<PAGE>

                                  LONGS DRUGS
                              ANNUAL REPORT 1999

                                         [PHOTO]


                                      Longs has it all!



<PAGE>

PROFILE   Longs Drug Stores is one of the largest drug store chains in North 
America, ending the year with 381 stores in California, Hawaii, Washington, 
Oregon, Nevada and Colorado. The Company offers a uniquely broad assortment 
of merchandise -- including pharmaceutical products, health and beauty items, 
photographic supplies and processing, staple foods and greeting cards -- along 
with excellent value and a high degree of customer service.

Longs common stock is traded on the New York Stock Exchange under the symbol 
LDG.

[GRAPHIC]                             -----------------------------------------
                                      COMPANY-OWNED
                                      PROPERTIES AT FISCAL YEAR END

                                      Store Building and Land               128
                                      Store Building on Leased Land          47
                                      Corporate Offices                       2
                                      Warehouses                              2
                                      -----------------------------------------
                                      NUMBER OF STORES
                                      AT FISCAL YEAR END

                                      California                            307
                                      Hawaii                                 32
                                      Nevada                                 14
                                      Colorado                                8
                                      Washington                             18
                                      Oregon                                  2
                                      -----------------------------------------
                                      Total                                 381
                                      -----------------------------------------
<PAGE>

------------------------------------------------------------------------------
                           FINANCIAL HIGHLIGHTS
------------------------------------------------------------------------------


 (Millions except sales per square foot, per share data and number of stores)
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>

                                                January 28,       January 29,         January 30,
-------------------------------------------------------------------------------------------------
Fiscal Year Ended                                     1999               1998                1997
-------------------------------------------------------------------------------------------------
  <S>                                            <C>               <C>                 <C>
  Sales                                           $3,267            $2,953               $2,828
  Net Income                                      $   63            $   58               $   59
  Per Share Data (Diluted)
  Net Income                                      $ 1.64            $ 1.49               $ 1.50
  Dividends                                       $  .56            $  .56               $  .56
  Balance Sheet Data
  Total Assets                                    $1,025            $  946               $  880
  Stockholders' Equity                            $  639            $  584               $  554
  Key Financial Ratio
  Return on Average Stockholders' Equity            10.4%             10.2%                10.9%
  Store Data
  Number of Stores at Year End                       381               349                  337
  Selling Square Footage at Year End                 6.0               5.5                  5.4
  Sales Per Selling Square Foot (52-week basis)   $  543            $  537               $  518
-------------------------------------------------------------------------------------------------
</TABLE>




     1     Longs Drug Stores Annual Report 1999

<PAGE>

                                         TO OUR
                                      STOCKHOLDERS

Longs had a very successful and productive year in fiscal 1999 marked by 
solid sales and earnings growth, continued improvements in efficiency 
throughout the Company, and an exciting and promising expansion of our market 
presence in the Western United States. Clearly, the strategic steps we 
implemented several years ago have been effective, enabling Longs to thrive 
in an increasingly competitive retail market. Faced with recent challenges 
from supermarkets, warehouse/club operators, and current retail drug 
competitors trying to capture new customers and increased market share, Longs 
has more than held its own. The key to this success, we believe, is our 
combination of proven tradition and strategic innovation. We not only provide 
the high levels of service and unique product selection that have been our 
hallmark since 1938, we also apply cutting-edge technology tools to sharpen 
all aspects of our operations, from distribution to pharmacy information 
systems to store-level marketing. The result: success in some of the toughest 
retail markets in the United States and a strong foundation for sustained 
growth.

For the 52 weeks ended January 28, 1999, Longs sales increased 10.6% to $3.27 
billion, and same store sales rose 7.2% from a year ago. Net income was $63.4 
million, or $1.64 per share, up 9.8%. Several factors combined to drive our 
profit growth. We achieved higher gross margin on front-end sales through 
sharper pricing and


2         Longs Drug Stores Annual Report 1999


<PAGE>

purchasing and increased sales of higher margin products. We continued to 
reduce our inventory costs in all categories. And we saw a 19.5% increase in 
pharmacy sales coupled with higher per-prescription profitability this 
despite the declines in reimbursements and overall pharmacy margins facing 
all drug retailers in the era of managed care. Pharmacy sales were 36.8% of 
total sales in fiscal 1999, up from 34.1% a year ago.

Strong Performance in All Departments

Longs' strong top line performance in fiscal 1999, especially same store 
sales growth, reflect solid execution in both our pharmacy and front-end 
business. The front-end category management initiatives that we began rolling 
out two years ago continue to pay off and we believe much of this success is 
due to the unique way we implement this merchandising tool. Like many 
retailers, we analyze scanner-based sales data to optimize product selection, 
pricing, replenishment and even shelf placement. But unlike our competitors, 
we do not view category management as purely a data-driven exercise. We 
augment the process with human insight by giving our store managers a great 
deal of autonomy in how they apply category management analysis in their 
stores. This is a critical differentiator for Longs. It is why our stores do 
not have an institutional, cookie cutter feel, but rather the more personal 
atmosphere that reflects each neighborhood and community we serve. It is a 
major reason why we have annual per store sales exceeding $8.8 million and 
customers that are among the most loyal in our industry.

[CHART]                        [CHART]                      [CHART]


Longs Drug Stores Annual Report 1999         3


<PAGE>


We are equally proud of our pharmacy performance. The increasing influence of 
managed care and increased pricing pressures have made this an especially 
challenging business in recent years, but we have successfully offset 
declining margins through higher sales and improved efficiency. For example, 
through Rx America, our pharmacy benefits management joint venture with 
American Stores Corporation, we have continued our emphasis on patient care 
initiatives and cover more than 3 million lives. To increase operating 
efficiency we have recently shifted to Bergen Brunswig as a single source 
wholesaler for prescription drugs, over-the-counter, and other health and 
beauty products. And, as we have described in previous annual reports, our 
advanced technology tools are improving prescription filling, minimizing 
overhead, and enhancing inventory management in the Pharmacy. 

Indeed, our control of both pharmacy and front-end inventory has been 
steadily improving. Through better tracking, forecasting and replenishment, 
in fiscal 1999 we reduced average pharmacy inventory by $10,000 from a year 
earlier. This was a significant accomplishment in a year of rising sales, and 
we look forward to further improvements at both the warehouse and store level.

Growing Presence in Western Markets

In fiscal 1999 we took a large step toward extending our leadership in the 
Western United States with the acquisition of Western Drug Distributors, a 
highly regarded 20-store chain in Washington and Oregon. The Pacific 
Northwest is a natural market for Longs, being adjacent to our home state of 
California and having similar customer


4         Longs Drug Stores Annual Report 1999


<PAGE>


demographics and market dynamics. We also feel the growth potential in the 
Pacific Northwest is excellent since there is no dominant drug retailer, and 
certainly no competitor with our unique product offering or service-driven 
business model. 

Going forward, our plans are to continue our expansion in Washington and 
Oregon, as well as in Colorado and Nevada where we have been increasing our 
presence in recent years. In each of these four states our new store growth 
will be rational to ensure that every store we operate in every market we 
serve provides the same high degree of service and quality that is the heart 
of the Longs brand and source of our strong customer loyalty in California 
and Hawaii. Of our planned 16 new stores in fiscal 2000, a number will be in 
Colorado and the Pacific Northwest with some in-filling in California, where 
economic and population growth continue to create opportunities for new 
stores.

Continuing Momentum in 2000 and Beyond

We firmly believe that Longs can and will build further on the positive 
momentum we have established, and the reason for our optimism goes beyond 
category management, advanced technology tools, our growing geographic 
presence, and our unsurpassed reputation for selection and service. The most 
compelling reason for our confidence in Longs' future is our people, the more 
than 18,500 employees of Longs who make each of our 381 stores the best drug 
store in town every day. As always, we thank them for their ongoing 
contributions to the Company's success.


/s/ Steve Roath                            /s/ Bob Long

S.D. Roath, President                      R.M. Long, Chief executive Officer

    [PHOTO]                                    [PHOTO]

April 5, 1999


Longs Drug Stores Annual Report 1999        5


<PAGE>


                                           DID
                                         YOU FIND
                                      WHAT YOU WERE
                                       LOOKING FOR
                                         TODAY?

                                        [PHOTO]


UNSURPASSED CUSTOMER SERVICE.

Longs first made its name pioneering self serve pharmacies in California in 
1938, an innovation that gave customers ready access to a broad choice of 
products and let them quickly compare brands and prices at a glance. Our 
reasoning was simple -- have what the customer is looking for and make 
shopping as easy as possible -- and that philosophy remains at the heart of 
how we do business. We have more and better trained sales people on the floor 
than you'll find in our competitors' stores, and pharmacy technology 
enhancements have freed our pharmacists to spend more time consulting with 
customers. Store design, too, makes the shopping experience more enjoyable 
and more productive, and we continually revise and improve our floor plans to 
reflect how our customers shop and to ensure that they find what they want, 
where they want it every time they visit Longs.

