EXHIBIT 13

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations (Dollars in millions, except per share data)

Business Combinations

On August 2,  1998,  Albertson's,  Inc.  ("Albertson's"  or the  "Company")  and
American  Stores  Company  ("ASC")  entered into a definitive  merger  agreement
("Merger  Agreement")  whereby  Albertson's would acquire ASC by exchanging 0.63
share of  Albertson's  common  stock for each  outstanding  share of ASC  common
stock,  with cash being paid in lieu of fractional shares (the "Merger") and ASC
would become a wholly owned subsidiary of Albertson's. In addition,  outstanding
rights to  receive  ASC  common  stock  under ASC stock  option  plans  would be
converted into rights to receive equivalent Albertson's common stock.

   The  Merger  was   consummated  on  June  23,  1999,  with  the  issuance  of
approximately  177  million  shares of  Albertson's  common  stock.  The  Merger
constituted a tax-free reorganization and has been accounted for as a pooling of
interests  for  accounting  and  financial  reporting  purposes.  The pooling of
interests method of accounting is intended to present as a single interest,  two
or  more  common  stockholders'  interests  that  were  previously  independent;
accordingly,  these  consolidated  financial  statements  restate the historical
financial  statements  as though the  companies  had always been  combined.  The
restated  consolidated  financial  statements are adjusted to conform accounting
policies and financial statement presentations.

   The following table compares amounts  previously  reported by Albertson's and
ASC prior to the Merger transaction and the combined amounts for fiscal 1998 and
1997:

<TABLE>
<CAPTION>
-----------------------------------------------------------------
                      Albertson's            ASC        Combined
-----------------------------------------------------------------
<S>                   <C>               <C>             <C>
1998:

Net revenues             $ 16,005       $ 19,867        $ 35,872
Net earnings                  567            234             801
1997:

Net revenues               14,690         19,138          33,828
Net earnings                  517            280             797
</TABLE>

   In connection  with the Merger,  the Company entered into agreements with the
Attorneys  General of  California,  Nevada and New Mexico and the Federal  Trade
Commission  to  enable  the  Merger  to  proceed  under  applicable   antitrust,
competition  and trade  regulation  law. The agreements  required the Company to
divest a total of 117 stores in California,  19 stores in Nevada and 9 stores in
New  Mexico.  Of the  stores  required  to be  divested,  40 were ASC  locations
operated  primarily  under  the  Lucky  name,  and 105 were  Albertson's  stores
operated primarily under the Albertson's name. In addition, the Company divested
four  supermarket  real estate sites as required by the  agreements.  The stores
identified for  disposition  had sales of $2,300 in fiscal 1998. The Company had
divested 144 of the required  145 stores as of February 3, 2000.  Future  growth
comparisons will be affected by these divestitures.

   During  1998 the  Company  acquired  the  stock of three  separate  operating
companies  representing 64 retail food and drug stores in transactions accounted
for using the purchase  method of  accounting.  In accordance  with an agreement
with the Federal Trade Commission, nine acquired stores and six previously owned
stores were divested. Reported results include these operations from the date of
consummation of the acquisition.


                                     Page 1

<PAGE>



Results of Operations

Sales for 1999 (a 53-week  year) were  $37,478  compared  to $35,872 in 1998 and
$33,828 in 1997.  During  fiscal 1999,  ASC's fiscal year was  converted  from a
Saturday year end to a Thursday year end. The following table sets forth certain
income statement components expressed as a percent to sales and the year-to-year
percentage changes in the amounts of such components:

<TABLE>
<CAPTION>
                                                          Percent To Sales                      Percentage Change
------------------------------------------------------------------------------------------------------------------------------------
                                                                                               1999            1998
                                                 1999            1998           1997       vs. 1998        vs. 1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>             <C>            <C>          <C>             <C>
Sales                                          100.00          100.00         100.00            4.5             6.0
Gross profit                                    27.52           27.08          26.63            6.2             7.9
Selling, general and
   administrative expenses                      23.06           21.87          21.67           10.1             7.0
Merger-related and
   exit costs                                    1.06            0.54           0.04           n.m.            n.m.
Litigation settlement                            0.10                                          n.m.
Impairment - store closures                                      0.07                          n.m.            n.m.
Operating profit                                 3.31            4.60           4.92         (24.9)           (0.8)
Interest expense, net                            0.94            0.94           0.87            4.6            14.6
Earnings before
   income taxes and
   extraordinary item                            2.40            3.73           3.99         (35.1)           (0.9)
Net earnings                                     1.08            2.23           2.36         (49.5)             0.4
n.m. - not meaningful
</TABLE>

   Sales for 1999  increased  5.4% when compared on a 52-week basis to the prior
year and  excluding  sales from  divested  stores from both years.  Increases in
sales are primarily  attributable to the continued development of new stores and
identical and comparable store sales  increases.  During 1999 the Company opened
or acquired 147 stores, remodeled 100 stores, and closed or sold 219 stores (144
of which were required  divestitures).  Net retail square  footage  decreased by
1.7%.  This includes the effect of required  divestitures,  which reduced square
footage  by 6.1  million  square  feet or 6.2% from the prior  year.  Net retail
square footage increased 7.8% in 1998.  Identical store sales,  stores that have
been in operation for two full fiscal years,  increased 1.7% in 1999 and 0.5% in
1998.  Comparable store sales, which include replacement stores,  increased 2.1%
in 1999 and 1.2% in 1998.  Identical  and  comparable  store sales  continued to
increase through higher average ticket sales per customer.  Management estimates
that there was overall  inflation in products the Company sells of approximately
0.2% in 1999 and overall deflation of 0.1% in 1998.

   In addition to store  development,  the Company has  increased  sales through
implementation  of best  practices  across the  Company  and its  investment  in
programs  initiated in recent  years which are designed to provide  solutions to
customer needs. In 1999 and 1998, these programs  included the Front End Manager
program; the home meal solutions process called "Quick Fixin' Ideas(R)"; special
destination  categories;  and increased  emphasis on training programs utilizing
Computer Guided Training.  To provide additional solutions to customer needs, in
1999 the Company added new  gourmet-quality  bakery products and organic grocery
and produce items.  Other solutions  include  neighborhood  marketing,  targeted
advertising and exciting new and remodeled stores.

   Gross  profit,  as a percent  to sales,  increased  primarily  as a result of
continued  improvements  made  in  retail  stores,   including  improvements  in
underperforming stores and improved sales mix of partially prepared, value-added
products.  Gross profit  improvements  were also realized  through the continued
utilization   of  Company   distribution   facilities   and   increased   buying
efficiencies.  The merger has created buying  synergies and margin  improvements
from the  implementation of best practices across the Company.  The pre-tax LIFO
adjustment,  as a percent to sales, reduced gross margin by $30 (0.08%) in 1999,
$16 (0.04%) in 1998 and $12 (0.03%) in 1997.

   Selling,  general  and  administrative  expenses,  as  a  percent  to  sales,
increased in 1999 primarily due to integration costs associated with the Merger,
including activities associated with the banner change in California, Nevada and
New Mexico. The increase in 1998 over 1997 was primarily due to increased salary
and related benefit costs  resulting from the Company's  initiatives to increase
sales,  increased  depreciation  expense associated with the Company's expansion
program and integration costs associated with the various 1998 acquisitions.


                                     Page 2

<PAGE>


   Results of  operations  for year ended  February  3,  2000,  include  $683 of
merger-related  costs ($529 after tax). The following table presents the pre-tax
costs incurred by category of expenditure and  merger-related  accruals included
in the Company's Consolidated Balance Sheet:

<TABLE>
<CAPTION>
                                           Exit         Merger         Extraordinary         Period
                                          Costs         Charge                  Loss          Costs           Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>           <C>            <C>                   <C>              <C>
Severance costs                            $ 99            $ 8                                  $ 9           $ 116
Write-down of assets
   to net realizable value                  239                                                  12             251
Transaction and financing costs                                                 $ 31             71             102
Integration costs                                            3                                  164             167
Stock option charge                                         47                                                   47
------------------------------------------------------------------------------------------------------------------------------------
   Total costs                              338             58                    31            256             683
Cash expenditures                          (75)            (8)                  (31)          (252)           (366)
Write-down of assets
   to net realizable value                (237)                                                               (237)
Stock option charge                                       (47)                                                 (47)
------------------------------------------------------------------------------------------------------------------------------------
Merger-related accruals
   at February 3, 2000                     $ 26            $ 3                                  $ 4            $ 33
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

   Severance  costs consist of obligations  to employees who were  terminated or
were  notified of  termination  under a plan  authorized  by senior  management.
Approximately  625 employees will be severed as a result of the Merger, of which
499 were terminated as of February 3, 2000.

   The write-down of assets to net  realizable  value includes the expected loss
on  disposal  of stores  required to be divested  and  duplicate  and  abandoned
facilities,   including  administrative  offices,  intangibles  and  information
technology  equipment  which were abandoned by the Company or are being held for
sale. The estimated fair value of assets held for sale has been determined using
negotiated sales prices or independent appraisals.

   Transaction and financing costs consist  primarily of professional  fees paid
for investment banking, legal, accounting,  printing and regulatory filing fees.
Financing costs also include the extraordinary loss on extinguishment of debt.

   Integration costs consist primarily of incremental transition and integration
costs  associated with integrating the operations of Albertson's and ASC and are
being expensed as incurred.

   The  Company's  stock option award plans  contain  provisions  for  automatic
vesting upon a change of control.  Under ASC plans, option holders had the right
(limited stock appreciation  right or LSAR),  during an exercise period of up to
60 days after the  occurrence of a change of control (but prior to  consummation
of the Merger),  to elect to surrender  all or part of their options in exchange
for shares of Albertson's common stock having a value equal to the excess of the
change of control price over the exercise  price.  Certain stock option plans of
ASC defined change of control as the date of stockholder approval of the Merger.
Approval of the Merger  Agreement on November 12,  1998,  by ASC's  stockholders
accelerated  the vesting of 6.4 million  equivalent  stock options granted under
pre-1997 ASC plans and permitted the holders of these options to exercise LSARs.
The exercisability of the 6.4 million LSARs resulted in the Company  recognizing
a pre-tax $195 merger-related stock option charge during 1998.

   In the first  quarter of 1999, a market price  adjustment of $29 was recorded
as a  reduction  of  merger-related  costs to reflect a decline in the  relevant
stock price at the end of the first fiscal quarter relative to LSARs. The actual
change of  control  price  used to measure  the value of these  exercised  LSARs
became  determinable  at the date the Merger was  consummated and resulted in no
further adjustments.  Upon Merger consummation,  the change of control price was
$53.77 per  share,  resulting  in the  issuance  of  approximately  1.7  million
Albertson's shares.

   LSARs relating to approximately  4.0 million  equivalent stock options became
exercisable  upon  regulatory   approval  of  the  Merger,   which  resulted  in
recognition of an additional charge of $76 in the second quarter of fiscal 1999.
This charge was based upon a change of control price of $56.96 per share,  which
included an adjustment factor for the early  termination of the LSAR feature.  A
total of 0.8 million  Albertson's  shares were issued in  satisfaction  of those
options for which the LSAR  feature was elected and the  remaining  options were
converted into options to acquire approximately 1.2 million Albertson's shares.


                                     Page 3

<PAGE>



   The Company  recorded a $37 pre-tax  one-time  charge to earnings  during the
third quarter of 1999 resulting from an agreement in principle reached to settle
eight purported  multi-state  cases combined in the United States District Court
in Boise,  Idaho,  which raised various issues  including  "off-the-clock"  work
allegations.  The proposed  settlement is subject to court  approval.  Under the
proposed settlement agreement, current and former employees who meet eligibility
criteria  may present  their  claims to a  settlement  administrator.  While the
Company cannot specify the exact number of individuals  who are likely to submit
claims  and the  exact  amount  of their  claims,  the  one-time  charge  is the
Company's current estimate of the total monetary  liability,  including attorney
fees, for all eight cases.

   The Company recorded an impairment  charge to earnings during 1998 related to
management's  decision to close 16  underperforming  stores in eight states. The
$24 pre-tax charge included  impaired real estate and equipment,  as well as the
present value of remaining  liabilities  under leases,  net of expected sublease
recoveries.

   Results of operations  for 1997  included a pre-tax  charge of $34 related to
the sale of stock by a major  stockholder  and pre-tax charges of $13 related to
the sale of a division of ASC's communication subsidiary.

   The Company's  effective income tax rate from continuing  operations for 1999
was 52.5%,  as compared to 40.2% for 1998 and 41.0% for 1997.  The  increase for
1999 is primarily due to the non-deductible portion of merger-related costs.

