Kevin Twomey - CFO Mary Sammons - Chairman, President & CEO

Meredith Adler - Lehman Brothers Ed Kelly - Credit Suisse Mark Wiltamuth - Morgan Stanley Lisa Gill - JP Morgan John Heinbockel - Goldman Sachs Neil Currie - UBS Bryan Hunt - Wachovia Carla Casella – JP Morgan

At this time, I would like to welcome everyone to the Rite Aid third quarter fiscal year 2008 conference call. (Operator Instructions) I would now like to turn the call over to Mr. Twomey, CFO for Rite Aid Corporation. Please go ahead.

Thank you, April. Good morning, everyone. We welcome you to our third quarter conference call. Mary Sammons, our Chairman, President, and CEO; Jim Mastrian, Special Advisor on Corporate Strategy; Rob Easley, our Chief Operating Officer; and Pierre Legault, our Chief Administrative 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 our Brooks/Eckerd’s integration; I will review the third quarter financial results, 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 a non-GAAP financial measure, along with the reconciliation to the GAAP measure, are described in more detail in our SEC filings. With that in mind, let’s get started.

Thanks, Kevin. Good morning, everyone and thanks for joining us today. As you can see from our press release, we increased adjusted EBITDA significantly in dollars during the third quarter because of the added revenues from the Brooks/Eckerd stores; the increase in sales incore Rite Aid; gross margin rate improvement and good cost control by our team. But even though our front-end sales picked up in November, it wasn’t soon enough to improve third quarter results. As expected, we reported a net loss for the quarter, which was partially impacted by expenses related to the acquisition and integration costs. We continue to be on track to have all of the acquired stores converted and integrated into Rite Aid by fall of next year. Third quarter total revenues increased by 51% with most of the increase coming from the addition of the Brooks and Eckerd stores. Negative same-store sales trends continued inthe acquired stores, as our decision not to anniversary “hot price deals” and below-cost promotions hurt sales but improved margin. Getting the majority of our whole merchandise mix into all of the acquired stores by the end of the quarter has enabled us to strengthen our promotion and advertise more effectively in our common circular. We expect this, and the grand opening marketing for the fully converted stores that began in mid-November, to improve results. Same-store sales which do not include Brooks/Eckerds increased 0.7% during the third quarter. Pharmacy same-store sales increased 1.2%, posting steady gains throughout the quarter as we filled more prescriptions despite the slow start to the flu season. Pharmacy gross profit was strong with gross profit per script again increasing at both core Rite Aid and Brooks/Eckerds stores because of product cost savings, increased generics, and improved shrink. We filled more Medicare prescriptions inthe quarter, but they continue to impact same-stores sales as we cycled higher numbers from the first year of the program. Annual enrollment started November 15th for the 2 million seniors that become eligible for Part D each year, and our marketing programs with partners Aetna, United Healthcare and WellPoint have been very effective. This year we added a special website that allowed seniors to geta complete list of Part D plan options in their local area and compare prescription prices. Our senior loyalty program Living More also gives us a competitive edge as we market to those newly eligible for Part D, while attracting younger seniors to Rite Aid atthe same time. Inthe third quarter, the number of Living More members surpassed 3 million and about 25% of them are under age 65. Our health condition marketing programs on pain management and diabetes, tactical marketing programs targeted to specific markets, and intensified efforts on patient compliance by both telephone and at point-of-sale also contributed to our gains in pharmacy sales. Our increased focus on patient compliance is particularly important to the health and wellness of our patients, since study show that of 100 prescriptions written, 30% to 50% are never filled; only about one-fourth are taken properly and fewer than 20% are refilled as recommended by the physician. We expect the Brooks/Eckerds courtesy refill program that we expanded to all Rite Aid stores during the quarter to have a positive impact on compliance and script growth, as well as customer satisfaction. Our file buys also attracted new customers to Rite Aid during the quarter. We are well ahead in both deals and number of scripts over last year and expect to beat our target for the year, while at the same time delivering a record level retention rate. New generics negatively impacted same-store sales by 431 basis points this quarter as compared to a 269 basis point increase inthe same period last year. Generic penetration reached a new high for core Rite Aid and for the industry with 66.3% of allthe prescriptions we dispensed generics, making this the 26th consecutive quarter we have increased this number. Therate for the total company came in ata solid 64.2%, which we expect to grow to more than 66% with our continued emphasis on generics inthe acquired stores. While payers continue to look for ways to save money, we did not experience any significant unexpected generic reimbursement changes. During the quarter we continued to review multiple partnership opportunities to expand our in-store clinic offering. We also announced plans for five more in-store clinics in Rite Aid stores in Southern California operated by Lindora, which combines traditional in-store clinic healthcare services with a medically supervised weight loss program. While front-end sales declined inthe first two months of the quarter, we reversed that trend in November as we raised our promotional activities back to normal levels and additional marketing and operational initiatives started to gain traction. Having our full merchandise mix inall of our stores so we can advertise more effectively in our weekly circular impacts not only Brooks/Eckerds, but all of the stores inthe chain. Core drugstore had good momentum particularly with OTC and health and beauty. Cosmetics and consumables strengthened substantially by the end of the quarter. Once again, our exclusive GNC store within a store performed better than the overall vitamin category. We added 60 more during the quarter, bringing our total with GNC departments to almost 1,400. Photo continued to be negative, but a more positive contributor to margin. We started to see stronger sales in this category in recent weeks as the result of changes in our photo marketing program. Core Rite Aid has solid private brand sales with year-to-date penetration running at 13%. Private brand penetration atthe former Brooks/Eckerd stores, which was less than 9% when we acquired them, also improved, helping their front-end margin beat plan. We expect it to continue to increase now that those stores carry our full private brand assortments which are heavily promoted in our weekly circulars. During the quarter, we made headway on our other critical priorities. Customer satisfaction scores continued to improve in the front end during the quarter while holding steady inthe pharmacy. Our new store development program remains on track as we expect to open 123 new stores; 57 new and 66 relocations. We are also on target to complete 155 remodels this year with 60 of them related to combining acquired stores in close proximity to core Rite Aid stores. We are already starting to see additional savings from our spend efficiency program, which should have a significant impact on our expense control inthe next fiscal year. This involves non-retail purchasing across the chain to make sure we are getting the best prices possible and operating efficiently. We also continued to make good progress on our number one priority, the Brooks/Eckerd integration. As of today, 565 stores have undergone systems conversion and more than 150 have also completed the minor remodel. Per our plan, we stopped activity during this busy holiday season, but we will ramp up again starting the first week in January. The conversions are going as smoothly as expected and we have made some modifications along the way to make sure we limit disruption to stores and customers as much as possible. That includes moving to a geography-based schedule next month, converting stores district-by-district. This gives us greater flexibility in staffing and supervision. As I said earlier in my remarks, we completed new front-end planograms for nearly all categories in all of the acquired stores just before Thanksgiving and cleared out the majority of non go-forward merchandise. This has improved the appearance of the stores and made it easier for our customers to shop. We are getting great response to the expanded offerings and as I visit the stores, I am pleased to see the strong core drug store assortments and best-in-class seasonal offerings that Rite Aid is known for. We have also executed 71 pours to-date where the prescription files of the former Brooks or Eckerd stores is moved to a nearby Rite Aid store; and, seven reverse pours where the prescription files of a Rite Aid store is moved to a nearby Brooks or Eckerd store. We completed most of these near the end of the third quarter, as a pour generally requires a remodel that takes more time to make sure the remaining store can handle the added business. Our wind down of the Brooks/Eckerds headquarters continues as scheduled. The remaining associates are now in one office building versus three, and we are reviewing bids from several interested parties on the recently completed new Warwick headquarters building. Although no one likes the disruption when a store team has to learn a new system or as store is torn up for two weeks ina minor remodel, we are very excited about what we are seeing in the early stages of the integration. Both associates and customers are excited about the changes at the stores and we are looking forward to having all stores completed next year. As we look forward to the remainder of our fiscal year, like the rest of the industry, we continue to be challenged by a weaker cough, cold, and flu season than last year, a more cautious consumer, and inthe last week, weather in theMidwest and Northeast. Based on these trends, we are lowering sales and adjusted EBITDA guidance for this fiscal year. We do expect that our strong holiday offerings and creative promotions like our Holiday Rewards Program, our Health Condition marketing program and our historically successful private brand and President’s sales inthe fourth quarter will attract more than our fair share of customers. We are supporting these initiatives with aggressive marketing and advertising programs for both front-end and pharmacy. Remember that Rite Aid is not only a quarter-by-quarter story, but a company with a long-term strategy and vision that we believe will make us very successful inthe future. While we will continue to feel the temporary impact of one the biggest integration efforts in our industry’s history, when we are through we expect Rite Aid will bea formidable drugs store company with tremendous capacity to create shareholder value. I’ll now turn it over to Kevin.

