to a variety of environmental laws, rules,
regulations and investigative or enforcement activities, as are other companies
in the same or similar business. The Company believes it is in substantial
compliance with such laws, rules and regulations. These laws, rules, regulations
and agency activities change from time to time, and such changes may affect the
ongoing business and operations of the Company.

                                       12

<PAGE>   14
 ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        Not applicable.

                                       13

<PAGE>   15
                                     PART II

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

        There is no public trading market for the Company's common stock, $.01
par value per share (the "Common Stock"). As of April 18, 1997, there were 98
holders of record of the Common Stock.

        The Company has never paid and does not expect in the foreseeable future
to pay any dividends on its Common Stock. The indentures governing the Company's
outstanding debt securities contain certain restrictions on the payment of cash
dividends with respect to Ralphs' Common Stock, and Ralphs' bank credit facility
also restricts such payments.

                                       14

<PAGE>   16
ITEM 6.  SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA

THE COMPANY

        The following table sets forth certain selected consolidated historical
financial data of the Company and its predecessor, F4L Supermarkets. The
operating and balance sheet data for the Company set forth in the table below as
of and for the 53 weeks ended February 2, 1997, the 52 weeks ended January 28,
1996, the 31 weeks ended January 29, 1995, the 52 weeks ended June 25, 1994,
June 26, 1993, and June 27, 1992 have been derived from the financial statements
of the Company which have been audited by Arthur Andersen LLP, independent
public accountants. The following information should be read in conjunction with
the historical financial statements of the Company and related notes and "Item 7
-- Management Discussion and Analysis of Results of Operations and Financial
Condition" included elsewhere herein.

        The historical financial information set forth below for the 31 weeks
ended January 29, 1995 and all prior periods reflect the operations of the
Company and its consolidated subsidiaries. The historical financial information
for the 52 weeks ended January 28, 1996 and the 53 weeks ended February 2, 1997
reflect the acquisition of RSI on June 14, 1995.

                                       15

<PAGE>   17
<TABLE>
<CAPTION>
                                          F4L Supermarkets              The Company
                                            -----------          -----------------------------
                                             52 Weeks             52 Weeks           52 Weeks   
                                               Ended                Ended              Ended    
                                             June 27,              June 26,           June 25,  
                                               1992                 1993              1994(a)   
                                            -----------          -----------       -----------
                                                (in thousands, except store data)
<S>                                         <C>                  <C>               <C>        
Operating Data:
Sales                                       $ 2,913,493          $ 2,742,027       $ 2,585,160
Cost of sales (d)                             2,392,655            2,257,835         2,115,842
                                            -----------          -----------       -----------
Gross profit (d)                                520,838              484,192           469,318
Selling, general, administrative
   and other, net                               469,751              434,908           388,836
Amortization of goodwill                          7,795                7,571             7,691
Loss (gain) on disposal of assets                (1,364)              (2,083)               37
Restructuring charge                                  -                    -                 - 
                                            -----------          -----------       -----------
Operating income (loss) (d)                      44,656               43,796            72,754
Interest expense                                 70,211               73,614            77,017
Provision for earthquake losses                       -                    -             4,504(g)
Provision for income taxes                        3,441                1,427             2,700
                                            -----------          -----------       -----------
Loss before
   extraordinary charges                        (28,996)             (31,245)          (11,467)
Extraordinary charges                             4,818(h)                 -                 - 
                                            -----------          -----------       -----------
Net loss(j)                                 $   (33,814)         $   (31,245)      $   (11,467)
                                            ===========          ===========       ===========

Non-Cash Charges:
Depreciation and amortization
   of property and equipment                $    37,898          $    37,426       $    41,380
Amortization of goodwill and
   other assets                                  16,979               20,214            15,703
Non-cash interest expense                             -                3,882             8,767
Amortization of deferred
   financing costs                                6,304                4,901             5,472

Store Data:
Stores at end of period                             249                  248               258
Annual sales per selling square foot        $       538          $       533       $       487

Balance Sheet Data (end of period)(l):
Working capital deficit                     $   (66,254)         $   (19,222)      $   (54,882)
Total assets                                    998,451              957,840           980,080
Total long-term debt                            509,829              572,670           554,939
Shareholders' equity (deficit)                   50,771               22,633            10,024
</TABLE>


<TABLE>
<CAPTION>
                                                                The Company
                                            -----------------------------------------------------
                                              31 Weeks            52 Weeks             53 Weeks       
                                               Ended               Ended                Ended        
                                             January 29,         January 28,          February 2,    
                                              1995(b)              1996(c)                1997        
                                            -----------          -----------          -----------
                                                      (in thousands, except store data)
<S>                                         <C>                  <C>                  <C>        
Operating Data:
Sales                                       $ 1,556,522          $ 4,335,109          $ 5,516,259
Cost of sales (d)                             1,294,147            3,485,993            4,326,230
                                            -----------          -----------          -----------
Gross profit (d)                                262,375              849,116            1,190,029
Selling, general, administrative
   and other, net                               222,359              785,576              987,425
Amortization of goodwill                          4,615               21,847               38,650
Loss (gain) on disposal of assets                  (455)                (547)               9,317
Restructuring charge                              5,134(e)           123,083(f)                 -
                                            -----------          -----------          -----------
Operating income (loss) (d)                      30,722              (80,843)             154,637
Interest expense                                 48,361              202,651              284,217
Provision for earthquake losses                       -                    -                    -
Provision for income taxes                            -                  500                    -
                                            -----------          -----------          -----------
Loss before
   extraordinary charges                        (17,639)            (283,994)            (129,580)
Extraordinary charges                                 -               38,424(i)                 -
                                            -----------          -----------          -----------
Net loss(j)                                 $   (17,639)         $  (322,418)         $  (129,580)
                                            ===========          ===========          ===========

Non-Cash Charges:
Depreciation and amortization
   of property and equipment                $    25,966          $    92,282          $   129,008
Amortization of goodwill and
   other assets                                  10,657               33,047               40,669
Non-cash interest expense                         6,139               23,877               35,789
Amortization of deferred
   financing costs                                3,413                8,193               10,667

Store Data:
Stores at end of period                             267                  408                  405
Annual sales per selling square foot        $       452(k)       $       477          $       485

Balance Sheet Data (end of period)(l):
Working capital deficit                     $   (74,776)         $  (178,456)         $  (182,641)
Total assets                                  1,000,695            3,188,129            3,131,993
Total long-term debt                            571,712            2,276,225            2,344,406
Shareholders' equity (deficit)                   (7,333)            (188,798)            (319,268)
</TABLE>


                                               (See footnotes on following page)

                                       16

<PAGE>   18
(a)     Operating data for the 52 weeks ended June 25, 1994 include the results
        of the Food Barn Stores, which were not material, from March 29, 1994,
        the date of the acquisition of 10 Food Barn Stores.

(b)     F4L Supermarkets changed its fiscal year end from the 52 or 53-week
        period which ends on the last Saturday in June to the 52 or 53-week
        period which ends on the Sunday closest to January 31, resulting in a
        31-week transition period.

(c)     Operating data for the 52 weeks ended January 28, 1996 reflect the
        acquisition of RSI on June 14, 1995.

(d)     Cost of sales has been principally determined using the last-in,
        first-out ("LIFO") method of valuing inventory. If cost of goods sold
        had been determined using the first-in, first-out ("FIFO") method, gross
        profit and operating income would have been greater by $3,554,000,
        $4,441,000, $699,000, $2,729,000, $2,214,000 and 5,580,000 for the 52
        weeks ended June 27, 1992, June 26, 1993, and June 25, 1994, the 31
        weeks ended January 29, 1995, the 52 weeks ended January 28, 1996 and
        the 53 weeks ended February 2, 1997, respectively.

(e)     The Company converted 11 of its conventional supermarkets to warehouse
        stores. During the 31 weeks ended January 29, 1995, the Company recorded
        a non-cash restructuring charge for the write-off of property and
        equipment at the 11 stores of $5.1 million.

(f)     The Company recorded a $75.2 million restructuring charge associated
        with the closing of 58 stores and one warehouse facility in the 52 weeks
        ended January 28, 1996. Pursuant to the settlement agreement with the
        State of California, 24 Food 4 Less stores (as well as 3 Ralphs stores)
        were required to be divested and an additional 34 under-performing
        stores were closed. The Company also recorded a $47.9 million
        restructuring charge associated with the closing of 9 stores and one
        warehouse facility in the 52 weeks ended January 28, 1996, in
        conjunction with the agreement with Smith's to lease the Riverside
        warehouse facility and 9 stores.

(g)     On January 17, 1994, Southern California was struck by a major
        earthquake which resulted in the temporary closing of 31 of the
        Company's stores. The closures were caused primarily by loss of
        electricity, water, inventory, or damage to the affected stores. All but
        one of the closed stores reopened within a week of the earthquake. The
        final closed store reopened on March 24, 1994. The Company is insured,
        subject to deductibles, against earthquake losses (including business
        interruption). The pre-tax charge to earnings, net of insurance
        recoveries, was approximately $4.5 million.

(h)     Represents an extraordinary net charge of $4.8 million reflecting the
        write-off of $6.7 million (net of related income tax benefit of $2.5
        million) of deferred financing costs as a result of the early redemption
        of a portion of the Company's bank term loan, partially offset by a $1.9
        million extraordinary gain (net of related income tax expense of $0.7
        million) on the replacement of partially depreciated assets following
        the civil unrest in Los Angeles.

(i)     Represents an extraordinary charge of $38.4 million relating to the
        refinancing of F4L Supermarkets' old credit facility, 10.45% Senior
        Notes due 2000 (the "Old F4L Senior Notes"), 13.75% Senior Subordinated
        Notes due 2001 (the "Old F4L Senior Subordinated Notes") and Holdings'
        15.25% Senior Discount Notes due 2004 in connection with the Merger and
        the write-off of their related debt issuance costs.

(j)     Net loss includes a pre-tax provision for self insurance, which is
        classified in cost of sales, selling, general and administrative
        expenses, and interest expense, of $51.1 million, $43.9 million, $25.7
        million, $9.8 million, $32.6 million and $29.2 million for the 52 weeks
        ended June 27, 1992, June 26, 1993, and June 25, 1994, the 31 weeks
        ended January 29, 1995, the 52 weeks ended January 28, 1996 and the 53
        weeks ended February 2, 1997, respectively. Included in the 52 weeks
        ended June 25, 1994, the 31 weeks ended January 29, 1995 and the 52
        weeks ended January 28, 1996 are reduced employer contributions of $8.1
        million, $14.3 million and $26.1 million, respectively, related to union
        health and welfare benefit plans. Included in the 53 weeks ended
        February 2, 1997 are reduced employer contributions of $17.8 million
        related to union pension and health and welfare benefit plans. The
        multi-employers' union health and welfare plans to which the Company
        contributes are overfunded, and those employers who contributed to the
        plans received a pro-rata share of the excess reserves in the plans
        through reduction of current contributions.

(k)     Amount represents the Company's sales for the 1995 transition period
        divided by total selling square feet prorated for the 31 weeks ended
        January 29, 1995.

(l)     Balance sheet data as of June 25, 1994 reflect the acquisition of 10
        Food Barn Stores. Balance sheet data as of January 28, 1996 reflect the
        Merger and the financings and refinancings associated therewith.

                                       17

<PAGE>   19
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
         AND FINANCIAL CONDITION


OVERVIEW

        On June 14, 1995, Holdings and F4L Supermarkets completed their
acquisition of RSI and its wholly owned subsidiary, RGC. Concurrently with the
consummation of the Merger, the Company refinanced a substantial portion of the
existing indebtedness of the Company and RGC. See "Business -- The Merger and
the Financing."

        Since the Merger, the Company has converted 111 former Alpha Beta, Boys
and Viva stores to the Ralphs format, converted 13 former Ralphs format stores
to the Food 4 Less warehouse store format, and opened 37 new stores, including
nine Southern California stores acquired from Smith's which became available
when Smith's withdrew from the California market. The Company has sold or closed
74 stores as a result of divestitures required by the State of California and
other steps taken to improve the average size and quality of its store base. As
a result of the closure and divestiture of smaller stores and the opening of
larger stores, the average square footage per store in Southern California has
increased approximately 11.6 percent from 36,100 square feet at the time of the
Merger to 40,300 square feet at the end of fiscal 1996.

        Following the consummation of the Merger, sales in the Company's
Southern California Division fell short of anticipated levels for the second
half of fiscal 1995. This shortfall resulted primarily from achieving less
benefit from the Company's advertising program and experiencing greater
competitive activity than originally expected. In addition, the Company's
operating margins were affected by delays in the implementation of certain
buying and other programs to lower the cost of goods, excessive price markdowns
in stores undergoing conversion and a less advantageous than expected product
mix in certain stores. The realization of cost savings was also delayed in
certain areas. In particular, store operating expenses were higher than
anticipated, due primarily to lower productivity and higher labor costs than
originally anticipated and difficulties in introducing RGC merchandising and
service standards into the smaller conventional supermarkets formerly operated
by F4L Supermarkets. Also, as the Company's backstage facilities were
integrated, the Company experienced higher than expected warehouse and
distribution costs resulting from, among other things, higher than expected
inventory levels, delays in the transfer of distribution personnel from F4L
Supermarkets to Ralphs facilities, and other backstage operational
inefficiencies.

        At the beginning of fiscal 1996, the Company streamlined its management
structure and implemented several strategic initiatives designed to improve its
sales and margins. These changes have contributed to the Company's improved
results in fiscal 1996.

        In the first quarter of fiscal 1996, the Company began to implement new
marketing initiatives designed to improve its sales performance. Comparable
store sales trends have been improving since that time. Comparable store sales
growth was positive in each of the last three quarters of fiscal 1996, and
reached 2.9 percent for the fourth quarter, which resulted in comparable store
sales growth of 1.8 percent for fiscal 1996. On September 11, 1996, the Company
launched its new "First in Southern California" marketing campaign. The new
marketing campaign highlights the Company's belief that more shoppers are
choosing Ralphs than any other supermarket in Southern California. The focus of
the new campaign is on lower retail prices while emphasizing those programs that
enhance Ralphs' offerings such as selection, quality, premier perishable
departments and customer service.

        During the first quarter of fiscal 1996, the Company implemented a labor
productivity and cost reduction program. As a result, significant reductions
were made in store and corporate headcount

                                       18

<PAGE>   20
levels. In addition, through the sublease of Smith's distribution center and
creamery in Riverside, California, the Company was able to consolidate its
distribution operations into three modern, efficient facilities located in
Compton, Glendale and Riverside, California. The elimination of certain smaller
and less efficient facilities allowed the Company to reduce transportation
costs, management overhead and outside storage costs and to improve its
inventory management.

        Operating results improved each quarter during fiscal 1996, and the
Company's EBITDA margin (defined as earnings before interest, taxes,
depreciation, amortization, provision for postretirement benefits, gain/loss on
disposal of assets, Merger-related transition costs and LIFO charges) improved
from 5.7 percent in fiscal 1995 to 6.4 percent in fiscal 1996. The Company's
EBITDA margin in the fourth quarter of 1996 was 6.7 percent, a 21.8 percent
improvement from the comparable period in 1995. The Company's improved EBITDA
margin reflects the various initiatives which management has implemented. Gross
margin improvements reflect a reduction in warehousing and distribution costs as
a result of the consolidation of the Company's distribution operations, as well
as a reduction in the cost of goods sold as the benefits of inventory management
programs instituted by the Company are realized. SG&A expenses were reduced as a
percentage of sales as a result of tighter expense and labor controls at store
level and administrative cost reductions.

        As a result of the operating improvements which occurred during fiscal
1996, the Company refinanced its existing bank credit agreement (the "Credit
Facility") in order to reduce interest expense. The refinancing of the Credit
Facility was completed on April 17, 1997. The refinancing was structured as an
amendment and restatement of the existing credit facility (the "Refinanced
Credit Facility") and the amended facility consists of a $325.0 million
Revolving Credit Facility, a $200.0 million Term Loan A Facility and a $350.0
million Term Loan B Facility. Prior to the refinancing of the Credit Facility,
on March 26, 1997, the Company issued $155.0 million of 11% Senior Subordinated
Notes due 2005 at a price of 105.5 percent of their principal amount and issued
a redemption notice for $140.2 million aggregate principal amount of the
Company's outstanding 13.75% Senior Subordinated Notes due 2005 (the "1995
13.75% Senior Subordinated Notes") and $4.8 million aggregate principal amount
of the Company's outstanding 13.75% Senior Subordinated Notes due 2001 (the
"1991 13.75% Senior Subordinated Notes," and together with the 1995 13.75%
Senior Subordinated Notes, the "13.75% Senior Subordinated Notes"). The 13.75%
Senior Subordinated Notes were redeemed on April 28, 1997. It is anticipated
that the refinancing of the Credit Facility, together with the lower interest
cost associated with the replacement of the 13.75% Senior Subordinated Notes
with the 1997 11% Senior Subordinated Notes offering, will reduce the Company's
annual interest expense by approximately $12 million. See "Debt Refinancing."

ACCOUNTING PRESENTATION

        The Company's results of operations for the 53 weeks ended February 2,
1997 reflect operations for the combined Company, while the results of
operations for the 52 weeks ended January 28, 1996 reflect 20 weeks of
operations of F4L Supermarkets prior to the Merger and 32 weeks of operations of
the combined Company. Management believes that the Company's results of
operations for periods ending after the consummation of the Merger are not
directly comparable to its results of operations for periods ending prior to
such date. This lack of comparability as a result of the Merger is attributable
to several factors, including the size of the combined Company (since the Merger
approximately doubled F4L Supermarkets' annual sales volume), the addition of
174 conventional stores to the Company's overall store mix and the material
changes in the Company's capital structure.

        The Merger has been accounted for as a purchase of Ralphs by Holdings.
As a result, all financial statements for periods subsequent to June 14, 1995,
the date the Merger was consummated, reflect Ralphs' net assets at their
estimated fair market values as of June 14, 1995.

                                       19

<PAGE>   21
The purchase price in excess of the fair market value of Ralphs' net assets was
recorded as goodwill and is being amortized over a 40-year period. The Company
finalized the allocation of the Ralphs purchase price in the second quarter of
fiscal 1996.

        The Company operates within a conventional 52 or 53-week accounting
fiscal year. The Company changed its fiscal year-end from the last Saturday in
June to the Sunday closest to January 31, resulting in a 31-week transition
period ended January 29, 1995. As a result of the fiscal year-end change, the
31-week period ended January 29, 1995 is referred to as the 1995 transition
period, the 52-week period ended January 28, 1996 is referred to as fiscal 1995
and the 53-week period ended February 2, 1997 is referred to as fiscal 1996. The
operating results for the 1995 transition period are not directly comparable to
those of fiscal 1996 or 1995, as these periods include 53 and 52 weeks of
operations, respectively.

                                       20

<PAGE>   22
RESULTS OF OPERATIONS OF THE COMPANY

        The following table sets forth the historical operating results of the
Company for the 52 weeks ended June 25, 1994, the 31 weeks ended January 29,
1995, the 52 weeks ended January 28, 1996 and the 53 weeks ended February 2,
1997:


<TABLE>
<CAPTION>
                                            Fiscal Year           1995              Fiscal Year           Fiscal Year
                                              1994          Transition Period          1995                  1996
                                        ----------------    -----------------    -----------------     -----------------
<S>                                     <C>        <C>      <C>         <C>      <C>         <C>       <C>         <C>   
                                                                                 (in millions)
Sales                                   $2,585.2   100.0%   $1,556.5    100.0%   $4,335.1    100.0%    $5,516.3    100.0%
Gross profit                               469.3    18.1       262.4     16.9       849.1     19.6      1,190.0     21.6
Selling, general, administrative
   and other, net                          388.8    15.0       222.4     14.3       785.6     18.1        987.4     17.9
Amortization of goodwill                     7.7     0.3         4.6      0.3        21.8      0.5         38.7      0.7
Loss (gain) on disposal
   of assets                                 0.0     0.0        (0.5)    (0.0)       (0.5)    (0.0)         9.3      0.2
Restructuring charge                         0.0     0.0         5.1      0.3       123.1      2.8          0.0      0.0
Operating income (loss)                     72.8     2.8        30.7      2.0       (80.8)    (1.9)       154.6      2.8
Interest expense                            77.0     2.9        48.4      3.1       202.7      4.7        284.2      5.2
Provision for earthquake
   losses                                    4.5     0.2         0.0      0.0         0.0      0.0          0.0      0.0
Provision for income taxes                   2.7     0.1         0.0      0.0         0.5      0.0          0.0      0.0
Loss before extraordinary
   charge                                  (11.5)   (0.4)      (17.6)    (1.1)     (284.0)    (6.6)      (129.6)    (2.3)
Extraordinary charge                         0.0     0.0         0.0      0.0        38.4      0.9          0.0      0.0
Net loss                                   (11.5)   (0.4)      (17.6)    (1.1)     (322.4)    (7.4)      (129.6)    (2.3)
</TABLE>


COMPARISON OF THE COMPANY'S RESULTS OF OPERATIONS FOR THE 53 WEEKS ENDED
FEBRUARY 2, 1997 WITH THE COMPANY'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED
JANUARY 28, 1996.

        Sales. Sales per week increased $20.7 million, or 24.8 percent, from
$83.4 million in the 52 weeks ended January 28, 1996 to $104.1 million in the 53
weeks ended February 2, 1997. The increase in sales was primarily attributable
to the addition of 174 conventional supermarkets acquired through the Merger,
and to new store openings and the improved performance of converted stores
partially offset by the closing of 74 smaller stores since the Merger.
Comparable store sales trends have been improving each quarter since the Merger,
and the fourth quarter represents the third consecutive quarter the Company has
achieved positive comparable store sales, increasing by 2.9 percent. Excluding
stores being divested or closed in connection with the Merger, comparable store
sales for fiscal 1996 increased 1.8 percent. During fiscal 1996, 26 stores have
been opened and 30 stores have been closed. Management believes the increase in
comparable store sales was primarily attributable to additional consumers'
favorable response to the Company's "First in Southern California" marketing
program.

        Gross Profit. Gross profit increased as a percentage of sales from 19.6
percent in the 52 weeks ended January 28, 1996 to 21.6 percent in the 53 weeks
ended February 2, 1997. The increase in gross profit margin reflects a reduction
in warehousing and distribution costs as a result of the consolidation of the
Company's distribution operations, as well as a reduction in the cost of goods
sold as the benefits of inventory management programs instituted by the Company
are realized. The increase in gross profit margin was also attributable to the
addition of RGC's conventional supermarkets which diluted the effect of the
Company's warehouse stores (which have lower gross margins than the Company's
conventional supermarkets) on its overall gross margin for the period. Gross
profit in 1995 was also impacted by certain one-time costs associated with the
integration of the Company's operations. See "Operating Income (Loss)."

        Selling, General, Administrative and Other, Net. Selling, general,
administrative and other expenses ("SG&A") were $785.6 million and $987.4
million for the 52 weeks ended January 28, 1996 and the 53 weeks ended February
2, 1997, respectively. SG&A decreased as a percentage

                                       21

<PAGE>   23
of sales from 18.1 percent to 17.9 percent for those periods. The reduction in
SG&A as a percentage of sales reflects the results of tighter expense and labor
controls at store level and administrative costs reductions. The decrease in
SG&A as a percentage of sales was offset by an increase in SG&A due primarily to
the addition of RGC's conventional supermarkets acquired through the Merger. The
additional conventional supermarkets diluted the effect of the Company's
warehouse stores which have lower SG&A than the Company's conventional
supermarkets. The Company participates in multi-employer health and welfare
plans for its store employees who are members of the United Food and Commercial
Workers Union ("UFCW"). As part of the renewal of the Southern California UFCW
contract in October 1995, employers contributing to UFCW health and welfare
plans received a pro rata share of the excess reserves in the plans through a
reduction of current employer contributions. The Company's share of the excess
reserves recognized in fiscal 1996 was $17.8 million, which partially offset the
increase in SG&A. SG&A was also impacted in fiscal 1995 and 1996 by certain
one-time costs associated with the integration of the Company's operations. See
"Operating Income (Loss)."

        Restructuring Charge. During fiscal 1995, the Company approved and
implemented a restructuring plan designed to restructure its operations in
connection with the Merger. A total of 58 stores were planned to be closed, 27
of which were required to be sold pursuant to a settlement agreement with the
State of California in connection with the Merger. The remaining 31 stores were
under-performing stores. In addition, the Company closed two duplicate warehouse
facilities no longer required by the merged entity. In accordance with this
plan, the Company recorded a restructuring charge of $75.2 million, consisting
of write-downs of property and equipment (net of estimated proceeds); provisions
for lease obligations; write-downs of other assets and miscellaneous expenses.
Approximately $28.4 million is expected to involve cash disbursements and $46.8
million is expected to involve non-cash write-downs. The Company's planned
method of disposition is to sell or sublease the disposed stores/warehouse
facilities. Stores closed as part of this restructuring plan contributed $91.7
million and $33.9 million in sales, and recognized operating losses of $0.6
million and $2.3 million, for fiscal 1995 and fiscal 1996, respectively. During
fiscal 1995, the Company incurred cash expenditures of $2.5 million and non-cash
charges of $32.2 million, related primarily to write-downs of property and
equipment and other assets and payments of lease obligations. During fiscal
1996, the Company incurred cash expenditures of $6.5 million and non-cash
expenditures of $11.6 million, consisting primarily of write-downs of property
and equipment and payments of lease obligations. At February 2, 1997,
approximately $22.4 million of the restructuring accrual remained accrued on the
Company's balance sheet, consisting primarily of provisions for lease
obligations. As of February 2, 1997, the Company has completed a majority of the
restructuring actions, although certain lease obligations will continue through
2010.

        On December 29, 1995, the Company consummated an agreement with Smith's
Food and Drug Centers ("Smith's") to sublease its one million square foot
distribution center and creamery facility in Riverside, California for
approximately 23 years, with renewal options through 2043. The Company also
acquired nine of Smith's Southern California stores. As a result of this
agreement, the Company approved and implemented a restructuring plan designed to
restructure its distribution operations by closing its existing La Habra
distribution center and nine of its smaller and less efficient stores that were
located near the stores acquired from Smith's. In accordance with this plan, the
Company recorded a restructuring charge of $47.9 million, consisting of
write-downs of property and equipment and provisions for lease obligations.
Approximately $29.6 million is expected to involve cash disbursements and $18.3
million is expected to involve non-cash write-downs. The Company's planned
method of disposition is to sell or sublease the disposed stores/distribution
facility. Stores closed as part of this restructuring plan contributed $40.1
million and $23.2 million in sales, and contributed operating income of $2.0
million and $0.3 million, for fiscal 1995 and fiscal 1996, respectively. The
Company completed the closure of its La Habra distribution facility in the first
quarter of fiscal 1996. No charges were incurred against the restructuring
accrual in fiscal 1995. During fiscal 1996, the Company incurred cash
expenditures of $15.6 million and non-cash charges

                                       22

<PAGE>   24
of $15.3 million, consisting primarily of write-downs of property and equipment
and payments of lease obligations. At February 2, 1997, approximately $17.0
million of the restructuring accrual remained accrued on the Company's balance
sheet, consisting primarily of provisions for lease obligations and provisions
for property and equipment. As of February 2, 1997, the Company has completed a
majority of the restructuring actions, with remaining actions expected to be
completed by the end of fiscal 1997, although certain lease obligations will
continue through 2000.

