AMERICAN STORES CO /NEW/, 424B1, 1997-04-04

AMERICAN STORES CO /NEW/
424B1, 1997-04-04
GROCERY STORES

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<PAGE>

RULE NO. 424(b)(1)
REGISTRATION NO. 333-22701

15,407,910 SHARES
[LOGO] AMERICAN STORES COMPANY
COMMON STOCK
(PAR VALUE $1.00 PER SHARE)
---------------

Of the 15,407,910 shares of Common Stock offered, 12,326,330 shares are
being offered hereby in the United States and 3,081,580 shares are being
offered in a concurrent international offering outside the United States. The
initial public offering price and the aggregate underwriting discount per
share will be identical for both Offerings. See "Underwriting".

All of the shares of Common Stock offered are being sold by the Selling
Stockholders named herein, other than shares, if any, sold in connection with
the exercise by the Underwriters of the over-allotment options, which will be
sold by the Company. The Selling Stockholders consist of members of the family
of L.S. Skaggs, the former chairman and a current director of the Company,
certain charitable trusts and foundations and certain trusts created for the
benefit of members of the Skaggs family. The Offerings are conditioned upon
the Company's repurchase of 12,222,222 shares of Common Stock from the Selling
Stockholders at $45 per share, and all such transactions are expected to be
consummated simultaneously. After the Offerings and the Repurchase, the
Selling Stockholders will beneficially own an aggregate of less than one
percent of the outstanding shares of Common Stock. See "Selling Stockholders".
The Company will not receive any of the proceeds from the sale of the shares
offered hereby, other than proceeds from the sale of shares, if any, sold in
connection with the exercise by the Underwriters of the over-allotment
options.

The last reported sale price of the Common Stock, which is listed under the
symbol "ASC" on the New York Stock Exchange, the Chicago Stock Exchange, the
Pacific Stock Exchange and the Philadelphia Stock Exchange, was $43 per share
on the New York Stock Exchange on April 2, 1997. See "Price Range of Common
Stock and Dividend Policy".

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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

<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT (1)(2) STOCKHOLDERS (2)
-------------- --------------- -------------------
<S> <C> <C> <C>
Per Share................... $43.00 $1.50 $41.50
Total (3)................... $662,540,130 $23,111,865 $639,428,265
</TABLE>
- -------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting".

(2) The Company has agreed to reimburse the Selling Stockholders for the
underwriting discount. In addition, estimated expenses of $675,000 are
payable by the Company. See "Selling Stockholders--Selling Stockholders'
Agreements".

(3) The Company has granted the U.S. Underwriters an option for 30 days to
purchase up to an additional 1,848,949 shares of Common Stock at the
initial public offering price per share, less the underwriting discount,
solely to cover over-allotments. Additionally, the Company has granted the
International Underwriters a similar option with respect to an additional
462,237 shares as part of the concurrent international offering. If such
options are exercised in full, the total initial public offering price,
underwriting discount, proceeds to Selling Stockholders and proceeds to
Company will be $761,921,128, $26,578,644, $639,428,265 and $95,914,219,
respectively. See "Underwriting".

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

Goldman, Sachs & Co. is acting as book running lead manager for the
Offerings. Goldman, Sachs & Co. and J.P. Morgan & Co. are acting as joint lead
managers. The shares offered hereby are offered severally by the U.S.
Underwriters, as specified herein, subject to receipt and acceptance by them
and subject to their right to reject any order in whole or in part. It is
expected that certificates for the shares will be ready for delivery in New
York, New York, on or about April 8, 1997 against payment therefor in
immediately available funds.
GOLDMAN, SACHS & CO. J.P. MORGAN & CO.
Joint Lead Managers

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MORGAN STANLEY & CO.
INCORPORATED
SMITH BARNEY INC.
---------------

The date of this Prospectus is April 2, 1997.
<PAGE>

[MAP DEPICTING STORE LOCATIONS, LOGOS OF STORE
OPERATING NAMES]

CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, DURING AND AFTER THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
<PAGE>

AVAILABLE INFORMATION

The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; Citicorp Center, 500
West Madison Street, Chicago, Illinois 60661, Suite 1400; and 7 World Trade
Center, New York, New York 10048; or from the Commission's worldwide web site
at http://www.sec.gov. Copies of such material can be obtained at prescribed
rates from the Public Reference Section of the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549. Such reports, proxy statements
and other information are also available for inspection and copying at the
offices of each of the following exchanges on which the Company's Common Stock
is listed: The New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005; the Chicago Stock Exchange, Inc., 440 South LaSalle Street,
Chicago, Illinois 60605; the Pacific Stock Exchange, Inc., 301 Pine Street,
San Francisco, California 94104; and the Philadelphia Stock Exchange, Inc.,
1900 Market Street, Philadelphia, Pennsylvania 19103.

The Company has filed with the Commission a Registration Statement (of which
this Prospectus is a part) under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares of Common Stock offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference and the exhibits and schedules thereto. For further information with
respect to the Company and the Common Stock, reference is hereby made to such
Registration Statement, including the exhibits filed as part thereof. The
Registration Statement and the exhibits thereto may be inspected without
charge at the office of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549 and copies thereof may be obtained from the Commission at
prescribed rates.

CAUTIONARY NOTE: This Prospectus and certain of the documents incorporated
herein by reference contain certain forward-looking statements about the
future performance of the Company which are based on management's assumptions
and beliefs in light of the information currently available to it. These
forward-looking statements are subject to uncertainties and other factors that
could cause actual results to differ materially from such statements
including, but not limited to: competitive practices and pricing in the food
and drug industries generally and particularly in the Company's principal
markets; the ability of the Company to implement the Company's Delta
initiatives in accordance with the currently contemplated schedule and budget;
changes in the financial markets which may affect the Company's cost of
capital and the ability of the Company to access the public debt and equity
markets to refinance indebtedness and fund the Company's capital expenditure
program on satisfactory terms; supply or quality control problems with the
Company's vendors; and changes in economic conditions which affect the buying
patterns of the Company's customers.

3
<PAGE>

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents heretofore filed by the Company (File No. 1-5392)
with the Commission pursuant to the Exchange Act are incorporated herein by
reference:

1. The Company's Annual Report on Form 10-K for the fiscal year ended
February 3, 1996, which incorporates by reference certain portions of (a)
the Company's 1995 Annual Report to Stockholders and (b) the Company's
proxy statement for the 1996 Annual Meeting of Stockholders;

2. The Company's Quarterly Reports on Form 10-Q for each of the thirteen
week periods ended May 4, 1996, August 3, 1996 and November 2, 1996;

3. The Company's Current Reports on Form 8-K dated July 2, 1996,
September 23, 1996, February 21, 1997 and April 1, 1997; and

4. Amendment No. 5 to the Company's Registration Statement on Form 8-A,
Commission File No. 1-5392, filed with the Commission on February 25, 1997,
in which there is described the terms, rights and provisions applicable to
the Company's Preferred Share Purchase Rights, and any similar report or
amendment filed subsequently for the purpose of updating such description.

All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the shares shall be
deemed to be incorporated by reference herein and to be part hereof from the
date of filing of such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement as modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.

The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon the written or
oral request of such person, a copy of any or all of the documents which have
been or may be incorporated herein by reference (other than exhibits to such
documents unless such exhibits are specifically incorporated by reference into
such documents). Requests for such copies should be directed to American
Stores Company, 709 East South Temple, Salt Lake City, Utah 84102, P.O. Box
27447, Salt Lake City, Utah 84127-0447, Attention: Investor Relations
(telephone: 801-539-0112).

4
<PAGE>

THE COMPANY

American Stores Company is one of the nation's leading food and drug
retailers with annual sales in its fiscal year ended February 1, 1997 of $18.7
billion. The Company is principally engaged in a single industry segment, the
retail sale of food and drug merchandise. The Company's principal food
operations are Acme Markets, Jewel Food Stores, Lucky Stores Northern
California Division, Lucky Stores Southern California Division and Jewel Osco
Southwest. The Company's drug stores operate under the Osco Drug and Sav-on
names. As of February 1, 1997, the Company operated 1,695 stores in 27 states,
including 166 combination stores which are jointly operated by the Company's
food and drug store operations and are each counted as two separate stores.
The Company's principal executive offices are located at 709 East South
Temple, Salt Lake City, Utah 84102 (telephone: 801-539-0112). References to
the "Company" in this Prospectus include American Stores Company and its
subsidiaries unless the context otherwise requires.

In 1993, the Company made a strategic decision to move from a holding
company orientation to an operating company approach to take advantage of the
size and strength of its operations. Key aspects of the Company's strategy and
business strengths are:

STRONG MARKET POSITIONS

The Company's food and drug store operations hold leading market positions,
generally number one or two, in each of their core market areas. The Company
works to maintain and expand its strong market positions by significantly
investing in core market areas.

MAINTAIN A MODERN STORE BASE

Over the last several years, the Company has significantly increased its
capital spending to improve and expand its store base. Capital spending grew
from $565 million in 1994 to $801 million in 1995, and to $1 billion in 1996.
New and replacement stores are an increasingly important focus of the capital
spending program, accounting for 34% of capital spending in 1994, 45% in 1995,
and 57% in 1996, and are expected to account for over 50% of capital spending
in 1997. The Company expects to continue to make significant investments in
its store base. In 1997, the Company plans to spend approximately $1 billion
for capital expenditures. The Company plans to open over 100 new and
replacement stores (including 20 jointly operated combination stores which are
each counted as two separate stores) and to remodel approximately 100 stores
in 1997.

EMPHASIZE COMPETITIVE FORMATS

The type and mix of store formats must keep pace with the constant changes
in customers' needs and tastes. The Company believes that the success of
individual food and drug stores is enhanced when they are paired together in a
combination store that maintains the identity and full selection of each. The
Company also believes that having both combination food and drug stores and
stand-alone drug stores in the same market better enables it to meet customer
needs. New stores currently being developed are combination food and drug
stores of approximately 65,000 square feet and stand-alone drug stores of
approximately 16,500 square feet. Currently, the Company operates 233
combination stores (including 166 combination stores jointly operated by the
Company's food and drug operations) and plans to open an additional 32
combination stores in 1997 (including 20 jointly operated combination stores).

DELTA INITIATIVES

Delta is a series of initiatives that is transforming the Company from seven
regional, autonomous business units to a single centrally focused operating
company. Delta seeks to build on the size of the Company and develop common
business processes and systems to best manage growth for the future. Following
completion of all of the Delta initiatives, the Company expects to be able to
buy products and move them through the supply chain more quickly, efficiently
and cost-effectively. The information gathered from the common systems and
processes will also assist the Company's marketing and merchandising programs
which are designed to enhance sales and margin growth.

5
<PAGE>

RECENT DEVELOPMENTS

1996 FOURTH QUARTER AND FISCAL YEAR RESULTS

On March 4, 1997, the Company announced 1996 fourth quarter earnings of $.85
per share before special charges compared to $.83 per share in the fourth
quarter of 1995. The 1996 fourth quarter was 13 weeks compared to 14 weeks in
the 1995 fourth quarter. On February 3, 1997, the Company announced special
charges aggregating approximately $100 million pre-tax, or $.41 per share
after-tax, taken in the fourth quarter of 1996. These charges related largely
to a write off of the book value of existing assets related to the
implementation of the Delta initiatives, including the consolidation of four
general merchandise warehouses as well as the Company's administrative
offices, which are currently in progress and are expected to be completed
within the 1997 fiscal year. Reported fourth quarter 1996 earnings after the
special charges were $.44 per share.

Before the special charges, earnings were $2.38 per share in 1996 compared
to $2.16 per share in 1995. Reported earnings after the special charges for
the 1996 fiscal year were $1.97 per share. Fiscal year 1996 had 52 weeks while
fiscal year 1995 had 53 weeks.

Total sales in the fourth quarter were $4.9 billion, compared with $5.1
billion in the prior year. Sales for the quarter without the impact of the
extra week in 1995 increased 3.6%. For the year, total sales were $18.7
billion, compared with $18.3 billion in the prior year. Comparable store sales
were up 2.3% for the quarter and up 3.3% for the entire fiscal year.

Operating profit in the fourth quarter of 1996 before special charges
increased 5.1% to $265.2 million (5.4% of sales) compared with $252.3 million
(5.0% of sales) in the prior year. Of the $100 million in special charges,
special charges affecting operating profit were $25.5 million and were not
reported as components of either food store operations or drug store
operations. An additional $74.5 million of special charges were classified as
other non-operating expense. For the year, operating profit before special
charges increased 11.4% to $787.2 million (4.2% of sales) in 1996 compared
with $706.8 million (3.9% of sales) in 1995. The LIFO charge for 1996 was
$11.4 million compared to $12.8 million in 1995.

Operating profit in the fourth quarter for the food store operations was
5.1% of sales compared with 4.6% of sales in the comparable period of the
prior year. The higher operating profit percentage was attributable primarily
to better product mix, lower product costs, benefits from centralized
procurement and lower advertising expenses.

Operating profit in the fourth quarter at the Company's drug store
operations increased to 6.4% of sales from 6.1% of sales in the comparable
period of the prior year. Lower operating expenses were achieved despite the
added expense associated with more store openings when compared to 1995. A
total of 45 drug stores were opened in the fourth quarter compared with 30 in
the prior year fourth quarter.

Interest expense increased to $46.1 million for the quarter from $42.1
million in the comparable period of the prior year due to increased debt
levels. Outstanding debt totaled $2.7 billion, and the ratio of total debt to
total capitalization was 51.4%, at the end of fiscal 1996, up from 48.8% at
the end of fiscal 1995. The increase in debt is primarily attributable to the
Company's capital expenditure program as well as stock repurchases made
earlier in the year.

Earnings before interest, income taxes, depreciation and amortization, LIFO
charges, and special charges ("FIFO EBITDA") as a percent of sales was 7.4% in
the fourth quarter compared with 6.7% in the comparable period of the prior
year. For the year, total FIFO EBITDA was $1.2 billion before special charges
or 6.6% of sales compared with $1.1 billion or 6.2% of sales in 1995.

6
<PAGE>

Capital expenditures totaled $324.6 million in the fourth quarter and $1.0
billion for the year. The Company anticipates total 1997 capital expenditures
will also be approximately $1.0 billion.

During the fourth quarter of 1996, the Company opened 58 new stores,
completed 14 remodels and closed 24 stores. For the year, the Company opened
or acquired 122 new stores, completed 94 remodels and closed 77 stores. Of the
122 total new stores for the year, 23 jointly operated food and drug
combination stores are each counted as two stores. Total retail square footage
increased by 3.8 percent for the year.

In connection with the foregoing summary, reference is made to the Company's
audited financial statements for the year ended February 1, 1997 included
herein beginning on page F-1.

In anticipation of the expiration of the 1992 Key Executive Stock Purchase
Incentive Plan, the Board of Directors recently approved a new stock-based
management incentive program. The new program will continue to link executive
incentive compensation to stockholder return. The program involves the grant
of market-priced stock options that would ordinarily begin to vest on the
fifth anniversary of the grant date but which will vest on an accelerated
basis in part if stock ownership requirements are satisfied and in part if the
Company achieves annual performance goals. A total of approximately 1.8
million options were granted to 16 senior officers under the program on
February 24, 1997, and a total of approximately 1.3 million options were
granted to an additional 30 senior officers on March 27, 1997, in each case
with an exercise price of $45 per share. The Compensation and Stock Option
Committee intends to grant approximately 1.2 million additional options to the
same 46 officers, and to grant approximately 2.2 million options to 113 other
officers of the Company, if a new stock incentive plan is approved by the
Company's stockholders at the 1997 annual stockholders' meeting.

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

The selected consolidated financial data set forth in the table below should
be read in conjunction with the Company's consolidated financial statements
and notes thereto included or incorporated by reference in this Prospectus.
The selected consolidated financial data for the 14 and 13 weeks ended
February 3, 1996 and February 1, 1997, respectively, have been derived from
the Company's unaudited financial statements and contain all adjustments that
are of a normal and recurring nature necessary to present fairly the financial
position and results of operations for such periods. The selected consolidated
financial data for the 53 weeks ended February 3, 1996 and the 52 weeks ended
February 1, 1997 (other than the information under "Income Statement" which is
derived from the Company's consolidated financial statements which have been
audited by Ernst & Young LLP, independent auditors) have been derived from the
Company's unaudited financial statements.

