### UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

## FORM 10-Q

|(Mark One)
|----------
|          
|ý         
|          
|o         

Delaware(State or other jurisdiction of incorporation or organization)

22-2879612(I.R.S. Employer Identification No.)200 Milik Street, Carteret, New Jersey(Address of principal executive office)

07008(Zip Code)


(732) 499-3000
(Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 (the Exchange Act) during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to the
filing requirements for at least the past 90 days.
            Yes ý        No o

Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer
in Rule 12b-2 of the Exchange Act.
            Large Accelerated Filer  o      Accelerated Filer  ý      Non-Accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
            Yes o        No ý

As of November 24, 2006, 52,199,622 shares of Common Stock were outstanding.







### Part I. Financial Information

#### Item 1. Financial Statements.

#### Pathmark Stores, Inc.
Consolidated Statements of Operations (Unaudited)(in millions, except per share amounts)

|                                                | 13 Weeks Ended |  | 39 Weeks Ended
|----------------------------------------------- | -------------- |  | --------------
|
|Sales                                           |                |  | $             
|Cost of goods sold                              |                |  |               
|                                                |                |  |               
|Gross profit                                    |                |  |               
|Selling, general and administrative expenses    |                |  |               
|Depreciation and amortization                   |                |  |               
|                                                |                |  |               
|Operating earnings (loss)                       |                |  |               
|Interest expense, net                           |                |  |               
|                                                |                |  |               
|Loss before income taxes                        |                |  |               
|Income tax benefit                              |                |  |               
|                                                |                |  |               
|Net loss                                        |                |  | $             
|                                                |                |  |               
|Weighted average number of shares outstanding  |                | 
|basic and diluted                               |                |  |               
|                                                |                |  |               
|Net loss per share  basic and diluted          |                |  | $             
|                                                |                |  |               





See notes to consolidated financial statements (unaudited).

2



#### Pathmark Stores, Inc.
Consolidated Balance Sheets (in millions, except share and per share amounts)

|                                                              | (Unaudited)October 28, 2006 |  | January 28,2006
|------------------------------------------------------------- | --------------------------- |  | ---------------
|ASSETS                                                        |                             |  |                
|Current assets                                                |                             | 
|Cash and cash equivalents                                     |                             |  | $              
|Marketable securities                                         |                             |  |                
|Accounts receivable, net                                      |                             |  |                
|Merchandise inventories                                       |                             |  |                
|Due from suppliers                                            |                             |  |                
|Other current  assets                                         |                             |  |                
|                                                              |                             |  |                
|Total current assets                                          |                             |  |                
|Property and equipment, net                                   |                             |  |                
|Goodwill                                                      |                             |  |                
|Other noncurrent assets                                       |                             |  |                
|                                                              |                             |  |                
|Total assets                                                  |                             |  | $              
|                                                              |                             |  |                
|LIABILITIES AND STOCKHOLDERS' EQUITY                          |                             | 
|Current liabilities                                           |                             | 
|Accounts payable                                              |                             |  | $              
|Current maturities of long-term debt                          |                             |  |                
|Current portion of capital lease obligations                  |                             |  |                
|Accrued expenses and other current liabilities                |                             |  |                
|                                                              |                             |  |                
|Total current liabilities                                     |                             |  |                
|Long-term debt                                                |                             |  |                
|Long-term capital lease obligations                           |                             |  |                
|Other noncurrent liabilities                                  |                             |  |                
|                                                              |                             |  |                
|Total liabilities                                             |                             |  |                
|                                                              |                             |  |                
|Stockholders' equity                                          |                             | 
|Preferred stock                                               |                             |  |                
|Authorized: 5,000,000 shares; no shares issued                |                             | 
|Common stock, par value $0.01 per share                       |                             |  |                
|Authorized: 100,000,000 shares; issued:  52,190,272 shares    |                             | 
|at October 28, 2006 and 52,012,553 shares at January 28, 2006 |                             | 
|Common stock warrants                                         |                             |  |                
|Paid-in capital                                               |                             |  |                
|Accumulated deficit                                           |                             |  |                
|Accumulated other comprehensive loss                          |                             |  |                
|                                                              |                             |  |                
|Total stockholders' equity                                    |                             |  |                
|                                                              |                             |  |                
|Total liabilities and stockholders' equity                    |                             |  | $              
|                                                              |                             |  |                





See notes to consolidated financial statements (unaudited).

3



#### Pathmark Stores, Inc.
Consolidated Statements of Cash Flows (Unaudited)(in millions)



|                                                                            | 39 Weeks Ended
|--------------------------------------------------------------------------- | --------------
|
|Operating Activities                                                        |               
|Net loss                                                                    |               
|Adjustments to reconcile net loss to cash provided by operating activities: |               
|Depreciation and amortization                                               |               
|Amortization of deferred financing costs                                    |               
|Amortization of stock-based compensation                                    |               
|Deferred income tax benefit                                                 |               
|Tax benefit related to stock-based compensation                             |               
|Loss on mortgage debt extinguishment                                        |               
|Cash provided by (used for) operating assets and liabilities:               |               
|Accounts receivable, net                                                    |               
|Merchandise inventories                                                     |               
|Due from suppliers                                                          |               
|Other current assets                                                        |               
|Noncurrent assets                                                           |               
|Accounts payable                                                            |               
|Accrued expenses and other current liabilities                              |               
|Noncurrent liabilities                                                      |               
|                                                                            |               
|Cash provided by operating activities                                       |               
|                                                                            |               
|Investing Activities                                                        |               
|Capital expenditures                                                        |               
|Proceeds from sale of marketable securities                                 |               
|Purchase of marketable securities                                           |               
|                                                                            |               
|Cash used for investing activities                                          |               
|                                                                            |               
|Financing Activities                                                        |               
|Borrowings (repayments) under the working capital facility, net             |               
|Repayments of capital lease obligations                                     |               
|Other borrowings, net                                                       |               
|Proceeds from exercise of stock options                                     |               
|Purchase of treasury stock                                                  |               
|Deferred financing costs                                                    |               
|Proceeds from the issuance of common stock and common stock warrants,       |               
|net of expenses                                                             |               
|Mortgage debt repayments and extinguishment                                 |               
|                                                                            |               
|Cash provided by financing activities                                       |               
|                                                                            |               
|Increase (decrease) in cash and cash equivalents                            |               
|Cash and cash equivalents at beginning of period                            |               
|                                                                            |               
|Cash and cash equivalents at end of period                                  |               
|                                                                            |               
|Supplemental Disclosures of Cash Flow Information                           |               
|Interest paid                                                               |               
|                                                                            |               
|Income taxes paid                                                           |               
|                                                                            |               
|Non-Cash Investing Activities                                               |               
|Additions to property and equipment                                         |               
|                                                                            |               





See notes to consolidated financial statements (unaudited).

4



#### Pathmark Stores, Inc.
Consolidated Statements of Stockholders Equity (in millions)



|                                      | CommonStock |  | CommonStockWarrants |     | Paid-inCapital |   | AccumulatedDeficit |  | AccumulatedOtherComprehensiveLoss |       | TreasuryStock |   | TotalStockholdersEquity |  
|------------------------------------- | ----------- |  | ------------------- | --- | -------------- | - | ------------------ |  | --------------------------------- | ----- | ------------- | - | ------------------------ | -
|                                     
|Balance, January 28, 2006             |             |  | $                   | 0.5 |                | $ | 69.7               |  | $                                 | 743.6 |               | $ | (638.4                   | )
|Net loss and comprehensive loss       |             |  |                     |    |                |   |                   |  |                                   |      |               |   | (20.0                    | )
|Exercise of stock options             |             |  |                     |    |                |   |                   |  |                                   | 1.1   |               |   |                         |  
|Purchase of treasury stock            |             |  |                     |    |                |   |                   |  |                                   | (0.7  | )             |   |                         |  
|Stock-based compensation expense      |             |  |                     |    |                |   |                   |  |                                   | 7.0   |               |   |                         |  
|                                      |             |  |                     |     |                |   |                    |  |                                   |       |               |   |                          |  
|Balance, October 28, 2006 (unaudited) |             |  | $                   | 0.5 |                | $ | 69.7               |  | $                                 | 751.0 |               | $ | (658.4                   | )
|                                      |             |  |                     |     |                |   |                    |  |                                   |       |               |   |                          |  





See notes to consolidated financial statements (unaudited).