6         Longs Drug Stores Annual Report 1999

<PAGE>

                                    [PHOTO]




Longs Drug Stores Annual Report 1999         7

<PAGE>


                                    [PHOTO]




8         Longs Drug Stores Annual Report 1999

<PAGE>

THIS PLACE HAS EVERYTHING!

[PHOTO]

UNIQUE PRODUCT SELECTION.

Longs has redefined what a drug store is by expanding beyond traditional 
prescription drugs and health care offerings to provide a broad selection of 
cosmetics and beauty supplies, Hallmark greeting cards, photo processing and 
supplies, and basic foods. It's a truly unique merchandise assortment and one 
that continues to evolve in response to our customers. We are giving 
customers what they want with additions, updates and enhancements to every 
department. We also strive to ensure that our customers find more than they 
expect. Our managers are encouraged to make their stores reflect local 
customer tastes with out-of-the-ordinary products ranging from designer 
neckties to fishing tackle to model trains. And Longs offers a regularly 
changing selection of special purchase items in Bargain Alley, one of the 
most popular features in our stores. Expecting the unexpected gives our 
customers another reason to keep coming back and helps sustain Longs'
enduring customer loyalty.

Longs Drug Stores Annual Report 1999         9


<PAGE>


                                  LONGS
                                 IS MORE
                              THAN A STORE...
                                 THEY'RE
                                A NEIGHBOR.

                                  [PHOTO]


STRONG COMMUNITY TIES.

Longs' deep sense of community involvement that defined the first 
neighborhood drug store is evident in each of our 381 stores today. Unlike 
most large chains, we give our managers a great deal of operating autonomy, 
which gives each store unique attributes, and makes it a member of the 
surrounding community rather than just a generic outpost of a large retailer. 
Perhaps the most telling example of this local orientation is the involvement 
of our store personnel in local activities, charities and organizations. From 
support of the Juvenile Diabetes Walk-a-thon to health screenings and flu 
shots to responding to local disasters -- such as Hawaii's Hurricane Iniki in 
1992 or the Loma Prieta earthquake in 1989 -- our people demonstrate a 
commitment to their surrounding communities that is the true test of any good 
neighbor.

10         Longs Drug Stores Annual Report 1999


<PAGE>

                                    [PHOTO]




Longs Drug Stores Annual Report 1999         11

<PAGE>

                                    [PHOTO]




12         Longs Drug Stores Annual Report 1999

<PAGE>

                                         LONGS
                                       IS LIKE OUR
                                        EXTENDED
                                         FAMILY.

                                         [PHOTO]


EXPERIENCED, COMMITTED EMPLOYEES.

The most deeply rooted of Longs' core values is the importance we place on -- 
and value we attribute to -- our employees. We have been a family-run company 
since we opened in 1938, and that family feeling runs deep, manifesting 
itself in the friendly atmosphere of our stores and the efficient teamwork we 
practice throughout the organization. It's an attitude that makes working at 
Longs more than a job. In an era where frequent job changing is the norm, we 
have more than 3,750 employees who have been with Longs over 10 years. And 
our employees own 20% of the stock in the Company. Roots run deep at Longs. 
The insight and experience that result from such stability are a big reason 
why we have been able to successfully combine tradition and innovation for 
the past 60 years. Having high quality employees is why we will continue to 
succeed for at least 60 more.

Longs Drug Stores Annual Report 1999         13


<PAGE>


                                          FINANCIALS

                     Five Year Selected Financial Data                   14

                     Management's Discussion and Analysis                15

                     Statements of Consolidated Income                   19

                     Consolidated Balance Sheets                         20

                     Statements of Consolidated Cash Flows               21

                     Statements of Consolidated Stockholders' Equity     22

                     Notes to Consolidated Financial Statements          23

                     Auditor's Opinion                                   28



-------------------------------------------------------------------------------
                      Five Year Selected Financial Data
-------------------------------------------------------------------------------

<TABLE>
<CAPTION>

----------------------------------------------------------------------------------------------------------------
FISCAL (THOUSANDS EXCEPT PER SHARE DATA)              1999        1998         1997        1996             1995
----------------------------------------------------------------------------------------------------------------
<S>                                             <C>         <C>          <C>          <C>             <C>
Sales                                           $3,266,904  $2,952,921   $2,828,338  $2,644,376       $2,558,269
Net Income                                          63,358      57,726       58,612       46,228(1)       48,731
Net Income per Diluted Share                          1.64        1.49         1.50         1.15(1)         1.18
Dividends per Share                                    .56         .56          .56          .56             .56
Total Assets                                     1,025,130     946,289      879,649      853,557         827,961
----------------------------------------------------------------------------------------------------------------
</TABLE>


(1) Includes $14 million lawsuit settlement in fiscal year 1996, reducing the
after-tax net income by $8.4 million, or $.21 per share.


14         Longs Drug Stores Annual Report 1999


<PAGE>


-----------------------------------------------------------------------------
              MANAGEMENT'S DISCUSSION AND ANALYSIS
-----------------------------------------------------------------------------

RESULTS OF OPERATIONS

Seasonal Business and 52/53 Week Years 

The retail drug store business is seasonal, peaking in the fourth quarter 
with front-end sales benefiting from the Thanksgiving and Christmas holidays 
and pharmacy sales and over-the-counter medications (front-end sales) 
benefiting from the winter cold and flu season.

The Company's fiscal year ends the last Thursday in January. Most fiscal 
years have four quarters of thirteen weeks each, totaling 52 weeks. Every 
five to six years the fourth quarter has one additional week of operations, 
which was the case with fiscal 1997. Sales comparisons for fiscal 1997 have 
also been presented on a 52-week basis to facilitate comparison to the 1999 
and 1998 fiscal years.

<TABLE>
<CAPTION>

---------------------------------------------------------------------
Sales
---------------------------------------------------------------------
Fiscal                            1999          1998          1997
---------------------------------------------------------------------
Thousands                      (52 Weeks)    (52 Weeks)    (53 Weeks)
---------------------------------------------------------------------
<S>                           <C>            <C>           <C>
Sales                         $3,266,904     $2,952,921    $2,828,338
Sales Growth                       10.6%           4.4%          7.0%
Sales--52 Week 
  Comparable Basis            $3,266,904     $2,952,921    $2,775,094
Same-Store Sales Growth             7.2%           4.6%          4.1%
New Stores/Closed Stores            3.4%           1.8%          0.8%
                              ----------     ----------    ----------
Sales Growth--52 Week 
  Comparable Basis                 10.6%           6.4%          4.9%
                              ----------     ----------    ----------
New Stores                            16             14            10
Closed Stores                         (4)            (2)           (1)
Pacific Northwest acquisition         20             --            --
                              ----------     ----------    ----------
Number of Stores                     381            349           337
---------------------------------------------------------------------

</TABLE>

Sales increased 10.6% in fiscal 1999 and 4.4% (6.4% on a 52 week comparable 
basis) in fiscal 1998. Sales growth is attributed to increased same store and 
new store sales and growth in new markets, including the acquisition of 18 
stores in Washington and 2 stores in Oregon from Western Drug Distributors, a 
franchise of Drug Emporium (Pacific Northwest acquisition). Incremental sales 
from this acquisition contributed 3.0% of total sales growth in fiscal 1999. 
Solid same-store sales growth of 7.2% benefited from 15.9% same-store 
pharmacy sales and 2.7% same-store front-end sales. During fiscal 1999, 16 
new stores were opened, 9 of which were opened in the fourth quarter.

Pharmacy Sales

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------
Fiscal                                    1999             1998              1997
-----------------------------------------------------------------------------------
                                      (52 Weeks)       (52 Weeks)         (53 Weeks)
<S>                                   <C>              <C>                <C>
Pharmacy Sales Growth--
  52 Week Basis                        19.5%            11.0%                9.0%
Same-Store Pharmacy 
  Sales Growth                         15.9%            10.0%               10.5%
Pharmacy as a % of Total Sales         36.8%            34.1%               33.1%
Managed Care as a % of 
  Pharmacy Sales                       84.1%            82.1%               80.2%
-----------------------------------------------------------------------------------

</TABLE>


Pharmacy sales, for the second consecutive year, posted double-digit growth 
led by increases in the number of prescriptions filled and new drug 
introductions that contributed to an increased average prescription price. 
These factors are responsible for same-store pharmacy sales growth of 15.9%. 
Pharmacy sales as a percentage of total sales grew to 36.8%. Pharmacy sales 
reimbursed through managed care arrangements (third party sales) were 84.1% 
and continue to increase as a percentage of pharmacy sales. Average pharmacy 
sales per store are among the leaders in the drug store industry. The 
percentage of pharmacy sales to total sales on the surface appears to lag the 
industry but only because of Longs strength in the front-end core categories. 