7
<PAGE>

<TABLE>
<CAPTION>
14 WEEKS 13 WEEKS 53 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED
FEBRUARY 3, FEBRUARY 1, FEBRUARY 3, FEBRUARY 1,
1996 1997(1) 1996 1997(1)
----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
INCOME STATEMENT:
Sales.................. $5,090,584 $4,909,673 $18,308,894 $18,678,129
Cost of merchandise
sold, including
warehousing and
transportation
expenses(2)........... (3,757,281) (3,583,165) (13,558,690) (13,713,151)
---------- ---------- ----------- -----------
Gross profit........... 1,333,303 1,326,508 4,750,204 4,964,978
Operating and
administrative
expenses(2)........... (1,080,965) (1,086,862) (4,043,381) (4,203,302)
---------- ---------- ----------- -----------
Operating profit....... 252,338 239,646 706,823 761,676
Other income
(expense):
Interest expense....... (42,065) (46,067) (159,545) (171,558)
Other income
(expense), net........ (133) (77,106) 3,638 (85,566)
---------- ---------- ----------- -----------
Total other income
(expense)............. (42,198) (123,173) (155,907) (257,124)
Earnings before income
taxes................. 210,140 116,473 550,916 504,552
Federal and state
income taxes.......... (88,596) (52,378) (234,107) (217,331)
---------- ---------- ----------- -----------
Net Earnings........... $ 121,544 $ 64,095 $ 316,809 $ 287,221
========== ========== =========== ===========
Earnings per share..... $ .83 $ .44 $ 2.16 $ 1.97
========== ========== =========== ===========
Average common
shares................ 146,390 145,829 146,943 145,888
========== ========== =========== ===========
COMPARABLE STORE SALES:
Eastern food
operations............ 3.9% (0.5)% 1.5% 2.2%
Western food
operations............ 0.1% 2.0% (0.8)% 2.4%(3)
Food store
operations............ 1.8% 0.9% 0.3% 2.3%(3)
Drug store
operations............ 4.2% 5.9% 4.8% 5.8%
---------- ---------- ----------- -----------
Total................ 2.5% 2.3% 1.4% 3.3%(3)
========== ========== =========== ===========
SALES:
Food store
operations............ $3,643,342 $3,442,868 $13,301,742 $13,420,395
Drug store
operations............ 1,443,570 1,457,902 4,995,389 5,227,308
Other.................. 3,672 8,903 11,763 30,426
---------- ---------- ----------- -----------
Total sales.......... $5,090,584 $4,909,673 $18,308,894 $18,678,129
========== ========== =========== ===========
OPERATING PROFIT:
Food store
operations............ $ 168,434 $ 177,250 $ 542,936 $ 608,286
Drug store
operations............ 87,666 93,201 245,440 259,924
LIFO................... 11,194 10,592 (12,806) (11,408)
Purchase accounting
amortization.......... (18,992) (19,758) (76,877) (78,654)
Other.................. 4,036 3,880 8,130 9,047
Special charges........ 0 (25,519) 0 (25,519)
---------- ---------- ----------- -----------
Total operating
profit.............. $ 252,338 $ 239,646 $ 706,823 $ 761,676
========== ========== =========== ===========
OTHER STATISTICS DURING
THE PERIOD:
Stores opened.......... 42 58 92 122
Stored closed.......... 17 24 39 77
OTHER STATISTICS AT YEAR
END:
Total stores........... 1,650 1,695
Total retail square
footage (in
millions)............. 32.5 33.8
Square footage
increase.............. 4.3% 3.8%
</TABLE>
- --------
(1) Includes special charges of $100.0 million, pre-tax ($.41 per share, after
tax) included in cost of merchandise sold ($10.0 million), operating and
administrative expenses ($15.5 million) and other income (expense) ($74.5
million). Earnings per share before the special charges were $.85 and
$2.38 for the quarter and fiscal year, respectively.
(2) Beginning with the first quarter of 1996, advertising expense is
classified as cost of merchandise sold, rather than operating expense.
Prior periods have been reclassified to conform to the new presentation.
(3) Excluding the estimated impact of the Lucky Stores Northern California
Division nine-day labor dispute in the first quarter of 1995, the increase
in western food operations, food store operations and total comparable
store sales for the 52 weeks ended February 1, 1997 would have been 1.9%,
2.0% and 3.0%, respectively.

8
<PAGE>

SELLING STOCKHOLDERS' AGREEMENTS

On February 20, 1997, the Company entered into agreements with the family of
L.S. Skaggs, a director and former Chairman of the Board of the Company,
certain charitable trusts and foundations and certain trusts created for the
benefit of members of the Skaggs family (collectively, the "Selling
Stockholders") for the repurchase (the "Repurchase") by the Company from the
Selling Stockholders of 12,222,222 shares of Common Stock for $45 per share,
the closing price of the Common Stock on the New York Stock Exchange on such
date. The Offerings are conditioned upon the Repurchase and all such
transactions are expected to be consummated simultaneously. See "Selling
Stockholders--Selling Stockholders' Agreements".

FINANCING PLANS

On March 28, 1997, the Company increased the capacity of its existing
revolving credit facility (the "Credit Facility") from $1 billion to $2
billion, which includes a $1.5 billion five-year revolving credit facility and
a $500 million 364-day revolving credit facility (the "Amended Credit
Facilities").

The Company intends to finance the $550 million Repurchase initially through
the Amended Credit Facilities. Subject to market conditions, the Company
intends to refinance the indebtedness incurred in connection with the
Repurchase through public equity and/or debt issuances over the next six to
twelve months. Sales of substantial amounts of Common Stock, or the perception
that such sales could occur, could adversely affect prevailing market prices
for the Common Stock. There can be no assurance that the Company will be able
to complete such refinancings successfully. If unable to do so, the Company
may be required to adopt one or more alternatives such as reducing or delaying
its capital expenditures or selling assets.

9
<PAGE>

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Common Stock is traded on the New York Stock Exchange, the Chicago Stock
Exchange, the Pacific Stock Exchange and the Philadelphia Stock Exchange under
the symbol "ASC". The following table sets forth the high and low reported
sales prices for the Common Stock for the fiscal periods indicated as reported
on the New York Stock Exchange Composite Tape.

<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1995
First Quarter........................................... $26 1/8 $23 1/4
Second Quarter.......................................... 29 3/4 24 3/4
Third Quarter........................................... 30 3/4 28 1/8
Fourth Quarter.......................................... 30 3/4 24 7/8
1996
First Quarter........................................... $34 1/4 $25 3/8
Second Quarter.......................................... 41 1/4 32
Third Quarter........................................... 42 3/4 37 1/2
Fourth Quarter.......................................... 45 3/8 38 3/8
1997
First Quarter (through April 2, 1997)................... $45 7/8 $41 5/8
</TABLE>

See the cover page of this Prospectus for a recent sales price for the
Common Stock on the New York Stock Exchange.

The Company currently pays regular quarterly cash dividends and, while
future dividends will be subject to the discretion of the Company's Board of
Directors, the Board of Directors currently intends to continue this policy.
Future dividends will depend upon the Company's results of operations,
financial condition, capital expenditure program and debt repayment
requirements and other factors, some of which are beyond the Company's
control. There can be no assurance as to whether or when the Company's Board
of Directors will change the current policy regarding dividends.

USE OF PROCEEDS

The Company will not receive any proceeds from the Offerings, other than
proceeds from the sale of shares, if any, sold in connection with the exercise
by the Underwriters of the over-allotment options. If the over-allotment
options are exercised, the Company intends to use the net proceeds from such
sale to repay short-term debt under the Company's bank credit lines or the
Amended Credit Facilities. The amount of outstanding debt borrowed directly
under the Credit Facility, at a weighted average interest rate of 5.6%, was
$957 million at February 1, 1997, of which $123 million was owed to Morgan
Guaranty Trust Company of New York, the agent bank under the Credit Facility
and the Amended Credit Facilities. The Company intends to incur additional
indebtedness under the Amended Credit Facilities in connection with the
Repurchase. In addition, the Company had $100 million outstanding at February
1, 1997 under a 364-day credit line with Morgan Guaranty Trust Company of New
York, at an interest rate of 5.7%. Morgan Guaranty Trust Company of New York,
a wholly-owned subsidiary of J.P. Morgan & Co. Incorporated, is an affiliate
of each of J.P. Morgan Securities Inc., a manager of the U.S. Offering, and
J.P. Morgan Securities Ltd., a manager of the International Offering. See
"Underwriting".

10
<PAGE>

CAPITALIZATION

The following table sets forth the unaudited capitalization of the Company
as of February 1, 1997, and pro forma to give effect to the Repurchase and the
borrowings under the Amended Credit Facilities to finance the Repurchase. The
Company will not receive any of the proceeds from the sale of the shares of
Common Stock in the Offerings (other than proceeds from the sale of shares, if
any, sold in connection with the exercise by the Underwriters of the over-
allotment options).

<TABLE>
<CAPTION>
FEBRUARY 1, 1997
--------------------
ACTUAL PRO FORMA(1)
------ ------------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Current maturities of long-term debt...................... $ 57 $ 57
Current obligations under capital leases.................. 9 9
Long-term debt, less current maturities:
Credit facilities and bank lines of credit(2)........... 1,140 1,690
Other unsecured senior debt............................. 1,346 1,346
Debt secured by real estate............................. 71 71
Capital leases.......................................... 56 56
------ ------
Total debt............................................ 2,679 3,229
Shareholders' equity:
Common Stock, par value $1.00; 325,000,000 shares
authorized; 149,889,236 shares issued.................. 150 150
Additional paid-in capital.............................. 362 362
Retained earnings....................................... 2,137 2,137
Less cost of treasury stock (3,974,595 shares as of
February 1, 1997; 16,196,817 shares as adjusted)....... (114) (664)
------ ------
Total shareholders' equity............................ 2,535 1,985
------ ------
Total capitalization................................ $5,214 $5,214
====== ======
Total debt to total capitalization(3)................. 51.4% 61.9%
====== ======
</TABLE>
- --------
(1) Assumes no exercise of the Underwriters' over-allotment options. Does not
give effect to the payment by the Company of the underwriting discounts
and commissions in connection with the Offerings. See "Selling
Stockholders--Selling Stockholders' Agreements".
(2) At February 1, 1997, $957 million was drawn under the Company's $1 billion
Credit Facility, which is available for direct borrowings and as backup
support for commercial paper. At February 1, 1997, the Company also had
available an additional $250 million and $320 million under committed and
uncommitted bank lines, respectively, of which $183 million was
outstanding under the committed bank lines and none was outstanding under
the uncommitted bank lines. On March 28, 1997, the Company increased the
capacity of the Credit Facility from $1 billion to $2 billion through the
Amended Credit Facilities, which includes a $1.5 billion five-year
revolving credit facility and a $500 million 364-day revolving credit
facility.
(3) Total debt consists of debt plus obligations under capital leases. Total
capitalization consists of total debt plus shareholders' equity.

11
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data in the following table (other than
the financial data for the 39-week periods ended October 28, 1995 and November
2, 1996 and the information under "Other Data," which are unaudited) for each
of the five years in the period ended February 3, 1996 have been derived from
the Company's consolidated financial statements which have been audited by
Ernst & Young LLP, independent auditors. The selected consolidated financial
data should be read in conjunction with the Company's consolidated financial
statements and notes thereto included or incorporated by reference in this
Prospectus. The selected consolidated financial data for the 39 weeks ended
October 28, 1995 and November 2, 1996 have been derived from the Company's
unaudited financial statements and contain all adjustments that are of a
normal and recurring nature necessary to present fairly the financial position
and results of operations for such periods. The results of operations for the
39 weeks ended November 2, 1996 are not necessarily indicative of the results
expected for the full fiscal year 1996. The Company's earnings are subject to
seasonality, which is common in the food and drug industry. The holiday season
and increased cold and flu occurrences in the fourth quarter benefit the food
and drug operations. In addition, the fourth quarter includes LIFO inventory
adjustments. See "Recent Developments".

12
<PAGE>

<TABLE>
<CAPTION>
FISCAL YEAR ENDED 39 WEEKS ENDED
----------------------------------------------------------------- ------------------------
FEBRUARY 1, JANUARY 30, JANUARY 29, JANUARY 28, FEBRUARY 3, OCTOBER 28, NOVEMBER 2,
1992 1993 1994 1995 1996(1) 1995 1996
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT:
Sales.................. $20,822,956 $19,051,180 $18,763,439 $18,355,126 $18,308,894 $13,218,310 $13,768,456
Cost of merchandise
sold, including
warehousing and
transportation
expenses(2)........... 15,812,334 14,250,344 13,985,115 13,603,882 13,558,690 9,801,409 10,129,986
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit........... 5,010,622 4,800,836 4,778,324 4,751,244 4,750,204 3,416,901 3,638,470
Operating and
administrative
expenses(2)........... 4,408,634 4,177,522 4,136,442 4,101,176 4,043,381 2,962,416 3,116,440
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating profit....... 601,988 623,314 641,882 650,068 706,823 454,485 522,030
Other income (expense):
Interest income........ 2,861 4,477 4,568 6,789 8,747 7,150 5,014
Interest expense....... (265,098) (214,394) (189,773) (170,703) (159,545) (117,480) (125,491)
Other.................. 98,717 (35,116) 24,128 120,109 (5,109) (3,379) (13,474)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total other income
(expense)............. (163,520) (245,033) (161,077) (43,805) (155,907) (113,709) (133,951)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Earnings before income
taxes, extraordinary
item and before
cumulative effect of
changes in accounting
principle............. 438,468 378,281 480,805 606,263 550,916 340,776 388,079
Federal and state
income taxes.......... (198,452) (170,815) (218,715) (261,079) (234,107) (145,511) (164,953)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Earnings before
extraordinary item and
cumulative effect of
changes in accounting
principle............. 240,016 207,466 262,090 345,184 316,809 195,265 223,126
Extraordinary item--
early retirement of
debt, net of taxes.... (15,000)
Cumulative effect of
changes in accounting
principle--
Postretirement health
care benefits......... (40,734)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net earnings........... $ 199,282 $ 207,466 $ 247,090 $ 345,184 $ 316,809 $ 195,265 $ 223,126
=========== =========== =========== =========== =========== =========== ===========
Average common shares
outstanding (in
thousands)(3)......... 138,364 140,314 142,202 142,767 146,943 147,142 145,907
Earnings per common
share before
extraordinary item and
cumulative effect of
changes in accounting
principle(3).......... $ 1.73 $ 1.48 $ 1.85 $ 2.42 $ 2.16 $ 1.33 $ 1.53
Extraordinary item(3).. (.11)
Cumulative effect of
changes in accounting
principles--
Postretirement health
care benefit(3)....... (.29)
=========== =========== =========== =========== =========== =========== ===========
Net earnings per common
share(3).............. $ 1.44 $ 1.48 $ 1.74 $ 2.42 $ 2.16 $ 1.33 $ 1.53
=========== =========== =========== =========== =========== =========== ===========
Fully diluted earnings
per share(3).......... $ 1.41 $ 1.44 $ 1.69 $ 2.33 $ 2.16 $ 1.33 $ 1.53
=========== =========== =========== =========== =========== =========== ===========
OTHER FINANCIAL DATA:
Gross profit margin.... 24.1% 25.2% 25.5% 25.9% 25.9% 25.8% 26.4%
Operating profit
margin................ 2.9% 3.3% 3.4% 3.5% 3.9% 3.4% 3.8%
Capital
expenditures(4)....... $ 378,593 $ 476,617 $ 652,928 $ 565,313 $ 801,371 $ 557,560 $ 675,410
Depreciation and
amortization.......... 386,916 370,439 384,307 407,286 404,562 302,305 330,417
Total assets........... 7,198,050 6,763,793 6,927,434 7,031,566 7,362,964 7,174,573 7,840,217
Working capital........ 162,889 101,215 (58,290) 200,664 96,264 108,374 361,236
Total debt............. 2,798,578 2,248,316 2,167,999 2,205,291 2,240,168 2,190,405 2,558,247
Shareholders' equity... 1,366,430 1,544,014 1,742,285 2,050,921 2,354,496 2,246,731 2,491,550
FIFO EBITDA(5)......... 1,125,382 979,663 1,062,089 1,192,437 1,127,829 784,561 865,987
Cash dividends per
common share(3)....... $ .32 $ .36 $ .40 $ .48 $ .56 $ .42 $ .48
OTHER DATA:
Comparable store sales
increase (decrease)... 0.1% (0.5)% (0.7)% 0.5% 1.4% 0.9% 3.6%
Total stores(6)........ 1,631 1,672 1,695 1,597 1,650 1,625 1,661
Total retail square
footage (in
thousands)............ 34,428 32,320 32,727 31,179 32,523 31,855 33,060
Number of stores
opened/acquired(6).... 38 151 98 49 92 50 64
</TABLE>
- -------
(1) Fifty-three week fiscal year.
(2) Beginning with the first quarter of 1996, advertising expense is
classified as cost of merchandise sold, rather than operating expense.
Prior periods have been reclassified to conform to the new presentation.
(3) Restated as necessary to reflect the April 1994 two-for-one common stock
split.
(4) Amount includes capitalized leases and the net present value of property,
plant and equipment leased under operating leases.
(5) Earnings before LIFO inventory charges, interest expense, taxes,
depreciation and amortization. EBITDA is not derived pursuant to generally
accepted accounting principles ("GAAP") and therefore should not be
construed as an alternative to operating profit, as an alternative to cash
flows from operating activities (as determined in accordance with GAAP) or
as a measure of liquidity.
(6) Includes jointly operated combination stores which are each counted as two
separate stores.

