Matt Schroeder - Group Vice President of Strategy & Investor Relations and Treasurer John T. Standley - Chairman, Chief Executive Officer and Chairman of Executive Committee Kenneth A. Martindale - President and Chief Operating Officer Frank G. Vitrano - Chief Administrative Officer, Chief Financial Officer and Senior Executive Vice President

Edward J. Kelly - Crédit Suisse AG, Research Division Bryan C. Hunt - Wells Fargo Securities, LLC, Research Division Karru Martinson - Deutsche Bank AG, Research Division Robert P. Jones - Goldman Sachs Group Inc., Research Division Lisa C. Gill - JP Morgan Chase & Co, Research Division John Heinbockel - Guggenheim Securities, LLC, Research Division Carla Casella - JP Morgan Chase & Co, Research Division Mark Wiltamuth John W. Ransom - Raymond James & Associates, Inc., Research Division Steven Valiquette - UBS Investment Bank, Research Division Joseph Stauff - Susquehanna Financial Group, LLLP, Research Division

Good morning. My name is Cassandra, and I will be your conference operator. At this time, I would like to welcome everyone to the Rite Aid Second Quarter Fiscal 2014 Conference Call. [Operator Instructions] At this time, I would like to turn the call over to Matt Schroeder. You may begin.

Thank you, Cassandra, and good morning, everyone. We welcome you to our second quarter conference call. On the call with me today are: John Standley, our Chairman, President and Chief Executive Officer; Ken Martindale, our Chief Operating Officer; and Frank Vitrano, our Chief Financial and Chief Administrative Officer. On today's call, John will give an overview of our second quarter results and discuss our business, Ken will give an update on some of our key initiatives, Frank will discuss the financial highlights and fiscal 2014 outlook, and then we will take questions. As we mentioned in our release, we are providing slides related to the material we will be discussing today. These slides include annual earnings and sales guidance. These slides are provided on our website, www.riteaid.com, under the Investor Relations information tab for conference calls. This guidance is a point-in-time estimate and the company expressly disclaims any current intention to update it. This conference call and the related slides will be available on the company's website until the next earnings call, unless the company withdraws them earlier, and should not be relied upon thereafter. We will not be referring to the slides directly in our remarks but hope you will find them helpful as they summarize some of the key points made on the call. Before we start, I'd 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 can cause actual results to differ. These risks and uncertainties are described in our press release, in Item 1A of our most recent annual report on Form 10-K and other documents we file or furnish to the Securities and Exchange Commission. Also we will be using a non-GAAP financial measure. The definition of the non-GAAP financial measure, along with the reconciliations to the related GAAP measure, are described in our press release. Also included in our slides are the non-GAAP financial measures of adjusted EBITDA gross profit and adjusted EBITDA SG&A and the reconciliations of these measures to their respective GAAP financial measures. With these remarks, I'd now like to turn it over to John. John T. Standley: Thanks, Matt. And thank you, all, for joining us to review our second quarter results for fiscal 2014. In the second quarter, we continued our recent positive momentum by recording excellent results that reflect our financial and operational progress, as well as our ongoing transformation of Rite Aid's 4,600 stores into neighborhood destinations for health and wellness. A key highlight was our fourth consecutive quarter of net income, which was $33 million or $0.03 per diluted share compared to last year's second quarter net loss of $39 million or $0.05 per diluted share. This important improvement was driven by an increase in adjusted EBITDA and a decrease in interest expense. Our net income included a loss on debt retirement from the previously announced refinancings of $62.2 million or $0.07 per diluted share. Net income also included the recovery of $23.5 million or $0.02 per diluted share from the settlement of a prescription drug antitrust case. In addition to our improvement in net income, we recorded our 11th consecutive quarter of year-over-year growth in adjusted EBITDA. Our total of $342 million represents an all-time company record for the second quarter and an improvement of $123 million over the second quarter of last year. Key drivers were the continued benefit of new generic medications on our pharmacy gross margin, strong expense control and the previously mentioned antitrust settlement. Same-store prescription count for the quarter was flat as we continued to cycle through the new patients acquired during last year's Express Scripts-Walgreens dispute. Our retention of these patients remains very strong and we were able to generate some organic script count growth in the second quarter to offset the ESI patients we lost. As we continued to generate positive business results, we also continued our tremendous progress in transforming our stores in true neighborhood destinations for health and wellness. We completed our 1,000th Wellness Store remodel during the quarter as we strive to deliver an unparalleled wellness experience to our customers. In addition, we successfully launched our wellness65+ customer loyalty program for seniors as we focus on providing these customers with compelling benefits, savings and personalized service that encourage them to make Rite Aid their drugstore of choice. We also continued our focus on providing pharmacy services that go beyond simply filling prescriptions. A key component of these efforts has been our annual flu immunization campaign, which got off to a strong start in the second quarter. As we continue to strengthen our reputation as a health and wellness resource, we expect that many of our customers will have questions concerning the Affordable Care Act once open enrollment in the health insurance marketplace begins October 1. We believe there are several million households in the areas where Rite Aid does business that will benefit from new or expanded health insurance coverage under the provisions of the Affordable Care Act. It provides us the opportunity to assist those individuals and families with their health care needs. Last week, we were joined in Hoboken, New Jersey by U.S. Department of Health and Human Services Secretary, Kathleen Sebelius, in announcing that independent licensed insurance agents will be available for free consultations in nearly 2,000 Rite Aid stores begin October 1. Agents will be available to meet one-on-one with customers to answer questions on the Affordable Care Act and help them compare health care plans based on individual needs. The agents will also be able to advise customers on Medicaid eligibility in applicable states and customers will be able to enroll in a health care plan if they choose. In addition, all Rite Aid stores will have brochures with information on the Affordable Care Act and resources will be offered on our website, riteaid.com. Again we see this is a great opportunity to support our customers and strengthen our reputation as a trusted health and wellness resource. At this time, I'd like to turn it over to our President and Chief Operating Officer, Ken Martindale, who has additional information regarding our key initiatives and our ongoing wellness transformation. Ken? Kenneth A. Martindale: Thanks, John. And thanks to everybody, for joining us on the call this morning. Our strong second quarter results clearly demonstrate the progress we're making financially and operationally. But they also reflect our continued success in strengthening our unique brand of health and wellness and delivering a more personalized experience to our customers. Our highly popular wellness+ customer loyalty program continues to be a key component of our everyday health and wellness offering. As John mentioned earlier, we launched our brand-new wellness65+ program during the quarter. And early results indicate that seniors have been very receptive to this one-of-a-kind offering. By the end of the quarter, more than 930,000 seniors had enrolled in the program. We've also had a tremendous response to our monthly wellness65+ Wednesday in-store events. On the first Wednesday of every month, all wellness65+ members become Gold members for the day and receive a 20% discount on their front-end purchases. wellness65+ Wednesday also includes themed health events covering topics such as skincare and heart health while providing seniors with access to free health screenings, valuable health information and exclusive offerings. As we engage seniors from within our stores, we're also engaging with them in the communities that we serve through wellness65+ mobile tour, which visited 8 markets and featured 65 events in the second quarter. In addition to strengthening our community engagement efforts, our mobile tour is designed to reinforce another key component of the program by allowing our associates to build relationships with potential new senior customers. We're very pleased with the strong initial results of our mobile tour and the broader wellness65+ program. We're also very excited about the opportunities that we have to leverage wellness+ in further strengthening the loyalty of shoppers to Rite Aid. We've been using customer insights gained from the program to identify the most rewarding offers for our best customers. By tailoring offers to better meet the needs of individual customers, we're looking to deliver a more personalized experience that drives loyalty, increased trip frequency and larger basket sizes. Also during the quarter, our annual flu immunization campaign got off to