Front-End Sales

<TABLE>
<CAPTION>

-----------------------------------------------------------------------------------
Fiscal                                1999               1998               1997
-----------------------------------------------------------------------------------
                                   (52 Weeks)          (52 Weeks)        (53 Weeks)
-----------------------------------------------------------------------------------
<S>                                 <C>                 <C>               <C>
Front-End Sales Growth--
  52 Week Basis                       7.3%                3.8%              3.1%
Same Store Front-End 
  Sales Growth                        2.7%                1.9%              4.0%
Front-End as a % of Total Sales      63.2%               65.9%             66.9%
-----------------------------------------------------------------------------------

</TABLE>


Longs percentage of front-end sales relative to total sales leads the 
industry due to the relatively large store format and strong sales in core 
categories of over-the-counter medications, cosmetics, photo and photo 
processing, and greeting cards. Front-end sales growth of 7.3% in fiscal 1999 
was led by a 3.2% contribution from the Pacific Northwest acquisition. 
Successful category management drove higher than average sales increases in 
relatively high margin core categories of cosmetics, over-the-counter 
medications and photo, as well as the additional contribution from more 
in-store photo labs and mailing centers.


Longs Drug Stores Annual Report 1999    15


<PAGE>


-----------------------------------------------------------------------------
              MANAGEMENT'S DISCUSSION AND ANALYSIS
-----------------------------------------------------------------------------

Gross Margin

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Fiscal                             1999              1998                  1997
-------------------------------------------------------------------------------------
Thousands                       (52 Weeks)        (52 Weeks)            (53 Weeks)
-------------------------------------------------------------------------------------
<S>                             <C>               <C>                   <C>
Gross Margin % 
  Last-in-first-out (LIFO)        26.6%             26.6%                 26.7%
Gross Margin % 
  First-in-first-out (FIFO)       26.8%             26.8%                 26.8%
LIFO Provision                   $7,500            $5,900                $3,400
-------------------------------------------------------------------------------------

</TABLE>

Gross margin as a percent of sales (LIFO and FIFO) was flat in relation to 
prior year. Category management pricing and other marketing initiatives 
improved front-end margins and offset declines in pharmacy percentage margins 
and the impact of lower overall margins in the new Pacific Northwest stores. 
The LIFO provision fluctuates with inflation rates and year-end inventory 
mix, and is included in cost of merchandise sold. Increases in the LIFO 
provision for the last two fiscal years were primarily caused by the increase 
in prescription drug costs.

Operating and Administrative Expenses

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------
Fiscal                               1999                1998                 1997
-------------------------------------------------------------------------------------
Thousands                         (52 Weeks)          (52 Weeks)           (53 Weeks)
-------------------------------------------------------------------------------------
<S>                               <C>                  <C>                  <C>
Operating and Administrative 
  Expenses                         $765,058             $690,552             $657,796
Operating and Administrative 
  Expenses as a Percent of Sales     23.42%               23.39%               23.26%
Year 2000 Project Expenses           $5,463               $1,282                   --
Operating and Administrative 
  Expenses as a Percent of Sales 
  (Excluding Y2K expenses)           23.25%               23.34%               23.26%
-------------------------------------------------------------------------------------

</TABLE>

In fiscal 1999, operating and administrative expenses as a percent of sales 
were flat to prior year at 23.4%, despite absorbing $5.5 million of Year 2000 
expenses (0.17% of sales). 

Interest Expense--In fiscal 1999 and 1998, the Company incurred interest 
expense on short-term bank borrowings of $1.8 million and $1.5 million, 
respectively. These borrowings were used to finance the Company's operations, 
to acquire the 20 stores in the Pacific Northwest and to invest in new 
stores, distribution facilities and technology. 

Income Taxes--The Company's effective income tax rates were 38.5% in fiscal 
1999, 39.3% in fiscal 1998 and 39.9% in fiscal 1997. The Company benefited in 
fiscal 1999 from a new California law retroactively reinstating the 
deductibility of dividends paid on shares held by the Profit Sharing Plan 
which reduced the effective tax rate by 0.23%. Also, a decrease in the 
effective tax rate resulted from the increased business in Washington and 
Nevada, which have no state income tax. It is anticipated that the Company's 
effective tax rate will be approximately 39.7% for fiscal 2000. 

Net Income 


<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Fiscal                                        1999            1998            1997
-------------------------------------------------------------------------------------
Thousands                                  (52 Weeks)      (52 Weeks)     (53 Weeks)
-------------------------------------------------------------------------------------
<S>                                        <C>             <C>            <C>
Net Income                                  $63,358         $57,726        $58,612
Net Income as a Percent of Sales              1.94%           1.96%          2.07%
Net Income as a Percent of Sales
  (Excluding Y2K)                             2.04%           1.98%          2.07%
-------------------------------------------------------------------------------------

</TABLE>

Net income grew 9.8% for fiscal 1999 and is in line with the 10.6% increase 
in sales. Net income as a percent of sales decreased slightly versus fiscal 
1998 primarily due to $5.5 million in Year 2000 expenses in fiscal 1999 
versus $1.3 million in fiscal 1998. Without the Year 2000 expenses included 
in Operating and Administrative expenses, net income as a percentage of sales 
would have been 2.04% in fiscal 1999 and 1.98% in fiscal 1998. 

Net Income per Share (Diluted)

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Fiscal                               1999                 1998                1997
-------------------------------------------------------------------------------------
                                  (52 Weeks)            (52 Weeks)         (53 Weeks)
-------------------------------------------------------------------------------------
<S>                                <C>                   <C>                <C>
Net Income per share                $ 1.64                 $ 1.49              $ 1.50
Percent increase (decrease)
  in Net Income per Share            10.1%                  (0.7%)              30.4%
-------------------------------------------------------------------------------------

</TABLE>

Net income per share benefited in fiscal 1998 and 1997 by stock repurchases 
in those years. 

The decrease in net income per share for fiscal 1998 was primarily impacted 
by a comparison to fiscal 1997 that included one additional week of 
operations. The increase in net income per share for fiscal 1997 was also due 
to the additional week of operations in fiscal 1997 compared to fiscal 1996. 


16      Longs Drug Stores Annual Report 1999


<PAGE>


-----------------------------------------------------------------------------
              MANAGEMENT'S DISCUSSION AND ANALYSIS
-----------------------------------------------------------------------------


LIQUIDITY AND CAPITAL RESOURCES

Cash Position

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Fiscal                                  1999               1998               1997
-------------------------------------------------------------------------------------
Thousands                            (52 Weeks)         (52 Weeks)         (53 Weeks)
-------------------------------------------------------------------------------------
<S>                                  <C>                <C>                <C>
Cash and Equivalents at 
  Fiscal Year End                     $14,976            $48,552            $22,834
-------------------------------------------------------------------------------------

</TABLE>

Cash and equivalents in fiscal 1999 decreased due to the costs and working 
capital related to the Pacific Northwest acquisition and the opening of 16 
new stores. Cash and equivalents in fiscal 1998 were higher than fiscal 1997 
due to strong sales growth and decreased inventories.

Cash from Operations

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Fiscal                                  1999               1998               1997
-------------------------------------------------------------------------------------
Thousands                            (52 Weeks)         (52 Weeks)          (53 Weeks)
-------------------------------------------------------------------------------------
<S>                                   <C>                <C>                 <C>
Cash provided by 
  Operating Activities                 $115,014           $135,620            $80,579
-------------------------------------------------------------------------------------

</TABLE>

Cash provided by operating activities in fiscal 1999 decreased due to 
increased investment in inventories related to 16 new stores and the timing 
of income tax payments. Fiscal 1998 cash provided by operating activities 
increased primarily due to higher customer receipts driven by strong sales 
growth and the Company's focus on reducing average inventory per store.

Investing Activities

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Fiscal                                  1999               1998               1997
-------------------------------------------------------------------------------------
(Thousands)                          (52 Weeks)         (52 Weeks)         (53 Weeks)
-------------------------------------------------------------------------------------
<S>                                   <C>                <C>                <C>
Cash used in Investing Activities      ($133,424)         ($67,507)          ($65,117)
-------------------------------------------------------------------------------------

</TABLE>


Capital expenditures increased in fiscal 1999 primarily due to the Pacific 
Northwest acquisition, 16 new stores, technology, in-store photo labs and the 
completion of the Northern California warehouse. 

Capital expenditures for fiscal 2000 are expected to be between $70 and $80 
million with investments in new stores and technology. 