5



#### Pathmark Stores, Inc.
Notes to Consolidated Financial Statements (Unaudited)

#### Note 1.  Significant Accounting Policies

Business. Pathmark Stores,
Inc. (the Company or Pathmark) operated 141 supermarkets
as of October 28, 2006, primarily in the New York-New Jersey and Philadelphia
metropolitan areas.

Basis
of Presentation. The unaudited consolidated financial statements included
herein have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, the consolidated
financial statements included herein reflect all adjustments which are of a normal and
recurring nature and are necessary to present fairly the results of operations and
financial position of the Company. This report should be read in conjunction with the
audited financial statements and notes thereto included in the Companys Annual
Report on Form 10-K for the year ended January 28, 2006.

Principles
of Consolidation. The consolidated financial statements include the accounts
of the Company and its subsidiaries, all of which are 100% owned. All intercompany
transactions have been eliminated in consolidation.

Gift
Cards and Gift Certificates. The Company sells gift cards and
gift certificates (collectively Gift Cards) to its customers and certain
charitable organizations through its retail stores. These Gift Cards do not have
expiration dates. The Company recognizes sales from Gift Cards when they are redeemed by
the customer and income when the likelihood of the Gift Card being redeemed by the
customer is remote (Gift Card breakage) and the Company determines that it does not have a
legal obligation to remit the value of unredeemed Gift Cards to the relevant jurisdiction
as abandoned property. The Company determines Gift Card breakage income based upon
historical redemption patterns. During the second quarter of fiscal 2006, the Company
formed a new subsidiary to handle all sales and maintain the liability related to Gift
Cards. As a result of transferring all existing obligations to the newly formed
subsidiary, the Company recognized $3.2 million and $0.3 million of breakage income in the
second and third quarters, respectively, related to Gift Cards sold since the inception of
the Gift Card program. There was no breakage income recognized for the same periods in the
prior year.

#### Note 2. Stock-Based Compensation

Effective
with the beginning of fiscal 2006, the Company adopted the fair value recognition
provisions of the Financial Accounting Standards Board (the FASB) Statement of
Financial Accounting Standards (SFAS) No. 123(R) using the
modified-prospective transition method. Under this transition method, the Company
recognized stock-based compensation expense for all stock options granted prior to, but
not yet vested on January 28, 2006, and stock options granted subsequent to January 28,
2006. With the assistance of an independent third party, the Company determined the fair
value of such grants using the Black-Scholes option pricing method. The adoption of SFAS
No. 123(R) increased the Companys loss before income taxes and its net loss for the
13 weeks ended October 28, 2006 by $1.5 million and $0.9 million, or $0.2 per diluted
share, respectively, and for the 39 weeks ended October 28, 2006 by $4.3 million and $2.5
million, or $0.5 per diluted share, respectively, compared to the accounting for
stock-based compensation under Accounting Principles Board (APB) Opinion No.
25. For the 39 weeks ended October 28, 2006, stock-based compensation expense of $7.0
million, or $0.08 per diluted share after tax, was comprised of $4.3 million, or $0.05 per
diluted share after tax, related to stock options and $2.7 million, or $0.03 per diluted
share after tax, related to restricted stock and restricted stock units.



6



#### Pathmark Stores, Inc.
Notes to Consolidated Financial Statements (Unaudited)  (Continued)

#### Note 2. Stock-Based Compensation  (Continued)

The
pro forma fiscal 2005 net loss and pro forma net loss per share, including the pro forma
effects of expensing stock options, are as follows (in millions, except per share
amounts):

|                                                                  | 13 WeeksEndedOctober 29,2005 |  | 39 WeeksEndedOctober 29,2005
|----------------------------------------------------------------- | ---------------------------- |  | ----------------------------
|Net loss, as reported                                             |                              |  | $                           
|Less: pro forma stock-based compensation expense, net of related  |                              | 
|tax effect                                                        |                              |  |                             
|                                                                  |                              |  |                             
|Net loss, pro forma                                               |                              |  | $                           
|                                                                  |                              |  |                             
|Weighted average number of shares outstanding - basic and diluted |                              |  |                             
|                                                                  |                              |  |                             
|Net loss per share  basic and diluted, as reported               |                              |  | $                           
|Less: pro forma stock-based compensation expense, net of related  |                              | 
|tax effect                                                        |                              |  |                             
|                                                                  |                              |  |                             
|Net loss per share - basic and diluted, pro forma                 |                              |  | $                           
|                                                                  |                              |  |                             

---

|(a) |  | The
pro forma net loss for the period presented included a net pro forma charge of
$2.5 million due to the change of control resulting from the Yucaipa transaction
on June 9, 2005.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
Companys 2000 Employee Equity Plan (the Employee Plan) and 2000
Non-Employee Directors Equity Plan (the Directors Plan) authorize
the granting of various forms of equity awards, including stock options, restricted stock
and restricted stock units, aggregating 12,294,118 shares of the Companys common
stock (the Common Stock), of which 11,514,118 shares are authorized under the
Employee Plan and 780,000 shares are authorized under the Directors Plan. Officers
and certain key employees are eligible to receive awards under the Employee Plan and
directors, who are not employees of the Company and who are Independent
Directors as such term is used under the rules and listing standards of Nasdaq, are
eligible to receive awards under the Directors Plan. Additionally, in fiscal 2005,
options for 2,000,000 additional shares of Common Stock (the Additional
Options) and 700,000 shares of restricted Common Stock (the Additional
Restricted Stock) were granted by the Board of Directors outside of the Employee
Plan to two newly hired executives (the Additional Options). Options granted
pursuant to the Employee Plan have a term of ten years and generally vest over three or
four years. Options granted pursuant to the Directors Plan have a term of five years
and vest over three years. The Additional Options have a term of ten years and vest over
three years. Restricted stock units granted pursuant to the Employee Plan generally vest
over three or four years. Restricted stock units granted pursuant to the Directors
Plan and the Additional Restricted Stock vest over three years. The Company is amortizing
these expenses on a straight-line basis over the respective vesting periods.