13
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

RESULTS OF OPERATIONS

39 WEEKS ENDED NOVEMBER 2, 1996 COMPARED TO 39 WEEKS ENDED OCTOBER 28, 1995

The percentage changes in comparable store sales and total sales for the
third quarter and first thirty-nine weeks of 1996 and 1995 are presented in
the tables below. The increases in sales during the third quarter and the
first thirty-nine weeks of 1996 are primarily a result of increased capital
spending and more effective marketing efforts, including preferred customer
cards, clipless coupons and targeted marketing promotions at the food store
operations. Drug store sales increased due primarily to increased targeted
marketing efforts, capital spending and increased pharmacy sales. Comparable
and total sales for the first thirty-nine weeks of 1996 also increased due to
the impact of a nine-day labor dispute in the first quarter of 1995 in the
western food operations.

<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
NOVEMBER 2, 1996 NOVEMBER 2, 1996
---------------- ----------------
<S> <C> <C>
Comparable Store Sales % Change (1):
Eastern food operations (2)................... 3.0% 3.1%
Western food operations (3)................... 2.5 2.6
Food store operations (4)..................... 2.7 2.8
Drug store operations (5)..................... 6.3 5.8
Total comparable store sales % change....... 3.7% 3.6%
</TABLE>

<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
----------------------- -----------------------
OCTOBER 28, NOVEMBER 2, OCTOBER 28, NOVEMBER 2,
1995 1996 % CHANGE 1995 1996 % CHANGE
----------- ----------- -------- ----------- ----------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Sales:
Food store operations... $3,207,272 $3,301,013 2.9% $ 9,658,400 $ 9,977,527 3.3%
Drug store operations... 1,150,858 1,254,618 9.0 3,551,819 3,769,406 6.1
Other................... 3,053 7,731 8,091 21,523
---------- ---------- ----------- -----------
Total sales............. $4,361,183 $4,563,362 4.6% $13,218,310 $13,768,456 4.2%
========== ========== =========== ===========
</TABLE>

- --------
(1) Comparable store sales include stores open one year or more and
replacement stores.
(2) Eastern food operations include Acme Markets (including the drug store
operations of its combination stores) and Jewel Food Stores.
(3) Western food operations include Lucky Northern California Division, Lucky
Southern California Division and Jewel Osco Southwest (including the drug
store operations of 21 combination stores).
(4) Food store operations include eastern and western food operations.
(5) Drug store operations include Osco Drug and Sav-on.

Beginning in the first quarter of 1996, the Company is classifying
advertising expense as a cost of merchandise sold. Previously these expenses
were classified as operating expenses. Prior years have been reclassified to
conform to the current year presentation.

Gross profit as a percent of sales increased to 26.7% in the third quarter
and 26.4% for the first thirty-nine weeks of 1996, compared to 26.3% and 25.8%
in the same periods of 1995, respectively. These increases were primarily a
result of increased margins from higher private label penetration, better
product mix, improved shrink control and decreased advertising costs.
Additionally, margins as a percent of sales in the first thirty-nine weeks of
1995 were negatively impacted by the nine-day labor dispute in the western
food operations in the first quarter of 1995.

Operating expense as a percent of sales increased slightly to 22.8% in the
third quarter of 1996, compared to 22.7% in the third quarter of 1995 and
22.6% in the first thirty-nine weeks of 1996 compared to 22.4% in the first
thirty-nine weeks of 1995. These increases were primarily a result of

14
<PAGE>

increased expenses related to the capital investment program and new store
openings. Comparisons with the prior year period in the food store operations
were also impacted by the 1995 renegotiation of a labor contract with the
United Food and Commercial Workers International in southern California in
which certain health and welfare savings, which were being recognized over the
life of the contract, were immediately recognized in the third quarter of
1995. These items were slightly offset by a decrease in operating expenses as
a percent of sales primarily due to better cost control and by reductions in
self-insurance costs.

Total operating profit for the third quarter and the first thirty-nine weeks
of 1995 and 1996 is presented in the table below. Operating profit was 3.9% of
sales in the third quarter of 1996 compared to 3.5% of sales in the third
quarter of 1995. Operating profit for the first thirty-nine weeks of 1996 was
3.8% of sales compared to 3.4% of sales for the same period in 1995. The
improvement in third quarter operating profit was due mainly to increased
sales and higher margins. The improvement in the first thirty-nine weeks of
1996 reflected higher operating profits in the food store operations due
primarily to the negative impact of the nine-day labor dispute in northern
California in 1995.

<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
----------------------- -----------------------
OCTOBER 28, NOVEMBER 2, OCTOBER 28, NOVEMBER 2,
1995 1996 1995 1996
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Operating Profit:
Food store operations......... $135,219 $151,467 $374,502 $431,036
Drug store operations......... 43,595 50,020 157,774 166,723
LIFO.......................... (6,000) (6,000) (24,000) (22,000)
Purchase accounting amortiza-
tion......................... (19,400) (19,752) (57,885) (58,896)
Other......................... 1,218 1,827 4,094 5,167
-------- -------- -------- --------
Total operating profit...... $154,632 $177,562 $454,485 $522,030
======== ======== ======== ========
</TABLE>

Interest expense increased in the third quarter and the first thirty-nine
weeks of 1996 over the same periods in 1995 due to an increase in average
outstanding debt and the issuance of $350 million, thirty-year 8% debentures
during the second quarter of 1996, which partially replaced short-term
variable rate debt.

The Company's effective income tax rate was 42.5% in the first thirty-nine
weeks of 1996 compared to 42.7% in the same period in 1995. The effective tax
rate was down due to higher earnings in the first thirty-nine weeks of 1996
and lower state tax rates.

Net earnings per share amounted to $.52 per share in the third quarter of
1996 compared to $.46 per share in the same quarter of the prior year. Net
earnings per share amounted to $1.53 per share in the first thirty-nine weeks
of 1996 compared to $1.33 per share for the same period of 1995.

1995 COMPARED TO 1994 AND 1993

Total sales and the percentage change in comparable store sales for the 1995
53-week fiscal year and the 1994 and 1993 52-week fiscal years are set forth
in the tables below. The decrease in total sales is primarily attributable to
the disposition of the 33-store Star Market food division in the third quarter
of 1994 and the 45 Acme Markets stores in the fourth quarter of 1994
("disposed of operations"). Sales from continuing operations increased 4.5% in
1995, and decreased 0.3% in 1994 and 0.2% in 1993. The increase in sales from
continuing operations in 1995 is primarily a result of improved performance at
all three operating divisions and the extra week of operations. Comparable
store sales (sales from stores that have been open at least one year,
including replacement stores) increased 1.4% in 1995, 0.5% in 1994 and
decreased 0.7% in 1993. The improvement in comparable store sales is primarily
the result of successful marketing of the combination stores in the eastern
food operations, increased pharmacy and third-party sales in the drug store
operations and aggressive

15
<PAGE>

pricing programs offset slightly by the impact of a nine-day labor dispute in
the first quarter of 1995 in the western food operations. The Super Saver
warehouse-type stores were reorganized under the Lucky divisions in 1996 in
order to leverage the Company's support functions.

TOTAL SALES

<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 53 WEEKS
ENDED ENDED ENDED
JANUARY 29, JANUARY 28, FEBRUARY 3,
1994 1995 1996
----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Eastern food operations................. $ 6,052 $ 5,957 $ 6,147
Western food operations................. 7,183 7,002 7,155
Drug store operations................... 4,322 4,544 4,995
Other................................... 12 12 12
------- ------- -------
Continuing operations................... 17,569 17,515 18,309
Disposed of operations.................. 1,194 840 --
------- ------- -------
Total sales........................... $18,763 $18,355 $18,309
======= ======= =======
</TABLE>

COMPARABLE STORE SALES

<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 53 WEEKS
ENDED ENDED ENDED
JANUARY 29, JANUARY 28, FEBRUARY 3,
1994 1995 1996
----------- ----------- -----------
(PERCENTAGE CHANGE)
<S> <C> <C> <C>
Eastern food operations................. (1.5)% 0.7 % 1.5 %
Western food operations................. (1.9) (1.8) (0.8)
Drug store operations................... 2.6 4.2 4.8
Total change.......................... (0.7)% 0.5 % 1.4 %
</TABLE>

Gross profit as a percent of sales increased to 26.9% in 1995, compared to
26.8% in 1994 and 26.4% in 1993. The increase in gross profit in 1995 over
1994 was primarily the result of the disposed of operations, which produced
lower margins than the continuing operations, and improvements in the eastern
food operations due to improved product mix and promotional strategies. These
increases were offset by decreases in competitive drug store pharmacy gross
margins and the impact of a nine-day labor dispute in the first quarter of
1995 in the western food operations. The 1994 gross profit percentage
increased from 1993 in the eastern food, western food and drug store
operations primarily due to improvements in the mix of products sold,
promotional strategies and shrink control. The annual pre-tax LIFO charge to
earnings amounted to $12.8 million in 1995, $8.2 million in 1994 and $7.2
million in 1993. Changes in the mix of inventory have influenced the LIFO
charge.

Operating expense as a percent of sales decreased to 23.0% in 1995, compared
to 23.3% in 1994 and 23.0% in 1993. Operating expense in the western food
operations benefited in 1995 from the renegotiation of a labor contract with
the United Food and Commercial Workers International. The new contract will
expire in 1999 and replaces a contract scheduled to expire in 1996. As a
result of the early termination of the contract, certain health and welfare
savings, which were being recognized over the life of the old contract, were
immediately recognized in the third quarter of 1995. Operating expense in the
western food operations also decreased due to lower self-insurance costs and
productivity improvements, which were partially offset by the impact of the
nine-day labor dispute. In addition, improved sales, lower insurance costs and
better overall cost control in the eastern food and drug store operations
helped lower operating expense as a percentage of sales. Operating expense in
1994 included charges of $23.9 million ($.10 per share) for centralization of
administrative functions, including information technology and accounting. As
of third quarter 1995, the entire reserve had been utilized without
significant adjustments to the original amount. Operating expense in 1994 also
included

16
<PAGE>

expenses for the consolidation of the computer data centers and a voluntary
severance program initiated at Acme Markets, totaling $11.2 million ($.05 per
share). Operating expense in 1993 included $7.6 million ($.04 per share) for
the settlement of meat products litigation in California and severance
programs stemming from the Company's expense reduction programs.

Total operating profit for the 1993, 1994 and 1995 fiscal years is set forth
in the following table. Operating profit from continuing operations increased
11.9% in 1995, 4.4% in 1994 and 0.8% in 1993. Total operating profit was 3.9%
of sales in 1995, 3.5% of sales in 1994 and 3.4% of sales in 1993. The
increase in operating profit and operating profit as a percentage of sales was
primarily due to strong performances from the Company's core operations and
the extra week of operations included in 1995. In addition, eastern food
operations improved due to successful joint marketing of the combination
stores, western food operations improved due to lower health and welfare costs
associated with the renegotiated labor contract and drug store operations
improved due to lower insurance costs and better cost control, slightly offset
by the start-up costs of 71 new stores, including 17 acquired Clark drug
stores.

OPERATING PROFIT

<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 53 WEEKS
ENDED ENDED ENDED
JANUARY 29, JANUARY 28, FEBRUARY 3,
1994 1995 1996
----------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Eastern food operations.................. $231.2 $258.2 $271.7
Western food operations.................. 248.7 245.9 271.2
Drug store operations.................... 197.0 228.5 245.4
LIFO charge.............................. (7.2) (8.2) (12.8)
Purchase accounting amortization......... (79.2) (78.6) (76.8)
Other.................................... 14.7 (14.1) 8.1
------ ------ ------
Continuing operations.................... 605.2 631.7 706.8
Disposed of operations................... 36.7 18.4 --
------ ------ ------
Total operating profit................. $641.9 $650.1 $706.8
====== ====== ======
</TABLE>

Interest expense decreased in 1995, 1994 and 1993 due to lower average
interest rates resulting from the refinancing of high coupon borrowings at
lower rates. In addition, the Company experienced lower average debt levels
for each of the last three years. Interest expense also benefited from the
conversion of a portion of the convertible notes from debt to equity in the
first quarter of 1995. The caption "Other" in 1994 of $120.1 million included
non-recurring gains of $121.0 million on the sale of the Star Market food
division, $41.2 million on the sale of 45 Acme Markets stores and a charge of
$31.3 million for closed store costs (totaling $.54 per share). "Other" in
1993 of $24.1 million included $45.7 million ($.20 per share) of income from
the resolution of the "Rule of 80" litigation, which concerned the Company's
termination of the early retirement feature of an employee retirement plan.
This was offset by approximately $17.2 million ($.07 per share) of various
charges, including costs associated with store closings, integrating acquired
stores into existing operations and costs associated with the earthquake in
southern California.

The Company's effective income tax rates were 42.5% in 1995, 43.1% in 1994
and 45.5% in 1993. The disposition of assets during 1995 and 1994 in states
with higher tax rates resulted in lower effective income tax rates.

Earnings for 1993 were affected by charges incurred in the early retirement
of debt totaling $.11 per share, which were accounted for as an extraordinary
item. Net earnings per share amounted to $2.16 in 1995, $2.42 in 1994 and
$1.74 in 1993.

17
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities increased to $405.6 million from
$302.0 million in the first thirty-nine weeks of 1996 compared to the same
period of 1995. The increase in operating cash flows over the prior period was
due in part to increased net earnings before depreciation and amortization.
Other changes in operating assets and liabilities were due to changes in the
components of working capital and are not indicative of long-term trends.

On June 10, 1996, the Company issued $350 million principal amount of 8%
debentures due June 1, 2026 at 99.262% to yield 8.066%. The Company received
net proceeds of approximately $344 million which were used to refinance a
portion of the Company's long-term indebtedness and to refinance additional
short-term variable rate borrowings under the Credit Facility.

Cash capital expenditures for the first thirty-nine weeks of 1996 and 1995
amounted to $603.7 million and $519.3 million, respectively. Total capital
expenditures, including the net present value of leases, amounted to $675.4
million in 1996, compared to $557.6 million in 1995. During the first thirty-
nine weeks of 1996, 64 new stores were opened, 53 stores were closed and 80
stores were remodeled.

The Company's ratio of total debt (debt plus obligations under capital
leases) to total capitalization (total debt plus shareholders' equity) was
50.7% at November 2, 1996 and 48.8% at February 3, 1996.

In June 1996, the Company replaced its existing stock repurchase program
with a new repurchase program which authorizes the repurchase of up to two
million shares of Common Stock. During the first thirty-nine weeks of 1996,
the Company repurchased 1,090,000 shares of its Common Stock at an average
price of $34.67 per share in accordance with the Company's stock repurchase
programs. There were no shares repurchased during the third quarter. As of
November 2, 1996, an additional 1,945,000 shares remained authorized for
repurchase.

The Company believes that its cash flow from operations, supplemented by
credit available under the Company's existing credit facilities, as well as
its ability to refinance debt, will be adequate to meet its presently
identifiable cash requirements.

18
<PAGE>

BUSINESS

The Company is one of the nation's leading food and drug retailers with
annual sales in its fiscal year ended February 1, 1997 of $18.7 billion. The
Company is principally engaged in a single industry segment, the retail sale
of food and drug merchandise. The Company's principal food operations are Acme
Markets, Jewel Food Stores, Lucky Stores Northern California Division, Lucky
Stores Southern California Division and Jewel Osco Southwest. The Company's
drug stores operate under the Osco Drug and Sav-on names. As of February 1,
1997, the Company operated 1,695 stores in 27 states, including 166
combination stores which are jointly operated by the Company's food and drug
store operations and are each counted as two separate stores.

In 1993, the Company made a strategic decision to move from a holding
company orientation to an operating company approach to build on the size and
strength of its operations. Management developed a six-point plan that
outlined its critical success factors required for continued growth and
competitive positioning within the industry. The six factors are: (i) hold
leading market positions; (ii) maintain a modern store base; (iii) excel in
merchandising; (iv) attain state of the art technology; (v) maintain an
effective organizational structure; and (vi) be a low cost operator.

STRONG MARKET POSITIONS

MAINTAIN A MODERN STORE BASE

Over the last several years, the Company has significantly increased its
capital spending to improve and expand its store base. Capital spending grew
from $565 million in 1994 to $801 million in 1995, and to $1 billion in 1996.
New and replacement stores are an increasingly important focus of the capital
spending program, accounting for 34% of capital spending in 1994, 45% in 1995,
and 57% in 1996 and are expected to account for over 50% of capital spending
in 1997. The Company expects to continue to make significant investments in
its store base. In 1997, the Company plans to spend approximately $1 billion
for capital expenditures. The Company plans to open over 100 new and
replacement stores (including 20 jointly operated combination stores which are
each counted as two separate stores) and to remodel approximately 100 stores
in 1997.

