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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

(Mark One)

|/x/ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|--- | ----------------------------------------------------------------------------------------

For the quarterly period ended April 26, 2001

|/ / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
|--- | -----------------------------------------------------------------------------------------

Commission file number 1-8978

LONGS DRUG STORES CORPORATION(Exact name of registrant as specified in its charter)

Maryland(State or other jurisdiction of incorporation or organization)

68-0048627(I.R.S. Employer
Identification No.)141 North Civic Drive Walnut Creek, California(Address of principal executive offices)

94596(Zip Code)


Registrant's telephone number, including area code:(925) 937-1170

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Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes /x/  No / /

There
were 37,784,561 shares of common stock outstanding as of May 24, 2001.

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Table of Contents

|PART IFINANCIAL INFORMATION |                | 
|---------------------------- | -------------- | 
|                             | Item 1         | 
|                             | Item 2         | 
|                             | Item 3         | 
|PART IIOTHER INFORMATION    |                | 
|                             | Item 1         | 
|                             | Item 6         | 
|                             | Signature Page | 

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PART IFINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

Statements of Condensed Consolidated Income (unaudited)

|                                               |                                   | For the Quarters Ended |          
|---------------------------------------------- | --------------------------------- | ---------------------- | ---------
|
|
|Sales                                          |                                   | $                      | 1,032,063
|Cost and expenses:                             |                                   |                        |          
|                                               | Cost of merchandise sold          |                        |          
|                                               | Operating and administrative      |                        |          
|                                               | Provision for store closures, net |                        |          
|                                               | Interest expense                  |                        |          
|                                               | Interest income                   |                        |          
|                                               |                                   |                        |          
|Income before taxes on income                  |                                   |                        | 19,300   
|Taxes on income                                |                                   |                        | 7,700    
|                                               |                                   |                        |          
|Net income                                     |                                   | $                      | 11,600   
|                                               |                                   |                        |          
|Net income per common share:                   |                                   |                        |          
|                                               | Basic                             |                        | $        
|                                               | Diluted                           |                        | $        
|                                               | Dividends                         |                        | $        
|Weighted average number of shares outstanding: |                                   |                        |          
|                                               | Basic                             |                        |          
|                                               | Diluted                           |                        |          

See notes to Condensed Consolidated Financial Statements.

1

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Condensed Consolidated Balance Sheets