Financing Activities 

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
Fiscal                                  1999               1998               1997
---------------------------------------------------------------------------------------
Thousands                            (52 Weeks)         (52 Weeks)         (53 Weeks)
---------------------------------------------------------------------------------------
<S>                                     <C>                <C>                <C>
Cash used in Financing Activities        ($15,166)          ($42,395)         ($41,942)
---------------------------------------------------------------------------------------

</TABLE>

Cash flow used in fiscal 1999 financing activities was $15.2 million, a 
decrease of $27.2 million. Stock repurchases (net of sales) for fiscal 1999 
were $3.4 million, down from $20.5 million and $19.9 million in fiscal 1998 
and 1997, respectively. These repurchases are made at the discretion of the 
Board of Directors and are affected by stock price and available cashflow.

The Company's principal bank credit agreement is a $65 million revolving 
credit agreement, which expires on August 31, 2002. At the end of fiscal 
1999, the Company had $10 million in outstanding debt at a rate of 5.28% and 
$55 million of credit available for use. There was $663,000 restricted for 
letters of credit at the end of fiscal 1999.

Subsequent to year-end, the Company completed a private placement financing 
in which $45 million in senior notes were issued. The debt consisted of $15 
million of 5.85% notes due in 2006 and $30 million of 6.19% notes due in 
2014. The proceeds from these notes will be used to repay outstanding 
short-term borrowings and for general corporate purposes.

Expenditures for capital projects, dividends, and stock repurchases have 
been, and are expected to continue to be, funded from operations, cash 
reserves and the aforementioned private placement. To maintain desired 
working capital, the Company may periodically use the short-term line of 
credit.

Market Risk

The Company does not undertake any specific actions to cover its exposure to 
interest rate risk, and the Company is not a party to any interest rate risk 
management transactions. 

The Company does not purchase or hold any derivative financial instruments.

A 55 basis point move in interest rates (10% of the Company's weighted 
average interest rate) affecting the Company's floating financial instruments 
would have an immaterial effect on the Company's pretax income and cash flow 
over the next year. The 55 basis point move in interest rates would also have 
an immaterial effect on the fair value of the Company's fixed rate financial 
instruments. 


Longs Drug Stores Annual Report 1999     17


<PAGE>


-----------------------------------------------------------------------------
              MANAGEMENT'S DISCUSSION AND ANALYSIS
-----------------------------------------------------------------------------

YEAR 2000 COMPLIANCE

Historically, computer systems have maintained two-digit year information in 
date fields; 98, for example, has meant 1998. With the year 2000 approaching, 
some systems will be unable to process dates correctly. Processes may abort 
or produce erroneous data. Systems that require the use of dates beyond 1999 
will run into this problem before 2000.

The problem can be found almost anywhere, in both hardware and software. 
Mainframe systems, mid-range systems, and personal computers can all be a 
source of trouble. So can elevators, point-of-sale systems, PBX's, and other 
devices operating with embedded microcomputer chips that many people don't 
think of as being computers. If a company's systems cannot interpret the 
year 2000 dates beyond 1999, some modification or replacement of the systems 
is necessary to avoid system failures and the temporary inability to process 
transactions or engage in the normal business activities.

In 1996 the Company established a Year 2000 Project Team, headed by the 
Company's Chief Information Officer, to coordinate the Company's year 2000 
efforts. The project team is staffed by the Company's Management Information 
Services (MIS) personnel and outside consultants on an as-needed basis. The 
Chief Information Officer reports regularly on the status of year 2000 to the 
Company's senior officers, and to the Company's board of directors.

An assessment of the Company's MIS and non-MIS systems was completed to 
determine which mission-critical systems are at risk, and a plan was 
developed for replacing, and remediating both operating systems and business 
applications to achieve year 2000 compliance. The implementation of the plan 
is underway and the applications and operating systems are being modified or 
replaced based on the level of priority. Management estimates all of the 
activities with respect to assessment, clean-up, remediation, testing and 
implementation are about 60% complete for MIS and about 50% complete for 
non-MIS systems. The Company estimates that all critical and non-critical 
systems and applications will be year 2000 compliant by June 30, 1999.

Vendor Certification is in progress. First priority testing is given to key 
vendors with direct connection switches into Point of Sale and Pharmacy, as 
well as all financial settlement vendors. All vendor certification testing is 
expected to be completed by July 1999. Although the Company is assessing the 
year 2000 status of outside parties, there is no assurance that outside 
parties will attain year 2000 compliance on a timely basis; if they do not, 
year 2000 problems could have a material impact on the Company's operations.

Management believes that, should the Company or any third party with whom the 
Company has a business relationship experience a year 2000 related systems 
failure, the most likely worst-case scenario would be a possible failure of 
third party systems over which the company has no control, such as (but not 
limited to) power and telecommunications, supply chain interruption, or 
electronic commerce. Such an event could result in a substantial interruption 
of business and may have a material impact on the Company's results of 
operations.

Contingency planning is in process to provide for viable alternatives to 
ensure that the Company's core business operations are able to continue in 
the event of a year 2000 related systems failure. Management expects to have 
a comprehensive contingency plan developed by June 30, 1999 and implemented 
by October 31, 1999.

At the request of the board of directors, an external consulting group 
conducts independent reviews of the Company's year 2000 efforts. A review was 
conducted in September 1998 and the recommendations were implemented. A 
second assessment was conducted at the beginning of March 1999. The results 
are under review and recommendations will be addressed. 

In fiscal 1999 and 1998, the Company addressed year 2000 compliance issues 
with expenditures of $5.5 million and $1.3 million, respectively. The Company 
estimates that it will incur an additional $2.5 million in fiscal 2000, 
totalling approximately $9.3 million, which includes the estimated costs of 
all modifications, testing and consulting fees.

The foregoing discussion of year 2000 compliance contains forward looking 
statements about the Company's plans, expectations, costs, and consequences 
regarding year 2000 matters. There can be no assurance that the Company's 
expectations can be met and that the Company will not be adversely affected 
in a way unidentified in the preceding discussion. Factors that could cause 
the Company's results to differ from expectations include (but not limited 
to) unforeseen problems, greater than anticipated costs, and unexpected 
difficulties with outside parties.

18      Longs Drug Stores Annual Report 1999


<PAGE>


------------------------------------------------------------------------------
                     STATEMENTS OF CONSOLIDATED INCOME
------------------------------------------------------------------------------

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
                                                 January 28,           January 29,         January 30,
--------------------------------------------------------------------------------------------------------
    For the Fiscal Years Ended                          1999                  1998                1997
--------------------------------------------------------------------------------------------------------
    Thousands Except Per Share                    (52 weeks)            (52 weeks)          (53 weeks)
--------------------------------------------------------------------------------------------------------
  <S>                                              <C>                   <C>                 <C>
  Sales:                                            $3,266,904            $2,952,921          $2,828,338
  Cost and expenses:
    Cost of merchandise sold                         2,397,644             2,166,744           2,074,084
    Operating and administrative                       764,415               689,677             655,903
    Interest expense                                     1,787                 1,474                 839
                                                   -----------           -----------          ----------
  Income before taxes on income                        103,058                95,026              97,512
  Taxes on income                                       39,700                37,300              38,900
                                                   -----------           -----------          ----------
  Net income                                        $   63,358             $  57,726          $   58,612
                                                   -----------           -----------          ----------
                                                   -----------           -----------          ----------
  Per common share:
  Net income:
    Basic                                           $     1.64             $    1.50          $     1.50
    Diluted                                         $     1.64             $    1.49          $     1.50
  Dividends                                         $      .56             $     .56          $      .56
  Weighted average number of shares outstanding:
    Basic                                               38,527                38,590              38,987
    Diluted                                             38,717                38,764              39,141
--------------------------------------------------------------------------------------------------------

</TABLE>

See notes to consolidated financial statements.


