Kevin Twomey - Chief Financial Officer, Executive Vice President Mary F. Sammons - President, Chief Executive Officer, Director

Meredith Adler - Lehman Brothers Edward Kelly - Credit Suisse Mark Wiltamuth - Morgan Stanley John Heinbockel - Goldman Sachs Stephen Chick - J.P. Morgan Karen Miller - Bear Stearns Carla Casella - J.P. Morgan Reed Kim - Merrill Lynch

Good morning. My name is Tina and I will be your conference operator today. At this time, I would like to welcome everyone to the Rite Aid third quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator Instructions) I would now like to turn the call over to Kevin Twomey, Chief Financial Officer for Rite Aid. Mr. Twomey, you may begin your conference.

Thank you, Tina. Season’s Greetings to everyone. We welcome you to our third quarter conference call. Mary Sammons, our President and CEO, and Jim Mastrian, our Chief Operating Officer, are also on the call with me. Our agenda for today’s call will be as follows: Mary will give an overview of our third quarter and a brief update on where we stand with the Brooks Eckerd acquisition. I will then review the third quarter financial results and discuss guidance for fiscal 2007. Mary will then comment on several recent industry related topics, and then we will take questions. Before we start, I would like to remind you that today’s conference call includes certain forward-looking statements. These forward-looking statements are made in the context of certain risks and uncertainties that could cause actual results to differ. Also, we will be using a non-GAAP financial measure. The risks, uncertainties and definition of the non-GAAP financial measure, along with a reconciliation to the GAAP measure, are described in more detail in our SEC filings. Finally, I remind everyone we are soliciting proxies in connection with the acquisition of Brooks and Eckerd stores and we have filed a proxy statement with the SEC. You should reference the proxy for more information. With that in mind, let’s get started. Mary. Mary F. Sammons: Thanks, Kevin. Good morning, everyone, and thank you for joining us today to discuss our third quarter of fiscal 2007. We are pleased with our results, as our adjusted EBITDA improved nearly 14% year over year and our strong pharmacy trend continued with solid gains in pharmacy same-store sales and prescription count growth. Our team also did a good job at controlling expenses. At the same time we continued to improve our existing business, we also made tremendous progress on our plans for the integration of the Brooks and Eckerd chain. We will continue to focus on building on our existing trends while at the same time affecting a smooth transition once the transaction closes. I will give you an update on the progress of the acquisition in a moment, but first let’s talk about the quarter. The positive trends in our pharmacy business continued with a 4.3% increase in same-store sales and a 2.3% increase in the number of prescriptions filled in comparable stores, even with the slower start to the cough, cold and flu season. Our emphasis on customer satisfaction and on our pharmacy initiatives, including tactical marketing programs against new competition, new and improved managed care relationships, and our focus on health and wellness continued to deliver results. So did our focus on senior customers, as our Medicare prescriptions rose to more than 14% of prescriptions filled and the number of seniors in our Living More senior loyalty program climbed to more than 2.3 million. Once again, our pharmacists were well-prepared to give seniors and their caregivers assistance during the second round of Part D enrollment, which started November 15th, and we used our partnerships with plan sponsors United Healthcare, ETNA, Health Net and SilverScript to reach out to pharmacy patients 65 years and older. As you might expect, our pharmacists reported significantly less confusion over the program this year than last. The generic wave continued to have a positive impact on our business. Our generic dispense rate, which includes both old and new generic prescriptions, rose to nearly 63% this quarter compared to 61% in the second quarter and 58% in last year’s third quarter. The nationwide expansion of Wal-Mart’s $4 generic and similar programs launched by mass merchants during the quarter had limited impact on our business, as customers chose location, convenience and services over the small price differential on nearly all of the generics on the list. I continue to wonder how long these programs can last, as the $4 price tag does not cover the full cost of dispensing and you can only sell a product below cost for so long. New generics negatively impacted comp sales by 269 basis points, up from 194 basis points in the second quarter. As we have said before, we expect this impact to be larger in the fourth quarter and we remain confident we can hit our goal of the 66% generic dispense rate by next June. The higher margins that come with this increase in generics helped offset a substantial portion of the lower reimbursement for Medicare Part D. We continue to believe that increased sales from Part D will eventually offset all of the negative impact, especially since we do not see Part D plans lowering reimbursement to retail pharmacy to any material extent in calendar 2007. However, we cannot give you a specific timeframe. As for the front-end, same-store sales increased 1.9% in the quarter. Core drugstore was strong, although a lack of cough, cold and flu negatively impacted OTC later in the period. Health and beauty was solid, and we saw good gains in consumables, private brand penetration that was well ahead of last year, and our GNC vitamin department posted sizable gains every month of the quarter. Also contributing to the increase was our additional marketing focus on diabetes in October and November. We saw our highest sales gains of the year in diabetes related products. This comes on top of already significant increases in the category because of our ongoing commitment to helping patients manage the disease. Our seasonal sales, however, were off to a slower start than expected. This was partially due to one less holiday shopping day in the third quarter as compared to last year, the day having moved into this year’s fourth quarter, and more aggressive promotion by mass retailers at the Thanksgiving holiday. We believe we will make up for the slower start with a strong December Christmas marketing