EMPHASIZE COMPETITIVE FORMATS

DELTA INITIATIVES

Delta is a series of initiatives designed as a self-consolidation and re-
engineering program that is transforming the Company from a holding company to
an operating company. Prior to Delta, the Company operated as seven autonomous
companies with different systems and processes. The goal

19
<PAGE>

of Delta is to build on the size of the Company and to develop common business
processes and systems to best manage growth for the future. Delta is designed
to improve the Company's ability to purchase products and move them through
the supply chain more quickly, efficiently and cost-effectively, which also
results in more efficient store operations. It seeks to achieve these goals
through changes in the Company's purchasing, warehousing, inventory control
and distribution systems. The information gathered from the common systems and
processes assists the Company's marketing and merchandising programs. Each
Delta initiative has a different timeline, but the majority of the supply-
chain initiatives are targeted for completion by the end of 1997. Management
believes the benefits of Delta will begin to exceed costs for the second half
of 1997. To continue to meet customer needs the Company intends to maintain
store operations, marketing and merchandising on a local level. Some examples
of how Delta has been implemented into the business are: (i) centralization of
the procurement and logistics groups; (ii) execution of national contracts
with selected vendors for greeting cards, photo-finishing, spices, magazines
and, most recently, whole-bean coffee; (iii) installation of computerized
warehouse systems in over 90% of the Company's warehouses, reducing labor cost
and increasing the efficiency of replenishment; (iv) consolidation of four
general merchandise warehouses in southern California into a single facility;
and (v) consolidation of administrative, real estate, construction and
information technology functions.

STORE OPERATIONS

American Stores manages its 1,695 stores with two operating divisions--food
store operations and drug store operations. In 1996, the food store operations
accounted for 72% of sales and 70% of operating profit. The drug store
operations made up 28% of sales and 30% of operating profit.

Store formats for the Company's two operating divisions as of February 1,
1997 were as follows:

<TABLE>
<CAPTION>
COMBINATION
SUPERMARKETS STORES DRUG STORES TOTAL
------------ ----------- ----------- -----
<S> <C> <C> <C> <C>
Food Store Operations............ 577 233* 3** 813
Drug Store Operations............ -- 166* 716 882
-----
Total.......................... 1,695*
=====
</TABLE>
- --------
* Includes 166 jointly operated combination stores which are counted in both
food store operations and drug store operations. The remaining 67
combination stores are operated solely by the Company's food store
operations.
** Jewel Osco Southwest drug stores are operated by the food store operations.

FOOD STORE OPERATIONS

The food store operations consist of Acme Markets, Jewel Food Stores, Lucky
Stores Northern California Division, Lucky Stores Southern California Division
and Jewel Osco Southwest. As of February 1, 1997, the food store operations
operated a total of 813 stores with 20.9 million square feet of selling space.

ACME MARKETS. Acme has over one hundred years of retailing experience in
Philadelphia and the surrounding Delaware Valley. Acme operates 182 stores,
with 77 stores in Pennsylvania, 78 in New Jersey, 15 in Delaware and 12 in
Maryland. Acme commands the leading share of the Philadelphia metropolitan
market.

Acme's strategic plan involves an aggressive new store building program.
Over the past two years, Acme has added 17 combination stores including 10 new
stores and seven enlargements, and plans to increase the number of its
combination stores from 46 to 78 over the next three years.

20
<PAGE>

JEWEL FOOD STORES. At year-end 1996, Jewel Food Stores operated 185 stores,
with 176 stores in Illinois, two in Iowa, six in Indiana and one in Wisconsin.
Jewel holds the number one market share in the metropolitan Chicago market
area. Jewel operates combination food and drug stores under the Jewel Osco
banner. Of Jewel's 185 stores, 153 are in combination with an Osco Drug store,
located primarily in and around the Chicago area. This working partnership has
enabled both Jewel and Osco to strengthen their positions in the market. Jewel
is best known for superior perishables and innovative marketing. Jewel's store
base is particularly modern and well-maintained.

LUCKY STORES NORTHERN CALIFORNIA DIVISION. The Lucky Stores Northern
California Division operates 186 retail food stores in northern and central
California. Lucky North operates four combination stores with the Sav-on drug
division. Lucky North's six principal operating regions are the East Bay, San
Jose, the Peninsula, Marin/Sonoma, Sacramento and Central Valley. Lucky
operates an everyday low pricing format and is generally perceived by northern
California shoppers as the low price leader among full-service supermarkets in
its market areas, based upon independent surveys.

LUCKY STORES SOUTHERN CALIFORNIA DIVISION. The Lucky Stores Southern
California Division operates 247 retail food stores in southern California and
Las Vegas, Nevada. This number includes nine combination stores with the Lucky
Sav-on name. The Division's principal operating areas are greater Los Angeles
(including Orange County, Santa Barbara and the Central Coast), San Diego, the
Inland Empire (including Riverside, San Bernardino and Palm Springs) and Las
Vegas. Like its sister company in northern California, Lucky South operates an
everyday low pricing format and is generally perceived by southern California
and Las Vegas shoppers as the low price leader for full-service supermarkets in
its market areas, based upon independent surveys. Lucky South's strategy calls
for pursuing new urban locations to fill in its existing market locations, to
enlarge existing facilities where feasible and to identify relocation sites.

JEWEL OSCO SOUTHWEST. Jewel Osco Southwest operates nine combination food and
drug stores and three stand-alone drug stores in New Mexico. Over the past
three years, Jewel Osco Southwest has expanded or completed major remodels in
the majority of its stores.

DRUG STORE OPERATIONS

The Company operates its drug stores under the Osco Drug and Sav-on names.
The drug division operated a total of 882 stores as of February 1, 1997
(including the drug side of 166 jointly operated combination stores), with 12.9
million square feet of selling space.

OSCO DRUG. The Company operates a total of 576 Osco Drug stores in 20 states,
principally in the Midwest. The count includes 153 combination stores primarily
located in Chicago with the Jewel Osco name. Osco's largest markets include
Chicago, Boston, Phoenix, Indianapolis and Kansas City. In Chicago, Osco holds
the number two market position.

SAV-ON. The Company's 306 drug stores in southern California and Nevada
operate under the Sav-on and Sav-on Express store names. In addition, Sav-on
manages the pharmacy departments of 111 northern and southern California Lucky
stores. Sav-on has the leading market share among drug store retailers in its
market areas. It recently moved into northern California as part of the Lucky
Sav-on combination stores. Sav-on and Lucky jointly operate 13 combination
stores, nine in southern California and four in northern California.

PHARMACIES. Pharmacy sales represent approximately 39% of total drug store
sales. The drug store pharmacy strategy includes aggressive pursuit of third-
party business, which now represents over 78% of pharmacy sales. With the
consolidation of the drug store industry, third-party business is important to
maintaining and growing volume. However, a high proportion of third-party
business places pressure on margins due to the lower reimbursement rates from
third-party plans. To counter

21
<PAGE>

this situation, the Company has focused on several strategies including
building market share position, maximizing generic substitution, improving the
efficiency of pharmacy operations and utilizing technological advancements.

PHARMACY BENEFITS MANAGEMENT COMPANY. The Company, in equal partnership with
Geneva Pharmaceuticals, a subsidiary of Novartis, owns a pharmacy benefits
management (PBM) business called RxAmerica. Its purpose is to manage the
prescription drug benefits provided to individuals through health care plans
to fill prescriptions in the Company's 882 drug stores as well as through
approximately 41,000 drug store locations nationwide. RxAmerica also operates
mail-order services which offer customers prescriptions, vitamins and other
health care products at a significant discount.

STORE EXPANSION AND DEVELOPMENT PROGRAM

The Company believes an aggressive and well-managed capital expenditure
program is essential to maintaining and growing its store base. The Company's
strategic and financial guidelines are structured to focus on the Company's
core businesses and maintain the Company's investment grade credit rating. The
Company believes a capital expenditure rate of approximately five percent of
sales achieves this balance. The Company's capital guidelines call for
approximately 80% of total capital expenditures to be expended on new stores,
replacements, enlargements and remodels and approximately 20% on
infrastructure projects. The capital expenditure budget for 1997 is
approximately $1 billion.

The type and mix of store formats must keep pace with the constant changes
in customers' needs and tastes. The Company believes that having both
combination food and drug stores and stand-alone drug stores in the same
markets better enables it to meet customer needs. The combination store format
provides the opportunity for customers to fulfill their food shopping and drug
shopping needs in one trip. The stand-alone drug stores are built for customer
convenience, quick access and often include a drive-up window. New stores
currently being developed are combination food and drug stores of
approximately 65,000 square feet and stand-alone drug stores of approximately
16,500 square feet. Combination stores feature greater product selection in
every department. The food side of the store provides year-round fresh
produce, a wide array of meat and fresh seafood, a full-service floral
department, service bakeries and delis with attractively presented convenience
items. The drug side of the store offers customers a complete selection of
health and beauty aids, general merchandise and pharmaceuticals.

The Company has significantly reduced the number of its store prototypes.
The use of a consistent store prototype reduces development costs, increases
management and distribution efficiencies and improves customer familiarity
with the Company's stores.

22
<PAGE>

The following table illustrates changes in the Company's store base over the
last five years:

<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------
JANUARY 30, JANUARY 29, JANUARY 28, FEBRUARY 3, FEBRUARY 1,
1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total New/Acquired
Stores (1):
Food Store
Operations........... 11 14 21 21 35
Drug Store
Operations........... 140 84 28 71 87
---- ---- ---- ---- ------
Total............... 151 98 49 92 122
==== ==== ==== ==== ======
Total Closed/Sold
Stores:
Food Store
Operations........... 96 37 113 19 40
Drug Store
Operations........... 25 38 34 20 37
---- ---- ---- ---- ------
Total............... 121 75 147 39 77
==== ==== ==== ==== ======
Total Remodeled Stores:
Food Store
Operations........... 81 96 80 69 41
Drug Store
Operations........... 32 137 86 154 53
---- ---- ---- ---- ------
Total............... 113 233 166 223 94
==== ==== ==== ==== ======
Total Retail Square
Footage At Year End (in
millions):
Food Store
Operations........... 21.4 21.3 19.8 20.3 20.9
Drug Store
Operations........... 10.9 11.4 11.4 12.2 12.9
---- ---- ---- ---- ------
Total............... 32.3 32.7 31.2 32.5 33.8
==== ==== ==== ==== ======
Capital Expenditures (in
millions):
New Stores............ $178 $203 $195 $362 $ 571
Remodels.............. 107 215 152 207 122
Technology............ 67 62 75 63 99
Other................. 125 173 143 169 208
---- ---- ---- ---- ------
Total............... $477 $653 $565 $801 $1,000
==== ==== ==== ==== ======
</TABLE>
- --------
(1) Includes jointly operated combination stores which are counted in both
food store and drug store totals as follows: two in fiscal 1992, five in
fiscal 1993, four in fiscal 1994, five in fiscal 1995 and 23 in fiscal
1996.

Where possible, the Company prefers to own its properties, thereby allowing
increased flexibility to remodel and expand the store operations as needed. Of
the 122 new and acquired stores in 1996, the Company owns approximately 60%.
The Company also owns, or controls through long-term leases, its distribution,
warehouse and maintenance support facilities. Overall, the Company owns
approximately 28% of its retail locations, with the remaining retail locations
leased pursuant to capitalized or operating leases.

In 1997, the Company's capital expenditure plan contemplates building over
100 new stores and replacement stores and completing approximately 100
remodels. The Company's real estate, design and construction are handled by a
wholly-owned subsidiary of the Company.

MARKETING AND MERCHANDISING

Customers in the food and drug industry are becoming more demanding,
selective and value-conscious. Competitive boundaries are not well defined in
the industry and the Company believes a broad and diverse offering of products
and services is essential to providing the customer with both

23
<PAGE>

convenience and value. In many stores, the Company provides in-store banking
and post-office services, quality- and value-oriented private label products,
and a consistent emphasis on perishable selection and quality through more
frequent warehouse deliveries.

One key marketing strategy that the Company has implemented in all major
food divisions is customer loyalty cards. These cards, which reward frequent
shoppers, have produced higher average sales per customer and provided
customer convenience through automatic coupon and discount offers. They have
also provided a means of targeted marketing by analyzing customer shopping
habits. As of the end of 1996, the Company had issued 8.5 million cards across
all of its operations. Other marketing efforts include the Lucky Stores "Big
Book of Savings" coupon book and neighborhood specific marketing.

Private label is an important part of the Company's merchandising strategy,
offering value conscious consumers quality products at prices below national
brands and providing higher margins to the Company. The Company's private
label programs include such brands as "Lady Lee" at Lucky stores, "Lancaster"
meats and "Acme" groceries at Acme, "Jewel" at Jewel stores and "Osco" and
"Sav-on" at Osco and Sav-on stores, respectively. "President's Choice" in food
operations and "American Premier" in drug operations are used as premium
brands while "Value Wise" is now the budget brand across all of the food and
drug operations.

COMPETITION AND SEASONALITY

In all areas in which the Company operates, the business is highly
competitive, with competition from local and national supermarket and drug
store chains, as well as independent stores. Competition also includes such
retailers as convenience stores, warehouse stores and membership or club
stores. Some of the Company's largest competitors in various regions are
Dominick's, Long's, Pathmark, Ralphs, Safeway, Thrifty PayLess, Vons and
Walgreens. Principal competitive factors in the industry include store
location, price and quality of products, variety of selection, quality of
service and store image, including cleanliness and promotions.

The Company's business is characterized by narrow profit margins and,
accordingly, its successful financial performance depends primarily upon its
ability to maintain relatively high sales volume and control operating costs.
The Company's geographic and business diversity allows it to reduce the
effects that competitive pressures in individual markets may have on its
overall operating results. The Company is subject to the effects of
seasonality. Food and drug store sales are higher in the Company's fourth
quarter than other quarters due to the holiday season. The Company's drug
store sales are also generally higher in the Company's fourth quarter in
connection with the increase in cold and flu occurrences.

EMPLOYEES AND LABOR RELATIONS

The Company has approximately 127,000 full- and part-time employees.
Approximately 75% of the Company's employees are covered by collective
bargaining agreements negotiated with local unions affiliated with one of
seven international unions. There are approximately 118 such agreements,
typically having three- to five-year terms. Accordingly, the Company
renegotiates a significant number of these agreements each year.

24
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 325,000,000 shares
of common stock, $1.00 par value per share (the "Common Stock"), and
10,000,000 shares of preferred stock, $1.00 par value per share (the
"Preferred Stock"). As of February 1, 1997, there were 145,914,641 shares of
Common Stock and no shares of Preferred Stock outstanding.

COMMON STOCK

The holders of Common Stock of the Company are entitled to receive dividends
from funds legally available therefor, when, as and if declared by the Board
of Directors of the Company, subject to the prior rights of any holders of
Preferred Stock. The holders of Common Stock are entitled upon liquidation,
dissolution or winding up of the Company to share ratably in the net assets of
the Company after satisfaction in full of the prior rights of creditors of the
Company and any holders of Preferred Stock.

The holders of Common Stock are entitled to one vote for each share held on
all matters as to which stockholders are entitled to vote. The holders of
Common Stock do not have cumulative voting rights, any preferential or
preemptive rights with respect to any securities of the Company, or any
conversion rights. The Common Stock is not subject to redemption and is not
entitled to the benefit of any sinking fund. The outstanding shares of Common
Stock are fully paid and nonassessable. First Chicago Trust Company of New
York is the Transfer Agent and Registrar and dividend paying agent for the
Common Stock.

Certain existing provisions of the Company's Restated Certificate of
Incorporation, as amended (the "Certificate"), and of the Company's By-Laws,
may have an anti-takeover effect. Under the Certificate, (a) any merger or
consolidation of the Company with any other person or entity, if such other
person or entity and its affiliates, individually or in the aggregate, are
directly or indirectly the beneficial owners of more than 10% of the
outstanding Common Stock (a "Related Person"), (b) any sale or exchange of all
or substantially all of the Company's assets or business to or with a Related
Person, or (c) any issuance or delivery of any of the Company's stock or other
securities in exchange or payment for any properties or assets of a Related
Person or any securities issued by a Related Person, or in any merger of any
affiliate of the Company with or into any Related Person or any of its
affiliates, requires, in addition to any approval otherwise required by law,
the approval of not less than two-thirds of the outstanding Common Stock not
owned by such Related Person, unless the Board of Directors approves the
transaction by a two-thirds vote of the then authorized number of directors or
by a vote taken prior to the acquisition of more than 10% of the Common Stock
by such Related Person, in which event the normal requirements with respect to
stockholder votes would apply.

Prior to June 27, 1995, the Certificate provided that the Board of Directors
of the Company be divided into three classes, as nearly equal in size as
possible, each of which was elected for a three-year term. On June 27, 1995,
the Company adopted an amendment to the Certificate that had the effect of
eliminating the classification of the Board of Directors. The Certificate
currently provides that each director who is elected after January 1, 1995
shall hold office until the next annual meeting of stockholders and until that
director's successor is elected and qualified or until that director's earlier
resignation or removal.

The Certificate provides that the number of directors will be not less than
five nor more than 20. The Board of Directors currently has 15 members. The
Company's By-Laws provide that vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be
filled by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director, and that the directors so chosen will
hold office until the event of their death, resignation or removal.