Longs Drug Stores Annual Report 1999    19


<PAGE>


------------------------------------------------------------------------------
                          CONSOLIDATED BALANCE SHEETS
------------------------------------------------------------------------------

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------
                                                                     January 28,                        January 29,
     For the Fiscal Years Ended (thousands)                          1999                               1998
--------------------------------------------------------------------------------------------------------------------
  <S>                                                                <C>                                <C>
  ASSETS
  Current assets:
    Cash and equivalents                                             $   14,976                         $  48,552
    Pharmacy and other receivables                                       68,072                            63,107
    Merchandise inventories                                             382,248                           345,082
    Deferred income taxes                                                25,388                            23,244
    Other                                                                 1,844                             1,337
                                                                     ----------                         ---------
      Total current assets                                              492,528                           481,322
                                                                     ----------                         ---------
  Property:
    Land                                                                 95,359                            90,428
    Buildings and leasehold improvements                                392,967                           361,635
    Equipment and fixtures                                              321,998                           287,675
    Beverage licenses                                                     7,569                             7,468
                                                                     ----------                         ---------
      Total property at cost                                            817,893                           747,206
    Less accumulated depreciation                                       345,995                           312,112
                                                                     ----------                         ---------
      Property net                                                      471,898                           435,094
                                                                     ----------                         ---------
  Goodwill and other assets                                              60,704                            29,873
                                                                     ----------                         ---------
  Total                                                              $1,025,130                          $946,289
                                                                     ----------                         ---------
                                                                     ----------                         ---------

  LIABILITIES AND STOCKHOLDERS' EQUITY
  Current liabilities:
    Accounts payable                                                 $  184,989                         $ 170,855
    Short-term borrowings                                                10,000
    Employee compensation and benefits                                   72,353                             63,300
    Taxes payable                                                        43,700                             46,079
    Current portion of long term debt and guarantee 
      of Profit Sharing Plan debt                                         1,758                              3,210
    Other                                                                26,183                             29,325
                                                                     ----------                         ----------
      Total current liabilities                                         338,983                            312,769
                                                                     ----------                         ----------
  Guarantee of Profit Sharing Plan debt                                                                      1,803
  Long term debt                                                         14,253                             14,219
  Deferred income taxes and other long term liabilities                  33,055                             33,355
                                                                     ----------                         ----------
  Stockholders' equity:
    Common stock (38,946,000 and 38,629,000 shares outstanding)          19,473                             19,315
    Additional capital                                                  119,961                            110,466
    Common stock contribution to Profit Sharing Plan                      9,834                              9,856
    Guarantee of Profit Sharing Plan debt                                  (911)                            (4,371)
    Retained earnings                                                   490,482                            448,877
                                                                     -----------                        ----------
      Total stockholders' equity                                         638,839                           584,143
                                                                     -----------                        ----------
  Total                                                              $ 1,025,130                        $  946,289
                                                                     -----------                        ----------
                                                                     -----------                        ----------

</TABLE>

See notes to consolidated financial statements.


      20      Longs Drug Stores Annual Report 1999


<PAGE>


------------------------------------------------------------------------------
                  STATEMENTS OF CONSOLIDATED CASH FLOWS
------------------------------------------------------------------------------

<TABLE>

                                                                     January 28,         January 29,             January 30,
  For the Fiscal Years Ended                                                1999                1998                    1997
----------------------------------------------------------------------------------------------------------------------------
  Thousands                                                          (52 weeks)           (52 weeks)              (53 weeks)
----------------------------------------------------------------------------------------------------------------------------
  <S>                                                                <C>                 <C>                     <C>
  Operating activities:
    Net income                                                        $  63,358           $ 57,726                $ 58,612
    Adjustments to reconcile net income to 
      net cash provided by operating activities:
        Depreciation and amortization                                    51,288             45,243                  43,873
        Deferred income taxes and other                                  (2,084)            (9,186)                  4,468
        Restricted stock awards                                           2,653              2,065                   1,669
        Common stock contribution to benefit plans                       10,034              9,856                   9,460
        Tax benefits credited to stockholders' equity                        30                 61                      90
        Changes in assets and liabilities:
          Pharmacy and other receivables                                 (4,842)           (13,196)                  4,477
          Merchandise inventories                                       (12,397)            10,625                 (40,436)
          Other current assets                                              263                602                     748
          Current liabilities                                             6,711             31,824                  (2,382)
                                                                     ----------           --------                ---------
    Net cash provided by operating activities                           115,014            135,620                  80,579
                                                                     ----------           --------                ---------
  Investing activities:
    Payments for property additions and store acquisitions             (140,734)           (78,007)                (70,023)
    Receipts from property dispositions                                   7,310             10,500                   4,906
                                                                     ----------           --------                ---------
      Net cash used in investing activities                            (133,424)           (67,507)                (65,117)
                                                                     ----------           --------                ---------
  Financing activities:
    Proceeds (repayments) on long term borrowings                            34                (60)
    Proceeds from short-term borrowings                                  10,000
    Sale (repurchase) of common stock to (from) Profit Sharing Plan      (3,417)                                     2,000
    Repurchase of common stock                                                             (20,527)                (21,888)
    Dividend payments                                                   (21,783)           (21,808)                (22,054)
                                                                     ----------           --------                ---------
      Net cash used in financing activities                             (15,166)           (42,395)                (41,942)
                                                                     ----------           --------                ---------
  (Decrease) increase in cash and equivalents                           (33,576)            25,718                 (26,480)
  Cash and equivalents at beginning of year                              48,552             22,834                  49,314
                                                                     ----------           --------                ---------
  Cash and equivalents at end of year                                 $  14,976           $ 48,552                 $ 22,834
                                                                     ----------           --------                ---------
                                                                     ----------           --------                ---------
  Supplemental disclosures of cash flow information:
    Interest paid                                                     $   1,787           $  1,474                $     839
    Income taxes paid                                                    48,648             36,303                   46,278
  Supplemental schedule of non-cash investing 
    and financing activities:
    Issuance of note payable for investment in RxAmerica                                    13,201
    Issuance of inventory and other assets for investment in RxAmerica                       1,643
    Issuance of note payable for payment of equipment                       917              1,720
    Assumption of liabilities related to Pacific Northwest acquisition   11,161


</TABLE>

See notes to consolidated financial statements


Longs Drug Stores Annual Report 1999     21


<PAGE>


------------------------------------------------------------------------------
              STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
-------------------------------------------------------------------------------

<TABLE>

----------------------------------------------------------------------------------------------------------------------------------
                                                                      Profit          Guarantee
                                                                      Sharing          of Profit                        Total
                                       Common Stock    Additional     Plan              Sharing       Retained       Stockholders'
                                     ---------------
  (thousands)                        Shares   Amount    Capital    Contributions       Plan Debt      Earnings          Equity
-------------------------------------------------------------------------------------------------------------------------------
  <S>                                <C>      <C>       <C>          <C>              <C>            <C>            <C>
  Balance at January 25, 1996         39,632   $19,816   $107,608     $ 4,550          $(10,485)      $401,278       $522,767
                                     -------  --------  ---------    --------         ---------      ---------      ---------
  Net income                                                                                            58,612         58,612
  Dividends ($.56 per share)                                                                           (22,054)       (22,054)
  Profit Sharing Plan:
    Issuance of stock for FY96 
       contribution                      181        91      4,010      (4,055)                             (46)             0
    Contribution in cash                                                 (495)                                           (495)
    Stock portion of FY97 contribution                                  9,955                                           9,955
    Sale of stock to plan                 90        45      1,978                                          (23)         2,000
    Purchase of stock from plan         (179)      (90)    (3,925)                                          45         (3,970)
    Reduction of plan debt                                                                2,930                         2,930
  Restricted stock awards, net            72        36      1,651                                          (18)         1,669
  Tax benefits related to employee 
      stock plans                                                                                           90             90
  Repurchase of common stock            (828)     (414)    (1,995)                                     (15,509)       (17,918)
                                     -------  --------  ---------    --------         ---------      ---------      ---------
  Balance at January 30, 1997         38,968    19,484    109,327       9,955            (7,555)       422,375        553,586
                                     -------  --------  ---------    --------         ---------      ---------      ---------
  Net income                                                                                            57,726         57,726
  Dividends ($.56 per share)                                                                           (21,808)       (21,808)
  Profit Sharing Plan:
    Issuance of stock for FY97 
       contribution                     375        188      9,767      (9,955)                                              0
    Stock portion of FY98 contribution                                  9,856                                           9,856
    Purchase of stock from plan        (368)      (184)    (9,531)     (9,715)
    Reduction of plan debt                                                                3,184                         3,184
  Restricted stock awards, net           88         44      2,021                                                       2,065
  Tax benefits related to employee 
     stock plans                                                                                            61             61
  Repurchase of common stock           (434)      (217)    (1,118)                                      (9,477)       (10,812)
                                     -------  --------  ---------    --------         ---------      ---------      ---------
  Balance at January 29, 1998         38,629    19,315    110,466       9,856            (4,371)       448,877        584,143
                                     -------  --------  ---------    --------         ---------      ---------      ---------
  Net income                                                                                            63,358         63,358
  Dividends ($.56 per share)                                                                           (21,783)       (21,783)
  Profit Sharing Plan:
    Issuance of stock for FY98 
       contribution                     309        154      9,902      (9,856)                                            200
    Stock portion of FY99 contribution                                  9,834                                           9,834
    Purchase of stock from plan        (105)       (52)    (3,365)                                                     (3,417)
    Reduction of plan debt                                                                3,460                         3,460
  Restricted stock awards, net          113         56      2,597                                                       2,653
  Tax benefits related to stock awards                        361                                                         361
  Tax benefits related to 
      employee stock plans                                                                                  30             30
                                     -------  --------  ---------    --------         ---------      ---------      ---------
  Balance at January 28, 1999         38,946   $19,473   $119,961     $ 9,834          $   (911)      $490,482       $638,839
                                     -------  --------  ---------    --------         ---------      ---------      ---------
                                     -------  --------  ---------    --------         ---------      ---------      ---------

</TABLE>

See notes to consolidated financial statements.


