EXHIBIT 13

                               ALBERTSON'S, INC.

Financial Review

Results of Operations

     The Company has reported  increased  sales and earnings for 28  consecutive
years. Sales for 1997 were $14.7 billion,  compared to $13.8 billion in 1996 and
$12.6 billion in 1995. 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  
                                           -------------------------     --------------------------------
                                                                             1997        1996       1995
                                           1997      1996       1995     vs. 1996    vs. 1995   vs. 1994
---------------------------------------------------------------------------------------------------------
<S>                                      <C>       <C>        <C>            <C>         <C>       <C>
Sales                                    100.00    100.00     100.00          6.6         9.5        5.8
Gross profit                              26.43     25.88      25.53          8.9        11.0        6.8
Selling, general and
  administrative expenses                 20.36     19.71      19.12         10.1        12.9        6.2
Operating profit                           6.07      6.17       6.41          5.0         5.2        8.6
Net interest expense                       0.56      0.47       0.44         27.9        16.1      (10.5)
Earnings before income taxes and
  cumulative effect of accounting
  change                                   5.63      5.77       6.03          4.0         4.8       11.8
Net earnings                               3.52      3.58       3.69          4.7         6.2       16.1
</TABLE>

     Increases in sales are primarily attributable to the continued expansion of
net retail square  footage,  and identical and comparable  store sales increases
(including  inflation).  During 1997 the Company opened 64 stores,  remodeled 35
stores  and closed 12 stores for a net retail  square  footage  increase  of 3.0
million square feet. Net retail square footage  increased 7.4% in 1997,  9.6% in
1996 and 7.6% in 1995. Identical store sales, stores that have been in operation
for two full  fiscal  years,  increased  0.3% in 1997,  2.0% in 1996 and 0.8% in
1995.  Comparable store sales, which include replacement stores,  increased 0.4%
in 1997,  2.1% in 1996 and 1.0% in 1995.  Identical and  comparable  store sales
continued  to  increase  through  higher  average  ticket  sales  per  customer.
Management  estimates that  inflation  accounted for  approximately  0.3% of the
identical and comparable store sales increases in 1997, compared to 0.6% in both
1996 and 1995.
     In addition to new store  development,  the Company plans to increase sales
through its continued  investment  in programs  initiated in 1997 and 1996 which
are designed to provide solutions to customer needs.  These programs include the
Front End Manager program;  the home meal solutions process called "Quick Fixin'
IdeasSM";  special  destination  categories  such  as  Albertson's  Better  Care
pharmacies,  baby care,  pet care,  snack and beverage  centers;  and  increased
emphasis on training  programs  utilizing  Computer Guided Training.  To provide
additional   solutions   to   customer   needs,   the  Company  has  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  in 1997  primarily  as a
result of improvements made in retail stores, including substantial improvements
in  under-performing  stores.  Gross profit, as a percent to sales, for 1997 and
1996  also  increased  due  to  the  continued   utilization  of   Company-owned
distribution  facilities and increased buying  efficiencies.  Since 1994, all of
the Company's  retail stores have been  serviced by  Company-owned  distribution
centers which provide approximately 77% of all products purchased by Albertson's
retail stores. Utilization of the Company's distribution centers has enabled the
Company to improve its control over product costs and product distribution.  The
pre-tax LIFO adjustment, as a percent to sales, reduced gross margin by 0.06% in
1997, 0.11% in 1996 and 0.14% in 1995.
     Selling, general and administrative (SG&A) expenses, as a percent to sales,
increased in 1997 and 1996 due primarily to increased salary and related benefit
costs resulting from the Company's  initiatives to increase sales, and increased
depreciation  expense associated with the Company's expansion program.  The 1995
increase was due primarily to increased depreciation expense associated with the
Company's  expansion program.  In addition to increasing sales, the Company will
continue to implement new technology that increases productivity,  and emphasize
cost containment programs to control SG&A expenses as a percent to sales.


                                     Page 1

<PAGE>


     The  1997  and  1996  increases  in  net  interest  expense  resulted  from
additional borrowings.  The 1995 reduction in net interest expense resulted from
increased capitalized interest associated with the Company's capital expenditure
program and reduced average outstanding debt balances.

Liquidity and Capital Resources

     The Company's  operating results continue to enhance its financial position
and  ability to  continue  its  planned  expansion  program.  Cash  provided  by
operating  activities during 1997 was $865 million,  compared to $648 million in
1996 and $786  million in 1995.  During 1997 the Company  spent $674  million on
capital expenditures, $194 million to purchase and retire stock and $156 million
for the payment of dividends (which represents 30.2% of 1997 net earnings).
     The Company utilizes its commercial  paper program  primarily to supplement
cash requirements  from seasonal  fluctuations in working capital resulting from
operations  and  the  Company's  capital   expenditure   program.   Accordingly,
commercial  paper  borrowings  will  fluctuate  between the Company's  quarterly
reporting  periods.  The Company had $283 million of commercial paper borrowings
outstanding  at January 29, 1998,  compared to $329 million at January 30, 1997,
and $209 million at February 1, 1996. As of January 29, 1998,  the Company had a
revolving  credit  agreement for $600 million which was reserved as  alternative
funding for the Company's  commercial paper program and bank lines of credit for
$45 million. The revolving credit agreement contains certain covenants, the most
restrictive of which requires the Company to maintain  consolidated tangible net
worth, as defined, of at least $750 million.
     Under a shelf registration statement filed with the Securities and Exchange
Commission  (SEC) in May 1996,  the Company  issued $200 million of  medium-term
notes in 1997 and $200 million of 30-year 7.75%  debentures in 1996. In 1995 the
Company issued $200 million of 6.375% notes under a shelf registration statement
filed with the SEC in 1992.  Proceeds from these  issuances  were used to reduce
borrowings under the Company's commercial paper program.
     In late 1997 the Company filed a shelf registration statement with the SEC,
which became  effective in January 1998, to authorize the issuance of up to $500
million  in debt  securities.  The  remaining  authorization  under a 1996 shelf
registration  statement  was  rolled  over  into  the  1997  shelf  registration
statement.  In February 1998 the Company issued $84 million of medium-term notes
under  the 1997  shelf  registration  statement  leaving  $416  million  of debt
securities available for issuance in the future.
     Since  1987 the Board of  Directors  has  continuously  adopted  or renewed
programs  under which the Company is authorized,  but not required,  to purchase
and  retire  shares of its common  stock.  The  program  adopted by the Board of
Directors on March 2, 1998,  authorizes the Company to purchase and retire up to
5  million  shares  from  April 1, 1998  through  March 31,  1999.  Under  these
programs,  the Company  purchased  and retired 5.4 million  shares in 1997,  1.6
million shares in 1996 and 2.6 million shares in 1995.
     The following leverage ratios demonstrate the Company's levels of long-term
financing as of the indicated year end:

<TABLE>
<CAPTION>
                                                                  January 29,   January 30,   February 1,
                                                                        1998          1997          1996
---------------------------------------------------------------------------------------------------------
<S>                                                                    <C>           <C>           <C>
Long-term debt and capitalized lease obligations to capital(1)         31.8%         31.9%         27.3%
Long-term debt and capitalized lease obligations to total assets       21.7          22.3          17.7
</TABLE>

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

     The average size of stores opened in 1997,  54,600  square feet,  increased
the Company's average store size to 48,700 square feet. At January 29, 1998, 95%
of the Company's  retail square  footage  consisted of stores over 35,000 square
feet.  Retail square  footage has also  increased  due to the Company's  remodel
program.  In 1997,  4 of the 35  remodeled  stores were  expanded  in size.  The
Company continues to retain ownership of real estate when possible.


                                     Page 2
<PAGE>


     During  the past  three  years,  the  Company  has  invested  $162  million
(excluding  inventory) in its distribution  operations and has added 1.2 million
square feet of new or expanded facilities.  A new 698,000-square-foot  full-line
distribution  center  in the  Company's  Houston,  Texas,  market  became  fully
operational on March 18, 1996.
     Capital   expenditures   for  1998  (excluding   acquisitions  and  amounts
anticipated to be financed by operating leases) are expected to be approximately
$780 million.  New stores and remodels will continue to be the most  significant
portion of planned capital expenditures. The Company is committed to keeping its
stores up to date. In the last three years, the Company has opened and remodeled
322 stores representing 39% of the Company's retail square footage as of January
29, 1998.  The following  historical  summary of capital  expenditures  includes
capital  leases,  assets acquired with related debt and the estimated fair value
of property financed by operating leases (in thousands):

<TABLE>
<CAPTION>
                                              1998
                                        (Projected)      1997       1996       1995
------------------------------------------------------------------------------------
<S>                                       <C>        <C>        <C>        <C>     
New and acquired stores                   $465,000   $515,773   $460,188   $412,868
Remodels                                   145,000     96,973    117,358    120,709
Retail replacement equipment and 
  technological upgrades                    50,000     41,628     52,478     15,692
Distribution facilities and equipment       80,000     28,399     34,812     98,731
Other                                       40,000     13,658     21,171     16,257
------------------------------------------------------------------------------------
Total capital expenditures                 780,000    696,431    686,007    664,257
Estimated fair value of property
  financed by operating leases              35,000     44,000     47,000     30,000
------------------------------------------------------------------------------------
                                          $815,000   $740,431   $733,007   $694,257
------------------------------------------------------------------------------------
</TABLE>

     The Company's  strong financial  position  provides the flexibility for the
Company to grow through future acquisitions or to purchase and retire its common
stock if it so  chooses.  The  Board of  Directors  at its  March  1998  meeting
increased the regular  quarterly cash dividend to $0.17 per share, for an annual
rate of $0.68 per share.