   Due to the  significance  of the  merger-related  costs  and  other  one-time
expenses and their effect on operating results, the following table is presented
to assist in the comparison of income statement  components  without these costs
and expenses:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                    53 Weeks Ended                          52 Weeks Ended          52 Weeks Ended
                                  February 3, 2000                        January 28, 1999        January 29, 1998
------------------------------------------------------------------------------------------------------------------------------------
                   As  Reported     One-Time       W/O One-Time             W/O One-Time            W/O One-Time
------------------------------------------------------------------------------------------------------------------------------------
<S>                    <C>          <C>        <C>         <C>          <C>        <C>          <C>         <C>
Sales                  $ 37,478                $ 37,478    100.00%      $ 35,872   100.00%      $ 33,828    100.00%
Cost of sales            27,164     $ (42)       27,122      72.37        26,156     72.92        24,821      73.37
------------------------------------------------------------------------------------------------------------------------------------
Gross profit             10,314         42       10,356      27.63         9,716     27.08         9,007      26.63
Selling,
   general and
   administrative
   expense                8,641      (214)        8,427      22.49         7,845     21.87         7,330      21.67
Merger-related
   and exit costs           396      (396)
Litigation
   settlement                37       (37)
------------------------------------------------------------------------------------------------------------------------------------

Operating profit          1,240        689        1,929       5.15         1,871      5.22         1,677       4.96
Interest expense,
   net                    (353)          1        (352)     (0.94)         (337)    (0.94)         (294)     (0.87)
Other income, net            12                      12       0.03            24      0.07            14       0.04
------------------------------------------------------------------------------------------------------------------------------------
Earnings before
   income taxes and
   extraordinary item       899        690        1,589       4.24         1,558      4.34         1,397       4.13
Income taxes                472        162          634       1.69           609      1.70           559       1.66
------------------------------------------------------------------------------------------------------------------------------------
Earnings before
   extraordinary item       427        528          955       2.55           949      2.65           838       2.48
Extraordinary loss
   on extinguishment
   of debt, net of
   tax benefit of $7       (23)         23
------------------------------------------------------------------------------------------------------------------------------------
Net earnings              $ 404      $ 551        $ 955      2.55%         $ 949     2.65%         $ 838      2.48%
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                     Page 4

<PAGE>



   The  costs  of  integrating  the  two  companies  have  and  will  result  in
significant  non-recurring charges and incremental  expenses.  These costs had a
material  effect on 1999  results of  operations  of the  Company and may have a
significant effect on results of operations for the year 2000. The actual timing
of the  costs  is,  in  part,  dependent  upon  the  actual  timing  of  certain
integration  actions.   Non-recurring   charges  and  expenses  of  implementing
integration  actions are estimated to total $700 after income tax benefits.  The
cash portion of these charges is estimated at  approximately  $367. When reduced
by the cash received from the sale of the stores required to be divested and the
net  proceeds  from the sale of  assets  that  will not be used in the  combined
company, the net positive cash flow will be approximately $276.

   The Company expects to incur  additional  after-tax  merger-related  costs of
approximately  $157 in future  periods,  which  consist  primarily  of  expected
integration costs and costs associated with other  consolidation  activities for
which plans have not yet been finalized.

Liquidity and Capital Resources

Cash provided by operating activities during 1999 was $1,397, compared to $1,447
in 1998 and $1,815 in 1997.  Cash provided by operating  activities  during 1999
was negatively impacted by $230 for merger-related  after-tax  expenditures (the
offsetting  proceeds from divestitures is included with cash flow from investing
activities).  These expenditures  include severance,  transaction  financing and
integration  costs.  In  addition,  for fiscal 1999 a  combination  of increased
inventories and the reduction of accounts payable leverage  negatively  impacted
cash  provided  from  operating  activities.  Fiscal  1998  cash  provided  from
operating activities decreased from 1997 primarily due to higher inventories and
the  timing  of  cash  payments  related  to  insurance  programs  for  workers'
compensation  and  general  liability.   The  Company  has  implemented  several
initiatives designed to enhance working capital which include reducing inventory
levels and increasing accounts payable leverage. These improvements are expected
to reduce the cash requirements of the business.

   The Company's  financing  activities  for 1999 included net new borrowings of
$441 and $265 for the payment of dividends  (which  represents 27.7% of 1999 net
earnings  without  merger-related  costs and  one-time  expenses).  The Board of
Directors  at its March  2000  meeting  increased  the  regular  quarterly  cash
dividend to $0.19 per share, for an annual rate of $0.76 per share.

   The Company utilizes its commercial paper and bank line programs primarily to
supplement cash requirements for seasonal fluctuations in working capital and to
fund its capital  expenditure  program.  Accordingly,  commercial paper and bank
line borrowings will fluctuate between reporting periods. The Company had $1,628
of commercial paper borrowings outstanding at February 3, 2000.

   Following  the Merger,  the Company  consolidated  several of the  commercial
paper,  bank lines and other financing  arrangements.  The consolidation of debt
included the repayment of ASC debt containing  change of control  provisions and
the tender for, or open market  purchases of, certain higher coupon debt. At the
effective  date of the  Merger,  approximately  $900 of ASC's debt became due or
callable  by the  creditors  due to  change  of  control  provisions,  of  which
approximately  $700 was  repaid,  and a $200 term loan was  amended to waive the
change of control provision.

   In support of the Company's  commercial  paper  program,  the Company had two
credit facilities totaling $2,100 during fiscal 1999.  Effective March 2000, the
Company  entered  into two new  revolving  credit  agreements  for  $1,900.  One
agreement  expires  in 364 days for $950 and the second  agreement  expires in 5
years for the remaining $950. At the expiration of the 364-day credit  agreement
and upon due notice,  the Company may extend the term for an additional  364-day
period if the lenders holding at least 75% of the commitments agree. The 364-day
agreement  also  contains  an option  which would  allow the  Company,  upon due
notice, to convert any outstanding amounts at the expiration date to term loans.
The agreements contain certain covenants, the most restrictive of which requires
the Company to maintain consolidated tangible net worth, as defined, of at least
$2,100.  In addition,  the Company has uncommitted bank lines of credit totaling
$345  million.  As of February 3, 2000,  no amounts were  outstanding  under the
credit facilities or bank lines.

   Albertson's  filed a shelf  registration  statement  with the  Securities and
Exchange  Commission  (SEC),  which became effective in February 1999 (the "1999
Registration  Statement")  to  authorize  the  issuance  of up to $2,500 in debt
securities.  The Company  intends to use the net proceeds of any securities sold
pursuant to the 1999  Registration  Statement for retirement of debt and general
corporate purposes.


                                     Page 5

<PAGE>



   In July  1999,  the  Company  issued  $1,300  of term  notes  under  the 1999
Registration  Statement.  The notes are  composed of $300 of  principal  bearing
interest  at 6.55% due August 1, 2004;  $350 of  principal  bearing  interest at
6.95% due August 1, 2009;  and $650 of principal  bearing  interest at 7.45% due
August 1, 2029.  Proceeds  were used  primarily  to repay  borrowings  under the
Company's  commercial paper program.  Additional  securities up to $1,200 remain
available for issuance under the Company's 1999 Registration Statement.

    During 1998 Albertson's  issued a total of $317 in medium-term notes under a
shelf registration  statement filed with the SEC in December 1997. Under a shelf
registration  statement filed with the SEC in May 1996,  Albertson's issued $200
of medium-term notes in 1997.  Proceeds from these issuances were used to reduce
borrowings under Albertson's commercial paper program.

   On March 19, 1998, ASC issued $45 of 6.5% notes due March 20, 2008,  under an
outstanding Series B Medium-Term Note Program.  On March 30, 1998, ASC issued an
additional  $100 of 7.1%  notes  due  March 20,  2028,  under the same  program.
Proceeds  were  used to  refinance  short-term  debt and for  general  corporate
purposes.

   The Company's  operating  results continue to enhance its financial  position
and  ability  to  continue  its  planned  expansion  program.  Cash  flows  from
operations and available  borrowings are sufficient for the future operating and
capital needs of the Company.

   The following  leverage ratios  demonstrate the Company's levels of long-term
financing as of the indicated year end:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                        February 3,     January 28,
                                                                                               2000            1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>             <C>
Long-term debt and capitalized lease obligations to capital (1)                               46.7%           48.1%
Long-term debt and capitalized lease obligations to total assets                               31.8            33.8
</TABLE>

     (1) Capital includes long-term  debt,  capitalized  lease  obligations  and
stockholders' equity

   The Company continues to retain ownership of real estate when possible. As of
February 3, 2000, the Company held title to the land and buildings of 39% of the
Company's stores and held title to the buildings on leased land of an additional
7% of the  Company's  stores.  The  Company  also  holds  title  to the land and
buildings of most of its administrative offices and distribution facilities.

   The Company is committed to keeping its stores up to date.  In the last three
years,  the Company has opened or remodeled 796 stores  representing  35% of the
Company's retail square footage as of February 3, 2000. The following summary of
historical  capital  expenditures  includes  capital leases,  stores acquired in
business  and asset  acquisitions,  assets  acquired  with  related debt and the
estimated fair value of property financed by operating leases:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                1999           1998            1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>            <C>               <C>
New and acquired stores                                                      $ 1,126        $ 1,146           $ 948
Remodels                                                                         296            299             216
Retail replacement equipment and technological upgrades                          151            239             280
Distribution facilities and equipment                                            198            139             110
Other                                                                             97             50             105
------------------------------------------------------------------------------------------------------------------------------------

Total capital expenditures                                                     1,868          1,873           1,659
Estimated fair value of property financed by operating leases                    230            224             205
------------------------------------------------------------------------------------------------------------------------------------
                                                                             $ 2,098        $ 2,097         $ 1,864
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

   The Company's  strong  financial  position  provides the  flexibility for the
Company to grow through its store development program and future acquisitions.


                                     Page 6

<PAGE>



Recent Accounting Standards

In June 1998 the  Financial  Accounting  Standards  Board  issued  Statement  of
Financial  Accounting  Standards  (SFAS) No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities." This new standard  establishes  accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity  recognize all derivatives as either assets or liabilities in the
statement of financial  position and measure  those  instruments  at fair value.
This  standard,  as amended by SFAS No. 137, is effective for the Company's 2001
fiscal year.  The Company has not yet completed its  evaluation of this standard
or its impact on the Company's accounting and reporting requirements.

Quantitative and Qualitative Disclosures about Market Risk

The  Company  is  exposed  to certain  market  risks  that are  inherent  in the
Company's  financial  instruments which arise from transactions  entered into in
the normal  course of  business.  From time to time,  the  Company  enters  into
derivative  transactions.  The objective of these derivative  transactions is to
reduce the Company's exposure to changes in interest rates, and each transaction
is  evaluated  periodically  by the  Company  for  changes  in market  value and
counterparty credit exposure.

   The Company is subject to interest rate risk on its fixed  interest rate debt
obligations.  Commercial  paper  borrowings  do not  give  rise  to  significant
interest rate risk because these  borrowings  have maturities of less than three
months.  Generally,  the fair  value of debt  with a fixed  interest  rate  will
increase as interest  rates fall,  and the fair value will  decrease as interest
rates rise. The Company  manages its exposure to interest rate risk by utilizing
a combination of fixed rate borrowings and commercial paper borrowings.

   During 1997 ASC entered into a $300  five-year  LIBOR basket swap.  The LIBOR
basket swap  agreement  diversified  the indices used to determine  the interest
rate on a portion of ASC's variable rate debt by providing for payments based on
an average of foreign  LIBOR indices which are reset every three months and also
provided for a maximum  interest rate of 8.0%. The Company  recognized no income
or expense in 1998 or 1997 related to this swap.  During 1999 ASC terminated the
LIBOR basket swap and recognized a loss of $1.

   There  have  been no  material  changes  in the  primary  risk  exposures  or
management of the risks since the prior year. The Company expects to continue to
manage risks in accordance with the current policy.

   The table below provides  information  about the Company's  debt  obligations
that are sensitive to changes in interest rates. For debt obligations, the table
presents  principal cash flows and related  weighted  average  interest rates by
expected maturity dates:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                       There-                  Fair
                                  2000       2001       2002       2003       2004      after      Total      Value
------------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>         <C>      <C>         <C>       <C>       <C>        <C>        <C>
Debt obligations
   (excluding
   commercial paper):
Fixed rate                       $ 395       $ 43     $ 105       $ 104     $ 504     $ 2,649    $ 3,800    $ 3,718
Weighted average
   interest rate                  6.7%       5.3%      10.4%      7.3%        6.6%       7.3%       7.2%

</TABLE>

                                     Page 7

<PAGE>




Environmental

   The  Company  has  identified   environmental   contamination  sites  related
primarily to underground  petroleum storage tanks and ground water contamination
at various store,  warehouse,  office and manufacturing  facilities  (related to
current  operations as well as previously  disposed of businesses).  The Company
conducts  an ongoing  program for the  inspection  and  evaluation  of new sites
proposed  to be  acquired  by the  Company  and  the  remediation/monitoring  of
contamination at existing and previously owned sites. Undiscounted reserves have
been established for each environmental contamination site unless an unfavorable
outcome is remote.  Although the ultimate  outcome and expense of  environmental
remediation is uncertain,  the Company  believes that required  remediation  and
continuing  compliance with  environmental  laws, in excess of current reserves,
will not have a  material  adverse  effect  on the  financial  condition  of the
Company.  Charges  against  earnings  for  environmental  remediation  were  not
material in 1999, 1998 or 1997.

     Cautionary  Statement  for  Purposes  of "Safe  Harbor  Provisions"  of the
Private Securities Litigation Reform Act of 1995 From time to time,  information
provided  by the  Company,  including  written  or oral  statements  made by its
representatives,  may  contain  forward-looking  information  as  defined in the
Private  Securities  Litigation  Reform Act of 1995. All statements,  other than
statements of historical facts, which address activities, events or developments
that the  Company  expects  or  anticipates  will or may  occur  in the  future,
including such things as integration of the ASC operations, expansion and growth
of the  Company's  business,  future  capital  expenditures  and  the  Company's
business  strategy,  contain  forward-looking  information.  In  reviewing  such
information it should be kept in mind that actual results may differ  materially
from those  projected  or suggested in such  forward-looking  information.  This
forward-looking  information  is  based  on  various  factors  and  was  derived
utilizing  numerous  assumptions.  Many of these  factors have  previously  been
identified in filings or statements made by or on behalf of the Company.