Thanks, Mary. Let’s talk to the operating statement which was attached to the press release. Revenues for this quarter were $6.52 billion compared to $4.32 billion last year. That was an increase of $2.2 billion or 51.0%. The increase was driven primarily by the Brooks/Eckerds acquisition. There was also a positive contribution from the 0.7% increase in same-store sales of core Rite Aid. The acquired Brooks/Eckerd stores are not included in the same-store sales calculations, but will be included starting in June 2008. We did close or sell 64 stores late inthe quarter. 53 were Brooks/Eckerd stores and 11 were Rite Aid stores. Almost all of the closed stores were related to combining stores in close proximity to one another. Pharmacy same-store sales, which excludes the Brooks/Eckerd stores, increased 1.2%, which was driven primarily by a 0.2% increase in the number of prescriptions. As Mary said, new generics had a negative 431 basis point impact on pharmacy same-store sales during the quarter, but of course that has got a positive impact on gross margin rate. The Brooks/Eckerd stores pharmacy sales trends were negative during the quarter. They were negative when we closed on the acquisition. Our mix of generic prescriptions, as Mary described, continued to increase. During the third quarter, all generic prescriptions were 64.2% of total prescriptions which was over 360 basis points higher than last year’s third quarter. We expect this trend to continue. We saw a weak start to the cough, cold and flu season, and we continue to anniversary the inception of the Medicare Part D program. Our growth initiatives such as our focus on customer satisfaction, prescription file buys, marketing to Medicare patients, our senior loyalty program, and the new and relocated store program continued to produce results. We expect prescriptions to continue to grow. For reference purposes, note that Medicare Part D sales represented approximately 16.4 % of pharmacy sales, Medicaid sales represented approximately 9.3 % of pharmacy sales. Let’s go to front end. Front end same-store sales decreased 0.4%, but the last month of the quarter, as Mary mentioned, turned positive. As the quarter progressed, we achieved more balance between sales growth and gross profit growth. Our sales consisted of a lower percent of promotion sales in this year’s third quarter when compared to last year’s third quarter. We experienced weakness ina couple of categories, some of it due to competition, but some of it was also due to our decision to protect gross profit and give up some sales. The photo category continued to bea negative contributor. The Brooks/Eckerds stores front end sales were negative during the quarter. This was caused by discontinuing the old promotion program that Mary mentioned, because we do not believe in chasing unsustainable sales growth or unprofitable sales growth. Also, we discontinued a lot of inventory and retrofitted the planograms during the quarter in the stores, with a majority of the planograms completed in mid-October and November. We continue to believe completing the Brooks/Eckerd’s integration, our initiatives for improving customer satisfaction and our new and relocated store program, along with our consistent promotion program with a focus on health conditions, senior citizens, and core categories will grow our front end sales. Gross profit was $1.75 billion or 26.84% of revenues for this quarter, versus $1.15 billion or 26.71% of revenues for last year. Gross profit dollars increased due to the sales increase and an improvement in our gross margin rate. The current quarter included a non-cash LIFO charge of $16.0 million versus $8.9 million in last year’s quarter. The LIFO charge increase is due primarily to the effect of higher inventory related to the acquisition and product inflation. Excluding LIFO, this quarter’s gross margin rate was 27.08 % of revenues compared to 26.92 % of revenue last year, an increase of 16 basis points. The 16 basis point increase in consolidated FIFO gross margin rate was due to an increase in both the gross margin rate for front end and pharmacy. The gross margin rate improvement for both categories was partially offset by an increase in distribution expenses. Pharmacy gross margin rate was 41 basis points better. Positively impacting pharmacy gross margin rate were first, the increase in the generic sales mix that we’ve described. The increase came from not only new generics, but also an increase in the dispensing of older generics. Second, our gross margin rate improvement came from the generic purchasing synergies related to the acquisition that lowered thecost of product. Offsetting some of these positive factors were first, our Medicare Part D business is a larger part of pharmacy sales. It was approximately 16.4% for the current quarter compared to 14% last year, and we all know there is less gross profit per script on the Medicare Part D business than other business. Second, we continue to experience overall reimbursement rate pressures. Third, three significant generics were either withdrawn or gross profit was significantly reduced for various reasons. The front end gross margin rate was 122 basis points better. The improvement was due primarily to four factors. One, strong vendor support for our promotion programs. Two, our ability to change retail prices to pass on cost increases. Three, a reduction in the mix of promotion sales. Four, better contribution from the photo category. Selling, general, and administrative expenses for the quarter increased as a percent of revenues by 167 basis points compared to the prior year. 82 basis points of that increase was due to the $53.3 million of acquisition-related integration expenses inthe current quarter, whereas the prior year’s quarter only had $687,000. This year’s quarter also had a 52 basis point increase in occupancy expense because of our new and relocated store openings and a 56 basis points increase in depreciation and amortization due to the acquisition-related intangible amortization, the prescription file purchases and the new and relocated store program. After considering the expenses related to the acquisition and the new and relocated store program, SG&A as a percent of revenue between the quarters decreased 23 basis points. The 23 basis points of improvement came from general and broad-based expense control. We are confident in being able to continue our broad-based expense control efforts, but we also intend to continue to develop our new and relocated store program. This means occupancy expense will continue to grow. Until the sales growth from the new and relocated