New  Accounting  Standards

     In June  1997  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement  of  Financial   Accounting   Standards  (SFAS)  No.  130,  "Reporting
Comprehensive Income." This new standard requires the reporting of comprehensive
income and its components (revenues,  expenses,  gains and losses) in a full set
of  general-purpose  financial  statements.  This  standard is effective for the
Company's  1998 fiscal year and is not expected to have a significant  impact on
the Company's reporting requirements.
     In June 1997 the FASB issued SFAS No. 131,  "Disclosures  about Segments of
an  Enterprise  and Related  Information."  This new  standard  requires  public
business  enterprises to report  information about operating  segments in annual
financial  statements  and  requires  that  those  enterprises  report  selected
information  about  operating  segments in interim  financial  reports issued to
shareholders.  It also  establishes  standards  for  related  disclosures  about
products and services,  geographic areas and major  customers.  This standard is
effective  for  the  Company's   1998  fiscal  year.   However,   the  reporting
requirements need not be applied to interim financial  statements in the initial
year of  application.  The Company is in the process of evaluating its reporting
requirements under this standard.


                                     Page 3
<PAGE>


Year 2000 Compliance

     The Year 2000 issue results from computer  programs being written using two
digits  rather  than  four to  define  the  applicable  year.  As the year  2000
approaches,  systems  using such  programs may be unable to  accurately  process
certain  date-based  information.  Like many  other  companies,  the  Company is
continuing to assess and modify its computer applications and business processes
to provide for their continued functionality. The Company is also continuing its
assessment  of the  readiness  of  external  entities,  such as  vendors,  which
interface with the Company.
     In  addition,  the  Company  is  addressing  the Year  2000  issue  both by
augmenting previously scheduled computer maintenance with procedures designed to
locate and correct Year 2000  problems and by slightly  accelerating  its normal
equipment and software  replacement  schedules.  The Company does not expect the
costs associated with these procedures to be material.
     The Company  believes that its efforts will result in Year 2000 compliance.
However,  the impact on business operations of failure by the Company to achieve
compliance or failure by external  entities  which the Company  cannot  control,
such as vendors,  to achieve  compliance,  could be  material  to the  Company's
consolidated results of operations.

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 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,  adverse  effects  of  failure to
achieve  Year 2000  compliance,  the  Company's  ability to recruit  and develop
employees,  its ability to develop new stores or complete remodels as rapidly as
planned,  its ability to successfully  implement new technology and stability of
product costs.
     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 4
<PAGE>

                               ALBERTSON'S, INC.

                             Consolidated Earnings

<TABLE>
<CAPTION>
                                                                  52 Weeks        52 Weeks        52 Weeks
                                                                January 29,     January 30,     February 1,
(In thousands except per share data)                                  1998            1997            1996
-----------------------------------------------------------------------------------------------------------
<S>                                                           <C>             <C>             <C>         
Sales                                                         $ 14,689,511    $ 13,776,678    $ 12,585,034
Cost of sales                                                   10,807,687      10,211,348       9,371,736
-----------------------------------------------------------------------------------------------------------
Gross profit                                                     3,881,824       3,565,330       3,213,298
Selling, general and administrative expenses                     2,990,172       2,715,776       2,406,082
-----------------------------------------------------------------------------------------------------------
Operating profit                                                   891,652         849,554         807,216
Other (expenses) income:
  Interest, net                                                    (82,563)        (64,569)        (55,633)
  Other, net                                                        17,814           9,862           6,918
-----------------------------------------------------------------------------------------------------------
Earnings before income taxes                                       826,903         794,847         758,501
Income taxes                                                       310,089         301,068         293,540
-----------------------------------------------------------------------------------------------------------
Net Earnings                                                  $    516,814    $    493,779    $    464,961
-----------------------------------------------------------------------------------------------------------

Earnings Per Share:
  Basic                                                              $2.09           $1.96           $1.84
  Diluted                                                             2.08            1.95            1.83
Weighted average common shares outstanding:
  Basic                                                            247,735         251,710         253,080
  Diluted                                                          248,497         252,730         254,093
</TABLE>


                 See Notes to Consolidated Financial Statements


                                     Page 5
<PAGE>

                               ALBERTSON'S, INC.

                          Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                            January 29,  January 30,  February 1,
(Dollars in thousands)                            1998         1997         1996
---------------------------------------------------------------------------------
<S>                                         <C>          <C>          <C>            
Assets
Current Assets:
  Cash and cash equivalents                 $  108,083   $   90,865   $   69,113
  Accounts and notes receivable                121,023       98,364       98,340
  Inventories                                1,308,578    1,201,067    1,030,246
  Prepaid expenses                              44,426       42,823       22,855
  Deferred income taxes                         45,747       42,804       62,448
---------------------------------------------------------------------------------
    Total Current Assets                     1,627,857    1,475,923    1,283,002
Other Assets                                   207,360      184,070      155,427
Land, Buildings and Equipment, net           3,383,373    3,054,640    2,697,482
---------------------------------------------------------------------------------
Total Assets                                $5,218,590   $4,714,633   $4,135,911
---------------------------------------------------------------------------------

Liabilities and Stockholders' Equity
Current Liabilities:
  Accounts payable                          $  742,557   $  682,305   $  648,963
  Salaries and related liabilities             149,898      135,681      134,096
  Taxes other than income taxes                 80,842       67,086       44,413
  Income taxes                                  37,657       14,409       35,546
  Self-insurance                                69,982       63,999       68,899
  Unearned income                               46,069       36,539       32,208
  Other                                         52,395       46,161       38,815
  Current maturities of long-term debt          86,511          975       78,237
  Current capitalized lease obligations          9,608        7,938        7,316
---------------------------------------------------------------------------------
    Total Current Liabilities                1,275,519    1,055,093    1,088,493
Long-Term Debt                                 989,650      921,704      602,993
Capitalized Lease Obligations                  140,957      130,050      129,265
Other Long-Term Liabilities and Deferred
  Credits                                      393,008      360,768      362,637
Commitments and Contingencies
Stockholders' Equity:
  Preferred  stock - $1.00  par  value;
    authorized - 10,000,000 shares;
    designated - 3,000,000 shares of
    Series A Junior Participating; issued
    - none
  Common stock - $1.00 par value;
    authorized - 600,000,000 shares;
    issued - 245,735,633 shares,
    250,690,105 shares and 251,918,576
    shares, respectively                       245,736      250,690      251,919
  Capital in excess of par value                 4,271           92        3,269
  Retained earnings                          2,169,449    1,996,236    1,697,335
---------------------------------------------------------------------------------
    Total Stockholders' Equity               2,419,456    2,247,018    1,952,523
---------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 5,218,590   $4,714,633   $4,135,911
---------------------------------------------------------------------------------
</TABLE>


                 See Notes to Consolidated Financial Statements


                                     Page 6
<PAGE>

                               ALBERTSON'S, INC.

                            Consolidated Cash Flows

<TABLE>
<CAPTION>
                                                                    52 Weeks     52 Weeks     52 Weeks
                                                                  January 29,  January 30,  February 1,
(In thousands)                                                          1998         1997         1996
-------------------------------------------------------------------------------------------------------
<S>                                                                <C>          <C>          <C>
Cash Flows From Operating Activities:
Net earnings                                                       $ 516,814    $ 493,779    $ 464,961
Adjustments to reconcile net earnings to net cash
provided by operating activities:
  Depreciation and amortization                                      328,795      294,341      251,450
  Net deferred income taxes                                           (1,299)      33,868         (590)
  Increase in cash surrender value of
    Company-owned life insurance                                     (14,113)      (9,021)      (7,868)
  Changes in operating assets and liabilities:
    Receivables and prepaid expenses                                 (24,262)     (19,992)       7,386
    Inventories                                                     (107,511)    (170,821)     (81,685)
    Accounts payable                                                  60,252       33,342       73,412
    Other current liabilities                                         59,591       14,716       18,482
    Self-insurance                                                    12,619      (11,234)       9,406
    Unearned income                                                   21,705      (10,735)      34,960
    Other long-term liabilities                                       12,081         (313)      15,682
-------------------------------------------------------------------------------------------------------
      Net cash provided by operating activities                      864,672      647,930      785,596
-------------------------------------------------------------------------------------------------------

Cash Flows From Investing Activities:
  Capital expenditures                                              (674,053)    (673,310)    (656,331)
  Proceeds from disposals of land, buildings and equipment            37,098       31,095       23,267
  Increase in other assets                                            (9,177)     (19,622)     (24,778)
-------------------------------------------------------------------------------------------------------
      Net cash used in investing activities                         (646,132)    (661,837)    (657,842)
-------------------------------------------------------------------------------------------------------

Cash Flows From Financing Activities:
  Proceeds from long-term borrowings                                 200,000      202,000      202,525
  Payments on long-term borrowings                                    (8,995)     (88,202)    (211,463)
  Net commercial paper activity                                      (45,692)     119,601       99,657
  Proceeds from stock options exercised                                3,600        3,328        4,902
  Cash dividends paid                                               (156,261)    (146,060)    (126,672)
  Stock purchased and retired                                       (193,974)     (55,008)     (77,814)
-------------------------------------------------------------------------------------------------------
      Net cash (used in) provided by financing activities           (201,322)      35,659     (108,865)
-------------------------------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents                             17,218       21,752       18,889
Cash and Cash Equivalents at Beginning of Year                        90,865       69,113       50,224
-------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year                           $ 108,083    $  90,865    $  69,113
-------------------------------------------------------------------------------------------------------
</TABLE>


                See Notes to Consolidated Financial Statements


                                     Page 7
<PAGE>

                               ALBERTSON'S, INC.