   Important  assumptions  and other  important  factors that could cause actual
results  to  differ  materially  from  those  set  forth in the  forward-looking
information  include  changes  in  the  general  economy,  changes  in  consumer
spending, competitive factors and other factors affecting the Company's business
in or beyond the Company's control. These factors include changes in the rate of
inflation,  changes  in state or  federal  legislation  or  regulation,  adverse
determinations   with  respect  to   litigation   or  other  claims   (including
environmental matters), labor negotiations, the Company's ability to recruit and
develop  associates,  its ability to develop new stores or complete  remodels as
rapidly as  planned,  its  ability to  implement  new  technology  successfully,
stability of product costs and the Company's ability to integrate the operations
of ASC.

   Other  factors  and  assumptions  not  identified  above could also cause the
actual results to differ materially from those set forth in the  forward-looking
information.   The  Company  does  not   undertake  to  update   forward-looking
information contained herein or elsewhere to reflect actual results,  changes in
assumptions  or  changes  in  other  factors   affecting  such   forward-looking
information.


                                     Page 8

<PAGE>

<TABLE>

Consolidated Earnings

<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                            53 Weeks       52 Weeks        52 Weeks
                                                                         February 3,    January 28,     January 29,
(In millions, except per share data)                                            2000           1999            1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>            <C>             <C>
Sales                                                                       $ 37,478       $ 35,872        $ 33,828
Cost of sales                                                                 27,164         26,156          24,821
------------------------------------------------------------------------------------------------------------------------------------

Gross profit                                                                  10,314          9,716           9,007
Selling, general and administrative expenses                                   8,641          7,846           7,330
Merger-related and exit costs                                                    396            195              13
Litigation settlement                                                             37
Impairment - store closures                                                                      24
------------------------------------------------------------------------------------------------------------------------------------
Operating profit                                                               1,240          1,651           1,664
Other (expenses) income:
   Interest, net                                                               (353)          (337)           (294)
   Shareholder related expense                                                  (34)
   Other, net                                                                     12             24              14
------------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes and extraordinary item                              899          1,338           1,350

Income taxes                                                                     472            537             553
------------------------------------------------------------------------------------------------------------------------------------
Earnings before extraordinary item                                               427            801             797
Extraordinary loss on extinguishment of debt,
   net of tax benefit of $7                                                     (23)
------------------------------------------------------------------------------------------------------------------------------------
Net Earnings                                                                   $ 404          $ 801           $ 797
------------------------------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share:

   Earnings before extraordinary item                                         $ 1.01         $ 1.91          $ 1.89
   Extraordinary item                                                          (.05)
------------------------------------------------------------------------------------------------------------------------------------
   Net Earnings                                                               $ 0.96         $ 1.91          $ 1.89
------------------------------------------------------------------------------------------------------------------------------------

Diluted Earnings Per Share:

   Earnings before extraordinary item                                         $ 1.00         $ 1.90          $ 1.88
   Extraordinary item                                                          (.05)
------------------------------------------------------------------------------------------------------------------------------------
   Net Earnings                                                               $ 0.95         $ 1.90          $ 1.88
------------------------------------------------------------------------------------------------------------------------------------

Weighted Average Common Shares Outstanding:

   Basic                                                                         422            419             422
   Diluted                                                                       423            422             423

</TABLE>







See Notes to Consolidated Financial Statements


                                     Page 9

<PAGE>

<TABLE>

Consolidated Balance Sheets

<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                        February 3,     January 28,
(In millions, except per share data)                                                           2000            1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>             <C>
Assets
Current Assets:

   Cash and cash equivalents                                                                  $ 231           $ 116
   Accounts and notes receivable, net                                                           587             612
   Inventories                                                                                3,481           3,249
   Prepaid expenses                                                                             154              98
   Property held for resale                                                                     100
   Deferred income taxes                                                                         29             133
------------------------------------------------------------------------------------------------------------------------------------
     Total Current Assets                                                                     4,582           4,208
Land, Buildings and Equipment, net                                                            8,913           8,545
Goodwill, net                                                                                 1,582           1,738
Other Assets                                                                                    624             640
------------------------------------------------------------------------------------------------------------------------------------
Total Assets                                                                               $ 15,701        $ 15,131
------------------------------------------------------------------------------------------------------------------------------------


Liabilities and Stockholders' Equity

Current Liabilities

   Accounts payable                                                                         $ 2,132         $ 2,185
   Salaries and related liabilities                                                             555             512
   Taxes other than income taxes                                                                172             169
   Income taxes                                                                                  82              50
   Self-insurance                                                                               184             173
   Unearned income                                                                              110             101
   Merger-related reserves                                                                       33
   Current portion of capitalized lease obligations                                              19              18
   Current maturities of long-term debt                                                         623              50
   Other                                                                                        145              93
------------------------------------------------------------------------------------------------------------------------------------
     Total Current Liabilities                                                                4,055           3,351

Long-Term Debt                                                                                4,805           4,905
Capitalized Lease Obligations                                                                   187             202
Self-Insurance                                                                                  219             315
Deferred Income Taxes                                                                            52             208
Other Long-Term Liabilities and Deferred Credits                                                681             628
Commitments and Contingencies
Stockholders' Equity:
   Preferred  stock - $1.00 par value;  authorized  - 10 shares;  designated - 3
     shares of Series A Junior Participating; issued - none
   Common stock - $1.00 par value; authorized - 1,200 shares;
     issued - 424 shares and 435 shares, respectively                                           424             435
   Capital in excess of par                                                                     145             579
   Retained earnings                                                                          5,133           5,027
   Treasury stock - 15 shares as of January 28, 1999                                                          (519)
------------------------------------------------------------------------------------------------------------------------------------
     Total Stockholders' Equity                                                               5,702           5,522
------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity                                                 $ 15,701        $ 15,131
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>



See Notes to Consolidated Financial Statements


                                     Page 10

<PAGE>

<TABLE>

Consolidated Cash Flows

<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                            53 Weeks       52 Weeks        52 Weeks
                                                                         February 3,    January 28,     January 29,
(In millions)                                                                   2000           1999            1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>            <C>             <C>
Cash Flows From Operating Activities:

Net earnings                                                                   $ 404          $ 801           $ 797
Adjustments to reconcile net earnings to
net cash provided by operating activities:
   Depreciation and amortization                                                 854            806             745
   Goodwill amortization                                                          58             57              53
   Noncash merger-related charges                                                271            195
   Impairment - store closures                                                                   24
   Net (gain) loss on asset sales                                                (2)           (14)               6
   Net deferred income taxes                                                    (52)           (72)               4
   Increase in cash surrender value of Company-owned life insurance             (12)           (23)            (14)
   Changes in operating assets and liabilities,
       net of business acquisitions:
     Receivables and prepaid expenses                                             45           (56)           (105)
     Inventories                                                               (233)          (157)            (96)
     Accounts payable                                                           (53)              7             377
     Other current liabilities                                                   138             54              37
     Self-insurance                                                             (85)          (134)            (14)
     Unearned income                                                              76           (12)              42
     Other long-term liabilities                                                (12)           (29)            (17)
------------------------------------------------------------------------------------------------------------------------------------
       Net cash provided by operating activities                               1,397          1,447           1,815
------------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:

   Capital expenditures                                                      (1,837)        (1,626)         (1,632)
   Proceeds from divestitures and duplicate assets                               393
   Proceeds from disposals of land, buildings and equipment                       83            162              70
   Business acquisitions, net of cash acquired                                                (260)
   Increase in other assets                                                    (115)           (97)           (138)
------------------------------------------------------------------------------------------------------------------------------------
       Net cash used in investing activities                                 (1,476)        (1,821)         (1,700)
------------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:

   Proceeds from long-term borrowings                                          1,841            462             734
   Payments on long-term borrowings                                            (970)          (213)           (179)
   Net commercial paper activity and bank borrowings                           (430)            300             210
   Proceeds from stock options exercised                                          32             66              50
   Cash dividends paid                                                         (265)          (263)           (253)
   Tax payments for options exercised                                           (14)
   Treasury stock purchases and retirements                                                    (18)           (745)
   Issuance of common stock                                                                                      96
------------------------------------------------------------------------------------------------------------------------------------
       Net cash provided by (used in) financing activities                       194            334            (87)
------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents                             115           (40)              28
Cash and Cash Equivalents at Beginning of Year                                   116            156             128
------------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year                                    $    231       $    116        $    156
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

See Notes to Consolidated Financial Statements


                                     Page 11

<PAGE>

<TABLE>

Consolidated Stockholders' Equity

<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                        Common      Capital
                                                         Stock    In Excess

                                                     $1.00 Par       of Par     Retained     Treasury
(Dollars in millions)                                    Value        Value     Earnings        Stock         Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>           <C>          <C>          <C>            <C>
Balance at January 30, 1997                              $ 439        $ 324      $ 4,145      $ (114)       $ 4,794
Net earnings                                                                         797                        797
Issuance of 1,041,010 shares of stock for
   stock options, awards and Employee Stock
   Purchase Plan (ESPP)                                                   6                        25            31
Exercise of stock options                                                 3                                       3
Tax benefits related to stock options                                     4                                       4
Stock purchase incentive plan                                            10                                      10
Treasury stock purchases and retirements                   (4)          (3)        (185)        (551)         (743)
Shares related to directors' stock
   compensation plan - 121,590 shares                                     4                                       4
Stock issuance - 2,912,094 shares                                        36                       60             96
Dividends                                                                          (255)                      (255)
------------------------------------------------------------------------------------------------------------------------------------
Balance at January 29, 1998                                435          384        4,502        (580)         4,741
Net earnings                                                                         801                        801
Issuance of 1,989,505 shares of stock for
   stock options, awards and ESPP                                      (11)                        63            52
Merger-related stock option charge                                      195                                     195
Exercise of stock options                                                 3                                       3
Tax benefits related to stock options                                    10                                      10
Treasury stock purchases and retirements                                (6)         (10)          (2)          (18)
Stock purchase incentive plan                                             1                                       1
Shares related to directors' stock
   compensation plan - 12,633 shares                                      3                                       3
Dividends                                                                          (266)                      (266)
------------------------------------------------------------------------------------------------------------------------------------
Balance at January 28, 1999                                435          579        5,027        (519)         5,522
Net earnings                                                                         404                        404
Issuance of 131,099 shares of stock for
   stock options and awards                                             (1)                         4             3
Merger-related stock option charge                                       47                                      47
Exercise of stock options                                    1           19                                      20
Tax benefits related to stock options                                    11                                      11
Treasury and fractional share retirements                 (14)        (496)                       510
Shares issued for limited stock
   appreciation rights                                       2         (16)                                    (14)
Stock purchase incentive plan                                             2                         5             7
Dividends                                                                          (298)                      (298)
------------------------------------------------------------------------------------------------------------------------------------
Balance at February 3, 2000                              $ 424        $ 145      $ 5,133                    $ 5,702
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements


                                     Page 12

<PAGE>



Notes to Consolidated Financial Statements
(Dollars in millions, except per share data)

Basis of Presentation

On August 2,  1998,  Albertson's,  Inc.  ("Albertson's"  or the  "Company")  and
American  Stores  Company  ("ASC")  entered into a definitive  merger  agreement
("Merger  Agreement")  whereby  Albertson's would acquire ASC by exchanging 0.63
share of  Albertson's  common  stock for each  outstanding  share of ASC  common
stock,  with cash being paid in lieu of fractional shares (the "Merger") and ASC
would become a wholly owned subsidiary of Albertson's. In addition,  outstanding
rights to  receive  ASC  common  stock  under ASC stock  option  plans  would be
converted into rights to receive equivalent Albertson's common stock.

   The  Merger  was   consummated  on  June  23,  1999,  with  the  issuance  of
approximately  177  million  shares of  Albertson's  common  stock.  The  Merger
constituted a tax-free reorganization and has been accounted for as a pooling of
interests  for  accounting  and  financial  reporting  purposes.  The pooling of
interests method of accounting is intended to present as a single interest,  two
or  more  common  stockholders'  interests  that  were  previously  independent;
accordingly,  these  consolidated  financial  statements  restate the historical
financial  statements  as though the  companies  had always been  combined.  The
restated  consolidated  financial  statements are adjusted to conform accounting
policies  and  financial  statement   presentations.   There  were  no  material
conforming adjustments.

The Company

The Company is  incorporated  under the laws of the State of Delaware and is the
successor to a business  founded by J. A. Albertson in 1939. Based on sales, the
Company is the second  largest  retail food and drug chain in the United States.
As of  February  3, 2000,  the  Company  operated  2,492  stores in 37  Western,
Midwestern,  Eastern and Southern states.  Retail operations are supported by 21
major Company distribution  operations,  strategically  located in the Company's
operating markets.