|                                                                        |                            | April 26,
2001 |         | April 27,
2000 |           | Janaury 25,
2001
|----------------------------------------------------------------------- | -------------------------- | -------------- | ------- | -------------- | --------- | ----------------
|
|
|ASSETS                                                                  |                            |                |         |                |           |                 
|Current Assets:                                                         |                            |                |         |                |           |                 
|Cash and equivalents                                                    |                            | $              | 59,014  |                | $         | 40,739          
|Pharmacy and other receivables, net                                     |                            |                | 105,697 |                |           | 88,157          
|Merchandise inventories                                                 |                            |                | 415,502 |                |           | 429,746         
|Deferred income taxes                                                   |                            |                | 26,192  |                |           | 26,453          
|Other                                                                   |                            |                | 5,821   |                |           | 8,195           
|                                                                        |                            |                |         |                |           |                 
|                                                                        | Total current assets       |                |         | 612,226        |           |                 
|                                                                        |                            |                |         |                |           |                 
|Property:                                                               |                            |                |         |                |           |                 
|Land                                                                    |                            |                | 108,355 |                |           | 105,930         
|Buildings and leasehold improvements                                    |                            |                | 473,357 |                |           | 435,174         
|Equipment and fixtures                                                  |                            |                | 432,219 |                |           | 377,699         
|Beverage licenses                                                       |                            |                | 8,211   |                |           | 8,010           
|                                                                        |                            |                |         |                |           |                 
|                                                                        | Total property at cost     |                |         | 1,022,142      |           |                 
|Less accumulated depreciation                                           |                            |                | 432,364 |                |           | 384,091         
|                                                                        |                            |                |         |                |           |                 
|                                                                        |                            | Property, net  |         |                | 589,778   |                 
|                                                                        |                            |                |         |                |           |                 
|Goodwill, net                                                           |                            |                | 127,415 |                |           | 136,665         
|Other assets                                                            |                            |                | 24,549  |                |           | 23,273          
|                                                                        |                            |                |         |                |           |                 
|                                                                        |                            | Total          |         | $              | 1,353,968 |                 
|                                                                        |                            |                |         |                |           |                 
|LIABILITIES AND STOCKHOLDERS' EQUITY                                    |                            |                |         |                |           |                 
|Current Liabilities:                                                    |                            |                |         |                |           |                 
|Accounts payable                                                        |                            | $              | 262,938 |                | $         | 225,913         
|Short-term borrowings                                                   |                            |                | 10,000  |                |           |                
|Employee compensation and benefits                                      |                            |                | 77,545  |                |           | 74,863          
|Taxes payable                                                           |                            |                | 43,724  |                |           | 44,196          
|Current portion of long-term debt                                       |                            |                | 3,141   |                |           | 3,058           
|Other                                                                   |                            |                | 30,098  |                |           | 32,890          
|                                                                        |                            |                |         |                |           |                 
|                                                                        | Total current liabilities  |                |         | 427,446        |           |                 
|                                                                        |                            |                |         |                |           |                 
|Long-term debt                                                          |                            |                | 210,626 |                |           | 188,793         
|Deferred income taxes and other long-term liabilities                   |                            |                | 23,041  |                |           | 33,542          
|Commitments and Contingencies                                           |                            |                |         |                |           |                 
|Stockholders' Equity:                                                   |                            |                |         |                |           |                 
|Common stock (37,783,000, 39,226,000 and 37,367,000 shares outstanding) |                            |                | 18,892  |                |           | 19,613          
|Additional capital                                                      |                            |                | 146,955 |                |           | 141,675         
|Common stock contribution to Profit Sharing Plan                        |                            |                |        |                |           |                
|Retained earnings                                                       |                            |                | 527,008 |                |           | 531,407         
|                                                                        |                            |                |         |                |           |                 
|                                                                        | Total stockholders' equity |                |         | 692,855        |           |                 
|                                                                        |                            |                |         |                |           |                 
|                                                                        |                            | Total          |         | $              | 1,353,968 |                 
|                                                                        |                            |                |         |                |           |                 

See notes to Condensed Consolidated Financial Statements.

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Statements of Condensed Consolidated Cash Flows (unaudited)

|                                              |                                                                                   | For the Quarters Ended                        |                               
|--------------------------------------------- | --------------------------------------------------------------------------------- | --------------------------------------------- | ------------------------------
|
|
|Operating Activities                          |                                                                                   |                                               |                               
|                                              | Net income                                                                        |                                               | $                             
|                                              | Adjustments to reconcile net income to net cash provided by operating activities: |                                               |                               
|                                              |                                                                                   | Depreciation                                  |                               
|                                              |                                                                                   | Amortization                                  |                               
|                                              |                                                                                   | Deferred income taxes and other               |                               
|                                              |                                                                                   | Amortization of restricted stock awards       |                               
|                                              |                                                                                   | Common stock contribution to benefit plans    |                               
|                                              |                                                                                   | Tax benefits credited to stockholders' equity |                               
|                                              |                                                                                   | Changes in assets and liabilities:            |                               
|                                              |                                                                                   |                                               | Pharmacy and other receivables
|                                              |                                                                                   |                                               | Merchandise inventories       
|                                              |                                                                                   |                                               | Other current assets          
|                                              |                                                                                   |                                               | Current liabilities           
|                                              |                                                                                   |                                               |                               
|                                              |                                                                                   | Net cash provided by operating activities     |                               
|                                              |                                                                                   |                                               |                               
|Investing Activities:                         |                                                                                   |                                               |                               
|                                              | Payments for property additions, store acquisitions and other assets              |                                               |                               
|                                              | Proceeds from property dispositions                                               |                                               |                               
|                                              |                                                                                   |                                               |                               
|                                              |                                                                                   | Net cash used in investing activities         |                               
|                                              |                                                                                   |                                               |                               
|Financing Activities:                         |                                                                                   |                                               |                               
|                                              | Proceeds from long-term borrowings                                                |                                               |                               
|                                              | Repayments of short-term borrowings                                               |                                               |                               
|                                              | Repurchase of common stock from Profit Sharing Plan, net                          |                                               |                               
|                                              | Repurchase of common stock                                                        |                                               |                               
|                                              | Dividend payments                                                                 |                                               |                               
|                                              |                                                                                   |                                               |                               
|                                              |                                                                                   | Net cash used in financing activities         |                               
|                                              |                                                                                   |                                               |                               
|Increase in cash and equivalents              |                                                                                   |                                               | 14,322                        
|Cash and equivalents at beginning of period   |                                                                                   |                                               | 44,692                        
|                                              |                                                                                   |                                               |                               
|Cash and equivalents at end of period         |                                                                                   | $                                             | 59,014                        
|                                              |                                                                                   |                                               |                               
|Supplemental schedule of non-cash activities: |                                                                                   |                                               |                               
|                                              | Income taxes paid                                                                 |                                               | $                             