                       Consolidated Stockholders' Equity

<TABLE>
<CAPTION>
                                                           Common     Capital in
                                                      Stock $1.00      Excess of       Retained
(In thousands except per share data)                    Par Value      Par Value       Earnings          Total
---------------------------------------------------------------------------------------------------------------
<S>                                                   <C>            <C>            <C>            <C>        
Balance at February 2, 1995                           $   253,984    $    11,322    $ 1,422,587    $ 1,687,893
Exercise of stock options                                     515          4,387                         4,902
Tax benefits related to stock options                                      4,064                         4,064
Stock purchased and retired                                (2,580)       (16,504)       (58,730)       (77,814)
Cash dividends, $0.52 per share                                                        (131,483)      (131,483)
Net earnings                                                                            464,961        464,961
---------------------------------------------------------------------------------------------------------------
Balance at February 1, 1996                               251,919          3,269      1,697,335      1,952,523
Exercise of stock options                                     351          2,977                         3,328
Tax benefits related to stock options                                      3,310                         3,310
Stock purchased and retired                                (1,580)        (9,464)       (43,964)       (55,008)
Cash dividends, $0.60 per share                                                        (150,914)      (150,914)
Net earnings                                                                            493,779        493,779
---------------------------------------------------------------------------------------------------------------
Balance at January 30, 1997                               250,690             92      1,996,236      2,247,018
Exercise of stock options                                     414          3,186                         3,600
Tax benefits related to stock options                                      3,974                         3,974
Stock purchased and retired                                (5,368)        (2,981)      (185,625)      (193,974)
Cash dividends, $0.64 per share                                                        (157,976)      (157,976)
Net earnings                                                                            516,814        516,814
---------------------------------------------------------------------------------------------------------------
Balance at January 29, 1998                           $   245,736    $     4,271    $ 2,169,449    $ 2,419,456
---------------------------------------------------------------------------------------------------------------
</TABLE>


                See Notes to Consolidated Financial Statements


                                     Page 8
<PAGE>

                               ALBERTSON'S, INC.

                   Notes to Consolidated Financial Statements

The Company

     Albertson's,  Inc. (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 one of the largest  retail  food-drug
chains in the United States.  As of January 29, 1998,  the Company  operated 878
stores in 20 Western,  Midwestern  and Southern  states.  Retail  operations are
supported by 11 Company-owned distribution centers, 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 each year.  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 wholly owned
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 8 years; leasehold improvements--10 to 15 years; and capitalized
leases--25 to 30 years.
     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.
     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.
     Upon  disposal of fixed  assets,  the  appropriate  property  accounts  are
reduced by the related costs and accumulated depreciation and amortization.  The
resulting gains and losses are reflected in consolidated earnings.

     Self-Insurance:  The Company is primarily  self-insured  for property loss,
workers'  compensation and general liability costs.  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 specified amounts of product or promoting certain products.

     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
fixed assets, net of expected recovery value, is expensed.  For properties under
operating lease agreements,  the present value of any remaining  liability under
the lease, net of expected sublease recovery, is also expensed.


                                     Page 9
<PAGE>


     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.  Net advertising  expenses of $44,018,000,  $34,746,000 and
$8,729,000  were  included  with  cost of  sales in the  Company's  Consolidated
Earnings for 1997, 1996 and 1995, 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.

     Income Taxes: The Company provides for deferred income taxes resulting from
timing  differences in reporting certain income and expense items for income tax
and financial  accounting  purposes.  The major timing differences and their net
effect are shown in the "Income  Taxes" note.  Investment  tax credits have been
deferred and are being  amortized over the remaining  useful life of the related
asset.

     Earnings Per Share:  Earnings  per share (EPS) are  computed in  accordance
with Statement of Financial  Accounting Standards No. 128, "Earnings per Share."
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  from  the
computation of potential common shares (option price exceeded the average market
price during the period)  amounted to 1,520,000  shares for 1997,  24,000 shares
for 1996 and 1,014,000 shares for 1995.

     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  generally  accepted  accounting  principles,
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.

Supplemental Cash Flow Information

     Selected  cash  payments  and  noncash   activities  were  as  follows  (in
thousands):

<TABLE>
<CAPTION>
                                                                     1997       1996       1995
------------------------------------------------------------------------------------------------  
<S>                                                              <C>        <C>        <C>     
Cash payments for income taxes                                   $284,030   $288,590   $284,383
Cash payments for interest, net of amounts capitalized             65,930     59,284     45,131
Noncash investing and financing activities:
  Capitalized lease obligations incurred                           22,228     12,005      7,926
  Capitalized lease obligations terminated                          1,632      3,240      1,232
  Tax benefits related to stock options                             3,974      3,310      4,064
  Liabilities assumed in connection with asset acquisitions           150        692
</TABLE>


                                    Page 10
<PAGE>


Accounts and Notes Receivable

     Accounts and notes receivable consist of the following (in thousands):

<TABLE>
<CAPTION>
                                        January 29,  January 30,  February 1,
                                              1998         1997         1996
-----------------------------------------------------------------------------
<S>                                      <C>           <C>          <C>     
Trade and other accounts receivable      $ 119,856     $ 97,186     $ 95,112
Current portion of notes receivable          2,367        2,178        4,478
Allowance for doubtful accounts             (1,200)      (1,000)      (1,250)
-----------------------------------------------------------------------------
                                         $ 121,023     $ 98,364     $ 98,340
-----------------------------------------------------------------------------
</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   $242,020,000,   $232,849,000  and
$217,831,000  higher  at the end of  1997,  1996  and  1995,  respectively.  Net
earnings  (basic  and  diluted  earnings  per share)  would have been  higher by
$5,732,000 ($0.02) in 1997,  $9,329,000 ($0.04) in 1996 and $10,478,000  ($0.04)
in 1995. The replacement cost of inventories  valued at LIFO  approximates  FIFO
cost.

Land, Buildings and Equipment

     Land, buildings and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                 January 29,  January 30,  February 1,
                                                       1998         1997         1996
--------------------------------------------------------------------------------------
<S>                                              <C>          <C>          <C>       
Land                                             $  795,246   $  700,208   $  611,588
Buildings                                         2,055,276    1,799,976    1,525,769
Fixtures and equipment                            1,779,469    1,607,454    1,427,047
Leasehold improvements                              372,428      328,249      315,658
Capitalized leases                                  203,217      186,768      183,316
--------------------------------------------------------------------------------------
                                                  5,205,636    4,622,655    4,063,378
Less accumulated depreciation and amortization    1,822,263    1,568,015    1,365,896
--------------------------------------------------------------------------------------
                                                 $3,383,373   $3,054,640   $2,697,482
--------------------------------------------------------------------------------------
</TABLE>


                                    Page 11
<PAGE>


Indebtedness

     Long-term debt includes the following (in thousands):

<TABLE>
<CAPTION>
                                                    January 29,         January 30,    February 1,
                                                          1998                1997           1996
-------------------------------------------------------------------------------------------------
<S>                                                <C>                 <C>            <C>        
Commercial paper                                   $   283,304         $   328,996    $   209,395
Unsecured medium-term notes issued in 1997             200,000
Unsecured 7.75% debentures due June 2026               200,000             200,000
Unsecured 6.375% notes due June 2000                   200,000             200,000        200,000
Unsecured medium-term notes issued in 1993             175,075             175,075        252,075
Industrial revenue bonds                                14,230              14,860         15,710
Mortgage notes and other unsecured notes payable         3,552               3,748          4,050
--------------------------------------------------------------------------------------------------
                                                     1,076,161             922,679        681,230
Current maturities                                     (86,511)               (975)       (78,237)
--------------------------------------------------------------------------------------------------
                                                   $   989,650         $   921,704    $   602,993
--------------------------------------------------------------------------------------------------
</TABLE>

