EXHIBIT 13


                                Albertson's, Inc.
                                                            
Financial Review


                              Business Combinations

     On August 2, 1998, the Company entered into a definitive  merger  agreement
with American  Stores  Company (ASC) which was approved by the  stockholders  of
Albertson's and ASC on November 12, 1998. The agreement  provides for a business
combination  between the Company and ASC in which ASC will become a wholly owned
subsidiary of the Company. Under the terms of the agreement,  the holders of ASC
common stock will be issued 0.63 shares of  Albertson's,  Inc.,  common stock in
exchange  for each  share of ASC common  stock,  with cash being paid in lieu of
fractional  shares,  in a  transaction  intended  to  qualify  as a  pooling  of
interests for accounting  purposes and as a tax-free  reorganization for federal
income tax purposes.  The transaction is subject to certain regulatory clearance
and is expected to close  during the latter part of the  Company's  first fiscal
quarter or early in the second fiscal quarter of 1999.
     During  1998 the  Company  acquired  Seessel  Holdings,  Inc.  (Seessel's),
Smitty's Super Markets,  Inc.  (Smitty's),  Buttrey Food and Drug Stores Company
(Buttrey) and the assets of 15 Bruno's,  Inc., stores in transactions  accounted
for using the purchase method of accounting.  Seessel's, acquired on January 30,
1998, included 10 grocery stores in Memphis, Tennessee, and a central bakery and
central  kitchen,   which  manufacture  fresh  bakery  and  prepared  foods  for
distribution  to the  Seessel's  stores.  Smitty's,  acquired on April 20, 1998,
included 10  combination  stores and 3 fuel centers with  convenience  stores in
southwest Missouri.  Buttrey, acquired on October 1, 1998, included 44 stores in
Montana,  North Dakota and Wyoming.  In  accordance  with an agreement  with the
Federal  Trade  Commission,  9 Buttrey  stores  and 6  Albertson's  stores  were
divested.  The assets of the 15 Bruno's,  Inc.,  stores,  acquired on August 24,
1998, included 14 operating stores and 1 store under construction located in the
metropolitan areas of Nashville and Chattanooga,  Tennessee,  as well as 1 store
in northern Georgia.


                              Results of Operations

     The Company has reported  increased  sales and earnings for 29  consecutive
years. Sales for 1998 were $16.0 billion,  compared to $14.7 billion in 1997 and
$13.8 billion in 1996. 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
                                                           ----------------                    -----------------
                                                                                             1998        1997       1996
                                                      1998       1997        1996        vs. 1997    vs. 1996   vs. 1995
---------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>        <C>         <C>               <C>         <C>        <C>
Sales                                               100.00     100.00      100.00             9.0         6.6        9.5
Gross profit                                         27.39      26.43       25.88            12.9         8.9       11.0
Selling, general and administrative expenses         21.15      20.36       19.71            13.2        10.1       12.9
Impairment - store closures                           0.15
Operating profit                                      6.08       6.07        6.17             9.1         5.0        5.2
Net interest expense                                  0.67       0.56        0.47            29.7        27.9       16.1
Earnings before income taxes                          5.59       5.63        5.77             8.2         4.0        4.8
Net earnings                                          3.54       3.52        3.58             9.7         4.7        6.2
</TABLE>


     Increases in sales are primarily attributable to the continued expansion of
net retail square footage,  and identical and comparable  store sales increases.
During 1998 the Company  opened 132 stores,  remodeled  27 stores,  completed 30
strategic  retrofits  and  closed  27 stores  for a net  retail  square  footage
increase of 5.6 million square feet.  Included in store openings are 74 acquired
stores (net of 9 Buttrey  stores  divested) and included in store closings are 6
Albertson's  stores  divested in connection  with the Buttrey  acquisition.  Net
retail square footage  increased  13.1% in 1998,  7.4% in 1997 and 9.6% in 1996.
Identical  store sales,  stores that have been in operation  for two full fiscal
years,  increased  0.3% in 1998 and  1997,  and 2.0% in 1996.  Comparable  store
sales, which include  replacement  stores,  increased 0.5% in 1998, 0.4% in 1997
and 2.1% in 1996.  Identical and  comparable  store sales  continued to increase
through  higher  average  ticket sales per customer.  Management  estimates that
there was overall deflation in products the Company sells of approximately  0.4%
in 1998 compared to inflation of approximately 0.3% in 1997 and 0.6% in 1996.


                                     Page 1

<PAGE>

     In addition to new store  development,  the Company plans to increase sales
through its continued investment in programs initiated in recent years which are
designed to provide  solutions to customer  needs.  These  programs  include the
Front End Manager  program;  home meal  solutions  called "Quick Fixin'  Ideas";
special destination departments such as Albertson's Better Care pharmacies, baby
care,  pet care and  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 destination departments in new
and remodeled stores.
     Gross  profit,  as a percent to sales,  increased  primarily as a result of
continued improvements made in retail stores, including substantial improvements
in  underperforming  stores  and  improved  sales  mix  of  partially  prepared,
value-added  products.  Gross profit improvements were also realized through the
continued  utilization of  Company-owned  distribution  facilities and increased
buying  efficiencies.  All  of the  Company's  retail  stores  are  serviced  by
Company-owned  distribution  centers,  which  provide  approximately  75% of all
products  purchased by  Albertson's  retail stores.  The Company's  distribution
facilities   provide  product   exclusively  to  the  Company'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 0.05% in 1998,
0.06% in 1997 and 0.11% in 1996.
     Selling, general and administrative (SG&A) expenses, as a percent to sales,
increased  primarily due to increased salary and related benefit costs resulting
from the Company's initiatives to increase sales, increased depreciation expense
associated with the Company's expansion program and integration costs associated
with the various  acquisitions  in 1998.  In addition to increasing  sales,  the
Company continued to implement new technology designed to increase productivity,
and emphasize cost containment programs to control SG&A expenses.
     The Company recorded a charge to earnings  (Impairment - store closures) in
1998 related to management's  decision to close 16  underperforming  stores in 8
states.  The charge included impaired real estate and equipment,  as well as the
present value of remaining  liabilities  under leases,  net of expected sublease
recoveries.  As of January  28,  1999,  13 of these  stores had been  closed and
management believes the 1998 charge and remaining reserve are adequate.
     Increases in net interest expense resulted from higher average  outstanding
debt.  The average  outstanding  debt has increased as a result of the Company's
continued investment in new and acquired stores.
     The Company's  effective income tax rate for 1998 was 36.6%, as compared to
37.5% for 1997 and 37.9% for 1996.  The reduction is primarily due to the effect
of increases in the cash surrender value of Company-owned life insurance,  which
is a non-taxable item.

                         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 1998 was $825 million,  compared to $868 million in
1997 and $650 million in 1996. During 1998 the Company invested $834 million for
capital expenditures and $260 million for business  acquisitions.  The Company's
financing activities for 1998 included new long-term borrowings of $317 million,
a net  increase  of  commercial  paper  borrowings  of $46  million,  bank  line
borrowings  of $171  million,  $165 million for the payment of dividends  (which
represents  29.0% of 1998 net  earnings)  and $17 million to purchase and retire
stock.
     The Company utilizes its commercial paper and bank line programs  primarily
to supplement cash requirements for seasonal fluctuations in working capital and
to fund its capital expenditure program. Accordingly,  commercial paper and bank
line  borrowings  will  fluctuate  between  the  Company's  quarterly  reporting
periods.  The  Company  had $500  million  of  commercial  paper  and bank  line
borrowings  outstanding at January 28, 1999, compared to $283 million at January
29,  1998,  and $329 million at January 30,  1997.  As of January 28, 1999,  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 $635  million  (of which $175  million was drawn as of January 28,
1999).  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.
     During 1998 the Company issued a total of $317 million in medium-term notes
under a $500 million shelf registration  statement filed with the Securities and
Exchange Commission (SEC) in December 1997. Under a shelf registration statement
filed with the 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.  Proceeds
from  these  issuances  were  used to  reduce  borrowings  under  the  Company's
commercial paper program.
     The Company filed a shelf registration statement with the SEC, which became
effective in February  1999,  to authorize the issuance of up to $2.5 billion in
debt  securities.  The  remaining  authorization  of $183 million under the 1997
shelf  registration  statement  was  rolled  into  the 1999  shelf  registration
statement.  The Company  intends to use the net proceeds of any securities  sold
pursuant  to  the  1999  shelf  registration  statement  for  general  corporate
purposes, including retirement of debt, working capital,  acquisitions and other
business opportunities.
     Since  1987 the Board of  Directors  has  continuously  adopted  or renewed
programs under which the Company was authorized,  but not required,  to purchase
and retire shares of its common stock.  The  remaining  authorization  under the
program adopted by the Board on March 2, 1998,  which  authorized the Company to
purchase and retire up to 5 million shares through March 31, 1999, was rescinded
in connection with the pending merger with American Stores Company.  Under these
programs,  the Company  purchased  and retired 0.3 million  shares in 1998,  5.4
million shares in 1997 and 1.6 million shares in 1996.