       22      Longs Drug Stores Annual Report 1999


<PAGE>

------------------------------------------------------------------------------
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements include Longs Drug Stores Corporation 
and its wholly-owned subsidiary, Longs Drug Stores California, Inc. All 
inter-company accounts and transactions have been eliminated.

Fiscal years end the last Thursday of January. Most fiscal years have four 
quarters of thirteen weeks each, totaling 52 weeks. Every five to six years 
the fourth quarter has an additional week, which was the case with fiscal 
year 1997. References made to the 1999, 1998 and 1997 fiscal years refer to 
the 52-week periods ended January 28, 1999, January 29, 1998 and the 53-week 
period ended January 30, 1997.

Reclassifications have been made to certain fiscal year 1998 and 1997 amounts 
to make them comparable to fiscal year 1999.

Nature of Operations -- The Company operates retail drug stores in 
California, Hawaii, Colorado, Nevada, Washington and Oregon with a majority 
of the sales concentrated in California. Prescription drugs, over-the-counter 
health care products, photo and photo processing, cosmetics and greeting 
cards are the core merchandise categories. Additional significant categories 
include food, toiletries and seasonal merchandise. Items sold through 
promotional advertising represent a significant portion of sales.

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 reported amounts of assets and 
liabilities and disclosure of contingent assets and liabilities at the date 
of the financial statements and the reported amount of revenues and expenses 
during the reporting period. Actual results may differ from those estimates.

Cash and equivalents include investments with original maturities of three 
months or less that are easily convertible to cash.

Merchandise inventories are valued using the last-in, first-out (LIFO) 
method. The excess of specific cost over LIFO values was $146.6 and $139.1 
million at the 1999 and 1998 fiscal year ends.

Property is depreciated using the straight-line method with estimated useful 
lives of twenty to thirty-three years for buildings, the shorter of life of 
the lease or estimated useful life for leasehold improvements, and three to 
twenty years for equipment and fixtures and beverage licenses. Maintenance 
and repairs are charged to expense as incurred and major improvements are 
capitalized.

The Company reviews long-lived assets for impairments, using its best 
estimates based on reasonable and supportable assumptions and projections, to 
ensure their current value can be recovered by the cash flows from future 
operations.

Goodwill and other assets consist of an investment in the RxAmerica joint 
venture accounted for under the equity method, purchased pharmacy customer 
files and goodwill. Amortization of pharmacy customer files and goodwill are 
calculated under a straight-line method over estimated useful lives of one to 
five and five to twenty-five years, respectively.

New store opening costs, primarily labor to stock shelves, pre-opening 
advertising and store supplies, are charged to expense as incurred.

Advertising -- Advertising costs are expensed as incurred and were $24.0, 
$21.6, and $22.5 million for fiscal years 1999, 1998, and 1997, respectively.

Income taxes -- The Company accounts for its taxes in accordance with 
Statement of Financial Accounting Standards (SFAS) No. 109, which requires 
the use of the asset and liability method of accounting for deferred income 
taxes. Deferred income taxes are recorded based upon the differences between 
the financial statement and tax basis of assets and liabilities.

Stock based compensation -- The Company's only stock-based compensation is 
restricted stock, which is valued at its fair market value at the date of 
grant, and recorded as compensation expense over the vesting period. As a 
result, there are no additional required disclosures.

Net income per share -- Basic net income per share is computed by dividing net 
income by the weighted average number of common shares outstanding during the 
period. Diluted net income per share is computed by dividing net 


Longs Drug Stores Annual Report 1999     23


<PAGE>


------------------------------------------------------------------------------
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

income by the weighted average number of common shares and dilutive common 
equivalent shares (stock awards) outstanding during the period. The following 
is a reconciliation of the number of shares (denominator) used in the 
Company's basic and diluted net income per share computations (shares in 
thousands):

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
Fiscal                                   1999                  1998                      1997
---------------------------------------------------------------------------------------------------
                                      (52 Weeks)            (52 Weeks)                (53 Weeks)
                                   Shares Per Share      Shares Per Share          Shares Per Share
---------------------------------------------------------------------------------------------------
<S>                                <C>        <C>        <C>       <C>             <C>       <C>
Basic Net Income 
 Per Share                         38,527     $1.64      38,590    $1.50           38,987    $1.50
                                   ------     -----      ------    -----           ------    -----
Effect of Dilutive 
 Restricted 
 Stock Awards                         190                   174     (.01)             154
                                   ------     -----      ------    -----           ------    -----
Diluted 
 Net Income 
 Per Share                         38,717      1.64      38,764    $1.49           39,141     $1.50
---------------------------------------------------------------------------------------------------

</TABLE>

Reporting Comprehensive Income -- Effective fiscal year 1999, the Company 
adopted the disclosure requirements of SFAS No. 130 (Reporting Comprehensive 
Income) which requires that a company report, by major components and as a 
single total, the change in its net assets during the period from non-owner 
sources. The Company had no items of comprehensive income and comprehensive 
income equals net income for all periods presented.

Disclosures about Segments of an Enterprise and Related Information -- 
Effective fiscal year 1999, the Company adopted the disclosure requirements 
of SFAS No. 131 (Disclosures about Segments of an Enterprise and Related 
Information) which establishes annual and interim reporting standards for a 
company's operating segments and related disclosures about its products, 
services, geographic areas, and major customers. The Company operates in one 
reportable segment: the operation of retail drug stores in 6 states. 

New Accounting Pronouncements -- In June 1998, the FASB issued SFAS No. 133, 
Accounting for Derivative Instruments and Hedging Activities, which is 
effective in fiscal year 2001. SFAS No. 133 establishes accounting and 
reporting standards for derivative instruments, including certain derivative 
instruments embedded in other contracts, and hedging activities. It requires 
that an entity recognize all derivatives as either assets or liabilities in 
the statement of financial position and measure those instruments at fair 
value. The Company believes that SFAS No. 133 will not have a material impact 
on its results of operations or financial position. 

LEASES AND OTHER OBLIGATIONS

A significant portion of store properties are leased with original terms 
ranging from 10 to 25 years and renewal options covering up to twenty 
additional years in five-year to ten-year increments. Leases normally provide 
for minimum annual rent with provisions for additional rent based on a 
percentage of sales. Lease rentals for fiscal years 1999, 1998, and 1997 were 
$43.9, $38.6, and $37.3 million, of which $35.2, $30.7, and $29.6 million 
represent minimum payments.

Total minimum rental commitments for non-cancelable leases in effect at 1999 
year end were $39.1, $38.7, $37.2, $35.4, and $33.2 million for fiscal years 
2000 through 2004, respectively and $299.9 million thereafter.

The Company has an unsecured revolving line of credit of $65.0 million at a 
LIBOR based rate, which expires on August 31, 2002. There was $55.0 million 
available for use and $663,000 restricted for letters of credit at fiscal 
year end 1999. The line of credit contains quarterly and annual financial 
covenants which require minimum tangible net worth and various financial 
ratios. The Company has complied with restrictions and limitations included 
in the provisions of the line of credit.

LONG TERM DEBT

In October 1997, the Company purchased equipment that was financed by a $1.7 
million note maturing on January 2003. This note bears interest at a rate of 
5.69%; the first principal payment was made in February 1998.


     24     Longs Drug Stores Annual Report 1999


<PAGE>


------------------------------------------------------------------------------
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

In connection with the accounting of an equity investment in RxAmerica (see 
RxAmerica footnote) during fiscal 1998, the Company issued a $13.2 million 
note payable which bears interest at a fixed rate of 6.67%. The note is to be 
paid in equal quarterly installments through October 2017.

In December 1998, the Company purchased equipment for newly acquired stores 
and financed the transaction through the issuing of separate notes totaling 
$775,000 and $142,000. These notes mature in December 2003 and bear interest 
rates of 5.75% and 6.50%, respectively.

Long-term debt consists of the following:

<TABLE>
<CAPTION>

----------------------------------------------------------------------------
Fiscal Year  (thousands)                                          1999
----------------------------------------------------------------------------
<S>                                                             <C>
Notes Payable                                                    15,100
Less current portion                                                847
                                                                -------
Long-term debt                                                  $14,253
                                                                -------
                                                                -------

</TABLE>

At fiscal year-end 1999, future minimum principal payments on long-term debt 
are as follows:

<TABLE>
<CAPTION>

<S>                     <C>
Fiscal Year 2000         $   847
Fiscal Year 2001             947
Fiscal Year 2002             961
Fiscal Year 2003           1,010
Fiscal Year 2004             668
Thereafter                10,667
                         -------
Total                     15,100
                         -------
                         -------

</TABLE>

Subsequent to fiscal 1999, the Company completed a private placement 
financing in which $45 million in senior notes were issued. The debt 
consisted of $15 million of 5.85% notes due in 2006 and $30 million of 6.19% 
notes due in 2014. The pro ceeds from these notes will be used to repay 
short-term borrowings and for general corporate purposes. The note agreements 
include various financial and non-financial covenants including limitations 
on debt level.