     The Company has in place a $600 million commercial paper program.  Interest
rates on the  outstanding  commercial  paper  borrowings as of January 29, 1998,
ranged from 5.53% to 5.90% with an effective weighted average rate of 5.63%. The
Company has established the necessary credit  facilities,  through its revolving
credit  agreement,  to refinance the commercial  paper borrowings on a long-term
basis.  These  borrowings have been  classified as noncurrent  because it is the
Company's intent to refinance these obligations on a long-term basis.
     In July 1997 the Company issued $200 million of  medium-term  notes under a
shelf registration  statement filed with the Securities and Exchange  Commission
(SEC) in May 1996.  The notes mature at various dates between July 2007 and July
2027.  Interest is paid  semiannually at rates ranging from 6.56% to 7.15%.  The
weighted average  interest rate on these notes  outstanding at January 29, 1998,
was 6.81%.  Proceeds from the issuance were used to repay  borrowings  under the
Company's commercial paper program.
     In June 1996 the Company  issued $200 million of 7.75%  debentures  under a
shelf  registration  statement filed with the SEC in May 1996.  Interest is paid
semiannually. Proceeds from the issuance were used to repay borrowings under the
Company's commercial paper program.
     In June 1995 the Company  issued $200 million of 6.375% notes under a shelf
registration   statement   filed  with  the  SEC  in  1992.   Interest  is  paid
semiannually.  Proceeds from the issuance were used to reduce  borrowings  under
the Company's commercial paper program.
     The  medium-term  notes issued in 1993 mature in March 1998 and March 2000.
Interest is paid semiannually at rates ranging from 5.58% to 6.28%. The weighted
average interest rate on these notes outstanding at January 29, 1998, was 5.92%.
     The  industrial  revenue bonds are payable in varying  annual  installments
through 2011,  with interest  paid  semiannually  at rates ranging from 4.40% to
6.95%.  The weighted  average  interest  rate on these  amounts  outstanding  at
January 29, 1998, was 5.96%.
     The  Company  has  pledged  real  estate  with a  cost  of  $14,870,000  as
collateral for the mortgage  notes,  which are payable  semiannually,  including
interest at rates  ranging  from 7.875% to 16.5%.  The notes mature from 1998 to
2011. The weighted average interest rate on these amounts outstanding at January
29, 1998, was 16.0%.
     The scheduled maturities of long-term debt outstanding at January 29, 1998,
are summarized as follows: $86,511,000 in 1998, $1,122,000 in 1999, $290,925,000
in 2000, $284,746,000 in 2001, $1,636,000 in 2002 and $411,221,000 thereafter.
     The Company has in place a revolving  credit  agreement with several banks,
whereby the Company may borrow  principal  amounts up to $600 million at varying
interest  rates any time prior to December  17,  2001.  The  agreement  contains
certain  covenants,  the most  restrictive  of which  requires  the  Company  to
maintain consolidated tangible net worth, as defined, of at least $750 million.


                                    Page 12
<PAGE>


     In late 1997 the Company filed a shelf registration statement with the SEC,
which became  effective in January 1998, to authorize the issuance of up to $500
million  in debt  securities.  The  remaining  authorization  under a 1996 shelf
registration  statement  was  rolled  over  into  the  1997  shelf  registration
statement.
     In addition to amounts available under the revolving credit agreement,  the
Company  had lines of credit  from banks at  prevailing  interest  rates for $45
million at January 29, 1998. The cash balances maintained at these banks are not
legally restricted.  There were no amounts outstanding under the Company's lines
of credit as of January 29, 1998, January 30, 1997, or February 1, 1996.
     Net interest expense was as follows (in thousands):

<TABLE>
<CAPTION>
                                             1997           1996           1995
--------------------------------------------------------------------------------
<S>                                      <C>            <C>            <C>     
Debt                                     $ 66,418       $ 48,534       $ 39,323
Capitalized leases                         16,629         15,168         15,234
Capitalized interest                       (8,683)        (6,378)        (7,428)
--------------------------------------------------------------------------------
Interest expense                           74,364         57,324         47,129
Net bank service charges                    8,199          7,245          8,504
--------------------------------------------------------------------------------
                                         $ 82,563       $ 64,569       $ 55,633
--------------------------------------------------------------------------------
</TABLE>

Other Long-Term Liabilities and Deferred Credits

     Other long-term  liabilities and deferred  credits consist of the following
(in thousands):
     
<TABLE>
<CAPTION>
                                         January 29,  January 30,  February 1,
                                               1998         1997         1996
------------------------------------------------------------------------------
<S>                                        <C>          <C>          <C>     
Deferred compensation                      $ 43,014     $ 37,905     $ 33,354
Deferred income taxes                        17,520       15,876        1,652
Deferred rents payable                       64,674       69,305       71,468
Self-insurance                              114,227      107,591      113,925
Unearned income                              81,931       69,756       84,822
Other                                        71,642       60,335       57,416
------------------------------------------------------------------------------
                                           $393,008     $360,768     $362,637
------------------------------------------------------------------------------
</TABLE>

Capital Stock

     On December 2, 1996,  the Board of Directors  adopted a stockholder  rights
plan,  under  which all  stockholders  of record on March 21,  1997,  received a
dividend  distribution  of one  nonvoting  right for each share of common  stock
held.  Subject to certain  exceptions,  one right will also be issued  with each
share of common stock  issued after March 21, 1997.  Each right will entitle the
holder to purchase, under certain circumstances, one one-hundredth 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.  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.
     Subject  to  certain  exceptions,  if  any  person  or  group  becomes  the
beneficial owner of 15% or more of the outstanding common stock, each right then
will  entitle its holder,  other than such person or group,  upon payment of the
$160 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.  However,  the rights are not exercisable until such time as
the rights are no longer redeemable by the Company as set forth below.


                                    Page 13
<PAGE>


     All of the rights may be redeemed by the Board of  Directors  at a price of
$0.001 per right until the earlier of (i) 10 days  following the  acquisition by
any person or group of 15% or more of the  outstanding  common stock or (ii) the
date the stockholder  rights plan expires.  Notwithstanding  the foregoing,  the
rights generally may not be redeemed for one hundred eighty (180) days following
a change in a majority of the Board of Directors as a result of a proxy  contest
or consent solicitation.  The rights, which are not entitled to dividends,  will
expire at the close of business on March 21, 2007,  unless  earlier  redeemed or
extended by the Company.
     On March 2, 1987, the Board of Directors adopted a stockholder rights plan,
which was amended on August 31, 1987, November 28, 1988,  September 6, 1989, and
September 6, 1994,  and expired by its terms on March 23, 1997.  Under the plan,
stockholders  of record on March 23, 1987,  received a dividend  distribution of
one  nonvoting  right for each  share of common  stock  and,  subject to certain
exceptions,  one right was issued with each share of common stock issued between
March 23, 1987, and the date of expiration of the plan.  The rights  attached to
all  common  stock  certificates  and  no  separate  rights   certificates  were
distributed.  Each  right  entitled  the  holder  to  purchase  one share of the
Company's  common  stock at a price of $60 when  they  became  exercisable  as a
result of certain  events.  The rights,  which were not  entitled to  dividends,
expired on March 23, 1997,  and no rights became  exercisable  during the period
they were outstanding.
     Since 1987,  the Board of  Directors  has  continuously  adopted or renewed
programs  under which the Company is authorized,  but not required,  to purchase
and  retire  shares of its common  stock.  The  program  adopted by the Board of
Directors on March 2, 1998,  authorizes the Company to purchase and retire up to
5 million  shares  through March 31, 1999. The Company has purchased and retired
an equivalent of 22.0 million  shares of its common stock for $483 million under
these programs, at an average price of $21.98 per share.