        Operating Income (Loss). In addition to the factors discussed above,
operating income for fiscal year 1996 was impacted by approximately $13.5
million of costs associated with the integration of the Smith's distribution
center and the continuing integration of the stores acquired from Smith's and
approximately $8.9 million associated with closed store reserves.

        Interest Expense. Interest expense (including amortization of deferred
financing costs) was $202.7 million for the 52 weeks ended January 28, 1996 and
$284.2 million for the 53 weeks ended February 2, 1997. The increase in interest
expense was primarily due to the increased indebtedness incurred in conjunction
with the Merger. See "Liquidity and Capital Resources."

        Loss Before Extraordinary Charge. Primarily as a result of the factors
discussed above, the Company's loss before extraordinary charge decreased from
$284.0 million for fiscal year 1995 to $129.6 million in fiscal year 1996.


COMPARISON OF THE COMPANY'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY
28, 1996 WITH THE COMPANY'S RESULTS OF OPERATIONS FOR THE 31 WEEKS ENDED JANUARY
29, 1995.

        Sales. Sales per week increased $33.2 million, or 66.1 percent, from
$50.2 million in the 31 weeks ended January 29, 1995 to $83.4 million in the 52
weeks ended January 28, 1996. The increase in sales was primarily attributable
to the addition of 174 conventional supermarkets acquired through the Merger.
The sales increase was partially offset by a pro-forma comparable store sales
(includes the combined sales of F4L Supermarkets and RGC for the period prior to
the Merger) decline of 1.9 percent for the 52 weeks ended January 28, 1996 as
compared to the 52 weeks ended January 28, 1995. Excluding stores scheduled for
divestiture or closing, pro-forma comparable store sales decreased 1.2 percent.
Management believes the decline in comparable store sales was primarily
attributable to additional competitive store openings and remodels in Southern
California, as well as the Company's own new store openings and conversions.

        Gross Profit. Gross profit increased as a percentage of sales from 16.9
percent in the 31 weeks ended January 29, 1995 to 19.6 percent in the 52 weeks
ended January 28, 1996. The increase in gross profit margin was primarily
attributable to the addition of 174 conventional supermarkets which diluted the
effect of the Company's warehouse stores (which have lower gross margins than
the Company's conventional supermarkets) on its overall gross margin for the
period. Gross profit was also impacted by certain one-time costs associated with
the integration of the Company's operations. See "Operating Income (Loss)."

        Selling, General, Administrative and Other, Net. Selling, general,
administrative and other expenses ("SG&A") were $222.4 million and $785.6
million for the 31 weeks ended January 29, 1995 and the 52 weeks ended January
28, 1996, respectively. SG&A increased as a percentage of sales from 14.3
percent to 18.1 percent for the same periods. The increase in SG&A as a
percentage of sales was due primarily to the addition of 174 conventional
supermarkets acquired through the Merger. The additional conventional
supermarkets diluted the effect of the Company's warehouse stores (which have
lower SG&A than the Company's conventional supermarkets) on its SG&A margin for
the period. The Company participates in multi-employer health and welfare plans
for its store employees who are members of the United Food and Commercial
Workers Union ("UFCW").

                                       23

<PAGE>   25
As part of the renewal of the Southern California UFCW contract in October 1993,
employers contributing to UFCW health and welfare plans received a pro rata
share of the excess reserves in the plans through a reduction of current
employer contributions. The Company's share of the excess reserves recognized in
fiscal 1995 was $26.1 million, which partially offset the increase in SG&A. SG&A
was also impacted by certain one-time costs associated with the integration of
the Company's operations. See "Operating Income (Loss)."

        Restructuring Charge. During fiscal 1995, the Company recorded a $75.2
million charge associated with the closure of 58 former F4L Supermarkets stores
and one former F4L Supermarkets warehouse facility. Twenty-four of these stores
were required to be closed pursuant to a settlement agreement with the State of
California in connection with the Merger. Three RGC stores were also required to
be sold. Thirty-four of the closed stores were under-performing former F4L
Supermarkets stores. The $75.2 million restructuring charge consisted of
write-downs of property and equipment ($52.2 million) less estimated proceeds
($16.0 million); reserve for closed stores and warehouse facility ($16.1
million); write-off of the Alpha Beta trademark ($8.3 million); write-off of
other assets ($8.0 million); lease termination expenses ($4.0 million); and
miscellaneous expenses ($2.6 million). During fiscal year 1995, the Company
utilized $34.7 million of the reserve for restructuring costs ($50.0 million of
costs partially offset by $15.3 million of proceeds from the divestiture of
stores). The charges consisted of write-downs of property and equipment ($33.2
million); write-off of the Alpha Beta trademark ($8.3 million); and expenditures
associated with the closed stores and the warehouse facility, write-off of other
assets, lease termination expenditures and miscellaneous expenditures ($8.5
million). Future lease payments of approximately $19.1 million will be offset
against the remaining reserve.

        On December 29, 1995, the Company consummated an agreement with Smith's
to sublease its one million square foot distribution center and creamery
facility in Riverside, California for approximately 23 years, with renewal
options through 2043, and to acquire certain operating assets and inventory at
that facility. In addition, the Company also acquired nine of Smith's Southern
California stores which became available when Smith's withdrew from the
California market. As a result of the acquisition of the Riverside distribution
center and creamery, the Company closed its La Habra distribution center in the
first quarter of fiscal year 1996. Also, the Company closed nine of its stores
which were near the acquired former Smith's stores. During the fourth quarter of
fiscal year 1995, the Company recorded a $47.9 million restructuring charge to
recognize the cost of closing these facilities, consisting of write-downs of
property and equipment ($16.1 million), closure costs ($2.2 million), and lease
termination expenses ($29.6 million).

        Operating Income (Loss). In addition to the factors discussed above,
operating income includes charges of approximately $75 million for costs
associated with the conversion of stores and integration of the Company's
operations. These costs related primarily to (i) markdowns on clearance
inventory at F4L Supermarkets' Alpha Beta, Boys and Viva stores converted to the
Ralphs format, (ii) an advertising campaign announcing the Merger, and (iii)
incremental labor cost associated with the training of Company personnel
following store conversions. In addition, the Company has experienced higher
than anticipated warehousing and distribution costs since the Merger, primarily
due to the delay in the planned consolidation of the Company's distribution
facilities resulting from the acquisition of the Smith's Riverside distribution
center.

        Interest Expense. Interest expense (including amortization of deferred
financing costs) was $48.4 million for the 31 weeks ended January 29, 1995 and
$202.7 million for the 52 weeks ended January 28, 1996. The increase in interest
expense was primarily due to the increased indebtedness incurred in conjunction
with the Merger. See "Liquidity and Capital Resources."

                                       24

<PAGE>   26
        Loss Before Extraordinary Charge. Primarily as a result of the factors
discussed above, the Company's loss before extraordinary charge increased from
$17.6 million for the 1995 transition period to $284.0 million for fiscal year
1995.

        Extraordinary Charge. An extraordinary charge of $38.4 million was
recorded during fiscal year 1995 relating to retirement of indebtedness of F4L
Supermarkets in connection with the Merger and the write-off of the related
deferred financing costs.

LIQUIDITY AND CAPITAL RESOURCES

        Cash flow from operations, amounts available under the Revolving
Facility and lease financing are the Company's principal sources of liquidity.
The Company believes that these sources will be adequate to meet its anticipated
capital expenditure, working capital and debt service requirements during fiscal
1997.

        At February 2, 1997, there were borrowings of $99.4 million under the
Revolving Facility and $89.1 million of standby letters of credit had been
issued. Under the terms of the 1995 Credit Facility, the Company was required to
make amortization payments of $2.2 million in 1996. In addition, the Company
prepaid term loans in the amount of $46.8 million with proceeds from 1996 10.45%
Senior Notes and proceeds from asset sales. The Term Loans require quarterly
amortization payments aggregating $4.3 million in fiscal year 1997, $4.3 million
in fiscal year 1998, $29.0 million in fiscal year 1999 and increasing
thereafter. The level of borrowings under the Company's Revolving Facility is
dependent upon cash flows from operations, the timing of disbursements, seasonal
requirements and capital expenditure activity. The Company was required to
reduce loans outstanding under the Revolving Facility to $150.0 million for a
period of not less than 30 consecutive days during the period between the first
day of the fourth fiscal quarter of 1996 and the last day of the first fiscal
quarter of 1997. At April 18, 1997, the Company had $140.7 million available for
borrowing under the Revolving Facility. The Company also entered into an
amendment and waiver to its Credit Agreement in connection with the transaction
with American Stores relating to the Company's La Habra facility as described
above.

        During fiscal year 1996, cash provided by operating activities was
approximately $133.7 million as compared to cash used by operating activities of
approximately $16.8 million in fiscal year 1995. The increase in cash from
operating activities is due primarily to a significant improvement in operating
income for the 53 weeks ended February 2, 1997. The Company's principal use of
cash in its operating activities is inventory purchases. The Company's high
inventory turnover rate allows it to finance a substantial portion of its
inventory through trade payables, thereby reducing its short-term borrowing
needs. At February 2, 1997, this resulted in a working capital deficit of $182.6
million, which is not significantly changed from the January 28, 1996 working
capital deficit of $178.5 million.

        Cash used for investing activities was $111.1 million for fiscal year
1996. Investing activities consisted primarily of capital expenditures of $123.6
million, partially offset by $25.6 million of sale/leaseback transactions. The
capital expenditures, net of the proceeds from sale/leaseback transactions, were
financed primarily from cash provided by operating and financing activities.

        The capital expenditures discussed above relate to 32 new stores (26 of
which had been completed at February 2, 1997) and the remodeling of 29 stores
(24 of which had been completed at February 2, 1997). The Company currently
anticipates that its aggregate capital expenditures for fiscal 1997 will be
approximately $155.0 million (or $140.0 million, net of expected capital
leases). Consistent with past practices, the Company intends to finance these
capital expenditures primarily with cash provided by operations and through
leasing transactions. No assurance can be given that sources of financing for
capital expenditures will be available or sufficient to finance its anticipated

                                       25

<PAGE>   27
capital expenditure requirements; however, management believes the capital
expenditure program has substantial flexibility and is subject to revision based
on various factors, including changes in business conditions and cash flow
requirements. Management believes that if the Company were to substantially
reduce or postpone these programs, there would be no substantial impact on
short-term operating profitability. However, management also believes that the
construction of new stores is an important component of its future operating
strategy. Consequently, management believes if these programs were substantially
reduced, future operating results, and ultimately its cash flow, would be
adversely affected.

        The capital expenditures discussed above do not include potential
acquisitions which the Company could make to expand within its existing markets
or to enter other markets. The Company has grown through acquisitions in the
past and from time to time engages in discussions with potential sellers of
individual stores, groups of stores or other retail supermarket chains.

        The Company continues to monitor and evaluate the performance of
individual stores as well as operating markets in relation to its overall
business objectives. As a result of this evaluation, alternative strategies may
be considered by the Company which could result in the disposition of certain
assets.

        Cash used by financing activities was $22.9 million for fiscal year
1996. Financing activities consisted primarily of a $28.0 million net reduction
of the amount outstanding under the Revolving Facility, principal payments on
long-term debt and payments on capital leases of $87.5 million, offset by
proceeds from the June 1996 issuance of $100.0 million aggregate principal
amount of 10.45% Senior Notes due 2004 (the "1996 10.45% Senior Notes"). The
terms of the 1996 10.45% Senior Notes are substantially identical to those of
the Company's 1995 10.45% Senior Notes, which were issued in a registered
offering in June 1995 and of which $520.3 million aggregate principal amount is
outstanding. The 1996 10.45% Senior Notes were issued with original issue
discount resulting in gross proceeds to the Company of $94.6 million.

        The $94.6 million of gross proceeds from the 1996 10.45% Senior Notes
was used to (i) repay $22.7 million of Term Loans, which was due within the
following twelve months, (ii) repay $21.7 million of additional Term Loans, pro
rata over the term thereof, (iii) repay $47.6 million in borrowings under the
Revolving Facility (without any reduction in amounts available for future
borrowing thereunder) and (iv) pay fees and expenses related to the 1996 10.45%
Senior Notes of approximately $2.6 million.

        In November 1996, the Company amended the Term Loans to pay down $125
million of one of the four original tranches (Tranche A) and initiated new
tranches, Tranche E, Tranche F and Tranche G, in the amounts of $75.0 million,
$25.0 million and $25 million, respectively. The amortization of the new
tranches mirrored the maturity of the initial Tranche B, initial Tranche C and
initial Tranche D.

        Holdings has outstanding $123.8 million accreted value of Discount
Debentures and $159.9 million principal amount of Seller Debentures outstanding.
Holdings is a holding company which has no assets other than the capital stock
of Ralphs. Holdings will be required to commence semi-annual cash payments of
interest on the Discount Debentures and the Seller Debentures commencing
December 15, 2000 in the amount of approximately $61 million per annum. Subject
to the limitations contained in its debt instruments, Ralphs intends to make
dividend payments to Holdings in amounts which are sufficient to permit Holdings
to service its cash interest requirements. Ralphs may pay other dividends to
Holdings in connection with certain employee stock repurchases and for routine
administrative expenses.

                                       26

<PAGE>   28
        The Company has entered into an interest rate collar agreement with the
Credit Facility Administrative Agent that effectively sets interest rate limits
on the Company's term loans. The notational principal amount at February 2, 1997
and January 28, 1996 was $325 million. The agreement, which was entered into on
October 11, 1995 and expires on October 21, 1997, limits the interest rate
fluctuation of the 3-month Adjusted Eurodollar Rate (as defined) to a range
between 4.5 percent and 8.0 percent. The agreement requires quarterly cash
settlement for interest rate fluctuations outside of the limits. The agreement
satisfies the interest rate protection requirements under the Credit Facility.
As of February 2, 1997 and January 28, 1996, the 3-month Adjusted Eurodollar
Rate was 5.56 percent and 5.50 percent, respectively. No adjustments to interest
expense were recorded during fiscal year 1996 or 1995 as a result of this
agreement.

        The Company is highly leveraged. At February 2, 1997, the Company's
total long-term indebtedness (including current maturities) and stockholder's
deficit were $2.4 billion and $319.3 million, respectively. Based upon current
levels of operations and anticipated cost savings and future growth, the Company
believes that its cash flow from operations, together with available borrowings
under the Revolving Facility and its other sources of liquidity (including lease
financing), will be adequate to meet its anticipated requirements for working
capital, capital expenditures, integration costs and debt service payments.
There can be no assurance, however, that the Company's business will continue to
generate cash flow at or above current levels or that future cost savings and
growth can be achieved.


DEBT REFINANCING

        On March 26, 1997, the Company issued $155 million of 11% Senior
Subordinated Notes due 2005 (the "1997 11% Senior Subordinated Notes") and
called all of the 13.75% Senior Subordinated Notes. The terms of the 1997 11%
Senior Subordinated Notes are substantially identical to those of the Company's
11% Senior Subordinated Notes due 2005 issued in 1995. The 1997 11% Senior
Subordinated Notes were issued at a premium price of 105.5, resulting in gross
proceeds of $163.5 million. The proceeds were used to (i) redeem an aggregate of
$145.0 million of its outstanding 13.75% Senior Subordinated Notes and (ii) pay
accrued interest, call premiums, fees and expenses related to the 1997 11%
Senior Subordinated Notes. The redemption price was 106.1 percent of the
principal amount outstanding.

        On April 17, 1997, the Company replaced its existing credit facilities
(the "Refinanced Credit Facility") with a facility with lower interest rates and
a longer average life. The refinancing was structured as an amendment and
restatement of the existing Credit Facility and the amended facility consists of
a $325.0 million Revolving Credit Facility, a $200.0 million Term Loan A
Facility and a $350.0 million Term Loan B Facility. The new Term Loan A and Term
Loan B facilities replaced the existing term loan facilities with an outstanding
principal balance of $540.4 million at the time of refinancing.

        Borrowings under the Refinanced Credit Facility bear interest at the
bank's Base Rate (as defined) plus a margin ranging from 0.25 percent to 1.25
percent for the Revolving Credit Facility and the Term Loan A Facility and the
bank's Base Rate (as defined) plus a margin ranging from 0.75 percent to 1.75
percent for the Term Loan B Facility or the Eurodollar Rate (as defined) plus a
margin ranging from 1.25 percent to 2.25 percent for the Revolving Credit
Facility and the Term Loan A Facility and the Eurodollar Rate (as defined) plus
a margin ranging from 1.75 percent to 2.75 percent for the Term Loan B Facility.
The interest rate for the Revolving Credit Facility and the Term Loan A Facility
currently is the bank's Base Rate (as defined) plus a margin of 0.75 percent or
the Eurodollar Rate (as defined) plus a margin of 1.75 percent. The interest
rate for the Term Loan B Facility currently is the bank's Base Rate (as defined)
plus a margin of 1.25 percent or the Eurodollar rate ( as defined) plus a margin
of 2.25 percent.

                                       27

<PAGE>   29
        Quarterly principal installments on the Refinanced Credit Facility
continue to 2004, with amounts payable in each year as follows: $2.6 million in
fiscal 1997, $3.5 million in fiscal 1998, $25.5 million in fiscal 1999, $62.6
million in fiscal 2000, $87.5 million in fiscal 2001 and $368.3 million
thereafter.

        Certain other terms and provisions of the previous Credit Facility were
also changed including, but not limited to, application of proceeds from
selected asset sales and stock offerings and permitted capital expenditures.
Management believes that this refinancing provides increased operational and
financial flexibility through lower interest costs and lower short-term loan
amortization.

        As a result of the refinancings described above, the Company will incur
an extraordinary loss in the first quarter of fiscal 1997 of approximately $48.9
million, consisting of the call premium on the 13.75% Senior Subordinated Notes
and write-off of deferred financing costs.

EFFECTS OF INFLATION AND COMPETITION

        The Company's primary costs, inventory and labor, are affected by a
number of factors that are beyond its control, including availability and price
of merchandise, the competitive climate and general and regional economic
conditions. As is typical of the supermarket industry, the Company has generally
been able to maintain margins by adjusting its retail prices, but competitive
conditions may from time to time render it unable to do so while maintaining its
market share.

        The supermarket industry is highly competitive and characterized by
narrow profit margins. The Company's competitors in each of its operating
divisions include national and regional supermarket chains, independent and
specialty grocers, drug and convenience stores, and the newer "alternative
format" food stores, including warehouse club stores, deep discount drug stores
and "super centers". Supermarket chains generally compete on the basis of
location, quality of products, service, price, product variety and store
condition. The Company regularly monitors its competitors' prices and adjusts
its prices and marketing strategy as management deems appropriate.

FORWARD-LOOKING STATEMENTS

        When used in this annual report on Form 10-K, the words "estimate,"
"expect," "project" and similar expressions are intended to identify
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). These forward-looking statements speak only as of the date
hereof. All of these forward-looking statements are based on estimates and
assumptions made by management of the Company, which, although believed to be
reasonable, are inherently uncertain and difficult to predict; therefore, undue
reliance should not be placed upon such estimates. Such statements are subject
to certain risks and uncertainties that could cause actual results to differ
materially from those projected. These factors include, but are not limited to:
(i) increased competitive pressures from existing competitors and new entrants,
including price-cutting strategies, store openings and remodels; (ii) loss or
retirement of key members of management or the termination of the Company's
Consulting Agreement with Yucaipa; (iii) inability to negotiate more favorable
terms with suppliers; (iv) increases in interest rates or the Company's cost of
borrowing or a default under any material debt agreements; (v) inability to
develop new stores in advantageous locations or to successfully convert or
remodel additional stores; (vi) prolonged labor disruption; (vii) deterioration
in general or regional economic conditions; (viii) adverse state or federal
legislation or regulation that increases the costs of compliance, or adverse
findings by a regulator with respect to existing operations; (ix) loss of
customers or sales weakness; (x) adverse determinations in connection with
pending or future litigations or other material claims against the Company; (xi)
inability to achieve future sales

                                       28

<PAGE>   30
levels or other operating results that support the cost savings; (xii) the
unavailability of funds for capital expenditures; (xiii) increases in labor
costs; (xiv) inability to control inventory levels; and (xv) operational
inefficiencies in distribution or other Company systems. Many of such factors
are beyond the control of the Company. Following the Merger, the Company has
experienced certain unanticipated costs and delays in the realization of certain
projected cost savings. There can be no assurance that new or additional
unforeseen costs or delays will not arise either in connection with the
integration or the Company's operations or the ongoing conduct of its business.
Accordingly, any forward-looking statements included herein do not purport to be
predictions of future events or circumstances and may not be realized.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        See Index to Consolidated Financial Statements and Schedules on page 44.

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

        Not applicable.

                                       29

<PAGE>   31
                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        The following table sets forth certain information regarding the
executive officers and directors of the Company as of April 18, 1997. Directors
serve until the election and qualification of their successors.

<TABLE>
<CAPTION>
NAME                            AGE        POSITION
----                            ---        --------
<S>                             <C>        <C>
Ronald W. Burkle.............   44         Chairman of the Board and Director

George G. Golleher...........   49         Chief Executive Officer and Director

Alfred A. Marasca............   55         President and Chief Operating Officer

Joe S. Burkle................   73         Chief Executive Officer - Falley's and Director

Greg Mays....................   50         Executive Vice President - Finance &
                                           Administration

John Standley................   34         Senior Vice President and Chief Financial Officer

Harley DeLano................   59         President - Cala Foods

Tony Schnug..................   52         Group Senior Vice President - Support
                                           Operations

Christopher Hall.............   32         Group Vice President - Finance, Controller and
                                           Chief  Accounting Officer

Robert I. Bernstein..........   34         Director

Robert Beyer.................   37         Director

Peter Copses.................   38         Director

Patrick L. Graham............   47         Director

Lawrence K. Kalantari........   37         Director

John Kissick.................   55         Director
</TABLE>


        Ronald W. Burkle has been Chairman of the Board since February 1997. He
has been a Director since June 1995. He also served as Chairman of the Board
from June 1995 to January 1996. Mr. Burkle was a Director, Chairman of the Board
and Chief Executive Officer of F4L Supermarkets from its inception in 1989 until
the Merger. Mr. Burkle co-founded The Yucaipa Companies in 1986 and served as
Director, Chairman of the Board, President and Chief Executive Officer of FFL
from 1987 and of Holdings from 1992 until the Merger, respectively. Mr. Burkle
has been Chairman of the Board of Dominick's Finer Foods, Inc. since March 1995
and served as Chief Executive Officer from March 1995 until January 1996. Mr.
Burkle also served as Chairman of the Board of Smitty's Supermarkets, Inc.
("Smitty's") from June 1994 until its merger in May 1996 with Smith's Food &
Drug Centers, Inc. ("Smith's"). He has been Chief Executive Officer of Smith's
since

                                       30

<PAGE>   32
May 1996. He has also served as a Director of Kaufman & Broad Home Corporation,
Inc. since March 1995. Mr. Burkle is the son of Joe S. Burkle.

        George G. Golleher has been Chief Executive Officer since January 1996
and a Director since June 1995. He was Vice Chairman from June 1995 to January
1996. He was a Director of F4L Supermarkets from its inception in 1989 and was
the President and Chief Operating Officer of F4L Supermarkets from January 1990
until the Merger. From 1986 through 1989, Mr. Golleher served as Senior Vice
President - Finance and Administration of The Boys Markets, Inc. Mr. Golleher
served as a Director of Dominick's Finer Foods Inc., an affiliate of The Yucaipa
Companies, from March 1995 until October 1996.

        Alfred A. Marasca has been President and Chief Operating Officer since
June 1995. He was President and Chief Operating Officer of RGC from February
1994 until the Merger. He was President of RGC from 1993 to 1994, Executive Vice
President - Retail from 1991 to 1993, and Executive Vice President - Marketing
from 1985 to 1991.

        Joe S. Burkle has been a Director since June 1995 and Chief Executive
Officer of Falley's, Inc. since 1987. He was a Director and Executive Vice
President of F4L Supermarkets from its inception in 1989 until the Merger. Mr.
Burkle began his career in the supermarket industry in 1946, and served as
President and Chief Executive Officer of Stater Bros. Markets, a Southern
California supermarket chain. Prior to 1987, Mr. Burkle was a private investor
in Southern California. Mr. Burkle is the father of Ronald W. Burkle.

        Greg Mays has been Executive Vice President - Finance & Administration
since February 1997. He was Executive Vice President - Finance & Administration
and Chief Financial Officer from September 1995 to February 1997. He was
Executive Vice President - Finance & Administration from June 1995 to September
1995. He was Executive Vice President - Finance & Administration and Chief
Financial Officer of F4L Supermarkets and of Holdings from December 1992 until
the Merger. From 1991 to December 1992, Mr. Mays was President and Chief
Financial Officer of Almac's and from 1989 to 1991, he was Chief Financial
Officer of Almac's. From April 1988 to June 1989, Mr. Mays was Chief Financial
Officer of Food 4 Less of Modesto, Inc. and Cala Foods, Inc.

        John Standley has been Senior Vice President and Chief Financial Officer
since February 1997. He was Senior Vice President - Administration of Smith's
from May 1996 to February 1997. He was Chief Financial Officer, Vice President
and Assistant Secretary of Smitty's from December 1994 to May 1996. From 1991 to
1994, Mr. Standley was Vice President of Finance of Food 4 Less Supermarkets,
Inc. Prior to 1991, he was a manager at Arthur Andersen LLP.

        Harley DeLano has been President of Cala Foods, Inc. since 1990. Mr.
DeLano was General Manager of ABC from 1980 to 1990. He serves as a Director of
Certified Grocers.

        Tony Schnug has been Group Senior Vice President - Support Operations
since January 1996. He was Senior Vice President of Manufacturing and
Construction from June 1995 to January 1996. He was Senior Vice President -
Corporate Operations of F4L Supermarkets from 1990 until the Merger. Before
joining F4L Supermarkets, he was Managing Director of SAGE, a wholly-owned
subsidiary of Ogilvy & Mather, and Vice President - Management Information
Systems of The Vons Companies, Inc.

        Christopher Hall has been Group Vice President - Finance, Controller,
and Chief Accounting Officer since February 1997. He was Group Vice
President/Controller from September 1995 to February 1997. He was Vice
President, Accounting from June 1995 to September 1995. Prior to that, he was
Controller at Food 4 Less Supermarkets from 1993 to June 1995, and joined

                                       31

<PAGE>   33
Food 4 Less Supermarkets in 1992 as Director - Finance. Prior to 1992, he was a
member of the audit practice at Arthur Andersen LLP.

        Robert I. Bernstein has been a Director since March 1997. He has been a
general partner of The Yucaipa Companies since joining the firm in December
1995. From 1986 to 1989 and from 1993 to 1995, Mr. Bernstein was employed by
Bankers Trust. From 1989 to 1992, he was an infantry officer in the U.S. Marine
Corps.