EMPLOYEE COMPENSATION AND BENEFITS

The Company has approximately 18,500 full-time and part-time employees as of 
January 28, 1999. Virtually all full-time employees are covered by medical, 
dental and life insurance programs paid primarily by the Company. The Company 
also has a 401(k) plan under which employees may make voluntary contributions.

Employees who meet the eligibility requirements are entitled to Profit 
Sharing Plan benefits that are funded entirely by the Company. Contributions 
to the plan for fiscal years 1999, 1998 and 1997 were $11.0 million, $11.2 
million and $11.0 million, respectively. Contributions are made in cash and 
common stock.

In April 1995, the Board of Directors approved the Longs Drug Stores 
Corporation Deferred Compensation Plan of 1995. The plan provides eligible 
employees with the opportunity to defer a specified percentage of their cash 
compensation. Resulting obligations will be payable on dates selected by the 
participant in accordance with the terms of the plan. The total deferred 
compensation obligations under the plan may not exceed $10.0 million. 
Deferred compensation was $4.6 million and $3.2 million at 1999 and 1998 
fiscal year ends.

TAXES ON INCOME

Significant components of the Company's deferred tax assets and liabilities 
as of January 28, 1999 and January 29, 1998 are as follows:

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------
Fiscal year (thousands)                                1999                      1998
--------------------------------------------------------------------------------------------
<S>                                                <C>                        <C>
Deferred Tax Assets:
Reserve for vacation pay                            $ 8,847                    $ 8,047
Reserve for worker's compensation                    10,010                      8,542
State income tax                                      2,554                      2,836
Reserve for restricted stock awards                   2,312                      1,761
Reserve for health benefits                           2,111                      1,557
Other                                                14,116                     13,085
                                                    -------                    -------
                                                     39,950                     35,828
                                                    -------                    -------
Deferred Tax Liabilities:
Depreciation                                         24,638                     25,925
Basis of property                                     3,599                      3,626
Inventories                                           2,852                      1,844
Other                                                 7,982                      8,128
                                                    -------                    -------
                                                     39,071                     39,523
                                                    -------                    -------
Net deferred tax (asset) liability                  $  (879)                   $ 3,695
                                                    -------                    -------
                                                    -------                    -------

</TABLE>


Longs Drug Stores Annual Report 1999     25


<PAGE>


------------------------------------------------------------------------------
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

Income tax expense is summarized as follows:

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------
Fiscal Year (thousands)                                1999                 1998                   1997
------------------------------------------------------------------------------------------------------------
<S>                                                <C>                   <C>                     <C>
Current
Federal                                             $35,760               $38,518                 $27,849
State                                                 8,514                 9,694                   7,938
                                                    -------               -------                 -------
                                                     44,274                48,212                  35,787
Deferred                                             (4,574)              (10,912)                  3,113
                                                    -------               -------                 -------
Total                                               $39,700               $37,300                 $38,900
                                                    -------               -------                 -------
                                                    -------               -------                 -------

</TABLE>


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

<TABLE>
<CAPTION>

------------------------------------------------------------------------------------------------------------
Fiscal Year                                            1999                 1998                   1997
------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                   <C>                     <C>
Federal income taxes at 
 statutory rate                                     35.00%                35.00%                  35.00%
State income tax net of 
 federal benefits                                    5.01%                 5.20%                   5.47%
Benefits of ESOP dividends                          (1.29%)               (1.37%)                 (1.32%)
Other                                               (0.20%)                0.42%                   0.74%
                                                    ------                ------                  ------
                                                    38.52%                39.25%                  39.89%
                                                    ------                ------                  ------
                                                    ------                ------                  ------

</TABLE>

GUARANTEE OF PROFIT SHARING PLAN DEBT

In March 1989, the Company sold 1,393,728 shares of Longs' common stock to 
the Profit Sharing Plan for $25.0 million. The Plan financed this purchase 
with a ten-year loan guaranteed by Longs Drug Stores California, Inc. The 
Company has no obligation to repurchase outstand ing shares held by the Plan. 
Consequently, a Guarantee of Profit Sharing Plan debt is shown on the 
accompanying balance sheets with a corresponding reduction of Stockholders' 
Equity.

Loan repayments are made with dividends on allocated and unallocated shares 
held by the Plan and with Company contributions. It is expected that all 
shares will be allocated within the term of the loan. Members are allocated 
shares of Longs' common stock equal in value to the cash dividends on their 
allocated shares used to repay the loan. Periodically, the Company has been 
willing to repurchase shares to provide the Plan with needed liquidity. Plan 
shares of the leveraged Employee Stock Ownership Plan (ESOP) were as follows:

<TABLE>
<CAPTION>

------------------------------------------------------------------------------
Fiscal Year                            1999                        1998
------------------------------------------------------------------------------
<S>                              <C>                        <C>
Allocated shares                  1,294,670                  1,171,488
Unallocated shares                   99,058                    222,240
                                  ---------                  ---------
Total                             1,393,728                  1,393,728
                                  ---------                  ---------
                                  ---------                  ---------

</TABLE>

Loan payments are made in equal quarterly installments of $930,000, which 
includes interest at 8.4% per year. Dividends paid to the Plan and used in 
part to repay principal and interest on the loan totaled $3.2 million for 
fiscal years 1999, 1998 and 1997.

CONTINGENT LIABILITIES

On March 10, 1999, a class action lawsuit was filed against Longs on behalf 
of certain management-level employees: department managers, senior department 
managers, assistant managers, and second assistant managers. The lawsuit was 
filed in the United States District Court for the Northern District of 
California. In the lawsuit, current and former employees alleged that the 
Company inappropriately classified the plaintiffs as exempt, and consequently 
failed to pay them overtime premiums that would otherwise have been required. 
The suit also alleges certain record keeping violations. Plaintiffs seek 
damages and penalties in unspecified amounts, injunctive and declaratory 
relief, and costs of litigation, including attorney fees. The Company will 
vigorously defend itself. At this time it is not known what financial impact 
this action may have on the Company's financial results.


     26      Longs Drug Stores Annual Report 1999


<PAGE>
------------------------------------------------------------------------------
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------

A purported class action was filed against Longs on behalf of pharmacist 
employees in the United States District Court for the Northern District of 
California on February 18, 1998. The lawsuit claimed the Company engaged in 
improper pay practices and failed to keep adequate records. Resolution of 
this action has been negotiated and is pending court approval. The settlement 
of this lawsuit will not have a material impact to the Company's financial 
results.

The Company is also subject to various lawsuits and claims arising out of its 
businesses. In the opinion of management, after consultation with counsel, 
the disposition of these matters will not have a material adverse effect, 
individually or in the aggregate, on the Company's financial position, 
results of operations, or liquidity.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of the Company's current assets and liabilities, long-term 
debt, and Guarantee of Profit Sharing Plan debt approximates the estimated 
fair value.

STOCKHOLDERS' EQUITY

Authorized capital stock consists of 120 million shares of common stock, $.50 
par value, and 30 million shares of preferred stock. Each outstanding share 
of common stock has a Preferred Stock Purchase Right (expiring in September 
2006) which is exercisable only upon the occurrence of certain changes in 
control events. These new rights replaced previous rights which expired in 
September 1996. There have been no events that would allow these rights to be 
exercised.

The company has a Restricted Stock Award program in which certain individuals 
may be granted stock in the Company, with some restrictions. Recipients have 
voting rights to the shares and dividends are credited to the shares during 
the restriction period. However, transfer of ownership of the shares is 
dependent on continued employment for periods of one to five years. The 
portion not yet expensed for this program ($3.9 million) at January 28, 1999 
has been netted against Additional Capital. During fiscal years 1999, 1998, 
and 1997, the shares awarded under this program were 122,250, 90,140 and 
73,600, respectively.

In November 1994, the Board of Directors authorized a plan to repurchase up 
to four million shares of the Company's outstanding common stock from the 
open market. As of fiscal year 1998, the Company had repurchased 1,739,000 
shares at a cost of $32.6 million in conjunction with the repurchase plan. 
There were no repurchases of common stock from the open market during fiscal 
year 1999.

During fiscal year 1999, the Company repurchased 105,000 common shares from 
the Profit Sharing Plan at market values totaling $3.4 million.