 Income Taxes

     Deferred  tax  assets  and   liabilities   consist  of  the  following  (in
thousands):

<TABLE>
<CAPTION>
                                                                  January 29,      January 30,      February 1,
                                                                        1998             1997             1996
---------------------------------------------------------------------------------------------------------------
<S>                                                                <C>              <C>              <C>    
Deferred tax assets (no valuation
allowances considered necessary):
  Nondeductible accruals for:
    Self-insurance                                                 $  71,243        $  67,547        $  70,669
    Lease accounting                                                  19,517           20,238           20,601
    Vacations                                                         18,200           17,057           19,917
    Deferred compensation                                             17,358           15,406           15,832
    Postemployment benefits                                           15,407           13,721           13,224
    Property valuation                                                 8,845            8,339           10,300
    Postretirement benefits                                            6,042            5,057            4,225
    Pension costs                                                      3,854            3,387            2,930
    Other                                                              4,495            3,996            3,189
  Income unearned for financial reporting purposes                    29,136           30,741           44,355
  Costs capitalized for tax purposes                                   4,724            5,615            9,999
---------------------------------------------------------------------------------------------------------------
    Total deferred tax assets                                        198,821          191,104          215,241
---------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
  Accelerated depreciation for tax purposes                         (123,541)        (120,975)        (116,267)
  Pension costs expensed for tax purposes                            (18,215)         (20,264)         (23,803)
  Inventory valuation                                                (12,155)          (8,863)          (7,676)
  Funded benefits                                                     (9,014)          (7,778)          (1,647)
  Deferred gains                                                      (6,803)          (6,103)          (4,929)
  Other                                                                 (866)            (193)            (123)
---------------------------------------------------------------------------------------------------------------
    Total deferred tax liabilities                                  (170,594)        (164,176)        (154,445)
---------------------------------------------------------------------------------------------------------------
Net deferred tax assets                                            $  28,227        $  26,928        $  60,796
---------------------------------------------------------------------------------------------------------------
</TABLE>


                                    Page 14
<PAGE>


     Income tax expense on continuing  operations  consists of the following (in
thousands):
 
<TABLE>
<CAPTION>
                                                          1997         1996         1995
-----------------------------------------------------------------------------------------
<S>                                                  <C>          <C>          <C>    
Current:
  Federal                                            $ 273,896    $ 229,006    $ 252,587
  State                                                 37,664       38,367       41,729
-----------------------------------------------------------------------------------------
                                                       311,560      267,373      294,316
-----------------------------------------------------------------------------------------
Deferred:
  Federal                                               (1,142)      29,008         (506)
  State                                                   (157)       4,860          (84)
-----------------------------------------------------------------------------------------
                                                        (1,299)      33,868         (590)
-----------------------------------------------------------------------------------------
Amortization of deferred investment tax credits           (172)        (173)        (186)
-----------------------------------------------------------------------------------------
                                                     $ 310,089    $ 301,068    $ 293,540
-----------------------------------------------------------------------------------------

Deferred taxes resulted from:
  Income unearned for financial reporting purposes   $   1,605    $  13,614    $ (12,981)
  Accelerated depreciation for tax purposes              2,566        4,708        5,937
  Self-insurance                                        (3,696)       3,122       (3,785)
  Litigation                                                22          155        9,331
  Inventory valuation                                    3,292        1,187        6,898
  Costs capitalized for tax purposes                       891        4,384        1,157
  Deferred compensation                                 (1,952)         426       (9,328)
  Property valuation                                      (506)       1,961       (1,433)
  Pension costs expensed for tax purposes               (2,049)      (3,539)       5,763
  Funded benefits                                        1,236        6,131        1,647
  Other                                                 (2,708)       1,719       (3,796)
-----------------------------------------------------------------------------------------
                                                     $  (1,299)   $  33,868    $    (590)
-----------------------------------------------------------------------------------------
</TABLE>

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

<TABLE>
<CAPTION>
                                        1997   Percent           1996   Percent           1995   Percent
---------------------------------------------------------------------------------------------------------
<S>                                <C>            <C>       <C>            <C>       <C>            <C> 
Taxes computed at statutory rate   $ 289,416      35.0      $ 278,196      35.0      $ 265,476      35.0
State income taxes net of
  federal income tax benefit          24,268       2.9         28,345       3.6         26,656       3.5
Amortization of deferred
  investment tax credits                (172)                    (173)                    (186)
Other                                 (3,423)     (0.4)        (5,300)     (0.7)         1,594       0.2
---------------------------------------------------------------------------------------------------------
                                   $ 310,089      37.5      $ 301,068      37.9      $ 293,540      38.7
---------------------------------------------------------------------------------------------------------
</TABLE>


                                    Page 15
<PAGE>


Stock Options

     The Company has two stock  option  plans  currently  in effect  under which
grants may be made with respect to  10,400,000  shares of the  Company's  common
stock.  Under these plans,  approved by the stockholders in 1995, options may be
granted to  officers  and key  employees,  and to  directors,  respectively,  to
purchase the  Company's  common  stock.  Generally,  options are granted with an
exercise  price at not less than 100% of the closing market price on the date of
the grant,  become  exercisable in  installments  of 20% per year on each of the
fifth through ninth  anniversaries  of the grant date and have a maximum term of
10 years.
     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):

<TABLE>
<CAPTION>
                                    January 29, 1998       January 30, 1997        February 1, 1996
                                    ----------------       ----------------        ----------------
                                   Shares        Price    Shares        Price     Shares        Price
------------------------------------------------------------------------------------------------------
<S>                                 <C>      <C>           <C>      <C>            <C>      <C>      
Outstanding at beginning of year    4,056    $   25.29     3,824    $   21.51      3,468    $   16.50
Granted                             1,524        45.48       790        35.14      1,044        31.76
Exercised                            (507)       14.09      (376)       10.91       (540)        9.84
Forfeited                             (55)       23.12      (182)       18.35       (148)       19.05
------------------------------------------------------------------------------------------------------
Outstanding at end of year          5,018    $   32.58     4,056    $   25.29      3,824    $   21.51
------------------------------------------------------------------------------------------------------
</TABLE>


     As of  January  29,  1998,  there  were  7,076,000  shares of common  stock
reserved for the granting of additional options.
     The following table summarizes options  outstanding and options exercisable
as of January 29, 1998, and the related weighted average  remaining  contractual
life (years) and weighted average exercise price (shares in thousands):

<TABLE>
<CAPTION>
                                 Options Outstanding          Options Exercisable
                                 -------------------          -------------------
        Option Price         Shares  Remaining                   Shares
           Per Share    Outstanding       Life     Price    Exercisable       Price
------------------------------------------------------------------------------------
<S>      <C> <C>              <C>          <C>   <C>                <C>     <C>
$  8.69  to  $  8.69             69        0.8   $  8.69             62     $  8.69
  13.44  to    16.88            803        3.2     16.11            181       16.14
  22.63  to    33.25          1,862        6.7     28.94             71       27.85
  35.00  to    45.69          2,284        9.0     42.06             22       39.75
------------------------------------------------------------------------------------
$  8.69  to  $ 45.69          5,018        7.1   $ 32.58            336     $ 18.81
------------------------------------------------------------------------------------
</TABLE>

     The weighted average fair value at date of grant for options granted during
1997, 1996 and 1995 was $15.26, $10.74 and $9.39 per option,  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>
                                             1997           1996           1995
--------------------------------------------------------------------------------
<S>                                         <C>            <C>            <C>
Expected life (years)                         6.5            7.0            6.9
Risk-free interest rate                      5.92%          6.24%          5.74%
Volatility                                  26.53          22.06          22.26
Dividend yield                               1.41           1.70           1.64
</TABLE>


                                    Page 16
<PAGE>


     The Company has adopted the  disclosure-only  provisions  of  Statement  of
Financial   Accounting   Standards   No.  123,   "Accounting   for   Stock-Based
Compensation."  Accordingly,  no  compensation  cost has been recognized for the
stock  options  granted  in  1997,  1996 or 1995.  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 (in thousands, except per share data):
  
<TABLE>
<CAPTION>
                                                     1997          1996          1995
--------------------------------------------------------------------------------------  
<S>                                           <C>           <C>           <C>        
Net earnings - as reported                    $   516,814   $   493,779   $   464,961
Net earnings - pro forma                          514,602       492,558       464,687
Basic earnings per share - as reported               2.09          1.96          1.84
Basic earnings per share - pro forma                 2.08          1.96          1.84
Diluted earnings per share - as reported             2.08          1.95          1.83
Diluted earnings per share - pro forma               2.07          1.95          1.83
</TABLE>

     The pro  forma  effect  on net  earnings  for  1997,  1996  and 1995 is not
representative  of the pro forma effect on net earnings in future years  because
it does not take into  consideration pro forma  compensation  expense related to
grants made prior to 1995.

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 two funded plans,
Albertson's Salaried Employees Pension Plan and Albertson's  Employees Corporate
Pension Plan, which are qualified,  defined benefit,  noncontributory  plans for
eligible 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 an unfunded  Executive  Pension Makeup Plan. This
plan is nonqualified and provides certain key employees defined pension benefits
which supplement those provided by the Company's other retirement plans.
     In February 1998 the Financial  Accounting Standards Board issued Statement
of  Financial  Accounting  Standards  No.  132,  "Employers'  Disclosures  about
Pensions and Other  Postretirement  Benefits." The Company has elected the early
adoption provisions of this standard as discussed in the following notes.
     Net  periodic  benefit  cost  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  all   Company-sponsored   pension   and
postretirement benefit plans were as follows:

<TABLE>
<CAPTION>
                                                    1997       1996       1995
-------------------------------------------------------------------------------
<S>                                            <C>        <C>        <C>  
Weighted-average discount rate                      6.60%      7.50%      7.25%
Annual salary increases                        4.50-5.00  4.50-5.00  4.50-5.00
Expected long-term rate of return on assets         9.50       9.50       9.00
</TABLE>