        Robert Beyer has been a Director since June 1995. He has been a Group
Managing Director of Trust Company of the West ("TCW") since 1995. Mr. Beyer was
Co-Chief Executive Officer of Crescent Capital Corporation, a registered
investment advisor, from 1991 until its acquisition by TCW in 1995. From 1986 to
1991, Mr. Beyer was a member of the investment banking department of Drexel
Burnham Lambert, Incorporated. From 1983 to 1986, Mr. Beyer was a member of the
investment banking department of Bear, Stearns & Co., Inc.

        Peter Copses has been a Director since June 1995. He has been a
Principal since 1990 of Apollo Advisors, L.P. which, together with an affiliate,
acts as managing general partner of Apollo Investment Fund, L.P., AIF II, L.P.
and Apollo Investment Fund III, L.P., private securities investment funds, and
of Lion Advisors, L.P., which acts as financial advisor to and representative
for certain institutional investors with respect to securities investments. Mr.
Copses is a Director of Dominicks Finer Foods, Inc., Family Restaurants, Inc.,
Forum Group, Inc. and Zale Corporation.

        Patrick L. Graham has been a Director since June 1995. He joined The
Yucaipa Companies as a general partner in January 1993. Prior to that time, he
was a Managing Director in the Corporate Finance Department of Libra
Investments, Inc. from 1992 to 1993 and Paine Webber, Inc. from 1990 to 1992.
From 1982 to 1990, he was a Managing Director of the Corporate Finance
Department of Drexel Burnham Lambert, Inc. and an Associate Director of the
Corporate Finance Department of Bear Stearns & Co., Inc. Mr. Graham has served
as a Director of Smitty's Supermarkets, Inc. from June 1994 to May 1996 and of
Dominick's Finer Foods, Inc. since March 1995.

        Lawrence K. Kalantari has been a Director since March 1997. He has been
a general partner of The Yucaipa Companies since joining the firm in December
1995. Prior to that time, he was a Managing Director for Bankers Trust during
1995. Previously he was employed by CS First Boston Corporation from July 1993
to May 1995 and Paine Webber, Inc. from March 1990 to June 1993.

        John Kissick has been a Director since June 1995. He is a principal of
Apollo Advisors, L.P. which, together with an affiliate, acts as managing
general partner of Apollo Investment Fund, L.P., AIF II, L.P. and Apollo
Investment Fund III, L.P., private securities investment funds, and of Lion
Advisors, L.P., which acts as financial advisor to and representative for
certain institutional investors with respect to securities investments. From
1990 to 1991, Mr. Kissick was a consultant with Kissick & Associates, a private
investment advisory firm. He serves as Director of Continental Graphics
Holdings, Inc., Converse, Inc., The Florsheim Shoe Company, Inc. and Furniture
Brands International, Inc.

        The Company does not currently pay any fees or remuneration to its
directors for service on the board or any board committee, but will reimburse
directors for their ordinary out-of-pocket expenses.

        The Company is a party to a consulting agreement with Yucaipa which
provides for certain management and financial services to be performed by
Yucaipa for the benefit of the Company and its subsidiaries. The services of
Messrs. R. Burkle, Bernstein, Graham and Kalantari acting in their capacities as
directors are provided to the Company pursuant to this agreement. The consulting

                                       32

<PAGE>   34
agreement provides for an annual management fee payable by the Company to
Yucaipa in the amount of $4 million.

        Messrs. R. Burkle, Golleher, Marasca, J. Burkle, Bernstein, Beyer,
Copses, Graham, Kalantari and Kissick are directors of Ralphs.

                                       33

<PAGE>   35
ITEM 11.  EXECUTIVE COMPENSATION

        The following table sets forth information concerning the compensation
of the Chief Executive Officer, the four other most highly compensated executive
officers and one additional highly compensated former executive officer of the
Company (the "Named Executive Officers"), whose total salary and bonus for the
53 weeks ended February 2, 1997 exceeded $100,000 for services rendered in all
capacities to the Company and its subsidiaries for the same time period. 

                           SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>
                                                                             Annual Compensation
                                                          ----------------------------------------------------------
                                                                                     No. of Shares
                                    Transition                                        Underlying         All Other
                                   Period/Fiscal            Salary      Bonus           Options      Compensation(10)
Name and Principal Position         Year Ended             ($) (7)     ($) (7)            (#)               ($)
---------------------------       -------------          ----------   ----------     -------------   ----------------
<S>                               <C>                     <C>          <C>              <C>               <C>
Byron E. Allumbaugh(1)            February 2, 1997        1,155,449            -              -            1,500
   Chairman                       January 28, 1996          883,333      547,692        820,227(9)         1,848
                                  January 29, 1995(6)             -            -              -                -
                                  June 25, 1994                   -            -              -                -

George G. Golleher(2)             February 2, 1997          770,833            -        100,000            1,500
   Chief Executive Officer        January 28, 1996          503,205    1,950,000(8)     200,000(9)         1,783
                                  January 29, 1995(6)       298,100      300,000              -            3,329
                                  June 25, 1994             500,000      500,000              -            3,937

Alfred A. Marasca(3)              February 2, 1997          600,000           -               -            1,500
   President and                  January 28, 1996          466,667      333,846        300,000(9)         3,000
   Chief Operating Officer        January 29, 1995(6)             -           -               -                -
                                  June 25, 1994                   -           -               -                -

Greg Mays(4)                      February 2, 1997          314,583           -          60,000            1,500
   Executive Vice President -     January 28, 1996          286,378      355,000(8)           -            1,783
   Finance / Administration an    January 29, 1995(6)       154,300       85,000              -            2,687
   Chief Financial Officer        June 25, 1994             250,000      150,000              -                -

Harley DeLano                     February 2, 1997          215,000       48,887         30,000            1,500
   President, Cala Foods          January 28, 1996          211,218      150,000              -            1,783
                                  January 29, 1995(6)       115,385       50,000              -            2,247
                                  June 25, 1994             197,404       40,000              -            3,329

Tony Schnug(5)                    February 2, 1997          247,500           -          35,000            1,500
   Group Senior Vice President    January 28, 1996          206,282     201,000               -            1,783
   Support Operations             January 29, 1995(6)       210,385     100,000               -            2,247
                                  June 25, 1994             190,000      40,000               -            3,145
</TABLE>

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

(1)     In January 1996, Byron E. Allumbaugh became Chairman. Mr. Allumbaugh
        retired as Chairman in January 1997.

(2)     In January 1996, George G. Golleher became Chief Executive Officer.

(3)     In June 1995, Alfred A. Marasca became President and Chief Operating
        Officer.

(4)     In September 1995, Greg Mays became Executive Vice President - Finance &
        Administration and Chief Financial Officer.

(5)     In January 1996, Tony Schnug became Group Senior Vice President -
        Support Operations.

(6)     F4L Supermarkets changed its fiscal year from the 52 or 53-week period
        which ends on the last Saturday in June to the 52 to 53-week period
        which ends on the Sunday closest to January 31, resulting in a 31-week
        transition period.

(7)     Salary and bonus payments are reflected in the period they are paid.

(8)     Includes payment of a special bonus upon change of control, in
        connection with the Ralphs Merger, for George Golleher and Greg Mays in
        the amount of $1,750,000 and $150,000, respectively.

                                       34

<PAGE>   36
(9)     All options shown were granted in connection with the Merger. Of such
        options, 220,227 and 100,000 were granted to Messrs. Allumbaugh and
        Marasca, respectively, in exchange for the cancellation of certain
        payments to such individuals under RGC equity appreciation rights.

(10)    The amounts shown in this column represent annual payments by the
        Company to the Employee Profit Sharing and Retirement Program of the
        Company.

     The following table sets forth information concerning options granted in
fiscal 1996 to each of the Named Executive Officers pursuant to Holdings' 1995
Stock Option Plan. All options are exercisable for shares of Holdings' Common
Stock.

                          OPTION GRANTS IN FISCAL 1996


<TABLE>
<CAPTION>
                                                                                           Potential Realizable Value at
                                                                                              Assumed Annual Rates of
                                                                                              Stock Price Appreciation
                                                Individual Grants                                  for Option Term
                             ------------------------------------------------------          --------------------------
                             No. of      % of Total Options   Exercise or
                             Options    Granted to Employees  Base Price  Expiration
                            Granted(1)     in Fiscal Year       ($/Sh)       Date             5% ($)           10%($)
                             -------            ----            -----       -------          -------          ---------
<S>                         <C>         <C>                   <C>         <C>              <C>                <C>
Byron E. Allumbaugh                -             -               -                -                -                  -

George G. Golleher           100,000            13.7%           10.00       4/29/06          628,895          1,593,742

Alfred A. Marasca                  -             -               -                -                -                  -

Greg Mays                     60,000             8.2%           10.00       4/29/06          377,337            956,245

Harley DeLano                 30,000             4.1%           10.00       4/29/06          188,688            478,123

Tony Schnug                   35,000             4.8%           10.00       4/29/06          220,113            557,810
</TABLE>

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

(1)     Mr. Golleher's options are immediately exercisable. Options held by
        Messrs. Mays, DeLano and Schnug vest over a five-year period commencing
        June 14, 1996.

                                       35

<PAGE>   37
     The following tables sets forth for each of the Named Executive Officers,
as to outstanding options at February 2, 1997, the number of unexercised options
and the aggregate unrealized appreciation on "in-the-money" unexercised options
held at such date. No options were exercised by any of the Named Executive
Officers during fiscal 1996.

                       1996 FISCAL YEAR END OPTION VALUES


<TABLE>
<CAPTION>
                                Number of
                                  Shares                  Value of
                                Underlying               Unexercised
                                Unexercised              In-the-Money
                                Options at               Options at
                              Fiscal Year End          Fiscal Year End

                               Exercisable /            Exercisable /
Name                         Unexercisable (#)        Unexercisable ($)
-------------------          ---------------            -------------
<S>                          <C>                      <C>
Byron E. Allumbaugh              820,227 / 0            2,198,208 / 0


George G. Golleher               300,000 / 0                    0 / 0


Alfred A. Marasca                300,000 / 0              999,000 / 0


Greg Mays                    12,000 / 48,000                    0 / 0


Harley DeLano                 6,000 / 24,000                    0 / 0


Tony Schnug                   7,000 / 28,000                    0 / 0
</TABLE>

                                       36

<PAGE>   38
CONSULTING AND EMPLOYMENT AGREEMENTS

        In connection with the consummation of the Merger, Food 4 Less' board of
directors authorized the payment of a special bonus of $1,750,000 to George
Golleher in a lump sum amount equal to the base salary due him under the
remaining term of his then existing employment agreement. As a condition of the
payment of such bonus, Mr. Golleher's existing employment agreement was
cancelled, and he entered into a new agreement which provides for an annual
salary currently equal to $1,000,000 plus a bonus equal to his salary in each
year if the Earnings Targets are reached. Mr. Golleher's new employment
agreement continues in effect certain additional rights, including the right to
be elected to the Company's board of directors and the right to require the
Company to repurchase certain of his shares of New Holdings stock upon his
death, disability or termination without cause.

        The employment agreement between Ralphs and Alfred Marasca provides for
a salary currently equal to $600,000 per annum and an annual bonus equal to his
salary if the Earnings Targets for the year are reached.

        The employment agreement between Ralphs and Greg Mays provides for a
salary currently equal to $375,000 per annum and an annual bonus equal to his
salary if the Earnings Targets for the year are reached. Mr. Mays also received
a special bonus of $150,000 in fiscal 1995 upon the change of control in
connection with the Merger.

        The employment agreements described above are for a term of three years
and provide generally that the Company may terminate the agreement for cause or
upon the failure of the employee to render services to the Company for a
specified period and the employee may terminate the agreement because of the
employee's disability. In addition, the employee's services may be suspended
upon notice by the Company and in such event the employee will continue to be
compensated by the Company during the remainder of the term of the agreement,
subject to certain offsets if the employee becomes engaged in another business.

        Ralphs' consulting agreement with Mr. Joe Burkle provides for
compensation of $3,000 per week. Mr. Burkle provides the management and
consulting services of an executive vice president under the consulting
agreement. The agreement has a five-year term, which is automatically renewed on
January 1 of each year for a five-year term unless sixty days' notice is given
by either party; provided that if Ralphs terminates for reasons other than for
good cause, the payments due under the agreement continue for the balance of the
term.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

        The Company does not have a board committee performing the functions of
a compensation committee. Byron E. Allumbaugh, Chairman, and George G. Golleher,
Chief Executive Officer of the Company, together with Alfred Marasca, President
and Greg Mays, Executive Vice President, made decisions with regard to the
Company's executive officer compensation for fiscal 1996.

RETIREMENT PLANS

        Retirement Plan. The Ralphs Grocery Company Retirement Plan (the
"Retirement Plan") is a defined benefit pension plan for salaried and hourly
nonunion employees with at least one year of service (1,000 hours). The Company
makes annual contributions to the Retirement Plan in such amounts as are
actuarially required to fund the benefits payable to participants in accordance
with the Employee Retirement Income Security Act of 1974, as amended ("ERISA").

                                       37

<PAGE>   39
        Non-Qualified Retirement Plans. To allow the Company's retirement
program to provide benefits based upon a participant's total compensation and
without regard to other ERISA or tax code pension plan limitations, eligible
executive employees of the Company participate in the Ralphs Grocery Company
Supplemental Executive Retirement Plan (the "SERP") and the Ralphs Grocery
Company Retirement Supplement Plan (the "Supplement Plan"). The SERP and the
Supplement Plan also modify the benefit formula under the Retirement Plan in
other respects. The Company has purchased split dollar life insurance policies
for participants under the SERP. Under certain circumstances, the cash surrender
value of certain split dollar life insurance policies will offset the Company's
obligations under the SERP.

        The following table sets forth the combined estimated annual benefits
payable in the form of a (single) life annuity under the Retirement Plan, the
SERP and the Supplement Plan (unreduced by the cash surrender value of any life
insurance policies) to a participant in the above plans who is retiring at a
normal retirement date on January 1, 1997 for the specified final average
salaries and years of credited service.


<TABLE>
<CAPTION>
    Final
   Average                   Years of Credited Service
               -----------------------------------------------------
   Salary           15         20        25         30         35
 ----------    ---------  ---------  ---------  ---------  ---------
<S>            <C>        <C>        <C>        <C>        <C>      
$  100,000     $  19,348  $  25,798  $  32,347  $  38,697  $  45,146
   200,000        41,848     55,798     69,747     83,697     97,646
   300,000        90,000    120,000    150,000    180,000    180,000
   400,000       120,000    160,000    200,000    240,000    240,000
   600,000       180,000    240,000    300,000    360,000    360,000
   800,000       240,000    320,000    400,000    480,000    480,000
 1,000,000       300,000    400,000    500,000    600,000    600,000
 1,040,000
 and above       312,000    416,000    520,000    624,000    624,000
</TABLE>


        Messrs. Allumbaugh, Golleher, Marasca, Mays, Schnug and DeLano have
completed 39, 12, 33, 9, 7 and 12 years of credited service, respectively.
Compensation covered by the Retirement Plan, the SERP and Supplement Plan
includes both salary and bonus. The calculation of retirement benefits generally
is based on average compensation for the highest five consecutive years of the
ten years preceding retirement under the Retirement Plan and the Supplement
Plan. The calculation of retirement benefits generally is based on average
compensation for the highest three years of the ten years preceding retirement
under the SERP. The benefits earned by a participant under the SERP and
Supplement Plan are reduced by any benefits which the participant has earned
under the Retirement Plan and may be offset under certain circumstances by the
cash surrender value of life insurance policies maintained by the Company
pursuant to the insurance agreements entered into by the Company and the
executive. Benefits are not subject to any deduction for social security offset.

                                       38

<PAGE>   40
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The following table sets forth the ownership of Common Stock and Series
A Preferred Stock and Series B Preferred Stock of the Company by each person
who, to the knowledge of the Company, owns 5% or more of the Company's
outstanding voting stock, by each person who is a director or Named Executive
Officer of the Company, and by all executive officers and directors of the
Company as a group, as of April 18, 1997.


<TABLE>
<CAPTION>
                                                Common              Series A              Series B
                                                Stock (1)        Preferred Stock       Preferred Stock
                                         -------------------   -------------------    -----------------
                                                                                                         Percentage     Percentage
                                           Number                Number                Number              of Total        of all
                                            of                     of                    of                 Voting       Outstanding
       Beneficial Owner (2)               Shares         %       Shares         %      Shares       %      Power(1)      Stock(1)(3)
                                         ----------     ----   ----------     ----    ---------   -----  ----------     ------------
<S>                                      <C>            <C>    <C>            <C>     <C>         <C>    <C>            <C> 
Yucaipa and affiliates:                                                                                                  
   The Yucaipa Companies (4)             17,566,389     65.6%           -        -            -       -      38.5%         35.8%
   Ronald W. Burkle (5)                   1,777,390      9.5%           -        -            -       -       4.7%          4.3%
   George G. Golleher (5)(6)                562,525      2.9%           -        -            -       -       1.5%          1.4%
      10000 Santa Monica Blvd                                                                                                  
       Los Angeles, CA 90067             ----------     ----   ----------     ----    ---------    ----      ----          ----
          Total                          19,906,304     73.5%           -        -            -       -      43.3%         40.3%
                                                                                                                         
Alfred A. Marasca (7)                       300,000      1.6%           -        -            -       -       0.8%          0.7%
Greg Mays (8)                                68,890      0.4%           -        -            -       -       0.2%          0.2%
Harley DeLano (9)                            30,000      0.2%           -        -            -       -       0.1%          0.1%
Tony Schnug (9)                              35,000      0.2%           -        -            -       -       0.1%          0.1%
Apollo Advisors, L.P.,                                                                                                   
Apollo Advisors II, L.P. (10)                                                                                            
   2 Manhattanville Road                                                                                                 
   Purchase, NY 10577                     1,285,165      6.8%  10,733,244     64.3%           -       -      35.6%         32.6%
BT Investment Partners, Inc.(11)                                                                                         
   130 Liberty Street                                                                                                    
   New York, NY 10006                       509,812      2.7%     900,000      5.4%   3,100,000   100.0%      4.1%         12.2%
Other 1995 equity investors                                                                                              
   as a group (12)                           40,172      0.2%   5,000,000     30.3%           -       -      15.1%         13.8%
All directors and executive                                                                                              
   officers as a group                                                                                                   
   (15 persons) (4)(5)(6)(7)(8)(9)(13)   20,350,194     73.9%           -        -            -       -      43.9%         40.8%
</TABLE>

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

(1)     Gives effect to the assumed exercise of outstanding warrants, held by
        certain institutional investors, to acquire 2,008,874 shares of Holdings
        common stock.

(2)     Except as otherwise indicated, each beneficial owner has the sole power
        to vote, as applicable, and to dispose of all shares of Common Stock or
        Series A Preferred Stock or Series B Preferred Stock owned by such
        beneficial owner.

(3)     Assumes the conversion of all outstanding Series A Preferred Stock and
        Series B Preferred Stock into Common Stock at the conversion rate
        applicable as of March 15, 1997.

(4)     Represents shares owned by The Yucaipa Companies, F4L Equity Partners,
        L.P., FFL Partners, Yucaipa Capital Fund and Yucaipa/F4L Partners. These
        entities are affiliated partnerships which are controlled, directly or
        indirectly, by Ronald W. Burkle. The foregoing entities are parties to a
        stockholders agreement with other Holdings investors which gives to
        Yucaipa the right to elect a majority of the directors of Holdings.
        Share amount and percentages shown for Yucaipa include a warrant to
        purchase 8,000,000 shares of Holdings Common Stock held by Yucaipa. Such
        warrant will become exercisable only upon the occurrence of an initial
        public offering or certain sales transactions involving Holdings.

(5)     Certain management stockholders who own in the aggregate 431,096 shares
        of Common Stock have entered into a Stockholder Voting Agreement and
        Proxy pursuant to which Ronald W. Burkle, George G. Golleher and Yucaipa
        Capital Advisors, Inc. have sole voting control over the shares
        currently owned by such management stockholders until June 14, 2005. The
        431,096 shares have been included, solely for purposes of the above
        table, in the share amounts shown for Mr. Burkle but not for Mr.
        Golleher. Neither Messrs. Burkle and Golleher nor Yucaipa Capital
        Advisors, Inc. have the power to dispose of, or any other form of
        investment power with respect to such shares. Messrs. Burkle and
        Golleher have sole voting and investment power with respect to 1,346,294
        and 562,525 shares of Common Stock they respectively own (including in
        the case of Mr. Golleher, 300,000 shares issuable upon the exercise of
        options).

(6)     Includes 300,000 shares issuable upon the exercise of options held by
        Mr. Golleher.

                                       39

<PAGE>   41
(7)     Represents shares issuable upon the exercise of options held by Mr.
        Marasca.

(8)     Includes 60,000 shares issuable upon the exercise of options held by Mr.
        Mays. In addition, Mr. Mays owns 8,890 of the 431,096 shares of Common
        Stock that are subject to the Stockholder Voting Agreement and Proxy
        described in note (4) above.

(9)     Represents shares issuable upon the exercise of options held by Messrs.
        DeLano and Schnug.

(10)    Represents shares owned by one or more entities managed by or affiliated
        with Apollo Advisors, L.P., or Apollo Advisors II, L.P. (collectively,
        "Apollo"), together with certain affiliates or designees of Apollo.

(11)    Represents shares owned by BT Investment Partners, Inc. ("BTIP"),
        Bankers Trust New York Corporation and BT Securities Corporation.
        Bankers Trust New York Corporation and BT Securities Corporation are
        affiliated with BTIP. BTIP expressly disclaims beneficial ownership of
        all shares owned by Bankers Trust New York Corporation and BT Securities
        Corporation.

(12)    Includes certain institutional investors, other than Apollo and BTIP,
        which purchased Series A Preferred Stock of Holdings in connection with
        the Merger. Pursuant to the 1995 Stockholders Agreement, certain
        corporate actions by Holdings and its subsidiaries require the consent
        of the directors whom the 1995 equity investors, including Apollo and
        BTIP, are entitled to elect to the Holdings Board of Directors. Such
        investors do not affirm the existence of a "group" within the meaning of
        Rule 13d-5 under the Exchange Act, and expressly disclaim beneficial
        ownership of all Holdings shares except for those shares held of record
        by each such investor or its nominees.

(13)    Includes 10,000 shares issuable upon the exercise of options held by
        executive officers other than the named executive officers above.

                                       40

<PAGE>   42
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The Company is a party to a consulting agreement with Yucaipa which
provides for certain management and financial services to be performed by
Yucaipa for the benefit of the Company and its subsidiaries. The services of
Messrs. R. Burkle, Bernstein, Graham and Kalantari acting in their capacities as
directors, and the services of other Yucaipa personnel are provided to the
Company pursuant to this agreement. See "Item 10 -- Directors and Executive
Officers of the Registrant." Messrs. R. Burkle, Bernstein, Graham and Kalantari
are partners of Yucaipa. The consulting agreement provides for an annual
management fee payable by the Company to Yucaipa in the amount of $4 million. In
addition, the Company may retain Yucaipa in an advisory capacity in connection
with acquisition or sale transactions, in which case the Company will pay
Yucaipa an advisory fee, except that the retention of Yucaipa in connection with
a sale of the entire Company would require approval by a majority of the
disinterested directors. The agreement has a five-year term, which is
automatically renewed on each anniversary of the Merger for a five-year term
unless ninety days' notice is given by either party. The agreement may be
terminated at any time by the Company, provided that Yucaipa will be entitled to
full monthly payments under the agreement for the remaining term thereof, unless
the Company terminates for cause pursuant to the terms of the agreement. Yucaipa
may terminate the agreement if the Company fails to make a payment due
thereunder, or if there occurs a change of control (as defined in the agreement)
of the Company, and upon any such termination Yucaipa will be entitled to full
monthly payments for the remaining term of the agreement. Pursuant to the
agreement, Yucaipa earned a total of $4.0 million in management fees for fiscal
1996.

        Holdings files a consolidated federal income tax return, under which the
federal income tax liability of Holdings and its subsidiaries is determined on a
consolidated basis. Holdings is a party to a federal income tax sharing
agreement with Ralphs and certain of its subsidiaries (the "Tax Sharing
Agreement"). The Tax Sharing Agreement provides that in any year in which Ralphs
is included in any consolidated tax liability of Holdings and has taxable
income, Ralphs will pay to Holdings the amount of the tax liability that Ralphs
would have had on such due date if it had been filing a separate return.
Conversely, if Ralphs generates losses or credits which actually reduce the
consolidated tax liability of Holdings and its other subsidiaries, Holdings will
credit to Ralphs the amount of such reduction in the consolidated tax liability.

        These credits are passed between Holdings and Ralphs in the form of cash
payments. In the event any state and local income taxes are determinable on a
combined or consolidated basis, the Tax Sharing Agreement provides for a similar
allocation between Holdings and Ralphs of such state and local taxes.

        FFL Partners, a partnership controlled by Ronald W. Burkle, is
obligated, pursuant to an agreement with Holdings, to repurchase shares of
Holding's common stock from certain terminated participants in an employee
benefit plan maintained by one of the Company's subsidiaries. See "Note 10 of
Notes to Consolidated Financial Statements of Ralphs Grocery Company." From time
to time, the Company advances funds to plan participants on behalf of FFL
Partners and records a receivable from FFL Partners fo the amount advanced.
During fiscal 1996, FFL Partners reimbursed the Company $2.6 million in
fulfillment of its purchase obligation. At February 2, 1997, the outstanding
receivable from FFL Partners was approximately $271,000.

        On June 6, 1996, the Company issued the 1996 10.45% Senior Notes to BT
Securities Corporation ("BT Securities"), an affiliate of BT Investment
Partners, Inc. ("BTIP"), which resold the notes pursuant to Rule 144A under the
Securities Act. BT Securities received a fee in the amount of $2.3 million for
acting as initial purchaser in the offering. On March 26, 1997, the Company
issued the 1997 11% Senior Subordinated Notes to BT Securities and certain other
investment banks, which resold the Notes pursuant to Rule 144A under the
Securities Act. BT Securities received a

                                       41

<PAGE>   43
fee of $1.6 million for acting as initial purchaser in the offering. Bankers
Trust Company, an affiliate of BTIP and BT Securities has acted as Agent under
the Credit Facility and receives customary fees for such services.

                                       42

<PAGE>   44
                                     PART IV

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

(a)     Financial Statements and Schedules required to be filed hereunder are
        indexed on page 47 hereof.

(b)     Reports on Form 8-K
        None.

(c)     Those Exhibits, and the Index thereto, required to be filed by Item 601
        of Regulation S-K are attached hereto. Certain management contracts and
        other compensation plans or arrangements required to be filed are
        identified on the attached Index with an asterisk.

                                       43

<PAGE>   45
                                   SIGNATURES

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


                             FOOD 4 LESS HOLDINGS, INC.