25
<PAGE>

Stockholders can only take action at meetings of the stockholders. Special
meetings of the stockholders may only be called by the Board of Directors or
by any person authorized by the Board. The Company's By-Laws provide that only
such business may be conducted at a special meeting as is specified in the
notice of meeting. The Certificate provides that the Board of Directors, when
evaluating proposals regarding a tender offer, a merger, a consolidation or
the purchase or acquisition of substantially all of the properties and assets
of the Company, shall, in connection with the exercise of its judgment in
determining what is in the best interests of the Company and its stockholders,
give due consideration to all relevant factors, including, without limitation,
the social and economic effects of the transaction on employees, suppliers,
customers and other constituents of the Company and its subsidiaries and on
the communities in which they operate or are located.

The provisions referred to above and in this paragraph and all of the By-
Laws of the Company can be amended or repealed by the stockholders only if
stockholders holding not less than 80% of the outstanding Common Stock and
stockholders holding a majority of the total outstanding Common Stock,
excluding Common Stock owned by a Related Person, vote for such amendment or
repeal.

The Company's By-Laws establish an advance notice procedure for stockholders
to nominate candidates for election as directors or to bring other business
before meetings of stockholders of the Company (the "Stockholder Notice
Procedure"). Only those stockholder nominees who are nominated in accordance
with the Stockholder Notice Procedure will be eligible for election as
directors of the Company. Under the Stockholder Notice Procedure, notice of
stockholder nominations or proposals of other business to be made at an annual
meeting (or of any other business to be brought before such meeting) generally
must be received by the Company not less than 60 days nor more than 90 days
prior to the first anniversary of the previous year's annual meeting (or, if
the date of the annual meeting is more than 30 days before or more than 60
days after such anniversary date, not earlier than the 90th day prior to such
meeting and not later than the later of (i) the 60th day prior to such meeting
or (ii) the 10th day after public announcement of the date of such meeting is
first made). The By-Laws specify information required to be provided to the
Company by stockholders to comply with the Stockholder Notice Procedure.

By requiring advance notice of nominations by stockholders, the Stockholder
Notice Procedure will afford the Company's Board an opportunity to consider
the qualifications of the proposed nominees and, to the extent deemed
necessary or desirable by the Company's Board, to inform stockholders about
such qualifications. Although the Company's By-Laws do not give the Company's
Board any power to approve or disapprove stockholder nominations for the
election of directors or proposals for action, they may have the effect of
precluding a contest for the election of directors or the consideration of
stockholder proposals if the proper procedures are not followed, and of
discouraging or deterring a third party from conducting a solicitation of
proxies to elect its own slate of directors or to approve its own proposal,
without regard to whether consideration of such nominees or proposals might be
harmful or beneficial to the Company and its stockholders.

Section 203 of the Delaware General Corporation Law ("Section 203")
prohibits certain persons ("interested stockholders") from engaging in a
"business combination" with a Delaware corporation for three years following
the date such persons become interested stockholders. Interested stockholders
generally include (i) persons who are the beneficial owners of 15% or more of
the outstanding voting stock of the corporation and (ii) persons who are
affiliates or associates of the corporation and who hold 15% or more of the
corporation's outstanding voting stock at any time within three years before
the date on which such a person's status as an interested stockholder is
determined. Subject to certain exceptions, a "business combination" includes,
among other things (i) mergers or consolidations, (ii) the sale, lease,
exchange, mortgage, pledge, transfer or other disposition of assets having an
aggregate market value equal to 10% or more of either the aggregate market
value of all assets of the corporation determined on a consolidated basis or
the aggregate market value of all the outstanding

26
<PAGE>

stock of the corporation, (iii) transactions that result in the issuance or
transfer by the corporation of any stock of the corporation to the interested
stockholder, except pursuant to a transaction that effects a pro rata
distribution to all stockholders of the corporation, (iv) any transaction
involving the corporation that has the effect of increasing the proportionate
share of the stock of any class or series, or securities convertible into the
stock of any class or series, of the corporation that is owned directly or
indirectly by the interested stockholder or (v) any receipt by the interested
stockholder of the benefit (except proportionately as a stockholder) of any
loans, advances, guarantees, pledges or other financial benefits provided by
or through the corporation.

Section 203 does not apply to a business combination if (i) before a person
becomes an interested stockholder, the board of directors of the corporation
approves the transaction in which the interested stockholder became an
interested stockholder or approves the business combination, (ii) upon
consummation of the transaction that resulted in the interested stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (other than certain excluded shares) or (iii) following
a transaction in which the person became an interested stockholder, the
business combination is (a) approved by the board of directors of the
corporation and (b) authorized at a regular or special meeting of stockholders
(and not by written consent) by the affirmative vote of the holders of at
least two-thirds of the outstanding voting stock of the corporation not owned
by the interested stockholder.

Certain provisions of the Stock Purchase Agreement require the Company to
make additional payments to the Selling Stockholders in the event of a "change
of control" during a specified period following the consummation of the
Offerings which may make more difficult the acquisition of control of the
Company. See "Selling Stockholders--Selling Stockholders' Agreements".

For a discussion of the preferred share purchase rights associated with the
outstanding shares of Common Stock, which also have certain anti-takeover
effects, reference is made to the description of the Company's Rights
Agreement contained in Amendment No. 5 to the Company's Registration Statement
on Form 8-A, dated February 25, 1997, which is incorporated by reference
herein. See "Available Information".

PREFERRED STOCK

The Company currently has no shares of Preferred Stock outstanding. The
Company is authorized to issue 10,000,000 shares of Preferred Stock, which may
be issued from time to time in one or more series with such voting rights,
dividend rates, rights, preferences and limitations as may be determined by
the Company's Board of Directors. Satisfaction of any dividend preferences of
any outstanding shares of Preferred Stock would reduce the amount of funds
available for the payment of dividends to holders of the Common Stock. Holders
of any Preferred Stock may be entitled to vote with the holders of the Common
Stock on some or all matters submitted to stockholders. Holders of Preferred
Stock would normally be entitled to receive a preference payment before any
payment is made to holders of Common Stock in the event of any liquidation,
dissolution or winding up of the Company. The Company has authorized a series
of Preferred Stock in connection with its Preferred Share Purchase Rights
Plan, a description of which is contained in Amendment No. 5 to the Company's
Registration Statement on Form 8-A, dated February 25, 1997, which is
incorporated by reference herein. See "Available Information".

27
<PAGE>

SELLING STOCKHOLDERS

The following table sets forth the name of each Selling Stockholder and, for
each, the number of shares of Common Stock owned beneficially at the
commencement of the Offerings, the maximum number of shares which may be
offered for sale and the number of shares of Common Stock to be repurchased by
the Company. After giving effect to the Offerings and the Repurchase, the
number of shares beneficially owned by the Selling Stockholders in the
aggregate will be less than one percent of the outstanding shares of Common
Stock. See "--Selling Stockholders' Agreements".

<TABLE>
<CAPTION>
NUMBER OF SHARES TOTAL TOTAL
OF COMMON STOCK SHARES TO SHARES TO BE
BENEFICIALLY OWNED BE SOLD IN THE
NAME BEFORE THE OFFERINGS REPURCHASED OFFERINGS
- ---- -------------------- ----------- ------------
<S> <C> <C> <C>
ALSAM Trust(1), for the benefit
of:
L.S. Skaggs ................... 10,274,195 4,544,802 5,729,393
Aline W. Skaggs ............... 185,452 82,035 103,417
Six S Ranch, Inc.(2)............ 20,000 8,847 11,153
ALSAM Foundation(3)............. 2,046,930 905,462 1,141,468
Skaggs Family Foundation for
Roman Catholic and Community
Charities(4)................... 675,000 298,587 376,413
Skaggs Institute for
Research(5).................... 1,950,000 862,585 1,087,415
Lynda Sue Skaggs Balukoff....... 402,545 178,066 224,479
Claudia Skaggs Luttrell......... 437,472 193,516 243,956
The Northern Trust Company, as
trustee under the L.S. Skaggs &
Aline W. Skaggs Charitable
Remainder Unitrust #1 and the
L.S. Skaggs & Aline W. Skaggs
Charitable Remainder Unitrust
#2............................. 7,314,400 3,235,534 4,078,866
The Northern Trust Company, as
trustee under the Lynda Sue
Skaggs Balukoff Charitable
Remainder Unitrust #1 and the
Lynda Sue Skaggs Balukoff
Charitable Remainder Trust #2.. 355,000 157,035 197,965
The Northern Trust Company, as
trustee under the Claudia
Skaggs Luttrell Charitable
Remainder Unitrust #1, the
Claudia Skaggs Luttrell
Charitable Remainder Unitrust
#2 and certain trusts for the
benefit of Claudia Skaggs
Luttrell....................... 1,695,730 750,108 945,622
The Northern Trust Company, as
trustee under the Don L. Skaggs
Charitable Remainder Unitrust
#1, the Don L. Skaggs
Charitable Remainder Unitrust
#2 and certain trusts for the
benefit of Don L. Skaggs....... 1,452,665 642,588 810,077
The Northern Trust Company, as
trustee under a trust for the
benefit of Mark S. Skaggs(6)... 49,200 21,764 27,436
The Northern Trust Company, as
trustee under certain trusts
for the benefit of
grandchildren of L.S. Skaggs
and Aline W. Skaggs............ 70,980 31,398 39,582
U.S. Bank, as trustee under
certain trusts for the benefit
of Lynda Sue Skaggs Balukoff... 317,084 140,262 176,822
U.S. Bank, as trustee under
certain trusts for the benefit
of grandchildren of L.S. Skaggs
and Aline W. Skaggs............ 163,479 72,315 91,164
U.S. Bank, as trustee under the
Balukoff Charitable Remainder
Trust.......................... 220,000 97,318 122,682
</TABLE>

28
<PAGE>

- --------
(1) A Utah Trust, of which Claudia Skaggs Luttrell, Don L. Skaggs, Michael T.
Miller and George L. Moosman are trustees.
(2) A Utah corporation, wholly owned by the ALSAM Trust, principally engaged
in the activity of ranching.
(3) A charitable foundation, of which L.S. Skaggs, Aline W. Skaggs and Don L.
Skaggs are members of the managing committee.
(4) A charitable foundation, of which Aline W. Skaggs, Claudia Skaggs Luttrell
and Don L. Skaggs are members of the board of trustees.
(5) A charitable foundation, of which L.S. Skaggs and Aline W. Skaggs are
members of the board of directors.
(6) Mark Stanley Skaggs is also the beneficiary of The Mark Stanley Skaggs
Personal Trust, under which Wells Fargo Bank is trustee and which owns
3,459 shares of Common Stock not subject to the Stock Purchase Agreement or
the Registration Rights Agreement, and which are not included in the
Offerings or the Repurchase.

L.S. Skaggs has been a director of the Company since 1950, served as
Chairman of the Board of the Company from 1962 to July 1995, and has been a
consultant to the Company since July 1995. Aline W. Skaggs was a director of
the Company from 1981 to 1994. L.S. Skaggs and Aline W. Skaggs are married,
and are the parents of Don L. Skaggs, Lynda Sue Skaggs Balukoff, Claudia
Skaggs Luttrell and Mark S. Skaggs, all of whom are Selling Stockholders
and/or beneficiaries of certain trusts which are Selling Stockholders. Don L.
Skaggs, Executive Vice President of the Company since March 1993 and a
director of the Company since 1994, is a trustee or officer of certain of the
Selling Stockholders. The above table does not include Don L. Skaggs' shares
held under employee benefit plans. Michael T. Miller, a director of the
Company since 1992, is a trustee or officer of certain of the Selling
Stockholders. Pursuant to the Stock Purchase Agreement described below,
Messrs. L.S. Skaggs, Don L. Skaggs and Michael T. Miller have agreed to resign
as directors of the Company after the Selling Stockholders shall in the
aggregate beneficially own less than 5% of the outstanding shares of Common
Stock of the Company.

SELLING STOCKHOLDERS' AGREEMENTS

The following is a description of certain terms of the Stock Purchase
Agreement and the Registration Rights Agreement, copies of which have been
filed as exhibits to the Registration Statement. The following description
does not purport to be complete and is qualified in its entirety by reference
to such exhibits.

Pursuant to the Stock Purchase Agreement, the Company has agreed to
repurchase 12,222,222 shares of Common Stock from the Selling Stockholders for
$45 per share. The Offerings are conditioned upon the Repurchase and all such
transactions are expected to be consummated simultaneously. Selling
Stockholders holding a majority of the shares held by the Selling Stockholders
but not subject to the Repurchase (such shares, the "Retained Shares") had the
right to terminate the Offerings prior to pricing hereof if the Selling
Stockholders were advised by Goldman, Sachs & Co. and J.P. Morgan Securities
Inc. that the initial public offering price for the shares offered hereby
would be below $45 per share. The obligation of the Selling Stockholders to
consummate the Repurchase is subject to, among other things, the consummation
of the Offerings, unless such condition is waived by Selling Stockholders
holding two-thirds of the shares subject to the Repurchase. The obligation of
the parties to consummate the Repurchase is also subject to, among other
things, there not having elapsed more than 60 days following the date of
filing of the registration statement relating to the Offerings (the
"Registration Statement"), subject to certain exceptions.

Pursuant to the Stock Purchase Agreement, the Selling Stockholders have
agreed to certain "standstill" provisions with respect to the Company,
including, among other things, and subject to

29
<PAGE>

certain exceptions, that such persons will not take certain actions, or assist
or encourage others to take certain actions, with respect to an acquisition of
any shares of the Company, a solicitation of proxies or the making of a
stockholder proposal or a transfer, sale or pledge of such persons' shares of
Common Stock (and providing for, in the case of certain permitted transfers or
sales, a right of first refusal, subject to certain exceptions, in favor of
the Company to acquire such shares). Such "standstill" provisions will remain
in effect until February 20, 2007, provided that if neither the Repurchase nor
the Offerings are consummated, such "standstill" provisions shall remain in
effect until August 20, 1999. If neither the Repurchase nor the Offerings are
consummated as a result of a breach by or a failure of representations of the
Company under the Stock Purchase Agreement, the Registration Rights Agreement
or the Underwriting Agreement, the "standstill" provisions will terminate upon
termination of the Stock Purchase Agreement.

Pursuant to the Stock Purchase Agreement, if, during the six-month period
following consummation of the Repurchase, (i) a "change of control" (as
defined in the Stock Purchase Agreement) of the Company occurs or the Company
enters into an agreement with a third party resulting in a "change of control"
at a price above $45 per share or (ii) the Company enters into an agreement
for an asset sale that is not a "change of control" in which the Company
receives consideration of over $1 billion or (iii) the Company effects, by
spin-off or other distribution, the transfer of ownership of one or more
businesses or operating units having alone or in the aggregate an equity
market capitalization (plus indebtedness for borrowed money) in excess of $1
billion, then the Company will pay certain additional consideration to the
Selling Stockholders following the consummation of such transactions. The
Company has also agreed to pay certain financial advisory fees and expenses of
Goldman, Sachs & Co., in its capacity as financial advisor to certain of the
Selling Stockholders, and the reasonable fees and expenses of counsel to the
Selling Stockholders.

Pursuant to a Registration Rights Agreement (the "Registration Rights
Agreement"), the Company has agreed to file the Registration Statement and to
use all reasonable efforts to cause the Registration Statement to be declared
effective as soon as possible and in any event not more than 60 days after
filing. Under the Registration Rights Agreement, the Selling Stockholders will
be required to sell the Retained Shares in the Offerings promptly following
the Registration Statement being declared effective, provided that the Selling
Stockholders holding a majority of the Retained Shares had the right to
terminate the Offerings prior to the pricing thereof if the Selling
Stockholders were advised by Goldman, Sachs & Co. and J.P. Morgan Securities
Inc. that the price for the shares in the Offerings would be below $45 per
share. In the event the Offerings are terminated, the Selling Stockholders
have the right to two demand registrations if the "standstill" period is 30
months, or three demand registrations if the "standstill" period is ten years,
and unlimited piggyback registrations during the standstill period or until
there are fewer than 2 million Retained Shares. In connection with an exercise
of such registration rights, subject to certain conditions and exceptions, the
Company and each Selling Stockholder has agreed not to effect any public sale
or distribution of securities of the Company similar to those proposed to be
registered during the 10-day period prior to the effective date of the
applicable registration statement or during the period beginning on such
effective date and ending on the later of the completion of the distribution
of such securities pursuant to such offering and 90 days after such effective
date. In the Registration Rights Agreement, the Company has agreed to pay the
expenses, other than underwriting discounts or commissions, incident to an
offering thereunder, provided that if the proceeds to the Selling Stockholders
in the Offerings, net of underwriting discounts and commissions, would be less
than $45 per share, then the Company shall bear such proportion of such
underwriting discounts and commissions such that the net proceeds to the
Selling Stockholders shall equal the lesser of $45 per share and the initial
public offering price.

30
<PAGE>

LEGAL MATTERS

Certain legal matters in connection with the Offerings will be passed upon
for the Company by Wachtell, Lipton, Rosen & Katz, New York, New York, and for
the U.S. Underwriters and the International Underwriters by Davis Polk &
Wardwell, New York, New York.