                                     Page 2
<PAGE>
                              
     The following leverage ratios demonstrate the Company's levels of long-term
financing as of the indicated year end:

<TABLE>
<CAPTION>
                                                                           January 28,       January 29,      January 30,
                                                                                 1999              1998             1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>               <C>              <C>
Long-term debt and capitalized lease obligations to capital(1)                     37.5%             31.8%            31.9%
Long-term debt and capitalized lease obligations to total assets                 27.0              21.7             22.3
</TABLE>

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


     The average size of stores opened in 1998,  50,400  square feet,  increased
the Company's average store size to 49,200 square feet. At January 28, 1999, 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 1998,  9 of the 27  remodeled  stores were  expanded  in size.  The
Company  continues  to retain  ownership  of real  estate when  possible.  As of
January 28, 1999, the Company held title to the land and buildings of 53% of the
Company's stores and held title to the buildings on leased land of an additional
10% of the  Company's  stores.  The  Company  also  holds  title to the land and
buildings of the Company's  corporate  headquarters in Boise,  Idaho, 8 division
offices and all of the distribution facilities.
     During  the past  three  years,  the  Company  has  invested  $130  million
(excluding  inventory)  in its  distribution  operations  and has added  412,000
square  feet of new or  expanded  facilities.  During  1998  the  Company  began
construction  of  a  new  730,000-square-foot   distribution  center  in  Tulsa,
Oklahoma. This new center is scheduled to begin operations in August 1999.
     The  Company is  committed  to keeping  its stores up to date.  In the last
three years, the Company has opened or remodeled 370 stores  representing 40% of
the  Company's  retail  square  footage as of January 28,  1999.  The  following
summary of historical  capital  expenditures  includes  capital  leases,  stores
acquired in business and asset  acquisitions,  assets acquired with related debt
and the  estimated  fair value of  property  financed  by  operating  leases (in
thousands):

<TABLE>
<CAPTION>
                                                                                 1998              1997             1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                  <C>              <C>    
New and acquired stores                                                  $    746,576         $ 515,773        $ 460,188
Remodels                                                                      139,739            96,973          117,358
Retail replacement equipment and technological upgrades                        59,004            41,628           52,478
Distribution facilities and equipment                                          67,170            28,399           34,812
Other                                                                          30,328            13,658           21,171
---------------------------------------------------------------------------------------------------------------------------

Total capital expenditures                                                  1,042,817           696,431          686,007
Estimated fair value of property financed by operating leases                  95,000            44,000           47,000
---------------------------------------------------------------------------------------------------------------------------

                                                                          $ 1,137,817         $ 740,431        $ 733,007
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

     The Company's  strong financial  position  provides the flexibility for the
Company to grow through its store development  program and future  acquisitions.
The Board of Directors at its March 1999 meeting increased the regular quarterly
cash dividend to $0.18 per share, for an annual rate of $0.72 per share.


                           Recent Accounting Standards

     In June 1998 the Financial  Accounting  Standards Board issued Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging Activities." This new standard establishes  accounting and reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other  contracts,  and for hedging  activities.  It requires that an
entity  recognize  all  derivatives  as  either  assets  or  liabilities  in the
statement of financial  position and measure  those  instruments  at fair value.
This standard is effective for the Company's  2000 fiscal year.  The Company has
not yet completed its evaluation of this standard or its potential impact on the
Company's reporting requirements.


           Quantitative and Qualitative Disclosures about Market Risk

     The  Company is exposed to certain  market  risks that are  inherent in the
Company's  financial  instruments which arise from transactions  entered into in
the normal  course of  business.  Although  the  Company  currently  utilizes no
material   derivative   financial   instruments  which  expose  the  Company  to
significant market risk, the Company is exposed to cash flow and fair value risk
due to changes in interest rates with respect to its long-term debt borrowings.

                                     Page 3
<PAGE>

     The  Company  is  subject  to  interest  rate risk on its  long-term  fixed
interest rate debt and bank line borrowings.  Commercial paper borrowings do not
give rise to  significant  interest  rate risk  because  these  borrowings  have
maturities of less than three months.  All things being equal, the fair value of
debt with a fixed  interest rate will increase as interest  rates fall,  and the
fair value will  decrease  as  interest  rates  rise.  The  Company  manages its
exposure  to  interest  rate risk by  utilizing  a  combination  of fixed  rate,
commercial paper and bank line borrowings.
     The table below presents  principal cash flows and related weighted average
interest  rates  of the  Company's  long-term  debt  and  bank  line  borrowings
(excluding commercial paper) at January 28, 1999, by expected maturity dates (in
millions):

<TABLE>
<CAPTION>
                                      1999      2000      2001      2002      2003   Thereafter        Total     Fair Value
---------------------------------------------------------------------------------------------------------------------------
<S>                                <C>       <C>         <C>       <C>       <C>        <C>        <C>            <C>
Long-term debt                     $ 180.8   $ 295.3     $ 1.5     $ 1.7     $ 1.9      $ 726.8    $ 1,208.0      $ 1,284.9
Weighted average interest rate        5.48%     6.33%     9.04%     9.29%     9.49%        6.94%        6.58%
</TABLE>


                              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.  To the  extent  that the  Company's  software
applications  contain source code that is unable to interpret  appropriately the
upcoming  calendar  year  2000  and  beyond,   some  level  of  modification  or
replacement of such  applications will be necessary to avoid system failures and
the  temporary  inability  to  process  transactions  or engage in other  normal
business activities.
     In September 1995 the Company formed a project team to assess the impact of
the Year 2000 issue on the  software  and  hardware  utilized  in the  Company's
internal operations.  The project team is staffed primarily with representatives
of the Company's  Information Systems and Technology department and reports on a
regular basis to senior management and the Company's Board of Directors.
     The initial  phase of the Year 2000 project was  assessment  and  planning.
This phase is substantially  complete and included an assessment of all computer
hardware,  software,  systems and processes ("IT  Systems") and  non-information
technology systems such as telephones, clocks, scales, refrigeration controllers
and other  equipment  containing  embedded  microprocessor  technology  ("Non-IT
Systems").  The completion of upgrades,  validation and forward date testing for
all  systems  is  scheduled  for early  1999  although  many  systems  have been
completed.  The Company expects to successfully implement the remediation of the
IT Systems and Non-IT Systems.
     In addition to the  remediation of the IT systems and Non-IT  systems,  the
Company has  identified  relationships  with third parties,  including  vendors,
suppliers and service providers,  which the Company believes are critical to its
business  operations.  The Company is in the process of communicating with these
third parties  through  questionnaires,  letters and  interviews in an effort to
determine  the extent to which they are  addressing  their Year 2000  compliance
issues.  The Company will continue to communicate  with,  assess and monitor the
progress of these third parties in resolving Year 2000 issues.
     The total costs to address the Company's  Year 2000 issues are estimated to
be approximately $14 million, of which approximately $4 million has been or will
be expensed and approximately $10 million has been or will be capitalized. These
costs include  expenditures  accelerated for Year 2000 compliance.  To date, the
Company has spent  approximately  90% of the estimated  costs.  These costs have
been funded through  operating cash flow and represent an immaterial  portion of
the Company's IT budget.
     The Company is dependent on the proper  operation of its internal  computer
systems  and  software  for  several  key  aspects of its  business  operations,
including  store  operations,   merchandise  purchasing,  inventory  management,
pricing,   sales,   warehousing,   transportation,   financial   reporting   and
administrative  functions. The Company is also dependent on the proper operation
of the computer systems and software of third parties  providing  critical goods
and  services  to  the  Company,   including   vendors,   utilities,   financial
institutions,  government  entities and others.  The Company  believes  that its
efforts will result in Year 2000 compliance. However, the failure or malfunction
of internal or external  systems could impair the  Company's  ability to operate
its business in the ordinary course and could have a material  adverse effect on
its results of operations.
     The Company is currently  developing its  contingency  plans and intends to
formalize these plans with respect to its most critical  applications during the
first half of 1999. Contingency plans may include manual workarounds,  increased
inventories and extra staffing.

                                    Page 4
<PAGE>

          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,
including  statements  about the  ability of the  Company  and ASC to obtain the
necessary  regulatory  approvals and satisfy other  conditions to the closing of
the  merger  transaction  and with  respect  to the  future  performance  of the
combined companies.  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 implement  new  technology  successfully,  stability of
product  costs,  the  ability  of the  Company  and ASC to obtain  the  required
regulatory  approvals  on terms  acceptable  to  them,  adverse  changes  in the
business or  financial  condition  of the Company or ASC prior to the closing of
the merger  transaction and the Company's ability to integrate the operations of
ASC.
     Other factors and  assumptions  not  identified  above could also cause the
actual results to differ materially from those set forth in the  forward-looking
information.   The  Company  does  not   undertake  to  update   forward-looking
information contained herein or elsewhere to reflect actual results,  changes in
assumptions  or  changes  in  other  factors   affecting  such   forward-looking
information.