plan that includes larger weekly circulars, the addition of circulars mid-week, a holiday coupon book similar to last year, and special seasonal offers to our most loyal customers through our e-mail database. Also planned to promote front-end sales in the fourth quarter are our annual Rite Aid Brand Super Value days in January and Presidents Sale in February, both historically very successful events. To help our customers with their New Year’s resolutions, in January we will introduce the Rite Weigh Challenge, a health and wellness marketing program focused on healthy weight loss. The program involves in-store educational material at our pharmacies, special offers on related products, and a nationwide challenge to lose weight. In February, we will continue our focus on health and wellness services with a program on heart health. As I said at the start of the call, our team did a great job in the third quarter of controlling expenses. Our field management did an especially good job with managing labor costs without sacrificing customer satisfaction, which improved in both the front-end and the pharmacy during the quarter. Our focus on win them over, bring them back and Take Ten, our new weekly training program that reinforces critical customer service behaviors by the store manager and the pharmacy manager, have started to pay off in very short order. As for our new store growth programs, you saw from our release that we opened 23 new and relocated stores this quarter. This was short of our third quarter goal and as a result, we now expect to open 110 new and relocated stores this fiscal year versus our original projection of 125. Delays in the entitlement and permitting process caused most of the shortfall. We expect the stores that slipped to open early in our next fiscal year. We remain very committed to our new and relocated store program based on our new “Customer World” design, and it will be exciting to also bring these new stores to the new markets we will be entering after the acquisition closes. Prescriptions filed by transactions closed somewhat during the quarter, but we have forecasted a significant number for the fourth quarter. Our pipeline is full and we expect to keep this initiative a high priority in growing scripts and getting new customers. As you know, another of our strategic initiatives to attract new pharmacy and front-end business is the addition of in-store clinics and targeted markets. During the quarter, the first Lindora health clinic opened in Rite Aid in southern California. This is the first in-store clinic anywhere to offer medically supervised weight management programs along with traditional clinic services. We expected this to be a popular concept, since Lindora already operates 35 well-respected, successful weight loss clinics in southern Cal, but the first two months of operation have far exceeded our expectations and we look forward to expanding the program. An additional benefit is the high margin we get from the Lindora weight loss products we have added to the front-end. We are also excited about our Sutter Health in-store clinics, with the first just opened in Northern California. Now let’s talk about the Brooks Eckerd acquisition. As you know, we took two significant steps towards completing the transaction during the third quarter. First, we set January 18th as the date for our special stockholder meeting to vote on the acquisition. Our proxy was mailed to stockholders at the end of November and the votes are starting to come in. We expect the acquisition to be approved because we believe stockholders understand that greater scale will make their company more competitive, better able to take advantage of the growth in the retail drugstore industry, and better able to withstand both industry and competitive challenges to our business. Rite Aid and the Jean Coutu Group also filed with the SEC for our Hart-Scott-Rodino regulatory review and received, as expected, a request for additional information. Both companies have begun responding to what is commonly called a second request and to complete all submissions next month. So far, this process has gone smoothly and we expect it to continue that way. As I said at the beginning of my remarks, we are well into the planning for the integration, including working through conversion plans and timetables and organizing our conversion team so we can begin immediately after the close. Our plan is to begin by converting 23 pilot stores that represent a variety of Brooks and Eckerd store footprints within the first three months, which will give us the chance to test and perfect all phases of the conversion process. That includes training, systems, distribution, merchandising and redecorating. Because we want to ensure that stores are converted with as little disruption as possible to both customers and associates, this pilot is a critical piece of our integration plan. We will also begin integrating the Brooks and Eckerd distribution centers, and expect to complete this in the first 90 days after close. This is important so the centers can support the planogram and merchandise mix changes for the acquired stores, with all stores expected to be converted, as we said, 12 months after the close. I will give you more specifics on how the conversion will roll out on our next analyst call in April. We are also in the process of putting our field management structure in place for the additional stores. We will add two separate operating divisions, each headed by a Senior Vice President of Operations, with seven new regions, each headed by a Regional Vice President and a Regional Vice President of Pharmacy, just like the field organizational structure that exists at Rite Aid today. This will allow us to focus on the unique needs of the acquired stores while maintaining continuity and focus on our current business. When the integration is completed, we will realign geographies to ensure a totally integrated field approach among all of our stores. As members of our management team meet with more Brooks and Eckerd associates, they continue to be impressed with their talent, dedication and professionalism, and we look forward to having them join the Rite Aid team. Because communication is so important during a transition like this, we continue to update associates on the integration planning and career opportunities with Rite Aid and are getting a very enthusiastic response. Now I will turn it over to Kevin for more details on the quarter.