                                    Page 17
<PAGE>


     Net  periodic  benefit  cost for  Company-sponsored  pension  plans  was as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                              1997       1996       1995
--------------------------------------------------------------------------------------------------------- 
<S>                                                                       <C>        <C>        <C>     
Service cost - benefits earned during the period                          $ 26,776   $ 24,138   $ 16,172
Interest cost on projected benefit obligations                              23,174     20,095     16,149
Expected return on assets                                                  (34,118)   (30,600)   (22,962)
Amortization of transition asset                                                (6)        (6)        (6)
Amortization of prior service cost                                             944        944        944
Recognized net actuarial (gain) loss                                          (145)        39       (607)
---------------------------------------------------------------------------------------------------------
                                                                          $ 16,625   $ 14,610   $  9,690
---------------------------------------------------------------------------------------------------------
</TABLE>

     The following  table sets forth the funded status of the  Company-sponsored
pension plans (in thousands):

<TABLE>
<CAPTION>
                                                             January 29,         January 30,         February 1,
                                                                   1998                1997                1996
----------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                 <C>                 <C>   
Change in projected benefit obligation:
  Beginning of year benefit obligation                        $ 293,842           $ 269,645           $ 187,476
  Service cost                                                   26,776              24,138              16,172
  Interest cost                                                  23,174              20,095              16,149
  Actuarial loss (gain)                                          75,565             (12,716)             54,577
  Benefits paid                                                  (7,374)             (7,320)             (4,729)
----------------------------------------------------------------------------------------------------------------
  End of year benefit obligation                                411,983             293,842             269,645
----------------------------------------------------------------------------------------------------------------
Change in plan assets:
  Plan assets at fair value at beginning of year                354,806             321,758             240,534
  Actual return on plan assets                                   56,700              36,295              62,497
  Employer contributions                                         10,400               4,073              23,456
  Benefit payments                                               (7,374)             (7,320)             (4,729)
----------------------------------------------------------------------------------------------------------------
  Plan assets at fair value at end of year                      414,532             354,806             321,758
----------------------------------------------------------------------------------------------------------------

Funded status                                                     2,549              60,964              52,113
Unrecognized net loss (gain)                                     29,922             (23,205)             (4,755)        
Unrecognized prior service cost                                   4,483               5,427               6,371
Unrecognized net transition liability                               542                 536                 530
Additional minimum liability                                     (2,612)             (1,080)             (1,605)
----------------------------------------------------------------------------------------------------------------
Net prepaid pension cost                                      $  34,884           $  42,642           $  52,654
----------------------------------------------------------------------------------------------------------------

Prepaid pension cost included with other assets               $  47,559           $  52,497           $  61,875
Accrued pension cost included with other long-term
  liabilities                                                   (12,675)             (9,855)             (9,221)
----------------------------------------------------------------------------------------------------------------
Net prepaid pension cost                                      $  34,884           $  42,642           $  52,654
----------------------------------------------------------------------------------------------------------------
</TABLE>


                                    Page 18
<PAGE>


     The following table  summarizes the  Company-sponsored  pension plans which
have projected benefit  obligations in excess of plan assets and the accumulated
benefit obligation of the unfunded makeup plan in which the accumulated  benefit
obligation exceeds plan assets (in thousands):

<TABLE>
<CAPTION>
                                                            January 29,   January 30,   February 1,
                                                                  1998          1997          1996
---------------------------------------------------------------------------------------------------
<S>                                                           <C>           <C>           <C>    
Projected benefit obligation in excess of plan assets:
  Projected benefit obligation                                $240,869      $ 11,761      $ 11,003
  Fair value of plan assets                                    217,743
Accumulated benefit obligation in excess of plan assets:
  Accumulated benefit obligation                                12,675         9,855         9,221
</TABLE>


     Assets of the two funded  Company  plans are  invested in directed  trusts.
Assets  in  the  directed  trusts  are  invested  in  common  stocks  (including
$52,363,000,  $38,445,000  and  $38,859,000  of the  Company's  common  stock at
January 29, 1998,  January 30, 1997, and February 1, 1996,  respectively),  U.S.
Government obligations, corporate bonds, international equity funds, real estate
and money market funds.
     The Company also contributes to various plans under industrywide collective
bargaining  agreements,  primarily  for defined  benefit  pension  plans.  Total
contributions to these plans were $22,454,000 for 1997, $24,884,000 for 1996 and
$23,777,000 for 1995.
     The Company sponsors a tax deferred savings plan which is a salary deferral
plan pursuant to Section 401(k) of the Internal Revenue Code. Employees eligible
to participate are those who are at least 21 years of age with one or more years
of  service  and  (with  certain  exceptions)  are  not  covered  by  collective
bargaining  agreements.  All  contributions  are  determined  and  made  by  the
employees and the Company incurs no material costs in connection with this plan.
     Most retired  employees of the Company are eligible to remain in its health
and life insurance plans.  Retirees who elect to remain in the Company-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 net periodic post-retirement benefit cost was as
follows (in thousands):

<TABLE>
<CAPTION>
                                                    1997        1996        1995
---------------------------------------------------------------------------------
<S>                                               <C>         <C>         <C>   
Service cost                                      $1,483      $1,304      $  979
Interest cost                                      1,138         989         889
Amortization of unrecognized loss                                 22
---------------------------------------------------------------------------------
                                                  $2,621      $2,315      $1,868
---------------------------------------------------------------------------------
</TABLE>


                                    Page 19
<PAGE>


     The following  table sets forth the funded status of the  Company-sponsored
postretirement health and life insurance benefit plan (in thousands):

<TABLE>
<CAPTION>
                                            January 29, January 30, February 1,
                                                  1998        1997        1996
-------------------------------------------------------------------------------
<S>                                           <C>         <C>         <C>    
Change in accumulated benefit obligation:
  Beginning of year benefit obligation        $ 14,153    $ 12,486    $  8,216
  Service cost                                   1,483       1,304         979
  Interest cost                                  1,138         989         889
  Plan participants' contributions               1,396       1,237       1,131
  Actuarial loss (gain)                            721        (428)      2,904
  Benefits paid                                 (1,344)     (1,435)     (1,633)
-------------------------------------------------------------------------------
  End of year benefit obligation                17,547      14,153      12,486
-------------------------------------------------------------------------------
Plan assets activity:
  Employer (excess) contributions                  (52)        198         502
  Plan participants' contributions               1,396       1,237       1,131
  Benefit payments                              (1,344)     (1,435)     (1,633)
-------------------------------------------------------------------------------
Funded status                                  (17,547)    (14,153)    (12,486)
Unrecognized net loss                            1,773       1,052       1,503
-------------------------------------------------------------------------------
Accrued postretirement benefit obligations
  included with other long-term liabilities   $(15,774)   $(13,101)   $(10,983)
-------------------------------------------------------------------------------
</TABLE>

     Annual rates of increases  in health care costs are not  applicable  in the
calculation of the benefit  obligation  because the Company's  contribution is a
fixed amount.
     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  under 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
(in thousands):
     
<TABLE>
<CAPTION>
                                                 January 29,  January 30,  February 1,
                                                       1998         1997         1996
--------------------------------------------------------------------------------------
<S>                                                <C>          <C>          <C>    
Included with salaries and related liabilities     $  6,661     $  4,620     $  4,427
Included with other long-term liabilities            33,567       30,927       29,949
--------------------------------------------------------------------------------------
                                                   $ 40,228     $ 35,547     $ 34,376
--------------------------------------------------------------------------------------
</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 $96,465,000 for
1997, $100,043,000 for 1996 and $84,709,000 for 1995.
     The Company has bonus plans for store  management  personnel  and other key
management  personnel.  Amounts  charged to earnings  under all bonus plans were
$66,986,000 for 1997, $66,142,000 for 1996 and $58,782,000 for 1995.


                                    Page 20
<PAGE>


Leases

     The Company  leases a portion of its real estate.  The typical lease period
is 25 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.  Contingent rents  associated with  capitalized  leases
were $1,363,000 in 1997, $1,781,000 in 1996 and $1,948,000 in 1995. Following is
an analysis of the Company's capitalized leases (in thousands):

<TABLE>
<CAPTION>
                                              January 29, January 30, February 1,
                                                    1998        1997        1996
---------------------------------------------------------------------------------
<S>                                             <C>         <C>         <C>     
Real estate and equipment                       $203,217    $186,768    $183,316
Accumulated amortization                         (87,204)    (83,208)    (81,938)
---------------------------------------------------------------------------------
                                                $116,013    $103,560    $101,378
---------------------------------------------------------------------------------
</TABLE>

     Future minimum lease payments for noncancelable  operating leases,  related
subleases and capital leases at January 29, 1998, are as follows (in thousands):
     
<TABLE>
<CAPTION>
                                              Operating                       Capital
                                                 Leases      Subleases         Leases
--------------------------------------------------------------------------------------
<S>                                         <C>            <C>            <C>        
1998                                        $    80,177    $   (16,383)   $    26,482
1999                                             82,111        (14,435)        25,874
2000                                             79,804        (11,394)        25,762
2001                                             78,176         (9,604)        25,558
2002                                             74,022         (6,878)        18,434
Remainder                                       645,928        (23,168)       202,317
--------------------------------------------------------------------------------------
Total minimum obligations (receivables)     $ 1,040,218    $   (81,862)       324,427
-----------------------------------------------------------------------
Interest                                                                     (173,862)
--------------------------------------------------------------------------------------
Present value of net minimum obligations                                      150,565
Current portion                                                                (9,608)
--------------------------------------------------------------------------------------
Long-term obligations at January 29, 1998                                 $   140,957
--------------------------------------------------------------------------------------
</TABLE>