                                     Page 5

<PAGE>
<TABLE>

Consolidated Earnings

<CAPTION>
                                                                        52 Weeks            52 Weeks            52 Weeks
                                                                      January 28,         January 29,         January 30,
(In thousands except per share data)                                        1999                1998                1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                 <C>                 <C>   
Sales                                                               $ 16,005,115        $ 14,689,511        $ 13,776,678
Cost of sales                                                         11,622,026          10,807,687          10,211,348
---------------------------------------------------------------------------------------------------------------------------

Gross profit                                                           4,383,089           3,881,824           3,565,330
Selling, general and administrative expenses                           3,385,531           2,990,172           2,715,776
Impairment - store closures                                               24,407
---------------------------------------------------------------------------------------------------------------------------

Operating profit                                                         973,151             891,652             849,554
Other (expenses) income:
   Interest, net                                                        (107,074)            (82,563)            (64,569)
   Other, net                                                             28,768              17,814               9,862
---------------------------------------------------------------------------------------------------------------------------

Earnings before income taxes                                             894,845             826,903             794,847
Income taxes                                                             327,692             310,089             301,068
---------------------------------------------------------------------------------------------------------------------------

Net Earnings                                                       $     567,153       $     516,814       $     493,779
---------------------------------------------------------------------------------------------------------------------------

Earnings Per Share:
   Basic                                                                  $ 2.31              $ 2.09              $ 1.96
   Diluted                                                                  2.30                2.08                1.95
Weighted average common shares outstanding:
   Basic                                                                 245,637             247,735             251,710
   Diluted                                                               246,808             248,497             252,730
</TABLE>


See Notes to Consolidated Financial Statements

                                     Page 6

<PAGE>
<TABLE>

Consolidated Balance Sheets

<CAPTION>

                                                                      January 28,         January 29,         January 30,
(Dollars in thousands)                                                      1999                1998                1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                 <C>                <C> 
Assets
Current Assets:
   Cash and cash equivalents                                        $     80,646        $    108,083       $      90,865
   Accounts and notes receivable                                         153,714             121,023              98,364
   Inventories                                                         1,503,164           1,308,578           1,201,067
   Prepaid expenses                                                       38,871              44,426              42,823
   Deferred income taxes                                                  57,510              45,747              42,804
---------------------------------------------------------------------------------------------------------------------------

      Total Current Assets                                             1,833,905           1,627,857           1,475,923
Other Assets                                                             277,728             207,360             184,070
Goodwill, net                                                            148,322
Land, Buildings and Equipment, net                                     3,974,013           3,383,373           3,054,640
---------------------------------------------------------------------------------------------------------------------------

Total Assets                                                         $ 6,233,968         $ 5,218,590         $ 4,714,633
---------------------------------------------------------------------------------------------------------------------------


Liabilities and Stockholders' Equity
Current Liabilities:
   Accounts payable                                                 $    873,956        $    742,557        $    682,305
   Salaries and related liabilities                                      171,706             149,898             135,681
   Taxes other than income taxes                                          76,923              80,842              67,086
   Income taxes                                                           47,142              37,657              14,409
   Self-insurance                                                         73,066              69,982              63,999
   Unearned income                                                        64,418              46,069              36,539
   Other                                                                  53,282              52,395              46,161
   Current maturities of long-term debt                                    6,991              86,511                 975
   Current portion of capitalized lease obligations                       11,347               9,608               7,938
---------------------------------------------------------------------------------------------------------------------------

      Total Current Liabilities                                        1,378,831           1,275,519           1,055,093
Long-Term Debt                                                         1,527,432             989,650             921,704
Capitalized Lease Obligations                                            157,102             140,957             130,050
Other Long-Term Liabilities and Deferred Credits                         360,149             393,008             360,768
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 - 1,200,000,000
      shares; issued - 245,697,363 shares, 245,735,633 shares
      and 250,690,105 shares, respectively                               245,697             245,736             250,690
   Capital in excess of par value                                          5,239               4,271                  92
   Retained earnings                                                   2,559,518           2,169,449           1,996,236
---------------------------------------------------------------------------------------------------------------------------

      Total Stockholders' Equity                                       2,810,454           2,419,456           2,247,018
---------------------------------------------------------------------------------------------------------------------------

Total Liabilities and Stockholders' Equity                           $ 6,233,968         $ 5,218,590         $ 4,714,633
---------------------------------------------------------------------------------------------------------------------------
</TABLE>


See Notes to Consolidated Financial Statements

                                     Page 7
<PAGE>
<TABLE>

Consolidated Cash Flows

<CAPTION>
                                                                        52 Weeks            52 Weeks            52 Weeks
                                                                      January 28,         January 29,         January 30,
(In thousands)                                                              1999                1998                1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>                    <C>                 <C>   
Cash Flows From Operating Activities:
Net earnings                                                       $     567,153          $  516,814          $  493,779
Adjustments to reconcile net earnings to net cash
provided by operating activities:
   Depreciation and amortization                                         375,395             328,795             294,341
   Net deferred income taxes                                             (27,968)             (1,299)             33,868
   Increase in cash surrender value of Company-owned life insurance      (22,670)            (14,113)             (9,021)
   Impairment  -  store  closures                                         24,407
   Changes in operating assets and liabilities,
    net of business acquisitions:
      Receivables and prepaid expenses                                   (54,251)            (19,180)            (18,072)
      Inventories                                                       (144,719)           (107,511)           (170,821)
      Accounts payable                                                   100,563              60,252              33,342
      Other current liabilities                                           17,112              57,984              14,514
      Self-insurance                                                      (1,808)             12,619             (11,234)
      Unearned income                                                    (16,797)             21,705             (10,735)
      Other long-term liabilities                                          9,029              12,081                (313)
---------------------------------------------------------------------------------------------------------------------------

         Net cash provided by operating activities                       825,446             868,147             649,648
---------------------------------------------------------------------------------------------------------------------------


Cash Flows From Investing Activities:
   Capital expenditures                                                 (834,373)           (674,053)           (673,310)
   Proceeds from disposals of land, buildings and equipment               47,632              37,098              31,095
   Business acquisitions, net of cash acquired                          (259,672)
   Increase in other assets                                               (9,274)            (14,258)            (21,542)
---------------------------------------------------------------------------------------------------------------------------

         Net cash used in investing activities                        (1,055,687)           (651,213)           (663,757)
---------------------------------------------------------------------------------------------------------------------------


Cash Flows From Financing Activities:
   Proceeds from long-term borrowings                                    317,000             200,000             202,000
   Payments on long-term borrowings                                     (154,692)             (8,995)            (88,202)
   Net commercial paper activity                                          46,259             (45,692)            119,601
   Proceeds from bank line borrowings                                    170,695
   Proceeds from stock options exercised                                   4,644               5,206               3,530
   Cash dividends paid                                                  (164,584)           (156,261)           (146,060)
   Stock purchased and retired                                           (16,518)           (193,974)            (55,008)
---------------------------------------------------------------------------------------------------------------------------

         Net cash provided by (used in) financing activities             202,804            (199,716)             35,861
---------------------------------------------------------------------------------------------------------------------------

Net (Decrease) Increase in Cash and Cash Equivalents                     (27,437)             17,218              21,752
Cash and Cash Equivalents at Beginning of Year                           108,083              90,865              69,113
---------------------------------------------------------------------------------------------------------------------------

Cash and Cash Equivalents at End of Year                          $       80,646          $  108,083          $   90,865
---------------------------------------------------------------------------------------------------------------------------
</TABLE>


See Notes to Consolidated Financial Statements

                                     Page 8
<PAGE>
<TABLE>

Consolidated Stockholders' Equity

<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 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

Exercise of stock options                               310                2,537                                   2,847
Tax benefits related to stock options                                      4,550                                   4,550
Stock purchased and retired                            (349)              (6,119)            (10,050)            (16,518)
Cash dividends, $0.68 per share                                                             (167,034)           (167,034)
Net earnings                                                                                 567,153             567,153
---------------------------------------------------------------------------------------------------------------------------

Balance at January 28, 1999                       $ 245,697             $  5,239         $ 2,559,518         $ 2,810,454
---------------------------------------------------------------------------------------------------------------------------
</TABLE>



See Notes to Consolidated Financial Statements



                                     Page 9
<PAGE>

Notes to Consolidated Financial Statements
(Dollars in thousands except per share amounts)


                                   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 28, 1999,  the Company  operated 983
stores in 25 Western,  Midwestern  and Southern  states.  Retail  operations are
supported by 11 Company-owned distribution centers, strategically located in the
Company's operating markets. The Company's  distribution centers provide product
exclusively to the Company's retail stores.