See notes to Condensed Consolidated Financial Statements.

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Statements of Condensed Consolidated Stockholders' Equity

For
the Year Ended January 25, 2001 and the Quarter Ended April 26, 2001

|                                     |                                         |        |      |   |        |      |   | Common
Stock
Contributions
to Profit
Sharing Plan |        |   |        |         |  
|------------------------------------ | --------------------------------------- | ------ | ---- | - | ------ | ---- | - | ------------------------------------------------- | ------ | - | ------ | ------- | -
|
|
|
|Balance at January 27, 2000          |                                         | 39,385 |      | $ | 19,692 |      | $ | 135,358                                           |        | $ | 10,181 |         | $
|Net income                           |                                         |        |      |   |        |      |   |                                                   |        |   |        |         |  
|Dividends ($.56 per share)           |                                         |        |      |   |        |      |   |                                                   |        |   |        |         |  
|Profit Sharing Plan:                 |                                         |        |      |   |        |      |   |                                                   |        |   |        |         |  
|                                     | Issuance of stock for FY00 contribution |        | 550  |   |        | 275  |   |                                                   | 9,906  |   |        | (10,181 | )
|                                     | Stock portion of FY01 contribution      |        |      |   |        |      |   |                                                   |        |   |        | 7,695   |  
|                                     | Sale of stock to plan                   |        | 46   |   |        | 23   |   |                                                   | 1,030  |   |        |         |  
|                                     | Purchase of stock from plan             |        | (298 | ) |        | (149 | ) |                                                   | (5,810 | ) |        |         |  
|Restricted stock awards, net         |                                         | 147    |      |   | 73     |      |   | 2,394                                             |        |   |        |         |  
|Tax expense related to stock awards  |                                         |        |      |   |        |      |   | (182                                              | )      |   |        |         |  
|Repurchase of common stock           |                                         | (2,463 | )    |   | (1,231 | )    |   | (5,962                                            | )      |   |        |         |  
|Balance at January 25, 2001          |                                         | 37,367 |      | $ | 18,683 |      | $ | 136,734                                           |        | $ | 7,695  |         | $
|Unaudited:                           |                                         |        |      |   |        |      |   |                                                   |        |   |        |         |  
|Net income                           |                                         |        |      |   |        |      |   |                                                   |        |   |        |         |  
|Dividends ($.14 per share)           |                                         |        |      |   |        |      |   |                                                   |        |   |        |         |  
|Profit Sharing Plan:                 |                                         |        |      |   |        |      |   |                                                   |        |   |        |         |  
|                                     | Issuance of stock for FY01 contribution |        | 287  |   |        | 144  |   |                                                   | 7,551  |   |        | (7,695  | )
|Contribution of stock to 401(k) plan |                                         | 73     |      |   | 37     |      |   | 2,048                                             |        |   |        |         |  
|Restricted stock awards, net         |                                         | 56     |      |   | 28     |      |   | 481                                               |        |   |        |         |  
|Tax expense related to stock awards  |                                         |        |      |   |        |      |   | 141                                               |        |   |        |         |  
|Balance at April 26, 2001            |                                         | 37,783 |      | $ | 18,892 |      | $ | 146,955                                           |        | $ |       |         | $