stores hasa chance to mature, occupancy expense as a percent of revenues will be greater than the prior year’s comparable period for a few more years. Going on down the P&L, store closing and impairment charges were $16.7 million higher than last year’s charge. This was due primarily to more stores sold or closed and a decrease in the discount rate used for the lease exit liability on some of the previously closed stores. Interest expense was $130.3 million for the quarter versus $68.2 million in last year’s quarter. The increase was primarily due to the increase in debt that funded the acquisition and the build-up of inventory, and an increase in LIBOR. Cash interest expense was $123.7 million for this quarter versus $63.6 million last year and non-cash interest expense was $6.6 million this year versus $4.6 million last year. Regarding income taxes, it was a benefit for the current quarter. The current quarter benefit was $53.5 million compared to last year’s quarter income tax expense of $175,000. Each quarter’s income tax benefit or expense was in relation to the pre-tax loss or pre-tax income and some adjustments for developments that required discrete income tax adjustment. Net loss for the quarter then was $84.8 million compared to net income of $1.1 million last year. Loss per diluted share was $0.12 for the current quarter compared to $0.01 per diluted share in last year’s third quarter. Each quarter’s diluted per share calculation included declared preferred stock dividend. You will remember that preferred stock dividends are not included in the net loss but they are considered in calculating per share amounts. Adjusted EBITDA for this quarter was $232.3 million or 3.6% of revenues, an increase of $71.5 million from the prior year. The increase is primarily due to the increase in revenue and resulting increase in gross profit and gross margin rate along with good expense control. The schedule attached to our press release reconciles our net loss to our adjusted EBITDA. Now let’s turn to cash flow, which is also attached inthe statement to the press release. Net cash used by operations was $276.7 million this quarter versus cash provided by operations of $44.8 million in last year’s third quarter. The use of cash for the current third quarter primarily was due to the increase in inventory and a decrease in accounts payable. The inventory increased for the holidays, but we also significantly increased inventory to work through the Brooks/Eckerds integration. Integration activities require a temporary incremental investment in inventory that we are replacing for the non go-forward inventory, increasing the number of SKUs at the warehouses and retrofitting the planograms. Inventory will decrease after the holidays and as we complete the integration. Net cash used in investing activities for this quarter were $139.1 million versus $90.1 million for last year’s third quarter. The increase was primarily due to the higher level of capital expenditures. Integration-related capital expenditures and our new and relocated store and prescription file programs are continuing to ramp up. For the quarter, we spent $198.7 million for property, plant and equipment; $11 million for prescription file purchases, for a total of $209.8 million of capital expenditures inthe quarter. During the quarter, we opened 12 new stores, relocated 21, and closed or sold 54 stores. We also remodeled 93 stores during the quarter -- 60 of those were Brooks/Eckerds stores -- and we completed 122 minor remodels of the Brooks/Eckerd stores. We had an increase in our sale and leaseback proceeds of $10 million during the quarter. Net cash provided in financing activities for this quarter was $419.1 million versus $97.1 million for last year’s third quarter. The current quarter’s cash provided in finance activities was primarily due to the additional borrowings under the revolver. Liquidity continues to be strong. Atthe end of the quarter, we had $1.008 billion outstanding under our $1.75 billion senior secured revolving credit facility. We also had outstanding letters of credit of $184.8 million atthe end of the quarter. Revolver borrowings areat their highest point during the year atthe end of our third quarter, due to expected increases in inventory for the holiday season and the integration activities related to inventory and capital expenditures. Our availability under the revolver at the end of the third quarter was over $550 million. The accounts receivable securitization agreements continued to bea good source for liquidity. Atthe end of the third quarter, we had utilized the securitization agreements for $400 million. Total debt atthe end of the third quarter increased $3.003 billion since the beginning of the fiscal year, and advances from the sale of accounts receivable increased $50 million. The combined balances at the end of the third quarter increased $3.053 billion since the beginning of the fiscal year. The increase was due primarily to the Brooks/Eckerds acquisition and the increase in inventory for the holidays and integration. Finally, let’s discuss guidance. Let mebe very clear: we are not lowering our guidance for the synergies related to the acquisition. We are very confident in delivering the $200 million of synergies in fiscal 2008 and $300 million in fiscal 2009. However, based on early trends for the cough, cold, and flu and the holiday season, we are lowering our guidance previously given for fiscal 2008. We expect sales to be between $24.3 billion and $24.6 billion with same-store sales improving 1% to 2%. Previous guidance was for $24.5 billion and $25.1 billion, with same-store sales improving 1.3% to 3.3%. Net loss for fiscal 2008, including nine months of acquisition-related cost savings of approximately $200 million, is expected to be between $161 million and $192 million or between $0.27 and $0.31 loss per diluted share. Previous guidance was net loss between $78 million and $161 million or a loss per diluted share of $0.15 to $0.27. Adjusted EBITDA, which is reconciled to net loss on the attached table, is expected to be between $950 million and $1.0 billion as compared to previous guidance of between $1.0 billion and $1.1 billion. Capital expenditures, including integration capital expenditures but excluding proceeds from sale and leaseback transactions, are expected to be between $790 million to $820 million. Previous guidance was $825 million to $875 million. Proceeds from sale and leaseback transactions are expected to be approximately $85 million as compared to $100 million. This concludes our prepared remarks. April, we are now ready to take questions.