                   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.  Long-lived assets are reviewed for impairment  whenever
events or changes in business  circumstances  indicate the carrying value of the
assets may not be recoverable.
     The  costs of major  remodeling  and  improvements  on  leased  stores  are
capitalized as leasehold  improvements.  Leasehold improvements are amortized on
the straight-line method over the shorter of the life of the applicable lease or
the useful life of the asset.  Capital  leases are  recorded at the lower of the
fair market  value of the asset or the  present  value of future  minimum  lease
payments.  These  leases are  amortized on the  straight-line  method over their
primary term.
     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.
     GOODWILL:  Goodwill  resulting  from business  acquisitions  represents the
excess of  purchase  price over fair value of net assets  acquired  and is being
amortized over 40 years using the straight-line method. Accumulated amortization
amounted  to $2.7  million as of January  28,  1999.  Periodically,  the Company
re-evaluates goodwill and other intangibles based on undiscounted operating cash
flows whenever  significant  events or changes occur which might impair recovery
of recorded asset costs.
     SELF-INSURANCE:  The Company is 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.
     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 $48.7 million,  $44.0 million
and $34.7 million were included with cost of sales in the Company's Consolidated
Earnings for 1998, 1997 and 1996, respectively.

                                    Page 10
<PAGE>

     STOCK  OPTIONS:  Statement  of  Financial  Accounting  Standards  No.  123,
"Accounting for  Stock-Based  Compensation,"  encourages,  but does not require,
companies to record  compensation  cost for  stock-based  employee  compensation
plans at fair  value.  The  Company  has  chosen  to  continue  to  account  for
stock-based   compensation  using  the  intrinsic  value  method  prescribed  in
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees," and related Interpretations. Accordingly, compensation cost of stock
options is  measured as the excess,  if any, of the quoted  market  price of the
Company's  stock at the date of the grant over the option  exercise price and is
charged to operations over the vesting period.  Income tax benefits attributable
to stock options exercised are credited to capital in excess of par value.
     COMPANY-OWNED  LIFE  INSURANCE:  The Company has purchased  life  insurance
policies  to  cover  its  obligations  under  deferred  compensation  plans  for
officers,  key employees and directors.  Cash surrender values of these policies
are adjusted for fluctuations in the market value of underlying investments. The
cash surrender  value is adjusted each reporting  period and any gain or loss is
included with other income (expense) in the Company's Consolidated Earnings.
     INCOME TAXES: The Company provides for deferred income taxes resulting from
temporary  differences in reporting  certain income and expense items for income
tax and financial accounting purposes. The major temporary differences and their
net effect are shown in the "Income Taxes" note.
     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.  There were no outstanding  options  excluded
from the  computation  of potential  common shares  (option  price  exceeded the
average market price during the period) in 1998. Outstanding options excluded in
1997 and 1996 amounted to 1,520,000 shares and 24,000 shares, respectively.
     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.

                          Impairment - Store Closures

     The Company  recorded a charge to earnings in 1998 related to  management's
decision to close 16  underperforming  stores in 8 states.  The charge  included
impaired  real estate and  equipment,  as well as the present value of remaining
liabilities under leases, net of expected sublease recoveries. As of January 28,
1999, 13 of these stores had been closed and management believes the 1998 charge
and remaining reserve are adequate.


                       Supplemental Cash Flow Information

Selected cash payments and noncash activities were as follows:

<TABLE>
<CAPTION>

                                                                                 1998              1997             1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>               <C>              <C>   
Cash payments for income taxes                                              $ 341,334         $ 284,030        $ 288,590
Cash payments for interest, net of amounts capitalized                         95,553            65,930           59,284
Noncash investing and financing activities:
   Tax benefits related to stock options                                        4,550             3,974            3,310
   Fair market value of stock exchanged for option price                        1,460             2,021              768
   Fair market value of stock exchanged for tax withholdings                    1,796             1,606              202
   Capitalized lease obligations incurred                                      24,857            22,228           12,005
   Capitalized lease obligations terminated                                     5,509             1,632            3,240
   Acquisition note payable                                                     8,000
   Liabilities assumed in connection with asset acquisitions                    1,840               150              692
</TABLE>


                              Business Combinations

     On January 30, 1998, the Company acquired Seessel Holdings,  Inc., a wholly
owned subsidiary of Bruno's,  Inc. for cash  consideration of approximately  $88
million. This acquisition included 10 grocery stores in the Memphis,  Tennessee,
area, and a central bakery and central kitchen,  which  manufacture fresh bakery
and  prepared  foods for  distribution  to the  Seessel's  stores.  The  Company
operates these stores under the Seessel's banner.

                                    Page 11
<PAGE>

     On April 20, 1998, the Company acquired  Smitty's Super Markets,  Inc., for
cash  consideration  of approximately  $36 million plus an $8 million  unsecured
note payable. This acquisition included 10 combination stores and 3 fuel centers
with convenience stores in the Springfield and Joplin, Missouri, areas.
     On August 24, 1998, the Company  purchased the assets of 15 Bruno's,  Inc.,
stores for  approximately  $36 million.  This acquisition  included 14 operating
stores and 1 store under  construction  which,  when  completed,  will replace a
store  currently  operating.  The  stores  are  located  in  the  Nashville  and
Chattanooga,  Tennessee, metropolitan areas. The Chattanooga area stores include
a store in  northern  Georgia.  The  Company  operates  these  stores  under the
Albertson's banner.
     On October 1, 1998,  the  Company  acquired  Buttrey  Food and Drug  Stores
Company for cash consideration of approximately  $142 million.  This acquisition
included 44 stores in Montana,  North Dakota and Wyoming.  In accordance with an
agreement with the Federal Trade Commission,  9 Buttrey stores and 6 Albertson's
stores were simultaneously  divested with the purchase. The Company operates the
acquired Buttrey stores under the Albertson's banner.
     All   acquisitions   were  accounted  for  using  the  purchase  method  of
accounting.  The results of  operations  of the  acquired  businesses  have been
included  in  the   consolidated   financial   statements  from  their  date  of
acquisition.  Pro forma results of operations have not been presented due to the
immaterial  effects  of  these   acquisitions  on  the  Company's   consolidated
operations.  For each of these  acquisitions,  the excess of the purchase  price
over  the fair  market  value  of net  assets  acquired,  of $151  million,  was
allocated to goodwill which is being  amortized  over 40 years.  The Company has
not finalized its purchase price allocation relative to all of the acquisitions;
however,  the final purchase price allocations  should not differ  significantly
from the preliminary purchase price allocations recorded as of January 28, 1999.
     On August 2, 1998, the Company entered into a definitive  merger  agreement
with American  Stores  Company (ASC) which was approved by the  stockholders  of
Albertson's and ASC on November 12, 1998. The agreement  provides for a business
combination  between the Company and ASC in which ASC will become a wholly owned
subsidiary of the Company. Under the terms of the agreement,  the holders of ASC
common stock will be issued 0.63 shares of  Albertson's,  Inc.,  common stock in
exchange  for each  share of ASC common  stock,  with cash being paid in lieu of
fractional  shares,  in a  transaction  intended  to  qualify  as a  pooling  of
interests for accounting  purposes and as a tax-free  reorganization for federal
income tax  purposes.  Based on the number of common  shares  outstanding  as of
Albertson's  and ASC's  respective  1998 fiscal year ends,  consummation  of the
merger would result in former  stockholders of ASC holding  approximately 42% of
the outstanding  Albertson's common stock (assuming no conversion of outstanding
options).  The  transaction  is subject to certain  regulatory  clearance and is
expected to close during the latter part of the Company's  first fiscal  quarter
or early in the second fiscal quarter of 1999.


                          Accounts and Notes Receivable

Accounts and notes receivable consisted of the following:

<TABLE>
<CAPTION>
                                                                           January 28,       January 29,      January 30,
                                                                                 1999              1998             1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>               <C>               <C>    
Trade and other accounts receivable                                         $ 152,226         $ 119,856         $ 97,186
Current portion of notes receivable                                             2,688             2,367            2,178
Allowance for doubtful accounts                                                (1,200)           (1,200)          (1,000)
---------------------------------------------------------------------------------------------------------------------------

                                                                            $ 153,714         $ 121,023         $ 98,364
---------------------------------------------------------------------------------------------------------------------------
</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 $250.3  million,  $242.0 million and $232.8 million
higher at the end of 1998, 1997 and 1996, respectively.  Net earnings (basic and
diluted  earnings per share)  would have been higher by $5.3 million  ($0.02) in
1998,  $5.7  million  ($0.02)  in 1997 and $9.3  million  ($0.04)  in 1996.  The
replacement cost of inventories valued at LIFO approximates FIFO cost.