Thanks, Mary. Let’s talk through the operating statement. Revenues for this quarter were $4.32 billion, compared to $4.15 billion last year. That was an increase of $175 million, or 4.2%. The revenue increase was primarily due to the 3.4% increase in same-store sales. Pharmacy same-store sales increased 4.3%, which was driven primarily by a 2.3% increase in prescriptions. In addition to the favorable demographic trend, our growth initiative, such as our focus on customer satisfaction, prescription filed buys, marketing to Medicare patients, our senior loyalty program, and the new and relocated store program, produced results. We expect the prescription growth trend to continue. As Mary mentioned, our mix of generic prescriptions continues to increase. During the third quarter, all generic prescriptions were 62.7% of total prescriptions, which was 181 basis points higher than the current year’s second quarter, and 440 basis points higher than last year’s third quarter. We expect this trend to continue. New generics had a negative 269 basis point impact on pharmacy sales during the quarter, which was higher than the second quarter’s negative 194 basis point impact on pharmacy sales. Front-end same-store sales increased 1.9%. Our initiatives for improving customer satisfaction, along with our consistent promotion program with a focus on core categories and an anchor in events, produced results. However, the percent of sales coming from our promotion activity increased. Also, the photo category continued to be a negative contributor. As Mary said, we saw some weakness in the cough, cold and flu related categories and in our seasonal sales late in the quarter. Gross profits were $1.15 billion, or 26.71% of revenues for this quarter, versus $1.12 billion or 27.06% of revenues for last year. Gross profit increased due to the sales increase, but the gross margin rate decreased. The current quarter included a non-cash LIFO charge of $8.9 million versus $7.6 million in last year’s quarter. The LIFO charge increase was primarily due to the effect of higher estimated product inflation. Excluding LIFO, this quarter, gross margin rate was 26.92% of revenues, compared to 27.25% of revenues last year, or a decrease of 33 basis points. The 33 basis point decrease in consolidated LIFO gross margin rate consisted primarily of two pieces. One component was a 44 basis point decrease in front-end gross profit contribution to the consolidated gross margin rate. Although front-end sales were higher than last year, which contributed to higher gross profit, the gross margin rate for front-end was lower, due primarily to three factors: The other component to the 33 basis point decrease in consolidated gross margin rate was an 11 basis point increase in contribution from distribution expenses. Similar to other areas of expense, we had good distribution expense control. The pharmacy gross profit was higher for the quarter due to higher sales, and the contribution to consolidated gross margin rate was one basis point more than last year’s third quarter. Contribution to consolidated gross margin rate was a positive 12 basis points, due to the increase in generic prescription and reduced pharmacy shrink. However, the 12 basis points of contribution was mostly offset by product cost reductions that were reflected in the inventory valuation. We will get the benefit of those lower costs when we sell the product. Selling, general and administrative expenses for the quarter decreased as a percent of revenues by 58 basis points compared to the prior year. The 58 basis points of improvement was the result of good, overall expense control, especially labor and benefits. Store closing and impairment charges were $2.5 million higher than last year’s charge. The increase was due primarily to an increase in the store lease exit costs. We closed more stores in the current quarter compared to last year. This increase was partially offset by a lower impairment charge in the current quarter. Fewer stores were included in the impairment calculation. Interest expense was $68.2 million for the quarter, versus $66.9 million in last year’s quarter. The increase was due to the higher interest rate and slightly higher borrowing. Cash interest expense was $63.6 million for this quarter versus $61.8 million last year, and non-cash interest expense was $4.5 million this year versus $5.1 million last year. Gain on asset sales was $48,000 in the current quarter versus a gain of $1.4 million in last year’s quarter. Regarding income taxes, the income tax expense was $175,000 compared to last year’s third quarter income tax benefit of $1.1 million. The effective income tax rate for the current quarter was about the same as last year. This year’s quarter had pre-tax income, thus income tax expense. Last year’s quarter had pre-tax loss, resulting in an income tax benefit. From a cash income tax perspective, we are a state income tax payer. The cash outflow for state income taxes continues to be approximately 6% to 8% of pre-tax income. Net income for the quarter was $1.1 million compared to a net loss of $5.2 million last year. The improvement was primarily due to the $19.5 million increase in adjusted EBITDA, which was a result of increased revenue and the resulting gross profit, and improvement in the ratio of expenses to revenue. We did have an increase in depreciation and amortization expense. Net loss per diluted share was $0.01 for the quarter, compared to a net loss of $0.02 per diluted share for last year’s third quarter. Each quarter’s diluted per share calculation included declared preferred stock dividends. You will remember that preferred stock dividends are not included in the net income or loss, but they are considered in calculating per share amounts. Adjusted EBITDA for this quarter was $160.8 million, or 3.7% of revenues, an increase of the $19.5 million from the prior year that I mentioned. The schedule attached to our press release reconciles our net income or loss to our adjusted EBITDA. The increase was primarily due to the increase in revenue and the resulting gross profit, and the improvement in the ratio of expenses to revenue. Now let’s turn to the cash flow statement. Net cash provided by operations was $44.8 million this quarter, versus $22.9 million in last year’s quarter. The $21.9 million increase was primarily due to the increase in adjusted EBITDA, partially offset by a decrease in funds provided from the sale of accounts receivable. I want to spotlight just a couple of items in this section of the cash flow