Summary of Significant Accounting Policies

Fiscal Year End The Company's fiscal year is generally 52 weeks and periodically
consists of 53 weeks  because the fiscal  year ends on the  Thursday  nearest to
January 31 (the Saturday  nearest to January 31 for ASC during fiscal years 1998
and 1997).  During fiscal 1999,  ASC's fiscal year was converted from a Saturday
year end to a  Thursday  year  end.  Unless  the  context  otherwise  indicates,
reference to a fiscal year of the Company  refers to the calendar  year in which
such fiscal year commences.

   Consolidation The consolidated  financial  statements  include the results of
operations, account balances and cash flows of the Company and its subsidiaries.
All material intercompany balances have been eliminated.

   Cash and Cash Equivalents The Company considers all highly liquid investments
with a  maturity  of three  months  or less at the time of  purchase  to be cash
equivalents.  Investments, which consist of government-backed money market funds
and repurchase agreements backed by government securities,  are recorded at cost
which approximates market value.

   Inventories  The Company  values  inventories at the lower of cost or market.
Cost of  substantially  all  inventories  is determined on a last-in,  first-out
(LIFO) basis.

   Capitalization,  Depreciation and Amortization Land,  buildings and equipment
are recorded at cost.  Depreciation is provided on the straight-line method over
the estimated useful life of the asset.  Estimated useful lives are generally as
follows:  buildings and improvements--10 to 35 years;  fixtures and equipment--3
to 10 years; leasehold  improvements--10 to 25 years; and capitalized leases--20
to 30 years.  Long-lived  assets are reviewed for impairment  whenever events or
changes in business  circumstances indicate the carrying value of the assets may
not be recoverable.

   The  costs  of  major  remodeling  and  improvements  on  leased  stores  are
capitalized as leasehold  improvements.  Leasehold improvements are amortized on
the straight-line method over the shorter of the life of the applicable lease or
the useful life of the asset.  Capital  leases are  recorded at the lower of the
fair market  value of the asset or the  present  value of future  minimum  lease
payments.  These  leases are  amortized on the  straight-line  method over their
primary term.


                                     Page 13

<PAGE>



   Beneficial  lease  rights and lease  liabilities  are  recorded on  purchased
leases based on differences between contractual rents under the respective lease
agreements  and  prevailing  market rents at the date of the  acquisition of the
lease.  Beneficial  lease  rights  are  amortized  over the lease term using the
straight-line  method. Lease liabilities are amortized over the lease term using
the interest method.

   Goodwill Goodwill resulting from business acquisitions  represents the excess
of cost over fair value of net assets  acquired and is being  amortized  over 40
years  using  the  straight-line  method.   Goodwill  is  principally  from  the
acquisition of Lucky Stores, Inc. in 1988. Accumulated  amortization amounted to
$602  and  $581  in 1999  and  1998,  respectively.  Periodically,  the  Company
re-evaluates goodwill and other intangibles based on undiscounted operating cash
flows whenever  significant  events or changes occur which might impair recovery
of recorded asset costs.

   Self-Insurance  The Company is  partially  self-insured  for  property  loss,
workers'  compensation and general liability costs. For ASC, beginning in fiscal
1998, insurance was purchased for workers'  compensation,  general liability and
automotive  liability coverage.  Self-insurance  liabilities are based on claims
filed and estimates for claims incurred but not reported.  These liabilities are
not discounted.

   Unearned Income Unearned income consists  primarily of buying and promotional
allowances  received  from vendors in connection  with the Company's  buying and
merchandising  activities.  These funds are recognized as revenue when earned by
purchasing amounts of product, promoting certain products or passage of time, as
specified in the related agreements.

   Store Opening and Closing Costs Noncapital  expenditures  incurred in opening
new stores or remodeling  existing stores are expensed in the year in which they
are  incurred.  When a store  is  closed,  the  remaining  investment  in  land,
buildings  and  equipment,  net of expected  recovery  value,  is expensed.  For
properties  under  operating  lease  agreements,  the present  value cost of any
remaining liability under the lease, net of expected sublease recovery,  is also
expensed.

   Advertising Advertising costs incurred to produce media advertising for major
new  campaigns  are  expensed in the year in which the  advertising  first takes
place.   Other  advertising  costs  are  expensed  when  incurred.   Cooperative
advertising  income from  vendors is recorded in the period in which the related
expense is incurred. Gross advertising expenses of $583, $518 and $497 excluding
cooperative advertising income from vendors, were included with cost of sales in
the Company's Consolidated Earnings for 1999, 1998 and 1997, respectively.

   Stock  Options   Statement  of  Financial   Accounting   Standards  No.  123,
"Accounting for  Stock-Based  Compensation,"  encourages,  but does not require,
companies to record  compensation  cost for  stock-based  employee  compensation
plans at fair  value.  The  Company  has  chosen  to  continue  to  account  for
stock-based   compensation  using  the  intrinsic  value  method  prescribed  in
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees," and related Interpretations. Accordingly, compensation cost of stock
options is  measured as the excess,  if any, of the quoted  market  price of the
Company's  stock at the date of the grant over the option  exercise price and is
charged to operations over the vesting period.  Income tax benefits attributable
to stock options exercised are credited to capital in excess of par value.

   Company-owned  Life  Insurance  The  Company  has  purchased  life  insurance
policies to cover its obligations under certain deferred  compensation plans for
officers and directors. Cash surrender values of these policies are adjusted for
fluctuations in the market value of underlying  investments.  The cash surrender
value is adjusted  each  reporting  period and any gain or loss is included with
other income (expense) in the Company's Consolidated Earnings Statement.

   Income Taxes The Company  provides for deferred  income taxes  resulting from
temporary  differences in reporting  certain income and expense items for income
tax and financial accounting purposes. The major temporary differences and their
net effect are shown in the "Income  Taxes"  note.  Amortization  of goodwill is
generally not deductible for purposes of calculating income tax provisions.

   Earnings Per Share (EPS) Basic EPS is computed by dividing  consolidated  net
earnings by the weighted  average number of common shares  outstanding.  Diluted
EPS is computed by dividing consolidated net earnings by the sum of the weighted
average number of common shares  outstanding and the weighted  average number of
potential common shares  outstanding.  Potential common shares consist solely of
outstanding options under the Company's stock option plans.  Outstanding options
excluded in 1999 and 1997 (option price exceeded the average market price during
the period) amounted to 3.5 million shares and 4.3 million shares, respectively.
There were no  outstanding  options  excluded from the  computation of potential
common  shares in 1998.  For  purposes  of the EPS  calculation,  all shares and
potential


                                     Page 14

<PAGE>


common  shares  of ASC  were  converted  at the  0.63 to 1  exchange  ratio.  In
connection with the Merger,  certain options of ASC were exchanged for shares of
Albertson's  based  on the  fair  value of the  options,  including  contractual
rights.

   Reclassifications  Certain  reclassifications  have been made in prior years'
financial statements to conform to classifications used in the current year.

   Use of Estimates  The  preparation  of the Company's  consolidated  financial
statements,  in conformity with accounting  principles generally accepted in the
United States of America, requires management to make estimates and assumptions.
These  estimates  and  assumptions  affect  the  reported  amounts of assets and
liabilities and the 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 these estimates.

Merger, Divestitures and Related Costs

The following table compares amounts previously  reported by Albertson's and ASC
prior to the Merger  transaction  and the  combined  amounts for fiscal 1998 and
1997:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                         Albertson's            ASC        Combined
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>               <C>             <C>
1998:

Net revenues                                                                $ 16,005       $ 19,867        $ 35,872
Net earnings                                                                     567            234             801
1997:

Net revenues                                                                  14,690         19,138          33,828
Net earnings                                                                     517            280             797
</TABLE>

   In connection  with the Merger,  the Company entered into agreements with the
Attorneys  General of  California,  Nevada and New Mexico and the Federal  Trade
Commission  to  enable  the  Merger  to  proceed  under  applicable   antitrust,
competition  and trade  regulation  law. The agreements  required the Company to
divest a total of 117 stores in California,  19 stores in Nevada and 9 stores in
New  Mexico.  Of the  stores  required  to be  divested,  40 were ASC  locations
operated  primarily  under  the  Lucky  name,  and 105 were  Albertson's  stores
operated primarily under the Albertson's name. In addition, the Company divested
four  supermarket  real estate sites as required by the  agreements.  The stores
identified for  disposition  had sales of $2,300 in fiscal 1998. The Company had
divested 144 of the required 145 stores as of February 3, 2000.

   Results of  operations  for year ended  February  3,  2000,  include  $683 of
merger-related  costs ($529 after tax). The following table presents the pre-tax
costs incurred by category of expenditure and  merger-related  accruals included
in the Company's Consolidated Balance Sheet:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                           Exit         Merger         Extraordinary         Period
                                          Costs         Charge                  Loss          Costs           Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>             <C>          <C>                  <C>              <C>
Severance costs                            $ 99            $ 8                                  $ 9           $ 116
Write-down of assets to net
realizable value                            239                                                  12             251
Transaction and financing costs                                                 $ 31             71             102
Integration costs                                            3                                  164             167
Stock option charge                                         47                                                   47
------------------------------------------------------------------------------------------------------------------------------------
   Total costs                              338             58                    31            256             683
Cash expenditures                          (75)            (8)                  (31)          (252)           (366)
Write-down of assets to net
realizable value                          (237)                                                               (237)
Stock option charge                                       (47)                                                 (47)
------------------------------------------------------------------------------------------------------------------------------------
Merger-related accruals at
February 3, 2000                           $ 26            $ 3                                  $ 4            $ 33
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>



                                     Page 15

<PAGE>


   Severance  costs consist of obligations  to employees who were  terminated or
were  notified of  termination  under a plan  authorized  by senior  management.
Approximately  625 employees will be severed as a result of the Merger, of which
499 were terminated as of February 3, 2000.

   The write-down of assets to net  realizable  value includes the expected loss
on  disposal  of stores  required to be divested  and  duplicate  and  abandoned
facilities,   including  administrative  offices,  intangibles  and  information
technology  equipment  which were abandoned by the Company or are being held for
sale. The estimated fair value of assets held for sale has been determined using
negotiated sales prices or independent appraisals.

   Transaction and financing costs consist  primarily of professional  fees paid
for investment banking, legal, accounting,  printing and regulatory filing fees.
Financing costs also include the extraordinary loss on extinguishment of debt.

   Integration costs consist primarily of incremental transition and integration
costs  associated with integrating the operations of Albertson's and ASC and are
being expensed as incurred.

   As discussed in the Stock Options and Stock Awards Note, the Company recorded
net pre-tax  charges  through  the first two  quarters of 1999 of $47 related to
limited stock  appreciation  rights (LSARs).  The actual change of control price
used to measure the value of these  exercised  LSARs became  determinable at the
date the Merger was consummated.

   The  costs  of  integrating  the  two  companies  have  and  will  result  in
significant non-recurring charges and incremental expenses. These costs have had
a material  effect on 1999 results of  operations  of the Company and may have a
significant effect on results of operations for the year 2000. The actual timing
of the  costs  is,  in  part,  dependent  upon  the  actual  timing  of  certain
integration  actions.   Non-recurring   charges  and  expenses  of  implementing
integration  actions are estimated to total $700 after income tax benefits.  The
cash portion of these charges is estimated at  approximately  $367. When reduced
by the cash received from the sale of the stores required to be divested and the
net  proceeds  from the sale of  assets  that  will not be used in the  combined
company,  the net positive  cash flow will be  approximately  $276.  The Company
expects to incur additional after-tax merger-related costs of approximately $157
in future periods,  which consist  primarily of expected  integration  costs and
costs  associated with other  consolidation  activities for which plans have not
yet been finalized.

Supplemental Cash Flow Information

Selected cash payments and noncash activities were as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                1999           1998            1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>            <C>             <C>
Cash payments for income taxes                                                 $ 520          $ 589           $ 547
Cash payments for interest, net of amounts capitalized                           413            331             270
Noncash investing and financing activities:
   Tax benefits related to stock options                                          11             10               4
   Capitalized lease obligations incurred                                         24             25              27
   Capitalized lease obligations terminated                                       14              6               2
   Liabilities assumed in connection with asset acquisitions                       7              2

</TABLE>

Business Acquisitions

During 1998,  the Company  acquired 64 stores in three  separate  stock purchase
acquisitions and 15 stores in an asset  acquisition  transaction.  In connection
with one of the stock purchase acquisitions, the Company agreed with the Federal
Trade  Commission to divest nine of the acquired stores and six previously owned
stores.  These four acquisition  transactions  had a combined  purchase price of
$302.

   The above  acquisitions  were  accounted  for using  the  purchase  method of
accounting.  The results of  operations  of the  acquired  businesses  have been
included  in  the   consolidated   financial   statements  from  their  date  of
acquisition.  Pro forma results of operations have not been presented due to the
immaterial  effects  of  these   acquisitions  on  the  Company's   consolidated
operations.  For these  acquisitions,  the excess of the purchase price over the
fair market value of net assets  acquired,  of $151,  was  allocated to goodwill
which is being amortized over 40 years.


                                     Page 16

<PAGE>



Accounts and Notes Receivable

Accounts and notes receivable consist of the following:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                        February 3,     January 28,
                                                                                               2000            1999

------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                           <C>             <C>
Trade and other accounts receivable                                                           $ 603           $ 620
Current portion of notes receivable                                                              15              11
Allowance for doubtful accounts                                                                (31)            (19)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                              $ 587           $ 612
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

Inventories

Approximately  96% of the  Company's  inventories  are valued using the last-in,
first-out (LIFO) method. If the first-in, first-out (FIFO) method had been used,
inventories  would  have been $615 and $585  higher at the end of 1999 and 1998,
respectively.  Net  earnings  (basic and diluted  earnings per share) would have
been higher by $18 ($0.04) in 1999,  $10 ($0.02) in 1998 and $7 ($0.02) in 1997.
The replacement cost of inventories valued at LIFO approximates FIFO cost.