                                    Page 12

<PAGE>

                          Land, Buildings and Equipment

Land, buildings and equipment consisted of the following:

<TABLE>
<CAPTION>
                                                                           January 28,       January 29,      January 30,
                                                                                 1999              1998             1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>               <C>              <C>    
Land                                                                     $    950,946      $    795,246     $    700,208
Buildings                                                                   2,419,971         2,055,276        1,799,976
Fixtures and equipment                                                      2,087,977         1,779,469        1,607,454
Leasehold improvements                                                        418,833           372,428          328,249
Capitalized leases                                                            225,162           203,217          186,768
---------------------------------------------------------------------------------------------------------------------------

                                                                            6,102,889         5,205,636        4,622,655
Accumulated depreciation and amortization                                  (2,128,876)       (1,822,263)      (1,568,015)
---------------------------------------------------------------------------------------------------------------------------

                                                                          $ 3,974,013       $ 3,383,373      $ 3,054,640
---------------------------------------------------------------------------------------------------------------------------
</TABLE>





                                  Indebtedness

Long-term debt consisted of the following:

<TABLE>
<CAPTION>
                                                                           January 28,       January 29,      January 30,
                                                                                 1999              1998             1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>               <C>                <C>   
Commercial paper                                                         $    326,425      $    283,304        $ 328,996
Bank line                                                                     173,834
Unsecured medium-term notes issued in 1998                                    317,000
Unsecured medium-term notes issued in 1997                                    200,000           200,000
Unsecured 7.75% debentures due June 2026                                      200,000           200,000          200,000
Unsecured 6.375% notes due June 2000                                          200,000           200,000          200,000
Unsecured medium-term notes issued in 1993                                     89,650           175,075          175,075
Industrial revenue bonds                                                       13,515            14,230           14,860
Mortgage notes and other unsecured notes payable                               13,999             3,552            3,748
---------------------------------------------------------------------------------------------------------------------------

                                                                            1,534,423         1,076,161          922,679
Current maturities                                                             (6,991)          (86,511)            (975)
---------------------------------------------------------------------------------------------------------------------------

                                                                          $ 1,527,432      $    989,650        $ 921,704
---------------------------------------------------------------------------------------------------------------------------
</TABLE>


     The Company has in place a $600 million commercial paper program.  Interest
rates on the  outstanding  commercial  paper  borrowings as of January 28, 1999,
ranged from 4.82% to 4.93% with an  effective  weighted  average  rate of 4.86%.
Interest rates on amounts drawn against bank line  borrowings  outstanding as of
January 28, 1999, ranged from 5.38% to 5.41% with an effective  weighted average
rate of 5.40%.  The Company has  established  the necessary  credit  facilities,
through its revolving  credit  agreement,  to refinance the commercial paper and
bank line 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.
     During 1998 the Company issued a total of $317 million in medium-term notes
under a $500 million shelf registration  statement filed with the Securities and
Exchange  Commission  (SEC) in December 1997.  Medium-term  notes of $84 million
issued in  February  1998  mature at various  dates  between  February  2013 and
February 2028,  with interest paid  semiannually at rates ranging from 6.34% and
6.57%.  Medium-term  notes of $77  million  issued in April 1998 mature in April
2028,  with  interest  paid  semiannually  at rates ranging from 6.10% to 6.53%.
Medium-term  notes of $156 million issued in June 1998 mature in June 2028, with
interest paid  semiannually at a rate of 6.63%.  The weighted  average  interest
rate on these notes outstanding at January 28, 1999, was 6.49%.


                                    Page 13

<PAGE>

     In July 1997 the Company issued $200 million of  medium-term  notes under a
shelf registration statement filed with the 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 28, 1999, was 6.81%.
     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.
     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.
     The medium-term notes issued in 1993 mature in March 2000. Interest is paid
semiannually at rates ranging from 6.03% to 6.28%. The weighted average interest
rate on these notes outstanding at January 28, 1999, was 6.14%.
     The  industrial  revenue bonds are payable in varying  annual  installments
through 2011,  with interest  paid  semiannually  at rates ranging from 4.60% to
6.95%.  The weighted  average  interest  rate on these  amounts  outstanding  at
January 28, 1999, was 6.00%.
     The  Company  has  pledged  real  estate  with a cost of $10.8  million  as
collateral for a mortgage note which is payable semiannually, including interest
at a rate of 16.5%. The note is payable from 1999 to 2013.
     The scheduled maturities of long-term debt outstanding at January 28, 1999,
are summarized as follows:  $7.0 million in 1999, $295.3 million in 2000, $501.7
million in 2001,  $1.7 million in 2002,  $1.9 million in 2003 and $726.8 million
thereafter.  Medium-term notes of $30 million due July 2027 contain a put option
which would require the Company to repay the notes in July 2007 if the holder of
the note so elects by giving the Company a 60-day notice.  Medium-term  notes of
$50 million due April 2028 contain a put option which would  require the Company
to repay the notes in April  2008 if the  holder of the note so elects by giving
the Company a 60-day notice.
     The 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.
     In addition to amounts available under the revolving credit agreement,  the
Company had lines of credit  from banks at  prevailing  interest  rates for $635
million at January 28, 1999 (of which $175 million was drawn). 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,  or
January 30, 1997.
     The Company filed a shelf registration statement with the SEC, which became
effective in February  1999,  to authorize the issuance of up to $2.5 billion in
debt  securities.  The  remaining  authorization  of $183 million under the 1997
shelf  registration  statement  was  rolled  into  the 1999  shelf  registration
statement.  The Company  intends to use the net proceeds of any securities  sold
pursuant  to  the  1999  shelf  registration  statement  for  general  corporate
purposes, including retirement of debt, working capital,  acquisitions and other
business opportunities.
     Net interest expense was as follows:

<TABLE>
<CAPTION>
                                                                                 1998              1997             1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                 <C>              <C>   
Debt                                                                       $   87,946          $ 66,418         $ 48,534
Capitalized leases                                                             18,132            16,629           15,168
Capitalized interest                                                           (9,142)           (8,683)          (6,378)
---------------------------------------------------------------------------------------------------------------------------

Interest expense                                                               96,936            74,364           57,324
Net bank service charges                                                       10,138             8,199            7,245
---------------------------------------------------------------------------------------------------------------------------

                                                                            $ 107,074          $ 82,563         $ 64,569
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                    Page 14

<PAGE>

                Other Long-Term Liabilities and Deferred Credits

Other long-term liabilities and deferred credits consisted of the following:

<TABLE>
<CAPTION>
         
                                                                           January 28,       January 29,      January 30,
                                                                                 1999              1998             1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>               <C>              <C>    
Deferred compensation                                                      $   48,899        $   43,014       $   37,905
Deferred income taxes                                                           7,267            17,520           15,876
Deferred rents payable                                                         59,806            64,674           69,305
Self-insurance                                                                114,232           114,227          107,591
Unearned income                                                                46,885            81,931           69,756
Other, primarily postemployment and postretirement benefit liabilities         83,060            71,642           60,335
---------------------------------------------------------------------------------------------------------------------------

                                                                            $ 360,149         $ 393,008        $ 360,768
---------------------------------------------------------------------------------------------------------------------------
</TABLE>



                                  Capital Stock

     On December 2, 1996,  the Board of Directors  adopted a stockholder  rights
plan,  which was amended on August 2, 1998 and March 16,  1999,  under which all
stockholders  receive one right for each share of common stock held.  Each right
will  entitle  the  holder  to  purchase,   under  certain  circumstances,   one
one-thousandth of a share of Series A Junior Participating  Preferred Stock, par
value $1.00 per share,  of the  Company  (the  "preferred  stock") at a price of
$160.  Subject to certain  exceptions,  the rights will become  exercisable  for
shares  of  preferred  stock 10  business  days (or  such  later  date as may be
determined by the Board of Directors)  following  the  commencement  of a tender
offer or  exchange  offer  that would  result in a person or group  beneficially
owning 15% or more of the outstanding shares of common stock.
     Under the plan,  subject  to  certain  exceptions,  if any  person or group
becomes the beneficial  owner of 15% or more of the outstanding  common stock or
takes certain other actions, each right will then entitle its holder, 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.  The rights may
be  redeemed  by the Board of  Directors  at a price of $0.001  per right  under
certain  circumstances.  The rights,  which do not vote and are not  entitled to
dividends,  will  expire at the close of  business  on March  21,  2007,  unless
earlier redeemed or extended by the Board of Directors of the Company.
     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,  authorized the Company to purchase and retire up to
5 million  shares  through  March 31,  1999.  On  August 2,  1998,  the Board of
Directors  rescinded the remaining  authorization in connection with the pending
merger with American  Stores  Company.  The Company has purchased and retired an
equivalent  of 22.3 million  shares of its common  stock for $500 million  under
these programs, at an average price of $22.40 per share.