7



#### Pathmark Stores, Inc.
Notes to Consolidated Financial Statements (Unaudited)  (Continued)

#### Note 2.  Stock-Based Compensation  (Continued)

The
following weighted-average assumptions were used to value the Companys grants of
stock options, which are being recognized as stock-based compensation expense effective
with the beginning of fiscal 2006:

|                                                 | Issued
|------------------------------------------------ | ------
|
|Stock options                                    |       
|Fair value of stock options at the date of grant |       
|Risk-free interest rate (a)                      |       
|Expected life (in years) (b)                     |       
|Expected volatility (c)                          |       
|Expected dividend yield (d)                      |       

---

|(a) |  | The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time
of the grant.
|--- |  | ---------------------------------------------------------------------------------------------------------

|(b) |  | The
expected life of the grants was determined using the simplified method as defined in the
Securities and      Exchange Commission's Staff Accounting Bulletin No. 107.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) |  | The
expected volatility is based on a database of traded and quoted options on the Company's
Common Stock.
|--- |  | ----------------------------------------------------------------------------------------------------------

|(d) |  | The
Company does not expect to pay a dividend during the contractual life of the options
granted.
|--- |  | -------------------------------------------------------------------------------------------------

A
summary of stock option activity as of October 28, 2006 is as follows:

|                                                                 | Number ofShares |  | Weighted-AverageExercisePrice PerShare |           | Weighted-AverageRemainingContractualTerm(in years) |   | AggregateIntrinsicValue(in millions)
|---------------------------------------------------------------- | --------------- |  | -------------------------------------- | --------- | -------------------------------------------------- | - | ------------------------------------
|Outstanding at January 28, 2006                                  |                 |  |                                        | 6,954,612 |                                                    | $ | 11.79                               
|Granted during fiscal period                                     |                 |  |                                        | 725,580   |                                                    |   | 9.89                                
|Exercised during fiscal period                                   |                 |  |                                        | (212,075  | )                                                  |   | 5.58                                
|Cancelled, terminated, forfeited or expired during fiscal period |                 |  |                                        | (106,250  | )                                                  |   | 17.18                               
|                                                                 |                 |  |                                        |          
|Outstanding at October 28, 2006                                  |                 |  |                                        | 7,361,867 |                                                    | $ | 11.71                               
|                                                                 |                 |  |                                        |           |                                                    |   |                                     
|Exercisable at October 28, 2006                                  |                 |  |                                        | 4,333,866 |                                                    | $ | 12.84                               
|                                                                 |                 |  |                                        |           |                                                    |   |                                     

The
Company received proceeds of $1.1 million from the exercise of stock options during the 39
weeks ended October 28, 2006 with an intrinsic value of $1.0 million. As of October 28,
2006, there was $13.8 million of unrecognized compensation cost related to non-vested
options, which will be recognized over a weighted-average period of 3.1 years. As of
October 28, 2006, the Company had 3,028,001 unvested options outstanding with a
weighted-average fair value of $5.45 per share. During the 39 weeks ended October 28,
2006, 71,996 options vested. The Companys policy related to the issuance of shares
to cover the exercise of options is to first utilize treasury stock, when available, and
then issue shares from currently authorized stock.

During
the 39 weeks ended October 28, 2006, restricted stock units representing 419,199 shares of
Common Stock were granted pursuant to the Employee Plan and restricted stock units
representing 25,200 shares of Common Stock were granted pursuant to the Directors
Plan. The aggregate value of the restricted stock units granted of $4.1 million is being
amortized as compensation expense over the respective vesting periods.



8



#### Pathmark Stores, Inc.
Notes to Consolidated Financial Statements (Unaudited)  (Continued)

#### Note 2.  Stock-Based Compensation  (Continued)

The
following table summarizes the change in the number of Common Stock outstanding:

|                                  | Common Stock
|--------------------------------- | ------------
|
|Balance at January 28, 2006       |             
|Exercise of stock options         |             
|Purchase of treasury stock        |             
|Vesting of restricted stock units |             
|                                  |             
|Balance at October 28, 2006       |             
|                                  |             

During
the 39 weeks ended October 28, 2006, 248,898 shares of restricted stock and restricted
stock units representing 38,145 shares of Common Stock vested; upon vesting, 72,501 shares
of Common Stock were withheld by the Company to satisfy tax withholding requirements.

#### Note 3. Cash and Cash Equivalents

Cash
and cash equivalents are comprised of the following (in millions):

|                          | October 28,2006 |  | January 28,2006
|------------------------- | --------------- |  | ---------------
|Cash                      |                 |  | $              
|Cash equivalents          |                 |  |                
|                          |                 |  |                
|Cash and cash equivalents |                 |  | $              
|                          |                 |  |                

Cash equivalents
represent highly liquid investments with a maturity of three months or less when
purchased. As of October 28, 2006 and January 28, 2006, net book overdrafts of $22.0
million and $23.4 million, respectively, were classified as accounts payable and not as a
reduction of cash and cash equivalents since the Company does not have a right of offset
related to its depository and disbursing accounts.

# Note 4. Long-Term Debt

Long-term
debt is comprised of the following (in millions):

|                                                          | October 28,2006 |  | January 28,2006
|--------------------------------------------------------- | --------------- |  | ---------------
|Senior subordinated notes                                 |                 |  | $              
|Term loan                                                 |                 |  |                
|Working capital facility                                  |                 |  |                
|Other debt                                                |                 |  |                
|                                                          |                 |  |                
|Total debt                                                |                 |  |                
|Less: current maturities and the working capital facility |                 |  |                
|                                                          |                 |  |                
|Long-term debt                                            |                 |  | $              
|                                                          |                 |  |                





9



#### Pathmark Stores, Inc.
Notes to Consolidated Financial Statements (Unaudited)  (Continued)

#### Note 5. Interest Expense, Net

Interest
expense, net is comprised of the following (in millions):

|                                         | 13 Weeks Ended |  | 39 Weeks Ended
|---------------------------------------- | -------------- |  | --------------
|
|Senior subordinated notes (a)            |                |  | $             
|Term loan (b)                            |                |  |               
|Working capital facility                 |                |  |               
|Lease obligations                        |                |  |               
|Mortgage debt extinguishment (c)         |                |  |               
|Amortization of deferred financing costs |                |  |               
|Interest income                          |                |  |               
|Other                                    |                |  |               
|                                         |                |  |               
|Interest expense, net                    |                |  | $             
|                                         |                |  |               

---

|(a) |  | Senior
subordinated notes bear interest at a fixed rate of 8.75%.
|--- |  | -----------------------------------------------------------------

|(b) |  | The
weighted-average interest rates in effect on all borrowings under the term loan were 6.9%
and 5.5% during the 39      weeks ended October 28, 2006 and October 29, 2005,
respectively.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) |  | The
mortgage debt extinguishment charge of $2.8 million in fiscal 2005 includes a redemption
premium of $2.3 million and the write off of financing costs of $0.5 million.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

#### Note 6. Benefits

The
Company sponsors a tax-qualified pension plan which covers substantially all non-union and
certain union associates and several nonqualified pension plans for certain of its
associates as well as retiree health and life insurance benefits, primarily for union
groups and retired non-union associates. The components of net periodic benefit cost (cost
reduction) are as follows (in millions):

Pension Benefits:

|                                    | 13 Weeks Ended |  | 39 Weeks Ended
|----------------------------------- | -------------- |  | --------------
|
|Service cost                        |                |  | $             
|Interest cost                       |                |  |               
|Expected return on plan assets      |                |  |               
|Amortization of prior service costs |                |  |               
|Amortization of losses              |                |  |               
|                                    |                |  |               
|Net periodic benefit cost reduction |                |  | $             
|                                    |                |  |               

Other
Postretirement Benefits:

|                                    | 13 Weeks Ended |  | 39 Weeks Ended
|----------------------------------- | -------------- |  | --------------
|
|Service cost                        |                |  | $             
|Interest cost                       |                |  |               
|Amortization of prior service costs |                |  |               
|Amortization of losses              |                |  |               
|                                    |                |  |               
|Net periodic benefit cost           |                |  | $             
|                                    |                |  |               





10



#### Pathmark Stores, Inc.
Notes to Consolidated Financial Statements (Unaudited)  (Continued)

#### Note 7. Income Taxes

During
the second quarter of fiscal 2006, the Internal Revenue Service (the IRS)
completed an examination of the Companys federal income tax returns for fiscal year
2001 through fiscal year 2004. The outcome of the IRS examination resulted in an
additional tax and interest payment by the Company of $2.4 million, of which $1.8 million
was paid in the second quarter of fiscal 2006 and the remaining $0.6 million was paid in
the third quarter of fiscal 2006. As disclosed in Note 20, Income Taxes, in
the Companys consolidated financial statements contained in its Annual Report on
Form 10-K for the year ended January 28, 2006, the Company provided for these amounts as
of January 28, 2006.