                             By:  /s/  Terrence J. Wallock
                                -------------------------------
                                       Terrence J. Wallock
                                          Secretary


Date:      December 5, 1997


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


<TABLE>
<CAPTION>
           SIGNATURE                               TITLE                            DATE
           ---------                               -----                            ----
<S>                               <C>                                        <C>
/s/ Ronald W. Burkle              Chairman of the Board and Director         December 5, 1997
--------------------------------- 
Ronald W. Burkle                  

/s/ George G. Golleher            Chief Executive Officer and Director       December 5, 1997
--------------------------------  
George G. Golleher                

/s/ Alfred A. Marasca             President, Chief Operating Officer         December 5, 1997
--------------------------------- 
Alfred A. Marasca                 

/s/ Joe S. Burkle                 Chief Executive Officer - Falley's and     December 5, 1997
--------------------------------- Director
Joe S. Burkle                     

/s/ Greg Mays                     Executive Vice President - Finance and     December 5, 1997
--------------------------------- Administration
Greg Mays                         

/s/ John Standley                 Senior Vice President and                  December 5, 1997
--------------------------------- Chief Financial Officer
John Standley                     

/s/ Christopher Hall              Group Vice President - Finance,            December 5, 1997
--------------------------------- Controller and Chief Accounting Officer
Christopher Hall                  

/s/ Robert I. Bernstein           Director                                   December 5, 1997
--------------------------------- 
Robert I. Bernstein               
</TABLE>

                                       44

<PAGE>   46


<TABLE>
<CAPTION>
           SIGNATURE                               TITLE                            DATE
           ---------                               -----                            ----
<S>                               <C>                                        <C>
/s/ Robert Beyer                  Director                                   December 5, 1997
--------------------------------- 
Robert Beyer                      

/s/ Peter Copses                  Director                                   December 5, 1997
--------------------------------- 
Peter Copses                      

/s/ Patrick L. Graham             Director                                   December 5, 1997
--------------------------------- 
Patrick L. Graham                 

/s/ Lawrence K. Kalantari         Director                                   December 5, 1997
-------------------------------   
Lawrence K. Kalantari             

/s/ John Kissick                  Director                                   December 5, 1997
--------------------------------- 
John Kissick                      
</TABLE>

                                       45

<PAGE>   47
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.

        No annual report or proxy material has been sent to security holders.
The Registrant will furnish copies of such report or proxy material if and when
such report or proxy material is sent to security holders.

                                       46

<PAGE>   48
                           FOOD 4 LESS HOLDINGS, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                                  AND SCHEDULES


<TABLE>
<CAPTION>
                                                                                          Page
                                                                                         -----
<S>                                                                                      <C>
Report of Independent Public Accountants ...........................................        48
Consolidated balance sheets as of January 29, 1995, January 28, 1996 and
February 2, 1997....................................................................     49-50
Consolidated statements of operations for the 52 weeks ended June 25, 1994, the
31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996 and the
53 weeks ended February 2, 1997.....................................................        51
Consolidated statements of cash flows for the 52 weeks ended June 25, 1994, the
31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996 and the
53 weeks ended February 2, 1997.....................................................     52-53
Consolidated statements of stockholders' equity (deficit) for the 52 weeks ended
June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended
January 28, 1996 and the 53 weeks ended February 2, 1997 ...........................        54
Notes to consolidated financial statements..........................................     55-84

FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants ...........................................        85
I       Condensed financial information of registrant...............................     86-88
II      Valuation and qualifying accounts...........................................        89
</TABLE>



All other schedules have been omitted since the required information is not
applicable or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the Consolidated
Financial Statements and related notes.

                                       47

<PAGE>   49
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors and
Stockholders of Food 4 Less Holdings, Inc.:

        We have audited the accompanying consolidated balance sheets of Food 4
Less Holdings, Inc. (a Delaware corporation) and subsidiaries (the Company) as
of January 29, 1995, January 28, 1996 and February 2, 1997 and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the 52 weeks ended June 25, 1994, the 31 weeks ended January 29, 1995,
the 52 weeks ended January 28, 1996 and the 53 weeks ended February 2, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

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

        In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Food 4 Less
Holdings, Inc. and subsidiaries as of January 29, 1995, January 28, 1996 and
February 2, 1997, and the results of their operations and their cash flows for
the 52 weeks ended June 25, 1994, the 31 weeks ended January 29, 1995, the 52
weeks ended January 28, 1996 and the 53 weeks ended February 2, 1997 in
conformity with generally accepted accounting principles.



                                                          ARTHUR ANDERSEN LLP



Los Angeles, California 
March 21, 1997 (except with respect to the 
matter discussed in Note 14, as to which the 
date is April 17, 1997)

                                       48

<PAGE>   50
                           FOOD 4 LESS HOLDINGS, INC.
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

                                     ASSETS


<TABLE>
<CAPTION>
                                                                               As of
                                                                ------------------------------------
                                                                January 29,  January 28, February 2,
                                                                   1995         1996        1997
                                                                ----------   ----------   ----------
<S>                                                             <C>          <C>          <C>       
CURRENT ASSETS:
   Cash and cash equivalents                                    $   19,560   $   67,983   $   67,589
   Trade receivables, less allowances of $1,192,
     $1,954 and $4,057 at January 29, 1995,
     January 28, 1996 and February 2, 1997, respectively            23,377       60,948       46,560
   Notes and other receivables                                       3,985        6,452          531
   Inventories                                                     224,686      502,669      502,095
   Patronage receivables from suppliers                              5,173        4,557        4,433
   Prepaid expenses and other                                       13,051       34,855       21,925
                                                                ----------   ----------   ----------
      Total current assets                                         289,832      677,464      643,133

INVESTMENTS IN AND NOTES RECEIVABLE
    FROM SUPPLIER COOPERATIVES:
    Associated Wholesale Grocers                                     6,718        7,288        7,020
    Certified Grocers of California & Other                          5,686        4,926        4,945

PROPERTY AND EQUIPMENT:
   Land                                                             23,488      183,125      173,803
   Buildings                                                        24,172      196,551      188,311
   Leasehold improvements                                          110,020      251,856      226,159
   Equipment and fixtures                                          190,016      441,760      401,716
   Construction in progress                                          8,042       61,296       51,117
   Leased property under capital leases                             82,526      189,061      200,199
   Leasehold interests                                              96,556      114,475      112,398
                                                                ----------   ----------   ----------
                                                                   534,820    1,438,124    1,353,703
   Less: Accumulated depreciation and amortization                 154,382      226,451      301,477
                                                                ----------   ----------   ----------

      Net property and equipment                                   380,438    1,211,673    1,052,226

OTHER ASSETS:
   Deferred financing costs, less accumulated amortization of
      $20,496, $6,964 and $17,615 at January 29, 1995,
      January 28, 1996 and February 2, 1997, respectively           25,469       94,100       88,889
   Goodwill, less accumulated amortization of $38,560,
      $60,407 and $99,057 at January 29, 1995,
     January 28, 1996 and February 2, 1997, respectively           263,112    1,173,445    1,310,956
   Other, net                                                       29,440       19,233       24,824
                                                                ----------   ----------   ----------

                                                                $1,000,695   $3,188,129   $3,131,993
                                                                ==========   ==========   ==========
</TABLE>

                 The accompanying notes are an integral part of
                       these consolidated balance sheets.

                                       49

<PAGE>   51
                           FOOD 4 LESS HOLDINGS, INC.
                           CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)


<TABLE>
<CAPTION>
                                                                                                     As of
                                                                                   -----------------------------------------
                                                                                   January 29,    January 28,    February 2,
                                                                                      1995           1996           1997
                                                                                   -----------    -----------    -----------
<S>                                                                                <C>            <C>            <C>        
CURRENT LIABILITIES:
   Accounts payable                                                                $   190,455     $  354,777     $  343,704
   Accrued payroll and related liabilities                                              42,007         94,011        106,764
   Accrued interest                                                                     10,730         23,870         31,011
   Other accrued liabilities                                                            65,279        278,904        261,582
   Income taxes payable                                                                    293            596          1,956
   Current portion of self-insurance liabilities                                        28,616         21,785         48,251
   Current portion of senior debt                                                       22,263         31,735          4,465
   Current portion of obligations under capital leases                                   4,965         22,261         28,041
                                                                                    ----------     ----------     ----------
      Total current liabilities                                                        364,608        827,939        825,774

SENIOR DEBT, net of current portion                                                    320,901      1,226,302      1,263,142

OBLIGATIONS UNDER CAPITAL LEASES                                                        40,675        130,784        126,336

SENIOR SUBORDINATED DEBT                                                               145,000        671,222        671,222

HOLDINGS DEBENTURES                                                                     65,136        247,917        283,706

DEFERRED INCOME TAXES                                                                   17,534         17,988         21,074

SELF-INSURANCE LIABILITIES                                                              44,123        127,200         91,332

LEASE VALUATION RESERVE                                                                      -         25,182         62,389

OTHER NON-CURRENT LIABILITIES                                                           10,051        102,393        106,286

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
   Convertible Series A Preferred Stock, $.01 par value, 25,000,000 shares
      authorized; no shares issued at January 29, 1995, 16,683,244 shares issued
      at January 28, 1996 and February 2, 1997 (aggregate
      liquidation value of $186.9 million)                                                   -        161,831        161,831
   Convertible Series B Preferred Stock, $.01 par value, 25,000,000 shares
      authorized; no shares issued at January 29, 1995, 3,100,000 shares issued
      at January 28, 1996 and February 2, 1997 (aggregate
      liquidation value of $34.7 million)                                                    -         31,000         31,000
   Common Stock, $.01 par value, 1,600,000 shares, 60,000,000 shares and
      60,000,000 shares authorized at January 29, 1995, January 28, 1996 and
      February 2, 1997, respectively; 1,386,169 shares, 17,207,882 shares and
      17,207,882 shares issued at January 29, 1995, January 28, 1996
      and February 2, 1997, respectively                                                    14            172            172
   Non-Voting Common Stock, $.01 par value, 25,000,000 shares authorized;
      no shares issued at January 29, 1995, January 28, 1996 or
      February 2, 1997                                                                       -              -              -
   Additional capital                                                                  105,580         56,991         56,091
   Notes receivable from stockholders                                                     (702)          (602)          (592)
   Retained deficit                                                                   (112,225)      (434,643)      (564,223)
                                                                                    ----------     ----------     ----------
                                                                                         7,333       (185,251)      (315,721)
   Treasury Stock; no shares of common stock at January 29, 1995,
      421,237 shares at January 28, 1996 and February 2, 1997                                -         (3,547)        (3,547)
                                                                                    ----------     ----------     ----------
         Total stockholders' equity (deficit)                                            7,333       (188,798)      (319,268)
                                                                                    ----------     ----------     ----------
                                                                                    $1,000,695     $3,188,129     $3,131,993
                                                                                    ==========     ==========     ==========
</TABLE>


        The accompanying notes are an integral part of these consolidated
                                balance sheets.

                                       50

<PAGE>   52
                           FOOD 4 LESS HOLDINGS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                                             For the
                                                     ------------------------------------------------------------
                                                       52 Weeks        31 Weeks       52 Weeks        53 Weeks
                                                        Ended           Ended          Ended           Ended
                                                       June 25,       January 29,    January 28,     February 2,
                                                         1994            1995           1996             1997
                                                     ------------    ------------    ------------    ------------
<S>                                                  <C>             <C>             <C>             <C>         
SALES                                                $  2,585,160    $  1,556,522    $  4,335,109    $  5,516,259
COST OF SALES (including purchases from
   related parties of $175,929, $104,407, 
   $141,432 and $95,341 for the 52 weeks   
   ended June 25, 1994, the 31 weeks ended 
   January 29, 1995, the 52 weeks ended
   January 28, 1996 and the 53 weeks ended 
   February 2, 1997, respectively)                      2,115,842       1,294,147       3,485,993       4,326,230
                                                     ------------    ------------    ------------    ------------
GROSS PROFIT                                              469,318         262,375         849,116       1,190,029

SELLING, GENERAL, ADMINISTRATIVE AND
   OTHER, NET                                             388,836         222,359         785,576         987,425

AMORTIZATION OF GOODWILL                                    7,691           4,615          21,847          38,650

LOSS (GAIN) ON DISPOSAL OF ASSETS                              37            (455)           (547)          9,317

RESTRUCTURING CHARGE                                            -           5,134         123,083               -
                                                     ------------    ------------    ------------    ------------

OPERATING INCOME (LOSS)                                    72,754          30,722         (80,843)        154,637

INTEREST EXPENSE:
   Interest expense, excluding amortization of
      deferred financing costs                             71,545          44,948         194,458         273,550
   Amortization of deferred financing costs                 5,472           3,413           8,193          10,667
                                                     ------------    ------------    ------------    ------------
                                                           77,017          48,361         202,651         284,217

PROVISION FOR EARTHQUAKE LOSSES                             4,504               -               -               -
                                                     ------------    ------------    ------------    ------------

LOSS BEFORE PROVISION FOR INCOME TAXES
   AND EXTRAORDINARY CHARGE                                (8,767)        (17,639)       (283,494)       (129,580)
PROVISION FOR INCOME TAXES                                  2,700               -             500               -
                                                     ------------    ------------    ------------    ------------
LOSS BEFORE EXTRAORDINARY CHARGE                          (11,467)        (17,639)       (283,994)       (129,580)
EXTRAORDINARY CHARGE                                            -               -          38,424               -
                                                     ------------    ------------    ------------    ------------

NET LOSS                                             $    (11,467)   $    (17,639)   $   (322,418)   $   (129,580)
                                                     ============    ============    ============    ============

LOSS PER COMMON SHARE:
   Loss before extraordinary charge                  $      (0.50)   $      (0.77)   $      (9.02)   $      (3.54)
   Extraordinary charge                                         -               -           (1.22)              -
                                                     ------------    ------------    ------------    ------------
   Net loss                                          $      (0.50)   $      (0.77)   $     (10.24)   $      (3.54)
                                                     ============    ============    ============    ============

   Average Number of Common Shares Outstanding         22,933,754      22,943,656      31,476,632      36,569,889
                                                     ============    ============    ============    ============
</TABLE>


              The accompanying notes are an integral part of these
                            consolidated statements.

                                       51

<PAGE>   53
                           FOOD 4 LESS HOLDINGS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                   For the
                                                            --------------------------------------------------------
                                                             52 Weeks       31 Weeks       52 Weeks       53 Weeks
                                                               Ended          Ended          Ended          Ended
                                                              June 25,     January 29,    January 28,    February 2,
                                                               1994           1995           1996           1997
                                                            -----------    -----------    -----------    -----------
<S>                                                         <C>            <C>            <C>            <C>        
CASH PROVIDED (USED) BY
   OPERATING ACTIVITIES:
      Cash received from customers                          $ 2,585,160    $ 1,556,522    $ 4,335,109    $ 5,516,259
      Cash paid to suppliers and employees                   (2,441,353)    (1,507,523)    (4,197,875)    (5,160,532)
       Interest paid                                            (56,762)       (33,553)      (157,441)      (230,620)
       Income taxes refunded (paid)                                (247)         1,087            256          8,344
       Interest received                                            903            867          2,562          9,531
       Loss (gain) on disposal of assets                             37            455            547         (9,317)
       Other, net                                                    84           (234)             -              -
                                                            -----------    -----------    -----------    -----------

NET CASH PROVIDED (USED) BY
   OPERATING ACTIVITIES                                          87,822         17,621        (16,842)       133,665

CASH PROVIDED (USED) BY
   INVESTING ACTIVITIES:
      Proceeds from sale of property and equipment               11,953          7,199         21,373         29,503
      Payment for purchase of property and equipment            (57,471)       (49,023)      (122,355)      (123,622)
      Payment of acquisition costs, net of cash acquired        (11,050)             -       (403,301)       (12,705)
      Other, net                                                    813           (797)        (1,120)        (4,311)
                                                            -----------    -----------    -----------    -----------

NET CASH USED BY INVESTING ACTIVITIES                           (55,755)       (42,621)      (505,403)      (111,135)

CASH PROVIDED (USED) BY
   FINANCING ACTIVITIES:
      Proceeds from issuance of long-term debt                       28              -      1,105,500         98,946
      Net increase (decrease) in revolving loan                  (4,900)        27,300        100,100        (28,000)
      Payments of long-term debt                                (14,224)       (13,394)      (661,119)       (61,589)
      Proceeds from issuance of preferred stock                       -              -        137,500              -
      Proceeds from issuance of common stock                          -            269              -              -
      Purchase of treasury stock                                      -              -         (3,547)             -
      Purchase of common stock                                   (1,192)           (57)             -              -
      Payments of capital lease obligations                      (3,693)        (2,278)       (15,314)       (25,935)
      Deferred financing costs and other                           (179)          (276)       (92,452)        (6,346)
                                                            -----------    -----------    -----------    -----------

NET CASH PROVIDED (USED) BY
   FINANCING ACTIVITIES                                         (24,160)        11,564        570,668        (22,924)
                                                            -----------    -----------    -----------    -----------

NET INCREASE (DECREASE) IN CASH AND
   CASH EQUIVALENTS                                               7,907        (13,436)        48,423           (394)

CASH AND CASH EQUIVALENTS AT
   BEGINNING OF PERIOD                                           25,089         32,996         19,560         67,983
                                                            -----------    -----------    -----------    -----------

CASH AND CASH EQUIVALENTS AT
   END OF PERIOD                                            $    32,996    $    19,560    $    67,983    $    67,589
                                                            ===========    ===========    ===========    ===========
</TABLE>


                                       52

<PAGE>   54
                           FOOD 4 LESS HOLDINGS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                             For the
                                                                         ------------------------------------------------
                                                                         52 Weeks    31 Weeks     52 Weeks      53 Weeks
                                                                          Ended        Ended        Ended         Ended
                                                                         June 25,   January 29,   January 28,   February 2,
                                                                           1994        1995         1996          1997
                                                                         --------    --------    -----------    ---------
<S>                                                                      <C>        <C>          <C>            <C>       
RECONCILIATION OF NET LOSS TO NET CASH
   PROVIDED BY OPERATING ACTIVITIES:
      Net loss                                                           $(11,467)   $(17,639)   $  (322,418)   $(129,580)
      Adjustments to reconcile net loss to net cash
         provided (used) by operating activities:
            Depreciation and amortization                                  62,555      40,036        133,522      180,344
            Non-cash interest expense                                       8,767       6,139         23,877       35,789
            Amortization of debt discount                                       -           -              -          214
            Restructuring charge                                                -       5,134        123,083            -
            Non-cash extraordinary charges                                      -           -         38,424            -
            Loss (gain) on sale of assets                                      65        (455)          (547)       9,317
            Change in assets and liabilities,
               net of effects from acquisition of
               businesses:
                  Accounts and notes receivable                            (3,220)     (3,398)           (74)      14,999
                  Inventories                                             (17,125)    (11,794)           762          574
                  Prepaid expenses and other                               (5,717)    (11,239)       (18,291)       2,721
                  Accounts payable and accrued liabilities                 55,301      18,715          3,327       24,243
                  Self-insurance liabilities                               (3,790)     (8,965)           737       (9,402)
                  Deferred income taxes                                     2,506       2,794            454        3,086
                  Income taxes payable                                        (53)     (1,707)           302        1,360
                                                                         --------    --------    -----------    ---------
      Total adjustments                                                    99,289      35,260        305,576      263,245
                                                                         --------    --------    -----------    ---------

NET CASH PROVIDED (USED) BY
   OPERATING ACTIVITIES                                                  $ 87,822    $ 17,621    $   (16,842)   $ 133,665
                                                                         ========    ========    ===========    =========

SUPPLEMENTAL SCHEDULE OF
   NONCASH INVESTING AND
   FINANCING ACTIVITIES:
      Purchase of property and equipment
         through the issuance of capital lease obligation                $  2,575    $  4,304    $    24,008    $  28,485
                                                                         ========    ========    ===========    =========

      Reduction of goodwill and deferred income taxes                    $  9,896          $-             $-           $-
                                                                         ========    ========    ===========    =========

      Acquisition of stores in fiscal year 1994 and
         RSI in fiscal year 1995
              Fair value of assets acquired, including goodwill,
                   net of cash acquired of $32,595 in fiscal year 1995   $ 11,241          $-    $ 2,098,220           $-
              Net cash paid in acquisition                                (11,050)          -       (403,301)           -
              Notes issued to seller                                            -           -       (150,000)           -
              Notes issued to advisor                                           -           -        (12,000)           -
                                                                         --------    --------    -----------    ---------
              Liabilities assumed                                        $    191          $-    $ 1,532,919           $-
                                                                         ========    ========    ===========    =========
</TABLE>


              The accompanying notes are an integral part of these
                            consolidated statements.

                                       53

<PAGE>   55
                           FOOD 4 LESS HOLDINGS, INC.
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                              Preferred Stock            Preferred Stock
                                                 Series A                    Series B              Common Stock
                                          ------------------------     -----------------------     --------------
                                           Number                       Number                     Number 
                                             of                           of                         of   
                                           Shares         Amount        Shares       Amount        Shares        Amount
                                          ----------     ---------     ----------  -----------    -----------    -----
<S>                                       <C>            <C>            <C>           <C>         <C>            <C>
BALANCES AT JUNE 26, 1993                          -     $       -              -     $     -       1,385,265    $  14
   Net loss                                        -             -              -           -               -        -
   Purchase of Common Stock                        -             -              -           -          (3,483)       -
   Payments of Stockholders' Notes                 -             -              -           -               -        -
                                          ----------     ---------     ----------  -----------    -----------    -----

BALANCES AT JUNE 25, 1994                          -             -              -           -       1,381,782       14
   Net loss                                        -             -              -           -               -        -
   Issuance of Common Stock                        -             -              -           -           5,504        -
   Purchase of Common Stock                        -             -              -           -          (1,117)       -
   Payments of Stockholders' Notes                 -             -              -           -               -        -
                                          ----------     ---------     ----------  -----------    -----------    -----

BALANCES AT JANUARY 29, 1995                       -             -              -           -       1,386,169       14
   Net loss                                        -             -              -           -               -        -
   Payments of Stockholders' Notes                 -             -              -           -               -        -
   Stock split of Common Stock
      (16.58609143 shares to 1 share)              -             -              -           -      21,604,957      216
   Purchase of Treasury Stock                      -             -              -           -               -        -
   Issuance of Preferred Stock            10,900,000       109,000      3,100,000      31,000               -        -
   Conversion of Common Stock
      to Preferred Stock                   5,783,244        57,831              -           -      (5,783,244)     (58)
   Preferred Stock Issuance Costs                  -        (5,000)             -           -               -        -
   Exchange RGC liability for
      stock options                                -             -              -           -               -        -
   Repurchase Stock Options                        -             -              -           -               -        -
                                          ----------     ---------     ----------  -----------    -----------    -----

BALANCES AT JANUARY 28, 1996              16,683,244       161,831      3,100,000      31,000      17,207,882      172
   Net loss                                        -             -              -           -               -        -
   Payments of Stockholders' Notes                 -             -              -           -               -        -
   Repurchase Stock Options                        -             -              -           -               -        -
                                          ----------     ---------     ----------  -----------    -----------    -----

BALANCES AT FEBRUARY 2, 1997              16,683,244     $ 161,831      3,100,000     $31,000      17,207,882    $ 172
                                          ==========     =========      =========     =======     ===========    =====
</TABLE>



<TABLE>
<CAPTION>
                                                  Treasury Stock
                                                ------------------ 
                                                                                                                   Stock-
                                                Number                   Stock-       Add'l                        holders'
                                                 of                     holders'     Paid-In        Retained       Equity
                                               Shares       Amount       Notes       Capital        Deficit       (Deficit)
                                              --------      -------      -----      ---------      ---------      ---------
<S>                                           <C>          <C>          <C>         <C>            <C>            <C>      
BALANCES AT JUNE 26, 1993                            -     $      -      $(714)     $ 106,452      $ (83,119)     $  22,633
   Net loss                                          -            -          -              -        (11,467)       (11,467)
   Purchase of Common Stock                          -            -         78         (1,270)             -         (1,192)
   Payments of Stockholders' Notes                   -            -         50              -              -             50
                                              --------      -------      -----      ---------      ---------      ---------
                                             
BALANCES AT JUNE 25, 1994                            -            -       (586)       105,182        (94,586)     $  10,024
   Net loss                                          -            -          -              -        (17,639)       (17,639)
   Issuance of Common Stock                          -            -       (191)           460              -            269
   Purchase of Common Stock                          -            -          5            (62)             -            (57)
   Payments of Stockholders' Notes                   -            -         70              -              -             70
                                              --------      -------      -----      ---------      ---------      ---------
                                             
BALANCES AT JANUARY 29, 1995                         -            -       (702)       105,580       (112,225)        (7,333)
   Net loss                                          -            -          -              -       (322,418)      (322,418)
   Payments of Stockholders' Notes                   -            -        100              -              -            100
   Stock split of Common Stock               
      (16.58609143 shares to 1 share)                -            -          -           (216)             -              -
   Purchase of Treasury Stock                 (421,237)      (3,547)         -              -              -         (3,547)
   Issuance of Preferred Stock                       -            -          -              -              -        140,000
   Conversion of Common Stock             
      to Preferred Stock                             -            -          -        (57,773)             -              -
   Preferred Stock Issuance Costs                    -            -          -              -              -         (5,000)
   Exchange RGC liability for
      stock options                                  -            -          -         10,000              -         10,000
   Repurchase Stock Options                          -            -          -           (600)             -           (600)
                                              --------      -------      -----      ---------      ---------      ---------
                                          
BALANCES AT JANUARY 28, 1996                  (421,237)      (3,547)      (602)        56,991       (434,643)      (188,798)
   Net loss                                          -            -          -              -       (129,580)      (129,580)
   Payments of Stockholders' Notes                   -            -         10              -              -             10
   Repurchase Stock Options                          -            -          -           (900)             -           (900)
                                              --------      -------      -----      ---------      ---------      ---------
                                           
BALANCES AT FEBRUARY 2, 1997                  (421,237)     $(3,547)     $(592)     $  56,091      $(564,223)     $(319,268)
                                              ========      =======      =====      =========      =========      =========
</TABLE>


              The accompanying notes are an integral part of these
                            consolidated statements.

                                       54

<PAGE>   56
                           FOOD 4 LESS HOLDINGS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.      ORGANIZATION AND ACQUISITIONS

                Food 4 Less Holdings, Inc. ("Holdings" or together with its
        subsidiaries, the "Company"), a Delaware corporation, owns all of the
        outstanding capital stock of Ralphs Grocery Company ("Ralphs"), which is
        the successor through merger to Food 4 Less Supermarkets, Inc. ("F4L
        Supermarkets"). See "Ralphs Merger" below. The Company is a multiple
        format supermarket operator that tailors its retail strategy to the
        particular needs of the individual communities it serves. The Company
        operates in three geographic areas: Southern California, Northern
        California and certain areas of the Midwest. Ralphs has four first-tier
        subsidiaries: Cala Co. ("Cala"), Falley's, Inc. ("Falley's"), Food 4
        Less of Southern California, Inc. ("F4L-SoCal"), formerly known as Breco
        Holding Company, Inc. ("BHC") and Crawford Stores, Inc. Cala Foods, Inc.
        ("Cala Foods") and Bell Markets, Inc. ("Bell") are subsidiaries of Cala,
        and Alpha Beta Company ("Alpha Beta") is a subsidiary of F4L-SoCal.