                                    Page 15

<PAGE>

                                  Income Taxes

Deferred tax assets and liabilities consisted of the following:

<TABLE>
<CAPTION>
                                                                           January 28,       January 29,      January 30,
                                                                                 1999              1998             1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>               <C>              <C>    
Deferred tax assets (no valuation allowances considered necessary):
   Nondeductible accruals for:
      Self-insurance                                                       $   72,426        $   71,243       $   67,547
      Leases                                                                   19,073            19,517           20,238
      Compensated absences                                                     26,289            18,200           17,057
      Deferred compensation                                                    19,600            17,358           15,406
      Postemployment benefits                                                  18,598            15,407           13,721
      Property valuation                                                       13,637             8,845            8,339
      Postretirement benefits                                                   7,219             6,042            5,057
      Pension costs                                                             4,535             3,854            3,387
      Other                                                                    10,886             4,495            3,996
   Income unearned for financial reporting purposes                            30,742            29,136           30,741
   Costs capitalized for tax purposes                                          15,553             4,724            5,615
---------------------------------------------------------------------------------------------------------------------------

      Total deferred tax assets                                               238,558           198,821          191,104
---------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
   Land, buildings and equipment                                             (143,981)         (130,344)        (127,078)
   Pension costs expensed for tax purposes                                    (24,450)          (18,215)         (20,264)
   Inventory valuation                                                        (15,194)          (12,155)          (8,863)
   Funded benefits                                                             (3,540)           (9,014)          (7,778)
   Other                                                                       (1,150)             (866)            (193)
---------------------------------------------------------------------------------------------------------------------------

      Total deferred tax liabilities                                         (188,315)         (170,594)        (164,176)
---------------------------------------------------------------------------------------------------------------------------

Net deferred tax assets                                                    $   50,243        $   28,227       $   26,928
---------------------------------------------------------------------------------------------------------------------------
</TABLE>



     As a result of an  acquisition  that occurred  during 1998, the Company has
succeeded to federal and state net operating loss carryforwards of $21.6 million
and $13.9 million, respectively, that will expire in various years through 2010.
Based on  management's  assessment,  it is more  likely than not that all of the
deferred tax assets associated with the net operating loss carryforwards will be
realized; therefore, no valuation allowance is considered necessary.

                                    Page 16

<PAGE>

     Income tax expense was as follows:

<TABLE>
<CAPTION>

                                                                                 1998              1997             1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>               <C>              <C>    
Current:
   Federal                                                                  $ 303,073         $ 273,896        $ 229,006
   State                                                                       46,807            37,664           38,367
---------------------------------------------------------------------------------------------------------------------------

                                                                              349,880           311,560          267,373
---------------------------------------------------------------------------------------------------------------------------

Deferred:
   Federal                                                                    (19,070)           (1,142)          29,008
   State                                                                       (2,946)             (157)           4,860
---------------------------------------------------------------------------------------------------------------------------

                                                                              (22,016)           (1,299)          33,868
---------------------------------------------------------------------------------------------------------------------------

Amortization of deferred investment tax credits                                  (172)             (172)            (173)
---------------------------------------------------------------------------------------------------------------------------

                                                                            $ 327,692         $ 310,089        $ 301,068
---------------------------------------------------------------------------------------------------------------------------
</TABLE>



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

<TABLE>
<CAPTION>

                                                1998   Percent               1997   Percent               1996   Percent
---------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>            <C>           <C>            <C>           <C>            <C>
Taxes computed at statutory rate           $ 313,196      35.0          $ 289,416      35.0          $ 278,196      35.0
State income taxes net of
   federal income tax benefit                 29,155       3.3             24,268       2.9             28,345       3.6
Amortization of deferred
   investment tax credits                       (172)                        (172)                        (173)
Other                                        (14,487)     (1.7)            (3,423)     (0.4)            (5,300)     (0.7)
---------------------------------------------------------------------------------------------------------------------------

                                           $ 327,692      36.6          $ 310,089      37.5          $ 301,068      37.9
---------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                  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.  Upon consummation of the pending merger with American Stores Company,
all outstanding options will become exercisable in accordance with the change of
control provisions of the stock option plans.
     During  1998 the  stockholders  approved  Albertson's,  Inc.,  Amended  and
Restated 1995 Stock-Based  Incentive Plan. The amendment increased the number of
shares  available  for  issuance  from 10 million to 30 million  shares and will
become effective upon the consummation of the pending American Stores merger.

                                    Page 17
<PAGE>

     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 28, 1999             January 29, 1998             January 30, 1997
                                                ----------------             ----------------             ----------------
                                              Shares        Price          Shares        Price          Shares        Price
------------------------------------------------------------------------------------------------------------------------------
<S>                                            <C>        <C>               <C>        <C>               <C>        <C>
Outstanding at beginning of year               5,018      $ 32.58           4,056      $ 25.29           3,824      $ 21.51
Granted                                           24        45.94           1,524        45.48             790        35.14
Exercised                                       (370)       16.52            (507)       14.09            (376)       10.91
Forfeited                                       (128)       32.44             (55)       23.12            (182)       18.35
------------------------------------------------------------------------------------------------------------------------------

Outstanding at end of year                     4,544      $ 33.96           5,018      $ 32.58           4,056      $ 25.29
------------------------------------------------------------------------------------------------------------------------------
</TABLE>



     As of  January  28,  1999,  there  were  7,123,000  shares of common  stock
reserved for the granting of additional options.

     The following table summarizes options  outstanding and options exercisable
as of January 28, 1999, and the related weighted average  remaining  contractual
life (years) and weighted average exercise price (shares in thousands):

<TABLE>
<CAPTION>
                                                       Options Outstanding                          Options Exercisable
                                      ----------------------------------------------        -------------------------------

                                           Shares        Remaining                               Shares
Option Price per Share                Outstanding             Life             Price        Exercisable            Price
---------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>                <C>           <C>                    <C>          <C>    
$  8.69 to $ 13.56                             84              0.9           $ 13.28                 52          $ 13.54
  16.56 to   24.31                            702              3.0             19.09                233            18.40
  25.13 to   35.00                          2,247              6.6             31.54                 99            27.96
  39.75 to   45.94                          1,511              8.1             45.61                 67            43.91
---------------------------------------------------------------------------------------------------------------------------

$  8.69 to $ 45.94                          4,544              6.5           $ 33.96                451          $ 23.73
---------------------------------------------------------------------------------------------------------------------------
</TABLE>



     The weighted average fair value at date of grant for options granted during
1998, 1997 and 1996 was $17.14, $15.26 and $10.74 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>

                                                                                 1998              1997             1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>               <C>              <C>   
Expected life (years)                                                             8.0               6.5              7.0
Risk-free interest rate                                                          5.74%             5.92%            6.24%
Volatility                                                                      26.70             26.53            22.06
Dividend yield                                                                   1.48              1.41             1.70

</TABLE>


                                    Page 18
<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 the prior three  years.  Had  compensation  cost been
determined  based  on the fair  value  at the  grant  date  consistent  with the
provisions of this statement,  the Company's pro forma net earnings and earnings
per share would have been as follows:

<TABLE>
<CAPTION>

                                                                                 1998              1997             1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>               <C>              <C>    
Net earnings:
   As reported                                                              $ 567,153         $ 516,814        $ 493,779
   Pro forma                                                                  563,035           514,602          492,558
Basic earnings per share:
   As reported                                                                   2.31              2.09             1.96
   Pro forma                                                                     2.29              2.08             1.96
Diluted earnings per share:
   As reported                                                                   2.30              2.08             1.95
   Pro forma                                                                     2.28              2.07             1.95

</TABLE>

     The pro forma effect on historical  net earnings 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.
     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>

                                                                                 1998              1997             1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>               <C>              <C>   
Weighted-average discount rate                                                   6.25%             6.60%            7.50%
Annual salary increases                                                     4.50-4.95         4.50-5.00        4.50-5.00
Expected long-term rate of return on assets                                      9.50              9.50             9.50
</TABLE>



                                    Page 19
<PAGE>

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

<TABLE>
<CAPTION>


                                                                                 1998              1997             1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>               <C>              <C>  
Service cost - benefits earned during the period                             $ 41,627          $ 26,776         $ 24,138
Interest cost on projected benefit obligations                                 30,164            23,174           20,095
Expected return on assets                                                     (42,263)          (34,118)         (30,600)
Amortization of transition asset                                                  (6)                (6)              (6)
Amortization of prior service cost                                                944               944              944
Recognized net actuarial loss (gain)                                            2,605              (145)              39
---------------------------------------------------------------------------------------------------------------------------

                                                                             $ 33,071          $ 16,625         $ 14,610
---------------------------------------------------------------------------------------------------------------------------
</TABLE>


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

<TABLE>
<CAPTION>
                                                                           January 28,       January 29,      January 30,
                                                                                 1999              1998             1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>               <C>              <C>   
Change in projected benefit obligation:
   Beginning of year benefit obligation                                     $ 411,983         $ 293,842        $ 269,645
   Service cost                                                                41,627            26,776           24,138
   Interest cost                                                               30,164            23,174           20,095
   Actuarial loss (gain)                                                       72,195            75,565          (12,716)
   Benefits paid                                                               (9,419)           (7,374)          (7,320)
---------------------------------------------------------------------------------------------------------------------------