statement for the current quarter. The increase in accounts receivable was due to increased sales and the difference in timing of cash remittances from third party payers. The increase in inventory was due primarily to normal inventory build for the season. The current quarter decrease in accounts payable was related to the payment of invoices for pharmacy inventory forward buys that were made late in the second quarter. This decrease was partially offset by the increase in payables from the seasonal inventory build. Net cash used in investing activities for this quarter was $90.1 million, versus $76.1 million for last year’s quarter. The increase was primarily the result of capital expenditures being higher than last year and proceeds from sale and leasebacks being lower. For the quarter, we spent $86.8 million for property plant and equipment, and $6 million for prescription file purchases, for a total of $92.8 million. During the quarter, we opened 10 stores, relocated 13, closed three, and remodeled four. Net cash provided by financing activities for this quarter was $97.1 million, versus $68.2 million for last year’s quarter. The increase was primarily due to draws on the revolver to fund seasonal inventory sales and the payments of required maturities. We issued a new term loan for $145 million during the quarter that effectively refinanced the 12.5% notes that matured in the quarter. Liquidity continues to be strong. Our availability on the revolver is over $750 million. At the end of the quarter, we had $875 million outstanding under our $1.75 billion senior secure revolving credit facility. We used the revolver to fund the $250 million required maturity of the 4.75% convertible notes. We also had outstanding letters of credit of $117.1 million at the end of the quarter. Total debt since the beginning of the fiscal year has increased $96 million, and advances from the sale of accounts receivable have increased $40 million. The combined balances since the beginning of the fiscal year have increased a net $136 million. Most of this increase is due to the normal inventory build for the holidays. The $400 million accounts receivable securitization agreement continued to be a good source of liquidity. At the end of the quarter, we had utilized a securitization agreement for $370 million. Regarding the remaining required maturities in fiscal 2007, we will use the revolver for the $184 million of 7 and 8 notes that mature in January, 2007. To wrap things up then, let’s discuss guidance. We are confirming our guidance previously given for fiscal 2007 for sales, same-store sales, adjusted EBITDA, net income or loss, and capital expenditures. We are estimating fiscal 2007 sales to be in the range of $17.4 billion to $17.65 billion. Sales guidance is based on same-store sales estimates of 2% to 4%. We are estimating the fiscal 2007 adjusted EBITDA to be in the range of $650 million to $725 million. Our guidance reflects the fact that fiscal 2007 is a 52 week year. We are estimating our net operating results to be in the range of net loss of $5 million or net income of $40 million, or a loss of $0.07 per diluted share to net income of $0.02 per diluted share. Attached to our press release is a table that reconciles our adjusted EBITDA guidance to our guidance for net income or loss. Capital expenditures before sale and leaseback proceeds are estimated to be in the range of $450 million to $500 million for fiscal 2007. We estimate sale and leaseback proceeds to range from $50 million to $100 million. We expect to open approximately 110 new or relocated stores by year-end, which is a little lower than the 125 we announced before. For various normal real estate development reasons, several stores are going to slip into early fiscal 2008. This concludes my prepared remarks, but before we go to questions, Mary has a few comments on recent industry developments. Mary. Mary F. Sammons: Thanks, Kevin. Before we take your questions, I would like to comment on several recent industry events. First, average wholesale price, or AWP. As you all likely know, the proposed settlement in First Data Bank litigation changes the calculation method for reporting average wholesale price, basically seeking to lower it by 5 percentage points from a 25% markup to a 20% markup, and a longer term eliminated altogether. Any changes to the reporting of AWP will be dependent upon the judge hearing the case, and we do not know when that will happen. In the meantime, we have been talking to our third-party payers and have received favorable feedback regarding maintaining the existing economics of the program. Second, proposed guidelines were released late last week by CMS for calculating average manufacturers price, AMP, for medicated reimbursement. We are currently evaluating the guidelines, although we have not seen any actual AMP data, and from what we hear, CMS does not plan on posting any actual AMP data until late Spring of next year. While it looks like AMP could negatively impact reimbursement on generics, it is important to remember that the retail pharmacy still has 60 days to comment on these proposed regulations, especially with regard to including PBM rebates and mail-order pharmacy in the calculation of AMP. On a positive note, the proposed regulation does instruct states to consider fair and reasonable dispensing fees. Several states are conducting costs of dispensing surveys, and we have had some positive conversations. The results of the national cost of dispensing survey by the Coalition for Community Pharmacy Action should be available in the next month or so, to assist us in making a case for a higher dispensing fee, and we will continue to lobby, along with the rest of the industry, for fair reimbursement. Third, the CVS/Caremark merger and the subsequent bid by Express Scripts to buy Caremark. How will this impact Rite Aid? The simple answer is we do not know yet. All of the networks in the PBM marketplace are based upon individual contracts of payers and changes are unlikely to occur in the short-term, since most are at least three-year agreements. CVS has indicated that if the merger with Caremark takes place, open pharmacy networks would still exist, as they do with CVS’ current PBM Pharmacare, with which we have a good relationship. We also have a good relationship with Express Script. We have no plans to acquire a large PBM. Our focus right now is on our core business and the successful integration of the Brooks and Eckerd stores. Operator, we would now be happy to take questions.