a great start. We're very pleased with the early results that our store teams are achieving. Flu shots will continue to be a high priority heading forward as we look to beat last year's performance and achieve our goal of administering 2.5 million flu immunizations. We achieved a significant milestone in the second quarter as we completed our 1,000th Wellness Store remodel and continued delivering this innovative format additional customers. During the quarter, we converted a total of 114 stores to our new Genuine Well-being format. By the end of the quarter, we had 1,019 Wellness Stores and remained on track to reach our goal of having 1,200 by the end of the fiscal year. Our Wellness remodels continue to be very well received our customers. As in recent quarters, our Wellness Stores outperformed the rest of the chain in terms of front-end same-store sales. We are also seeing momentum in the pharmacy as same-store script count for our Wellness Stores outperformed the rest of the chain in the second quarter as well. As we expand our Wellness format to additional locations, we are continuing to staff these stores with our customer-focused Wellness Ambassadors, who are specifically dedicated to providing a higher level of customer engagement. By the end of the second quarter, we had more than 1,700 Wellness Ambassadors working in our stores to deliver this highly personalized level of customer service. In addition, we continue to make strategic investments through programs such as our file buy initiative. We completed $24 million in prescription file buys during the second quarter and are currently on pace to meet our goal of the year of $65 million. To sum it up, our customers continue to respond positively to our expanded offering of wellness programs, services and resources. When combined with our associates' commitment to making it personal, we believe we have an operational game plan that will succeed in meeting the unique needs of our customers while positioning Rite Aid for long-term success. At this time, I'll turn it over to our Chief Financial Officer and Administrative Officer, Frank Vitrano, who will provide additional details about our financial results. Frank? Frank G. Vitrano: Thanks, Ken. Good morning, everyone. Second quarter results reflect solid progress in our turnaround and continued benefits from our various initiatives. On the call this morning, I plan to walk through our second quarter financial results, discuss our liquidity position, certain balance sheet items, our capital expenditure program and finally, provide updated fiscal '14 annual guidance. As previously reported, revenues for the quarter were $6.3 billion, which was $47 million or 76 basis points higher than last year's second quarter. The increase was due to higher pharmacy sales. Overall same-store sales increased 1% in the quarter, reflecting a higher pharmacy inflation rate. Front-end same-store sales were down 30 basis points and pharmacy same-store sales were higher by 1.7%, which had included an approximately 249 basis point negative impact from new generic drugs compared to a 750 basis point negative impact from new generic drugs in the prior year second quarter. Pharmacy same-store comp scripts were flat. Prior year scripts count included the benefit of the ESI-Walgreens dispute. Today, we estimate we are retaining approximately 75% of those new scripts. Adjusted EBITDA in the quarter was $341.6 million or 5.4% of revenues, which was $123 million or 56% higher than last year's second quarter of $218.7 million or 3.5% of revenues. Results were primarily driven by strong pharmacy margins, as well as improving front-end gross margin trends and solid expense control. The quarter included a $23.5 million prescription drug antitrust settlement. Without this settlement, adjusted EBITDA would have been $318 million or 46% higher than last year. Net income for the quarter was $32.8 million or $0.03 per diluted share compared to last year's second quarter net loss of $38.8 million or $0.05 loss per diluted share. The improvement was driven by higher adjusted EBITDA and lower interest expense, partially offset by a $62.2 million or $0.07 per diluted share loss on debt retirement related to the refinancing announced in June. Total gross profit dollars in the quarter were $106 million higher than last year's second quarter and 148 basis points higher as a percent of revenues. Adjusted EBITDA gross profit, which excludes specific items, primarily LIFO and the wellness+ revenue deferral, was favorable to the prior year second quarter by $117 million and 165 basis points as a percent to revenues. Pharmacy gross profit dollars and margin rate were higher due to the benefit of new generics and the prescription drug antitrust settlement, partially offset by continued pharmacy reimbursement rate pressure and cost increases on older generic drugs. Front-end gross profit dollars and rate was also favorable. Selling, general and administrative expenses for the quarter were lower by $15.2 million and 44 basis points lower as a percent to revenues as compared to last year. Adjusted EBITDA SG&A dollars, which excludes specific items, were lower by $6.3 million or 28 basis points as a percent of revenues compared to last year. The decrease in dollars reflects our various expense control initiatives, partially offset by wage and benefit increases, as well as costs associated with the Wellness remodel program. FIFO inventory was higher than the second quarter of last year by $53 million, driven by higher pharmacy inventory. Our cash flow statement results for the quarter show net cash from operating activities as a source of $80 million as compared to a use of $33 million in last year's second quarter. An increase in operating income, partially offset by an increase in working capital, drove the changes. Net cash used in investing activities for the quarter was $111 million versus $73 million last year. During the second quarter, we remodeled 109 stores, acquired 1 new store, relocated 5 stores and closed 12 stores. At the end of the second quarter, we have completed and grand-reopened 1,019 Wellness Stores. Front-end same-store sales in the Wellness Stores exceeded the non-Wellness Stores by 340 basis points and script growth in the Wellness Stores exceeded the non-Wellness Stores by 90 basis points. Now let's discuss liquidity. At the end of the second quarter, we had $1.029 billion of liquidity. We have $677 million of borrowings outstanding under our $1.795 billion senior secured credit facility with $90 million of outstanding letters of credit. Total debt, net of invested cash, was lower by $108 million from last year's second quarter. Our leverage ratio, defined as total debt less invested cash over LTM adjusted EBITDA, improved to 4.6x from 6.2x as compared to the second quarter of fiscal '13. Now let's turn to fiscal '14 guidance. Our updated guidance reflects -- we updated our guidance based upon the anticipated benefits of our Wellness remodel program, customer loyalty program and other initiatives to grow sales and drive operational efficiencies. We also considered the cycling of scripts from the Walgreens-ESI dispute and planned wage and benefit increases. We have not included any Affordable Care Act benefit in fiscal '14 as the program will only be in effect for 2 months of the fiscal year and we expect usage to be minimal in the early stages. The revised guidance also reflects the stronger than anticipated performance in the first half of the year and expected stronger second half of the year versus the company's previous guidance, although the company still expects lower second half performance as compared to the prior year. We expect the higher end of the revised adjusted EBITDA guidance to be flat to last year in the second half adjusted for the $18.1 million credit card settlement received in the third quarter of last year. The company expects its second half performance will be negatively impacted by continued reimbursement rate pressure, although we don't expect AMP changes to impact our fiscal year. Drug cost increases and a significantly lower benefit from new generics as the vast majority of the new generic wave is included in the company's run rate. The company expects total sales to be between $25.1 billion and $25.3 billion and expect adjusted EBITDA to be between $1.240 billion and $1.3 billion for fiscal '14. Same-store sales are expected to be in a range from a decrease of 50 bps to an increase of 50 bps, which reflects the anticipated negative pharmacy sales impact of approximately 240 basis points from new generic introductions and continued reimbursement rate pressure. We expect a fiscal '14 earnings range of net income of $182 million or earnings per diluted share of $0.18 to net income of $268 million and earnings per diluted share of $0.27. The range of guidance is driven -- primarily driven by our same-store sales range and pharmacy margin. Our fiscal '14 capital expenditure plan is unchanged and we expect to spend $400 million with $175 million allocated to remodels and $65 million for file buys. We are planning to open 1 new store, complete 14 relocations and remodel 400 Wellness Stores. We expect to be free cash flow positive for the year. We also expect to close a total of 50 stores, of which the guidance includes a store lease closing provision for 10 to 15 stores with the balance closing upon lease expiration. This completes my portion of presentation and I'd like to turn it back to John. John T. Standley: Thank you, Frank. We are very pleased with our results for the second quarter and excited about the opportunities we have to continue our positive momentum. I would like to thank our entire Rite Aid team for their dedication to executing our strategy and delivering exceptional customer service. That concludes our prepared remarks for this morning. We will now open the phone line for questions.