#### Note 8. Related-Party Transaction

The
Company and The Yucaipa Companies LLC (Yucaipa) entered into a Management
Services Agreement (the MSA) in fiscal 2005. Pursuant to the MSA, Yucaipa
provides certain business and financial advice and management services to the Company in
connection with the operation of its business. For such services, the Company pays
Yucaipa an annual fee of $3.0 million, payable monthly, and reimburses Yucaipa for
expenses up to $0.5 million per annum. Michael Duckworth and Ira Tochner, two directors
of the Company, are partners in Yucaipa.

#### Note 9. Commitments and Contingencies

Contingencies. The
Company is subject to claims and suits in the ordinary course of business.
          While the outcome of these claims cannot be predicted with certainty, the
          Company does not believe that the outcome of any of these legal matters will
          have a material adverse effect on the Companys results of operations,
          financial position or cash flows.

Commitments
and Guarantees. Note 24 to the Companys consolidated financial
statements under the captions Outsourcing Agreements and
Guarantees in its Annual Report on Form 10-K for the year ended January 28,
2006 provides information on commitments with respect to the Companys outsourcing
agreements and contingent liabilities with respect to leases assigned to third parties
related to former businesses sold by the Company as well as former operating Pathmark
supermarkets.



11



#### Pathmark Stores, Inc.
Notes to Consolidated Financial Statements (Unaudited)  (Continued)

#### Note 10. Consolidating Financial Information

The
following represents the consolidating financial information of Pathmark and its 100%
owned guarantor and non-guarantor subsidiaries. The guarantor subsidiaries are comprised
of seven 100% owned entities, including Pathmarks distribution subsidiary, and
guarantee on a full and unconditional and joint and several basis, the 8.75% Senior
Subordinated Notes, due 2012 (the Senior Subordinated Notes). The seventh
guarantor subsidiary was added during the second quarter of fiscal 2006 when the Company
formed a new subsidiary, Milik Services Company, LLC. The non-guarantor subsidiaries are
comprised of four 100% owned single-purpose entities. Each of those entities owns the real
estate on which a supermarket leased to Pathmark is located.

|                                             | Pathmark | GuarantorSubsidiaries | Non-GuarantorSubsidiaries | IntercompanyEliminations | ConsolidatedTotal
|-------------------------------------------- | -------- | --------------------- | ------------------------- | ------------------------ | -----------------
|
|Consolidating Statements of Operations:      |          |                       |                           |                          |                  
|For the 13 Weeks Ended October 28, 2006      |          |                      
|Sales                                        |          |                       | $                         | 978.1                    |                  
|Cost of goods sold                           |          |                       |                           | (690.8                   | )                
|                                             |          |                       |                           |                          |                  
|Gross profit                                 |          |                       |                           | 287.3                    |                  
|Selling, general and administrative expenses |          |                       |                           | (262.3                   | )                
|Depreciation and amortization                |          |                       |                           | (21.3                    | )                
|                                             |          |                       |                           |                          |                  
|Operating earnings                           |          |                       |                           | 3.7                      |                  
|Interest expense, net                        |          |                       |                           | (14.8                    | )                
|Equity in earnings of subsidiaries           |          |                       |                           | 0.9                      |                  
|                                             |          |                       |                           |                          |                  
|Earnings (loss) before income taxes          |          |                       |                           | (10.2                    | )                
|Income tax benefit                           |          |                       |                           | 4.4                      |                  
|                                             |          |                       |                           |                          |                  
|Net earnings (loss)                          |          |                       | $                         | (5.8                     | )                
|                                             |          |                       |                           |                          |                  
|                                            
|For the 13 Weeks Ended October 29, 2005      |          |                      
|Sales                                        |          |                       | $                         | 980.5                    |                  
|Cost of goods sold                           |          |                       |                           | (707.3                   | )                
|                                             |          |                       |                           |                          |                  
|Gross profit                                 |          |                       |                           | 273.2                    |                  
|Selling, general and administrative expenses |          |                       |                           | (266.7                   | )                
|Depreciation and amortization                |          |                       |                           | (20.7                    | )                
|                                             |          |                       |                           |                          |                  
|Operating earnings (loss)                    |          |                       |                           | (14.2                    | )                
|Interest expense, net                        |          |                       |                           | (14.8                    | )                
|Equity in earnings of subsidiaries           |          |                       |                           | 0.6                      |                  
|                                             |          |                       |                           |                          |                  
|Earnings (loss) before income taxes          |          |                       |                           | (28.4                    | )                
|Income tax benefit                           |          |                       |                           | 10.1                     |                  
|                                             |          |                       |                           |                          |                  
|Net earnings (loss)                          |          |                       | $                         | (18.3                    | )                
|                                             |          |                       |                           |                          |                  



12



#### Pathmark Stores, Inc.
Notes to Consolidated Financial Statements (Unaudited)  (Continued)

#### Note 10.  Consolidating Financial Information  (Continued)

|                                                    | Pathmark | GuarantorSubsidiaries | Non-GuarantorSubsidiaries | IntercompanyEliminations | ConsolidatedTotal
|--------------------------------------------------- | -------- | --------------------- | ------------------------- | ------------------------ | -----------------
|
|Consolidating Statements of Operations (Continued): |          |                       |                           |                          |                  
|For the 39 Weeks Ended October 28, 2006             |          |                      
|Sales                                               |          |                       | $                         | 2,979.5                  |                  
|Cost of goods sold                                  |          |                       |                           | (2,117.8                 | )                
|                                                    |          |                       |                           |                          |                  
|Gross profit                                        |          |                       |                           | 861.7                    |                  
|Selling, general and administrative expenses        |          |                       |                           | (790.9                   | )                
|Depreciation and amortization                       |          |                       |                           | (63.7                    | )                
|                                                    |          |                       |                           |                          |                  
|Operating earnings                                  |          |                       |                           | 7.1                      |                  
|Interest expense, net                               |          |                       |                           | (45.4                    | )                
|Equity in earnings of subsidiaries                  |          |                       |                           | 4.6                      |                  
|                                                    |          |                       |                           |                          |                  
|Earnings (loss) before income taxes                 |          |                       |                           | (33.7                    | )                
|Income tax benefit                                  |          |                       |                           | 13.7                     |                  
|                                                    |          |                       |                           |                          |                  
|Net earnings (loss)                                 |          |                       | $                         | (20.0                    | )                
|                                                    |          |                       |                           |                          |                  
|                                                   
|For the 39 Weeks Ended October 29, 2005             |          |                      
|Sales                                               |          |                       | $                         | 2,983.7                  |                  
|Cost of goods sold                                  |          |                       |                           | (2,139.6                 | )                
|                                                    |          |                       |                           |                          |                  
|Gross profit                                        |          |                       |                           | 844.1                    |                  
|Selling, general and administrative expenses        |          |                       |                           | (777.6                   | )                
|Depreciation and amortization                       |          |                       |                           | (61.7                    | )                
|                                                    |          |                       |                           |                          |                  
|Operating earnings                                  |          |                       |                           | 4.8                      |                  
|Interest expense, net                               |          |                       |                           | (45.5                    | )                
|Equity in loss of subsidiaries                      |          |                       |                           | (1.6                     | )                
|                                                    |          |                       |                           |                          |                  
|Earnings (loss) before income taxes                 |          |                       |                           | (42.3                    | )                
|Income tax benefit                                  |          |                       |                           | 16.8                     |                  
|                                                    |          |                       |                           |                          |                  
|Net earnings (loss)                                 |          |                       | $                         | (25.5                    | )                
|                                                    |          |                       |                           |                          |                  