EXPERTS

The consolidated financial statements of the Company as of February 1, 1997,
February 3, 1996 and January 28, 1995 and for each of the three fiscal years
in the period ended February 1, 1997 (which are included herein) and the
consolidated financial statements of the Company as of February 3, 1996,
January 28, 1995 and January 29, 1994 and for each of the three fiscal years
in the period ended February 3, 1996 (which are incorporated herein by
reference to the Company's Annual Report on Form 10-K for the year ended
February 3, 1996) have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon. Such financial statements are
included or incorporated by reference herein in reliance upon the reports of
Ernst & Young LLP pertaining to such financial statements (to the extent
covered by consents filed with the Commission) given upon the authority of
such firm as experts in accounting and auditing.

31
<PAGE>

AMERICAN STORES COMPANY

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................... F-2
Consolidated Statements of Earnings for the fiscal years 1996, 1995 and
1994.................................................................... F-3
Consolidated Balance Sheets as of the end of the fiscal years 1996, 1995
and 1994................................................................ F-4
Consolidated Statements of Cash Flows for the fiscal years 1996, 1995 and
1994.................................................................... F-5
Consolidated Statements of Shareholders' Equity for the fiscal years
1996, 1995 and 1994..................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>

F-1
<PAGE>

AMERICAN STORES COMPANY

REPORT OF INDEPENDENT AUDITORS

Shareholders and Board of Directors
American Stores Company

We have audited the accompanying consolidated balance sheets of American
Stores Company and subsidiaries as of February 1, 1997, February 3, 1996 and
January 28, 1995, and the related consolidated statements of earnings,
shareholders' equity and cash flows for each of the three fiscal years in the
period ended February 1, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of American
Stores Company and subsidiaries at February 1, 1997, February 3, 1996 and
January 28, 1995, and the consolidated results of their operations and their
cash flows for each of the three fiscal years in the period ended February 1,
1997, in conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

March 14, 1997, except for
the Subsequent Events Note,
as to which the date is
March 28, 1997
Salt Lake City, Utah

F-2
<PAGE>

AMERICAN STORES COMPANY

CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS 52 WEEKS
1996 1995 1994
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Sales.................................. $18,678,129 $18,308,894 $18,355,126
Cost of merchandise sold, including
warehousing and transportation
expenses.............................. 13,713,151 13,558,690 13,603,882
----------- ----------- -----------
Gross profit........................... 4,964,978 4,750,204 4,751,244
Operating and administrative expenses.. 4,203,302 4,043,381 4,101,176
----------- ----------- -----------
Operating profit....................... 761,676 706,823 650,068
Other income (expense):
Interest expense..................... (171,558) (159,545) (170,703)
Other................................ (85,566) 3,638 126,898
----------- ----------- -----------
Total other income (expense)........... (257,124) (155,907) (43,805)
----------- ----------- -----------
Earnings before income taxes........... 504,552 550,916 606,263
Federal and state income taxes......... (217,331) (234,107) (261,079)
----------- ----------- -----------
Net earnings........................... $ 287,221 $ 316,809 $ 345,184
=========== =========== ===========
Average shares outstanding............. 145,888 146,943 142,767
Net earnings per share................. $ 1.97 $ 2.16 $ 2.42
=========== =========== ===========
Fully diluted earnings per share....... $ 1.97 $ 2.16 $ 2.33
=========== =========== ===========
</TABLE>

See notes to consolidated financial statements

F-3
<PAGE>

AMERICAN STORES COMPANY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
YEAR-END
----------------------------------
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS OF DOLLARS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................. $ 37,467 $ 102,422 $ 195,689
Receivables............................... 318,878 319,688 291,760
Inventories............................... 1,725,542 1,572,242 1,526,770
Prepaid expenses.......................... 66,510 69,098 48,711
Deferred income tax benefits.............. 18,099 20,517 69,165
---------- ---------- ----------
Total Current Assets...................... 2,166,496 2,083,967 2,132,095
Property, Plant and Equipment, at cost
Land....................................... 636,068 597,804 522,014
Buildings.................................. 1,803,752 1,399,561 1,221,871
Fixtures and equipment..................... 2,616,633 2,415,326 2,168,826
Leasehold improvements..................... 781,454 736,682 654,441
---------- ---------- ----------
5,837,907 5,149,373 4,567,152
Less accumulated depreciation and
amortization.............................. 2,250,876 2,019,557 1,800,714
---------- ---------- ----------
Net Property, Plant and Equipment.......... 3,587,031 3,129,816 2,766,438
Property Under Capital Leases, less
accumulated amortization of $110,379 in
1996, $106,993 in 1995 and $103,760 in
1994...................................... 66,682 76,084 84,690
Goodwill, less accumulated amortization of
$471,150 in 1996, $418,006 in 1995 and
$365,271 in 1994.......................... 1,665,242 1,722,892 1,771,121
Other Assets............................... 395,954 350,205 277,222
---------- ---------- ----------
Total Assets.............................. $7,881,405 $7,362,964 $7,031,566
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt...... $ 56,703 $ 125,413 $ 132,019
Current obligations under capital leases.. 9,300 9,739 9,195
Accounts payable.......................... 851,285 996,354 883,329
Accrued payroll and benefits.............. 325,806 331,843 350,637
Current portion of self-insurance
reserves................................. 121,144 153,464 179,595
Income taxes payable...................... 21,290 17,292 46,170
Other current liabilities................. 416,153 353,598 330,486
---------- ---------- ----------
Total Current Liabilities................. 1,801,681 1,987,703 1,931,431
Long-term Debt, less current maturities.... 2,556,734 2,038,636 1,988,710
Obligations Under Capital Leases, less
current obligations....................... 56,410 66,380 75,367
Self-insurance Reserves, less current
portion................................... 403,981 434,028 464,119
Deferred Income Taxes...................... 348,846 365,978 320,814
Other Liabilities.......................... 178,326 115,743 200,204
Shareholders' Equity
Common stock of $1.00 par value,
authorized 325,000,000 shares; issued
149,889,236 shares in 1996 and 1995 and
144,542,156 shares in 1994............... 149,889 149,889 144,542
Additional paid-in capital................ 362,561 345,118 216,418
Retained earnings......................... 2,136,744 1,942,874 1,708,672
Less cost of treasury stock; 3,974,595
shares in 1996, 3,441,451 shares in 1995
and 1,571,094 shares in 1994............. (113,767) (83,385) (18,711)
---------- ---------- ----------
Total Shareholders' Equity................ 2,535,427 2,354,496 2,050,921
---------- ---------- ----------
Total Liabilities and Shareholders'
Equity................................. $7,881,405 $7,362,964 $7,031,566
========== ========== ==========
</TABLE>

See notes to consolidated financial statements

F-4
<PAGE>

AMERICAN STORES COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS 52 WEEKS
1996 1995 1994
--------- --------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings................................ $ 287,221 $ 316,809 $ 345,184
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization............. 440,445 404,562 407,286
Net loss (gain) on asset sales............ 265 (3,219) (158,448)
Self-insurance reserves................... (62,367) (56,222) (22,229)
Other..................................... 59,654 (92,688) (88,160)
(Increase) decrease in current assets:
Receivables............................... 810 (32,694) (26,037)
Inventories............................... (152,920) (54,645) (46,149)
Prepaid expenses.......................... 5,006 28,164 (10,347)
(Decrease) increase in current liabilities:
Accounts payable.......................... (145,069) 124,750 (44,369)
Other current liabilities................. 66,759 23,305 (49,866)
Accrued payroll and benefits.............. (6,037) (18,794) 41,108
Income taxes payable...................... 3,998 (30,249) (66,611)
--------- --------- ---------
Total adjustments....................... 210,544 292,270 (63,822)
--------- --------- ---------
Net cash provided by operating activities..... 497,765 609,079 281,362
--------- --------- ---------
Cash flows from investing activities:
Expended for property, plant and equipment.. (877,630) (750,914) (538,033)
Proceeds from disposition of operations..... 377,618
Proceeds from sale of assets................ 47,670 50,511 21,680
Land investments............................ (65,450) (21,697) (7,262)
--------- --------- ---------
Net cash used in investing activities......... (895,410) (722,100) (145,997)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term borrowing........... 350,000 278,500 530,000
Net addition to (reduction of) existing
long-term debt............................. 99,388 (114,869) (479,967)
Principal payments for obligations under
capital leases............................. (10,409) (10,332) (12,741)
Proceeds from exercise of stock options,
other...................................... 24,860 22,049 31,996
Repurchase of common stock.................. (37,798) (72,987)
Cash dividends.............................. (93,351) (82,607) (68,544)
--------- --------- ---------
Net cash provided by financing activities..... 332,690 19,754 744
--------- --------- ---------
Net (decrease) increase in cash and cash
equivalents.................................. (64,955) (93,267) 136,109
Cash and cash equivalents:
Beginning of year........................... 102,422 195,689 59,580
--------- --------- ---------
End of year................................. $ 37,467 $ 102,422 $ 195,689
========= ========= =========
</TABLE>

See notes to consolidated financial statements

F-5
<PAGE>

AMERICAN STORES COMPANY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
-------- ---------- ---------- --------- ----------
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Balances at beginning of
1994................... $144,542 $190,173 $1,432,032 $ (24,462) $1,742,285
Net earnings--1994 (52
weeks)................. 345,184 345,184
Issuance of 427,512
shares of stock for
stock options and
awards................. 2,629 5,259 7,888
Dividends ($.48 per
share)................. (68,544) (68,544)
Stock Purchase Incentive
Plans including
issuance of 40,000
shares................. 21,245 496 21,741
Purchase of 152 shares
for treasury........... (4) (4)
Other................... 2,371 2,371
-------- -------- ---------- --------- ----------
Balances at year-end
1994................... $144,542 $216,418 $1,708,672 $ (18,711) $2,050,921
======== ======== ========== ========= ==========
Net earnings--1995 (53
weeks)................. 316,809 316,809
Issuance of 592,143
shares of stock for
stock options and
awards................. 914 7,583 8,497
Dividends ($.56 per
share)................. (82,607) (82,607)
Stock Purchase Incentive
Plans including
issuance of 60,000
shares................. 3,869 733 4,602
Conversion of
convertible notes...... 5,347 119,215 124,562
Purchase of 124 shares
for treasury........... (3) (3)
Stock Repurchase Program
2,522,500 shares....... (72,987) (72,987)
Other................... 4,702 4,702
-------- -------- ---------- --------- ----------
Balances at year-end
1995................... $149,889 $345,118 $1,942,874 $ (83,385) $2,354,496
======== ======== ========== ========= ==========
Net earnings--1996 (52
weeks)................. 287,221 287,221
Issuance of 563,664
shares of stock for
stock options, awards
and Employee Stock
Purchase Plan (ESPP)... 7,891 7,497 15,388
Dividends ($.64 per
share)................. (93,351) (93,351)
Stock Purchase Incentive
Plans.................. 8,856 8,856
Purchase of 6,562 shares
for treasury, including
ESPP buybacks.......... (103) (78) (181)
Stock Repurchase Program
1,090,000 shares....... (37,798) (37,798)
Other................... 799 (3) 796
-------- -------- ---------- --------- ----------
Balances at year-end
1996................... $149,889 $362,561 $2,136,744 $(113,767) $2,535,427
======== ======== ========== ========= ==========
</TABLE>

See notes to consolidated financial statements

F-6
<PAGE>

AMERICAN STORES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NATURE OF OPERATIONS

American Stores Company is one of the nation's leading food and drug
retailers, operating 1,695 stores in 27 states, including 166 combination
stores which are jointly operated by a food store division and a drug store
division and are counted as two separate stores. The Company operates in a
single industry segment and its principal lines of business are food, drug and
combination food/drug stores. Food stores account for more than two-thirds of
the Company's sales and operating profit. Principal markets include
California, Illinois, New Jersey, Pennsylvania, Indiana and Arizona, where
products are sold primarily to retail customers.

SIGNIFICANT ACCOUNTING POLICIES

Fiscal Year. The fiscal year of the Company ends on the Saturday nearest to
January 31. All references herein to "1996", "1995" and "1994" represent the
52-week fiscal year ended February 1, 1997, the 53-week fiscal year ended
February 3, 1996, and the 52-week fiscal year ended January 28, 1995,
respectively.

Basis of Consolidation. The consolidated financial statements include the
accounts of American Stores Company and all subsidiaries. Accordingly, all
references herein to "American Stores Company" include the consolidated
results of its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents. The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents. The carrying amounts reported in the balance sheet for cash and
cash equivalents approximate those assets' fair value. The balance of cash was
higher at year-end 1994 due to proceeds held from the sale of the Star Market
food division and 45 Acme Markets stores.

Depreciation and Amortization. Depreciation and amortization are provided on
a straight-line basis over the estimated useful lives of owned assets.
Leasehold improvements and leased properties under capital leases are
amortized over the estimated useful life of the property or over the term of
the lease, whichever is shorter. The depreciable lives are primarily 20 to 40
years for buildings, 3 to 10 years for fixtures and equipment and 10 to 30
years for leasehold improvements and property under capital lease, depending
on the life of the lease. Depreciation expense related to property, plant and
equipment amounted to $359.9 million, $324.5 million and $316.2 million in
fiscal 1996, 1995 and 1994, respectively.

Goodwill. Goodwill, principally from the acquisition of Lucky Stores, Inc.
in 1988, represents the excess of cost over fair value of net assets acquired
and is being amortized over 40 years using the straight-line method.

Costs of Opening and Closing Stores. The costs of opening new stores are
charged against earnings as incurred. When operations are discontinued and a
store is closed, the remaining investment, net of salvage value, is charged
against earnings and, for leased stores, a provision is made for the remaining
lease liability, net of expected sublease income.

F-7
<PAGE>

AMERICAN STORES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Income Taxes. The Company provides for deferred income taxes or credits as
temporary differences arise in recording income and expenses between financial
reporting and tax reporting. Amortization of goodwill is not deductible for
purposes of calculating income tax provisions.

Net Earnings Per Share. Net earnings per share are determined by dividing
the weighted average number of shares outstanding during the year into net
earnings. Common share equivalents in the form of stock options are excluded
from the calculation of net earnings per share since they do not have a
material dilutive effect on per share figures. Fully diluted earnings per
share in 1994 include the assumed conversion of subordinated convertible debt.

Environmental Remediation Costs. Costs incurred to investigate and remediate
contaminated sites, caused primarily by defective underground petroleum
storage tanks and ground water contamination, are accrued when identified and
estimable. The related costs are expensed unless the remediation extends the
economic useful life of the assets employed at the site.

Self-insurance. The Company is self-insured for property loss, workers'
compensation, general liability and automotive liability, subject to specific
retention levels. The Company is required in certain cases to obtain letters
of credit to support its self-insured status. At year-end 1996, the Company's
self-insured liabilities were supported by approximately $221.1 million of
undrawn letters of credit. The Company is also self-insured for health care
claims for eligible active and retired associates. Consulting actuaries assist
the Company in determining its liability for self-insured claims. Self-insured
liabilities, with the exception of postretirement health care benefits, are
not discounted.

Impairment. Impairment is recognized on long-lived assets when indicators of
impairment are present and the undiscounted cash flows are less than the
related assets' carrying value.

Stock-based Compensation. The Company continues to account for stock-based
compensation using the intrinsic value method and provides pro forma footnote
disclosure of the impact of the fair value method.

INVENTORIES

Approximately 94% of inventories are accounted for using the LIFO (last-in,
first-out) method for inventory valuation. If the FIFO and average cost
methods had been used, inventories would have been $324.5 million, $313.1
million and $300.3 million higher at year-end 1996, 1995 and 1994,
respectively. The LIFO charge to earnings was $11.4 million in 1996, $12.8
million in 1995 and $8.2 million in 1994. Under this method, the cost of
merchandise sold that is reported in the financial statements approximates
current costs and thus reduces the distortion in reported earnings due to
increasing cost.

ADVERTISING EXPENSE

Beginning in the first quarter of 1996, the Company, in connection with its
consolidation efforts, classified advertising expense as a cost of merchandise
sold. Previously these expenses were classified as operating and
administrative expenses. Prior years have been reclassified to conform to the
current year presentation.

The Company expenses advertising costs when the advertisement occurs. Total
advertising expense amounted to $133.2 million, $168.3 million and $167.2
million in 1996, 1995 and 1994, respectively. Capitalized advertising costs
are immaterial for the periods presented.

F-8
<PAGE>

AMERICAN STORES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DISPOSITION OF OPERATIONS

On September 8, 1994, the Company sold its 33-store Star Market food
division with a basis of $167.0 million for $288.0 million and the assumption
of substantially all of its outstanding liabilities. On January 19, 1995, the
Company sold 45 of its Acme Markets stores with a basis of $48.4 million for
$89.6 million. The assets sold consisted primarily of property, plant,
equipment and inventories.

DEBT

In June of 1996, the Company issued $350 million, 8.0% debentures due June
1, 2026 at 99.3% to yield 8.1% under an $800 million shelf registration
statement filed on February 18, 1994. The Company received net proceeds of
approximately $344 million which were used to pay off financings totaling $100
million at an average interest rate of 8.25% and to refinance additional
short-term variable rate borrowings under the Company's principal bank credit
agreement.