[Operator Instructions] Your first question comes from the line of Edward Kelly from Crédit Suisse. Edward J. Kelly - Crédit Suisse AG, Research Division: John, could you -- and Frank, maybe, I'd like to start off with just the -- with the guidance and the outlook for the back half of the year. Could you maybe just provide a little bit more color on the details that caused, I guess, some of the headwinds in the back half, the rate pressure? Obviously, the generics, I guess, are kind of self-explanatory. But also the pharmaceutical cost increases are something that we haven't really talked about in a lot of detail, I guess, historically. So I was hoping maybe you can just provide a little bit more color around those items. John T. Standley: Well, we've -- I guess, the first thing I would say is we have -- as we've talked about all along, we've been under reimbursement rate pressure generally all the way along, whether it's coming from state plans or from third-party plans. And the challenge we have in the back half of the year is there's just not as much new generic benefit to help offset that, and so it gets a little more exposed in terms of what we're going to see in the back half results. So I'm not sure that the pressure is dramatically different. It's just we don't have as much to offset it in the back half. In terms of generic drug cost increases, I think we've seen a little bit more of that activity this year than we maybe have in the past. And probably that's one thing on the downside. I think the new generics were probably little stronger than we expected, but the cost increases on generics have also been a little stronger than we expected. And again in the back half, we don't have that kind of year-over-year benefit on new generics to help offset some of that. So those are a couple of things that'll put some pressure on the back half in terms of the guidance. Edward J. Kelly - Crédit Suisse AG, Research Division: In terms of the front end, obviously, the front end had a good gross margin performance this quarter. Do you expect that to continue into the back half? John T. Standley: I mean, I think it'll hopefully remain steady. I'm not sure we'll see huge gains in front-end margin, but we're hopeful it'll remain steady. We are -- I don't know, Ken, if you want to talk about it, but we are in a fairly promotional environment today. And so that could bounce our numbers around a little bit, but... Kenneth A. Martindale: Yes. I mean, clearly, the competitive environment has stepped up just a little bit. I wouldn't say it's anything out of the norm. I mean, it ebbs and flows throughout the year anyway. And so I don't think historically it's anything that's real concerning. But it might require a little bit of investment there. Edward J. Kelly - Crédit Suisse AG, Research Division: Okay. So as we think about the second half, the gross margin, I guess, if we were thinking about that specifically, it seems like there could be a little bit of pressure in the gross margin. Is that fair? John T. Standley: Yes, on the pharmacy side. Edward J. Kelly - Crédit Suisse AG, Research Division: On the pharmacy side. So if the front end is kind of a flattish, we should think about modeling the gross margin maybe down a little bit? John T. Standley: I think that's probably right. Edward J. Kelly - Crédit Suisse AG, Research Division: Okay. On the SG&A side, obviously very strong cost control this quarter. I was hoping you could give us a little bit more color. I don't know if heard this right or not about maybe lower legal costs this quarter or not, maybe I was confusing that with the settlement. So if you could just give us a little bit more color on that front as well. Frank G. Vitrano: Yes. Ed, we continue to do a very good job on controlling the expenses with various cost initiatives that we put in place here for the last couple years. And we're continuing to get some of the benefits of that. We have a number of initiatives around labor control. Our Indirect Procurement group continues to do a good job of lowering the cost of the various items that we use in the store as well as in distribution centers. And the fruits of all these various initiatives are really coming home through. So if you look at SG&A dollars for the last couple quarters, we've been able to minimize the year-over-year increase. And if you take a look at the next 2 quarters, I would expect us to be able to continue to have strong SG&A improvement. Might not necessarily be able to predict that we're going to have a decrease in absolute SG&A dollars, okay, but I think you'll just continue to see some strong controls around SG&A. John T. Standley: Our store teams have done a great job, they really have. And as you know, we've made investments in Wellness Ambassadors and other programs. But overall, they've been efficient and they've worked hard and they've done a really good job. So that's made a huge difference. Edward J. Kelly - Crédit Suisse AG, Research Division: John, the ramp in the marketing spend that you had in the second half related to keeping the customers, the Express customers, does that spend go away? Or is that something that continues? John T. Standley: I don't know, Ken, do you want to -- I don't think -- it's not going to completely go away. We continue to focus on good patients, and that's a group of the good patients. So we'll continue to do the things we need to do to maintain those customers. But we're pretty well cycled around the period of time at which we gained those customers after this quarter. Kenneth A. Martindale: Yes. I don't think it goes away. I think one of the things that we're working on is moving some of our marketing dollars around and investing them in different ways. We're very focused on our best customers. And I think you're going to see us continue to ramp up our efforts to talk to them more directly and it maybe changes the way that we invest our money a little bit. Edward J. Kelly - Crédit Suisse AG, Research Division: Okay. And I just have one last question for you. You haven't had this question in a while. But related to your NOLs, could you give us a little bit more color on what's the magnitude at this point of the NOLs? When do they expire? How long until you guys begin to pay taxes again? Frank G. Vitrano: Yes. NOL, the gross number is about $3.5 billion and nothing really starts to roll off until 2020.