(Operator Instructions) Your first question comes from the line of Meredith Adler with Lehman Brothers. Meredith Adler - Lehman Brothers: Good morning, and congratulations. I was wondering if we could talk a little bit about the gross margin. You did get some benefit from generic and from shrink this quarter, but I am kind of wondering whether you are still seeing pressure from Part D. Is it more than you anticipated because the growth in Part D has been strong? Then, maybe you could explain a little bit about why the lower cost in inventory would be hurting the gross margin. Mary F. Sammons: Okay, as far as the Medicare Part D, I think we have said on earlier calls too that it is a larger percent of our scripts than we originally would have calculated, so in terms of the impact on overall margins, it is going to have more of an effect. So obviously the key is to keep growing the scripts there so that you create more growth profit dollars, and then over time as the script base gets high enough, we should also see pressure taken off of the rate.

As far as the inventory cost reduction is concerned, Meredith, as a very illustrative kind of example, if you have 100 items on hand and it was valued at $10, and you receive 25 items and they are valued at $9, the entire 125 on hand must be valued at $9. Now, when I sell those products, I am going to get that back, assuming the retail price does not change. So there is some timing impact when you have that kind of cost reduction, and that is what occurred in our third quarter. Meredith Adler - Lehman Brothers: Well then, I also had a question in there about generics, and whether there are any surprises in terms of what you are seeing, unless it is a benefit to gross margin. Mary F. Sammons: I would say we are real pleased with the contribution from generics on our margin. I think that is really what is helping substantially our pharmacy margin rate. Without that benefit, it becomes very difficult on the reimbursement because of the pressures of Medicare Part D. Meredith Adler - Lehman Brothers: Great, and then one other question, just about the front-end. I think this is the second quarter in a row that you have talked about customers buying more front-end merchandise on ads, so that the margin would be lower. Do you think that is a function of the external environment, or is there potential for you guys to change your ad program, make them a little bit less hot, and would you lose a lot of traffic if you did that? Mary F. Sammons: I think it is probably more a factor of what is going on externally, because we really have not made any what I would call significant change in our promotional strategy. When you have a slow-off on seasonal sales, which tend to be higher margin, if cough and cold is a little bit slower, you might not have quite as much traffic, so maybe the traffic in the store is responding more to what you do have on sale. You end up with your mix being more driven by your ad. We spend a lot of time on advertising on the front-end. It goes along with being in the front-end business. I think we have a good program and I would expect our seasonal business to regain strength as we move forward.

Your next question comes from the line of Ed Kelly with Credit Suisse. Edward Kelly - Credit Suisse: Good morning, nice quarter. A question for you on your full-year guidance, which you left unchanged. The range at this point for adjusted EBITDA is pretty big. There is only one quarter left. Could you just speak to this a little bit? Mary F. Sammons: Sure. We are expecting a good finish to the year, but we are comfortable with the guidance range and so we really do not see any reason to go out and change it, but we are expecting a good finish to the year. Edward Kelly - Credit Suisse: Okay, and then on your SG&A, you are up only about $18 million. You have big leverage there. How should we think about this going forward, particularly in the fourth quarter? How sustainable is this? Mary F. Sammons: Well, one of our critical priorities over the last few years has been on containing costs and we have put even more emphasis on it and in a very reasonable way. We are not doing things that you should not be doing, so I guess the only thing about the fourth quarter is you do open a number of new stores in the fourth quarter, so you will have the impact of that on overall expenses, but in terms of any of our other expense lines, and even in costs associated with new stores, we watch what we do. Edward Kelly - Credit Suisse: All right, and just one last question for you, Mary. Eckerd’s front-end has been a pretty good-sized issue under Coutu and it was already pretty bad when they acquired it. Only 26% of the mix seems pretty low. Could you just walk us through maybe what some of the challenges have been, what your initiatives are to get front-end productivity up, and how quickly do you think you can do that? It just seems like a huge opportunity when you run the numbers on that. Mary F. Sammons: When we built our model, we did not factor in any huge increases, but we obviously looked at their mix of sales compared to ours on the front and clearly there is a big gap. We are about 35% more productive on the front-end on an average store in the same period that a Brooks Eckerd store is. We believe that by getting in our planogram mix, by getting in our assortment, the businesses that we are in, being faster in introducing new items, more current on planogram changes, our seasonal program, and our event marketing and merchandising, and kind of getting away from a cherry-picker promotional strategy, that we will grow their productivity on the front. But that kind of initiative takes a little bit of time. You do not get it overnight because you have to get your customers really seeing what you are doing and responding to it. Edward Kelly - Credit Suisse: Is there any reason those stores could not get close to your 35%? Mary F. Sammons: No. Over time, they should be able to achieve that same level of front-end sales per store.

Several of the things that Mary mentioned are dependent upon the system’s conversion and just people changing their work habits and things of that nature. Edward Kelly - Credit Suisse: Improving service levels, all that stuff? Mary F. Sammons: Yes, it is a combination of all of it. That is why you want to give it time to really take hold.