Land, Buildings and Equipment, net

Land, buildings and equipment, net, consist of the following:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                        February 3,     January 28,
                                                                                               2000            1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                         <C>             <C>
Land                                                                                        $ 1,999         $ 1,878
Buildings                                                                                     4,908           4,748
Fixtures and equipment                                                                        5,309           5,044
Leasehold improvements                                                                        1,456           1,301
Capitalized leases                                                                              328             350
------------------------------------------------------------------------------------------------------------------------------------
                                                                                             14,000          13,321
Accumulated depreciation and amortization                                                   (5,087)         (4,776)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                            $ 8,913         $ 8,545
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>


                                     Page 17

<PAGE>



Indebtedness

Long-term  debt  consists of the  following  (borrowings  are  unsecured  unless
indicated):

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                        February 3,     January 28,
                                                                                               2000            1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                        <C>              <C>
Commercial paper and bank lines of credit                                                  $ 1,628          $ 1,719
7.45% Debentures due August 1, 2029                                                            650
6.95% Notes due August 1, 2009                                                                 350
6.55% Notes due August 1, 2004                                                                 300
Medium-term notes, due 2013 through 2028, average interest rate of 6.5%                        317              317
Medium-term notes, due 2007 through 2027, average interest rate of 6.8%                        200              200
7.75% Debentures due June 2026                                                                 200              200
6.375% Notes due June 2000                                                                     200              200
Medium-term notes due 2000, average interest rate of 6.1%                                       90               90
7.5% Debentures due 2037                                                                       200              200
8.0% Debentures due 2026                                                                       272              350
7.9% Debentures due 2017                                                                        95              100
7.4% Notes due 2005                                                                            200              200
Medium-term notes, due 2000 through 2028, average interest rate of 7.3%                        295              295
9.125% Notes due 2002                                                                           80              249
Notes due 2004, average interest rates of 6.5% and 6.3%, respectively                          200              200
Revolving credit facilities, effectively due 2002, average interest rate of 5.8%                                325
Other bank borrowings due 2000, average interest rate of 6.6%                                                    75
10.63% Notes, due 2004                                                                                           93
Industrial revenue bonds, average interest rate of 6.1%                                         14               15
Secured mortgage notes and other notes payable,
   average interest rates of 8.2% and 11.0%, respectively                                      137              127
------------------------------------------------------------------------------------------------------------------------------------
                                                                                             5,428            4,955
Current maturities                                                                            (623)            (50)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                           $ 4,805          $ 4,905
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

   Interest rates on the outstanding  commercial paper borrowings as of February
3, 2000,  ranged from 4.6% to 6.0% with an  effective  weighted  average rate of
5.2%. The Company has established the necessary credit  facilities,  through its
revolving  credit  agreements,  to refinance the commercial  paper and bank line
borrowings  on a long-term  basis.  The majority of these  borrowings  have been
classified as noncurrent  because it is the Company's  intent to refinance these
obligations on a long-term basis.

   Following  the  Merger the  Company  consolidated  several of the  commercial
paper,  bank lines and other financing  arrangements.  The consolidation of debt
included the  repayment of  outstanding  amounts  under ASC's  revolving  credit
facilities and other debt containing change of control provisions and the tender
for, or open market  purchases of, certain higher coupon debt. As a result,  the
following debt was extinguished:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                 Triggering Factor                              Amount Extinguished
------------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                                            <C>
Revolving Credit Facility                        Change of control                                            $ 500
Bank borrowing due 2000                          Change of control                                               75
10.63% Note due in 2004                          Change of control                                               93
9.125% Notes due 2002                            Tender offer                                                   169
8.0% Debentures due 2026                         Open market purchases                                           78
7.9% Debentures due 2017                         Open market purchases                                            5

</TABLE>


                                     Page 18

<PAGE>


   In July 1999 the Company  issued $500  million of  floating  rate notes.  The
notes are due July 2000 and bear interest based on LIBOR  commercial paper rates
that reset  monthly.  As of February 3, 2000,  the interest rate was 5.8% on the
outstanding notes. These notes were issued under the Company's  commercial paper
program.

   The Company had two credit facilities  totaling $2,100 during fiscal 1999. In
addition,  the Company had  uncommitted  bank lines of credit  totaling $345. No
borrowings  were  outstanding  under either credit  facility or bank lines as of
February 3, 2000.

   Effective  March 2000,  the Company  entered  into two new  revolving  credit
agreements for $1,900. One agreement expires in 364 days for $950 and the second
agreement  expires in 5 years for the remaining  $950. At the  expiration of the
364-day  credit  agreement and upon due notice,  the Company may extend the term
for an additional  364-day period if lenders holding at least 75% of commitments
agree.  The 364-day  agreement  also  contains  an option  which would allow the
Company,  upon due notice, to convert any outstanding  amounts at the expiration
date  to  term  loans.  The  agreements  contain  certain  covenants,  the  most
restrictive of which requires the Company to maintain  consolidated tangible net
worth, as defined, of at least $2,100.

   Albertson's  filed a shelf  registration  statement  with the  Securities and
Exchange  Commission  (SEC),  which became effective in February 1999 (the "1999
Registration  Statement")  to  authorize  the  issuance  of up to $2,500 in debt
securities.  The Company  intends to use the net proceeds of any securities sold
pursuant to the 1999  Registration  Statement for retirement of debt and general
corporate purposes.

   In July  1999  the  Company  issued  $1,300  of term  notes  under  the  1999
Registration  Statement.  The notes are comprised of: $300 of principal  bearing
interest  at 6.55% due August 1, 2004;  $350 of  principal  bearing  interest at
6.95% due August 1, 2009;  and $650 of principal  bearing  interest at 7.45% due
August 1, 2029.  Proceeds  were used  primarily  to repay  borrowings  under the
Company's  commercial paper program.  Additional  securities up to $1,200 remain
available for issuance under the Company's 1999 Registration Statement.

   In July  1999  the  Company  negotiated  an  amendment  to a $200  term  loan
agreement  between ASC and a group of commercial  banks.  The amended fixed rate
loans  carry  interest  based upon a pricing  schedule  (which  averages  6.45%)
dependent upon the Company's long-term debt rating, and mature July 3, 2004.

   During 1998 Albertson's  issued a total of $317 in medium-term  notes under a
$500 shelf  registration  statement  filed with the SEC in  December  1997.  The
remaining  authorization of $183 under the 1997 shelf registration statement was
rolled  into  the  1999  Registration  Statement.  Under  a  shelf  registration
statement filed with the SEC in May 1996, Albertson's issued $200 of medium-term
notes in 1997.  Proceeds  from these  issuances  were used to reduce  borrowings
under Albertson's commercial paper program.

   On March 19, 1998, ASC issued $45 of 6.5% notes due March 20, 2008,  under an
outstanding Series B Medium-term Note Program.  On March 30, 1998, ASC issued an
additional  $100 of 7.1%  notes  due  March 20,  2028,  under the same  program.
Proceeds  were  used to  refinance  short-term  debt and for  general  corporate
purposes.

   The Company has pledged  real estate with a cost of $11 as  collateral  for a
mortgage  note which is payable  semiannually,  including  interest at a rate of
16.5%. The note matures from 2000 to 2013.

   Medium-term  notes of $30 due July 2027  contain  a put  option  which  would
require the Company to repay the notes in July 2007 if the holder of the note so
elects by giving the Company a 60-day notice. Medium-term notes of $50 due April
2028 contain a put option which would  require the Company to repay the notes in
April 2008 if the  holder of the note so elects by giving  the  Company a 60-day
notice.

   The $200 of 7.5%  debentures due 2037 contain a put option which will require
the  Company  to repay the note in 2009 if the  holder of the notes so elects by
giving the Company a 60-day notice.


                                     Page 19

<PAGE>


   Net interest expense was as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                1999           1998            1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>            <C>             <C>
Debt                                                                           $ 350          $ 322           $ 288
Capitalized leases                                                                27             25              22
Capitalized interest                                                            (26)           (17)            (25)
------------------------------------------------------------------------------------------------------------------------------------

Interest expense                                                                 351            330             285
Net bank service charges                                                           2              7               9
------------------------------------------------------------------------------------------------------------------------------------
                                                                               $ 353          $ 337           $ 294
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

   The scheduled aggregate  maturities of long-term debt outstanding at February
3, 2000, are summarized as follows:  $623 in 2000, $1,443 in 2001, $105 in 2002,
$104 in 2003, $504 in 2004 and $2,649 thereafter.

Capital Stock

On December 2, 1996, the Board of Directors  adopted a stockholder  rights plan,
which was  amended  on August 2,  1998,  and  March 16,  1999,  under  which all
stockholders  receive one right for each share of common stock held.  Each right
will  entitle  the  holder  to  purchase,   under  certain  circumstances,   one
one-thousandth of a share of Series A Junior Participating  Preferred Stock, par
value $1.00 per share, of the Company (the "preferred  stock") at a price of 160
dollars.  Subject to certain exceptions,  the rights will become exercisable for
shares  of  preferred  stock 10  business  days (or  such  later  date as may be
determined by the Board of Directors)  following  the  commencement  of a tender
offer or  exchange  offer  that would  result in a person or group  beneficially
owning 15% or more of the outstanding shares of common stock.

   Under the plan,  subject  to  certain  exceptions,  if any person or group as
defined  by the  plan,  becomes  the  beneficial  owner  of 15% or  more  of the
outstanding  common stock or takes certain other  actions,  each right will then
entitle its holder as defined by the plan, other than such person or group, upon
payment of the 160 dollars  exercise  price,  to purchase  common  stock (or, in
certain circumstances, cash, property or other securities of the Company) with a
value equal to twice the exercise price. The rights may be redeemed by the Board
of Directors  at a price of $0.001 per right under  certain  circumstances.  The
rights, which do not vote and are not entitled to dividends,  will expire at the
close of business on March 21, 2007,  unless earlier redeemed or extended by the
Board of Directors of the Company.  In connection with the Merger,  no person or
group became the beneficial owner of 15% or more of the common stock.

   The Board of  Directors  adopted a program on March 2, 1998 which  authorized
the Company to purchase and retire up to 5 million  shares of its common  stock.
On August 2, 1998, the Board of Directors rescinded the remaining  authorization
in connection with the Merger.

   On April 8, 1997,  ASC (i)  repurchased 15 million  equivalent  common shares
from its former  chairman,  certain of his family members and charitable  trusts
(the  "Selling  Stockholders")  for an  aggregate  price of $550 and (ii) sold 3
million  equivalent  common  shares  for net  proceeds  of $96  pursuant  to the
exercise of an  over-allotment  option by the  underwriters in connection with a
public offering of shares by the Selling Stockholders.


                                     Page 20

<PAGE>




Income Taxes

Deferred tax assets and liabilities consist of the following:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                        February 3,     January 28,
                                                                                               2000            1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>             <C>
Deferred tax assets (no valuation allowance considered necessary):
   Basis in fixed assets                                                                      $ 123            $ 76
   Self-insurance                                                                               174             199
   Compensation and benefits                                                                    181             204
   Unearned income                                                                               36              31
   Other, net                                                                                   140             127
------------------------------------------------------------------------------------------------------------------------------------
     Total deferred tax assets                                                                  654             637
------------------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
   Basis in fixed assets and capitalized leases                                               (515)           (564)
   Inventories                                                                                (105)            (94)
   Compensation and benefits                                                                   (33)            (30)
   Other, net                                                                                  (24)            (24)
------------------------------------------------------------------------------------------------------------------------------------
     Total deferred tax liabilities                                                           (677)           (712)
------------------------------------------------------------------------------------------------------------------------------------
Net deferred tax liability                                                                   $ (23)          $ (75)
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

   As a result of an acquisition that occurred during 1998, the Company acquired
federal and state net operating loss  carryforwards  with a remaining balance of
$13 and $14, respectively, that will expire in various years through 2010. Based
on management's assessment,  it is more likely than not that all of the deferred
tax  assets  associated  with  the  net  operating  loss  carryforwards  will be
realized; therefore, no valuation allowance is considered necessary.