Your next question comes from the line of Bryan Hunt from Wells Fargo. Bryan C. Hunt - Wells Fargo Securities, LLC, Research Division: Just to explore the gross margin question earlier, when you look at your gross margin improvement, obviously been very good. As your generic wave that has hit in the last couple of years begins to age out, how much of the gross margin do you think you'll get back? Or do you think there's a permanent change in gross margin because of the mix changes? As well as there's a similar wave that begins to hit, I think, in drug patent expiration next year and into 2015. Do you foresee a similar type of improvement in gross profit dollars from that expiration as you've seen in the last couple of years? John T. Standley: I think just in terms of sheer magnitude, the last couple years was kind of a little bit historic probably in terms of its impact, although next year, there is a nice pickup next year that'll help us. But I don't think it's quite to the same magnitude that we've seen here over the last 2 years. So in terms of the pharmacy margin, I think we were just talking to Ed about that a second ago. But we do think pharmacy margin in the back half could be down a little bit, and that would probably represent your -- the impact of all the various factors we've discussed. If you want to call it a giveback, I'm not sure I'd quite call it that. But we won't again have as much new generic benefit in the back half to offset some of the headwinds we've been facing all year, so. Bryan C. Hunt - Wells Fargo Securities, LLC, Research Division: But because of the mix change, I guess, was my question, I would expect or we would expect higher gross margins from a historical perspective to continue. John T. Standley: I think that's true. Bryan C. Hunt - Wells Fargo Securities, LLC, Research Division: Okay. And then my next question, there's been substantial changes and it's rolled across the tape over and over again, how consumers are getting dropped from the corporate health plans and moving onto the exchanges. Even I think one of your competitors dropped their families and are only keeping their employees. In broad terms, is there any way you could discuss the potential change from movement from corporate plans to the exchanges may have on pharmacy reimbursement rates overall? Or should there be no change in your opinion? John T. Standley: It's a good question. Based on what we can see today, and obviously, this picture is going to develop over time, so you need to take this with a little bit of grain of salt. Based on what we know today there, we have not seen a ton of unusual pricing in the marketplace related to exchange-based products. It's entirely possible that some narrow networks will develop over time for specific products, so we could see some rate pressure from that. But we may see that anyway. So based on what I know today, I'm not sure that the exchanges are going to cause some dramatic change in reimbursement rate. But I'd say the picture is a still a little bit murky from what we can see today. Bryan C. Hunt - Wells Fargo Securities, LLC, Research Division: And then lastly, with regards to the amount of lives that are uninsured today that will be insured, move into plans and the usage they may bring to your stores, do you think that's an offset or greater than a potential offset to any potential reimbursement pressure that you'll see as we move into 2014 calendar? John T. Standley: I don't know if I can quite button that down for you today. We'll give guidance, I don't know if it's next quarter or the quarter after, but we'll give some insight on '15 because there's still parts of '15 that'll be moving around. But there is a good chunk of people who are going to gain insurance here who have not had it or are going to gain access to a subsidy who weren't eligible for it previously that could be good pharmacy customers, could be heavy utilizers. So that should provide a nice tailwind for next year. But again we are going to continue to have reimbursement rate pressure and whatnot, so. Bryan C. Hunt - Wells Fargo Securities, LLC, Research Division: All right. And I said I'm going to ask one more question. When you look at the front end, you talked about increased promotions, stepped-up competitive environment. Are you seeing more promotional dollars from CPG companies to help fund some of this promotion because it looks like CPGs are going through a wave of deflation themselves from a cost perspective? Maybe it hasn't hit yet, but it looks like it's going to hit the next quarter or 2. Again are you seeing more CPG dollars flowing through based on your improved results? Kenneth A. Martindale: I don't think we're seeing a real difference at all. I'd say it's pretty much status quo on their side right now.