---

|(a) |  | Includes
Gift Card breakage income of $3.5 million.
|--- |  | ---------------------------------------------------

|(b) |  | Includes
a mortgage debt extinguishment charge of $2.8 million.
|--- |  | ---------------------------------------------------------------



13



#### Pathmark Stores, Inc.
Notes to Consolidated Financial Statements (Unaudited)  (Continued)

#### Note 10.  Consolidating Financial Information  (Continued)

|                                           | Pathmark | GuarantorSubsidiaries | Non-GuarantorSubsidiaries | IntercompanyEliminations | ConsolidatedTotal
|------------------------------------------ | -------- | --------------------- | ------------------------- | ------------------------ | -----------------
|
|Consolidating Balance Sheets:              |          |                       |                           |                          |                  
|As of October 28, 2006                     |          |                      
|Merchandise inventories                    |          |                       | $                         | 172.5                    |                  
|Other current assets                       |          |                       |                           | 154.4                    |                  
|                                           |          |                       |                           |                          |                  
|Total current assets                       |          |                       |                           | 326.9                    |                  
|Property and equipment, net                |          |                       |                           | 460.3                    |                  
|Goodwill                                   |          |                       |                           | 144.7                    |                  
|Investment in subsidiaries                 |          |                       |                           | 86.8                     |                  
|Other noncurrent assets                    |          |                       |                           | 182.5                    |                  
|                                           |          |                       |                           |                          |                  
|Total assets                               |          |                       | $                         | 1,201.2                  |                  
|                                           |          |                       |                           |                          |                  
|Accounts payable                           |          |                       | $                         | 104.0                    |                  
|Other current liabilities                  |          |                       |                           | 187.2                    |                  
|                                           |          |                       |                           |                          |                  
|Total current liabilities                  |          |                       |                           | 291.2                    |                  
|Long-term debt                             |          |                       |                           | 423.3                    |                  
|Long-term capital lease obligations        |          |                       |                           | 153.8                    |                  
|Other noncurrent liabilities               |          |                       |                           | 174.2                    |                  
|                                           |          |                       |                           |                          |                  
|Total liabilities                          |          |                       |                           | 1,042.5                  |                  
|Stockholders' equity                       |          |                       |                           | 158.7                    |                  
|                                           |          |                       |                           |                          |                  
|Total liabilities and stockholders' equity |          |                       | $                         | 1,201.2                  |                  
|                                           |          |                       |                           |                          |                  
|                                          
|As of January 28, 2006                     |          |                      
|Merchandise inventories                    |          |                       | $                         | 157.8                    |                  
|Other current assets                       |          |                       |                           | 188.2                    |                  
|                                           |          |                       |                           |                          |                  
|Total current assets                       |          |                       |                           | 346.0                    |                  
|Property and equipment, net                |          |                       |                           | 465.0                    |                  
|Goodwill                                   |          |                       |                           | 144.7                    |                  
|Investment in subsidiaries                 |          |                       |                           | 82.7                     |                  
|Other noncurrent assets                    |          |                       |                           | 185.0                    |                  
|                                           |          |                       |                           |                          |                  
|Total assets                               |          |                       | $                         | 1,223.4                  |                  
|                                           |          |                       |                           |                          |                  
|Accounts payable                           |          |                       | $                         | 98.4                     |                  
|Other current liabilities                  |          |                       |                           | 178.9                    |                  
|                                           |          |                       |                           |                          |                  
|Total current liabilities                  |          |                       |                           | 277.3                    |                  
|Long-term debt                             |          |                       |                           | 423.8                    |                  
|Long-term capital lease obligations        |          |                       |                           | 160.3                    |                  
|Other noncurrent liabilities               |          |                       |                           | 190.7                    |                  
|                                           |          |                       |                           |                          |                  
|Total liabilities                          |          |                       |                           | 1,052.1                  |                  
|Stockholders' equity                       |          |                       |                           | 171.3                    |                  
|                                           |          |                       |                           |                          |                  
|Total liabilities and stockholders' equity |          |                       | $                         | 1,223.4                  |                  
|                                           |          |                       |                           |                          |                  



14



#### Pathmark Stores, Inc.
Notes to Consolidated Financial Statements (Unaudited)  (Continued)

#### Note 10.  Consolidating Financial Information  (Continued)

|                                                       | Pathmark | GuarantorSubsidiaries | Non-GuarantorSubsidiaries | IntercompanyEliminations | ConsolidatedTotal
|------------------------------------------------------ | -------- | --------------------- | ------------------------- | ------------------------ | -----------------
|
|Consolidating Cash Flow Statements:                    |          |                       |                           |                          |                  
|For the 39 Weeks Ended October 28, 2006                |          |                      
|Operating Activities                                   |          |                      
|Cash provided by (used for) operating activities       |          |                       | $                         | 1.6                      |                  
|                                                       |          |                       |                           |                          |                  
|Investing Activities                                   |          |                      
|Capital expenditures                                   |          |                       |                           | (52.3                    | )                
|Proceeds from sale marketable securities               |          |                       |                           | 4.0                      |                  
|Intercompany investment transactions                   |          |                       |                           | (6.1                     | )                
|                                                       |          |                       |                           |                          |                  
|Cash provided by (used for) investing activities       |          |                       |                           | (54.4                    | )                
|                                                       |          |                       |                           |                          |                  
|Financing Activities                                   |          |                      
|Borrowings under the working capital facility, net     |          |                       |                           | 19.9                     |                  
|Repayments of capital lease obligations                |          |                       |                           | (7.2                     | )                
|Other borrowings, net                                  |          |                       |                           | 1.2                      |                  
|Proceeds from exercise of stock options                |          |                       |                           | 1.1                      |                  
|Purchase of treasury stock                             |          |                       |                           | (0.7                     | )                
|Deferred financing costs                               |          |                       |                           | (0.2                     | )                
|Intercompany debt transactions                         |          |                       |                           | 6.1                      |                  
|Intercompany equity transactions                       |          |                       |                           |                         |                  
|                                                       |          |                       |                           |                          |                  
|Cash provided by (used for) financing activities       |          |                       |                           | 20.2                     |                  
|                                                       |          |                       |                           |                          |                  
|Decrease in cash and cash equivalents                  |          |                       |                           | (32.6                    | )                
|Cash and cash equivalents at beginning of period       |          |                       |                           | 73.3                     |                  
|                                                       |          |                       |                           |                          |                  
|Cash at end of period                                  |          |                       | $                         | 40.7                     |                  
|                                                       |          |                       |                           |                          |                  
|                                                      
|For the 39 Weeks Ended October 29, 2005                |          |                      
|Operating Activities                                   |          |                      
|Cash provided by operating activities                  |          |                       | $                         | 2.4                      |                  
|                                                       |          |                       |                           |                          |                  
|Investing Activities                                   |          |                      
|Capital expenditures, including technology investments |          |                       |                           | (39.4                    | )                
|Purchase of marketable securities                      |          |                       |                           | (9.0                     | )                
|                                                       |          |                       |                           |                          |                  
|Cash used for investing activities                     |          |                       |                           | (48.4                    | )                
|                                                       |          |                       |                           |                          |                  
|Financing Activities                                   |          |                      
|Proceeds from issuance of common stock and             |          |                      
|common stock warrants, net of expenses                 |          |                       |                           | 137.5                    |                  
|Repayments of the working capital facility, net        |          |                       |                           | (34.4                    | )                
|Mortgage debt repayments and extinguishment            |          |                       |                           |                         |                  
|Repayments of capital lease obligations                |          |                       |                           | (9.4                     | )                
|Proceeds from exercise of stock options                |          |                       |                           | 4.5                      |                  
|Other borrowings, net                                  |          |                       |                           | 1.5                      |                  
|Deferred financing costs                               |          |                       |                           | (0.5                     | )                
|Intercompany equity transactions                       |          |                       |                           | (20.8                    | )                
|                                                       |          |                       |                           |                          |                  
|Cash provided by (used for) financing activities       |          |                       |                           | 78.4                     |                  
|                                                       |          |                       |                           |                          |                  
|Increase (decrease) in cash and cash equivalents       |          |                       |                           | 32.4                     |                  
|Cash and cash equivalents at beginning at period       |          |                       |                           | 42.3                     |                  
|                                                       |          |                       |                           |                          |                  
|Cash and cash equivalents at end of period             |          |                       | $                         | 74.7                     |                  
|                                                       |          |                       |                           |                          |                  