        Ralphs Merger

                On June 14, 1995, F4L Supermarkets, Food 4 Less Holdings, Inc.,
        a California corporation ("Old Holdings"), and Food 4 Less, Inc. ("FFL")
        (which owned a majority of the stock of Old Holdings) completed a
        definitive agreement and plan of merger (the "Merger Agreement") with
        Ralphs Supermarkets, Inc. ("RSI") and the stockholders of RSI. Pursuant
        to the terms of the Merger Agreement, as amended, F4L Supermarkets was
        merged with and into RSI (the "RSI Merger"). Immediately following the
        RSI Merger, pre-Merger Ralphs Grocery Company ("RGC"), which was a
        wholly-owned subsidiary of RSI, merged with and into RSI (the "RGC
        Merger," and together with the RSI Merger, the "Merger"), and RSI
        changed its name to Ralphs Grocery Company. Prior to the Merger, FFL
        merged with and into Old Holdings, which was the surviving corporation
        (the "FFL Merger"). Immediately following the FFL Merger, Old Holdings
        changed its jurisdiction of incorporation by merging into a
        newly-formed, wholly-owned subsidiary, incorporated in Delaware (the
        "Reincorporation Merger"). As a result of the Merger, the FFL Merger and
        the Reincorporation Merger, Ralphs became a wholly-owned subsidiary of
        Holdings.

                The purchase price for the outstanding capital stock of RSI was
        $538.1 million; the Company paid $388.1 million in cash, issued $131.5
        million principal amount of its 13-5/8% Senior Subordinated Pay-in-Kind
        Debentures due 2007 (the "Seller Debentures"), and issued $18.5 million
        initial accreted value of its 13-5/8% Senior Discount Debentures due
        2005 (the "New Discount Debentures"). The Company also paid fees
        associated with the acquisition of $47.8 million (including a prepayment
        premium on outstanding mortgage debt of RGC of $19.7 million), which was
        offset by RGC's cash on hand at the Merger date of $32.6 million.

                The merger has been accounted for in accordance with the
        purchase method of accounting and, accordingly, the net assets acquired
        have been included in the Company's consolidated balance sheets based
        upon their estimated fair values as of the effective date. The purchase
        price in excess of the fair market value of RSI's net assets was
        recorded as goodwill and is being amortized over a 40-year period. The
        Company finalized the allocation of the RSI purchase price in the second
        quarter of fiscal 1996. The Company's consolidated statements of
        operations include the revenues and expenses of RSI after the effective
        date of the Merger.


                                       55
<PAGE>   57
                The proceeds from the Credit Facility, the 1995 10.45% Senior
        Notes and the 1995 11% Senior Subordinated Notes (all as defined below)
        provided the sources of financing required to pay the Company's portion
        of the purchase price and to repay outstanding bank debt of F4L
        Supermarkets and RGC of $176.5 million and $228.9 million, respectively,
        and to repay existing mortgage debt of $174.0 million of RGC. In
        addition, the Company exchanged certain of its newly issued senior notes
        and senior subordinated notes for outstanding indebtedness of RGC and
        F4L Supermarkets. Proceeds from the Credit Facility also were used to
        pay certain exchange and consent solicitation fees associated with the
        above transactions, and to pay accrued interest on all exchanged debt
        securities in the amount of $27.8 million, to pay $17.8 million to the
        holders of the RGC Equity Appreciation Rights and to loan $5.0 million
        to an affiliate for the benefit of such holders, to pay approximately
        $93.3 million of fees and expenses of the Merger and the related
        financing and to pay $3.5 million to purchase shares of common stock of
        Old Holdings from certain dissenting shareholders. In addition, Holdings
        issued $22.5 million of its Discount Debentures in consideration for
        certain Merger-related services.

2.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Basis of Presentation

                The accompanying consolidated financial statements include the
        accounts of Holdings and its wholly-owned subsidiaries. The results of
        operations of pre-Merger Ralphs Grocery Company and all previous
        acquisitions have been excluded from the consolidated financial
        statements for periods prior to their respective acquisition dates. All
        intercompany transactions have been eliminated in consolidation.

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

        Fiscal Year

                The Company operates within a conventional 52 or 53-week
        accounting fiscal year. The Company, together with its subsidiaries,
        changed its fiscal year-end from the last Saturday in June to the Sunday
        closest to January 31, resulting in a 31-week transition period ended
        January 29, 1995. As a result of the fiscal year-end change, the 52-week
        period ended June 25, 1994 is referred to as fiscal 1994, the 31-week
        period ended January 29, 1995 is referred to as the 1995 transition
        period, the 52-week period ended January 28, 1996 is referred to as
        fiscal 1995 and the 53-week period ended February 2, 1997 is referred to
        as fiscal 1996. Information presented below concerning subsequent fiscal
        years starts with fiscal year 1997, which will cover the 52 weeks ended
        February 1, 1998 and will proceed sequentially forward.

        Cash and Cash Equivalents

                The Company considers all highly liquid investments purchased
        with an original maturity of three months or less to be cash
        equivalents.


                                       56
<PAGE>   58
        Inventories

                Inventories, which consist of grocery products, are stated at
        the lower of cost or market. Cost has been principally determined using
        the last-in, first-out ("LIFO") method. If inventories had been valued
        using the first-in, first-out ("FIFO") method, inventories would have
        been higher by $16.5 million, $18.7 million and $24.3 million at January
        29, 1995, January 28, 1996 and February 2, 1997, respectively, and gross
        profit and operating income would have been greater by $0.7 million,
        $2.7 million, $2.2 million and $5.6 million for fiscal year 1994, the
        1995 transition period, fiscal year 1995 and fiscal year 1996,
        respectively.

        Pre-opening Costs

                Certain costs associated with opening new stores are deferred
        and amortized over one year following the opening of each new store.

        Closed Store Reserves

                The Company provides a reserve for the net book value of its
        property and equipment, net of salvage value, and the present value of
        the remaining lease obligation, net of sublease income at the time that
        management approves a plan to close a store.

        Investments in Supplier Cooperatives

                The investment in Certified is accounted for on the cost method.
        There are certain restrictions on the sale of this investment.

        Property and Equipment

                Property and equipment are stated at cost. Depreciation expense
        includes amortization of capital lease assets. Depreciation and
        amortization is provided using the straight-line method over the
        following estimated useful lives:

                 Buildings and improvements            5-40 years
                 Equipment and fixtures                3-10 years
                 Property under capital leases
                    and leasehold interests            3-40 years  (lease term)

        Deferred Financing Costs

                Costs incurred in connection with the issuance of debt are
        amortized over the term of the related debt using the effective interest
        method.

        Long-Lived Assets

                Goodwill, representing the excess of the purchase price over the
        fair value of the net assets of businesses acquired, is amortized on a
        straight-line basis over 40 years beginning at the date of acquisition.

                In the first quarter of fiscal 1996, the Company adopted
        Statement of Financial Accounting Standard No. 121, "Accounting for the
        Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
        of" ("SFAS 121"). The adoption of SFAS 121 had no impact on the
        Company's financial position or on its results of operations.


                                       57
<PAGE>   59
                In accordance with SFAS No. 121, long-lived assets and certain
        identifiable intangibles held and used by the Company are reviewed for
        impairment whenever events or changes in circumstances indicate that the
        carrying amount of an asset may not be recoverable. For purposes of
        evaluating the recoverability of goodwill and other long-lived assets,
        the recoverability test is performed using undiscounted net cash flows
        for groupings of stores consistent with the past acquisitions that gave
        rise to the goodwill.

        Income Taxes

                The Company accounts for income taxes under Statement of
        Financial Accounting Standards No. 109, "Accounting for Income Taxes"
        ("SFAS 109"). SFAS 109 is an asset and liability approach that requires
        the recognition of deferred tax assets and liabilities for the expected
        future tax consequences of events that have been recognized in the
        Company's financial statements or tax returns. In estimating future tax
        consequences, SFAS 109 generally considers all expected future events
        other than proposed changes in the tax law or rates.

        Notes Receivable from Stockholders

                Notes receivable from stockholders represent loans to employees
        of the Company for purchases of Holdings' common stock. The notes are
        due over various periods, bear interest at the prime rate, and are
        secured by each stockholder's shares of Holdings' common stock.

        Self-Insurance

                The Company is self-insured for its workers' compensation,
        general liability and vehicle accident claims. The Company establishes
        reserves based on an independent actuary's valuation of open claims
        reported and an estimate of claims incurred but not yet filed.

        Discounts and Promotional Allowances

                Promotional allowances and vendor discounts are recorded as a
        reduction of cost of sales in the accompanying consolidated statements
        of operations. Allowance proceeds received in advance are deferred and
        recognized in the period earned.

        Provision for Earthquake Losses

                On January 17, 1994, Southern California was struck by a major
        earthquake which resulted in the temporary closure of 31 of the
        Company's stores. The closures were caused primarily by loss of
        electricity, water, inventory or structural damage. All but one of the
        closed stores reopened within a week of the earthquake. The final closed
        store reopened on March 24, 1994. The Company is insured against
        earthquake losses (including business interruption), subject to certain
        deductibles. The pre-tax loss, net of insurance recoveries, was
        approximately $4.5 million.

        Extraordinary Items

                For the 52 weeks ended January 28, 1996, the Company recorded an
        extraordinary charge relating to the refinancing of F4L Supermarkets'
        Old Credit Facility, 10.45% Senior Notes due 2000 (the "Old F4L Senior
        Notes"), 13.75% Senior Subordinated Notes due 2001 (the "Old F4L Senior
        Subordinated Notes"), the repayment of Holdings' 15.25% Senior


                                       58
<PAGE>   60
        Discount Notes due 2004 in connection with the Merger and the write-off
        of their related debt issuance costs.

        Loss Per Common Share

                Loss per common share is computed based on the weighted average
        number of shares outstanding during the applicable period. Fully diluted
        loss per share has been omitted as it is anti-dilutive for all periods
        presented.

        Stock Option Plans

                The Company applies the intrinsic value method in accordance
        with Accounting Principles Board Opinion No. 25, "Accounting for Stock
        Issued to Employees," ("APB 25"), and related interpretations in
        accounting for its employee stock options.

        Derivative Financial Instruments

                The Company utilizes an interest rate collar agreement to set
        interest rate limits on its Term Loans to satisfy the interest rate
        protection requirements under its Credit Facility. Favorable or
        unfavorable movements of interest rates outside of the interest rate
        limits are recorded as adjustments to interest expense in the period in
        which the unfavorable movement occurs.

        Advertising Costs

                Advertising costs are expensed as incurred. Advertising expense
        for fiscal 1996, fiscal 1995, the 31 weeks ended January 19, 1995 and
        fiscal 1994 was $63.5 million, $54.8 million, $17.7 million and $30.4
        million, respectively.

        Reclassifications

                Certain prior period amounts in the consolidated financial
        statements have been reclassified to conform to the fiscal year 1996
        presentation.


                                       59
<PAGE>   61
3.      SENIOR DEBT AND SENIOR SUBORDINATED DEBT

                The Company's senior debt is summarized as follows (in
        thousands):

<TABLE>
<CAPTION>
                                                                      As of
                                                    -----------------------------------------
                                                    January 29,    January 28,    February 2,
                                                       1995           1996           1997
                                                    -----------    -----------    -----------
<S>                                                 <C>            <C>            <C>  

Term Loans                                          $       --     $  590,426     $  541,432
Old Term Loan                                          125,732             --             --
10.45% Senior Notes, principal due 2004 with
   interest payable semi-annually in arrears                --        520,326        520,326
10.45% Senior Notes, principal due 2004 with
   interest payable semi-annually in arrears,
   net of unamortized debt discount of $5,161
   at February 2, 1997, 11.5% yield to maturity             --             --         94,839
10.45% Senior Notes, principal due 2000 with
   interest payable semi-annually in arrears           175,000          4,674          4,674
Revolving Facility                                          --        127,400         99,400
Old Revolving Loan                                      27,300             --             --
10.0% secured promissory note, collateralized
  by the stock of Bell, due June 1996, interest
  payable quarterly                                      8,000          8,000             --
Other senior debt                                        7,132          7,211          6,936
                                                    ----------     ----------     ----------
                                                       343,164      1,258,037      1,267,607
Less--current portion                                   22,263         31,735          4,465
                                                    ----------     ----------     ----------
                                                    $  320,901     $1,226,302     $1,263,142
                                                    ==========     ==========     ==========
</TABLE>

        Senior Debt

                As part of the Merger financing, the Company entered into a bank
        credit agreement (the "Credit Facility") comprised of a $600.0 million
        term loan facility (the "Term Loans") and a revolving credit facility of
        $325.0 million (the "Revolving Facility") under which working capital
        loans may be made and commercial or standby letters of credit in the
        maximum aggregate amount of up to $150.0 million may be issued. The
        Credit Facility is collateralized by inventory, receivables, certain
        fixed assets, deposit accounts, collection proceeds and certain
        intangibles.

                At February 2, 1997, $541.4 million was outstanding under the
        Term Loans, $99.4 million was outstanding under the Revolving Facility,
        and $89.1 million of standby letters of credit had been issued on behalf
        of the Company. A commitment fee of one-half of one percent per annum is
        charged on the average daily unused portion of the Revolving Facility;
        such commitment fees are due quarterly in arrears. At February 2, 1997,
        the weighted average interest rate on the Term Loans was 8.99 percent
        and the interest rate on the Revolving Facility was 8.68 percent.

                The Company has entered into an interest rate collar agreement
        with the Credit Facility Administrative Agent that effectively sets
        interest rate limits on the Company's term loans. The notational
        principal amount at February 2, 1997 and January 28, 1996 was $325
        million. The agreement, which was entered into on October 11, 1995 and
        expires on October 21, 1997, limits the interest rate fluctuation of the
        3-month Adjusted Eurodollar Rate (as defined) to a range between 4.5
        percent and 8.0 percent. The agreement requires quarterly cash
        settlement for interest rate fluctuations outside of the limits. The
        agreement satisfies the interest rate protection requirements under the
        Credit Facility. As of February 2, 1997 and January 28, 1996, the
        3-month Adjusted Eurodollar Rate was 5.56 percent and 5.50 percent,
        respectively. No adjustments to interest expense were recorded during
        fiscal year 1996 or 1995 as a result of this agreement.


                                       60
<PAGE>   62
                In November 1996, the Company amended the Term Loans to pay down
        $125.0 million on one of the original tranches (Tranche A) and initiated
        new tranches, Tranche E, Tranche F, and Tranche G, in the amounts of
        $75.0 million, $25.0 million and $25.0 million, respectively. The
        amortization of the new tranches mirrors the maturity of the initial
        Tranche B, initial Tranche C and initial Tranche D.

                Quarterly principal installments on the Term Loans continue to
        December 2003, with amounts payable in each year as follows: $4.3
        million in fiscal 1997, $4.3 million in fiscal 1998, $29.0 million in
        fiscal 1999, $66.4 million in fiscal 2000, $118.2 million in fiscal 2001
        and $319.2 million thereafter. The principal installments can be
        accelerated if the Company receives proceeds on the sale of certain of
        its assets in the future. To the extent that borrowings under the
        Revolving Facility are not paid earlier, they are due in December 2003.
        The common stock of the Company and certain of its direct and indirect
        subsidiaries has been pledged as security under the Credit Facility.

                F4L Supermarkets issued $350.0 million of 10.45% Senior Notes
        due 2004 (the "1995 10.45% Senior Notes") and exchanged $170.3 million
        principal amount of 1995 10.45% Senior Notes for an equal amount of the
        10.45% F4L Senior Notes due 2000 (the "Old F4L Senior Notes") (together
        with the 1995 10.45% Senior Notes, the "Senior Notes"), leaving an
        outstanding balance of $4.7 million of the Old F4L Senior Notes. The Old
        F4L Senior Notes are due in two equal sinking fund payments on April 15,
        1999 and 2000. The Senior Notes are senior unsecured obligations of
        Ralphs and rank "pari passu" in right of payment with other senior
        unsecured indebtedness of Ralphs. However, the Senior Notes are
        effectively subordinated to all secured indebtedness of Ralphs and its
        subsidiaries, including indebtedness under the Credit Facility. Interest
        on the 1995 10.45% Senior Notes is payable semiannually in arrears on
        each June 15 and December 15. Interest on the Old F4L Senior Notes is
        payable semiannually in arrears on each April 15 and October 15.

               In June 1996, Ralphs issued $100.0 million aggregate principal
        amount of 10.45% Senior Notes due 2004 (the "1996 10.45% Senior Notes").
        The terms of the 1996 10.45% Senior Notes are substantially identical to
        those of Ralphs' 1995 10.45% Senior Notes, which were issued in a
        registered offering in June 1995 and of which $520.3 million aggregate
        principal amount is outstanding. The 1996 10.45% Senior Notes were
        issued with original issue discount resulting in gross proceeds to
        Ralphs of $94.6 million. In July 1996, Ralphs initiated an offer to
        exchange (the "Exchange Offer") $1,000 principal amount of its 1996
        10.45% Senior Notes, which exchange has been registered under the
        Securities Act of 1933, as amended, for each $1,000 principal amount of
        its 1996 10.45% Senior Notes.
        The Exchange Offer was completed in August 1996.

               The $94.6 million of gross proceeds from the 1996 10.45% Senior
        Notes was used to (i) repay $22.7 million of Term Loans, which was due
        within the following twelve months, (ii) repay $21.7 million of
        additional Term Loans, pro rata over the term thereof, (iii) repay $47.6
        million in borrowings under the Revolving Facility (without any
        reduction in amounts available for future borrowing thereunder) and (iv)
        pay fees and expenses related to the 1996 10.45% Senior Notes of
        approximately $2.6 million.

               The 1995 10.45% Senior Notes and the 1996 10.45% Senior Notes
        (the "New Senior Notes") may be redeemed, at the option of Ralphs, in
        whole at any time or in part from time to time, beginning in fiscal
        2000, at a redemption price of 105.2 percent. The redemption price
        declines ratably to 100 percent in fiscal 2003. In addition, on or prior
        to June 15, 1998, Ralphs may, at its option, use the net cash proceeds
        of one or more public equity offerings to redeem up to an aggregate of
        35 percent of the principal amount of the New Senior Notes originally
        issued, at a redemption price equal to 110.4 percent, 108.9 percent, and
        107.5


                                       61
<PAGE>   63
        percent of the principal amount thereof if redeemed during the 12 months
        commencing on June 15, 1995, June 15, 1996, and June 15, 1997,
        respectively, in each case plus accrued and unpaid interest, if any, to
        the redemption date. The Old F4L Senior Notes may be redeemed beginning
        in fiscal year 1996 at 104.5 percent, declining ratably to 100 percent
        in fiscal year 1999.

                Scheduled maturities of principal of senior debt at February 2,
        1997 are as follows (in thousands):

<TABLE>
<CAPTION>
                      Fiscal Year
                      -----------
<S>                                                  <C>       

                      1997                           $    4,465
                      1998                                4,571
                      1999                               30,571
                      2000                               71,292
                      2001                              118,401
                      Later years                     1,038,307
                                                     ----------
                                                     $1,267,607
                                                     ==========
</TABLE>

                The Company's senior subordinated debt is summarized as follows
        (in thousands):

<TABLE>
<CAPTION>
                                                                  As of
                                                -----------------------------------------
                                                January 29,    January 28,    February 2,
                                                   1995           1996           1997
                                                -----------    -----------    -----------
<S>                                             <C>            <C>            <C>       

11.00% Senior Subordinated Notes                $       --     $  524,005     $  524,005
   principal due 2005 with interest payable
   semi-annually in arrears
13.75% Senior Subordinated Notes                        --        140,184        140,184
   principal due 2005 with interest payable
   semi-annually in arrears
13.75% Senior Subordinated Notes                   145,000          4,816          4,816
   principal due 2001 with interest payable
   semi-annually in arrears
Other Senior Subordinated debt                          --          2,217          2,217
                                                ----------     ----------     ----------
                                                $  145,000     $  671,222     $  671,222
                                                ==========     ==========     ==========
</TABLE>


        Senior Subordinated Debt

                Concurrent with the Merger, F4LSupermarkets issued $100.0
        million of 11% Senior Subordinated Notes due 2005 (the "1995 11% Senior
        Subordinated Notes") and (i) exchanged $142.2 million principal amount
        of the RGC 9% Senior Subordinated Notes due 2003 (the "Old RGC 9%
        Notes") and $281.8 million principal amount of the RGC 10.25% Senior
        Subordinated Notes due 2002 (the "Old RGC 10.25% Notes," and together
        with the Old RGC 9% Notes, the "Old RGC Notes") for an equal amount of
        1995 11% Senior Subordinated Notes, (ii) purchased $7.5 million
        principal amount of Old RGC 9% Notes and $15.2 million principal amount
        of Old RGC 10.25% Notes in conjunction with the offers, and (iii)
        subsequently purchased $0.1 million principal amount of Old RGC 9% Notes
        and $1.0 million principal amount of Old RGC 10.25% Notes subject to the
        change of control provision, leaving an outstanding balance of $0.1
        million on the Old RGC 9% Notes and an outstanding balance of $2.1
        million on the Old RGC 10.25% Notes. The 1995 11% Senior Subordinated
        Notes are senior subordinated, unsecured obligations of Ralphs and are
        subordinated in right of payment to all senior indebtedness, including
        Ralphs' obligations under the Credit Facility and the New Senior Notes
        and the Old F4L Senior Notes. Interest on the New RGC Notes is payable
        semiannually in arrears on each June 15 and December 15.


                                       62
<PAGE>   64
                The 1995 11% Senior Subordinated Notes may be redeemed at the
        option of Ralphs, in whole at any time or in part from time to time,
        beginning in fiscal year 2000, at an initial redemption price of 105.5
        percent. The redemption price declines ratably to 100 percent in fiscal
        year 2003. In addition, on or prior to June 15, 1998, Ralphs may, at its
        option, use the net cash proceeds of one or more public equity offerings
        to redeem up to an aggregate of 35 percent of the principal amount of
        the 1995 11% Senior Subordinated Notes originally issued, at a
        redemption price equal to 111.0 percent, 109.4 percent, and 107.9
        percent of the principal amount thereof if redeemed during the 12 months
        commencing on June 15, 1995, June 15, 1996, and June 15, 1997,
        respectively, in each case plus accrued and unpaid interest, if any, to
        the redemption date.

                F4L Supermarkets exchanged $140.2 million 13.75% Senior
        Subordinated Notes due 2005 (the "New F4L Senior Subordinated Notes")
        for an equal amount of F4L 13.75% Senior Subordinated Notes due 2001
        (the "Old F4L Senior Subordinated Notes," and together with the New F4L
        Senior Subordinated Notes, the "13.75% Senior Subordinated Notes") of
        the Company, leaving an outstanding balance of $4.8 million of the Old
        F4L Senior Subordinated Notes. The 13.75% Senior Subordinated Notes are
        senior subordinated unsecured obligations of Ralphs and are subordinated
        in right of payment to all senior indebtedness, including Ralphs'
        obligations under the Credit Facility, the New Senior Notes, and the Old
        F4L Senior Notes and the 1995 11% Senior Subordinated Notes. Interest on
        the 13.75% Senior Subordinated Notes is payable semiannually in arrears
        on each June 15 and December 15 commencing on December 15, 1995. The New
        F4L Senior Subordinated Notes may be redeemed beginning in fiscal year
        1996 at a redemption price of 106.111 percent. The redemption price
        declines ratably to 100 percent in fiscal year 2000.

                Scheduled maturities of principal of senior subordinated debt at
        February 2, 1997 are as follows (in thousands):

<TABLE>
<CAPTION>
               Fiscal Year
               -----------
<S>                                                     <C>     

               1997                                     $      -
               1998                                            -
               1999                                            -
               2000                                            -
               2001                                        4,816
               Later years                               666,406
                                                        --------
                                                        $671,222
                                                        ========
</TABLE>


                At the time of the Merger, Holdings issued $100.0 million of its
        New Discount Debentures. At February 2, 1997, the balance of the New
        Discount Debentures was $123.8 million. Interest on the New Discount
        Debentures accretes at the rate of 13-5/8% until June 15, 2000, when
        cash interest will accrue and be payable semiannually commencing
        December 15, 2000. The New Discount Debentures may be redeemed, at the
        option of Holdings, beginning in fiscal year 2000 at a redemption price
        of 106.8125 percent, which declines annually until fiscal year 2004 when
        they may be redeemed at 100.0 percent. The New Discount Debentures are
        senior unsecured obligations of Holdings and rank senior in right of
        payment to the Seller Debentures.

                Holdings issued $131.5 million of its Seller Debentures as
        partial consideration to the sellers of the RSI common stock (the
        "Selling Stockholders"). At February 2, 1997, the balance of the Seller
        Debentures was $159.9 million. Interest is payable semi-annually on each
        June 15 and December 15 commencing on December 15, 1995. Holdings has
        the option, in its sole discretion, to issue additional securities
        ("Secondary Securities") in lieu of a cash payment of any or all of the
        interest due on each interest payment date prior to and


                                       63
<PAGE>   65
        including June 15, 2000. Secondary Securities were issued during fiscal
        1996 in lieu of a cash payment.

                The Seller Debentures may be redeemed, in whole or in part at
        the option of Holdings, at any time after June 15, 2000, at an initial
        redemption price of 106.8125 percent. The redemption price declines
        ratably to 100 percent in fiscal 2004. The Seller Debentures are senior
        subordinated unsecured obligations of Holdings and are subordinate in
        right of payment to all senior indebtedness of Holdings, including the
        New Discount Debentures.

        Financial Covenants

                The Credit Facility, among other things, requires the Company to
        maintain minimum levels of net worth (as defined), to maintain minimum
        levels of earnings, to maintain a hedge agreement to provide interest
        rate protection, and to comply with certain ratios related to fixed
        charges and indebtedness. During fiscal 1995, certain financial
        covenants and other terms of the Credit Facility were amended to, among
        other things, provide for the acquisition of Smith's Food and Drug
        Centers, Inc. ("Smith's") Riverside distribution and creamery facility,
        the acquisition of certain operating assets and inventory at that
        facility, the acquisition of nine of the Smith's Southern California
        stores and the closure of up to nine stores in conjunction with these
        acquisitions. In addition, the Credit Facility and the indentures
        governing the New Senior Notes, the 1995 11% Senior Subordinated Notes
        and the New F4L Senior Subordinated Notes limit, among other things,
        additional borrowings, dividends on, and redemption of, capital stock
        and the acquisition and the disposition of assets. At February 2, 1997,
        the Company was in compliance with the financial covenants of its debt
        agreements. At February 2, 1997, dividends and certain other payments
        are restricted based on terms in the debt agreements.

        Subsidiary Guarantors

                All of Ralphs' wholly-owned subsidiaries have fully and
        unconditionally guaranteed, on a joint and several basis, Ralphs'
        obligations under the New Senior Notes, the 1995 11% Senior Subordinated
        Notes and the 1997 11% Senior Subordinated Notes (See Note 14), as
        provided in the indentures related thereto. Neither Ralphs nor any of
        its subsidiaries have guaranteed Holdings' New Discount Debentures and
        Seller Debentures; therefore, the separate financial statements of the
        subsidiary guarantors are not presented.