Your first question comes from Meredith Adler - Lehman Brothers. Meredith Adler - Lehman Brothers: I would like to start -- I know you don’t like to talk about individual divisions or how they are performing -- but could you maybe give us some sense in terms of the weakness you are seeing, particularly in seasonal sales? Is it concentrated in certain areas or would you say that it’s very widespread weakness?

I’d say, Meredith, that it is probably more widespread than not; but there are certain parts of the country where it’s more pronounced or I think the discretionary element of those seasonal kind of purchases is impacted by the consumer pullback. We have a lot of stores in areas like Ohio and Michigan and areas like that that are more impacted, Southern California. Meredith Adler - Lehman Brothers: Because Ohio and Michigan have been weak for a little while, so is Southern California being added to that list of places that are weak?

I think there are parts of Southern California that have been weak. Some of those areas are more impacted by housing issues, etcetera; I think we’ve seen that over the last several months. Meredith Adler - Lehman Brothers: You obviously are very focused on your new store program. Is there anything that’s happening, especially if the economy is weakening, in terms of new store performance? Is the new store productivity not coming along the way it should be? Obviously it’s early for many of these stores, but are there any negative surprises in that?

I think it’s still very early in our program. We will actually have, I think, a larger number of stores in our comp numbers over the next several quarters. But obviously relocations are a lot quicker to show profitability than a net new store, because the net new store starts off very low with prescription count and it takes you several years to generate a high enough level to really make those cash flow positive. I think that they are performing pretty much I think as we expected and so we are confident about that program going forward.

Just to remind everybody, our experience has shown that it takes on average three years for a new store to breakeven and then it quickly surpasses the rest of the store portfolio in terms of contribution in the next couple of years. Relocated stores are going to take on average about a year-and-a-half to reach the same level of profitability of the store that it replaces, and they also quickly geta lot better and positively contribute. But again to Mary’s point, nothing has been unexpected or surprises with regards to that. When we arein this ramping up phase of our program, each continuing period of time hasa little more of a burden until those earlier year stores starts to help cover that burden. Meredith Adler - Lehman Brothers: I also have a question about the Brooks/Eckerd pharmacies. Are you disappointed that the trend is still negative? Obviously you are still in the middle of changing systems, a lot of training going on, but is there any reason to believe that you will not get to a level of performance in the pharmacy that you were hoping for?