The Company's principal bank credit agreement at year-end 1996 was a $1.0
billion revolving credit facility, which expires in 1999. Interest rates for
borrowings under the facility are established at the time of borrowing through
four different pricing options. Terms of the revolving credit facility provide
for borrowings from participating banks or borrowings through issuance of
commercial paper that is supported by the facility. The credit facility
provides for a covenant of cash flow to total debt. The Company also has $250
million of 364-day committed bank lines and $320 million of uncommitted bank
lines, which are used for overnight and short-term bank borrowings. At year-
end 1996, the Company had $957 million of debt supported by the credit
facility and $183 million outstanding under bank lines, leaving unused
committed borrowing capacity of $110 million. The Company has classified
short-term borrowings as long-term due to its intent and ability to refinance
these borrowings on a long-term basis.

The Company capitalized interest costs associated with construction projects
of $10.6 million, $8.5 million and $3.9 million in 1996, 1995 and 1994,
respectively. The Company made cash payments for interest (net of amounts
capitalized) of $160.8 million, $169.5 million and $172.0 million in 1996,
1995 and 1994, respectively.

The aggregate amounts of debt maturing in each of the next five fiscal years
are listed below:

<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS)
<S> <C>
1997............................................. $ 56,703
1998............................................. 72,786
1999............................................. 1,323,382
2000............................................. 148,484
2001............................................. 23,383
Thereafter....................................... 988,699
----------
Total Debt..................................... $2,613,437
==========
</TABLE>

The Company's various loans secured by real estate are collateralized by
properties with a net book value of $186.8 million at year-end 1996.

F-9
<PAGE>

AMERICAN STORES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

A summary of debt is as follows:

<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Public Debt (unsecured):
8.0% Debentures due 2026.................... $ 350,000
7.4% Notes due 2005......................... 200,000 $ 200,000
Medium Term Notes--fixed interest rates due
1997 through 2003--average interest rate
7.9%....................................... 250,000 250,000 $ 250,000
9 1/8% Notes due 2002....................... 249,191 249,075 248,966
7 1/4% Convertible Subordinated Notes due
2001....................................... 174,997
Bank Borrowings (unsecured):
Revolving credit facility--variable interest
rates, effectively due 1999--average
interest rates 5.7% in 1996, 6.2% in 1995
and 4.8% in 1994........................... 957,000 865,000 645,000
Lines of credit and commercial paper--
variable interest rates, effectively due
1999--average interest rates 5.6% in 1996,
6.4% in 1995 and 4.7% in 1994.............. 183,000 69,000 210,000
Other borrowings--due 2000--average interest
rates 6.6% in 1996, 6.5% in 1995 and 8.8%
in 1994.................................... 75,000 125,000 175,000
Other Unsecured Debt:
9.8% due in 1999............................ 160,000 210,000 210,000
10.6% due in 2004........................... 108,893 108,893 108,893
Other--due through 2001..................... 2,988 3,625 4,211
Debt Secured by Real Estate:
Fixed interest rates--due through 2014--
average interest rate 13.3% in 1996, 13.3%
in 1995 and 13.4% in 1994.................. 77,365 83,456 93,662
---------- ---------- ----------
Outstanding debt............................ 2,613,437 2,164,049 2,120,729
Less current maturities....................... 56,703 125,413 132,019
---------- ---------- ----------
Long-term debt................................ $2,556,734 $2,038,636 $1,988,710
========== ========== ==========
</TABLE>

During 1996, the Company entered into an interest rate swap agreement with a
notional amount of $200 million, for the purpose of hedging the interest rate
on a portion of the debt the Company anticipates issuing in 1997 under the
shelf registration statement. The 10-year swap calls for the payment of a
fixed interest rate of 6.7% (comprised of a 10-year treasury rate of 6.3% plus
the swap rate) and the receipt of a variable interest rate. Net interest paid
or received related to such agreement at the time of the debt issuance will be
recorded using the accrual method and will be amortized in interest expense
over the life of the financing. As of year-end 1996, the estimated fair value
of the swap agreement based on market quotes was $2.8 million.

The Company also uses derivative financial instruments to manage interest
and currency risks on the 9.8% unsecured debt due in 1999, and accounts for it
as a hedge. The borrowing totaled 22 billion yen at a yen interest rate of
6.0%. At the time the loan originated, the Company entered into an interest
rate and currency exchange swap agreement (swap) that matches the interest and
principal payments of the yen loan. Under the swap agreement, the Company
makes fixed rate interest payments of 9.8% and principal payments totaling
$160 million and receives payments equal to the underlying yen loan
obligation. The proceeds, in yen, from this swap are used to satisfy the yen-
based interest and will be

F-10
<PAGE>

AMERICAN STORES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

used to satisfy the principal payment. As of year-end 1996, the estimated fair
value of the remaining swap agreement based on market quotes was approximately
$28 million and equaled the loss on the yen loans due to currency and interest
rate movements, resulting in an aggregate fair value of zero.

The Company is exposed to credit losses in the event of nonperformance by
the counterparties to its swap agreements. Such counterparties are highly-
rated financial institutions and the Company anticipates they will be able to
satisfy their obligations under the contracts.

The carrying amounts of the Company's bank borrowings with variable interest
rates approximate fair value. The fair value of the Company's borrowings with
fixed interest rates is estimated using discounted cash flow analyses, based
on current market rates where available, or on the Company's current
incremental borrowing rates for similar types of borrowing arrangements. The
fair value of outstanding debt as of year-end 1996 was $2.7 billion compared
to the carrying value of $2.6 billion.

LEASES

The Company leases retail stores, offices, warehouses and distribution
facilities. Initial lease terms average approximately 20 years, plus renewal
options, and may provide for contingent rent based on sales volume in excess
of specified levels.

The summary below shows the aggregate future minimum rent commitments at
year-end 1996 for both capital and operating leases. Operating leases are
shown net of an aggregate $76.5 million of minimum rent income receivable
under non-cancellable subleases. Operating leases also exclude the
amortization of acquisition-related fair value adjustments.

<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
------------- -----------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
1997................................................ $ 172,144 $ 15,008
1998................................................ 154,317 13,655
1999................................................ 144,341 12,016
2000................................................ 131,477 9,775
2001................................................ 118,327 8,316
Thereafter.......................................... 944,774 51,030
------------- -----------
Total minimum rent commitments.................... $ 1,665,380 109,800
=============
Less executory costs (such as taxes, insurance and
maintenance) included in capital leases............ 1,008
-----------
Net minimum lease payments.......................... 108,792
Less amount representing interest................... 43,082
-----------
Obligations under capital leases, including $9.3
million due within one year........................ $ 65,710
===========
</TABLE>

Rent expense, excluding the amortization of acquisition-related fair value
adjustments of $14.2 million in 1996, $14.3 million in 1995 and $14.5 million
in 1994, was as follows:

<TABLE>
<CAPTION>
MINIMUM SUBLEASE CONTINGENT TOTAL
RENT RENT NET RENT RENT
-------- -------- -------- ---------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
1996........................ $189,105 $15,663 $173,442 $24,305 $197,747
1995........................ $180,933 $14,782 $166,151 $26,003 $192,154
1994........................ $184,116 $ 9,064 $175,052 $26,508 $201,560
</TABLE>

F-11
<PAGE>

AMERICAN STORES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

INCOME TAXES

Federal and state income taxes charged to earnings are summarized below:

<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS 52 WEEKS
1996 1995 1994
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Current:
Federal....................................... $206,313 $124,317 $229,052
State......................................... 25,731 15,979 34,906
Deferred:
Federal....................................... (12,948) 81,859 (2,469)
State......................................... (1,765) 11,952 (410)
-------- -------- --------
Federal and state income taxes.................. $217,331 $234,107 $261,079
======== ======== ========
</TABLE>

Cash payments of income taxes were $226.8 million, $169.2 million and $354.6
million in 1996, 1995 and 1994, respectively.

The Company's effective income tax rate differs from the statutory federal
income tax rate as follows:

<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS 52 WEEKS
1996 1995 1994
-------- -------- --------
(PERCENT OF EARNINGS
BEFORE INCOME TAXES)
<S> <C> <C> <C>
Statutory federal income tax rate............... 35.0% 35.0% 35.0%
State income tax rate, net of federal income tax
effect......................................... 4.8 5.1 5.7
Goodwill amortization........................... 4.2 3.8 3.6
Tax credits..................................... (0.1) (0.4) (0.6)
Other........................................... (0.8) (1.0) (0.6)
---- ---- ----
Effective income tax rate..................... 43.1% 42.5% 43.1%
==== ==== ====
</TABLE>

Deferred tax benefits and liabilities as of year-end 1996 related to the
following temporary differences:

<TABLE>
<CAPTION>
BENEFITS LIABILITIES TOTAL
-------- ----------- ---------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Basis in fixed assets....................... $ 33,678 $(259,105) $(225,427)
Self-insurance reserves..................... 191,391 191,391
Purchase accounting valuation............... 48,546 (327,530) (278,984)
Compensation and benefits................... 45,609 (62,121) (16,512)
Other, net.................................. 91,415 (92,630) (1,215)
-------- --------- ---------
Deferred tax benefits and liabilities..... $410,639 $(741,386) $(330,747)
======== ========= =========
</TABLE>

No valuation allowances have been considered necessary in the calculation of
deferred tax benefits.

F-12
<PAGE>

AMERICAN STORES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

STOCK COMPENSATION PLANS

The Company has two stock-based compensation plans, which are described
below.

Fixed Stock Option Plans

The Company's 1989 Stock Option and Stock Awards Plan (1989 Plan) provides
for the grant of options to purchase shares of common stock and the issuance
of restricted stock awards for an aggregate of up to 4.8 million shares of
common stock, subject to certain antidilution adjustments. At year-end 1996,
there were 1.8 million shares reserved for future grants under the 1989 Plan.

A summary of the Company's stock option activity and related information for
1996, 1995 and 1994 follows:

<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------- --------- ------- --------- ------- ---------
(OPTIONS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 1,920 $22.73 1,360 $11.24 2,183 $11.20
Granted................. 1,356 $35.81 1,548 $24.40
Exercised............... (135) $17.40 (826) $ 7.28 (610) $12.14
Forfeited/Expired....... (126) $25.99 (162) $21.01 (213) $ 8.26
----- ----- -----
Outstanding at end of
year................... 3,015 $28.71 1,920 $22.73 1,360 $11.24
===== ===== =====
Exercisable at end of
year................... 212 237 457
Reserved for future
grants................. 1,798 3,117 4,503
</TABLE>

At year-end 1996, there were stock options for 2.4 million shares
outstanding under the 1989 Plan, which expire in 2004 and 0.6 million options
outstanding under an expired plan, which expire through 2002. Exercise prices
for outstanding options as of year-end 1996 ranged from $13.69 to $35.81 and
the weighted-average remaining contractual life of those options is 5.9 years.
Compensation expense related to other options decreased pre-tax earnings by
$3.4 million in 1995 and $2.9 million in 1994.

Employee Stock Purchase Plan

The Company's Employee Stock Purchase Plan (ESPP), which began January 1,
1996 enables eligible employees of the Company to subscribe for shares of
common stock on quarterly offering dates at a purchase price which is the
lesser of 85% of the fair market value of the shares on the first day or the
last day of the quarterly offering period. For financial reporting purposes,
the discount of 15% is treated as equivalent to the cost of issuing stock.
During 1996, employees contributed $13.6 million into the ESPP program and 0.5
million shares were issued. There were no shares issued in 1995. At year-end
1996, 6.5 million shares were available for future issuances.

Fair Value Disclosures

The Company's pro forma compensation expense under the fair value method,
utilizing the Black- Scholes option valuation model, for fixed stock options
granted in 1996 and 1995 and for the ESPP in 1996, after income taxes, was
$4.8 million for 1996 and $.8 million for 1995. Pro forma net income would
have been $282.4 million in 1996 and $316.0 million in 1995. Earnings per
share would have

F-13
<PAGE>

AMERICAN STORES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

been $1.94 per share for 1996 and $2.15 per share for 1995 for primary
earnings per share and $1.93 per share for 1996 and $2.15 per share for 1995
for fully diluted earnings per share.

The fair value for these options was estimated at the date of grant assuming
an expected volatility of 21% and a dividend yield of 1.9%. Other assumptions
for 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
1996 1996 ESPP 1995
---- --------- ----
<S> <C> <C> <C>
Average risk-free interest rate........................ 6.1% 5.1% 6.8%
Average life of options (years)........................ 4.0 0.25 5.0
Average vesting date (years)........................... 3.0 2.0 5.0
</TABLE>

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of fair value of its employee stock options.

Because the fair value method of accounting for stock-based compensation has
not been applied to options granted prior to January 1, 1995, the preceding
pro forma compensation cost may not be representative of that to be expected
in future years.

STOCK PURCHASE INCENTIVE PLANS

In 1992, the Company's shareholders approved both the American Stores
Company Key Executive Stock Purchase Incentive Plan and the American Stores
Company Board of Directors Stock Purchase Incentive Plan (Plans). The Plans
are intended to promote the long-term growth and financial success of the
Company, and to strengthen the link between management and shareholders. The
Board of Directors Plan was terminated on March 21, 1995, however the
termination does not affect the terms of any awards outstanding on the date of
termination.

Since the Plan's inception, the Company has awarded to certain directors and
key executive officers the right to purchase a specified number of shares of
the Company's stock and extended to such directors and officers full recourse
interest bearing purchase loans to acquire the stock. The stock purchased by
the directors and officers with the purchase loans was issued from treasury
shares. The purchase loans have an eight-year term and accrue interest at
rates ranging from 5.3% to 7.8%. The acquisition price of the stock was the
average of the high and low value on the day acquired, as reported on the New
York Stock Exchange. Shares held by the executives and directors pursuant to
the Plans were 1.8 million for 1996, 2.1 million for 1995 and 1994, with
corresponding loan balances of $40.7 million, $42.6 million and $40.3 million,
respectively. The aggregate principal of these notes outstanding is recorded
as a reduction of additional paid-in capital in the balance sheet.

Participants purchasing stock under the Plans are eligible for a deferred
cash incentive award, which is generally payable at the end of a five-year
performance cycle. One-half of the deferred award will be based on the
continuation of service with the Company (Service Component), and the other
half

F-14
<PAGE>

AMERICAN STORES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

will be based on the Company's relative stock price performance versus a
selected group of companies in the retail food and drug industry (Performance
Component). The maximum combined Performance Component and Service Component
payable to participants will not exceed the original principal amount of the
purchase loan plus accrued but unpaid interest. The estimated deferred cash
incentive award is recorded as compensation expense on the income statement
and amounts earned to date are recognized as a credit to the note balances in
additional paid-in capital in the balance sheet. See Subsequent Events note,
following.

PREFERRED SHARE PURCHASE RIGHTS

During March 1988, the Board of Directors of the Company declared a
distribution of one Preferred Share Purchase Right (Right) for each
outstanding share of the Company's common stock. The Rights were issued
pursuant to a Rights Agreement between the Company and First Chicago Trust
Company of New York as Rights Agent, which agreement has been amended from
time to time.

Each Right as amended entitles shareholders to purchase one four-hundredth
of a share of a new series of preferred stock at an exercise price of $62.50.
The Rights will be exercisable only if a person or group acquires 10% or more
of the Company's common stock or announces a tender offer, the consummation of
which would result in ownership by a person or group of 10% or more of the
Company's common stock. The Rights will generally not apply to a 10% or
greater position held by Mr. L. S. Skaggs, the Company's former Chairman, or
certain other related parties unless such entities increase their aggregate
beneficial ownership of the Company's common stock by more than 1% over the
amount of their percentage holdings on June 21, 1996, other than increases
resulting from an acquisition of common stock by the Company or the execution,
delivery and performance of the Stock Purchase Agreement and Registration
Rights Agreement dated February 20, 1997 entered into between the Company and
Mr. Skaggs and certain family members and trusts. The Company will be entitled
to redeem the Rights at one-quarter cent per Right any time before a 10% or
greater position has been acquired. The authorized capital of the Company
includes 10 million shares of preferred stock, par value $1.00, of which 0.4
million shares have been designated Series A Junior Participating Preferred
Stock.

If the Company is acquired in a merger or other business combination
transaction, each Right will "flip over" and entitle its holder to purchase,
at the Right's then current exercise price, a number of the acquiring
company's common shares having a market value at that time of twice the
Right's exercise price.

In addition, if a person or group acquired 10% or more of the outstanding
Company common stock, each Right will "flip in" and entitle all other holders
to purchase, at the Right's then current exercise price, a number of shares of
the Company's common stock having a market value of twice the Right's exercise
price. Further, at any time after a person or group acquires 10% or more of
the outstanding Company common stock but prior to the acquisition of 50% of
such stock, the Board of Directors may, at its option, exchange part or all of
the Rights (other than Rights held by the acquiring person or group) for
shares of the Company's common stock at an exchange rate of one share of
common stock for each Right.

On February 22, 1995, the Board of Directors expressed its intent, subject
to the exercise of its fiduciary duties, to allow the Rights Agreement
pertaining to the Company's preferred share purchase rights, dated March 18,
1988, as amended, to expire in accordance with its terms on March 18, 1998,
without renewal or extension.