4.      LEASES

                The Company's operations are conducted primarily in leased
        properties. Substantially all leases contain renewal options. Rental
        expense under operating leases was as follows (in thousands):

<TABLE>
<CAPTION>
                                                           For the
                                     -------------------------------------------------------
                                      52 Weeks       31 Weeks      52 Weeks       53 Weeks
                                       Ended           Ended         Ended          Ended
                                      June 25,      January 29,   January 28,    February 2,
                                        1994           1995          1996           1997
                                     -----------    -----------   -----------    -----------
<S>                                  <C>            <C>           <C>            <C>     

               Minimum rents           $49,788        $33,458        $97,752      $146,101
               Rents based on sales      3,806          1,999          3,439         3,786
</TABLE>


                                       64
<PAGE>   66
                Following is a summary of future minimum lease payments under
        operating leases at February 2, 1997 (in thousands):

<TABLE>
<CAPTION>
               Fiscal Year
               -----------
<S>            <C>                                  <C>        

               1997                                 $   145,675
               1998                                     138,038
               1999                                     135,227
               2000                                     131,243
               2001                                     118,973
               Later years                            1,279,824
                                                    -----------
                                                    $ 1,948,980
                                                    ===========
</TABLE>


               The Company has entered into lease agreements for new supermarket
        sites which were not in operation at February 2, 1997. Future minimum
        lease payments under such operating leases generally begin when such
        facilities open and at February 2, 1997 are: 1997 - $3.6 million; 1998 -
        $6.9 million; 1999 - $6.9 million; 2000 - $6.9 million; 2001 - $6.9
        million; later years - $112.5 million.

               Certain leases qualify as capital leases under the criteria
        established in Statement of Financial Accounting Standards No. 13,
        "Accounting for Leases," and are classified on the consolidated balance
        sheets as leased property under capital leases. Future minimum lease
        payments for the property under capital leases at February 2, 1997 are
        as follows (in thousands):

<TABLE>
<CAPTION>
               Fiscal Year
               -----------

<S>                                                    <C>     
               1997                                    $ 42,467
               1998                                      36,104
               1999                                      28,207
               2000                                      22,515
               2001                                      14,146
               Later years                              101,838
                                                       --------
                    Total minimum lease payments        245,277
               Less:  amounts representing interest      90,900
                                                       --------
               Present value of minimum lease payments  154,377
               Less:  current portion                    28,041
                                                       --------
                                                       $126,336
                                                       ========
</TABLE>


                Accumulated depreciation related to leased property under
        capital leases was $27.6 million, $42.7 million and $62.0 million at
        January 29, 1995, January 28, 1996 and February 2, 1997, respectively.


                                       65
<PAGE>   67
5.      INVESTMENT IN ASSOCIATED WHOLESALE GROCERS

                The Company's investment in Associated Wholesale Grocers
        ("A.W.G.") consists of seven- and eight-year patronage certificates
        received in payment of certain rebates. The instruments bear interest at
        6% per annum. The Company classifies these investments as
        held-to-maturity securities, which are carried at amortized cost in
        accordance with SFAS No. 115.

                The contractual maturities at February 2, 1997 were as follows
        (in thousands):

<TABLE>
<S>                                                               <C>   
                      Within one year                             $    -
                      After one year through five years            5,463
                      After five years through ten years           1,557
                                                                  ------
                                                                  $7,020
                                                                  ======
</TABLE>


6.      INCOME TAXES

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

<TABLE>
<CAPTION>
                         52 Weeks           31 Weeks           52 Weeks         53 Weeks
                          Ended               Ended              Ended            Ended
                         June 25,          January 29,        January 28,      February 2,
                           1994               1995               1996             1997
                       -------------      -------------      -------------     -----------
<S>                    <C>                <C>                <C>               <C>        

Current:
   Federal             $       3,251      $      (2,894)     $          --     $        --
   State and other               712                100                 46              --
                       -------------      -------------      -------------     -----------
                               3,963             (2,794)                46              --
                       -------------      -------------      -------------     -----------

Deferred:
   Federal                        78              2,794                 --              --
   State and other            (1,341)                --                454              --
                       -------------      -------------      -------------
                              (1,263)             2,794                454              --
                       -------------      -------------      -------------     -----------
                       $       2,700      $          --      $         500     $        --
                       =============      =============      =============     ===========
</TABLE>


                                       66
<PAGE>   68
                A reconciliation of the provision (benefit) for income taxes to
        amounts computed at the federal statutory rates of 35 percent for fiscal
        1994, the 1995 transition period, fiscal 1995 and fiscal 1996 is as
        follows (in thousands):

<TABLE>
<CAPTION>
                                         52 Weeks          31 Weeks           52 Weeks          53 Weeks
                                          Ended              Ended              Ended             Ended
                                         June 25,         January 29,        January 28,       February 2,
                                           1994              1995               1996              1997
                                      -------------      -------------      -------------      -------------
<S>                                   <C>                <C>                <C>                <C>           

Federal income taxes at statutory
   rate on loss before provision
   for income taxes and
   extraordinary charges              $      (3,068)     $      (6,173)     $    (112,670)     $     (45,353)
State and other taxes,
   net of federal tax benefit                    (1)                65            (18,057)            (2,321)
Effect of permanent differences
   resulting primarily from:
      Amortization of goodwill                2,820              1,701             (1,665)             9,802
      Original issue discount                   526                387                306                404
Tax credits and other                            --                 --              3,769             (4,851)
Accounting limitation of
   deferred tax benefit                       2,423              4,020            128,817             42,319
                                      -------------      -------------      -------------      -------------
                                      $       2,700      $          --      $         500      $          --
                                      =============      =============      =============      =============
</TABLE>

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

<TABLE>
<CAPTION>
                                              52 Weeks           31 Weeks           52 Weeks           53 Weeks
                                               Ended               Ended              Ended              Ended
                                              June 25,          January 29,        January 28,        February 2,
                                                1994               1995               1996               1997
                                            -------------      -------------      -------------      -------------

<S>                                         <C>                <C>                <C>                <C>          
Property and equipment                      $      (1,687)     $         992      $        (460)     $      20,606
Inventory                                          (2,415)            (2,627)            (8,479)                40
Original issue discount                            (2,981)            (2,069)            (1,217)           (10,966)
Capital lease obligation                            2,792                527               (502)            (5,253)
Self-insurance reserves                              (535)             5,523              2,104              2,276
Accrued expense                                    (2,136)            (3,807)           (26,304)            (1,435)
Accrued payroll and related liabilities             1,721             (3,879)            (6,206)            (2,916)
Damaged inventory reimbursement                        --                 --                 --                 --
Tax intangibles                                        --                 --              6,234             10,182
State taxes                                            --                 --            (21,902)            (6,848)
Net operating losses                                5,782             (6,963)           (73,406)           (50,069)
Tax credits                                        (4,477)             1,711              3,601                 --
Accounting limitation (recognition)
   of deferred tax benefit                          1,896             12,563            128,817             42,319
Other, net                                            777                823             (1,826)             2,064
                                            -------------      -------------      -------------      -------------
                                            $      (1,263)     $       2,794      $         454      $          --
                                            =============      =============      =============      =============
</TABLE>


                                       67
<PAGE>   69
                The significant components of the Company's deferred tax assets
        (liabilities) are as follows (in thousands):

<TABLE>
<CAPTION>
                                               January 29,       January 28,       February 2,
                                                   1995              1996              1997
                                               ------------      ------------      ------------
<S>                                            <C>               <C>               <C>         

Deferred tax assets:
   Accrued payroll and related liabilities     $      6,248      $     27,579      $     30,495
   Other accrued liabilities                         18,467            71,955            73,389
   Obligations under capital leases                      --            37,584            42,837
   Original issue discount                               --             7,604            18,571
   Self-insurance liabilities                        25,204            49,773            47,497
   Loss carryforwards                                27,638           166,390           216,459
   Tax credit carryforwards                           4,157               913               913
   State taxes                                           --            31,473            38,321
   Other                                                570            18,024            16,075
                                               ------------      ------------      ------------
      Gross deferred tax assets                      82,284           411,295           484,557
   Valuation allowance                              (48,030)         (306,560)         (348,879)
                                               ------------      ------------      ------------
      Net deferred tax assets                  $     34,254      $    104,735      $    135,678
                                               ------------      ------------      ------------

Deferred tax liabilities:
   Inventories                                 $    (11,690)     $     (9,762)     $     (9,802)
   Property and equipment                           (28,527)         (106,116)         (129,808)
   Obligations under capital leases                  (9,261)               --                --
   Other                                             (2,310)             (611)             (725)
   Tax intangibles                                       --            (6,234)          (16,416)
                                               ------------      ------------      ------------
      Gross deferred tax liability                  (51,788)         (122,723)         (156,751)
                                               ------------      ------------      ------------
      Net deferred tax liability               $    (17,534)     $    (17,988)     $    (21,073)
                                               ============      ============      ============
</TABLE>

                The Company recorded a valuation allowance to reserve a portion
        of its gross deferred tax assets at February 2, 1997 due primarily to
        financial and tax losses in recent years. Under SFAS 109, this valuation
        allowance will be adjusted in future periods as appropriate. However,
        the timing and extent of such future adjustments to the allowance cannot
        be determined at this time.

                At February 2, 1997, approximately $139.0 million of the
        valuation allowance for deferred tax assets will reduce goodwill when
        the allowance is no longer required.

                At February 2, 1997, the Company has net operating loss
        carryforwards for federal income tax purposes of $618.0 million, which
        expire from 2007 through 2012. The Company has federal Alternative
        Minimum Tax ("AMT") credit carryforwards of approximately $0.9 million
        which are available to reduce future regular taxes in excess of AMT.
        Currently, there is no expiration date for these credits.

                A portion of the loss carryforwards described above are subject
        to the provisions of the Tax Reform Act of 1986, specifically Internal
        Revenue Code Section 382. The law limits the use of net operating loss
        carryforwards when changes of ownership of more than 50 percent occur
        during a three-year testing period. Due to the Merger, the ownership of
        pre- Merger F4L Supermarkets and pre-Merger RSI changed in excess of 50
        percent. As a result, Holdings' utilization of approximately $78.0
        million of F4L Supermarkets' and $187.0 million of RSI's federal net
        operating losses will be subject to an annual usage limitation.
        Holdings' annual limitations under Section 382 for F4L Supermarkets' and
        RSI's net operating losses are approximately $15.6 million and $15.0
        million, respectively. Furthermore, all of Holdings' pre-Merger RSI net
        tax assets will reduce goodwill when utilized in future federal income
        tax returns.


                                       68
<PAGE>   70
                Holdings files a consolidated federal income tax return, under
        which the federal income tax liability of Holdings and its subsidiaries
        is determined on a consolidated basis. Holdings is a party to a federal
        income tax sharing agreement with Ralphs and certain of its subsidiaries
        (the "Tax Sharing Agreement"). The Tax Sharing Agreement provides that
        in any year in which Ralphs is included in any consolidated tax
        liability of Holdings and has taxable income, Ralphs will pay to
        Holdings the amount of the tax liability that Ralphs would have had on
        such due date if it had been filing a separate return. Conversely, if
        Ralphs generates losses or credits which actually reduce the
        consolidated tax liability of Holdings and its other subsidiaries,
        Holdings will credit to Ralphs the amount of such reduction in the
        consolidated tax liability. These credits are passed between Holdings
        and Ralphs in the form of cash payments. In the event any state and
        local income taxes are determinable on a combined or consolidated basis,
        the Tax Sharing Agreement provides for a similar allocation between
        Holdings and Ralphs of such state and local taxes.

                Holdings currently has Internal Revenue Service examinations in
        process covering the years 1990 through 1993. Management believes that
        any required adjustment to the Company's tax liabilities will not have a
        material adverse impact on its financial position or results of
        operations.

7.      RELATED PARTY TRANSACTIONS

                The Company has a five-year consulting agreement with an
        affiliated company effective June 14, 1995 for management, financing,
        acquisition and other services. The agreement is automatically renewed
        on June 14 of each year for the five-year term unless 90 days' notice is
        given by either party. The contract provides for annual management fees
        equal to $4 million plus advisory fees for certain acquisition
        transactions if the affiliated company is retained by the Company.

                Management services expenses were $2.3 million during fiscal
        year 1994, $1.2 million during the 1995 transition period, $3.6 million
        during fiscal year 1995 and $4.0 million during fiscal year 1996.
        Advisory fees were $0.2 million during fiscal year 1994, $21.5 million
        during fiscal year 1995 and $1.7 million during fiscal year 1996. There
        were no such advisory fees for the 1995 transition period. Advisory fees
        for financing transactions are capitalized and amortized over the term
        of the related financing.

                The Company is a member of a supplier cooperative with Certified
        Grocers, which is used for certain purchases of inventory. Members
        purchase shares in the cooperative and receive patronage dividends at
        the end of the year. During fiscal 1996, fiscal 1995, the 1995
        transition period and fiscal 1994, the Company purchased $95.3 million,
        $141.4 million, $104.4 million and $175.9 million, respectively, in
        inventory from the cooperative.

                On December 29, 1995, the Company consummated an agreement with
        Smith's Food and Drug Centers ("Smith's") to sublease its one million
        square foot distribution center and creamery facility in Riverside,
        California for approximately 23 years, with renewal options through
        2043. Annual rent is approximately $8.8 million. Pursuant to the
        agreement, the Company also purchased certain operating assets and
        inventory at the facility and nine stores for approximately $20.2
        million.

8.      COMMITMENTS AND CONTINGENCIES

                The Company is contingently liable to former stockholders of
        certain predecessors for any prorated gains which may be realized within
        ten years of the acquisition of the respective companies resulting from
        the sale of certain Certified stock. Such gains are only


                                       69
<PAGE>   71
        payable if Certified is purchased or dissolved, or if the Company sells
        such Certified Stock within the period noted above.

                In connection with the bankruptcy reorganization of Federated
        Department Stores, Inc. ("Federated") and its affiliates, Federated
        agreed to pay certain potential tax liabilities relating to RGC as a
        member of the affiliated group of companies comprising Federated and its
        subsidiaries. In consideration thereof, RSI and RGC agreed to pay
        Federated a total of $10 million, payable $1 million on each of February
        3, 1992, 1993, 1994, 1995 and 1996 and $5 million on February 3, 1997.
        In the event Federated is required to pay certain tax liabilities, RSI
        and RGC agreed to reimburse Federated up to an additional $10 million,
        subject to certain adjustments. Pursuant to the terms of the Merger, the
        $5 million payment and the potential $10 million payment will be paid in
        cash.

                The Company has entered into lease agreements with the
        developers of several new sites in which the Company has agreed to
        provide construction financing. At February 2, 1997, the Company had
        capitalized construction costs of $20.3 million on total commitments of
        $24.0 million.

                In December 1992, three California state antitrust class action
        suits were commenced in Los Angeles Superior Court against the Company
        and other major supermarket chains located in Southern California,
        alleging that they conspired to refrain from competing in and to fix the
        price of fluid milk above competitive prices. Specifically, class
        actions were commenced by Diane Barela and Neila Ross, Ron Moliare and
        Paul C. Pfeifle on December 7, December 14 and December 23, 1992,
        respectively. A class has been certified consisting of all purchasers of
        milk in Los Angeles County from December 7, 1988. The plaintiffs seek
        unspecified damages. Most defendants in the actions, not including the
        Company, have reached tentative settlement agreements, and certain of
        the settlements have been approved by the trial court. The Company is
        continuing to actively defend itself in these class action suits.

                On September 13, 1996 a class action lawsuit titled McCampbell,
        et al. v. Ralphs Grocery Company, et al. was filed in the Superior Court
        of the State of California, County of San Diego, against the Company and
        two other grocery store chains operating in the Southern California
        area. The complaint alleges, among other things, that the Company and
        others conspired to fix the retail price of eggs in Southern California.
        The plaintiffs' claim that the defendants' actions violate provisions of
        the California Cartwright Act and constitute unfair competition.
        Plaintiffs seek unspecified damages they purport to have sustained as a
        result of the defendants' alleged actions, which damages may be trebled
        under the applicable statute, and an injunction from future actions in
        restraint of trade and unfair competition. Discovery has commenced and
        the action has been certified as a class. Management of the Company
        intends to defend this action vigorously and the Company has filed an
        answer to the complaint denying the plaintiffs' allegations and setting
        forth several defenses.

                On December 20, 1996, a lawsuit titled Bundy, et al. v. Ralphs
        Grocery Company, et al. was filed in the Los Angeles Superior Court
        against the Company. The complaint was filed by eight individual
        plaintiffs who were terminated in conjunction with the Company's
        restructuring. The plaintiffs claim that they were wrongfully terminated
        for discriminatory reasons and that the Company engaged in various
        fraudulent practices. The plaintiffs seek compensatory damages in excess
        of $15 million, special and punitive damages. Management of the Company
        believes that the plaintiff's claims are without merit and intends to
        defend this action vigorously.


                                       70
<PAGE>   72
                In addition, the Company or its subsidiaries are defendants in a
        number of other cases currently in litigation or potential claims
        encountered in the normal course of business which are being vigorously
        defended. In the opinion of management, the resolutions of these matters
        will not have a material effect on the Company's financial position or
        results of operations.

                The Company self-insures its workers' compensation and general
        liability. For fiscal year 1994, the 1995 transition period, fiscal year
        1995 and fiscal year 1996, the self-insurance loss provisions were $19.9
        million, $6.3 million, $32.6 million and $29.2 million, respectively.
        During fiscal year 1994, the Company discounted its self-insurance
        liability using a 7.0 percent discount rate. In the 1995 transition
        period, the Company changed the discount rate to 7.5 percent. In fiscal
        1995, the Company changed the discount rate to 7.0 percent. In fiscal
        1996, the Company changed the discount rate to 7.5 percent. Management
        believes that this rate approximates the time value of money over the
        anticipated payout period (approximately 10 years) for essentially
        risk-free investments.

                The Company's historical self-insurance liability at the end of
        the three most recent fiscal years and the 1995 transition period is as
        follows (in thousands):

<TABLE>
<CAPTION>
                                                             As of
                                 --------------------------------------------------------------
                                   June 25,       January 29,      January 28,      February 2,
                                     1994             1995             1996             1997
                                 -----------      -----------      -----------      -----------
<S>                              <C>              <C>              <C>              <C>        

Self-insurance liability         $    90,898      $    84,286      $   161,391      $   151,465
Less:  Discount                       (9,194)         (11,547)         (12,406)         (11,882)
                                 -----------      -----------      -----------      -----------
Net self-insurance liability     $    81,704      $    72,739      $   148,985      $   139,583
                                 ===========      ===========      ===========      ===========
</TABLE>


                The Company expects that cash payments for claims will aggregate
        approximately $52.6 million, $37.5 million, $23.9 million, $14.5 million
        and $8.7 million for the fiscal year 1997, the fiscal year 1998, the
        fiscal year 1999, the fiscal year 2000 and the fiscal year 2001,
        respectively.

        Environmental Matters

                In January 1991, the California Regional Water Quality Control
        Board for the Los Angeles Region (the "Regional Board") requested that
        the Company conduct a subsurface characterization of its Glendale
        Facility property located in the Atwater District of Los Angeles, near
        Glendale, California. This request was part of an ongoing effort by the
        Regional Board, in connection with the U.S. Environmental Protection
        Agency (the "EPA"), to identify contributors to groundwater
        contamination in the San Fernando Valley. Significant parts of the San
        Fernando Valley, including the area where the Glendale Facility is
        located, have been designated federal Superfund sites requiring response
        actions under the Comprehensive Environmental Response, Compensation and
        Liability Act of 1980, as amended, because of regional groundwater
        contamination. On June 18, 1991, the EPA made its own request for
        information concerning the Company's Glendale Facility. Since that time,
        the Regional Board has requested further investigation by the Company.
        The Company conducted the requested investigations and reported the
        results to the Regional Board. Approximately 25 companies have entered
        into a Consent Order (EPA Docket No. 94-11) with the EPA to investigate
        and design a remediation system for contaminated groundwater beneath an
        area which includes the Glendale Facility. The Company is not a party to
        the Consent Order, but is cooperating with requests of the subject
        companies to allow installation of monitoring or recovery wells on its
        property. On or about October 12, 1995, the EPA mailed a Special Notice
        Letter to 44 parties, including the Company as owner and


                                       71
<PAGE>   73
        operator of the Glendale Facility property, naming them as potentially
        responsible parties ("PRPs"). On November 26, 1996, the EPA issued an
        Administrative Order for Remedial Action (EPA Docket No. 97-06) against
        more than 60 respondents, including the Company, in connection with the
        Superfund site. Under the order, these PRP's are required to take
        certain actions, over an approximately 270-day period, in connection
        with the implementation of interim remedies for the treatment of
        groundwater.

                Pursuant to the terms of the EPA's order, the PRPs have
        submitted a plan for construction of an interim remedy to extract and
        remediate groundwater over the next fourteen years. The PRPs have also
        submitted an offer to the EPA for the reimbursement of a portion of the
        EPA's past costs. Estimates given to the PRPs by environmental
        consultants and attorneys are that the total costs for the remedy,
        including construction, operation and reimbursement to the government,
        will most likely range between $55 million and $75 million in present
        value 1997 dollars.

                In April 1997, an arbitration award allocation of 58.8% of such
        costs to Lockheed Martin Corporation ("Lockheed") was confirmed by the
        Superior Court, Los Angeles County. That judgment is now on appeal to
        California Court of Appeal, seeking to reduce the Lockheed allocation.
        The remaining 26 current Glendale PRPs have been engaged in Alternative
        Dispute Resolution ("ADR") efforts. The Company believes that taking
        into account the Lockheed appeal, the range of remediation costs and the
        results of the ADR allocation process, the Company's allocable share of
        remedy costs, in present value 1997 dollars, will likely fall within a
        range of $0.5 million to $2.0 million, with the likely range from $0.5
        million to $0.8 million.

                It is anticipated that the EPA will issue a further
        administrative order to PRPs for the construction of the remedy some
        time in 1997, to be followed by negotiation of a consent decree with the
        PRPs. Such a consent decree would provide contribution protection from
        lawsuits by other non-signatory PRPs. Although responsibilities for
        compliance under federal CERCLA law are joint and several, the Glendale
        PRPs include many very substantial companies as members, such that the
        Company anticipates that the results of the PRPs' ADR allocation process
        will be enforceable to limit the Company's exposure.

                The Company removed underground storage tanks and remediated
        soil contamination at the Glendale Facility property. In some instances,
        the removals and the contamination were associated with grocery business
        operations; in others, they were associated with prior property users.
        The Company has received correspondence from the Regional Board
        confirming the successful completion of the remediation.

                Apart from the Glendale Facility, the Company has had
        environmental assessments performed on most of its facilities, including
        warehouse and distribution facilities. The Company believes that any
        responsive actions required at the examined properties as a result of
        such assessments will not have a material adverse effect on its
        financial condition or results of operations.

                At the time that Food 4 Less acquired Alpha Beta in 1991, it
        learned that certain underground storage tanks located on the site of
        the La Habra facility may have previously released hydrocarbons. In
        connection with the acquisition of Alpha Beta, the seller (who is also
        the lessor of the La Habra facility) agreed to retain responsibility,
        subject to certain limitations, for remediation of the release.

                The Company is subject to a variety of environmental laws,
        rules, regulations and investigative or enforcement activities, as are
        other companies in the same or similar


                                       72
<PAGE>   74
        business. The Company believes it is in substantial compliance with such
        laws, rules and regulations. These laws, rules, regulations and agency
        activities change from time to time, and such changes may affect the
        ongoing business and operations of the Company.

 9.     EMPLOYEE BENEFIT PLANS

                As a result of the Merger, the Company adopted certain employee
        benefit plans previously sponsored by RGC. These employee benefit plans
        include the Ralphs Grocery Company Retirement Plan (the "Pension Plan"),
        the Ralphs Grocery Company Supplemental Executive Retirement Plan (the
        "SERP"), and the Ralphs Grocery Company Retirement Supplement Plan (the
        "Retirement Supplement Plan").

        Pension Plan

                The Pension Plan covers substantially all employees not already
        covered by collective bargaining agreements with at least one year of
        service during which 1,000 hours have been worked. Employees who were
        employed by F4L Supermarkets and who are otherwise eligible to
        participate in the Pension Plan became eligible to participate in fiscal
        year 1995. The Company's policy is to fund pension costs at or above the
        minimum annual requirement.

        SERP

                The SERP covers certain key officers of the Company. The Company
        has purchased split dollar life insurance policies for certain
        participants under this plan. Under certain circumstances, the cash
        surrender value of the split dollar life insurance policies will offset
        the Company's obligations under the SERP.

        Retirement Supplement Plan

                The Retirement Supplement Plan is a non-qualified retirement
        plan designed to provide eligible participants with benefits based on
        earnings over the indexed amount of $150,000.

                The following actuarially determined components were included in
        the net pension expense for the above plans for fiscal years 1996 and
        1995 (dollars in thousands):

<TABLE>
<CAPTION>
                                                              1996         1995
                                                            -------      -------
          <S>                                               <C>          <C>

          Service cost                                      $ 6,187      $ 2,841
          Interest cost on projected benefit obligation       5,293        2,543
          Actual return on assets                            (5,684)      (3,223)
          Net amortization and deferral                       1,907        1,365
                                                            -------      -------
                 Net pension expense                        $ 7,703      $ 3,526
                                                            =======      =======
</TABLE>


                Following are the assumptions used in determining the net
        pension expense:

               Discount rate                                      7.00%    7.50%
               Expected long term rate of return on plan assets   9.00%    9.00%
               Rate of pay increase                               5.00%    5.00%


                                       73
<PAGE>   75
                The funded status of the Pension Plan (based on December 1996
        and December 1995 asset values) is as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                                      As of             As of
                                                                   February 2,       January 28,
                                                                      1997              1996
                                                                  ------------      ------------
<S>                                                               <C>               <C>         

Assets Exceed Accumulated Benefits:
Actuarial present value of benefit obligations:
  Vested benefit obligation                                       $    (45,965)     $     42,446
  Accumulated benefit obligation                                       (46,351)           43,256
  Projected benefit obligation                                         (66,858)           63,913
  Plan assets at fair value                                             50,189            44,552
                                                                  ------------      ------------

Projected benefit obligation in excess of Plan Assets                  (16,669)          (19,361)
Unrecognized net (gain)/loss                                            (3,376)            4,136
Unrecognized prior service cost                                          1,023             1,100
                                                                  ------------      ------------
  Accrued pension cost                                            $    (19,022)     $    (14,125)
                                                                  ============      ============
</TABLE>

                The funded status of the SERP and Retirement Supplement Plan
        (based on December 1996 and December 1995 asset values) is as follows
        (dollars in thousands):

<TABLE>
<CAPTION>
                                                                      As of             As of
                                                                   February 2,       January 28,
                                                                      1997              1996
                                                                  ------------      ------------
<S>                                                               <C>               <C>          

Accumulated Benefits Exceed Assets:
Actuarial present value of benefit obligations:
  Vested benefit obligation                                       $     (5,006)     $     (4,863)
  Accumulated benefit obligation                                        (5,236)            4,908
  Projected benefit obligation                                         (10,033)          (11,778)
  Plan assets at fair value                                                 --                --
                                                                  ------------      ------------

Projected benefit obligation in excess of Plan Assets                  (10,033)          (11,778)
Unrecognized net loss                                                      607               544
Unrecognized prior service cost                                          1,725             1,846
Adjustment required to recognize minimum liability                          (2)               --
                                                                  ------------      ------------
  Accrued pension cost                                            $     (7,703)     $     (9,388)
                                                                  ============      ============
</TABLE>


                Following are the assumptions used in determining the funded
        status:

               Discount rate                      7.50%      7.50%
               Rate of pay increase               5.00%      5.00%

                The assets of the Pension Plan consist primarily of common
        stocks, bonds, debt securities, and a money market fund. Plan benefits
        are based primarily on years of service and on average compensation
        during the last years of employment.