See notes to Condensed Consolidated Financial Statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



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|                             |                         | Quarter Ended
April 26, 2001 |     | Quarter Ended
April 27, 2000
|---------------------------- | ----------------------- | ---------------------------- | --- | ----------------------------
|
|Basic net income per share   |                         | 37,249                       |     | $                           
|Effect of dilution from:     |                         |                              |     |                             
|                             | Restricted stock awards |                              | 162 |                             
|                             | Stock options           |                              | 167 |                             
|                             |                         |                              |     |                             
|Diluted net income per share |                         | 37,578                       |     | $                           
|                             |                         |                              |     |                             



|                                    |  | (In millions)
|----------------------------------- |  | -------------
|
|Loss on disposition of fixed assets |  | $            
|Write-off of goodwill               |  |              
|Real estate related expenses        |  |              
|Other closing costs                 |  |              
|Employment related costs            |  |              
|Gain on sale of other assets        |  |              
|                                    |  |              
|Total                               |  | $            
|                                    |  |              

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

This quarterly report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act. Such statements relate to, among other things, pharmacy sales trends, prescription margins, margin improvement, third-party warehouse performance,
number of store openings, and the level of capital expenditures, and are indicated by words or phrases such as "continuing," "expects," "estimates," "believes" and other similar words or phrases.
These statements are based on our current plans and expectations and involve risks and uncertainties that could cause actual events and results to vary materially from those included in or
contemplated by such statements. These risks and uncertainties include, but are not limited to, among other things, changes in economic conditions generally or in the markets we serve; consumer
preferences and spending patterns; competition from other drugstore chains, supermarkets, on-line retailers, other retailers and mail order companies; changes in state or federal
legislation or regulations; the efforts of third-party payers to reduce prescription drug costs; the success of planned advertising and merchandising strategies; the availability and cost of real
estate and construction; accounting policies and practices; our ability to hire and retain pharmacists and other store and management personnel; our relationships with our suppliers; our ability to
successfully implement new computer systems and technology; the impact of rising energy costs on our operations; our ability to smoothly transition our California warehouse operations from third-party
to self-operation; adverse determinations with respect to litigation or other claims; and other factors discussed in this quarterly report under "Factors Affecting Our Future Prospects"
and elsewhere or any of our other SEC filings. We assume no obligation to update our forward-looking statements to reflect subsequent events or circumstances

Sales

First quarter fiscal 2002 sales increased 8.0% to $1.032 billion compared to $956 million in the same quarter last year. Total
same-store sales increased 6.6% as compared to the corresponding quarter of fiscal 2001.

Pharmacy
sales increased 15.6% for the quarter, led by a 9.0% increase in the average retail price per prescription and a 5.6% increase in script volume. Pharmacy
same-store sales increased 14.3% over the same quarter of the prior fiscal year. Pharmacy sales represented 44.6% of total sales for the quarter,
up from 41.8% in the same quarter last year and up from 41.1% of total sales for the preceding fiscal year. Pharmacy sales as a percent of total sales continue to increase as a result of new branded
pharmaceuticals and aggressive direct-to-consumer advertising by drug manufacturers.

Pharmacy
sales reimbursed through managed care arrangements (third-party sales) increased to 89.1% compared to 87.8% in the same quarter last year.

Front-end
sales increased 2.6% for the quarter. Same-store front-end sales as compared to the corresponding quarter of fiscal 2000 increased 1.1%.

Gross Margins

Gross margin dollars for the quarter increased 6.6% to $262.7 million from $246.4 million in the same quarter last year. Gross margin as a
percent of sales for first quarter fiscal 2002 declined slightly to 25.45% from 25.78% for the same quarter last year. The overall margin decline was due primarily to inventory liquidation costs
associated with our plan to close 15 underperforming stores and the continued increase in lower margin pharmacy sales.