RxAMERICA

On November 6, 1997, Longs Drug Stores and American Drug Stores, Inc. merged 
their pharmacy benefit management (PBM) subsidiaries and pharmacy mail order 
operations. The joint venture agreement combines the operations of Integrated 
Health Concepts, the PBM subsidiary of Longs, and RxAmerica, the PBM 
subsidiary of American Drug Stores. The new joint venture has retained the 
name RxAmerica. Most of the benefit of the joint venture is recognized on a 
per claim basis to the store filling a prescription. Remaining net operating 
income or losses is shared equally and was not material to operations in 
fiscal year 1999 or 1998. In consideration of Longs' 50% interest in the 
joint venture, Longs contributed $5.0 million in cash, a note payable for 
$13.2 million, and assets totaling $1.6 million.

ACQUISITION

During July 1998, the Company completed its acquisition of 18 stores in 
Washington and 2 stores in Portland, Oregon from Western Drug Distributors, 
Inc., a franchise of Drug Emporium (Pacific Northwest acquisition). This 
transaction was accounted for as a purchase and results of operations for the 
acquired stores are included with those of the Company since completion of 
the acquisition. The goodwill associated with the transaction is being 
amortized over twenty-five years using the straight-line method.

Longs Drug Stores Annual Report 1999     27
<PAGE>


------------------------------------------------------------------------------
                      INDEPENDENT AUDITORS' REPORT
------------------------------------------------------------------------------


Longs Drug Stores Corporation:

We have audited the accompanying consolidated balance sheets of Longs Drug 
Stores Corporation and its subsidiary (the Company) as of January 28, 1999 
and January 29, 1998, and the related statements of consolidated income, 
consolidated stockholders' equity and consolidated cash flows for each of the 
three fiscal years in the period ended January 28, 1999. 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 condyucted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for our opinion. 

In our opinion, such consolidated financial statements present fairly, in all 
material respects, the financial position of the Company at January 28, 1999 
and January 29, 1998, and the results of their operations and their cash 
flows for each of the three fiscal years in the period ended January 28, 1999 
in conformity with generally accepted accounting principles.

                                                  /s/ Deloitte & Touche LLP

March 10, 1999

                        QUARTERLY FINANCIAL DATA (UNAUDITED)


<TABLE>
<CAPTION>


------------------------------------------------------------------------------------------------------------
                                                             Earnings           Dividends          Stock
  Thousands except                   Gross       Net           Per                Per              Price
  per share data          Sales      Profit     Income      Diluted Share        Share             Range
------------------------------------------------------------------------------------------------------------
  <S>                  <C>           <C>        <C>         <C>                <C>                 <C>
  Quarter 1             $  752,799    $201,964   $14,190       .37               .14                $28-34
  Quarter 2                786,795     211,106    14,850       .38               .14                 27-31
  Quarter 3                808,285     213,756    10,984       .28               .14                 26-44
  Quarter 4                919,025     242,434    23,334       .61               .14                 32-41
                        ----------    --------   -------     -----              ----                ------
  FYE 1999              $3,266,904    $869,260   $63,358     $1.64              $.56                 26-44
                        ----------    --------   -------     -----              ----                ------
                        ----------    --------   -------     -----              ----                ------
  Quarter 1             $  710,934    $188,777   $14,080       .36               .14                $23-27
  Quarter 2                718,267     190,068    12,264       .31               .14                 24-27
  Quarter 3                714,597     189,609     9,995       .26               .14                 25-28
  Quarter 4                809,123     217,723    21,387       .56               .14                 25-32
                        ----------    --------   -------     -----              ----                ------
  FYE 1998              $2,952,921    $786,177   $57,726     $1.49              $.56                 23-32
                        ----------    --------   -------     -----              ----                ------
                        ----------    --------   -------     -----              ----                ------

</TABLE>


     28     Longs Drug Stores Annual Report 1999



<PAGE>


BOARD OF DIRECTORS AND OFFICERS OF LONGS DRUG STORES

BOARD OF DIRECTORS
ROBERT M. LONG
Chairman of the Board and 
Chief Executive Officer

RICHARD M. BROOKS*
Financial Consultant

WILLIAM L. CHENEVICH
Group Executive Vice President 
Visa International

WILLIAM G. COMBS
Vice President, Administration (retired)
Edward E. Johnston*
Insurance Consultant

MARY S. METZ, PH.D.*
President
S.H. Cowell Foundation

RONALD A. PLOMGREN
Senior Vice President, Development 
and Chief Financial Officer

STEPHEN D. ROATH
President

GERALD H. SAITO
Senior Vice President/
District Manager

HAROLD R. SOMERSET*
Business Consultant

DONALD L. SORBY, PH.D.*
Pharmaceutical Consultant

THOMAS R. SWEENEY
Vice President/District Manager (retired)

FREDERICK E. TROTTER*
President,
F.E. Trotter Inc.


SENIOR OFFICERS OF LONG DRUG STORES CALIFORNIA, INC.
ROBERT M. LONG**
Chairman of the Board and 
Chief Executive Officer

STEPHEN D. ROATH**
President

BILL M. BRANDON
Senior Vice President/
Regional Manager

TERRY D. BURNSIDE
Senior Vice President, Marketing

DAVID J. FONG
Senior Vice President, Pharmacy

ORLO D. JONES**
Senior Vice President, Properties 
and Secretary

BRIAN E. KILCOURSE
Senior Vice President, 
Chief Information Officer

RONALD E. LOVELADY
Senior Vice President, 
Human Resources


 * Member of Audit Committee
** Also an officer of 
   Longs Drug Stores Corporation


RONALD A. PLOMGREN**
Senior Vice President, Development, and Chief Financial Officer

GERALD H. SAITO
Senior Vice President/
District Manager

DAN R. WILSON
Senior Vice President/
Regional Manager

OFFICERS OF LONG DRUG STORES CALIFORNIA, INC.
LESLIE C. ANDERSON
Vice President, 
Human Resources Administration

CHARLES M. ARMSTRONG
Vice President/District Manager

AL A. ARRIGONI
Vice President, Construction 
and Assistant Secretary

DONALD C. BASILE
Vice President/District Manager

MARTIN A. BENNETT
Vice President/District Manager

JAMES L. FAMINI
Vice President/District Manager

STEPHEN W. FRYSLIE
Vice President/District Manager

LARRY C. GHERLONE
Vice President/District Manager

J. RICHARD JOHNSTON
Vice President/District Manager

JEFFREY J. MEDER
Vice President, Pacific Northwest

SAL PETRUCELLI
Vice President/District Manager

LARRY P. PRATO
Vice President/District Manager

MICHAEL K. RAPHEL
Vice President, Real Estate 
and Assistant Secretary

CLAY E. SELLAND**
Vice President, Treasurer 
and Assistant Secretary

MARTINE A. STEPHENSON
Vice President/District Manager

GROVER L. WHITE**
Vice President, Controller 
and Assistant Secretary

ROBERT W. WILSON
Vice President/District Manager

TRANSFER AGENT & REGISTRAR
Chasemellon Shareholder Services
85 Challenger Road
Ridgefield Park, NJ 07660
1-888-213-0886
www.chasemellon.com

INDEPENDENT AUDITORS
Deloitte & Touche LLP
San Francisco, CA

GENERAL COUNSEL
Bell, Rosenberg & Hughes LLP
Oakland, CA

Howard, Rice, Nemerovski, Canady, Falk & Rabkin
San Francisco, CA


INQUIRIES
Communications concerning stock transfer requirements, lost certificates and 
changes of address should be directed to the Transfer Agent. Other 
stockholder or investor inquiries should be directed to:

Investor Relations
Longs Drug Stores Corporation
P.O. Box 5222
Walnut Creek, CA 94596
(925) 937-1170


FORM 10-K
The Company's Form 10-K as filed with the Securities and Exchange Commission 
is available without charge by writing to the Corporate Treasurer. Company 
financial information is also available on the World Wide Web at 
http://www.longs.com and through our toll-free telephone service, 
1-888-LDG-NEWS.


ANNUAL MEETING
The Company's annual meeting of stockholders will be held at 11:00 a.m., on 
May 18, 1999, at the Regional Center for the Arts, 1601 Civic Drive, Walnut 
Creek, CA. All stockholders are cordially invited to attend.



FORWARD-LOOKING INFORMATION
This report contains certain forward-looking statements regarding the 
Company's expected performance for future periods including same store sales, 
new store openings, and potential acquisition. Actual results for such 
periods may materially differ. Such forward-looking statements involve risks 
and uncertainties, including risks of changing market conditions in the 
overall economy and the retail industry, consumer demand, the opening of new 
stores, completion of the acquisition, actual advertising expenditures by the 
Company, the success of the Company's advertising and merchandising strategy 
and other factors detailed from time to time in the Company's annual and 
other reports filed with the Securities and Exchange Commission.

Design: Heiney & Craig, Inc., San Francisco

<PAGE>

                                 [PHOTO]


                               LONGS DRUGS

                           141 North Civic Drive
                              P.O. Box 5222
                               Walnut Creek
                             California 94596
                             (925) 937-1170
                              www.longs.com