Your next question comes from the line of Karru Martinson from Deutsche Bank. Karru Martinson - Deutsche Bank AG, Research Division: Just to follow up on the Affordable Care Act, I mean, I think in the past, I've heard you guys seem a bit more reserved on the opportunity, and certainly this time around, talking about the new customers and the growth potential. I mean, am I interpreting that kind of that tone incorrectly? Or do you feel that, given the late push here by the administration, that we will probably hit the ground a little faster than we were originally planning? John T. Standley: I think we've always said that if you kind of look at whatever the insurable population out there is, people are going to gain insurance, and you kind of looked at our market share, that would sort of be a proxy probably for what potentially valuation might be associated with this. And I don't think our view on that generally has changed. I think we're gaining more clarity into how this is going to roll out. And as we get closer to it, certainly probably by the end of this fiscal year, we're going to probably be able to maybe give more insight as to what that value might be. It's clearly going to happen over a period of time. I mean, just look at the open enrollment periods extended because it is going to take time for people to figure this out, understand it, engage with it. And what percentage of people who are eligible will actually get involved, nobody knows. So I don't think it all happens next year. So I think this takes a few years before we really understand what the full impact is. But it does feel like there's a lot of people, who may not have access to insurance today, who may come to market. So there could be some benefit here. And I don't think that's different than our previous view We're just probably a little closer to getting here than we were before. Karru Martinson - Deutsche Bank AG, Research Division: Okay. And when you guys look out at your store base, you have the goal of the 1,200 Wellness conversions by the end of this year. You've got plenty of liquidity. You've got positive free cash flow. How much investment do you guys see the store base needing kind of a maintenance level? And where do you see overall remodels going as we go forward? Frank G. Vitrano: Karru, I think right now, our plans are continuing to -- obviously continue to reinvest back into the store base. This year, we'll do 400. And we're still not -- we're still trying to figure out what the game plan is for next year. But you should expect 400 or 500 remodels next year as well. And that seems to be at this point kind of a comfortable pace that as we look to continue -- as we do every renovation, we're continuing to fine-tune it. So a pace of doing 400 or 500 per year is something that we're comfortable with. In terms of, so again the spend here of $400 million, $450 million a year is probably something that feels right at this stage. In terms of maintenance CapEx for us, is somewhere in the neighborhood of $100 million or so is what you should be thinking about. Karru Martinson - Deutsche Bank AG, Research Division: Okay. And then just lastly, when we look at the ratings on your senior notes here, Caa2/CCC, given that you've taken more than 1.5 turns of leverage off in just a year, where do you guys stand with going to the rating agencies and kind of getting credit for all the work you've done? Frank G. Vitrano: Yes. We talk to those folks on a fairly regular basis. And we'll touch base with them once again after they've digested the information.

Your next question comes from the line of Robert Jones from Goldman Sachs. Robert P. Jones - Goldman Sachs Group Inc., Research Division: Yes, just 2 questions actually. Just going back to the LIFO gross profit margin in the quarter, sequentially, you guys impressively were able to hold that margin flat despite what you have described clearly as a negative impact from less generic launches. I was just wondering, was the actual impact in the quarter from generics on margins in line with your expectations, better than your expectations? If it was different, maybe what drove that? And as you look out on the back half of the year, you're obviously flagging this negative impact to continue, just wondering how much variability there could be around this perceived headwind? John T. Standley: Well, there's always a little bit of variability for sure on both sides. So in terms of new generics, I think we did pretty well as we're getting into year 2 on some of these drugs on the cost side. Even though we saw cost increases on other drugs on the newer generics, I think we've done a good job working the cost side of the equation. We've done okay on the rate side. So it's a little bit of both probably in terms of why maybe we were a little stronger than we expected. What you should do though is look at last year's third and fourth quarter margins. And you'll see that, that's where we really picked up and that's what we're going to cycle around. And that's what we're kind of talking about. Robert P. Jones - Goldman Sachs Group Inc., Research Division: Got it. And I guess, just my second question, I apologize if I missed this. Did you guys share private label penetration? And even just more broadly on the topic, is there anything you can help us as far as thinking about this being something to help offset some of the headwinds that you described around margins in the back half? Kenneth A. Martindale: Yes. Private label penetration was pretty flat. And that's what we've seen for a little while now. There's a number of reasons for it. It's still a priority for us. But one of the things that's happening in the market, a lot of the branded products on the OTC side of the business that disappeared from the shelves for an extended period of time have started getting back to the shelf. And so it's impacting private label little bit, so it's taken some of the wind out of our sails there. But we're still pushing hard and expected to resume growth here soon.