   End of year benefit obligation                                             546,550           411,983          293,842
---------------------------------------------------------------------------------------------------------------------------

Change in plan assets:
   Plan assets at fair value at beginning of year                             414,532           354,806          321,758
   Actual return on plan assets                                                96,200            56,700           36,295
   Employer contributions                                                      47,570            10,400            4,073
   Benefit payments                                                            (9,419)           (7,374)          (7,320)
---------------------------------------------------------------------------------------------------------------------------

   Plan assets at fair value at end of year                                   548,883           414,532          354,806
---------------------------------------------------------------------------------------------------------------------------

Funded status                                                                   2,333             2,549           60,964
Unrecognized net loss (gain)                                                   45,560            29,922          (23,205)
Unrecognized prior service cost                                                 3,539             4,483            5,427
Unrecognized net transition liability                                             548               542              536
Additional minimum liability                                                   (3,747)           (2,612)          (1,080)
---------------------------------------------------------------------------------------------------------------------------

Net prepaid pension cost                                                   $   48,233        $   34,884       $   42,642
---------------------------------------------------------------------------------------------------------------------------

Prepaid pension cost included with other assets                            $   63,822        $   47,559       $   52,497
Accrued pension cost included with other long-term liabilities                (15,589)          (12,675)          (9,855)
---------------------------------------------------------------------------------------------------------------------------

Net prepaid pension cost                                                   $   48,233        $   34,884       $   42,642
---------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                    Page 20

<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:

<TABLE>
<CAPTION>
                                                                           January 28,       January 29,      January 30,
                                                                                 1999              1998             1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>              <C>               <C> 
Projected benefit obligation in excess of plan assets:
   Projected benefit obligation                                              $ 18,950         $ 240,869         $ 11,761
   Fair value of plan assets                                                                    217,743
Accumulated benefit obligation in excess of plan assets:
   Accumulated benefit obligation                                              15,589            12,675            9,855
</TABLE>


     Assets of the two funded  Company  plans are  invested in directed  trusts.
Assets in the directed  trusts are invested in common  stocks  (including  $68.0
million,  $52.4  million  and $38.4  million of the  Company's  common  stock at
January 28, 1999,  January 29, 1998, and January 30, 1997,  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 $23.5 million for 1998, $22.5 million for 1997
and $24.9 million for 1996.
     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:

<TABLE>
<CAPTION>

                                                                                 1998              1997             1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                           <C>               <C>              <C>    
Service cost                                                                  $ 1,898           $ 1,483          $ 1,304
Interest cost                                                                   1,290             1,138              989
Amortization of unrecognized loss                                                  27                                 22
---------------------------------------------------------------------------------------------------------------------------

                                                                              $ 3,215           $ 2,621          $ 2,315
---------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                    Page 21


<PAGE>

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

<TABLE>
<CAPTION>

                                                                           January 28,       January 29,      January 30,
                                                                                 1999              1998             1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>               <C>              <C>    
Change in accumulated benefit obligation:
   Beginning of year benefit obligation                                     $  17,547         $  14,153        $  12,486
   Service cost                                                                 1,898             1,483            1,304
   Interest cost                                                                1,290             1,138              989
   Plan participants' contributions                                             1,692             1,396            1,237
   Actuarial loss (gain)                                                          737               721             (428)
   Benefits paid                                                               (1,832)           (1,344)          (1,435)
---------------------------------------------------------------------------------------------------------------------------

   End of year benefit obligation                                              21,332            17,547           14,153
---------------------------------------------------------------------------------------------------------------------------

Plan assets activity:
   Employer contributions (excess)                                                140               (52)             198
   Plan participants' contributions                                             1,692             1,396            1,237
   Benefit payments                                                            (1,832)           (1,344)          (1,435)
---------------------------------------------------------------------------------------------------------------------------

Funded status                                                                 (21,332)          (17,547)         (14,153)
Unrecognized net loss                                                           2,483             1,773            1,052
---------------------------------------------------------------------------------------------------------------------------

Accrued postretirement benefit obligations included with other
   long-term liabilities                                                    $ (18,849)        $ (15,774)       $ (13,101)
---------------------------------------------------------------------------------------------------------------------------
</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:

<TABLE>
<CAPTION>
                     
                                                                           January 28,       January 29,      January 30,
                                                                                 1999              1998             1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>               <C>              <C>    
Included with salaries and related liabilities                              $   7,014         $   6,661        $   4,620
Included with other long-term liabilities                                      41,546            33,567           30,927
---------------------------------------------------------------------------------------------------------------------------

                                                                             $ 48,560          $ 40,228         $ 35,547
---------------------------------------------------------------------------------------------------------------------------
</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 $93.1 million
for 1998, $96.5 million for 1997 and $100.0 million for 1996.
     The Company has bonus plans for store  management  personnel  and other key
management  personnel.  Amounts  charged to earnings  under all bonus plans were
$86.7 million for 1998, $67.0 million for 1997 and $66.1 million for 1996.


                                     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.

                                    Page 22
<PAGE>

     Capitalized  leases are calculated using interest rates  appropriate at the
inception of each lease.  Contingent rents  associated with  capitalized  leases
were $1.1  million  in 1998,  $1.4  million  in 1997 and $1.8  million  in 1996.
Following is an analysis of the Company's capitalized leases:

<TABLE>
<CAPTION>

                                                                           January 28,       January 29,      January 30,
                                                                                 1999              1998             1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>               <C>              <C>    
Real estate and equipment                                                   $ 225,162         $ 203,217        $ 186,768
Accumulated amortization                                                      (91,025)          (87,204)         (83,208)
---------------------------------------------------------------------------------------------------------------------------

                                                                            $ 134,137         $ 116,013        $ 103,560
---------------------------------------------------------------------------------------------------------------------------
</TABLE>



     Future minimum lease payments for noncancelable  operating leases,  related
subleases and capital leases at January 28, 1999, were as follows:

<TABLE>
<CAPTION>

                                                                            Operating           Capital
                                                                               Leases         Subleases            Leases
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                   <C>              <C>    
1999                                                                    $      90,820         $ (13,463)       $   29,820
2000                                                                           90,460           (13,186)           29,684
2001                                                                           88,657           (11,138)           29,048
2002                                                                           83,886            (8,230)           21,252
2003                                                                           81,760            (6,253)           19,918
Remainder                                                                     668,028           (20,756)          243,253
---------------------------------------------------------------------------------------------------------------------------

Total minimum obligations (receivables)                                   $ 1,103,611         $ (73,026)          372,975
---------------------------------------------------------------------------------------------------------------------------

Interest                                                                                                         (204,526)
---------------------------------------------------------------------------------------------------------------------------

Present value of net minimum obligations                                                                          168,449
Current portion of capitalized lease obligations                                                                  (11,347)
---------------------------------------------------------------------------------------------------------------------------

Long-term capitalized lease obligations at January 28, 1999                                                     $ 157,102
---------------------------------------------------------------------------------------------------------------------------
</TABLE>



     The present value of minimum lease payments under operating leases using an
assumed  discount  rate of 8.0% was  approximately  $576  million at January 28,
1999.
     Rent expense under operating leases was as follows:

<TABLE>
<CAPTION>

                                                                                 1998              1997             1996
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>               <C>              <C>   
Minimum rent                                                                 $ 93,094          $ 81,402         $ 77,214
Contingent rent                                                                 3,605             3,469            4,155
---------------------------------------------------------------------------------------------------------------------------

                                                                               96,699            84,871           81,369
Sublease rent                                                                 (39,214)          (31,120)         (23,498)
---------------------------------------------------------------------------------------------------------------------------

                                                                             $ 57,485          $ 53,751         $ 57,871
---------------------------------------------------------------------------------------------------------------------------

</TABLE>


                                    Page 23

<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 $6.1
million in fiscal  1999 and  aggregate  $44.9  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 28,       January 29,      January 30,
                                                                                 1999              1998             1997
---------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                 <C>              <C>   
Fair value                                                                  $ 1,284.9           $ 833.8          $ 606.3
Carrying amount                                                               1,208.0             792.9            593.7
</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.


                           Recent Accounting Standards

     In June 1998, the Financial  Accounting Standards Board issued Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging Activities." This new standard establishes  accounting and reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other  contracts,  and for hedging  activities.  It requires that an
entity  recognize  all  derivatives  as  either  assets  or  liabilities  in the
statement of financial  position and measure  those  instruments  at fair value.
This standard is effective for the Company's  2000 fiscal year.  The Company has
not yet completed its evaluation of this standard or its potential impact on the
Company's reporting requirements.


                                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  covering 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. The consolidated complaint for these suits further
alleges claims under the Employee  Retirement  Income Security Act. 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 under state law. These three cases have been transferred to
the federal court in Boise,  Idaho, for  consolidation or coordination  with the
pending Boise litigation.
     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.
     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.