No, we feel very positive about what we are going to be doing with pharmacy and the Brooks/Eckerds stores for the ongoing future. Obviously you have disruption when you do your systems conversion and that’s a short-lived disruption, putting in any new system causes some temporary issues because you got the learning curve. But, we’ve really put together a terrific training program. We keep integration specialists with the store. We have really focused our efforts in this area and we further believe that the modification we made to our rollout program where we are going to really get districts fully completed is really going to also help because that improves your flexibility and staffing and supervision and I think that’s a real positive as we restart up our conversions in January. Meredith Adler - Lehman Brothers: You are guiding to a lower CapEx number for the year. Can you just talk about what prompted that outcome?

Meredith, we’ve always committed to a balance between the cash flows that we get from operations and our capital expenditures so that people feel comfortable with the leverage profile; I think it’s driven by that. I am sure there is also some pieces of it that we’ve had some things atthe very, very end of the year planned. For various reasons, they are slipping a little bit into next year, but it’s primarily driven by our desire to keep things balanced.

We are probably a couple of stores short on our new and relocated target, that’s very close, even the way that we stop some of our process during the holidays. We’ve probably stopped ita few weeks longer than we would have originally thought, but we believe that was better for the customer experience during the holiday season so that probably shifted a little bit later.

I am quite the Scrooge inthe company here right now, so. Meredith Adler - Lehman Brothers: Well, prudence seems appropriate. Thank you very much.

Your next question comes from Ed Kelly - Credit Suisse. Ed Kelly - Credit Suisse: Mary, could you dissect how much of the lower guidance is related to a weaker consumer versus cold, cough and flu? The reason I ask is because it’s December and the season really doesn’t start to pick up until about this time and then accelerates into next year. I am just wondering what your assumptions are looking out and why that was baked inat this standpoint, or is more of it just consumer?

Well, it actually is both, Ed. As we sort of looked at how trends were developing, we did not see enough strengthening inthe cough, cold, flu number for us to feel as positive as we had about what we originally had in there for those scripts. They are good scripts and they are good traffic creators too. That’s a part of it, and I think equally a factor is the consumer pullback, because that influences any kind of discretionary spending. Even though drug stores are probably more recession proof than other businesses, you still have categories in your mix that certainly are vulnerable and those have always been strong categories for us inthe past. Ed Kelly - Credit Suisse: You mentioned that you are beginning to increase promotions on a select basis. How promotional are you going to have to get into next year if current trends remain?

Well, we believe it’s important for us to be competitive with our promotions and we are still not going to do what I describe as foolish things, but we are going to make sure that we offer great value in our circulars to be able to get customers into our stores because that traffic is important. I see that at least going through the holiday season and potentially into the January/February time period. We continually monitor this and we will watch what happens with different categories that are certainly more vulnerable to consumer pullback and make adjustments accordingly. We will watch what our competitors do too. Ed Kelly - Credit Suisse: Speaking of competitors, what have you seen on that front to date, particularly on the drug store side of the equation? Have they been getting more competitive or more promotional?

I would say yes. Ed Kelly - Credit Suisse: In terms of the Eckerd synergies, were the synergies you achieved this quarter in line with what you had expected?

Very much so, Ed. Ed Kelly - Credit Suisse: Can you give us a sense as to how much of that $200 million has been achieved so far, year-to-date?

As we talked before, because of some of the ramp up, the fourth quarter is not evenly spreads off the three quarters, but we are very, very close to two-thirds of it. Ed Kelly - Credit Suisse: How much of a disappointment is core Rite Aid versus Eckerd? Could you talk a little bit about that?

Well, both certainly contributed to the disappointment, but some of it is expected. You can’t go in and do the kinds of things we are doing in the newly acquired stores and changing out all those planograms and what we did in conversions without certainly some disruptions. Some of the factors that affect core Rite Aid sales like the softer cough, cold and flu and a more discretionary customer also affect those stores too, so you have really got the impact from both in there. Ed Kelly - Credit Suisse: Kevin, could you just go over the liquidity situation? When’s your next big maturity? What’s under the revolver? What are you expecting in free cash for this year? Do you still expect it to be positive next year?

The required maturities over the next three years are less than $175 million and the largest component of that is the $150 million note that’s due December 15, 2008. Basically as we are going through the integration and ramping up the synergies, fiscal 2008 is going to be what everybody refers to as a negative free cash flow. In other words, operating cash flows will be less than the capital expenditures. But in fiscal 2009, we still expect operating cash flows to exceed CapEx and in fact have us paydown the revolver. So from a, if you will, strategic perspective, from a commitment in terms of keeping things balanced, nothing haschanged. We are, if you will, very, very flexible; we have a lot of flexibility with regards to revolver and there are no restrictions on it. So we think we are in very good shape, and as I mentioned, we areat our holiday season third quarter inventory build along with the planogram, retrofitting the Brooks/Eckerds, along with the moving out of the non go-forward inventory and restocking adding an additional burden in building inventory. So, we are kind of where we need to be, but that doesn’t mean we don’t have opportunities. I think that I would be remiss in my duties as a CFO by saying that we aren’t always looking for ways to improve the investment of our working capital inthe business. Ed Kelly - Credit Suisse: You said that your gross margin was up about 16 basis points, but pharmacy is up 41 basis points and front end is up 122. How does that math work?

Well, I always get in trouble trying to explain this, but it’s a function of the sales growth. When you look atthe absolute gross margin rate for front end, which means that the numerator is gross profit dollars, or front-end, and the dominator is front end sales and same for pharmacy, those arethe basis points. But when you take the gross profit from front end and divide it by consolidated sales, you actually seea negative number because front end sales grew less than pharmacy sales. I don’t know if that helps or not. Ed Kelly - Credit Suisse: Because of the mix, you are saying?

It’s the mix and the growth rate.