15



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

Results of Operations

The
following table sets forth selected consolidated statements of operations data (dollars in
millions):

|                                              | 13 Weeks Ended | 39 Weeks Ended
|--------------------------------------------- | -------------- | --------------
|                                              |                |               
|
|Sales                                         |                |               
|                                              |                |               
|Gross profit                                  |                |               
|Selling, general and administrative  expenses |                |               
|Depreciation and amortization                 |                |               
|                                              |                |               
|Operating earnings (loss)                     |                |               
|Interest expense, net                         |                |               
|                                              |                |               
|Loss before income taxes                      |                |               
|Income tax benefit                            |                |               
|                                              |                |               
|Net loss                                      |                |               
|                                              |                |               

Sales. Sales
in the third quarter of fiscal 2006 were $978.1 million, down 0.3% from $980.5
million in the third quarter of fiscal 2005. The sales decrease in the third
quarter of fiscal 2006 was due to a 0.8% decrease from closed stores, partially
offset by a 0.5% increase from new stores. Same-store sales (stores open the
entire third quarter in both fiscal 2006 and fiscal 2005, including replacement
stores) were flat. Sales for the first nine months of fiscal 2006 were $2,979.5
million, down 0.1% from $2,983.7 million in the first nine months of fiscal
2005. The sales decrease in the first nine months of fiscal 2006 was due to a
0.8% decrease from closed stores, partially offset by a 0.6% increase from new
stores and a 0.1% increase in same-stores sales. We operated 141 stores at the
end of the third quarter of fiscal 2006 and 142 stores at the end of the third
quarter of fiscal 2005.

Gross
Profit. Gross profit represents the difference between sales and cost of goods
sold, which includes the cost of inventory sold and the related purchase and
distribution costs, net of vendor allowances and rebates. Gross profit in the
third quarter of fiscal 2006 was $287.3 million or 29.4% of sales compared to
$273.2 million or 27.9% of sales in the third quarter of fiscal 2005. The
increase in gross profit of $14.1 million and in the gross profit percent of
1.5% in the third quarter of fiscal 2006 was primarily due to higher margins in
virtually all departments, lower inventory shrink in the perishable departments
and lower logistics costs. Gross profit in the first nine months of fiscal 2006
was $861.7 million or 28.9% sales compared to $844.1 million or 28.3% of sales
in the first nine months of fiscal 2005. The increase in gross profit of $17.6
million and in the gross profit percent of 0.6% in the first nine months of
fiscal 2006 was primarily due to higher margins in virtually all departments,
lower logistics costs and lower inventory shrink in the perishable departments,
partially offset by lower pharmacy margins associated with the new Medicare Part
D program. We believe the lower inventory shrink in the perishable departments
in fiscal 2006 compared to fiscal 2005 was primarily due to the incremental
inventory shrink resulting from our merchandising and store initiative
implemented in the third quarter of fiscal 2005.

Selling,
General and Administrative Expenses(SG&A). SG&A in the
third quarter of fiscal 2006 was $259.5 million, or 26.5% of sales compared to $264.1
million, or 26.9% of sales, in the third quarter of fiscal 2005. The $4.6 million decrease
in SG&A in the third quarter of fiscal 2006 was primarily due to fiscal 2005 charges
related to our merchandising and store initiative, our store labor buyout and an executive
separation charge, partially offset by higher stock-based compensation expense, due to the
adoption of SFAS No. 123(R), higher utility costs and higher self-insured workers
compensation and general liability claims. SG&A in the first nine months of fiscal
2006 was $780.4 million, or 26.2% of sales, compared to $769.9 million, or 25.8% of sales
in the first nine months of fiscal 2005. The $10.5 million increase in SG&A in the
first nine months of fiscal 2006 was primarily due to higher stock-based compensation
expense, due to the adoption of SFAS No. 123(R), higher utility costs and higher
self-insured workers compensation and general liability claims, partially offset by
fiscal 2005 charges related to our merchandising and store initiative, our store labor
buyout, an executive separation charge and expenses related to our review of strategic
alternatives. In addition to the items noted above, SG&A in the first nine months of
fiscal 2006 included gift card breakage income of $3.5 million.



16



Depreciation
and Amortization. Depreciation and amortization in the third quarter of
fiscal 2006 was $23.0 million compared to $22.5 million in the third quarter of fiscal
2005. Depreciation and amortization in the first nine months of fiscal 2006 was $69.1
million compared to $67.0 million in the first nine months of fiscal 2005. The increase in
depreciation and amortization in the third quarter and in the first nine months of fiscal
2006 was primarily due to capital expenditures made as part of our store renovation
program.

Operating
Earning (Loss). Operating earnings in the third quarter of fiscal 2006 were
$4.8 million compared to an operating loss of $13.4 million in the third quarter of fiscal
2005. Operating earnings in the first nine months of fiscal 2006 were $12.2 million
compared to $7.2 million in the first nine months of fiscal 2005. The increase in
operating earnings in the third quarter of fiscal 2006 was primarily due to higher gross
margin and lower SG&A costs. The increase in operating earnings in the first nine
months of fiscal 2006 was primarily due to higher gross margin, partially offset by higher
SG&A costs.

Interest
Expense, Net. Interest expense was $15.0 million in the third quarter of
fiscal 2006 and in the third quarter of fiscal 2005. Interest expense was $45.9 million in
the first nine months of fiscal 2006 compared to $49.5 million in the first nine months of
fiscal 2005. The decrease in interest expense in the first nine months of fiscal 2006 was
primarily due to lower lease obligations and the nonrecurring mortgage debt extinguishment
charge of $2.8 million in the first nine months of fiscal 2005.

Income
Tax Benefit. The income tax benefit was $4.4 million in the third quarter of
fiscal 2006 compared to $10.1 million in the third quarter of fiscal 2005 and was based on
an effective tax rate of 43.2% in the third quarter of fiscal 2006 compared to 35.5% in
the third quarter of fiscal 2005. The income tax benefit was $13.7 million in the first
nine months of fiscal 2006 compared to $16.8 million in the first nine months of fiscal
2005 and was based on an effective tax rate of 40.6% in the first nine months of fiscal
2006 compared to 39.8% in the first nine months of fiscal 2005. The effective tax rate in
the third quarter and in the first nine months of fiscal 2006 was impacted by the
expiration of the Work Opportunity Tax Credit (WOTC) on December 31, 2005. If
pending WOTC legislation is passed retroactive to the beginning of 2006, the effective tax
rate for fiscal 2006 will be approximately 42.4%. The tax benefit and effective tax rate
in the third quarter and in the first nine months of fiscal 2005 were negatively impacted
by a $2.0 million third quarter charge to increase our valuation allowance related to
certain state net operating loss carryforwards.