     The present value of minimum lease payments under operating leases using an
assumed  discount  rate of 8.0% was  approximately  $532  million at January 29,
1998.
     Rent expense under operating leases was as follows (in thousands):

<TABLE>
<CAPTION>
                                                  1997       1996       1995
-----------------------------------------------------------------------------
<S>                                           <C>        <C>        <C>     
Minimum rent                                  $ 81,402   $ 77,214   $ 68,528
Contingent rent                                  3,469      4,155      4,088
-----------------------------------------------------------------------------
                                                84,871     81,369     72,616
Sublease rent                                  (31,120)   (23,498)   (19,573)
-----------------------------------------------------------------------------
                                              $ 53,751   $ 57,871   $ 53,043
-----------------------------------------------------------------------------
</TABLE>


                                    Page 21
<PAGE>


Financial Instruments

     Financial  instruments with  off-balance-sheet  risk to the Company include
lease  guarantees  whereby the Company is contingently  liable as a guarantor of
certain  leases that were assigned to third  parties in connection  with various
store  closures.  Minimum  rentals  guaranteed  under  assigned  leases are $6.4
million in 1998 and aggregate $47.7 million for the remaining lease terms, which
expire at various dates through 2028.  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.
     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.  The  estimated  fair values and carrying
amounts of  long-term  debt  borrowings  (excluding  commercial  paper)  were as
follows (in millions):
     
<TABLE>
<CAPTION>
                                              January 29,  January 30,  February 1,
                                                    1998         1997         1996
-----------------------------------------------------------------------------------
<S>                                            <C>          <C>          <C>      
Fair value                                     $   833.8    $   606.3    $   483.9
Carrying amount                                    792.9        593.7        471.8
</TABLE>

     Substantially  all of these fair values were  determined from quoted market
prices. The Company has not determined the fair value of lease guarantees due to
the inherent difficulty in evaluating the credit worthiness of each tenant.

New Accounting  Standards

     In June  1997  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement  of  Financial   Accounting   Standards  (SFAS)  No.  130,  "Reporting
Comprehensive Income." This new standard requires the reporting of comprehensive
income and its components (revenues,  expenses,  gains and losses) in a full set
of  general-purpose  financial  statements.  This  standard is effective for the
Company's  1998 fiscal year and is not expected to have a significant  impact on
the Company's reporting requirements.
     In June 1997 the FASB issued SFAS No. 131,  "Disclosures  about Segments of
an  Enterprise  and Related  Information."  This new  standard  requires  public
business  enterprises to report  information about operating  segments in annual
financial  statements  and  requires  that  those  enterprises  report  selected
information  about  operating  segments in interim  financial  reports issued to
shareholders.  It also  establishes  standards  for  related  disclosures  about
products and services,  geographic areas and major  customers.  This standard is
effective  for  the  Company's   1998  fiscal  year.   However,   the  reporting
requirements need not be applied to interim financial  statements in the initial
year of  application.  The Company is in the process of evaluating its reporting
requirements under this standard.

Legal Proceedings

     Three civil lawsuits filed in September 1996 as purported  statewide  class
actions in  Washington,  California  and Florida and two civil lawsuits filed in
April 1997 in federal  court in Boise,  Idaho,  as purported  multi-state  class
actions  (including  the remaining  states in which the Company  operated at the
time) have been brought against the Company raising various issues that include:
(i)  allegations  that the Company has a widespread  practice of permitting  its
employees  to work  "off-the-clock"  without  being paid for their work and (ii)
allegations  that the  Company's  bonus  and  workers'  compensation  plans  are
unlawful.  Four of these suits are being  sponsored  and  financed by the United
Food and Commercial Workers (UFCW) International Union. The five suits have been
consolidated in Boise,  Idaho. In addition,  three other similar suits have been
filed as purported  class actions in Colorado,  New Mexico and Nevada which,  in
effect,  duplicate  the coverage of the  UFCW-sponsored  suits.  These cases may
ultimately  be  transferred  to,  or   consolidated   with,  the  pending  Boise
litigation.


                                    Page 22
<PAGE>


     The Company is  committed  to full  compliance  with all  applicable  laws.
Consistent with this commitment, the Company has firm and long-standing policies
in  place  prohibiting  off-the-clock  work and has  structured  its  bonus  and
workers'  compensation plans to comply with applicable law. The Company believes
that the UFCW-sponsored suits are part of a broader and continuing effort by the
UFCW and some of its locals to pressure  the Company to unionize  employees  who
have not expressed a desire to be represented by a union. The Company intends to
vigorously  defend  against  all of these  lawsuits,  and,  at this stage of the
litigation, the Company believes that it has strong defenses against them.
     Although  these lawsuits are subject to the  uncertainties  inherent in the
litigation process, based on the information presently available to the Company,
management  does not expect the ultimate  resolution  of these actions to have a
material  adverse  effect  on the  Company's  financial  condition,  results  of
operations or cash flows.
     The  Company  is  also  involved  in  routine   litigation   incidental  to
operations. 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, results of operations or cash flows.

Subsequent  Events

     On January 30, 1998, the Company closed its  transaction to purchase all of
the outstanding shares of Seessel's Holdings,  Inc. (Seessel's),  a wholly owned
subsidiary of Bruno's, Inc. for cash consideration of approximately $88 million.
The transaction included 10 Seessel's grocery stores in the Memphis,  Tennessee,
market.  It  also  included  a  central  bakery  and  a  central  kitchen  which
manufacture  fresh bakery and prepared foods for  distribution  to the Seessel's
stores.
     On January 20, 1998,  the Company  entered  into a definitive  agreement to
acquire the outstanding shares of Buttrey Food and Drug Stores Company (Buttrey)
for cash consideration of approximately $137 million. Buttrey,  headquartered in
Great Falls,  Montana,  is a leading supermarket and pharmacy retailer operating
43 stores in Montana,  North Dakota and Wyoming. On January 26, 1998, Locomotive
Acquisition  Corp., a wholly owned  subsidiary of the Company,  commenced a cash
tender offer to purchase all  outstanding  Buttrey  shares for $15.50 per share.
The offer is subject to regulatory  approval and certain  conditions,  including
the tender of a majority of the  outstanding  Buttrey  shares.  On February  23,
1998,  the  tender  offer was  extended  to April 30,  1998,  with all terms and
conditions  remaining  unchanged.  As of the close of business  on February  23,
1998, approximately 94% of the total number of shares had been tendered pursuant
to the Company's offer.
     On March 13,  1998,  the  Company  announced  that it had  entered  into an
agreement to acquire  Smitty's Super  Markets,  Inc.  (Smitty's)  subject to the
satisfactory  completion of due diligence and other conditions.  Smitty's is one
of the largest  grocery store chains in the  Springfield  and Joplin,  Missouri,
areas operating 10 combination stores and two fuel centers.
     In February 1998 the Company issued $84 million of medium-term  notes under
a shelf registration statement filed with the Securities and Exchange Commission
in late 1997.  Proceeds from the issuance were used to reduce  borrowings  under
the Company's  commercial  paper program.  Debt securities of up to $416 million
remain available for issuance under the 1997 shelf registration statement.


                                    Page 23
<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  generally  accepted  accounting
principles,  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 generally accepted auditing standards 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              Senior Vice President, Finance and
     Chief Executive Officer                Chief Financial Officer


                                    Page 24
<PAGE>


Independent Auditors' Report

[Deloitte & Touche Logo]


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 January 29, 1998, January 30, 1997, and
February  1,  1996,  and  the  related  consolidated   statements  of  earnings,
stockholders'  equity and cash flows for the years then ended.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.
     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
     In our opinion,  such consolidated  financial statements present fairly, in
all  material  respects,  the  financial  position  of  Albertson's,   Inc.  and
subsidiaries  at January 29, 1998,  January 30, 1997,  and February 1, 1996, and
the results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.




/s/ Deloitte & Touche LLP

Boise, Idaho
March 18, 1998


                                    Page 25
<PAGE>

                               ALBERTSON'S, INC.