Your next question comes from the line of Mark Wiltamuth with Morgan Stanley. Mark Wiltamuth - Morgan Stanley: Good morning. Mary, on the CVS/Caremark deal, it kind of contemplates breaking down the barriers between PBMs and retailers. I know you have said you are not interested in pursuing an acquisition there, but is there some way you could participate in that type of a program through an alliance or joint venture or something of that nature? Mary F. Sammons: I think we have also said before too that we feel we have good relationships with the large PBMs and probably a lot of that is because we do not really have a PBM of our own. Our new one is very fledgling and so we have worked hard at relationship building with them, and I think we will always look at ways of making those partnerships stronger and getting more benefit for ourselves out of it as well as for them. Mark Wiltamuth - Morgan Stanley: CVS has also indicated that they would allow 90-day retail products to be sold through other retailers, not just through CVS. Would that have margin implications for you? Mary F. Sammons: On a 90-day script, you are definitely going to have a lower margin but if you get a script that you were not going to get, you have to look at it on a case-by-case basis, which is what we have done up to this point in time, so we would look at that and see whatever they offer too. Mark Wiltamuth - Morgan Stanley: Okay. Lastly, on the AMP rules, I guess the CMS also had some estimates on cost savings for the government and the states. If you could give us some thoughts on what you think your earnings impact could be in 2007 as we go to this new program? Mary F. Sammons: I think again, we are still developing what that impact will be. A lot of it depends on really what the absolutely final rules are and what happens with the dispense fees in the states. Again, retail pharmacy still has about 60 days to respond to what has been put out by CMS on the guidelines and we fully intend to do that. We have in fact discussions in any CVS going on right now on this issue. The focus on what the state dispense fee will be will be another key piece of it.

Mark, remember that the Medicaid business contract is a store-by-store business contract and so consequently, we also are going to be looking at things from an incremental perspective, as well as I think the various state programs have to provide the necessary access, which gives us some opportunity to continue encouraging fair dispensing fees. Mary F. Sammons: I think I would also add too, because of the patients that moved over already from Medicaid, it is not as big a percentage of our total pharmacy business. It is still significant because it is still 10% in sales and about 9% in scripts, but it is not the big mountain that it would have been when it was 18% of our sales. Mark Wiltamuth - Morgan Stanley: Great. The states, you indicated you had some positive conversations with the states on dispensing fees. If you could give us a little more color on that, that would be helpful. Thanks. Mary F. Sammons: We have not had any state really come and say they are going to do this or do that. They will discuss with our people and our lobbyists around the issue, but so far, no state has agreed to raise dispense fees. That is why continuing this lobby effort is so important because obviously the cost to dispense does not cover the cost to dispense, especially when you look at the reduced margins proposed by the AMP change.

Your next question comes from the line of John Heinbockel with Goldman Sachs. John Heinbockel - Goldman Sachs: A couple of things. The gross margin on the new generics in the exclusivity period, was that basically in line with what you thought it would be, the Zocor, Zoloft, et cetera? Mary F. Sammons: Yes, I think we are getting about what we expected to out of those.

Remember, John, in our guidance we had several scenarios out there, and whether they are exclusive versus multi-source right away are a couple of those scenarios, so it is hard to nail down specifically. John Heinbockel - Goldman Sachs: But do you think the accounting on the inventory side, does that essentially push out the generic benefit? Meaning if you followed when these products came on the market, you would think you would get a lot of it in this quarter, but because of that accounting, you will actually get more than you would have thought otherwise in subsequent quarters.

The inventory in pharmacy turns very, very fast, John, like 30, 45 days, so it is not long of a delay. Mary F. Sammons: And before you actually get it out there and really negotiating for lower purchase price is absolutely what we need to be doing to keep improving the balance between our costs and what we are going to be able to get for it. John Heinbockel - Goldman Sachs: Do you think being in the non-exclusivity period now, how much of a difference will that make in terms of changing the gross around on some of these big drugs, big generics?

We continue to have a certain amount of unknowns in terms of how they are going to come out, and they do change rather dynamically, so we just continue to have different scenarios and take our best estimate. That is one of the reasons why we still have the range. John Heinbockel - Goldman Sachs: One of the things you had also built in was the Medicaid cuts coming through in January, February. Based on what you know today, do you still think that is the case, or that seems like it might be pushed back? Mary F. Sammons: From what I am reading on timing, you will not see an impact from that in January, February anymore than we are seeing today. It is like you open up the paper any day and there is always some new news out there to confront pharmacy.

Obviously that is just a federal program. Everybody is focused on that, but remember the states are very, very much in the thick of this and we are not quite sure how they are going to land on everything. John Heinbockel - Goldman Sachs: Is it possible then if they put it into effect mid-year, do you think they then go back and there is sort of a retroactive impact, in which case would you accrue for the impact before it goes into effect or true it up when it actually passes?