We
use the Last-In First-Out (LIFO) method of inventory valuation. The LIFO provision was $2.0 million for the first quarter fiscal 2002 compared to
$3.8 million in the same quarter last year.

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Operating and Administrative Expenses

In first quarter fiscal 2002, operating and administrative expenses decreased as a percent of sales to 23.32% from 23.45% for the same quarter last year. This
reduction reflected our efforts to reduce wages, advertising and supplies expenses. These improvements were partially offset by higher facility expenses and e-retailing expenses.

Provision for Store Closures

We accrue an estimate for the costs associated with closing stores in the period in which the store is identified and approved by management under a plan of
termination. This includes the method of disposition and the expected date of completion. Costs include direct costs to terminate a lease or sub-lease a property and the difference between
book value and estimated recovery of fixed assets.

In
first quarter of fiscal 2002, we reduced the reserve for estimated expense for closed stores by $1.0 million. The same quarter last year included a similar reduction of
$1.1 million. We closed one store in the normal course of business during the first quarter of fiscal 2002.

In
January 2001 the board of directors approved a plan to close 15 underperforming stores ("2001 Closure Plan"). We closed 14 stores pursuant to the 2001 Closure Plan during
the first quarter of fiscal 2002. A summary of the costs associated with the 2001 Closure Plan incurred to date and revisions to the original estimates are as follows:

|                                    |  | (In millions)
|----------------------------------- |  | ---------------
|
|Loss on disposition of fixed assets |  | $              
|Write-off of goodwill               |  |                
|Real estate related expenses        |  |                
|Other closing costs                 |  |                
|Employment related costs            |  |                
|Gain on sale of other assets        |  |                
|                                    |  |                
|Total                               |  | $              
|                                    |  |                

Income Before Taxes/Net Income

Income before taxes was $19.3 million compared to $20.0 million for the same quarter of last year. Net interest expense for the first quarter
fiscal 2002 was $3.7 million compared to $3.4 million for the same quarter of last year. Net interest expense increased in first quarter fiscal 2002 compared to first quarter
fiscal 2001 primarily from interest expense on debt incurred for stock repurchases in the second quarter of fiscal 2001.

Net
income was $11.6 million for the quarter compared to $12.0 million the same quarter of last year, a 3.3% decrease.

LIQUIDITY AND CAPITAL RESOURCES

Cash Position

Cash provided by operating activities for the first quarter of fiscal 2002 decreased by $34.0 million compared to the first quarter of the prior fiscal
year, primarily due to reductions in accounts payable. Debt incurred for the acquisition of 31 stores in the third quarter of fiscal 2000 included the purchase of inventories. As that inventory was
sold, accounts payable increased as a result of the replenishment

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of that inventory. That increase in accounts payable is reflected in cash provided by operating activities for the first quarter of fiscal 2001.

Cash
used in investing activities for the first quarter of fiscal 2002 decreased by $12.7 million compared to the same quarter last year, primarily due to decreases in capital
expenditures. First quarter fiscal 2001 included capital expenditures for renovations of stores acquired in the third quarter of fiscal 2000, enhancing store technology and e-retailing
costs.

During
the first quarter of fiscal 2002, we opened four new stores and closed fifteen stores. We currently intend on opening at least an additional 16 new stores in fiscal year 2002,
bringing the total number of new stores to more than 20 for fiscal 2002. As of the end of fiscal 2002, the total number of stores is expected to be approximately 435.

Net
capital expenditures for the first quarter fiscal 2002 were $20.4 million. We estimate our capital expenditures for fiscal 2002 to be approximately $100 million,
supporting the increase in new stores, continued investment in technology and in our existing store base.

We
have available an unsecured and uncommitted $10 million line of credit which expires on August 7, 2001. At the end of the first quarter of fiscal 2002,
$10.0 million was outstanding under this facility.

We
have an unsecured committed revolving line of credit of $130.0 million, which expires on October 14, 2004, and accrues interest at LIBOR-based rates. At the end of
the first quarter fiscal 2002, $90.0 million was outstanding under this line of credit with a weighted average interest rate of 6.34%. The amount outstanding has been included in
long-term debt, as we do not plan to pay down this line of credit over the next 12-month period.