                  Five-Year Summary of Selected Financial Data

<TABLE>
<CAPTION>
                                                      52 Weeks         52 Weeks        52 Weeks        52 Weeks        53 Weeks
                                                    January 29,      January 30,     February 1,     February 2,     February 3,
(Dollars in thousands except per share data)              1998             1997            1996            1995            1994
--------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>              <C>             <C>             <C>             <C>
Operating Results:
Sales                                             $ 14,689,511     $ 13,776,678    $ 12,585,034    $ 11,894,621    $ 11,283,678
Gross profit                                         3,881,824        3,565,330       3,213,298       3,007,894       2,779,671
Interest expense:
  Debt                                                  57,735           42,156          31,895          38,806          27,945
  Capitalized lease obligations                         16,629           15,168          15,234          13,412          12,233
Earnings before income taxes
  and cumulative effect of
  accounting change                                    826,903          794,847         758,501         678,652         552,215
Income taxes                                           310,089          301,068         293,540         261,281         212,534
Earnings before cumulative effect
  of accounting change                                 516,814          493,779         464,961         417,371         339,681
Cumulative effect of accounting
  change                                                                                                (17,006)
Net earnings                                           516,814          493,779         464,961         400,365         339,681
Net earnings as a percent to sales                        3.52%            3.58%           3.69%           3.37%           3.01%
--------------------------------------------------------------------------------------------------------------------------------
Common Stock Data:
Earnings per share before cumulative
  effect of accounting change:
    Basic                                                $2.09            $1.96           $1.84           $1.65           $1.34
    Diluted                                               2.08             1.95            1.83            1.64            1.33
Cumulative effect of accounting
  change                                                                                                   (.07)
Earnings per share:
    Basic                                                 2.09             1.96            1.84            1.58            1.34
    Diluted                                               2.08             1.95            1.83            1.57            1.33
Cash dividends per share                                  0.64             0.60            0.52            0.44            0.36
Book value per share                                      9.85             8.96            7.75            6.65            5.48
--------------------------------------------------------------------------------------------------------------------------------
Financial Position:
Total assets                                      $  5,218,590     $  4,714,633    $  4,135,911    $  3,621,729    $  3,294,895
Working capital                                        352,338          420,830         194,509          94,150         132,169
Long-term debt                                         989,650          921,704         602,993         382,775         554,092
Capitalized lease obligations                          140,957          130,050         129,265         129,573         110,919
Stockholders' equity                                 2,419,456        2,247,018       1,952,523       1,687,893       1,389,379
--------------------------------------------------------------------------------------------------------------------------------
Other Year End Statistics:
Number of stores                                           878              826             764             720             676
Number of employees:
  Total                                                 94,000           88,000          80,000          76,000          75,000
  Full-time equivalents                                 76,000           71,000          66,000          60,000          58,000
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>

-In fiscal 1994 the Company  adopted the  provisions  of  Statement of Financial
Accounting  Standards  No.  112,   "Employers'   Accounting  for  Postemployment
Benefits." The total cumulative  effect of this accounting  change (net of $10.6
million in tax  benefits)  decreased  net earnings by $17.0 million or $0.07 per
basic and diluted share.
-In fiscal 1993 a $29.9  million  nonrecurring  charge was recorded to cover the
settlement  of a lawsuit  and  interest  expense  included a  reduction  of $9.7
million  due to the  successful  resolution  of a tax issue  for which  interest
expense had previously been accrued.


                                    Page 26
<PAGE>

                               ALBERTSON'S, INC.

                            Quarterly Financial Data

<TABLE>
<CAPTION>

(Dollars in thousands except
per share data - Unaudited)         First       Second        Third       Fourth          Year
-----------------------------------------------------------------------------------------------
<S>                            <C>          <C>          <C>          <C>          <C>
 
1997
Sales                          $3,607,541   $3,680,509   $3,612,032   $3,789,429   $14,689,511
Gross profit                      928,706      931,960      974,080    1,047,078     3,881,824
Net earnings                      109,266      109,440      123,405      174,703       516,814
Earnings per share:
  Basic                              0.44         0.44         0.50         0.71          2.09
  Diluted                            0.43         0.44         0.50         0.71          2.08
-----------------------------------------------------------------------------------------------
1996
Sales                          $3,343,941   $3,481,131   $3,375,771   $3,575,835   $13,776,678
Gross profit                      858,615      900,966      868,337      937,412     3,565,330
Net earnings                      112,377      120,712      106,424      154,266       493,779
Earnings per share:
  Basic                              0.45         0.48         0.42         0.61          1.96
  Diluted                            0.44         0.48         0.42         0.61          1.95
----------------------------------------------------------------------------------------------
</TABLE>

     The  Company   estimates  the  quarterly  LIFO  reserves  which  cannot  be
accurately  determined  until year end.  The LIFO method of valuing  inventories
increased (decreased) net earnings and earnings per share as follows:

<TABLE>
<CAPTION>

(Dollars in thousands except 
per share data - Unaudited)                   First       Second        Third       Fourth        Year
-------------------------------------------------------------------------------------------------------
<S>                                       <C>          <C>          <C>           <C>         <C>
1997
Net earnings                              $  (6,726)   $  (6,800)   $  (2,326)    $ 10,120    $ (5,732)
Basic and diluted earnings per share          (0.03)       (0.03)       (0.01)        0.04       (0.02)
-------------------------------------------------------------------------------------------------------
1996
Net earnings                              $  (7,651)   $  (7,651)   $  (3,331)   $   9,304   $  (9,329)
Basic and diluted earnings per share          (0.03)       (0.03)       (0.01)        0.03       (0.04)
-------------------------------------------------------------------------------------------------------
</TABLE>

-In 1997, due to rounding and different periods used to compute weighted average
outstanding  shares,  the sum of the quarterly earnings per share does not equal
the annual earnings per share.


                                    Page 27

<PAGE>
<TABLE>
<CAPTION>
                                        Stockholders' Information


<S>                                  <C>                                          <C>    
Address:                             Annual Meeting:                              When directing correspondence to
ALBERTSON'S, INC.                    The 1998 Annual Meeting of Stockholders      ChaseMellon at the address shown,
General Offices                      will be held at 10:00 a.m. Mountain          stockholders are reminded to include
250 Parkcenter Boulevard             Daylight Time on Friday, May 22, 1998,       a reference to Albertson's, Inc.
P.O. Box 20                          in the Eyries Room, Boise Centre on the
Boise, Idaho 83726                   Grove, 850 Front Street, Boise, Idaho.       Company Profile Available:
Telephone: (208) 395-6200                                                         A copy of the Company Profile, which
                                     Dividend Investment Plan:                    contains a discussion of our core
Auditors:                            The  Company's  Dividend  Investment Plan    values, including equal opportunity,  
Deloitte & Touche LLP                allows  stockholders  owning  at least 15    environmental quality and community  
Boise, Idaho                         shares  of  record  to automatically invest  support, as well as statistical
                                     the quarterly dividends or to purchase       information about the Company, is
Stock Transfer Agent and Registrar:  additional shares under the Plan with        available to stockholders, without
ChaseMellon Shareholder              voluntary cash payments. More information    charge, upon request to the Corporate
  Services, L.L.C.                   may be obtained from ChaseMellon at          Secretary of Albertson's, Inc.       
Shareholder Relations Department     (800) 982-7649 or from the Corporate                                               
P.O. Box 3315                        Secretary of Albertson's, Inc.               Form 10-K Available:
South Hackensack, New Jersey 07606                                                A copy of Form 10-K Annual Report filed
Telephone: (800) 356-2017            Information Contact:                         with the Securities and Exchange
Internet Address:                    Information on individual accounts or on     Commission for Albertson's, Inc. fiscal
  www.chasemellon.com                procedures  necessary  to make  changes in   year ended January 29, 1998, is available
                                     an account is provided by ChaseMellon at     to stockholders, without charge, upon
Stockholders of Record:              (800) 356-2017 between the hours of 8:00     request to the Corporate Secretary of
There were 18,0000 stockholders      a.m. and 8:00 p.m., Eastern Time, after a    Albertson's, Inc.                          
of record at March 18, 1998.         stockholder  identifies  his or her                           
                                     account  by   providing   a  taxpayer    
                                     identification number, the registration  
                                     name on the securities and the address of
                                     record. 
</TABLE>
                                       
                                           
                                           
Company Stock Information
The Company's  stock is traded on the New York and Pacific Stock Exchanges under
the  symbol  ABS.  An  analysis  of high and low stock  prices by  quarter is 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>
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
1996       39 3/8    33 3/4    42 3/4   36 1/8    43 3/4    33 3/4    38        33 3/4    43 3/4   33 3/4
1995       32 1/2    29 7/8    31 5/8   27 1/4    34 5/8    28 5/8    35 5/8    30 3/8    35 5/8   27 1/4

</TABLE>

Cash dividends declared per share:

<TABLE>
<CAPTION>
                    First            Second             Third            Fourth              Year
<S>                <C>               <C>               <C>               <C>               <C>   
1997               $ 0.16            $ 0.16            $ 0.16            $ 0.16            $ 0.64
1996                 0.15              0.15              0.15              0.15              0.60
1995                 0.13              0.13              0.13              0.13              0.52

</TABLE>

In March  1998 the Board of  Directors  increased  the  regular  quarterly  cash
dividend  6.3% to $0.17 per share from $0.16 per  share,  for an annual  rate of
$0.68  per  share.  The new  quarterly  rate  will be paid on May 25,  1998,  to
stockholders of record on May 1, 1998.

                                    Page 28