We also have distribution expenses included in that calculation also and we obviously had higher fuel costs throughout this year and in the quarter and so that also impacted that gross profit rate.

The truth of the matter is we know that we’ve got some what I would call productivity opportunities that once we get through the integration we’ll be able to do a lot better but I just can’t capture anything with a lot of confidence and reclassify it, so to speak, in integration expense. So, there is always that element that’s in there. It will clear itself up as we get through the integration. Ed Kelly - Credit Suisse: Okay, thank you.

Your next question comes from the line of Mark Wiltamuth - Morgan Stanley. Mark Wiltamuth - Morgan Stanley: Mary, last Friday, a judge blocked the A&P implementation, and atthe same time, Congress was contemplating a delay as well but it seems like that may have evaporated. Could you just bring us up to speed on where you think things stand with A&P right now?

I think what we do know is that there is nothing likely to happen in January and beyond that, the timing I think is still uncertain. But any kind of delay is good news because the longer you can push it off and the more you can get attention paid to the language and what finally comes out, the better off it will be for retail pharmacy. Mark Wiltamuth - Morgan Stanley: Do you think there is some prospect that the definition could change a little more?

I think the interpretation of it, I would certainly hope so. Mark Wiltamuth - Morgan Stanley: Do you have any of your commercial contracts tied atall to the Medicaid pricing or Federal upper limits or anything like that?

I don’t know of any specific ones that I can call out here.

The reference to the Federal upper limits is implicitly baked into the contracts, but they don’t come into play, Mark. Mark Wiltamuth - Morgan Stanley: Just to go over the [maccing] trends our models are showing that we are in one of the most difficult year-over-year comparisons right now because of Zocor and Zoloft. It seems like things should ease a little bit in terms of the year-over-year comparison on [maccing]. Is that fair to say that things are going to better in the next few quarters?

We haven’t actually seen anything real unusual that we had not expected. Mark Wiltamuth - Morgan Stanley: Just talk a little bit about your promotional activity. You mentioned getting back to normal promotional levels. Was that at just the Brooks/Eckerds stores because you were going through a transition there, or was that atcore Rite Aid also?

It was a combination because in some instances there were some things that had been done during that time period last year, probably more on the West Coast than anywhere else that we just determined not to anniversary also. Some of it is the suppliers didn’t really make the same deal available so we didn’t put it inso that affected core stores too; but obviously on the Brooks/Eckerd they were very promotional last year during this time period, particularly towards the end of the quarter and that continued into the, I would say February timeframe. A whole lot of consumables inthe ads and a lot of what I would call cherry picker pricing, and that we did not repeat in our ads. Mark Wiltamuth - Morgan Stanley: As you are looking at the Brooks/Eckerd transition there, how much longer do you think for disruptions on the pharmacy side with the systems and training and so forth?

We have got to get through the balance of the conversions, but I think the more we dothe better our entire support network for the stores that get converted gets so that we lessen the amount of time that there is disruption and make sure that again we keep integration specialists with the store until they are comfortable with the system. We think that any of the trends there will improve as we finish the rest of the stores. We still are confident in completing all of the conversions and minor remodels by fall of next year.

Your next question comes from the line of Lisa Gill - JP Morgan. Lisa Gill - JP Morgan: As it relates A&P, Kevin, can you just talk about what you currently have in your expectations around guidance and therefore if it continues to be delayed, is this something that we could see come back on the other side? Mary, as we think about the trends on the front end, are you seeing that the people are filling their basket less or you are actually seeing less traffic inthe stores? What arethe drivers around the seasonal products?

Lisa, remember Medicaid is 9.3% of pharmacy sales and approximately 80% of that is branded drugs and then 20% is the generic. But atthe end of the day we don’t like to answer questions about customer types or customer profitability and so we are not going to tell you what specifically has been stirred into our guidance, but we do have some in terms of we think there is a possibility that there will still be some lost gross profit in this fiscal year. Lisa Gill - JP Morgan: Also, can you just follow up, Kevin? I think you made the comment that some of your commercial contracts are tied to the Federal upper limits but you don’t think that any changes to A&P would have an impact on that contract? Can you just talk a little about that aspect of it? Would you expect that the reimbursement methodology would change on those contracts?

No, I am not expecting that to change. It is just that I am told that when they are going through and establishing the different, if you will, reimbursement amounts and/or deployments that the Federal upper limit is implicitly stirred into that but it usually doesn’t come into play. So therefore if that changes I don’t think it’s going to have an impact on our third parties. Lisa Gill - JP Morgan: Mary, thoughts on some of the trends you are seeing, is it slower traffic specifically or is it the basket size that people are walking out with?

If you think about the areas that are soft, the customer is not in there for a lot of the cough, cold, and flu that they would have been in there for and then Christmas itself that has got off to a softer start. And that’s again, the discretionary element of what people can chose to either delay or wait for a sale and whatnot. So I think I mentioned in my comments that certain kinds of categories are actually strengthen by the end of the quarter and that OTC stayed overall pretty solid. Lisa Gill - JP Morgan: Does any of thechange in guidance change any of your plans for store development as we move forward?

We have, I think, real reasonable goals for store development in terms of the number of net new and relocated stores. Our #1 priority is of course the integration and getting the minor remodels all completed so that’s probably at the top of our deck but we are going to continue to work against our new store and relocated program, and we think that’s an important part of our growth initiative for the future.

Your next question comes from the line of John Heinbockel - Goldman Sachs. John Heinbockel - Goldman Sachs: Would you guys say, ex-synergy, the biggest drag on EBITDA was the real estate program? The remodels and the new stores, is that the biggest drag at this point?