Your next question comes from the line of Lisa Gill. Lisa C. Gill - JP Morgan Chase & Co, Research Division: Just given your comments around the reimbursement environment, I was wondering if you're just seeing more opportunities for file buys. Clearly, if you're talking about reimbursement, I would think that it's much more difficult for some of the smaller guys that are out there today. Frank G. Vitrano: Lisa, we are. We continue to -- I mean, we do mailers on a fairly regular basis and knocking on independent doors. And we have a pretty robust pipeline of independents that are looking to sell. Lisa C. Gill - JP Morgan Chase & Co, Research Division: And do you have something built into your guidance around file buys? Frank G. Vitrano: Yes. We're planning on spending $65 million. So we've allocated $65 million for file buys. Lisa C. Gill - JP Morgan Chase & Co, Research Division: Okay. And then secondly, if you could just help me understand something around generic price inflation. You talk about this being a headwind. As generic prices increase, doesn't that also impact the amount of reimbursement that you're getting? Isn't there actually a built-in spread and things like MAC pricing and other things go up as the cost of the drug goes up? Is that not correct? John T. Standley: It cannot be correct. I mean, it really depends -- with generics, oftentimes, the AWP, once it gets set, doesn't always change if there's a cost increase the same way it can with a brand drug. So on brand drugs, we have cost inflation, AWP follows it. If it does get adjusted, and sometimes it does, it's often -- our reimbursement rate is significantly lower on generic drugs on a percentage basis, so the increase on AWP sometimes isn't enough to offset when you apply our reimbursement rate to what the cost increase was. Lisa C. Gill - JP Morgan Chase & Co, Research Division: All right. And then, John, I mean, clearly, last quarter, there was a lot of talk because there was the new JV between Walgreens, Alliance Boots, AmerisourceBergen. I'm just curious as you look at the environment today with generic manufacturers, have you seen any incremental opportunities on your side? As they're opening up and talking about ways to drive product for a specific manufacturer, are you seeing opportunities yourself, number one? And number two, would you consider something along a purchasing cooperative, whether it's with your drug distributor or with other players? John T. Standley: I think we're -- I guess, in terms of the second part of the question, we're open-minded about it. Over the last few years, we haven't been able to find the right relationship to make it work for us. But we're certainly open-minded about the idea. On the purchasing side, I think we've worked really hard to buy as efficiently as we can. And we continue to push in the marketplace to be as efficient a purchaser as we can be. Lisa C. Gill - JP Morgan Chase & Co, Research Division: Great. I guess, then my last question, just kind of speaking to the reimbursement theme, would be around AMP, that no impact most likely for your fiscal '14. However, do you expect that there's going to be an impact? Or do you expect it to be less of an impact now that a number of states have changed their reimbursement methodologies while AMP has been debated all these years? John T. Standley: I think states do continue to kind of fiddle with their reimbursement methodologies. I'm not sure I know the precise timing for it, but I'd say next fiscal year for us is probably the likely timeframe. And so far based on what we've seen, we haven't really changed our thinking about the impact. But as we get closer to it and we see where more states are at that point, we can probably give more precise guidance on it.

Your next question comes from the line of John Heinbockel from Guggenheim. John Heinbockel - Guggenheim Securities, LLC, Research Division: Let me ask you about wellness+. The number of Gold and Silver customers, is that -- is the rate of growth in the number of members of each of those growing at about the rate it had been? Or has there been any change, either up or down, in the rate of growth? Kenneth A. Martindale: I'd say, John, it's pretty close to what it's been. We're still seeing people migrate into the top tiers. John Heinbockel - Guggenheim Securities, LLC, Research Division: So that might suggest, is Gold growing faster than Silver in terms of number of members? Kenneth A. Martindale: It is. And I think it's just if you think of the nature of the program, that's where you end up if you're good customer. So as you migrate through the program, you stop at Gold and Silver is kind of a pass-through tier. So yes, Gold definitely is growing faster. John Heinbockel - Guggenheim Securities, LLC, Research Division: So if you segregate it out, if you took both front-end comp and script count and you took out Gold and Silver, obviously the remaining base would be weaker. Is there something you can do with the remaining non-Gold and Silver customers? Or is the real key here is to get them into Silver and Gold status and get them to upgrade? There's really not a lot you can do if they're not going to upgrade. Kenneth A. Martindale: Well, the first priority is obviously to move people through the tiers and get them to Gold. But that is a very large population base at the lower tiers. And there is quite a bit that we think we can do. I think we've talked a little bit about some of the segmentation we're working. We've got a tremendous database now of transactions. And we're starting to work fairly aggressively at mining that data and putting programs together that address individual customers and what we think will motivate them to come in more frequently and fill a basket up. So that's going to be the next big effort for us is to start working on different segments of our customers. John Heinbockel - Guggenheim Securities, LLC, Research Division: And then your point on the wellness65+ Wednesdays, the purchases on those days count toward Gold and Silver status, correct? Kenneth A. Martindale: They do, they do. John Heinbockel - Guggenheim Securities, LLC, Research Division: And then with -- looking at the wellness+ remodels, so generation -- the second generation here because I know you've kind of fiddled around with that in terms of cost and performance, is the ROI getting better now that you've played around with that for a couple of quarters now? Frank G. Vitrano: Well, John, as we talked about in the past, what we had kind of pro forma'd out is we were expecting to get a 3% kind of overall store growth, okay? And what we're seeing now is on the front end, we're starting to exceed that and the pharmacy side, that's continuing to progress. So we're certainly getting more comfortable with the results out of the remodels. John Heinbockel - Guggenheim Securities, LLC, Research Division: And the pickup in pharmacy, which has been more recent, is that just time and people's familiarity with format? Or do you think wellness+, the loyalty program is having some impact there? Kenneth A. Martindale: John, I think you have to stir all the elements around. It's clearly the remodel, it's wellness+, it's the Wellness Ambassadors. And I think the nature of the pharmacy business, it's just a little slower to react. People have a different relationship with their pharmacists than they do on the front end. And so I think it takes us a little longer. Just like in a new store, it takes us longer to build the pharmacy than it does on the front end. And we see some of that same dynamic in the remodels. John Heinbockel - Guggenheim Securities, LLC, Research Division: All right. And then lastly, obviously as the profitability continues to improve, cash flows go along with that. What's the bottleneck? Is just people doing more than 500 remodels as you move out, right? Because it would strike me that they're working, you still have a physical plan disadvantage to your peers. You'd almost say you'd like to see that go a little faster. Is there a concern about execution? Kenneth A. Martindale: Obviously, execution is the most important piece here. And we've got to make sure that when we do these things, that we're running them right when we come out of it. And so I think right now, we're pretty comfortable at that 400 level. Wherever we end up next year, we'll see. But we feel like we know that we can execute on that and we can do a good job and the operators have done a great job. It's a lot of work. I mean, 400 stores, these are fairly complex remodels. And so it's a lot of work, but guys are doing a good job, so I think we're comfortable there.