        Employee Stock Ownership Plans

                The Company implemented Statement of Position No. 93-6 (the
        "SOP"), "Employer Accounting for Employee Stock Ownership Plans,"
        effective June 26, 1994. The implementation of the SOP did not have a
        material effect on the accompanying consolidated financial statements.


                                       74
<PAGE>   76

                The full-time employees of Falley's who are not members of a
        collective bargaining agreement are covered under a 401(k) plan, a
        portion of which is invested in Holdings stock (the "Falley's ESOP"). As
        is required pursuant to IRS and ERISA requirements, any participant who
        receives stock from the Falley's ESOP has the right to put that stock to
        Falley's or an affiliate of Falley's. However, as part of the original
        stock sale agreement among the then stockholders of Falley's, FFL and
        the Falley's ESOP, which has been amended from time to time, a
        partnership which owns stock of Holdings entered into an agreement with
        Falley's and Holdings to assume the obligation to purchase any Holdings
        shares as to which terminated plan participants exercise a put option
        under the terms of Falley's ESOP. As a result, neither Falley's nor the
        Company is required to make cash payments to redeem the shares. As part
        of that agreement, the Company may elect, after providing a right of
        first refusal to the partnership, to purchase Holdings shares put under
        the provisions of the plan. However, the partnership's obligation to
        purchase such Holdings shares is unconditional, and any repurchase of
        shares by the Company is at the Company's sole election. During fiscal
        year 1996, the Company did not purchase any of the Holdings shares. As
        of February 2, 1997, the fair value of the shares allocated which are
        subject to repurchase obligation by the partnership referred to above
        was approximately $10.9 million.

                In addition, the Company also sponsors two ESOPs for employees
        of the Company who are members of certain collective bargaining
        agreements (the "Union ESOPs"). The Union ESOPs provide for annual
        contributions based on hours worked at a rate specified by the terms of
        the collective bargaining agreements. The Company contributions are made
        in the form of Holdings stock or cash for the purchase of Holdings stock
        and are to be allocated to participants based on hours worked. During
        fiscal year 1995 and the 1995 transition period, the Company recorded a
        charge against operations of approximately $0.8 million and $0.3
        million, respectively, for benefits under the Union ESOPs. There were no
        shares issued to the Union ESOPs or to the Company's profit sharing plan
        at January 28, 1996 or February 2, 1997.

        Defined Contribution Plan

                The Company sponsors the Ralphs Grocery Company Savings Plan
        Plus - Primary, the Ralphs Grocery Company Savings Plan Plus - Basic and
        the Ralphs Grocery Company Savings Plan Plus - ESOP (collectively
        referred to as the "401(k) Plan") covering substantially all employees
        who are not covered by collective bargaining agreements and who have at
        least one year of service during which 1,000 hours has been worked. The
        401(k) Plan provides for both pre-tax and after-tax contributions by
        participating employees. With certain limitations, participants may
        elect to contribute on a pre-tax basis to the 401(k) Plan. The Company
        has committed to match a minimum of 20 percent of an employee's
        contribution to the 401(k) Plan that does not exceed 5 percent of the
        employee's eligible compensation. Expenses under the 401(k) Plan for
        fiscal year 1994, 1995 and 1996 were $0.7 million, $0.7 million and $0.8
        million, respectively.

        Multi-Employer Benefit Plans

                The Company contributes to multi-employer benefit plans
        administered by various trustees. Contributions to these plans are based
        upon negotiated wage contracts. These plans may be deemed to be defined
        benefit plans. Information related to accumulated plan benefits and plan
        net assets as they may be allocated to the Company at January 28, 1996
        is not available. The Company contributed $57.2 million, $21.6 million,
        $102.1 million and $138.8 million to these plans for fiscal year 1994,
        the 1995 transition period, fiscal year 1995 and fiscal year 1996,
        respectively. Management is not aware of any plans to terminate such
        plans.


                                       75
<PAGE>   77
                The United Food and Commercial Workers health and welfare plans
        were over-funded and those employers who contributed to the plans
        received a pro rata share of the excess reserves in the plans through
        reduction of current contributions. The Company's share of the excess
        reserve was $24.2 million, of which $8.1 million, $14.3 million and $1.8
        million was recognized in fiscal year 1994, the 1995 transition period,
        and fiscal year 1995, respectively. Offsetting the reduction in employer
        contributions was a $5.5 million union contract ratification bonus and
        contractual wage increases in the 1995 transition period. As part of the
        renewal of the Southern California UFCW contract in October 1995,
        employers contributing to UFCW health and welfare plans received a pro
        rata share of the excess reserves in the plans through a reduction of
        current employer contributions. The Company's share of the excess
        reserves recognized in fiscal 1996 was $17.8 million. Offsetting the
        reduction was a $3.5 million union bonus in fiscal year 1996.

        Post-Retirement Medical Benefit Plans

                The Company adopted postretirement medical benefit plans
        ("Postretirement Medical Plans"), previously sponsored by RGC, which
        cover substantially all employees who are not members of a collective
        bargaining agreement and who retire under certain age and service
        requirements. The Postretirement Medical Plans are insured plans and
        provide outpatient, inpatient and various other covered services. The
        Company's policy is to fund the Plans as insurance premiums are
        incurred. For persons who are less than age 65 at retirement and for
        certain executives, the calendar 1996 year deductible is $1,000 per
        individual, indexed to the medical care component of the Consumer Price
        Index.

                The net postretirement benefit cost of the Postretirement
        Medical Plans include the following components for fiscal years 1996 and
        1995 (dollars in thousands):

<TABLE>
<CAPTION>
                                                              1996         1995
                                                             -------      -------
                 <S>                                        <C>          <C>

                 Service cost                               $   909      $   468
                 Interest cost                                  989          561
                 Return on plan assets                           --           --
                 Net amortization and deferral                 (281)        (116)
                                                            -------      -------
                        Net postretirement benefit cost     $ 1,617      $   913
                                                            =======      =======
</TABLE>


                Following are the assumptions used in determining the net
        postretirement benefit cost:

          Discount rate                                         7.00%      7.50%
          Expected long term rate of return on plan assets        N/A        N/A
          Medical cost trend                                    9.00%*    10.50%

        * 1997 percentage decreases by 0.50% per year until 6.00% in 2002 and
        all future years.


                                       76
<PAGE>   78
                The funded status of the postretirement benefit plan (based on
December 31, 1996 and December 31, 1995 asset values) is as follows (dollars in
thousands):

<TABLE>
<CAPTION>
                                                          1996          1995
                                                        --------      --------
     <S>                                                <C>           <C>     

     Accumulated postretirement benefit obligation:
     Retirees                                           $ (2,242)     $  2,208
     Fully eligible plan participants                     (1,777)        1,483
     Other active plan participants                      (10,126)       10,862
     Plan assets at fair value                                --            --
                                                        --------      --------
     
     Accumulated postretirement obligations
         in excess of plan assets                        (14,145)      (14,553)
     Unrecognized (gain)/loss                             (1,580)          562
     Unrecognized prior service cost                      (2,965)       (3,246)
                                                        --------      --------
     Accrued post retirement benefit obligation         $(18,690)     $(17,237)
                                                        ========      ========

                Following are the assumptions used in determining the funded
status:

     Discount rate                                        7.50%      7.50%
     Expected long term rate of return on plan assets       N/A        N/A
     Medical cost trend                                   8.50%*    10.50%
</TABLE>

     * 1997 percentage decreases by 0.50% per year until 6.00% in 2002 and
       all future years

                The effect of a 1.00 percent increase in the medical cost trend
would increase the fiscal 1996 service and interest cost by $0.7 million. The
accumulated postretirement benefit obligation at February 2, 1997 would also
increase by $5.1 million.

Stock Plans

                Holdings has one employee stock option plan, the Food 4 Less
Holdings, Inc. 1995 Stock Option Plan (the "Plan"). The Plan provides for an
aggregate of 3,000,000 shares of the Holdings' common stock to be available for
grants to officers and other key employees of Holdings or its subsidiaries.
Grants may be at the fair market value at the date of grant or at a price
determined by a committee consisting of two or more non-employee directors of
Holdings (the "Committee"). If a grantee owns 10 percent or more of the total
combined voting power of all classes of capital stock of Holdings, the option
exercise price shall be at least 110 percent of the Fair Market Value of Common
Stock on the date of grant. The Committee determines the fair market value of
Holdings' Common Stock using historical valuations, an analysis of Holdings'
financial performance and recent information concerning private purchases and
sales of Holdings' Common Stock. Options expire ten years from the date of grant
and become exercisable at the rate of 20 percent per year, or over a vesting
period determined by the Committee. To date, options issued under the Plan have
been granted exclusively to employees of the Company.


                                       77
<PAGE>   79
                The following table summarizes stock options available for
        grant:

<TABLE>
<CAPTION>
                                52 Weeks        53 Weeks
                                  Ended           Ended
                               January 28,     February 2,
                                  1996             1997
                               ----------      ----------
<S>                            <C>             <C>         

Beginning balance                      --         715,000
Authorized                      3,000,000              --
Granted                        (2,415,000)       (727,500)
Canceled                          130,000         210,250
                               ----------      ----------

Available for future grant        715,000         197,750
                               ==========      ==========
</TABLE>


                A summary of the status of the Plan as of fiscal year 1996 and
        fiscal year 1995 and changes during the years ending on those dates is
        presented below:

<TABLE>
<CAPTION>
                                           Fiscal Year 1995          Fiscal Year 1996
                                       -----------------------   -----------------------
                                                     Weighted-                 Weighted-
                                                      Average                   Average
                                                     Exercise                  Exercise
                                          Shares       Price       Shares        Price
                                       ----------    ---------   ----------    ---------
<S>                                    <C>           <C>         <C>           <C>  

Outstanding at beginning of year               --      $  --      2,285,000      $ 5.78
Granted                                 2,415,000       5.86        727,500       10.00
Exercised                                      --         --             --          --
Canceled                                 (130,000)      5.39       (210,250)       5.72
                                       ----------      -----     ----------      ------

Outstanding at end of year              2,285,000       5.89      2,802,250        6.97
                                       ==========      =====     ==========      ======

Exercisable at end of year              2,225,000       5.78      2,254,000        6.23
                                       ==========      =====     ==========      ======

Weighted-average fair value of
   options granted during the year                     $3.35                     $ 3.55
                                                       =====                     ======
</TABLE>


                The following table summarizes information about stock options
        outstanding at February 2, 1997:

<TABLE>
<CAPTION>
                                     Options Outstanding                   Options Exercisable
                           ------------------------------------------  --------------------------
                                            Weighted-       Weighted-                   Weighted-
                             Number          Average         Average     Number          Average
          Range of         Outstanding      Remaining       Exercise   Exercisable      Exercise
       Exercise Prices     at 02/02/97   Contractual Life    Price     at 02/02/97        Price
       ---------------     -----------   ----------------   ---------  -----------      ---------
<S>                        <C>           <C>                <C>        <C>              <C>   
                                                           
        $0.79 to $1.09       224,357         8.2 years      $ 0.84        224,357         $ 0.84
        $1.58 to $2.31       172,083         8.2              1.82        172,083           1.82
        $2.73 to $4.00       172,500         8.2              3.04        172,500           3.04
        $4.29 to $6.00       120,833         8.2              4.76        120,833           4.76
        $6.67 to $7.32     1,120,227         8.2              7.15      1,120,227           7.15
        $10.00               992,250         8.9             10.00        444,500          10.00
                           ---------         ---             -----      ---------         ------
                                                           
        $0.79 to $10.00    2,802,250         8.5 years      $ 6.97      2,254,500         $ 6.23
                           =========         ===            ======      =========         ======
</TABLE>
                                                         
                At February 2, 1997, 3.0 million shares of Holdings' Common
        Stock were reserved for issuance under Holdings' stock option plan.


                                       78
<PAGE>   80
                The Company applies APB Opinion 25 and related Interpretations
        in accounting for the Plan and, accordingly, no compensation cost has
        been recognized. Pro forma information regarding net income and earnings
        per share is required by Statement of Financial Accounting Standards No.
        123, "Accounting for Stock Based Compensation" ("SFAS No. 123"), and has
        been determined as if the Company had accounted for employee stock
        options under the fair value method of SFAS No. 123. The fair value for
        stock options was estimated at the date of grant using the minimum value
        method with the following assumptions for fiscal 1995 and 1996,
        respectively: weighted average risk-free interest rates of 6.01 percent
        and 6.46 percent and a weighted average expected life of the options of
        7.0 years and 7.0 years.

                For purposes of pro forma disclosures, the estimated fair value
        of the options is amortized to expense over the options' vesting period.
        At the time of Merger, 2.3 million Stock Options were granted, 2.2
        million of which became immediately vested. As a result, the effects of
        applying SFAS 123 for providing pro forma disclosures in fiscal year
        1996 and 1995 are not likely to be representative of the effects on
        reported net income for future years. The Company's pro forma
        information follows:


<TABLE>
<CAPTION>
                                                     Fiscal Year       Fiscal Year
                                                        Ended             Ended
                                                     January 28,       February 2,
                                                        1996              1997
                                                     -----------       -----------  
<S>                                                  <C>              <C>       
                                               (in thousands, except per share amounts)

        NET LOSS:

        As reported:
        Loss before extraordinary charge             $(283,994)       $(129,580)
        Extraordinary charge                            38,424                -
        Net loss                                      (322,418)        (129,580)

        Pro forma:
        Loss before extraordinary charge             $(288,401)       $(130,088)
        Extraordinary charge                            38,424                -
        Net loss                                      (326,825)        (130,088)

        LOSS PER COMMON SHARE:

        As reported:
        Loss before extraordinary charge                $(9.16)         $ (3.54)
        Extraordinary charge                             (1.22)            -
        Net loss                                        (10.38)           (3.54)

        Pro forma:
        Loss before extraordinary charge                $(9.48)          $(3.56)
        Extraordinary charge                             (1.22)            -
        Net loss                                        (10.70)           (3.56)
</TABLE>


                At the time of the Merger, in connection with the extinguishment
        of a $10 million Equity Appreciation Rights ("EAR") liability, Holdings
        issued approximately 2.0 million options to former RGC executives at
        prices ranging from $0.79 to $7.32. The options were immediately vested.
        The exercise price was determined based upon a formula that incorporated
        the EAR liability extinguished, number of options issued and the
        estimated market price of Holdings' stock. All other options issued in
        fiscal 1995 were at the estimated market price of $10.


                                       79
<PAGE>   81
10.     CAPITAL STOCK

        Preferred Stock

                As part of the financing of the Merger, Holdings issued shares
        of its newly authorized Series A and Series B Preferred Stock, par value
        $0.01. The Series A Preferred Stockholders have voting rights identical
        to those of the Common Stockholders. The Series B Preferred Stockholders
        have no voting rights. The Series A and Series B Preferred Stock has a
        liquidation preference which was initially equal to $10.00 per share.
        The liquidation preference increases 7.0 percent per annum, compounded
        quarterly until the later of June 2000 or the date the Company first
        reports EBDIT (as defined) of at least $500.0 million for any four
        consecutive quarters. In addition, the liquidation preference will
        increase by 2.0 percent per annum if the Company fails to reach EBDIT
        (as defined) of at least $400.0 million for four consecutive quarters
        prior to July 1998; this EBDIT (as defined) threshold increases to
        $425.0 million in July 1999 and $450.0 million in July 2000. The Series
        A and Series B Preferred Stock ranks pari passu in right of payment upon
        liquidation. A total of 5,783,244 shares of Holdings Common Stock were
        exchanged for an equal number of Series A Preferred Shares at the Merger
        date.

                Holdings issued 10,900,000 shares of its Series A Preferred
        Stock and 3,100,000 shares of its Series B Preferred Stock for $140.0
        million in connection with the Merger (the "New Equity Investment"). The
        Company paid $2.5 million in cash and issued $2.5 million of its New
        Discount Debentures to a Series A Preferred Stockholder for services
        performed in connection with this preferred stock sale.

        Common Stock

                Holdings recorded a 16.58609143 for 1 stock split of its Common
        Stock on June 9, 1995. The "Average Number of Common Shares Outstanding"
        and the "Loss Per Common Share" in the accompanying Consolidated
        Statements of Operations for fiscal year 1994 and the 1995 transition
        period have been retroactively adjusted to reflect this stock split.

                In connection with the extinguishment of $10.0 million of RGC's
        EAR liability at the Merger date and as an incentive to certain
        executives of the Company, Holdings granted options to purchase a total
        of 2,415,000 shares of its Common Stock. Options to purchase 2,007,500
        shares were fully exercisable at prices ranging from $0.79 to $7.32 per
        share. Prior to January 28, 1996, 82,500 of these options were
        repurchased. Options to purchase 200,000 shares are fully exercisable at
        $10.00 per share. Options to purchase 207,500 shares at $10.00 per share
        vest in equal annual installments over five years beginning in June
        1996. Before the end of fiscal year 1995, 62,500 of these options
        expired without having been exercised. The remaining above options
        expire in June 2005.

                On the date of the Merger, Holdings issued a warrant to an
        affiliated company covering 8,000,000 shares of Holdings Common Stock
        exercisable at a price of $30.50 per share upon a Qualified IPO (as
        defined) or a Qualified Sale Event (as defined). The warrant will expire
        on June 14, 2000 unless certain performance measures are met, in which
        case the warrant will expire on June 14, 2002.

                Holdings also has outstanding 2,008,874 warrants for the
        purchase of an equal number of shares of its Common Stock at a price of
        less than $0.01 per share. These warrants may be exercised beginning
        December 31, 1997, or earlier upon certain events.


                                       80
<PAGE>   82
                Holdings has reserved an additional 585,000 shares of its Common
        Stock for future stock option grants.


11.     FAIR VALUE OF FINANCIAL INSTRUMENTS

                The following methods and assumptions were used to estimate the
        fair value of each class of financial instruments for which it is
        practicable to estimate that value:

        Cash and Cash Equivalents

                The carrying amount approximates fair value as a result of the
        short maturity of these instruments.

        Short-Term Notes and Other Receivables

                The carrying amount approximates fair value as a result of the
        short maturity of these instruments.


        Interest Rate Derivatives

                The carrying amount of the interest rate collar agreement, which
        represents favorable or unfavorable movements of interest rates outside
        of the interest rate limits, approximates fair value.

        Investments In and Notes Receivable From Supplier Cooperatives

                The Company maintains a non-current deposit with Certified in
        the form of Class B shares of Certified. Certified is not obligated in
        any fiscal year to redeem more than a prescribed number of the Class B
        shares issued. Therefore, it is not practicable to estimate the fair
        value of this investment.

                The Company maintains non-current notes receivable from A.W.G.
        There are no quoted market prices for this investment and a reasonable
        estimate could not be made without incurring excessive costs. Additional
        information pertinent to the value of this investment is provided in
        Note 6.

        Long-Term Debt

                The fair value of the New Senior Notes, the 1995 11% Senior
        Subordinated Notes and the 13.75% Senior Subordinated Notes is based on
        quoted market prices. The Term Loans and the Revolving Facility are
        estimated to be recorded at the fair value of the debt. Market quotes
        for the fair value of the remainder of the Company's debt are not
        available, and a reasonable estimate of the fair value could not be made
        without incurring excessive costs. Additional information pertinent to
        the value of the unquoted debt is provided in Note 3.


                                       81
<PAGE>   83
                The estimated fair values of the Company's financial instruments
        are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                         As of
                                                                    February 2, 1997
                                                               ---------------------------
                                                                Carrying          Fair
                                                                 Amount           Value
                                                               ----------       ----------
<S>                                                            <C>              <C>       

               Cash and cash equivalents                       $   67,589       $   67,589
               Short-term notes and other receivables                 531              531
               Interest rate collar                                     -                -
               Investments in and notes receivable from
                  supplier cooperatives (not practicable)          11,965                -
               Long-term debt for which it is:
                  - Practicable to estimate fair values         2,044,007        2,133,193
                  - Not practicable                               178,528                -
</TABLE>


12.     RESTRUCTURING CHARGE

                During fiscal 1995, the Company approved and implemented a
        restructuring plan designed to restructure its operations in connection
        with the Merger. A total of 58 stores were planned to be closed, 27 of
        which were required to be sold pursuant to a settlement agreement with
        the State of California in connection with the Merger. The remaining 31
        stores were under- performing stores. In addition, the Company closed
        two duplicate warehouse facilities no longer required by the merged
        entity. In accordance with this plan, the Company recorded a
        restructuring charge of $75.2 million, consisting of write-downs of
        property and equipment (net of estimated proceeds); provisions for lease
        obligations; write-downs of other assets and miscellaneous expenses.
        Approximately $28.4 million is expected to involve cash disbursements
        and $46.8 million is expected to involve non-cash write-downs. The
        Company's planned method of disposition is to sell or sublease the
        disposed stores/warehouse facilities. Stores closed as part of this
        restructuring plan contributed $91.7 million and $33.9 million in sales,
        and recognized operating losses of $0.6 million and $2.3 million, for
        fiscal 1995 and fiscal 1996, respectively. During fiscal 1995, the
        Company incurred cash expenditures of $2.5 million and non-cash charges
        of $32.2 million, related primarily to write-downs of property and
        equipment and other assets and payments of lease obligations. During
        fiscal 1996, the Company incurred cash expenditures of $6.5 million and
        non-cash expenditures of $11.6 million, consisting primarily of
        write-downs of property and equipment and payments of lease obligations.
        At February 2, 1997, approximately $22.4 million of the restructuring
        accrual remained accrued on the Company's balance sheet, consisting
        primarily of provisions for lease obligations. As of February 2, 1997,
        the Company has completed a majority of the restructuring actions,
        although certain lease obligations will continue through 2010.

                On December 29, 1995, the Company consummated an agreement with
        Smith's Food and Drug Centers ("Smith's") to sublease its one million
        square foot distribution center and creamery facility in Riverside,
        California for approximately 23 years, with renewal options through
        2043. The Company also acquired nine of Smith's Southern California
        stores. As a result of this agreement, the Company approved and
        implemented a restructuring plan designed to restructure its
        distribution operations by closing its existing La Habra distribution
        center and nine of its smaller and less efficient stores that were
        located near the stores acquired from Smith's. In accordance with this
        plan, the Company recorded a restructuring charge of $47.9 million,
        consisting of write-downs of property and equipment and provisions for
        lease obligations. Approximately $29.6 million is expected to involve
        cash disbursements and $18.3 million is expected to involve non-cash
        write-downs. The Company's planned


                                       82
<PAGE>   84
        method of disposition is to sell or sublease the disposed
        stores/distribution facility. Stores closed as part of this
        restructuring plan contributed $40.1 million and $23.2 million in sales,
        and contributed operating income of $2.0 million and $0.3 million, for
        fiscal 1995 and fiscal 1996, respectively. The Company completed the
        closure of its La Habra distribution facility in the first quarter of
        fiscal 1996. No charges were incurred against the restructuring accrual
        in fiscal 1995. During fiscal 1996, the Company incurred cash
        expenditures of $15.6 million and non-cash charges of $15.3 million,
        consisting primarily of write-downs of property and equipment and
        payments of lease obligations. At February 2, 1997, approximately $17.0
        million of the restructuring accrual remained accrued on the Company's
        balance sheet, consisting primarily of provisions for lease obligations
        and provisions for property and equipment. As of February 2, 1997, the
        Company has completed a majority of the restructuring actions, with
        remaining actions expected to be completed by the end of fiscal 1997,
        although certain lease obligations will continue through 2000.

13.     SELECTED QUARTERLY FINANCIAL RESULTS (UNAUDITED)

                The tables below set forth the selected quarterly financial
        information for fiscal year 1995 and fiscal year 1996 (in thousands,
        except per share amounts):


<TABLE>
<CAPTION>
                                               12 Weeks         12 Weeks         12 Weeks         16 Weeks
                                                 Ended            Ended            Ended            Ended
        Fiscal Year 1995                       04/23/95         07/16/95         10/08/95         01/28/96
        ----------------                     -----------      -----------      -----------      ----------- 
<S>                                          <C>              <C>              <C>              <C>        

Net Sales                                    $   623,598      $   857,344      $ 1,207,093      $ 1,647,074
Gross Profit                                     107,168          161,617          241,117          339,214
Loss Before Extraordinary Items                   (5,188)        (110,003)         (56,910)        (111,893)
Net Loss                                          (5,188)        (145,361)         (56,910)        (114,959)
Loss Applicable to Common Shares                  (5,188)        (145,361)         (56,910)        (114,959)

Loss Per Common Share:
Loss Before Extraordinary Items              $     (0.23)     $     (5.33)     $     (1.56)     $     (3.02)
Loss Per Common Share                        $     (0.23)     $     (7.05)     $     (1.56)     $     (3.11)
</TABLE>


<TABLE>
<CAPTION>
                                       12 Weeks      12 Weeks       12 Weeks      17 Weeks
                                         Ended         Ended          Ended         Ended
        Fiscal Year 1996               04/21/96      07/14/96       10/06/96      02/02/97
        ----------------             ----------     ----------    ----------    ----------
<S>                                  <C>            <C>           <C>           <C>       

        Net Sales                    $1,230,808     $1,243,768    $1,221,018    $1,820,665
        Gross Profit                    248,637        262,247       276,079       403,066
        Net Loss                        (39,834)       (29,577)      (20,267)      (39,902)

        Loss Per Common Share        $    (1.08)    $    (0.80)   $    (0.55)   $    (1.09)
</TABLE>


14.     SUBSEQUENT EVENT

                On March 26, 1997, Ralphs issued $155 million of 11% Senior
        Subordinated Notes due 2005 (the "1997 11% Senior Subordinated Notes")
        and called all of the 13.75% Senior Subordinated Notes. The terms of the
        1997 11% Senior Subordinated Notes are substantially identical to those
        of Ralphs' 11% Senior Subordinated Notes due 2005 issued in 1995. The
        1997 11% Senior Subordinated Notes were issued at a premium price of
        105.5, resulting in gross proceeds of $163.5 million. The proceeds were
        used to (i) redeem an aggregate of $145.0 million of its outstanding
        13.75% Senior Subordinated Notes and (ii)


                                       83
<PAGE>   85
        pay accrued interest, call premiums, fees and expenses related to the
        1997 11% Senior Subordinated Notes. The redemption price was 106.1
        percent of the principal amount outstanding.

                On April 17, 1997, the Company replaced its existing credit
        facilities (the "Refinanced Credit Facility") with a facility with lower
        interest rates and a longer average life. The refinancing was structured
        as an amendment and restatement of the existing Credit Facility and the
        amended facility consists of a $325.0 million Revolving Credit Facility,
        a $200.0 million Term Loan A Facility and a $350.0 million Term Loan B
        Facility. The new Term Loan A and Term Loan B facilities replaced the
        existing term loan facilities with an outstanding principal balance of
        $540.4 million at the time of refinancing.