Very much so, along of course with the increased interest expense. John Heinbockel - Goldman Sachs: Do you think out to next year, will the real estate program be less of a drag, the same or…? I don’t imagine it would be worse.

No, it will be a little bit worse because basically remember we are going to be opening up in the fourth quarter, John, approximately 51 stores and you have the full year effect of that next year. So, it’s going to be another year or so where I have got an increasing burden. John Heinbockel - Goldman Sachs: When you think about D&A and the two items that you gave which collectively were over 100 basis points on SG&A, the drag will be may be modestly worst than that next year? Is that the assumption?

Only modestly, and part of that depreciation and amortization is due to the prescription files that we buy from the independents but also the amortization of what was allocated to the purchase price for Brooks/Eckerds, and that hasa very short amortization period to it and some of it is driven by the retention that you see, and that part of it will start to go down. John Heinbockel - Goldman Sachs: So you will get the synergy benefit next year, obviously a step up. It sounds like you probably won’t seethe full potential of the combination of those real estate costs moderating until the following fiscal year; that’s when you will seethe whole thing come together?

That’s true, John, but also remember we are working very, very hard on looking for additional synergies and we don’t know the timing of when we are going to start to see the benefit of that. Obviously the most significant one is basically the front end sales for the Brooks/Eckerds stores are 35% less than the similar Rite Aid stores and they have got very similar square footage footprint. When we know that, we will obviously tell everybody, but we don’t know the timing of it and so keep that in the back of your mind. John Heinbockel - Goldman Sachs: What have been the results of the pilot stores? Do you have a general sense of that or is it too early?

Again, we really just kicked off any of our grand opening advertising starting mid-November because we had to wait to get enough things done so by the time we get to our next quarter call we should have quite a bit of sales information to share with everybody. John Heinbockel - Goldman Sachs: Those numbers should be fairly clean, they will not likely be impacted by the consumer and cough/cold too much?

Certainly for any store you will have some impact from the things that are affecting all stores, but we should have in comparison a good read on those compares to the other stores. John Heinbockel - Goldman Sachs: Finally, you sound pretty comfortable with the revolver availability. At this point you don’t seethe need to go out and raise permanent capital to be able execute the CapEx program over the longer term? You are happy with the availability on the revolver?

Very much so, John. I mean, we basically established our revolver and with the mix of revolver and term loan and senior notes with the idea in mind that we needed to have a lot of flexibility and a lot of liquidity to support our business plans over the next several years. I know it’s inthe back of everybody’s mind because the markets areso goofy right now, but we don’t have to access the capital market to execute and support our business plan.

Our next question comes from the line of Neil Currie - UBS. Neil Currie - UBS: You said about ’09 you’re looking to be cash flow positive and hope to pay down the revolver; but we don’t exactly know the extent of the negativity of the Brooks sales. If you can’t by -- through ‘09 get those Brook sales into positive territory, would you continue to have to moderate CapEx to ensure that you are cash flow positive for ‘09, or would you -- maybe related to John’s question -- consider some asset sales in order to boost the cash flow and focus on continuing to expand the CapEx? What I am trying to say is, what’s more important? Getting the stores right, spending the money on the stores, or maintaining that balance between cash flow and CapEx?

Number one to us is getting the stores completed successfully and getting the sales producing the way that we believe they will produce. We had a lot of impact, of course, on the sales during the quarter we just finished because of allthe planograms we were doing. But those planograms are substantially done. So, even as we dothe minor remodels next year, we are not going have nearly as much inventory churn because we are not going to be having to pull a lot of non go-forward stuff out. We’ve pretty well got that out of the stores. So, we would expect to seea faster sales lift from what we are doing. So, that is a high priority for us. Neil Currie - UBS: Can you give us a sense of where the Brooks/Eckerd’s sales are, how negative they are and whether you’d be looking for them to get into flat territory next year or actually see some positive direction?

We don’t breakout the sales themselves. I think we said that they were negative when we got them. They continue to be negative. The trend actually did worsen during the third quarter, but that was because of the disruption that I talked about which is now behind us. So, we would expect them to begin improving and we are seeing that with the activities that we are doing. The pace of it is still obviously a question mark, but we’ve got I think some strong programs to get our message out to customers and a really good program to complete the work we have to do ahead of that, so we’d expect sales to really improve as we move through this next year.

Your next question comes from the line of Bryan Hunt - Wachovia. Bryan Hunt - Wachovia: Just to continue on the discussion of the resets on the planograms. Were these sales changes in this quarter inline with what you thought going through the planogram process and again if you could restate, was this the quarter in which this will be most pronounced?

Well, this was a quarter where we did the majority of the planograms that needed to get done. And you’ve got the other factors that enter into sales trends too; I mentioned the cough, cold and flu and even just seasonal being softer; plus, remember we did not repeat those giveaway promotions that Brooks/Eckerds had run last year. Those continued for them last year up until February and that’s about when they stopped those. So we will continue to work through those. I think a lot of the things that we’ve added to our marketing and merchandising program for the next few months will also help the sales here too. Bryan Hunt - Wachovia: Next, if I look at your prescription file buys so far this year, could you give us a total dollar amount and the total number of scripts that have been purchased, as well as, would your prescriptions comps be positive without the file buys?