F-15
<PAGE>

AMERICAN STORES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

REPURCHASE OF COMMON STOCK

In June 1996 the Company replaced its existing stock repurchase program with
a new repurchase program which authorizes the repurchase of up to two million
shares of common stock. During 1996 the Company repurchased 1.1 million shares
of its common stock at an average price of $34.67 per share in accordance with
the Company's stock repurchase programs. As of February 1, 1997, an additional
1.9 million shares remained authorized for repurchase. See Subsequent Events
note, following.

POSTRETIREMENT HEALTH CARE BENEFITS

The Company provides certain health care benefits to eligible retirees of
certain defined employee groups under two unfunded plans, a defined dollar and
a full coverage plan.

The accumulated postretirement health care benefit obligation is as follows:

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Current retirees............................. $ 38,107 $ 37,396 $ 35,787
Current active employees..................... 14,776 14,275 13,521
Unrecognized gain............................ 12,969 14,390 16,819
-------- -------- --------
Accumulated postretirement benefit obligation
("APBO").................................... $ 65,852 $ 66,061 $ 66,127
======== ======== ========
Discount rate................................ 7.5% 8.5% 8.5%
</TABLE>

The components of postretirement health care benefit expense are as follows:

<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS 52 WEEKS
1996 1995 1994
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost--benefits earned during the year.... $ 671 $ 768 $1,013
Interest cost on APBO............................ 3,896 4,006 3,730
Adjustment of APBO............................... (789) (465) (598)
------ ------ ------
Net postretirement health care benefit expense... $3,778 $4,309 $4,145
====== ====== ======
</TABLE>

The Company assumed no increase in the cost of the defined dollar benefit
plan in any year presented. Changes in assumptions do not impact the defined
dollar plan. The assumed health care cost trend rates used to measure the
expected cost of benefits included a rate of increase of 9% for 1997
decreasing to 6% by the year 2000. Increasing the assumed health care cost
trend rates for the full coverage plan by one percentage point in each year
would have resulted in an increase of $2.4 million in the APBO and no material
increase in annual health care expense.

RETIREMENT PLANS

The Company sponsors and contributes to a defined contribution retirement
plan, American Stores Retirement Estates (ASRE). This plan was authorized by
the Board of Directors for the purpose of providing retirement benefits for
associates of American Stores Company and its subsidiaries. The plan covers
associates meeting age and service eligibility requirements, except those
represented by a labor union, unless the collective bargaining agreement
provides for participation. Contributions to ASRE are made at the discretion
of the Board of Directors.

F-16
<PAGE>

AMERICAN STORES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company also contributes to multi-employer defined benefit retirement
plans in accordance with the provisions of the various labor contracts that
govern the plans. The multi-employer plan contributions are generally based on
the number of hours worked. Information about these plans as to vested and
non-vested accumulated benefits and net assets available for benefits is not
available.

Retirement plans expense was as follows:

<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS 52 WEEKS
1996 1995 1994
-------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Company sponsored plans.......................... $ 88,106 $ 81,704 $ 84,149
Multi-employer plans............................. 95,822 86,723 67,391
-------- -------- --------
Retirement plans expense......................... $183,928 $168,427 $151,540
======== ======== ========
</TABLE>

During 1994, the Company entered into Employment Agreements (Agreements)
with 17 of the Company's key executive officers. During 1995 the Company
entered into an Agreement with an additional employee. The Agreements are for
terms of either three or five years, may be renewed by the Company for
subsequent three-year or five-year terms, contain usual and customary terms of
employment agreements and provide the officers with a special long-range
retirement plan. Under the retirement plan, the executives are entitled to
receive an annual payment for a period of 20 years beginning at age 57 or upon
termination of employment, whichever occurs later. The retirement benefit is
calculated as a percentage of the executive's average target compensation
objective during the last two years of his or her employment under the
Agreement. The benefit ranges from 9% to 40% based on years of service with
the Company. The retirement benefit will be forfeited if the executive enters
into competition with the Company. At year-end 1996 17 of the Agreements
remained in effect.

SPECIAL CHARGES

The Company recorded special charges aggregating approximately $100.0
million, before taxes, or $.41 per share, during 1996 related primarily to its
Delta initiatives. The Delta initiatives are designed to transform the Company
from a holding company to a unified operating company.

The components of the charge include: warehouse consolidation costs,
administrative office consolidation costs, closed store costs, asset
impairment costs and other miscellaneous charges. The cost of consolidating
four general merchandise warehouses into one in southern California totaled
$26.4 million and is primarily related to lease termination costs, a reserve
for the anticipated loss on the sale of owned facilities (based on
management's estimated fair market value) and adjusting inventories to a
common inventory valuation method. The cost of consolidating administrative
offices in Salt Lake City and Chicago totaled $26.3 million and relates to
asset write-offs, lease termination costs and severance costs. Closed store
costs included mainly lease termination costs and fixed asset write-offs
totaling $12.9 million. Asset impairment charges totaling $26.4 million
consist of replacements of outdated computer systems and impairment of groups
of stores and other assets that do not fit the long-term strategic plan of the
Company. In addition, other reserves totaling $8.0 million were recorded. The
special charges are included in cost of merchandise sold ($10.0 million),
operating expenses ($15.5 million) and other non-operating expense ($74.5
million). As of year-end 1996, the Company charged $17.6 million against the
reserve, of which $12.3 million related to asset impairment. Disposal of
impaired assets is expected to be complete in fiscal 1998.

F-17
<PAGE>

AMERICAN STORES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Severance costs included above resulted from the Company's commitment to
restructure and consolidate operations. During the fourth quarter 1996,
consolidation of human resources, payroll, Drug Store administration and
general merchandise buying functions were announced and the related costs were
measurable and recognized. The Company recorded a charge to operating and
administrative expense of $15.5 million, related to termination benefits to be
paid to an estimated 445 employees. There were no payments made nor employees
terminated during the year. The consolidation is expected to be complete in
fiscal 1998.

CONTINGENCIES

The Company has identified environmental contamination sites related
primarily to underground petroleum storage tanks at various store, warehouse,
office and manufacturing facilities (related to current operations as well as
previously disposed of businesses). At most such locations, remediation is
either underway or completed. Undiscounted reserves have been established for
each environmental contamination site unless an unfavorable outcome is remote.
Although the ultimate outcome and expense of environmental remediation is
uncertain, the Company believes that required remediation and continuing
compliance with environmental laws in excess of current reserves will not have
a material adverse effect on the financial condition or results of operations
of the Company. Charges against earnings for environmental remediation were
not material in 1996, 1995 or 1994.

LEGAL PROCEEDINGS

The Company is involved in various claims, administrative proceedings and
other legal proceedings which arise from time to time in connection with the
conduct of the Company's business. In the opinion of management, such
proceedings will not have a material adverse effect on the Company's financial
condition or results of operations.

SUBSEQUENT EVENTS

On February 20, 1997, the Company and the family of L. S. Skaggs entered
into an agreement for the repurchase by the Company of 12.2 million shares of
its common stock from the Skaggs family and certain family and charitable
trusts for $45 per share, the closing price on the date of the agreement (the
Repurchase). Pursuant to the agreement, the Company filed, at its cost, a
registration statement on March 4, 1997 to enable such shareholders to sell
15.4 million additional shares in a secondary offering. In addition, the
Company has granted the Underwriters an option to purchase an additional 2.3
million shares to cover over-allotments (these are primary shares to be issued
by the Company).

The closing of the Repurchase is expected to occur simultaneously with the
closing of the secondary offering. If the price to the public in the secondary
offering is less than $45 per share, the selling shareholders have the right
to terminate the secondary offering and, if they also elect, the Repurchase.
Either the Company or the selling shareholders may terminate the transactions
if they are not consummated within 60 days following the date the Company
files a registration statement for the secondary offering.

The selling shareholders have agreed to enter into a 10-year standstill
agreement restricting purchases and sales of the Company's shares, proxy
fights and other actions. In the event that neither the Repurchase nor the
secondary offering is consummated, the standstill period would be reduced to
30 months. The Company has granted the selling shareholders certain
registration rights during the standstill period.

F-18
<PAGE>

AMERICAN STORES COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

On March 28, 1997, the Company increased the capacity of its existing
revolving credit facility from $1 billion to $2 billion, which includes a $1.5
billion five-year revolving credit facility and a $500 million 364-day
revolving credit facility (the Amended Credit Facilities). The Company intends
to finance the $550 million Repurchase initially through the Amended Credit
Facilities. Subject to market conditions, the Company intends to refinance the
indebtedness incurred in connection with the Repurchase through public equity
and/or debt issuances over the next six to 12 months.

In anticipation of the expiration of the 1992 Key Executive Stock Purchase
Incentive Plan, the Board of Directors recently approved a new stock-based
management incentive program. The new program will continue to link executive
incentive compensation to shareholder return. The program involves the grant
of market-priced stock options that would ordinarily begin to vest on the
fifth anniversary of the grant date but which will vest on an accelerated
basis, in part, if stock ownership requirements are satisfied and, in part, if
the Company achieves annual performance goals. A total of approximately 1.8
million options were granted to 16 senior officers under the 1989 Stock Option
and Stock Award Plan in connection with the new incentive program on February
24, 1997, and a total of approximately 1.3 million options were granted to an
additional 30 senior officers under a new plan on March 27, 1997, in each
case, with an exercise price of $45 per share.

F-19
<PAGE>

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
Selling Stockholders have severally agreed to sell to each of the U.S.
Underwriters named below, and each of such U.S. Underwriters, for whom
Goldman, Sachs & Co., J.P. Morgan Securities Inc., Donaldson, Lufkin &
Jenrette Securities Corporation, Morgan Stanley & Co. Incorporated and Smith
Barney Inc. are acting as representatives, has severally agreed to purchase
from the Selling Stockholders, the respective number of shares of Common Stock
set forth opposite its name below:

<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON
UNDERWRITER STOCK
----------- ----------
<S> <C>
Goldman, Sachs & Co............................................. 2,874,899
J.P. Morgan Securities Inc...................................... 2,874,899
Donaldson, Lufkin & Jenrette Securities Corporation............. 1,436,444
Morgan Stanley & Co. Incorporated............................... 1,436,444
Smith Barney Inc................................................ 1,436,444
ABN AMRO Chicago Corporation.................................... 283,400
BancAmerica Securities, Inc. ................................... 283,400
Chase Securities Inc. .......................................... 283,400
Credit Suisse First Boston Corporation.......................... 283,400
Lehman Brothers Inc. ........................................... 283,400
Merrill Lynch, Pierce, Fenner & Smith Incorporated ............. 283,400
Salomon Brothers Inc............................................ 283,400
Tucker Anthony Incorporated..................................... 283,400
----------
Total................................................... 12,326,330
==========
</TABLE>

Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.

The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at
such price less a concession of $.90 per share. The U.S. Underwriters may
allow, and such dealers may reallow, a concession not in excess of $.10 per
share to certain brokers and dealers. After the shares of Common Stock are
released for sale to the public, the offering price and other selling terms
may from time to time be varied by the U.S. Underwriters.

The Company and the Selling Stockholders have entered into an underwriting
agreement (the "International Underwriting Agreement") with the underwriters
of the International Offering (the "International Underwriters") providing for
the concurrent offer and sale of 3,081,580 shares of Common Stock in an
international offering outside of the United States. The initial public
offering price and aggregate underwriting discount per share for the Offerings
are identical. The closing of the International Offering is a condition to the
closing of the U.S. Offering, and vice versa. The representatives of the
International Underwriters are Goldman Sachs International, J.P. Morgan
Securities Ltd., Donaldson, Lufkin & Jenrette Securities Corporation, Morgan
Stanley & Co. International Limited and Smith Barney Inc.

Pursuant to an agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two Offerings, each of
the U.S. Underwriters named herein has agreed or will agree pursuant to the
Agreement Between that, as a part of the distribution of the shares offered
hereby and subject to certain exceptions, it will offer, sell or deliver
shares of Common Stock, directly or indirectly, only in the United States of
America (including the 50 States and the District of

U-1
<PAGE>

Columbia), its territories, its possessions and other areas subject to its
jurisdiction (the "United States") and to U.S. persons, which term shall mean,
for purposes of this paragraph: (a) any individual who is a resident of the
United States or (b) any corporation, partnership or other entity organized in
or under the laws of the United States or any political subdivision thereof
and whose office most directly involved with the purchase is located in the
United States. Each of the International Underwriters has agreed or will agree
pursuant to the Agreement Between that, as a part of the distribution of the
shares offered as part of the International Offering, and subject to certain
exceptions, it will (i) not, directly or indirectly, offer, sell or deliver
shares of Common Stock (a) in the United States or to any U.S. persons or (b)
to any person who it believes intends to reoffer, resell or deliver the shares
in the United States or to any U.S. persons and (ii) cause any dealer to whom
it may sell such shares at any concession to agree to observe a similar
restriction.

Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall
be the initial public offering price, less an amount not greater than the
selling concession.

The Company has granted the U.S. Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of
1,848,949 additional shares of Common Stock, solely to cover over-allotments,
if any. If the U.S. Underwriters exercise such over-allotment option, the U.S.
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
12,326,330 shares offered hereby. The Company has granted the International
Underwriters a similar option to purchase up to an aggregate of 462,237
additional shares of Common Stock.

The Selling Stockholders have agreed not to offer, sell or otherwise dispose
of any shares of Common Stock, securities substantially similar to the Common
Stock, or securities exchangeable for or convertible into shares of Common
Stock, or any substantially similar security for a period of 90 days after the
date of this Prospectus without the prior written consent of the
representatives, except for the shares of Common Stock offered in connection
with the concurrent U.S. and international offerings. The Company has agreed,
with certain limited exceptions, not to offer, sell or otherwise dispose of
any shares of Common Stock, securities substantially similar to the Common
Stock, or securities exchangeable for or convertible into shares of Common
Stock or any substantially similar security (other than pursuant to employee
stock option or purchase plans or director incentive plans, or upon the
conversion or exchange of convertible or exchangeable securities outstanding
on the date of this Prospectus) for a period of 90 days after the date of this
Prospectus without the prior written consent of the representatives, except
for the shares of Common Stock offered in connection with the concurrent U.S.
and international offerings.

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.

During and after the Offerings, the Underwriters may purchase and sell
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offerings. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the Common Stock sold in the Offerings for their
account may be reclaimed by the syndicate if such securities are repurchased
by the syndicate in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Common Stock
which may be higher than the price that might otherwise prevail in the open
market. These transactions may be effected on the New York Stock Exchange, the
Chicago Stock Exchange, the Pacific Stock Exchange or the Philadelphia Stock
Exchange, in the over-the-counter market or otherwise, and these activities,
if commenced, may be discontinued at any time.

U-2
<PAGE>

Certain of the U.S. Underwriters and International Underwriters have
provided from time to time, and expect to provide in the future, investment
banking services to the Company and its affiliates (including certain of the
Selling Stockholders) for which such U.S. Underwriters and International
Underwriters have received and will receive customary fees and commissions.
The amount of outstanding debt borrowed directly under the Credit Facility, at
a weighted average interest rate of 5.6%, was $957 million at February 1,
1997, of which $123 million was owed to Morgan Guaranty Trust Company of New
York, the agent bank under the Credit Facility and the Amended Credit
Facilities. The Company will incur additional indebtedness under the Amended
Credit Facilities in connection with the Repurchase. The Amended Credit
Facilities include a $1.5 billion five-year revolving credit facility and a
$500 million 364-day revolving credit facility. In addition, the Company had
$100 million outstanding at February 1, 1997 under a 364-day credit line with
Morgan Guaranty Trust Company of New York, at an interest rate of 5.7%. Morgan
Guaranty Trust Company of New York, a wholly-owned subsidiary of J.P. Morgan &
Co. Incorporated, is an affiliate of each of J.P. Morgan Securities Inc., a
manager of the U.S. Offering, and J.P. Morgan Securities Ltd., a manager of
the International Offering.

U-3
<PAGE>

[pictures of exteriors and interiors of certain stores]
<PAGE>

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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRE-
SENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFOR-
MATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

-----------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................... 3
Incorporation of Certain Documents by Reference.......................... 4
The Company.............................................................. 5
Recent Developments...................................................... 6
Price Range of Common Stock and Dividend Policy.......................... 10
Use of Proceeds.......................................................... 10
Capitalization........................................................... 11
Selected Consolidated Financial Data..................................... 12
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 14
Business................................................................. 19
Description of Capital Stock............................................. 25
Selling Stockholders..................................................... 28
Legal Matters............................................................ 31
Experts.................................................................. 31
Index to Consolidated Financial Statements............................... F-1
Underwriting............................................................. U-1
</TABLE>

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15,407,910 SHARES

AMERICAN STORES COMPANY

COMMON STOCK
(PAR VALUE $1.00 PER SHARE)

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[LOGO]

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GOLDMAN, SACHS & CO.

J.P. MORGAN & CO.

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

MORGAN STANLEY & CO.
INCORPORATED

SMITH BARNEY INC.

REPRESENTATIVES OF THE UNDERWRITERS

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