Your next question comes from the line of Carla Casella from JPMorgan. Carla Casella - JP Morgan Chase & Co, Research Division: I have one housekeeping item on the antitrust settlement. Was that all included in SG&A? And will it all be completed this quarter? Frank G. Vitrano: Carla, it was actually in gross margin. Carla Casella - JP Morgan Chase & Co, Research Division: Okay. And it's just this quarter? Frank G. Vitrano: Yes. Carla Casella - JP Morgan Chase & Co, Research Division: Okay. And then I'm not sure if you gave this. Did you say what the front-end margin, what the amount of improvement was year-over-year? Frank G. Vitrano: We didn't. We just said that both dollars and rate improved. Carla Casella - JP Morgan Chase & Co, Research Division: Okay. Can you talk about the promotional environment in the front of the store and what impact the comparison we might have this year, given Sandy last year? Kenneth A. Martindale: I mean, the promotional environment, as we said, has definitely picked up. We don't see it as anything that's really abnormal if you look at historic levels, but it's definitely picked up. And we're evaluating what we should do and how we react, and we do that on a week-to-week basis. And I guess, on Sandy, there's not a real material impact. John T. Standley: Carla, you might see fluctuations kind of in comps this year to last year, but kind of intermonth, so between October and November. But on a quarter-over-quarter basis, it shouldn't be significant. Certainly, on a bottom line standpoint, it won't be. Carla Casella - JP Morgan Chase & Co, Research Division: Okay, great. And then on the pharmacy side, have your pharmacy visits overall improved? And can you give us a range of like where your better to your worse stores, how different they are in terms of the number of weekly pharmacy visits? John T. Standley: You mean in terms of customer count? Yes, I mean, our average store script count has gained substantially over the last 24 months. A big chunk of that obviously was the industry dispute between a PBM and one of our competitors, helped us along there. But generally, we've been able to grow our script count over the last couple of years, so the average is up. The variation is several hundred scripts or more from the bottom to the top. There's still some wide variation in there. Carla Casella - JP Morgan Chase & Co, Research Division: And are you still -- but you had been below your competitors on that. Have you crossed... John T. Standley: Yes. We'd still be below. Frank G. Vitrano: But we've narrowed the gap. Carla Casella - JP Morgan Chase & Co, Research Division: Okay, great. And then just one last one. The inventory up about 6.5%, and you commented pharmacy inventory. Is it dollars or units or both? Frank G. Vitrano: Carla, it's basically, as I mentioned earlier, the dollar increase was about $50 million on a year-over-year basis. And it was primarily again in pharmacy and it's driven by, at quarter end, we bought some extra inventory in, as well as we had some price increases on pharmacy in total. And those are really the 2 drivers of the increase.

Your next question comes from the line of Mark Wiltamuth from Jefferies.

Frank, wanted to go with a bigger picture. A few years ago, you had mentioned to me like 2/3 of the stores were kind of producing most of your EBITDA and the bottom 1/3 were really where you were really lagging versus competitors in terms of store productivity. What percentage of your store base is really still in that underperforming tier at this point? John T. Standley: They're still -- we still have a chunk of stores that would be underperforming our competitors in that type of analysis. I mean, Mark, if look at our overall EBITDA margin at 5.5%, 5.4%, whatever we are, we're still 150 to 200 basis points behind. And as we just talked about in the previous question, our average volumes are still a little short of our competitors. So if we were -- if we're benchmarking stores against competition, we still have a group of stores that are going to be -- that are not going to be it.

But you made progress, I guess, shrinking that underperforming population. John T. Standley: Well, we certainly did that. I mean, if you go to -- we talked before about stores that are negative on a cash flow basis and whatnot. We've significantly reduced that group of stores. So a rising tide has lifted all boats, no question about it.

Okay. And then I guess, getting back to some of the comments on the Affordable Care Act, do you think you'll overindex with the Medicaid population, given where your stores are in urban areas? John T. Standley: I think it's possible a little bit. I mean, we keep kind of staring at that. I'd give you probably 3 different kind of viewpoints on this thing. I mean, where we compete, where we are, we generally compete with both Walgreens and CVS, so they generally have stores where we do. Having said that, we are not in some more suburban areas in the center part of the country, so we may be a tad more urban-weighted than those 2 competitors are. And we may be a little bit more weighted in some areas that are lower-income on an outlook kind of percentage basis or something, even though in sheer store count, we may be similar. We've also tried to look at our own data around our stores to try and get some feel for it. And our read is there is a good group of households out there that are going to qualify either for Medicaid or a subsidy. They're around our stores. We're going to have a chance here if all these people actually do come to market, have a pretty good group of folks to help here.