We would accrue for things based upon what is most probable. There is a high standard there and a conservatism, John, so that to the extent that there was -- for example, in one case, they withheld some reimbursement rates. We would have to record things at that lower reimbursement rate, and only after they said here is what the retroactive positive adjustment would be when we record that. Mary F. Sammons: Right now, from anything that I have heard up to this point, I have not heard the intent to make it retroactive. John Heinbockel - Goldman Sachs: So it would just go into effect, if it is a half year, it is half year? Mary F. Sammons: Right, when it would go into effect.

However, the state programs have, not a lot, but have made unilateral deductions. John Heinbockel - Goldman Sachs: Finally, when you think about the remodel effort at the Eckerd stores, how is that going to play out in terms of prioritizing the actual remodels? Will there be more clustering of stores geographically or doing it by their performance level? How will that shake out? Mary F. Sammons: We are discussing the Brooks Eckerd stores? John Heinbockel - Goldman Sachs: Yes. Mary F. Sammons: We have built a pretty detailed plan already as to how we would bring groups of stores on. I mentioned the 23 pilot stores first, so that we have first-hand experience with each of the different kinds of prototype versions of the store, and then we will begin working out around the DCs that have converted, so that will be like the first condition, is that the Brooks Eckerd DC that supports the group, the stores will have to convert. That is why getting all the DCs converted in that first 90 days is important, because then we can begin to spread the effort out around all the distribution centers, so that we can better balance the workload for our supervisors out in the field. That is important too because you do not want to totally disrupt a whole district at one time either.

John, there is a difference between what we call the installing the -- the décor package and making it look and feel like a Rite Aid versus a remodel. The remodeling is going to be spread out over several years, but the first 12 months after close, we are going to have to put the décor package and the paint and make it look and feel like a Rite Aid in all the stores. John Heinbockel - Goldman Sachs: With the remodel, will you try to cluster and do all Philadelphia stores or it will be spread out? Mary F. Sammons: We have not built the plan for that beyond the first 12 months, John, but we will do that as we get through the process of understanding what consolidation we will end up doing or what divestitures will be there, and then we will also plot in our plans for relocations, as well as new stores in an area and build our remodel program around that. John Heinbockel - Goldman Sachs: Finally, you would argue, or it sounds like you think that no matter how Caremark plays out, the impact to you is not materially different, whether it is CVS or Express Scripts? Mary F. Sammons: You mean whether it is Caremark and Express Scripts or if it is Caremark CVS? John Heinbockel - Goldman Sachs: No matter who gets it, it does not sound like you think it is materially different as it impacts you. Mary F. Sammons: We do not know, I guess, until you actually see what would happen when you put a combination together like that. If it plays out the way that the relationship has been, say with CVS Pharmacare, then it should work out fine.

Your next question comes from the line of Steve Chick with J.P. Morgan. Stephen Chick - J.P. Morgan: Thanks. Congratulations. Just a couple more housekeeping questions. Did you say, Kevin, what the -- sometimes you say what the occupancy costs impact is, and I think that is in your SG&A now. Did you cite what the basis point drag was on the quarter?

I did not, Steve, but mainly just talking about rent, if that helps, rent for the quarter was about $148 million, and year-to-date it is about $436 million. We are going to have these 50-some stores in the fourth quarter coming on, so that it is going to go up a little bit. If you had to do your rent annualized estimate for the year, I would use somewhere around a $585 million to $595 million range. Stephen Chick - J.P. Morgan: Okay, and I guess -- I do not know if you remember about quarter to quarter, like last quarter you said there was a drag about nine basis points, and the quarter before that it was about 22 basis points. Are you getting away from giving those numbers out, or do you have that handy by any chance?

I do not have it handy, and just in light of the 58 basis point improvement in SG&A, I mean, we felt it was not all that relevant. Mary F. Sammons: But I think we could provide you with something offline on that, Steve. Stephen Chick - J.P. Morgan: Okay, yes, that would be helpful. Then, second thing, with your cap-ex guidance, I think you shifted some new stores, I guess, fall into next year but your cap-ex guidance I think stays the same. Are you going to still spend on the $450 million to $500 million in anticipation of opening those stores up next year, or it is just a timing thing?

It is, Steve, and also there is some cap-ex in front of the acquisition. In order for us to keep things going as smoothly as possible, we are going to be making some capital expenditures before closing. Stephen Chick - J.P. Morgan: Okay, all right. That makes some sense. Last, if I could, the generic contribution in gross I think you said was 12 basis points to pharmacy margins this quarter.

No, what we said was we had pharmacy had a 12 basis points improvement. That is a net number. That is the generic offset by the other reimbursement rate pressures. Remember, we still haven’t anniversaried Medicare Part D, so that is a net number. Stephen Chick - J.P. Morgan: Okay, sorry, so pharmacy margins improved by 12 basis points?

Right, minus the 11 basis points, almost the 11 basis points from the inventory cost reduction, so net pharmacy contribution, this is the consolidated gross margin rate, was one basis point.

Your next question comes from the line of Karen Miller with Bear Stearns. Karen Miller - Bear Stearns: Good morning, and Happy Holidays to you. Kevin, maybe you could tell me this -- Jean Coutu has requested a definitive resolution regarding the transfer of the 8.5 subordinated notes. Now, would this impede closing the transaction if the courts do not decide, and you guys are ready to close and you receive all the other green lights from your shareholders, as well as any anti-trust issues?