   Income tax expense on continuing operations consists of the following:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                1999           1998            1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>            <C>             <C>
Current:
Federal                                                                        $ 476          $ 537           $ 488
State                                                                             48             72              61
------------------------------------------------------------------------------------------------------------------------------------
                                                                                 524            609             549
------------------------------------------------------------------------------------------------------------------------------------
Deferred:
Federal                                                                         (47)           (63)               4
State                                                                            (5)            (9)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                (52)           (72)               4
------------------------------------------------------------------------------------------------------------------------------------
                                                                               $ 472          $ 537           $ 553
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>


                                     Page 21

<PAGE>


   The reconciliations  between the federal statutory tax rate and the Company's
effective tax rates are as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                             1999      Percent         1998      Percent         1997       Percent
------------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>           <C>         <C>           <C>         <C>            <C>
Taxes computed at statutory rate            $ 315         35.0        $ 468         35.0        $ 473          35.0
State income taxes net of federal
   income tax benefit                          28          3.2           51          3.8           53           3.9
Expenses for repurchase of
   major stockholder's common stock                                                                12           0.9
Goodwill amortization                          22          2.4           22          1.6           21           1.6
Merger-related charges                        115         12.8           15          1.1
Other                                         (8)        (0.9)         (19)        (1.3)          (6)         (0.4)
------------------------------------------------------------------------------------------------------------------------------------
                                            $ 472         52.5        $ 537         40.2        $ 553          41.0
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

Stock Options and Stock Awards

The  Company's  stock option plans  provide for the grant of options to purchase
shares of common stock and stock awards.  At February 3, 2000,  Albertson's  had
one stock option plan in effect under which grants could be made with respect to
30 million shares of the Company's  common stock.  Under this plan,  approved by
the  stockholders in 1998,  options may be granted to officers and key employees
to purchase the Company's common stock.  During 1999, the Company's stock option
plan was amended to, among other things,  include the grant of options and other
awards to non-employee members of the Board of Directors. Generally, options are
granted with an exercise price at not less than 100% of the closing market price
on the date of the grant. The Company's options generally become  exercisable in
installments of 20% per year on each of the first through fifth anniversaries of
the grant  date and have a  maximum  term of 10 years.  In  connection  with the
Merger,  all  outstanding  options under prior  Albertson's and ASC plans became
exercisable in accordance with the change of control provisions  included in the
stock option plans and all  outstanding  ASC options were converted into a right
to acquire an equivalent  number of Albertson's  shares. No further options will
be granted under ASC plans.  Additionally,  all restrictions lapsed with respect
to all outstanding stock awards under the ASC stock award plans.

Variable Accounting Treatment for Option Plans

The Company's stock option award plans contain  provisions for automatic vesting
upon a change of control. Under ASC plans, option holders had the right (limited
stock  appreciation  right or LSAR),  during an exercise period of up to 60 days
after the  occurrence of a change of control (but prior to  consummation  of the
Merger),  to elect to  surrender  all or part of their  options in exchange  for
shares of  Albertson's  common  stock  having a value equal to the excess of the
change of control price over the exercise  price.  Certain stock option plans of
ASC defined change of control as the date of stockholder approval of the Merger.
Approval of the Merger  Agreement on November 12,  1998,  by ASC's  stockholders
accelerated  the vesting of 6.4 million  equivalent  stock options granted under
pre-1997 ASC plans and permitted the holders of these options to exercise LSARs.
The exercisability of the 6.4 million LSARs resulted in the Company  recognizing
a pre-tax $195 merger-related stock option charge during 1998.

   In the first  quarter of 1999, a market price  adjustment of $29 was recorded
as a  reduction  of  merger-related  costs to reflect a decline in the  relevant
stock price at the end of the first fiscal quarter relative to LSARs. The actual
change of  control  price  used to measure  the value of these  exercised  LSARs
became  determinable  at the date the Merger was  consummated and resulted in no
further adjustments.  Upon Merger consummation,  the change of control price was
$53.77 per  share,  resulting  in the  issuance  of  approximately  1.7  million
Albertson's shares.

   LSARs relating to approximately  4.0 million  equivalent stock options became
exercisable  upon  regulatory   approval  of  the  Merger,   which  resulted  in
recognition of an additional charge of $76 in the second quarter of fiscal 1999.
This charge was based upon a change of control price of $56.96 per share,  which
included an adjustment factor for the early  termination of the LSAR feature.  A
total of 0.8 million  Albertson's  shares were issued in  satisfaction  of those
options for which the LSAR  feature was elected and the  remaining  options were
converted into options to acquire approximately 1.2 million Albertson's shares.


                                     Page 22

<PAGE>



Stock Options

A summary of shares reserved for outstanding  options as of the fiscal year end,
changes during the year and related weighted average exercise price is presented
below (shares in thousands,  all ASC amounts  included based upon the conversion
ratio of 0.63 to 1):

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                            February 3, 2000          January 28, 1999          January 29, 1998
                                            ----------------          ----------------          ----------------
                                           Shares        Price       Shares        Price       Shares         Price
------------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>        <C>           <C>         <C>            <C>         <C>
Outstanding at beginning of year            9,989      $ 35.01       16,527      $ 32.74        7,856       $ 24.08
Granted                                    12,536        39.76          159        40.39        9,846         38.08
Exercised                                 (3,907)        33.00      (5,858)        29.16        (782)         15.46
Forfeited                                   (603)        39.43        (839)        32.11        (393)         28.09
------------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year                 18,015      $ 38.34        9,989      $ 35.01       16,527       $ 32.74
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

As of February 3, 2000,  there were 14.5 million  shares of Company common stock
reserved for the granting of additional options.  The following table summarizes
options  outstanding  and options  exercisable  as of February 3, 2000,  and the
related weighted average remaining contractual life (years) and weighted average
exercise price (shares in thousands):

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                          .            Options Outstanding            ..        Options Exercisable      .
                                          --------------------------------------------------------------------------------
                                               Shares       Remaining                        Shares
Option Price per Share                    Outstanding            Life          Price    Exercisable           Price
------------------------------------------------------------------------------------------------------------------------------------
<S>           <C>                              <C>                <C>        <C>              <C>           <C>
$13.44 to     $22.63                              421             1.8        $ 18.03            421         $ 18.03
 24.32 to      33.25                            8,493             8.9          30.28          1,596           29.31
 35.00 to      45.94                            3,576             6.7          40.08          3,576           40.08
 47.00 to      51.19                            5,525             9.4          51.15             47           47.00
------------------------------------------------------------------------------------------------------------------------------------
$13.44 to     $51.19                           18,015             8.4        $ 38.34          5,640         $ 35.44
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

   The  weighted  average  fair value at date of grant for  Albertson's  options
granted  during 1999 was $10.42 per option.  Pre-merger  Albertson's  grants per
option were $17.14 and $15.26 for 1998 and 1997,  respectively.  Pre-merger  ASC
grants per option  were $11.86 and $11.58 for 1998 and 1997,  respectively.  The
fair  value of options at date of grant was  estimated  using the  Black-Scholes
model with the following weighted average assumptions:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                 1999    .             1998               ..            1997             .
                                                 -----------------------------------------------------------------
                                                                  ABS            ASC            ABS             ASC
------------------------------------------------------------------------------------------------------------------------------------
<S>                                             <C>             <C>            <C>            <C>             <C>
Expected life (years)                             3.0             8.0            6.5            6.5             7.0
Risk-free interest rate                         5.96%           5.74%          4.70%          5.92%           6.60%
Volatility                                      37.03           26.70          21.20          26.53           21.20
Dividend yield                                   1.81            1.48           1.80           1.41            1.80

</TABLE>


                                     Page 23

<PAGE>


   The Company  has  adopted the  disclosure-only  provisions  of  Statement  of
Financial   Accounting   Standards   No.  123,   "Accounting   for   Stock-Based
Compensation."  Had compensation cost been determined based on the fair value at
the grant date consistent  with the provisions of this statement,  the Company's
pro forma net earnings and earnings per share would have been as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                1999           1998            1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>            <C>             <C>
Net earnings:
   As reported                                                                 $ 404          $ 801           $ 797
   Pro forma                                                                     375            914             782
Basic earnings per share:
   As reported                                                                  0.96           1.91            1.89
   Pro forma                                                                    0.89           2.16            1.85
Diluted earnings per share:
   As reported                                                                  0.95           1.90            1.88
   Pro forma                                                                    0.89           2.14            1.85

</TABLE>

   The 1999 pro forma income of $375 resulted from net income of $404,  less the
1999 pro forma after-tax compensation expense of $67 ($49 of which related to an
adjustment  for the  acceleration  of unamortized  compensation  expense for the
stock options  granted prior to 1999 which vested in connection with the Merger)
and the elimination of net merger-related  after-tax stock option charges of $38
included  with as reported net  earnings.  The 1998 pro forma net income of $914
resulted  from  reported net income of $801,  less the 1998 pro forma  after-tax
compensation expense of $19 and the elimination of the merger-related  after-tax
stock option  charge of $132  included  with as reported net  earnings.  The pro
forma  effect on net earnings is not  representative  of the pro forma effect on
net earnings in future years.

Former ASC Plans

The  following ASC Plans were  terminated in connection  with the Merger on June
23, 1999.

Performance  Incentive  Program The 1998 Performance  Incentive Program provided
certain  of the ASC key  executives  an  incentive  award of shares of  two-year
restricted  stock if certain ASC  performance  objectives  were attained for the
1998 fiscal year.  Employee  Stock Purchase Plan The ASC Employee Stock Purchase
Plan, which began January 1, 1996,  enabled eligible employees of the Company to
subscribe for shares of common stock on quarterly  offering  dates at a purchase
price which was the lesser of 85% of the fair market  value of the shares on the
first day or the last day of the quarterly offering period.

Employee Benefit Plans

   Substantially  all  employees  working  over 20 hours per week are covered by
retirement plans. Union employees participate in multi-employer retirement plans
under  collective  bargaining  agreements.  The Company  sponsors  both  defined
benefit and defined contribution plans.

   The Albertson's  Salaried  Employees  Pension Plan and Albertson's  Employees
Corporate Pension Plan are funded, qualified,  defined benefit,  noncontributory
plans for  eligible  Albertson's  employees  who are 21 years of age with one or
more  years  of  service  and  (with  certain  exceptions)  are not  covered  by
collective bargaining  agreements.  Benefits paid to retirees are based upon age
at retirement, years of credited service and average compensation. The Company's
funding  policy  for these  plans is to  contribute  the  larger  of the  amount
required to fully fund the Plan's current  liability or the amount  necessary to
meet the funding requirements as defined by the Internal Revenue Code.

   The Company also  sponsors the  Albertson's  Savings and  Retirement  Estates
(ASRE) Plan (formerly the American  Stores  Retirement  Estates Plan) which is a
defined contribution  retirement plan. ASRE was originally authorized by the ASC
Board  of  Directors  for the  purpose  of  providing  retirement  benefits  for
employees of ASC and its  subsidiaries.  During  1999,  ASRE was  authorized  by
Albertson's Board of Directors to provide retirement  benefits for all qualified
employees  of  the  Company  and  its  subsidiaries.  In  conjunction  with  the
authorization of ASRE, the Company-sponsored  defined benefit plans were amended
to close the plans to future new entrants.  Future accruals for  participants in
the  defined  benefit  plans are offset by the value of Company  profit  sharing
contributions to the new defined contribution plan.


                                     Page 24

<PAGE>


   The Company  sponsors a tax-deferred  savings plan which is a salary deferral
plan pursuant to Section  401(k) of the Internal  Revenue Code.  The plan covers
employees  meeting  age  and  service  eligibility  requirements,  except  those
represented  by a  labor  union,  unless  the  collective  bargaining  agreement
provides  for  participation.  In  addition,  the  Company  provides  a matching
contribution  based on the amount of eligible  compensation  contributed  by the
employee.

   All Company  contributions to ASRE and the Company  sponsored 401(k) plan are
made at the discretion of the Board of Directors.  The total amount  contributed
by the Company is included with the ASRE defined contribution plan expense.

   The Company also sponsors an unfunded  Executive  Pension  Makeup Plan and an
Executive ASRE Makeup Plan. These plans are nonqualified and provide certain key
employees  retirement  benefits which supplement those provided by the Company's
other retirement plans.

   Net  periodic  benefit cost for defined  benefit  plans is  determined  using
assumptions as of the beginning of each year. The projected  benefit  obligation
and related funded status is determined using  assumptions as of the end of each
year. Assumptions used at the end of each year for the Company-sponsored defined
benefit pension plans were as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                1999           1998            1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>            <C>             <C>
Weighted-average discount rate                                                 7.50%          6.25%           6.60%
Annual salary increases                                                    4.35-4.50      4.50-4.95       4.50-5.00
Expected long-term rate of return on assets                                     9.50           9.50            9.50

</TABLE>

   Net periodic benefit cost for Company-sponsored defined benefit pension plans
was as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                1999           1998            1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>            <C>             <C>
Service cost - benefits earned during the period                                $ 45           $ 42            $ 27
Interest cost on projected benefit obligations                                    34             30              23
Expected return on assets                                                       (49)           (42)            (34)
Amortization of prior service cost                                                                1               1
Recognized net actuarial loss                                                      1              2
------------------------------------------------------------------------------------------------------------------------------------
                                                                                $ 31           $ 33            $ 17
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>


                                     Page 25

<PAGE>


   The  following  table sets forth the funded  status of the  Company-sponsored
defined benefit pension plans:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                        February 3,     January 28,
                                                                                               2000            1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>             <C>
Change in projected benefit obligation:

   Beginning of year benefit obligation                                                       $ 547           $ 412
   Service cost                                                                                  45              42
   Interest cost                                                                                 34              30
   Actuarial (gain) loss                                                                      (105)              72
   Amendments                                                                                  (88)
   Benefits paid                                                                               (10)             (9)
------------------------------------------------------------------------------------------------------------------------------------
   End of year benefit obligation                                                               423             547
------------------------------------------------------------------------------------------------------------------------------------
Change in plan assets:
   Plan assets at fair value at beginning of year                                               549             414
   Actual return on plan assets                                                                  89              96
   Employer contributions (return)                                                             (46)              48
   Benefit payments                                                                            (10)             (9)
------------------------------------------------------------------------------------------------------------------------------------
   Plan assets at fair value at end of year                                                     582             549
------------------------------------------------------------------------------------------------------------------------------------
Funded status                                                                                   159               2
Unrecognized net (gain) loss                                                                  (100)              46
Unrecognized prior service cost                                                                (85)               4
Additional minimum liability                                                                                    (4)
------------------------------------------------------------------------------------------------------------------------------------
Net (accrued) prepaid pension cost                                                          $ (26)             $ 48
------------------------------------------------------------------------------------------------------------------------------------

Prepaid pension cost included with other assets                                                 $ 8            $ 64
Accrued pension cost included with other long-term liabilities                                 (34)            (16)
------------------------------------------------------------------------------------------------------------------------------------
Net (accrued) prepaid pension cost                                                          $ (26)             $ 48
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

   The following  table  summarizes  the projected  benefit  obligation  and the
accumulated benefit obligation of the unfunded Executive Pension Makeup Plan:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                        February 3,     January 28,
                                                                                               2000            1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                            <C>             <C>
Projected benefit obligation                                                                   $ 15            $ 19
Accumulated benefit obligation                                                                   13              16

   Assets of the two funded Company  defined  benefit pension plans are invested
in directed trusts.  Assets in the directed trusts are invested in common stocks
(including  $33 and $68 of the  Company's  common  stock at February 3, 2000 and
January 28, 1999, respectively),  U.S. government obligations,  corporate bonds,
international equity funds, real estate and money market funds.