Additionally,
we have other long-term debt associated with an equity investment in Rx America, private placement financings and other equipment financing agreements which
amount to approximately $126.1 million and mature at various dates from 2004 to 2017 at interest rates ranging from 5.85% to 7.85%.

Debt
agreements contain various quarterly financial covenants that limit maximum debt to capitalization and minimum fixed charge coverage ratios. The agreements were amended to
exclude a $25.6 million charge recorded in the fourth quarter of fiscal 2001 from the computation of the fixed charge. As of April 26, 2001, we were in compliance with restrictions and
limitations included in these provisions.

Our
board of directors authorized the repurchase of up to 2,000,000 shares of our common stock in November 1999. The authorization provided for a maximum expenditure of
$80 million and expires in November 2004. We have purchased 1,146,868 shares to date under this authorization at a total cost of $22.5 million. No repurchases were made during the
first quarter of fiscal 2002. Stock repurchases are made at the discretion of our board of directors and are dependent upon the market price and available cash.

We
believe that cash on hand, together with cash provided by operating activities, will be sufficient to meet our working capital and capital expenditure requirements for at least the
next 12 months.

New Accounting Pronouncements

In 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and
measure these instruments at fair value. We adopted SFAS

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No. 133 in the first quarter of fiscal 2002. We do not invest in derivative instruments as such term is defined under SFAS 133. Adoption of SFAS 133 had no impact on us.

Factors Affecting Our Future Prospects

You should carefully read the following factors affecting our future prospects.

The markets in which we operate are very competitive, and further increases in competition could adversely affect us.

We face intense competition with local, regional and national companies, including other drug store chains, independent drug stores, on-line
retailers, supermarket chains and mass merchandisers. We may not be able to compete effectively against them. As competition increases in the markets in which we operate, a significant increase in
general pricing pressures could occur, which would require us to increase our sales volume and to sell higher-margin products and services at reduced prices to remain competitive. We cannot assure you
that we will be able to continue to compete effectively in our markets or increase our sales volume or margins in response to further increased competition.

Changes in third-party reimbursement levels for prescription drugs could reduce our margins and have a material adverse effect on us.

We are reimbursed by third-party payors for approximately 89% of all the prescription drugs that we sell. These third-party payors could reduce the levels at
which they will reimburse us for the prescription drugs that we provide to their members. Furthermore, if Medicare is reformed to include prescription benefits, Medicare may cover some of the
prescriptions drugs that we now sell at retail prices, and we may be reimbursed at prices lower than our current retail prices. If third-party payors reduce their reimbursement levels, or if Medicare
covers prescription drugs at reimbursement levels lower than our current retail prices, our margins on these sales would be reduced and the profitability of our business could be adversely affected.

We are substantially dependent on a single supplier of pharmaceutical products and our other suppliers to sell products to us on satisfactory terms.

We obtain approximately 95% of our pharmaceutical supplies from a single supplier, Bergen Brunswig, pursuant to a long-term supply contract.
Pharmacy sales represented approximately 45% of our total sales during the first quarter of fiscal 2002, and therefore our relationship with Bergen is significant to us. Any significant disruptions in
our relationships with our major suppliers, particularly our relationship with Bergen, could have a material adverse effect on us.

In
March 2001 Bergen Brunswig and AmeriSource announced that their boards of directors have approved a merger which is subject to regulatory approval. Although we do not expect
the merger to enhance the risk described above, the impact is not known to us at this time.

We are subject to governmental regulations, procedures, and requirements; our noncompliance or their significant change could have a material adverse affect on us.

Our pharmacy business is subject to several federal, state, and local regulations. These include local registrations of pharmacies in the states where our
pharmacies are located, applicable Medicare and Medicaid regulations and prohibitions against paid referrals of patients. Failure to properly adhere to these and other applicable regulations could
result in the imposition of civil and criminal penalties and could adversely affect us. Furthermore, our pharmacies could be affected by federal and state reform programs, such as healthcare reform
initiatives, and any new federal or state programs could also adversely affect us.