Summary
of Operations. The net loss was $5.8 million in the third quarter of fiscal
2006 compared to $18.3 million in the third quarter of fiscal 2005. The net loss was $20.0
million in the first nine months of fiscal 2006 compared to $25.5 million in the first
nine months of fiscal 2005. The decrease in the net loss in the third quarter of fiscal
2006 was primarily due to higher operating earnings, partially offset by lower income tax
benefits. The decrease in the net loss in the first nine months of fiscal 2006 was
primarily due to higher operating earnings and lower interest expense, partially offset by
lower income tax benefits.

##### Liquidity and Capital Resources

Cash
Flows. The following table sets forth certain consolidated statements of cash flow
data (in millions):

|                             | 39 Weeks Ended
|---------------------------- | --------------
|
|Cash provided by (used for): |               
|Operating activities         |               
|Investing activities         |               
|Financing activities         |               
|                             |               

The
decrease in cash provided by operating activities in fiscal 2006 compared to fiscal 2005
was primarily due to lower cash provided by operating assets and liabilities, partially
offset by the decreased net loss incurred. The increase in cash used for investing
activities in fiscal 2006 compared to fiscal 2005 was due to higher capital expenditures
made as part of our store renovation program, partially offset by the purchase of marketable
securities in fiscal 2005 and by proceeds from the sale of marketable securities. The
decrease in cash provided by financing activities in fiscal 2006 compared to fiscal 2005
was primarily due to proceeds from the issuance of Common Stock and common stock warrants
(Warrants) to Yucaipa (see Debt Service and Liquidity below), partially offset
by increased borrowings under the working capital facility and by the repayment of
mortgage debt in fiscal 2005.



17



We
believe that cash flows generated from operations supplemented by our cash, the unused
borrowing capacity under the Credit Agreement (as defined below) and the availability of
capital lease financing will be sufficient to provide for our debt service requirements,
working capital needs and capital expenditure program. However, in the event that cash
flows from operations continue to decrease, we may decide to limit our future cash capital
expenditure program and, subject to the Senior Leverage Ratio (as defined below), our
ability to utilize the full amount available under the Working Capital Facility (as
defined below), could be limited.

Debt
Service and Liquidity. Our liquidity significantly improved on June
9, 2005, when we issued Common Stock and Warrants to a group of investors led by Yucaipa
for an aggregate purchase price of $150 million in cash. We received $137.5 million for
the Common Stock and Warrants, net of $12.5 million of costs directly attributable to the
offering. We used $40.3 million of the net proceeds to pay down our Working Capital
Facility (as defined below) borrowings and $23.3 million to defease our mortgage
borrowings. The remaining net proceeds were initially invested in short-term cash
investments and subsequently used for general corporate purposes, including capital
expenditures.

During
fiscal 2004, we entered into a senior secured credit facility (the Credit
Agreement) with a group of lenders led by Fleet Retail Group, a Bank of America
company. The Credit Agreement expires on October 1, 2009 and consists of a $180 million
working capital facility (the Working Capital Facility), including letters of
credit, and a $70 million term loan (the Term Loan). The Credit Agreement
contains certain covenants which, among other things, place limits on the incurrence of
additional indebtedness, issuance of cash-pay preferred stock, repurchase of Company
stock, incurrence of liens, sale-leaseback transactions, hedging activities, sale or
discount of receivables, investments, loans, advances, guarantees with affiliates, asset
sales, acquisitions, mergers and consolidations, changing lines of business, repayments of
other indebtedness, amendments to organizational documents and other matters customarily
restricted in such agreements. The Credit Agreement also contains provisions permitting us
to increase the size of the Working Capital Facility by $25 million and to repay and
subsequently reborrow any portion of the Term Loan, in each instance subject to certain
conditions. The Credit Agreement further provides that we must maintain a minimum
inventory level of $150 million, that the maximum annual cash capital expenditures in a
fiscal year are limited to the lesser of $150 million or an amount equal to our
Consolidated EBITDA (as defined in the Credit Agreement) for the immediately preceding
fiscal year plus any unused cash capital expenditures in the immediately preceding fiscal
year up to a maximum of $20 million, and that we shall not permit the ratio of Credit
Extensions to Consolidated EBITDA (calculated on a trailing four-fiscal-quarter basis) at
the end of any fiscal quarter to be more than 2.4:1.0 for each of the first three quarters
of fiscal 2006 and 1.9:1.0 for each fiscal quarter thereafter (the Senior Leverage
Ratio). As used in the Credit Agreement, Credit Extensions mean the sum of the
principal balance of all outstanding borrowings thereunder ($70.0 million under the Term
Loan and $19.9 million under the Working Capital Facility as of October 28, 2006) and the
amount of outstanding letters of credit ($84.5 million as of October 28, 2006). Based on
the Senior Leverage Ratio as of October 28, 2006, we have full availability under the
Working Capital Facility after giving effect to Credit Extensions ($75.6 million). Also,
the Credit Agreement prohibits the payment of cash dividends. The Credit Agreement
contains customary events of default, including without limitation, payment defaults,
material breaches of representations, warranties and covenants, certain events of
bankruptcy and insolvency, and a change of control. We were in compliance with the Credit
Agreement covenants as of October 28, 2006.

Borrowings
under the Credit Agreement bear interest at floating rates equal to LIBOR plus a premium
that ranges between 1.50% to 2.25%, depending on the average remaining availability under
the Credit Agreement. Our interest rate on borrowings under the Credit Agreement is
currently at LIBOR plus 1.75%. Under the Term Loan, we are required to make a balloon
payment of $70 million on October 1, 2009. The Working Capital Facility also expires on
October 1, 2009. The weighted-average interest rate in effect on all borrowings under the
Term Loan was 6.9% during the 39 weeks ended October 28, 2006.



18



All
of the obligations under the Credit Agreement are guaranteed by our 100% owned
subsidiaries, except our non-guarantor subsidiaries, which are comprised of four 100%
owned and consolidated single-purpose entities. Each of these single-purpose entities owns
the real estate on which a supermarket leased to Pathmark is located. The obligations
under the Credit Agreement and those of the subsidiaries guaranteeing the Credit Agreement
are secured by substantially all of the Companys tangible and intangible assets
including, without limitation, intellectual property, real property, including leasehold
interests, and the capital stock in each of these subsidiaries.

We
have outstanding $350 million aggregate principal amount of Senior Subordinated Notes,
including $150 million issued at a premium, which pay cash interest semi-annually on
February 1 and August 1. The indenture relating to the Senior Subordinated Notes (the
Indenture) contains a number of restrictive covenants, including a restriction
on our ability to declare cash dividends on our Common Stock. We were in compliance with
the Senior Subordinated Notes covenants as of October 28, 2006.

There
are no credit agency ratings-related triggers in either the Credit Agreement or in the
Indenture that would adversely impact the cost of borrowings, annual amortization of
principal or related debt maturities.

During
the second quarter of fiscal 2006, we formed a new subsidiary to handle all sales and
maintain our liability related to Gift Cards. The new subsidiary is a guarantor of our
Credit Agreement and our Senior Subordinated Notes. Financial information related to the
new subsidiary is included in the guarantor subsidiaries column in our consolidating
financial information in the notes to the consolidated financial statements.

Capital
Expenditures. Capital expenditures in the third quarter of fiscal 2006 were $25.1
million compared to $28.3 million in the third quarter of fiscal 2005. Capital
expenditures in the first nine months of fiscal 2006 were $59.8 million compared to $43.8
million in the first nine months of fiscal 2005. Capital expenditures for fiscal 2006 are
expected to be approximately $70 million. We completed 13 store renovations during the
first nine months of fiscal 2006 and expect to complete one store renovation during the
fourth quarter.