</TABLE>

                                     Page 26

<PAGE>


   The Company also contributes to various plans under  industrywide  collective
bargaining  agreements,  primarily  for defined  benefit  pension  plans.  Total
contributions to these plans were $98 for 1999, $100 for 1998, and $94 for 1997.

   Retirement plans expense was as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                1999           1998            1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>            <C>             <C>
Defined benefit pension plans                                                   $ 31           $ 33            $ 17
ASRE defined contribution plan                                                   110             93              93
Multi-employer plans                                                              98            100              94
------------------------------------------------------------------------------------------------------------------------------------
                                                                               $ 239          $ 226           $ 204
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

   Most  retired  employees  of the Company are eligible to remain in its health
and   life   insurance   plans.   Retirees   who   elect   to   remain   in  the
Albertson's-sponsored  plans  are  charged  a  premium  which  is  equal  to the
difference between the estimated costs of the benefits for the retiree group and
a fixed  contribution  amount made by the  Company.  The Company  also  provides
certain  health  care  benefits  to eligible  ASC  retirees  of certain  defined
employee  groups under two unfunded  plans, a defined dollar and a full coverage
plan. The net periodic postretirement benefit cost was as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                1999           1998            1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>            <C>             <C>
Service cost                                                                     $ 3            $ 3             $ 2
Interest cost                                                                      4              5               5
Amortization of unrecognized gain                                                (1)            (1)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                 $ 6            $ 7             $ 7
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

   The  following  table sets forth the funded  status of the  Company-sponsored
postretirement health and life insurance benefit plans:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                                        February 3,     January 28,
                                                                                               2000            1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>             <C>
Change in accumulated benefit obligation:

   Beginning of year benefit obligation                                                       $  69           $  71
   Service cost                                                                                   3               3
   Interest cost                                                                                  4               5
   Plan participants' contributions                                                               2               2
   Actuarial gain                                                                              (12)             (6)
   Benefits paid                                                                                (4)             (6)
------------------------------------------------------------------------------------------------------------------------------------
   End of year benefit obligation                                                                62              69
------------------------------------------------------------------------------------------------------------------------------------

Plan assets activity:
   Employer contributions                                                                         2               4
   Plan participants' contributions                                                               2               2
   Benefit payments                                                                             (4)             (6)
------------------------------------------------------------------------------------------------------------------------------------
Funded status                                                                                  (62)            (69)
Unrecognized net gain                                                                          (21)            (15)
------------------------------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit obligations included with other
   long-term liabilities                                                                     $ (83)          $ (84)
------------------------------------------------------------------------------------------------------------------------------------
Discount rates as of end of year                                                               7.5%       6.25-7.0%
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>


                                     Page 27

<PAGE>


   For measurement purposes, a 7% annual rate of increase in the per capita cost
of covered  health care benefits was assumed for plans covering ASC retirees for
1999.  For the full  coverage  plan,  the rate was assumed to decrease to 6% for
2000 and remain at that level  thereafter.  For the ASC defined  dollar plan, no
future increases in the subsidy level were assumed. Annual rates of increases in
health  care costs are not  applicable  in the  calculation  of the  Albertson's
benefit  obligation  because  Albertson's  contribution  is a fixed  amount  per
participant.

   With the  exception of the plans  covering ASC  grandfathered  retirees,  all
postretirement plans are contributory, with participants' contributions adjusted
annually.  The accounting for the health care plans anticipates that the Company
will  not   increase   its   contribution   for   health   care   benefits   for
non-grandfathered retirees in future years.

   Since the subsidy levels for the Albertson's and the ASC defined dollar plans
are fixed and the  proportion of  grandfathered  ASC retirees is small, a health
care cost trend increase or decrease has no material  impact on the  accumulated
postretirement benefit obligation or the postretirement benefit expense.

   Statement of Financial Accounting  Standards No. 112, "Employers'  Accounting
for  Postemployment  Benefits" requires employers to recognize an obligation for
benefits  provided to former or inactive  employees after  employment but before
retirement. The Company is self-insured for certain of its employees' short-term
and long-term  disability  plans which are the primary benefits paid to inactive
employees  prior to  retirement.  Following is a summary of the  obligation  for
postemployment benefits included in the Company's Consolidated Balance Sheets:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                                    February 3,     January 28,
                                                           2000            1999

--------------------------------------------------------------------------------
<S>                                                        <C>              <C>
Included with salaries and related liabilities             $ 11             $ 7
Included with other long-term liabilities                    53              64
--------------------------------------------------------------------------------
                                                           $ 64            $ 71
--------------------------------------------------------------------------------
</TABLE>

   The Company also contributes to various plans under  industrywide  collective
bargaining  agreements  which  provide for health  care  benefits to both active
employees and retirees.  Total  contributions to these plans were $316 for 1999,
$270 for 1998, and $288 for 1997.

Employment Contracts

During 1994 and 1995 ASC entered into Key Executive  Agreements with 17 of ASC's
key executive officers. Each agreement contained certain terms of employment and
provided the officers with a special long-range payout.  Under change of control
provisions  activated by the Merger,  the executives  became fully vested in the
benefits  which have been fully  accrued for as part of the  severance  costs as
discussed in the Merger, Divestitures and Related Costs Note.

Leases

   The Company leases a portion of its real estate.  The typical lease period is
20 to 30 years and most leases contain renewal options. Exercise of such options
is dependent on the level of business  conducted at the  location.  In addition,
the Company leases certain  equipment.  Some leases  contain  contingent  rental
provisions  based on sales volume at retail stores or miles traveled for trucks.
Capitalized  leases are  calculated  using  interest  rates  appropriate  at the
inception of each lease.  Following is an analysis of the Company's assets under
capitalized leases:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------
                                      February 3,     January 28,
                                             2000            1999
------------------------------------------------------------------------------
<S>                                         <C>             <C>
Real estate and equipment                   $ 328           $ 350
Accumulated amortization                    (160)           (170)
------------------------------------------------------------------------------
                                            $ 168           $ 180
------------------------------------------------------------------------------

</TABLE>

                                     Page 28

<PAGE>


   Future  minimum  lease  payments  for  noncancelable  operating  leases which
exclude the amortization of acquisition-related fair value adjustments,  related
subleases and capital leases at February 3, 2000, were as follows:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
                                                Operating                        Capital
                                                   Leases      Subleases          Leases
------------------------------------------------------------------------------------------
<S>                                               <C>           <C>               <C>
2000                                                $ 307         $ (60)            $ 42
2001                                                  292           (66)              39
2002                                                  272           (61)              30
2003                                                  254           (36)              28
2004                                                  243           (17)              27
Remainder                                           2,059          (122)             295
------------------------------------------------------------------------------------------
Total minimum obligations (receivables)           $ 3,427        $ (362)             461
------------------------------------------------------------------------------------------
Interest                                                                           (255)
------------------------------------------------------------------------------------------
Present value of net minimum obligations                                             206
Current portion                                                                     (19)
------------------------------------------------------------------------------------------
Long-term obligations at February 3, 2000                                          $ 187
------------------------------------------------------------------------------------------

</TABLE>

   The Company is contingently liable as a guarantor of certain leases that were
assigned  to third  parties  in  connection  with  various  store  closures  and
dispositions.  The Company  believes the  likelihood of a significant  loss from
these  agreements is remote because of the wide  dispersion  among third parties
and remedies  available to the Company  should the primary party fail to perform
under the agreements.

   Rent  expense  under  operating   leases,   excluding  the   amortization  of
acquisition-related fair value adjustments of $14 in 1999, 1998 and 1997, was as
follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                          1999           1998            1997
--------------------------------------------------------------------------------
<S>                                      <C>            <C>             <C>
Minimum rent                             $ 330          $ 309           $ 288
Contingent rent                             29             25              26
--------------------------------------------------------------------------------
                                           359            334             314
Sublease rent                             (58)           (60)            (48)
--------------------------------------------------------------------------------
                                         $ 301          $ 274           $ 266
--------------------------------------------------------------------------------

</TABLE>

Financial Instruments

Financial  instruments which potentially subject the Company to concentration of
credit risk consist principally of cash equivalents and receivables. The Company
limits the amount of credit  exposure to each individual  financial  institution
and  places  its  temporary  cash  into  investments  of  high  credit  quality.
Concentrations  of credit risk with  respect to  receivables  are limited due to
their dispersion across various companies and geographies.

   The estimated fair values of cash and cash equivalents,  accounts receivable,
accounts  payable,  short-term debt and commercial paper borrowings  approximate
their  carrying  amounts.  Substantially  all of the fair values were  estimated
using quoted market prices.  The estimated  fair values and carrying  amounts of
outstanding debt (excluding commercial paper) were as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                      February 3,     January 28,
                                             2000            1999
--------------------------------------------------------------------------------
<S>                                       <C>             <C>
Fair value                                $ 3,718         $ 3,956
Carrying amount                             3,800           3,628

</TABLE>


                                     Page 29

<PAGE>



Environmental

The Company has identified  environmental  contamination sites related primarily
to underground petroleum storage tanks and ground water contamination at various
store,  warehouse,  office  and  manufacturing  facilities  (related  to current
operations as well as previously  disposed of businesses).  The Company conducts
an ongoing program for the inspection and evaluation of new sites proposed to be
acquired by the  Company  and the  remediation/monitoring  of  contamination  at
existing and previously owned sites. Undiscounted reserves have been established
for each  environmental  contamination  site  unless an  unfavorable  outcome is
remote.  Although the ultimate outcome and expense of environmental  remediation
is uncertain,  the Company  believes that required  remediation  and  continuing
compliance with environmental laws, in excess of current reserves, will not have
a material  adverse  effect on the financial  condition of the Company.  Charges
against earnings for  environmental  remediation were not material in 1999, 1998
or 1997.

Legal Proceedings

An agreement in principle has been reached to settle eight purported multi-state
cases combined in the United States District Court in Boise,  Idaho, which raise
various  issues  including  "off  the  clock"  work  allegations.  The  proposed
settlement  is  subject  to  court  approval.   Under  the  proposed  settlement
agreement, current and former employees who met eligibility criteria may present
their claims to a settlement administrator. While the Company cannot specify the
exact number of individuals who are likely to submit claims and the exact amount
of their claims, the $37 pre-tax ($22 after tax) one-time charge recorded by the
Company  in  1999  is the  Company's  current  estimate  of the  total  monetary
liability, including attorney fees, for all eight cases.

   The Company is also involved in routine litigation  incidental to operations.
The  Company  utilizes  various  methods  of  alternative   dispute  resolution,
including settlement discussions, to manage the costs and uncertainties inherent
in the litigation process. In the opinion of management, the ultimate resolution
of these  legal  proceedings  will not have a  material  adverse  effect  on the
Company's financial condition.

Segment Information

In June 1997,  the  Financial  Accounting  Standards  Board issued SFAS No. 131,
"Disclosures  about  Segments of an Enterprise and Related  Information,"  which
establishes annual and interim reporting standards for an enterprise's operating
segments and related disclosures about its products, services,  geographic areas
and major customers.  The Company has analyzed the reporting requirements of the
new  standard  and has  determined  that  its  operations  are  within  a single
operating segment.

Recent Accounting Standard

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards  (SFAS) No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities." This new standard  establishes  accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity  recognize all derivatives as either assets or liabilities in the
statement of financial  position and measure  those  instruments  at fair value.
This  standard,  as amended by SFAS No. 137, is effective for the Company's 2001
fiscal year.  The Company has not yet completed its  evaluation of this standard
or its impact on the Company's accounting and reporting requirements.


                                     Page 30

<PAGE>



Responsibility for Financial Reporting

The management of  Albertson's,  Inc., is responsible  for the  preparation  and
integrity  of  the  consolidated   financial  statements  of  the  Company.  The
accompanying  consolidated  financial  statements  have  been  prepared  by  the
management of the Company,  in accordance with accounting  principles  generally
accepted in the United States of America,  using management's best estimates and
judgment where necessary. Financial information appearing throughout this Annual
Report is consistent with that in the consolidated financial statements.