No, we are not going to let anything get in the way. We are closing the transaction as soon as we can. Karen Miller - Bear Stearns: Okay, so you plan to proceed even if there has not been a judgment yet? Do you have any --

We are requesting the expeditious treatment of this thing and we are approaching it in a way so that it is, there is all uncertainty removed before we close, Karen. Mary F. Sammons: We anticipate the suit and any appeal being resolved prior to closing. Karen Miller - Bear Stearns: Okay, great, thanks. That is helpful. Could you tell us the amount of sale and leaseback proceeds you received this quarter?

It is on the cash flow statement, Karen. It shows for the quarter -- I apologize, I’m just getting it in front of me here. Those charts that are attached. Karen Miller - Bear Stearns: Okay, I missed that then. I missed those charts, sorry.

Well, it is only -- we had very little, only $200,000 this quarter. Karen Miller - Bear Stearns: Okay, thanks. That is helpful. Also, Kevin, usually you give us an update -- how much are you carrying now in terms of leases for dead stores?

Well, the -- when you are saying carry, you mean the cash outflow? Karen Miller - Bear Stearns: Right.

It has been running around an annualized basis, about $32 million. Karen Miller - Bear Stearns: So it really has not changed much.

No, and it continues to work its way down. Karen Miller - Bear Stearns: Okay, that’s it for me. Thanks, that was helpful. Mary F. Sammons: Operator, we will take two more questions.

Thank you. Your next question comes from the line of Carla Casella with J.P. Morgan. Carla Casella - J.P. Morgan: I have a couple more questions regarding gross margin. Kevin, when you talked about the LIFO charge, you mentioned that there was a higher estimated product inflation.

Correct. Carla Casella - J.P. Morgan: And then when you talked about the front-end, you talked about some deflation. Could you discuss what the difference is there?

We did not talk about deflation in the front-end. We did talk about some cost reductions in the pharmacy area, but the LIFO charge is both front-end and pharmacy. Carla Casella - J.P. Morgan: Okay, so the higher estimated product of inflation means that you are expecting the pharmacy --

No, what you have is -- you are talking about a FICO charge, which is based upon the here-and-now purchases that a lot of them are going to be sold in the fourth quarter. My LIFO charge is at an annual estimate, so we still expect a fair amount of pharmacy inflation in our fourth quarter. Carla Casella - J.P. Morgan: Okay, so the higher estimated product of inflation, that is coming more from pharmacy [inaudible], asking which areas that is mostly related to?

Right. Carla Casella - J.P. Morgan: Okay. And then you talked about, on the front-end discussion, the expiration of exclusive -- which areas are those, or which --

Well, we do not comment specifically, but this is a similar phenomena that we described in our second quarter announcement. It is just a continuation of that. Carla Casella - J.P. Morgan: Okay, and how long would you expect that to continue? Will it be another two more quarters until we annualize it?

Yes. Carla Casella - J.P. Morgan: Okay. Could you just update on the total number of owned stores, land or other significant property ownership?

We have about 230 owned stores and seven out of the eight distribution centers. Carla Casella - J.P. Morgan: Great, okay, thanks.

And a corporate headquarters, I guess, too. Mary F. Sammons: One last question, Operator.

Your final question comes from the line of Reed Kim with Merrill Lynch. Reed Kim - Merrill Lynch: Thanks. Just on the timing of the transaction, assuming you get shareholder approval, will you go out to approach with your financing proposal pretty soon thereafter?

Yes, once we know the closing, about three weeks before the closing, we will be asking for credit ratings and then probably as soon as they get out there, we will hit the road, which will be probably two weeks or so before the closing and be raising the money. Reed Kim - Merrill Lynch: If for any reason the court took its time to get back to Jean Coutu about the determination on the 8.5’s, would you put things off a little bit to wait for that, or would you just go ahead?

We do not want to speculate about the court is going to do this or going to do that. It is just going to proceed as it does. Mary F. Sammons: We still anticipate that it is going to get resolved prior to closing. Reed Kim - Merrill Lynch: Last question, just on the business, thanks for the disclosure on the unit growth in the quarter for pharmacy. How much of that do you think was related to Part D? Mary F. Sammons: It was certainly a significant part. I think in prior quarters, I have seen it has been about half of our prescription count growth. I think it was at least that in the third quarter. Reed Kim - Merrill Lynch: Relative to, in your markets, maintaining a pharmacy market share that is stable, what kind of growth should we see in that measure? Mary F. Sammons: For us, we are very focused on growing our script base. I mean, it has been our critical priority for the last several years, so we would like to see that number continue to go up. I do not know that I am ready to set a number out there ahead of everybody, but we certainly want to see it keep growing from where it is at today. Reed Kim - Merrill Lynch: Thanks a lot.

Happy Holidays, everybody, and thanks for the interest. Mary F. Sammons: Thank you very much.

Thank you. This concludes today’s Rite Aid third quarter results conference call. You may now disconnect.