We expect to spend about $60 million this year for file buys, Bryan. As far as the number of scripts are concerned, I actually don’t have the number and we look at what is expected to be retained and based upon the discounted cash flow over a five-year certain period of time with no residual value, that determines what we are willing to pay for a particular opportunity. So I don’t really have a number for you on that. I would have to say that from our best estimate -- and we do track the prescription file buys, and they come in throughout the year -- but I think they add a significant contribution to the script growth, but there is more than just that. So, it would still be positive without that.

Because remember you’ve got certain things that are negative because of cough, cold, and flu not being so strong. So you are also offsetting that with your other initiatives that you have in place. Bryan Hunt - Wachovia: Lastly, in-store clinics has been a big topic for everybody inthe industry inthe last 12 months. Could you talk about the total number of in-store clinics you have; quantify that for us? Second, when you put inan in-store clinic with one of your partners, what is the average sales lift you get?

Well, we don’t have the unique relationship that saya Walgreen’s or aCVS has with their Minute Clinics and Total Care. We have taken a different approach to the clinics where we are partnering with local, well-known healthcare resources. For instance, I have mentioned Lindora several times in Southern California or [Sutherlands] inSacramento , and [Alphonsis] inBoise. The number of clinics that we have is really only about a dozen at this point in time. We have got additional that have been already agreed to with a couple of the people I just mentioned and we are working on a number of other potential partnerships, but we are not ready to announce those yet. We think that the clinic’s strategy can bean important part of our health and wellness offering, but it also does require a certain number of patient visit per day to each of those clinics for them to really be financially sound and we also believe that it gives you a lift on your sales on prescriptions and related other products, but we don’t have enough of a base yet to really give you a good number.

Thekey thing right now that we are concerned about is that brand recognition on the part of the customers as well as the staffing. We think the way we are going about it gives us the best opportunity for pursuing those. Bryan Hunt - Wachovia: Kevin, last question. Looking at the amount of working capital you have built to complete the integration, how big is that number, in your opinion, and when on a timing basis do you see that coming off?

Well, it’s a little bit of a mixed bag of things Bryan because of the normal, what I would call holiday season build, but because of the planograms and the non go-forward inventory, that’s probably over half of the build and we expect to work it down in the fourth quarter; both the holiday season, as well as this returns inventory, non go-forward inventory and things of that nature. Now remember, Easter is early, and so we are building a little bit more in February than we did a year ago, but we are watching it and we are working things down and we feel like we are going to get where we want to be with regards to our investment in working capital.

Your final question comes from Carla Casella – JP Morgan. Carla Casella - JP Morgan: My question relates to SG&A spending. It sounds like there is a lot of items in your SG&A for the quarter that won’t recur; specifically any additional labor or cost involved in the planogram change. Can you quantify or give us a sense for how much of the SG&A will recur versus won’t recur inthe fourth quarter?

Carla, when an expense is identified as being associated and related directly to the integration and we know that it’s going to go away, we classify it into the integration expense category, which is what we have disclosed on our chart as well as the 80 some basis points impact inthe quarter. So I am not quite sure. Now maybe what you are saying is that there are some expenses that people are preoccupied with something with the integration and they might otherwise be doing something else and so we’ve got some missed productivity improvement or opportunities, and I would agree with you on that. But I can’t quantify that and I certainly don’t try to reduce our run rate expense for that. It will manifest itself as we get through the integration and complete it.

Overall we feel really good about our SG&A control other than those very specific areas Kevin mentioned that are investments like our occupancy in new stores. Carla Casella - JP Morgan: In your guidance for the full year, does that assume you continue to see consumer weakness and any gross margin pressure you could see from having to discount seasonal merchandise?

Yes; I mean obviously, those arekey components of our guidance. Carla Casella - JP Morgan: On Brooks/Eckerd, can you just talk about the dispersion in terms of performance of stores in either revenue or profitability; is there a real wide range of performance inthe Brooks/Eckerd stores based either by region or store size or are you learning anything as you get further into this integration process?

The average store sizes are very comparable to our average store size; I mean that was across the areas that they operated in and I think they have sort of the same mixed bag that we have in different markets with different sizes of stores so we are also comfortable with working with those different sizes of stores. We don’t really breakout specific areas as better or worse than others. We do know overall though that in really almost all the areas where we operate core Rite Aid stores and Brooks/Eckerd stores that we have substantial front-end sales opportunities based on our performance in those very same markets. So that’s that 35% productivity improvement opportunity that we have as we getall of the work completed and really are able to execute our full program. Carla Casella - JP Morgan: You just mentioned 35% productivity. Of the synergies that you expect, can you talk about thekey areas where you have not yet given the synergy figures but where you think there may be some opportunities?

Sure. They kind of can fit into four types of opportunities, Carla. The most significant and the one that we are the most excited about is the Brooks/Eckerds front end sales and the opportunity for getting their store productivity up to the level of the similar Rite Aid stores in the same markets. The second one is basically, if you will, our ability to get more purchasing scale, primarily inthe areas of things that we are buying for our own consumption like supplies and uniforms, things of that nature, as well as that second and third tier of front end vendors because we got to go through an entire business cycle before we have the opportunity to really go for best price and lowering thecost of the product. The third, most significant opportunity is we have 14 distribution centers and we know we don’t need 14, we are just not in a position to tell you what we ultimately have decided to do and when we will get down to a lower number of distribution centers. Then the last one is that even though we have identified and have begun combining about 145 or so stores that arein close proximity, set those aside for a moment, we are working on, there still are stores that, if you will, are candidates for combining those two stores into a relocated store position and that also will achieve some synergies. So, those arethe four kinds of opportunities that we are pretty excited about.

Thanks everybody for your interest in our company and I look forward to talking to you again next quarter. Happy Holidays.