                                     Page 24
<PAGE>

                               Segment Information

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

                                    Page 25

<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                Executive Vice President and
     Chief Executive Officer                  Chief Financial Officer


                                    Page 26

<PAGE>

Independent Auditors' Report

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

     We  have  audited  the   accompanying   consolidated   balance   sheets  of
Albertson's,  Inc., and  subsidiaries as of January 28, 1999,  January 29, 1998,
and January 30,  1997,  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 28, 1999,  January 29, 1998,  and January 30, 1997, 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

Deloitte and Touche LLP
Boise, Idaho
March 17, 1999


                                    Page 27

<PAGE>
<TABLE>

Five-Year Summary of Selected Financial Data

<CAPTION>
                                                52 Weeks        52 Weeks        52 Weeks        52 Weeks        52 Weeks
(Dollars in thousands                         January 28,     January 29,     January 30,     February 1,     February 2,
except per share data)                              1999            1998            1997            1996            1995
---------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>             <C>             <C>             <C>             <C>    
Operating Results:
Sales                                       $ 16,005,115    $ 14,689,511    $ 13,776,678    $ 12,585,034    $ 11,894,621
Gross profit                                   4,383,089       3,881,824       3,565,330       3,213,298       3,007,894
Interest expense:
   Debt                                           78,804          57,735          42,156          31,895          38,806
   Capitalized lease obligations                  18,132          16,629          15,168          15,234          13,412
Earnings before income taxes
   and cumulative effect of
   accounting change                             894,845         826,903         794,847         758,501         678,652
Income taxes                                     327,692         310,089         301,068         293,540         261,281
Earnings before cumulative effect
   of accounting change                          567,153         516,814         493,779         464,961         417,371
Cumulative effect of accounting
   change                                                                                                        (17,006)
Net earnings                                     567,153         516,814         493,779         464,961         400,365
Net earnings as a percent to sales                  3.54%           3.52%           3.58%           3.69%           3.37%
---------------------------------------------------------------------------------------------------------------------------

Common Stock Data:
Earnings per share before cumulative
   effect of accounting change:
      Basic                                     $   2.31          $ 2.09          $ 1.96          $ 1.84          $ 1.65
      Diluted                                       2.30            2.08            1.95            1.83            1.64
Cumulative effect of accounting change                                                                              (.07)
Earnings per share:
      Basic                                         2.31            2.09            1.96            1.84            1.58
      Diluted                                       2.30            2.08            1.95            1.83            1.57
Cash dividends per share                            0.68            0.64            0.60            0.52            0.44
Book value per share                               11.44            9.85            8.96            7.75            6.65
---------------------------------------------------------------------------------------------------------------------------

Financial Position:
Total assets                                 $ 6,233,968     $ 5,218,590     $ 4,714,633     $ 4,135,911     $ 3,621,729
Working capital                                  455,074         352,338         420,830         194,509          94,150
Long-term debt                                 1,527,432         989,650         921,704         602,993         382,775
Capitalized lease obligations                    157,102         140,957         130,050         129,265         129,573
Stockholders' equity                           2,810,454       2,419,456       2,247,018       1,952,523       1,687,893
---------------------------------------------------------------------------------------------------------------------------

Other Year End Statistics:
Number of stores                                     983             878             826             764             720
Number of employees:
   Total                                         100,000          94,000          88,000          80,000          76,000
   Full-time equivalents                          80,000          76,000          71,000          66,000          60,000
---------------------------------------------------------------------------------------------------------------------------
</TABLE>


o  In fiscal  1998 a $24.4  million  pre-tax  charge  was  recorded  related  to
   management's decision to close 16 underperforming stores.

o  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.

       
                             Page 28
<PAGE>

<TABLE>
Quarterly  Financial Data

<CAPTION>

(Dollars in thousands except
per share data - Unaudited)                        First          Second           Third          Fourth            Year
---------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>             <C>             <C>             <C>            <C>    
1998
Sales                                        $ 3,848,253     $ 3,995,052     $ 3,990,459     $ 4,171,351    $ 16,005,115
Gross profit                                   1,024,470       1,069,344       1,105,156       1,184,119       4,383,089
Net earnings                                     110,601         128,418         137,746         190,388         567,153
Earnings per share:
   Basic                                            0.45            0.52            0.56            0.78            2.31
   Diluted                                          0.45            0.52            0.56            0.77            2.30
---------------------------------------------------------------------------------------------------------------------------

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
---------------------------------------------------------------------------------------------------------------------------
</TABLE>


o  A $24.4  million  pre-tax  charge  was  recorded  in fiscal  1998  related to
   management's decision to close 16 underperforming  stores. An initial pre-tax
   charge of $29.4  million  was  recorded  in the first  quarter  and a pre-tax
   adjustment of $5.0 million was recorded in the fourth quarter.


     The  Company   estimates  the  quarterly  LIFO  reserves  which  cannot  be
accurately  determined  until year end.  The LIFO method of valuing  inventories
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>
1998
Net earnings                                    $ (5,000)       $ (3,250)       $ (3,250)         $ 6,249       $ (5,251)
Basic and diluted earnings per share               (0.02)          (0.01)          (0.01)            0.03          (0.02)
---------------------------------------------------------------------------------------------------------------------------

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)
---------------------------------------------------------------------------------------------------------------------------
</TABLE>


 o 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 29
<PAGE>

Stockholders' Information


ADDRESS                                      INFORMATION CONTACT
Albertson's, Inc.                            Information on individual accounts
General Offices                              or on procedures necessary to make
250 Parkcenter Boulevard                     changes in an account is provided
P.O. Box 20                                  by ChaseMellon at (800)356-2017
Boise, Idaho 83726                           between the hours of 9:00 a.m. and
Telephone: (208) 395-6200                    7:00 p.m., Eastern Time, after a
                                             stockholder identifies his or her
Internet Address                             account by providing a taxpayer
Major press releases and other               identification number,  
corporate data are available on              the registration name on the  
Albertson's Web site:                        securities and the address of  
www.albertsons.com                           record.  When directing
                                             correspondence to ChaseMellon at
AUDITORS                                     the address shown, stockholders 
Deloitte & Touche LLP                        are reminded to include a
Boise, Idaho                                 reference to Albertson's, Inc.

STOCK TRANSFER AGENT AND REGISTRAR           COMPANY PROFILE AVAILABLE
ChaseMellon Shareholder Services, L.L.C.     A copy of the Company Profile,
Shareholder Relations Department             which contains a discussion of our
P.O. Box 3315                                core values, including equal
South Hackensack, New Jersey 07606           opportunity, environmental quality
or                                           and community support, as well as
ChaseMellon Shareholder Services, L.L.C.     statistical information about the
Shareholder Relations Department Overpeck    Company, is available to
Centre, 85 Challenger Road                   stockholders, without charge, upon 
Ridgefield Park, NJ 07660                    request to the Corporate Secretary
                                             of Albertson's, Inc.
Telephone: (800) 356-2017
Internet address: www.chasemellon.com        FORM 10-K AVAILABLE
                                             A coy of Form 10-K Annual Report
STOCKHOLDERS OF RECORD                       filed with the Securities and
There were 18,000 stockholders of record     Exchange Commission for
at March 17, 1999.                           Albertson's, Inc., fiscal year 
                                             ended January 28, 1999, is
ANNUAL MEETING                               available to stockholders, 
The 1999  Annual  Meeting of  Stockholders   without charge, upon request to
will be held at 10:00 a.m.  Mountain         the Corporate Secretary of 
Daylight Time on Friday,  May 28, 1999,      Albertson's, Inc.
in the Eyries Room,  Boise Centre on the
Grove, 850 Front Street,  Boise,  Idaho.

DIVIDEND INVESTMENT PLAN
The Company's Dividend Investment Plan
allows stockholders owning at least
15 shares of record to invest the
quarterly dividends  automatically
and to  purchase additional shares
under the Plan with voluntary cash
payments.  More information may be
obtained from ChaseMellon at
(800) 982-7649 or from the Corporate
Secretary of Albertson's,  Inc.


                                    Page 30
<PAGE>


                            Company Stock Information

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

<TABLE>
<CAPTION>

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

     Cash dividends declared per share were:

<TABLE>
<CAPTION>

                                  First              Second                Third              Fourth                Year
---------------------------------------------------------------------------------------------------------------------------
<S>                              <C>                 <C>                  <C>                 <C>                 <C>  
1998                             $ 0.17              $ 0.17               $ 0.17              $ 0.17              $ 0.68
1997                               0.16                0.16                 0.16                0.16                0.64
1996                               0.15                0.15                 0.15                0.15                0.60
</TABLE>


o  In March 1999 the Board of Directors  increased  the regular  quarterly  cash
   dividend 5.9% to $0.18 per share from $0.17 per share,  for an annual rate of
   $0.72 per share.  The new  quarterly  rate will be paid on April 30, 1999, to
   stockholders of record on April 15, 1999.


                                    Page 31