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Certain risks are inherent in the provision of pharmacy services, and our insurance may not be adequate to cover all claims against us.

Pharmacies are exposed to risks inherent in the packaging and distributions of pharmaceuticals and other healthcare products. Although we maintain professional
liability and errors and omissions liability insurance, we cannot assure you that the coverage limits under our insurance programs will be adequate to protect us against future claims, or that we will
maintain this insurance on acceptable terms in the future.

Any adverse change in general economic conditions can adversely affect consumer-buying practices and reduce our sales of front-end products, which are our
higher-margin products.

If the economy continues to slow and unemployment increases or inflationary conditions worry consumers, they may decrease their purchases, particularly of
products other than pharmaceutical products that they need for health reasons. We make a higher profit on our sales of front-end products than we do on sales of pharmaceutical products.
Therefore, any decrease in our sales of front-end products will decrease our profitability.

Our ability to attract and retain pharmacy personnel and other key personnel is important to the continued success or our business.

There is currently a shortage of licensed pharmacists in the markets where we operate. We have recently entered into a joint venture agreement with Bergen
Brunswig to operate prescription fill centers in an initial response to this shortage. The success of the prescription fill center, scheduled to open in June 2001, is important to our ability
to meet the shortage of pharmacists. Additionally, the economy has made it difficult to retain key management personnel. Our inability to attract and retain pharmacists and other key personnel could
adversely affect us.

The energy crisis may result in increases in operating and administrative expenses in fiscal 2002.

We currently operate 347 stores in the state of California, which is currently experiencing an energy shortage that has caused power outages. California
utility companies have announced significant increases in energy rates which will be reflected in our billings in the second quarter of fiscal 2002. These shortages may expand to other markets in
which we operate. We have taken such steps as reducing store lighting in an effort to conserve energy, but the volatility of energy rates may result in increases which would cause an increase in our
operating and administrative expenses.

Changes in the supply chain, including the transition from third-party warehouse distribution to self-distribution, could result in increased costs.

We are reevaluating our entire supply chain which we believe puts us in a competitive disadvantage with our competitors in our cost of merchandise. These
changes could result in significant investment in systems. We have reached agreement with our third-party warehouse operator in Northern and Southern California to terminate our operating agreement.
We expect to assume operation of the warehouses by the third quarter of fiscal 2002. While we have experience in operating our Hawaii warehouse and mainland pharmacy distribution center, we may incur
unanticipated start-up costs and other possible disruptions which may impact our operations.

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Item 3. Quantitative and Qualitative Disclosures of Market Risk

Market Risk

We do not undertake any specific actions to cover exposure to interest rate risk, and we are not a party to any interest rate risk management transactions.

We
have not purchased and do not hold any derivative financial instruments.

A
63 basis point move in interest rates (10% of our floating financial instruments) would have an immaterial effect on our pretax income and cash flow over the next year. The 63 basis
point move in interest rates would also have an immaterial effect on the fair value of our fixed rate financial instruments.

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PART IIOTHER INFORMATION

Item 1. Legal Proceedings

On June 5, 2001 an Alameda County jury rendered a verdict in favor of six plaintiffs who were former employees of ours. The aggregate amount awarded to
the plaintiffs was $300,000 related to their claims
of intentional infliction of emotional distress. The judge has scheduled a hearing for June 18, 2001 to determine punitive damages, if any. We intend to rigorously defend ourselves against this
action.

Item 6. Exhibits and Reports on Form 8-K



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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

|                    |  | Longs Drug Stores Corporation(Registrant)                                                                                
|------------------- |  | -------------------------------------------------------------------------------------------------------------------------
|Date: June 11, 2001 |  | /s/STEVEN F. MCCANNSteven F. McCann
Senior Vice PresidentChief Financial Officer and Treasurer
(Chief Financial Officer)
|Date: June 11, 2001 |  | /s/GROVER L. WHITEGrover L. White
Vice President, Controller
(Principal Accounting Officer)                              

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| |  | Longs Drug Stores Corporation
| |  | -----------------------------

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