                Borrowings under the Refinanced Credit Facility bear interest at
        the bank's Base Rate (as defined) plus a margin ranging from 0.25
        percent to 1.25 percent for the Revolving Credit Facility and the Term
        Loan A Facility and the bank's Base Rate (as defined) plus a margin
        ranging from 0.75 percent to 1.75 percent for the Term Loan B Facility
        or the Eurodollar Rate (as defined) plus a margin ranging from 1.25
        percent to 2.25 percent for the Revolving Credit Facility and the Term
        Loan A Facility and the Eurodollar Rate (as defined) plus a margin
        ranging from 1.75 percent to 2.75 percent for the Term Loan B Facility.
        The interest rate for the Revolving Credit Facility and the Term Loan A
        Facility currently is the bank's Base Rate (as defined) plus a margin of
        0.75 percent or the Eurodollar Rate (as defined) plus a margin of 1.75
        percent. The interest rate for the Term Loan B Facility currently is the
        bank's Base Rate (as defined) plus a margin of 1.25 percent or the
        Eurodollar rate ( as defined) plus a margin of 2.25 percent.

                Quarterly principal installments on the Refinanced Credit
        Facility continue to 2004, with amounts payable in each year as follows:
        $2.6 million in fiscal 1997, $3.5 million in fiscal 1998, $25.5 million
        in fiscal 1999, $62.6 million in fiscal 2000, $87.5 million in fiscal
        2001 and $368.3 million thereafter.

                Certain other terms and provisions of the previous Credit
        Facility were also changed including, but not limited to, application of
        proceeds from selected asset sales and stock offerings and permitted
        capital expenditures. Management believes that this refinancing provides
        increased operational and financial flexibility through lower interest
        costs and lower short-term loan amortization.

                As a result of the refinancings described above, the Company
        will incur an extraordinary loss in the first quarter of fiscal 1997 of
        approximately $48.9 million, consisting of the call premium on the
        13.75% Senior Subordinated Notes and write-off of deferred financing
        costs.


                                       84
<PAGE>   86
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Board of Directors and
Stockholders of Food 4 Less Holdings, Inc.:

        We have audited, in accordance with generally accepted auditing
standards, the consolidated balance sheets of Food 4 Less Holdings, Inc. and
subsidiaries as of January 29, 1995, January 28, 1996 and February 2, 1997, and
the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the 52 weeks ended June 25, 1994, the 31 weeks
ended January 29, 1995, the 52 weeks ended January 28, 1996 and the 53 weeks
ended February 2, 1997, and have issued our report thereon dated March 21, 1997
(except with respect to the matter discussed in Note 14, as to which the date is
April 17, 1997). Our audits were made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The schedules included on pages
86 through 89 are the responsibility of the Company's management and are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic consolidated financial
statements. These schedules have been subjected to the auditing procedures
applied in the audits of the basic consolidated financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic consolidated financial statements
taken as a whole.



                                    ARTHUR ANDERSEN LLP



Los Angeles, California 
March 21, 1997 (except with respect to the 
matter discussed in Note 14, as to which the 
date is April 17, 1997)


                                       85
<PAGE>   87
                           FOOD 4 LESS HOLDINGS, INC.
           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
               AS OF, AND FOR, THE 53 WEEKS ENDED FEBRUARY 2, 1997
                                 (IN THOUSANDS)



        The following condensed financial statements have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although
the Company believes that the disclosures made are adequate to make the
information presented not misleading.



                             CONDENSED BALANCE SHEET


<TABLE>
<CAPTION>
                                                                               February 2,
                                                                                  1997
                                                                               -----------
<S>                                                                            <C>       

ASSETS

    Investment in subsidiary                                                    $ (35,562)
                                                                                ---------
       Total Assets                                                             $ (35,562)
                                                                                =========

LIABILITIES AND STOCKHOLDERS'  EQUITY

    New  Discount Notes                                                         $ 123,821
    Seller Debentures                                                             159,885
    Convertible Series A Preferred Stock, $.01 par value, 25,000,000 shares
       authorized and 16,683,244 outstanding
       (aggregate liquidation value of $186.9 million)                            143,600
    Convertible Series B Preferred Stock, $.01 par value,
        25,000,000 shares authorized and 3,100,000 outstanding
       (aggregate liquidation value of $34.7 million)                              31,000
    Common Stock, $.01 par value, 60,000,000 shares authorized
       and 17,207,882 outstanding                                                     172
    Additional paid-in capital                                                         --
    Retained deficit                                                             (494,040)
                                                                                ---------
                                                                                $ (35,562)
                                                                                =========

</TABLE>


                           CONDENSED STATEMENT OF LOSS
<TABLE>
<CAPTION>
                                                                                    53 Weeks
                                                                                      Ended
                                                                                    February 2,
                                                                                       1997
                                                                                    ----------
<S>                                                                                 <C>       

Net loss of subsidiary                                                              $ (93,791)
Interest expense                                                                      (35,789)
                                                                                    ----------
    Net loss                                                                        $(129,580)
                                                                                    ==========
</TABLE>


                                       86
<PAGE>   88
                           FOOD 4 LESS HOLDINGS, INC.
           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
               AS OF, AND FOR, THE 53 WEEKS ENDED FEBRUARY 2, 1997
                                 (IN THOUSANDS)


                        CONDENSED STATEMENT OF CASH FLOWS


<TABLE>
<S>                                                                         <C>       
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED
    (USED) BY OPERATING ACTIVITIES:
       Net loss                                                             $(129,580)
       Adjustments to reconcile net loss to net cash provided (used) by
           operating activities:
              Net loss of subsidiary                                           93,791
              Non-cash interest charge                                         35,789
                                                                            ---------
NET CASH USED BY OPERATING ACTIVITIES                                              --

NET INCREASE IN CASH AND CASH EQUIVALENTS                                          --

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                   --
                                                                            ---------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                  $      --
                                                                            =========
</TABLE>


                                       87
<PAGE>   89
                           FOOD 4 LESS HOLDINGS, INC.
           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                     NOTES TO CONDENSED FINANCIAL STATEMENTS



1.              Food 4 Less Holdings, Inc. (the "Company") is a non-operating
        holding company. The above financial statements have been prepared on a
        parent company stand-alone basis. They do not contain all disclosures
        necessary to be in conformity with generally accepted accounting
        principles. They should be read in conjunction with the consolidated
        financial statements of Food 4 Less Holdings, Inc. contained elsewhere
        in this report.

2.              The debt agreements of the Company's subsidiary, Ralphs Grocery
        Company ("Ralphs"), among other things, require Ralphs to maintain
        minimum levels of net worth (as defined), to maintain minimum levels of
        earnings (as defined) and to comply with certain ratios related to
        interest expense (as defined), fixed charges (as defined), working
        capital and indebtedness. In addition, the debt agreements limit, among
        other things, additional borrowings, dividends on, and redemption of,
        capital stock, capital expenditures, incurrence of lease obligations,
        and the acquisition and disposition of assets. At February 2, 1997,
        dividends and certain other payments are restricted based on terms of
        the debt agreements.


                                       88
<PAGE>   90
                           FOOD 4 LESS HOLDINGS, INC.
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
        53 WEEKS ENDED FEBRUARY 2, 1997, 52 WEEKS ENDED JANUARY 28, 1996,
        31 WEEKS ENDED JANUARY 29,1995 AND 52 WEEKS ENDED JUNE 25, 1994
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                  Provisions     Charged
                                    Balance at      charged         to                                      Balance
                                    beginning          to        interest                     Other         at end
                                    of period       expense     expense(a)     Payments     changes(b)    of period
                                    ----------    ----------    ----------     --------     ----------    ---------
<S>                                 <C>           <C>           <C>            <C>          <C>           <C>     

Self-insurance liabilities

53 weeks ended February 2, 1997      $148,985      $ 29,184      $ 10,818      $ 49,404      $     --      $139,583
                                     ========      ========      ========      ========      ========      ========

52 weeks ended January 28, 1996      $ 72,739      $ 32,603      $ 10,287      $ 42,153      $ 75,509      $148,985
                                     ========      ========      ========      ========      ========      ========

31 weeks ended January 29, 1995      $ 81,704      $  6,304      $  3,453      $ 18,722      $     --      $ 72,739
                                     ========      ========      ========      ========      ========      ========

52 weeks ended June 25, 1994         $ 85,494      $ 19,880      $  5,836      $ 29,506      $     --      $ 81,704
                                     ========      ========      ========      ========      ========      ========
</TABLE>


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

(a) Amortization of discount on self-insurance reserves charged to interest
expense.

(b) Reflects self-insurance reserve of Ralphs Grocery Company which was acquired
on June 14, 1995.


                                       89
<PAGE>   91
                                INDEX TO EXHIBITS


Exhibit
Number                                 Description
-------                                -----------

3.1            Restated Certificate of Incorporation, as amended, of Ralphs
               Grocery Company (incorporated herein by reference to Exhibit 3.1
               of Ralphs Grocery Company's Quarterly Report on Form 10-Q for the
               quarter ended July 16, 1995).

3.2            Restated bylaws of Ralphs Grocery Company (incorporated herein by
               reference to Exhibit 3.2 of Ralphs Grocery Company's Registration
               Statement on Form S-4, No. 333-07005, as filed with the
               Securities and Exchange Commission on June 27, 1996.)

4.1.1          Credit Agreement, dated as of June 14, 1995, by and among Food 4
               Less Holdings, Inc., Food 4 Less Supermarkets, Inc., the Lenders,
               Co-Agents, and Co-Arrangers named therein and Bankers Trust
               Company (incorporated herein by reference to Exhibit 4.1 of Food
               4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the
               quarter ended July 16, 1995).

4.1.2          First Amendment to Credit Agreement, dated as of August 18, 1995,
               among Food 4 Less Holdings, Inc., Ralphs Grocery Company and the
               financial institutions listed therein (incorporated herein by
               reference to Exhibit 4.1.2 of Ralphs Grocery Company's Annual
               Report on Form 10-K for the fiscal year ended January 28, 1996).

4.1.3          Second Amendment to Credit Agreement, dated as of December 11,
               1995, among Food 4 Less Holdings, Inc., Ralphs Grocery Company
               and the financial institutions listed therein (incorporated
               herein by reference to Exhibit 4.1.3 of Ralphs Grocery Company's
               Annual Report on Form 10-K for the fiscal year ended January 28,
               1996).

4.1.4          Third Amendment, Consent and Waiver to Credit Agreement, dated as
               of March 8, 1996, among Food 4 Less Holdings, Inc., Ralphs
               Grocery Company and the financial institutions listed therein
               (incorporated herein by reference to Exhibit 4.1.4 of Ralphs
               Grocery Company's Annual Report on Form 10-K for the fiscal year
               ended January 28, 1996).

4.1.5          Fourth Amendment to Credit Agreement, dated as of November 7,
               1996, among Food 4 Less Holdings, Inc., Ralphs Grocery Company
               and the financial institutions listed therein (incorporated
               herein by reference to Exhibit 4.1.5 of Ralphs Grocery Company's
               Annual Report on Form 10-K for the fiscal year ended February 2,
               1997).

4.2.1          Indenture for the 10.45% Senior Notes due 2004, dated as of June
               1, 1995, by and among Food 4 Less Supermarkets, Inc., the
               subsidiary guarantors identified therein and Norwest Bank
               Minnesota, National Association, as trustee (incorporated herein
               by reference to Exhibit 4.4.1 of Food 4 Less Holdings, Inc.'s
               Quarterly Report on Form 10-Q for the quarter ended July 16,
               1995).


                                       E-1
<PAGE>   92
Exhibit
Number                                 Description
-------                                -----------


4.2.2          First Supplemental Indenture for the 10.45% Senior Notes due
               2004, dated as of June 14, 1995, by and among Ralphs Grocery
               Company (as successor by merger to Food 4 Less Supermarkets,
               Inc.), the subsidiary guarantors identified therein, Crawford
               Stores, Inc. and Norwest Bank Minnesota, National Association, as
               trustee (incorporated herein by reference to Exhibit 4.4.2 of
               Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for
               the quarter ended July 16, 1995).

4.2.3          Indenture for the 10.45% Senior Notes due 2004, dated as of June
               6, 1996, by and among Ralphs Grocery Company, the subsidiary
               guarantors identified therein and Norwest Bank Minnesota,
               National Association, as trustee (incorporated herein by
               reference to Exhibit 4.9 of Ralphs Grocery Company's Registration
               Statement on Form S-4, No. 333-07005, as filed with the
               Securities and Exchange Commission on June 27, 1996).

4.3.1          Indenture for the 13.75% Senior Subordinated Notes due 2005,
               dated as of June 1, 1995, by and among Food 4 Less Supermarkets,
               Inc., the subsidiary guarantors identified herein and United
               States Trust Company of New York, as trustee (incorporated herein
               by reference to Exhibit 4.5.1 of Food 4 Less Holdings, Inc.'s
               Quarterly Report on Form 10-Q for the quarter ended July 16,
               1995).

4.3.2          First Supplemental Indenture for the 13.75% Senior Subordinated
               Notes due 2005, dated as of June 14, 1995, by and among Ralphs
               Grocery Company (as successor by merger to Food 4 Less
               Supermarkets, Inc.), the subsidiary guarantors identified
               therein, Crawford Stores, Inc. and United States Trust Company of
               New York, as trustee (incorporated herein by reference to Exhibit
               4.5.2 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form
               10-Q for the quarter ended July 16, 1995).

4.4.1          Indenture for the 11% Senior Subordinated Notes due 2005, dated
               as of June 1, 1995, by and among Food 4 Less Supermarkets, Inc.,
               the subsidiary guarantors identified therein and United States
               Trust Company of New York, as trustee (incorporated herein by
               reference to Exhibit 4.6.1 of Food 4 Less Holdings, Inc.'s
               Quarterly Report on Form 10-Q for the quarter ended July 16,
               1995).

4.4.2          First Supplemental Indenture for the 11% Senior Subordinated
               Notes due 2005, dated as of June 14, 1995, by and among Ralphs
               Grocery Company (as successor by merger to Food 4 Less
               Supermarkets, Inc.), the subsidiary guarantors identified
               therein, Crawford Stores, Inc. and United States Trust Company of
               New York, as trustee (incorporated herein by reference to Exhibit
               4.6.2 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form
               10-Q for the quarter ended July 16, 1995).

4.5.1          Indenture for the 10-1/4% Senior Subordinated Notes due 2002,
               dated as of July 29, 1992, by and between Ralphs Grocery Company
               and United States Trust Company of New York, as trustee
               (incorporated herein by reference to Exhibit 4.3 of Ralphs
               Grocery Company's Quarterly Report on Form 10-Q for the quarter
               ended July 19, 1992).


                                       E-2
<PAGE>   93
Exhibit
Number                                 Description
-------                                -----------


4.5.2          First Supplemental Indenture for the 10-1/4% Senior Subordinated
               Notes due 2002, dated as of May 30, 1995, by and between Ralphs
               Grocery Company and United States Trust Company of New York, as
               trustee (incorporated herein by reference to Exhibit 4.1 of
               Ralphs Grocery Company's Quarterly Report on Form 10-Q for the
               quarter ended April 23, 1995).

4.5.3          Second Supplemental Indenture for the 10-1/4% Senior Subordinated
               Notes due 2002, dated as of June 14, 1995, by and between Ralphs
               Grocery Company (as successor) and United States Trust Company of
               New York, as trustee (incorporated herein by reference to Exhibit
               4.7.3 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form
               10-Q for the quarter ended July 16, 1995).

4.6.1          Indenture for the 9% Senior Subordinated Notes due 2003, dated as
               of March 30, 1993, by and between Ralphs Grocery Company and
               United States Trust Company of New York, as trustee (incorporated
               herein by reference to Exhibit 4.1 of Ralphs Grocery Company's
               Registration Statement on Form S-4, No. 33-61812).

4.6.2          First Supplemental Indenture for the 9% Senior Subordinated Notes
               due 2003, dated as of June 23, 1993, by and between Ralphs
               Grocery Company and United States Trust Company of New York, as
               trustee (incorporated herein by reference to Exhibit 4.2 of
               Ralphs Grocery Company's Registration Statement on Form S-4, No.
               33- 61812).

4.6.3          Second Supplemental Indenture for the 9% Senior Subordinated
               Notes due 2003, dated as of May 30, 1995, by and between Ralphs
               Grocery Company and United States Trust Company of New York, as
               trustee (incorporated herein by reference to Exhibit 4.2 of
               Ralphs Grocery Company's Quarterly Report on Form 10-Q for the
               quarter ended April 23, 1995).

4.6.4          Third Supplemental Indenture for the 9% Senior Subordinated Notes
               due 2003, dated as of June 14, 1995, by and between Ralphs
               Grocery Company (as successor) and United States Trust Company of
               New York, as trustee (incorporated herein by reference to Exhibit
               4.8.4 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form
               10-Q for the quarter ended July 16, 1995).

4.7.1          Senior Note Indenture, dated as of April 15, 1992, by and among
               Food 4 Less Supermarkets, Inc., the subsidiary guarantors
               identified therein and Norwest Bank Minnesota, National
               Association, as trustee (incorporated herein by reference to
               Exhibit 4.1 to Food 4 Less Supermarkets, Inc.'s Registration
               Statement on Form S-1, No. 33-46750).


4.7.2          First Supplemental Indenture, dated as of July 24, 1992, by and
               among Food 4 Less Supermarkets, Inc., the subsidiary guarantors
               identified therein and Norwest Bank Minnesota, National
               Association, as trustee (incorporated herein by reference to
               Exhibit 4.1.1 to Food 4 Less Supermarkets, Inc.'s Annual Report
               on Form 10-K for the fiscal year ended June 27, 1992).


                                       E-3

<PAGE>   94
Exhibit
Number                                 Description
-------                                -----------


4.7.3          Second Supplemental Indenture for the 10.45% Senior Notes due
               2000, dated as of June 14, 1995, by and among Food 4 Less
               Supermarkets, Inc., the subsidiary guarantors identified therein
               and Norwest Bank Minnesota, National Association, as trustee
               (incorporated herein by reference to Exhibit 4.9.3 of Food 4 Less
               Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter
               ended July 16, 1995).


4.7.4          Third Supplemental Indenture for the 10.45% Senior Notes due
               2000, dated as of June 14, 1995, by and among Ralphs Grocery
               Company (as successor by merger to Food 4 Less Supermarkets,
               Inc.), the subsidiary guarantors identified therein and Norwest
               Bank Minnesota, National Association, as trustee (incorporated
               herein by reference to Exhibit 4.9.4 of Food 4 Less Holdings,
               Inc.'s Quarterly Report on Form 10-Q for the quarter ended July
               16, 1995).

4.8.1          Senior Subordinated Note Indenture, dated as of June 15, 1991, by
               and among Food 4 Less Supermarkets, Inc., the subsidiary
               guarantors identified therein and United States Trust Company of
               New York, as trustee (incorporated herein by reference to Exhibit
               4.1 to Food 4 Less Supermarkets, Inc.'s Annual Report on Form
               10-K for the fiscal year ended June 29, 1991).

4.8.2          First Supplemental Indenture, dated as of April 8, 1992, by and
               among Food 4 Less Supermarkets, Inc., the subsidiary guarantors
               identified therein and United States Trust Company of New York,
               as trustee (incorporated herein by reference to Exhibit 4.2.1 to
               Food 4 Less Supermarkets, Inc.'s Annual Report on Form 10-K for
               the fiscal year ended June 27, 1992).

4.8.3          Second Supplemental Indenture, dated as of May 18, 1992, by and
               among Food 4 Less Supermarkets, Inc., the subsidiary guarantors
               identified therein and United States Trust Company of New York,
               as trustee (incorporated herein by reference to Exhibit 4.2.2 of
               Food 4 Less Supermarkets, Inc.'s Annual Report on Form 10-K for
               the fiscal year ended June 27, 1992).


4.8.4          Third Supplemental Indenture, dated as of July 24, 1992, by and
               among Food 4 Less Supermarkets, Inc., the subsidiary guarantors
               identified therein and United States Trust Company of New York,
               as trustee (incorporated herein by reference to Exhibit 4.2.3 to
               Food 4 Less Supermarkets, Inc.'s Annual Report on Form 10-K for
               the fiscal year ended June 27, 1992).

4.8.5          Fourth Supplemental Indenture for the 13.75% Senior Subordinated
               Notes due 2001, dated as of May 30, 1995, by and among Food 4
               Less Supermarkets, Inc., the subsidiary guarantors identified
               therein and United States Trust Company of New York, as trustee
               (incorporated herein by reference to Exhibit 4.10.5 of Food 4
               Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the
               quarter ended July 16, 1995).


                                       E-4

<PAGE>   95
Exhibit
Number                                 Description
-------                                -----------


4.8.6          Fifth Supplemental Indenture for the 13.75% Senior Subordinated
               Notes due 2001, dated as of June 14, 1995, by and among Ralphs
               Grocery Company (as successor by merger to Food 4 Less
               Supermarkets, Inc.), the subsidiary guarantors identified therein
               and United States Trust Company of New York, as trustee
               (incorporated herein by reference to Exhibit 4.10.6 of Food 4
               Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the
               quarter ended July 16, 1995).

10.1           Second Amended and Restated Tax Sharing Agreement, dated as of
               June 14, 1995, by and among Food 4 Less Holdings, Inc., Ralphs
               Grocery Company and the subsidiaries of Ralphs Grocery Company
               (incorporated herein by reference to Exhibit 10.1 of Food 4 Less
               Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter
               ended July 16, 1995).

10.2           Stockholders Agreement of Food 4 Less Holdings, Inc., dated as of
               June 14, 1995, by and among Food 4 Less Holdings, Inc., Ralphs
               Grocery Company and the investors listed on the signature pages
               thereto (incorporated herein by reference to Exhibit 10.2 of Food
               4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the
               quarter ended July 16, 1995).

10.3           Consulting Agreement, dated as of June 14, 1995, by and among The
               Yucaipa Companies, Food 4 Less Holdings, Inc. and Ralphs Grocery
               Company (incorporated herein by reference to Exhibit 10.4 of Food
               4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the
               quarter ended July 16, 1995).

10.4*          Employment Agreement dated as of June 14, 1995 between Food 4
               Less Holdings, Inc., Ralphs Grocery Company and George G.
               Golleher (incorporated herein by reference to Exhibit 10.11 of
               Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for
               the quarter ended July 16, 1995).

10.5*          Employment Agreement dated as of June 14, 1995 between Ralphs
               Grocery Company and Alfred A. Marasca (incorporated herein by
               reference to Exhibit 10.9 of Ralphs Grocery Company's Quarterly
               Report on Form 10-Q for the quarter ended July 16, 1995).

10.6*          Employment Agreement dated as of June 14, 1995 between Ralphs
               Grocery Company and Greg Mays (incorporated herein by reference
               to Exhibit 10.10 of Ralphs Grocery Company's Quarterly Report on
               Form 10-Q for the quarter ended July 16, 1995).

10.7*          Employment Agreement, dated as of June 14, 1995, between Ralphs
               Grocery Company and Harley DeLano (incorporated herein by
               reference to Exhibit 10.8 of Ralphs Grocery Company's Annual
               Report on Form 10-K for the fiscal year ended January 28, 1996).

10.8*          Employment Agreement, dated as of June 14, 1995, between Ralphs
               Grocery Company and Tony Schnug (incorporated herein by reference
               to Exhibit 10.10 of Ralphs Grocery Company's Annual Report on
               Form 10-K for the fiscal year ended January 28, 1996).


                                       E-5

<PAGE>   96
Exhibit
Number                                 Description
-------                                -----------


10.9*          Management Stockholders Agreement, dated as of June 14, 1995,
               between Food 4 Less Holdings, Inc. and the management employees
               listed on the signature page thereto (incorporated herein by
               reference to Exhibit 10.12 of Food 4 Less Holdings, Inc.'s
               Quarterly Report on Form 10-Q for the quarter ended July 16,
               1995).


10.10*         Consulting Agreement, dated as of June 27, 1988, by and between
               Falley's, Inc. and Joe S. Burkle (incorporated herein by
               reference to Exhibit 10.38 to Food 4 Less Supermarkets, Inc.'s
               Registration Statement on Form S-1, No. 33-31152).

10.11*         Letter Agreement, dated as of December 10, 1990, amending the
               Consulting Agreement by and between Falley's, Inc. and Joe S.
               Burkle (incorporated herein by reference to Exhibit 10.17.1 to
               Food 4 Less Supermarkets, Inc.'s Annual Report on Form 10-K for
               the fiscal year ended June 29, 1991).

10.12          Distribution Center Transfer Agreement, dated as of November 1,
               1995, by and between Smith's Food & Drug Centers, Inc., a
               Delaware corporation, and Ralphs Grocery Company relating to the
               Riverside, California property (incorporated herein by reference
               to Exhibit 10.1 to Ralphs Grocery Company's Quarterly Report on
               Form 10-Q for the quarter ended October 8, 1995).

10.13.1*       Ralphs Grocery Company Retirement Supplement Plan, effective as
               of January 1, 1994 (incorporated herein by reference to Exhibit
               10.15.1 of Ralphs Grocery Company's Annual Report on Form 10-K
               for the fiscal year ended January 28, 1996).

10.13.2*       Amendment to the Retirement Supplement Plan, effective as of
               January 1, 1995 (incorporated herein by reference to Exhibit
               10.15.2 of Ralphs Grocery Company's Annual Report on Form 10-K
               for the fiscal year ended January 28, 1996).

10.13.3*       Second Amendment to the Retirement Supplement Plan, effective as
               of June 14, 1995, by and between Ralphs Grocery Company and
               Ralphs Grocery Company Retirement Supplement Plan (incorporated
               herein by reference to Exhibit 10.15.3 of Ralphs Grocery
               Company's Annual Report on Form 10-K for the fiscal year ended
               January 28, 1996).

10.14.1*       Ralphs Grocery Company Supplemental Executive Retirement Plan,
               amended and restated as of April 9, 1994 (incorporated herein by
               reference to Exhibit 10.16.1 of Ralphs Grocery Company's Annual
               Report on Form 10-K for the fiscal year ended January 28, 1996).

10.14.2*       Amendment to the Amended and Restated Supplemental Executive
               Retirement Plan, effective as of January 1, 1995 (incorporated
               herein by reference to Exhibit 10.16.2 of Ralphs Grocery
               Company's Annual Report on Form 10-K for the fiscal year ended
               January 28, 1996).

10.14.3*       Second Amendment to the Supplemental Executive Retirement Plan,
               dated as of June 14, 1995, by and between Ralphs Grocery Company
               and Ralphs Grocery Company Supplemental Executive Retirement Plan
               (incorporated herein by reference to Exhibit 10.16.3 of Ralphs
               Grocery Company's Annual Report on Form 10-K for the fiscal year
               ended January 28, 1996).

                                             E-6

<PAGE>   97
Exhibit
Number                                 Description
-------                                -----------

10.14.4*       Third Amendment to the Ralphs Grocery Company Supplemental
               Executive Plan, effective as of July 1, 1995 (incorporated herein
               by reference to Exhibit 10.16.4 of Ralphs Grocery Company's
               Annual Report on Form 10-K for the fiscal year ended January 28,
               1996).

21#            Subsidiaries

27#            Financial Data Schedule

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

# Filed herewith.
* Management contract, or compensatory plan or arrangement.


                                       E-7