And on these educational campaigns you'll be doing in the stores, is there a coupon or something like that, that the customer gets to kind of bring their first script to you or anything like that? John T. Standley: No. It's mostly -- it's all educational in addition to the licensed independent insurance agents that we'll have in the store. Now our goal would be hopefully that if we help answer their questions or help them find a solution to their health care needs, that we'll build a relationship that allow us obviously to get those scripts and we would try and sign them up to wellness+ if there's that opportunity. And that's really how we would kind of go about it right now.

Your next question comes from the line of John Ransom from Raymond James. John W. Ransom - Raymond James & Associates, Inc., Research Division: I'm reduced to asking about your settlement. Was that as a net SG&A in the quarter? Frank G. Vitrano: John, it was actually in gross margin. Yes, it was in gross margin. John W. Ransom - Raymond James & Associates, Inc., Research Division: And is this -- I know there's seasonality, but your SG&A was below our model. Is this a seasonally adjusted run rate we should think about? Or was there something else in the... Frank G. Vitrano: I mean, as we talked earlier, we're continuing to do a very good job of controlling the cost. There wasn't any unusual comparisons in SG&A this quarter versus last quarter. And as you look out for the third and the fourth quarter, I'm not sure we're going to be down on an absolute dollar basis. But in third and fourth quarter, I think we should continue to show some good progress, maybe be slightly up on an absolute dollar basis. But on a rate basis, should be in good shape. John W. Ransom - Raymond James & Associates, Inc., Research Division: Okay. And then as we think about the Walgreen effect year-over-year, is it fair to say that you probably would have had 100 to 200 basis points of script growth absent the leakage of some of the Walgreen stuff? John T. Standley: I don't know if it'd be quite that high. But that's -- I guess, that's my guess. John W. Ransom - Raymond James & Associates, Inc., Research Division: Okay. So less than 100 bps of effect? John T. Standley: I don't know if I have an exact number for you, so but probably 100 or less. Frank G. Vitrano: Right. John W. Ransom - Raymond James & Associates, Inc., Research Division: Okay. And do you think the 75% retention is stable at this point? John T. Standley: I think we're getting around it pretty good. I mean, it's been significant period of time, so I would think we're... Frank G. Vitrano: Yes. I mean, we cycled. I mean, previous quarter, we've cycled it. So they're with us for a year, so we're pretty comfortable with that.

The next question comes from the line of Steve Valiquette. Steven Valiquette - UBS Investment Bank, Research Division: Well, one that I have here is you guys obviously touched on the NOLs earlier in the call and not having to pay taxes roughly through 2020, if I heard that right. But just to clarify though, sometimes there are some discrepancies between the taxes you guys might pay in the real world and versus what's reported on your income statements going forward. So I guess, just for, let's say, reported numbers generally speaking, if we assume for a moment that your pretax income stays positive annually through 2020, should we just assume that your reported pretax numbers would not have any material income tax expense reported against it through the year 2020 or so? Is that the way to think about it? Or should we assume a full tax rate even though you're not going to be paying in the real world? Just trying to figure out just the canopy, how that's going to work. Frank G. Vitrano: Right. I mean, what we will have is we'll have some cash state taxes that we're going to pay. But other than that, okay, that's -- we wouldn't have a federal provision. Steven Valiquette - UBS Investment Bank, Research Division: Okay. So it's going to be pretty small numbers then generally speaking until the NOL runs out, which for now you're projecting maybe around 2020 or so? Frank G. Vitrano: Yes. Steven Valiquette - UBS Investment Bank, Research Division: Okay. And then one other just real quick one, just more of a housekeeping one. But just to be clear, it looks like the answer is yes. But the $23.5 million settlement gain that you had in the quarter, that's included in the revised EBITDA guidance for the full fiscal year, is that correct? Frank G. Vitrano: Yes, it is.

And your final question comes from the line of Joe Stauff from Susquehanna. Joseph Stauff - Susquehanna Financial Group, LLLP, Research Division: Real quick, I just wanted to ask on the remodels. Of your entire fleet of stores of roughly 4,600, do you anticipate that all those stores you could remodel with Wellness-type of format? Well, what percentage of them, I guess, would you see going with that format? John T. Standley: I think we've got enough out there, we can keep ourselves busy with remodels for the next couple years. But there's certainly a group of those stores that we want to relocate. So it's not every store, obviously. And our goal is to continue to build our real estate pipeline as we work through the remodel group so that as we get a little bit more mature on the remodel program, we can start to add some additional relocations for the CapEx. Joseph Stauff - Susquehanna Financial Group, LLLP, Research Division: Makes sense. And then refining the process going forward, obviously, you've got roughly 1,000 under your belt. Are the trends in terms of the same-store trends, once they're completed in terms of the remodels, have those changed at all? John T. Standley: I mean, I think the stores -- I think Frank mentioned earlier, the comps in the Wellness Stores are actually strengthening a little bit. And I think our newer Genuine Well-being stores have actually done very well. Joseph Stauff - Susquehanna Financial Group, LLLP, Research Division: Got it. And then finally, the percentage of gross profit that you guys realized from front end, in particular, versus your pharmacy, is -- I know you don't disclose it explicitly. But is it fair to say or guess that it's around 45% or so? Frank G. Vitrano: That would be a high guess. John T. Standley: Yes, I don't think we're going to go there.

Okay. We thank everybody for attending the call, and look forward to talking to you soon.

This concludes today's conference call. You may now disconnect.