   To help fulfill its responsibility, management maintains a system of internal
controls  designed to provide  reasonable  assurance that assets are safeguarded
against  loss  or  unauthorized  use  and  that  transactions  are  executed  in
accordance with management's  authorizations and are reflected accurately in the
Company's  records.  The  concept  of  reasonable  assurance  is  based  on  the
recognition  that  the  cost of  maintaining  a system  of  internal  accounting
controls should not exceed benefits expected to be derived from the system.  The
Company  believes that its  long-standing  emphasis on the highest  standards of
conduct and  ethics,  set forth in  comprehensive  written  policies,  serves to
reinforce its system of internal controls.

   Deloitte  &  Touche  LLP,  independent  auditors,  audited  the  consolidated
financial statements in accordance with auditing standards generally accepted in
the United States of America to  independently  assess the fair  presentation of
the Company's financial position, results of operations and cash flows.

   The Audit Committee of the Board of Directors,  composed  entirely of outside
directors,  oversees the fulfillment by management of its responsibilities  over
financial  controls  and the  preparation  of  financial  statements.  The Audit
Committee  meets with  internal  and  external  auditors  four times per year to
review  audit plans and audit  results.  This  provides  internal  and  external
auditors direct access to the Board of Directors.

   Management   recognizes  its   responsibility  to  conduct  the  business  of
Albertson's,   Inc.,   in   accordance   with  high  ethical   standards.   This
responsibility  is reflected in key policy  statements that, among other things,
address potentially  conflicting outside business interests of Company employees
and specify proper conduct of business  activities.  Ongoing  communications and
review programs are designed to help ensure compliance with these policies.

         /s/ Gary G. Michael                      /s/ A. Craig Olson
         -------------------------                ----------------------------
         Gary G. Michael                          A. Craig Olson
         Chairman of the Board and                Executive Vice President and
         Chief Executive Officer                  Chief Financial Officer


                                     Page 31


<PAGE>



Independent Auditors' Report

The Board of Directors and Stockholders of Albertson's, Inc.:

We have audited the  accompanying  consolidated  balance sheets of  Albertson's,
Inc.,  and  subsidiaries  as of February 3, 2000 and January 28,  1999,  and the
related  consolidated  statements of earnings,  stockholders'  equity,  and cash
flows for each of the three years in the period  ended  February 3, 2000.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility is to express an opinion on the financial statements based on our
audits.  The consolidated  financial  statements give retroactive  effect to the
merger  of  Albertson's,  Inc.  and  American  Stores  Company,  which  has been
accounted  for  as  a  pooling  of  interests  as  described  in  the  Basis  of
Presentation Note to the consolidated financial statements. We did not audit the
balance sheet of American  Stores Company as of January 28, 1999, or the related
statements of earnings, stockholders' equity, and cash flows for each of the two
years in the period  ended  January 28, 1999,  which  statements  reflect  total
assets of approximately $8.9 billion as of January 28, 1999, and net earnings of
approximately $234 million and $280 million for the years ended January 28, 1999
and January 29,  1998,  respectively.  Those  statements  were  audited by other
auditors whose report has been  furnished to us, and our opinion,  insofar as it
relates to the amounts  included for American  Stores Company for 1998 and 1997,
is based solely on the report of such other auditors.

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

   In our opinion, based on our audits and the report of the other auditors, the
consolidated  financial  statements  referred to above  present  fairly,  in all
material respects, the financial position of Albertson's, Inc., and subsidiaries
at February 3, 2000 and January 28,  1999,  and the results of their  operations
and their cash flows for each of the three years in the period ended February 3,
2000, in conformity with accounting  principles generally accepted in the United
States of America.

         /s/ Deloitte & Touche LLP
         -------------------------
         Deloitte & Touche LLP
         Boise, Idaho
         March 24, 2000



                                     Page 32

<PAGE>



Independent Auditors' Report

Shareholders and Board of Directors of American Stores Company

We have audited the accompanying  consolidated  balance sheet of American Stores
Company and  subsidiaries  as of January  30, 1999 and the related  consolidated
statements of earnings,  shareholders' equity and cash flows for the years ended
January 30, 1999 and January 31, 1998 (not presented  herein).  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  auditing  standards  generally
accepted in the United States.  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 financial statements referred to above present fairly, in
all material  respects,  the consolidated  financial position of American Stores
Company and  subsidiaries  at January 30, 1999 and the  consolidated  results of
their  operations  and their cash flows for the years ended January 30, 1999 and
January 31, 1998 in conformity with accounting  principles generally accepted in
the United States.

         /s/ Ernst & Young LLP
         ---------------------
         Ernst & Young LLP
         Salt Lake City, Utah
         March 17, 1999



                                     Page 33

<PAGE>



Five-Year Summary of Selected Financial Data

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions, except                 53 weeks        52 weeks       52 weeks       52 weeks        52 weeks
 per share data)                          February 3,     January 28,    January 29,    January 30,     February 1,
                                                 2000            1999           1998           1997            1996
------------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>             <C>            <C>            <C>             <C>
Operating Results:

Sales                                        $ 37,478        $ 35,872       $ 33,828       $ 32,455        $ 30,894
Earnings before extraordinary item                427             801            797            781             782
Extraordinary item                               (23)
Net earnings                                      404             801            797            781             782
Net earnings as a percent to sales              1.08%           2.23%          2.36%          2.41%           2.53%

Common Stock Data:

Earnings per share before extraordinary item:
   Basic                                       $ 1.01          $ 1.91         $ 1.89         $ 1.79          $ 1.78
   Diluted                                       1.00            1.90           1.88           1.79            1.78
Extraordinary item:
   Basic                                       (0.05)
   Diluted                                     (0.05)
Earnings per share:
   Basic                                         0.96            1.91           1.89           1.79            1.78
   Diluted                                       0.95            1.90           1.88           1.79            1.78

Cash dividends per share:
   Albertson's, Inc.                             0.72            0.68           0.64           0.60            0.52
   American Stores Company Equivalent            0.14            0.57           0.56           0.51            0.44

Financial Position:

Total assets                                 $ 15,701        $ 15,131       $ 13,767       $ 12,608        $ 11,511
Long-term debt and capitalized
   lease obligations                            4,992           5,108          4,333          3,665           2,837

Other Year End Statistics:

Number of stores                                2,492           2,564          2,435          2,355           2,261

</TABLE>

   All  fiscal  years  consist  of 52 weeks,  except for 1999 which is a 53-week
year, and fiscal 1995 which included 52 weeks of operations for  Albertson's and
53 weeks of operations for ASC.

   1999 operating  results included pre-tax  merger-related  costs of $683 ($529
after tax or $1.25 per  share),  and a pre-tax  charge of $37 ($22  after tax or
$0.05 per share) for a  litigation  settlement.  Merger-related  costs  included
severance,  the write-down of assets to net realizable  value,  transaction  and
financing costs, integration costs and stock option charges.

   During 1999 American  Stores Company paid only one quarterly  dividend due to
the consummation of the Merger.

   1998 operating results included a pre-tax  merger-related stock option charge
of $195 ($132 after tax or $0.31 per share) related to the  exercisability  of 6
million  equivalent  limited  stock  appreciation  rights due to the approval by
ASC's  stockholders of the Merger  Agreement and a $24 pre-tax charge ($16 after
tax  or  $0.04  per  share)  related  to  management's   decision  to  close  16
underperforming stores.

   1997 operating results included pre-tax charges of $34 related to the sale of
stock by a major stockholder and pre-tax charges of $13 related to the sale of a
division of ASC's communications subsidiary (total of $41 after tax or $0.10 per
share).

   1996 operating  results  included  pre-tax  charges of $100 ($60 after tax or
$0.14 per share) primarily related to ASC's re-engineering activities.


                                     Page 34

<PAGE>

Quarterly Financial Data
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
(Dollars in millions,
except per share data - unaudited)              First          Second          Third         Fourth            Year
------------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>             <C>            <C>            <C>            <C>
1999

Sales                                         $ 9,215         $ 9,381        $ 8,983        $ 9,899        $ 37,478
Gross profit                                    2,503           2,555          2,465          2,791          10,314
Operating profit (loss)                           473            (75)            301            541           1,240
Net earnings (loss)                               238           (228)            130            264             404
Earnings (loss) per share:
   Basic                                         0.57          (0.54)           0.31           0.62            0.96
   Diluted                                       0.56          (0.54)           0.31           0.62            0.95
------------------------------------------------------------------------------------------------------------------------------------

1998

Sales                                         $ 8,721         $ 8,945        $ 8,838        $ 9,368        $ 35,872
Gross profit                                    2,298           2,395          2,412          2,611           9,716
Operating profit                                  365             443            448            395           1,651
Net earnings                                      176             217            219            189             801
Earnings per share:
   Basic                                         0.42            0.52           0.52           0.45            1.91
   Diluted                                       0.42            0.52           0.52           0.45            1.90
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

   During 1999 all four  quarters`  operating  results were  affected by pre-tax
merger-related  costs  totaling  $683 ($529  after  tax).  Merger-related  costs
included   severance,   the  write-down  of  assets  to  net  realizable  value,
transaction and financing costs, integration costs and stock option charges. The
third quarter  included a pre-tax  one-time  charge of $37 ($22 after tax) for a
litigation settlement.  The following table reflects the net earnings (loss) and
earnings per share (EPS) effect of these items.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                          First              Second              Third              Fourth             Annual
                      Net        EPS     Net        EPS      Net        EPS      Net        EPS      Net        EPS
                 Earnings     Effect    Loss     Effect     Loss     Effect     Loss     Effect     Loss     Effect
------------------------------------------------------------------------------------------------------------------------------------
<S>                  <C>      <C>    <C>       <C>        <C>      <C>        <C>      <C>       <C>       <C>
Merger-
   related costs     $ 15     $ 0.03 $ (464)   $ (1.10)   $ (34)   $ (0.08)   $ (46)   $ (0.11)  $ (529)   $ (1.25)
Litigation
   settlement                                               (22)     (0.05)                         (22)     (0.05)
</TABLE>

   Fourth quarter 1998 operating results included a pre-tax merger-related stock
option  charge  of $195  ($132  after  tax or $0.31 per  share)  related  to the
exercisability of 6 million equivalent limited stock appreciation  rights due to
the approval by ASC's stockholders of the Merger Agreement. A $24 pre-tax charge
($16  after tax or $0.04 per  share)  was  recorded  in fiscal  1998  related to
management's  decision to close 16  underperforming  stores.  An initial pre-tax
charge of $29 ($18  after  tax or $0.04 per  share)  was  recorded  in the first
quarter  and a pre-tax  adjustment  of $5 ($3  after tax or $0.01 per  share) of
income was recorded in the fourth quarter.

   The Company estimates the quarterly LIFO reserves, which cannot be accurately
determined  until year end. The LIFO method of valuing  inventories  (decreased)
increased net earnings and EPS as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands
except per share data -Unaudited)               First          Second          Third         Fourth            Year
------------------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>             <C>            <C>            <C>            <C>
1999

Net earnings                                $ (5,400)       $ (5,400)      $ (5,400)      $ (1,772)      $ (17,972)
Basic and diluted EPS                          (0.01)          (0.01)         (0.01)         (0.01)          (0.04)
------------------------------------------------------------------------------------------------------------------------------------
1998

Net earnings                                $ (7,846)       $ (4,935)      $ (6,159)      $   9,185      $  (9,755)
Basic and diluted EPS                          (0.02)          (0.01)         (0.01)           0.02          (0.02)
</TABLE>

Due  to  rounding  and  different  periods  used  to  compute  weighted  average
outstanding shares, the sum of the quarterly EPS does not equal the annual EPS.



                                     Page 35
<PAGE>


Company Stock Information

The Company's  stock is traded on the New York and Pacific stock exchanges under
the symbol ABS. The high and low stock prices by quarter were as follows:

<TABLE>
<CAPTION>
                 First                Second                 Third                Fourth                 Year
            High        Low       High        Low       High        Low       High        Low       High        Low
------------------------------------------------------------------------------------------------------------------------------------
<S>     <C>         <C>       <C>         <C>         <C>        <C>       <C>        <C>       <C>          <C>
1999    61 15/16    49 1/16   56 15/16    48 9/16     52 1/4         37    38 5/16         29   61 15/16         29
1998    54 15/16    46 5/16   53 11/16         44     58 1/8     44 1/2     67 1/8     53 3/8     67 1/8         44
1997          37     30 1/2   38 11/16     31 7/8     37 3/4     32 3/4     48 5/8    36 5/16     48 5/8     30 1/2

</TABLE>

Cash dividends declared per share were:

<TABLE>
<CAPTION>
                                                First          Second          Third         Fourth            Year
------------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>             <C>            <C>            <C>             <C>
1999                                           $ 0.18          $ 0.18         $ 0.18         $ 0.18          $ 0.72
1998                                             0.17            0.17           0.17           0.17            0.68
1997                                             0.16            0.16           0.16           0.16            0.64
</TABLE>

In March  2000 the Board of  Directors  increased  the  regular  quarterly  cash
dividend  5.6% to $0.19 per share from $0.18 per  share,  for an annual  rate of
$0.76  per  share.  The new  quarterly  rate  will be paid on May 10,  2000,  to
stockholders of record on April 14, 2000.


                                     Page 36