Critical Accounting Policies

Our
discussion of results of operations and financial condition relies on our consolidated
financial statements that are prepared based on certain critical accounting policies that
require management to make judgments and estimates that are subject to varying degrees of
uncertainty. We believe that investors need to be aware of these policies and how they
impact our financial statements as a whole, as well as our related discussion and analysis
presented herein. While we believe that these accounting policies are based on sound
measurement criteria, actual future events can and often do result in outcomes that can be
materially different from these estimates or forecasts. The accounting policies and
related risk described in our Annual Report on Form 10-K for the year ended January 28,
2006 are those that depend most heavily on these judgments and estimates. As of October
28, 2006, there have been no material changes to any of the critical accounting policies
contained therein.

New Accounting Pronouncements

In
May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections
 a replacement of APB Opinion No. 20 and SFAS No. 3". This statement changes
the requirements for the accounting for and reporting of a change in accounting principle.
Previously, most voluntary changes in accounting principles required recognition through a
cumulative adjustment within net income in the period of the change. This statement
requires retrospective application to prior periods financial statements unless it
is impracticable to determine the period-specific effects or the cumulative effect of the
change and is effective for accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005. The adoption of SFAS No. 154 did not have a
material impact on our consolidated financial statements.

In
October 2005, the FASB issued FASB Staff Position (FSP) No. FAS 13-1
Accounting for Rental Costs Incurred during a Construction Period, which
concluded that rental costs incurred during and after a construction period are for the
right to control the use of a leased asset and must be recognized as rental expense. Such
costs were previously capitalizable as construction costs if the company had a policy to
do so. This FSP is effective for reporting periods beginning after December 15, 2005. The
adoption of FSP No. FAS 13-1 did not have a material impact on our consolidated financial
position or results of operations.



19



In
June 2006, FASB Interpretation (FIN) No. 48, Accounting for Uncertainty
in Income Taxes  an interpretation of SFAS No. 109 was issued. This
interpretation clarifies the accounting for uncertainty in income taxes recognized in an
entitys financial statements in accordance with SFAS No. 109, Accounting for
Income Taxes, and prescribes a recognition threshold and measurement attribute for
financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. Additionally, this interpretation provides guidance on subsequent
derecognition of tax positions, financial statement classification, recognition of
interest and penalties, accounting in interim periods, and disclosure and transition
requirements. FIN No. 48 is effective for our fiscal year beginning February 4, 2007, with
early adoption permitted. We are in the process of evaluating this interpretation, but do
not expect that the implementation of FIN No. 48 will have a material impact on our
consolidated financial position or results of operations.

In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which
clarifies the principle that fair value should be based on the assumptions market
participants would use when pricing an asset or liability and establishes a fair value
hierarchy that prioritizes the information used to develop those assumptions. Under this
statement, fair value measurements would be separately disclosed by level within the fair
value hierarchy. SFAS No. 157 is effective for our fiscal year beginning February 3, 2008,
with early adoption permitted. We are in the process of evaluating this statement, but do
not expect that the adoption of SFAS No. 157 will have a material impact on our
consolidated financial statements.

In
September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans  an amendment of SFAS No. 87, 88, 106
and 132 (R). This statement requires an employer to recognize the funded status of a
defined benefit postretirement plan as an asset or liability in the statement of financial
position. Changes in the funded status should be recognized through comprehensive income
in the year in which the changes occur. Additionally, an employer will be required to
disclose information about certain effects on net periodic benefit cost for the next
fiscal year that arise from delayed recognition of gains or losses, prior service costs or
credits, and transition assets or obligations. SFAS No. 158 is effective for our fiscal
year ending February 3, 2007. This statement also requires an employer to measure the
funded status of a plan as of the date of its fiscal year-end statement of financial
position. As we have always used the calendar year for measurement, this will result in a
change in our financial statements. We are not required to adopt this change until our
fiscal year ending February 1, 2009. We cannot estimate the impact of SFAS No. 158 on our
stockholders equity in advance of the measurement date. Had the new standard been in
effect for our fiscal year ended January 28, 2006, we estimate that our stockholders
equity would have been reduced by approximately $49 million. The impact of adoption could differ materially from
this estimate as it will reflect negotiated plan changes, asset performance through the end of
the calendar year as well as interest rates and other factors that will be applicable as
of December 31, 2006. These factors cannot be known in advance.

In
September 2006, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 108, Considering the Effects of Prior Year
Misstatements when Quantifying Misstatements in Current Year Financial Statements.
This bulletin provides interpretive guidance on how the effects of the carryover or
reversal of prior year misstatements should be considered in quantifying a current year
misstatement. The SEC staff believes that registrants should quantify errors using both a
balance sheet and an income statement approach and evaluate whether either approach
results in quantifying a misstatement that, when all relevant quantitative and qualitative
facts are considered, is material. SAB No. 108 is effective for our fiscal year ending
February 3, 2007, with early application encouraged. We are in the process of evaluating
this bulletin, but do not expect that the adoption of SAB No. 108 will have a material
impact on our consolidated financial statements.

Forward-Looking Information

This
report contains both historical and forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These
statements appear in a number of places in this report and include statements regarding
our intent, belief and current expectations with respect to, among other things, capital
expenditures and technology initiatives, the ability to borrow funds under our credit
facility, the ability to successfully implement our operating strategies, including trends
affecting our business, financial condition and results of operations. The words
anticipate, believe, expect, forecast,
guidance, intend, may, ongoing,
plan, project, will and other similar expressions
generally identify forward-looking




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statements. While these forward-looking statements and
the related assumptions are made in good faith and reflect our current judgment regarding
the direction of our business, actual results will almost always vary, sometimes
materially, from any estimates, predictions, projections, assumptions or other future
performance suggested herein. These statements are based upon a number of assumptions and
estimates which are inherently subject to significant uncertainties and contingencies,
many of which are beyond our control and reflect future business decisions which are
subject to change. Some of these assumptions inevitably will not materialize, and
unanticipated events will occur which will affect our results. Some important factors (but
not necessarily all factors) that could negatively affect our revenues, growth strategies,
future profitability and operating results, or that otherwise could cause actual results
to differ materially from those expressed in or implied by any forward-looking statement,
include the following:

- changes in business and economic conditions and other adverse conditions in our markets;
- unanticipated environmental damages;
- increased competition;
- increased labor and labor-related costs (e.g., medical and pension) and/or labor disruptions;
- reliance on third-party suppliers;
- our ability to  successfully  implement our marketing,  operating,  renovation and expansion  strategies and cost reduction
   initiatives; and
- natural disasters.

For
a discussion of these factors, see Item 1  Business  Factors Affecting Our
Business and Prospects in our Annual Report on Form 10-K for the year ended January 28,
2006, subsequent Quarterly Reports on Form 10-Q and subsequent Current Reports on Form
8-K. These reports are not intended to be a discussion of all potential risks or
uncertainties as it is not possible to predict or identify all risk factors. We undertake
no obligation to update forward-looking statements to reflect developments or information
obtained after the date hereof and disclaim any obligation to do so.

#### Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There
have been no material changes regarding our market risk position from the position
reflected in the information provided under Part II, Item 7A, Quantitative or
Qualitative Disclosures About Market Risk, in our Annual Report on Form 10-K for the
year ended January 28, 2006.

#### Item 4. Controls and Procedures.

The
Companys management, with the participation of the Companys Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of the Companys
disclosure controls and procedures pursuant to Rule 13a-15(b) of the Exchange Act as of
October 28, 2006. Based on that evaluation, the Companys Chief Executive Officer and
Chief Financial Officer have concluded that, as of October 28, 2006, the Companys
disclosure controls and procedures are effective in timely alerting them to material
information relating to the Company required to be included in the Companys Exchange
Act reports.

There
have been no changes during the Companys fiscal quarter ended October 28, 2006 in
the Companys internal controls over financial reporting (as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, the Companys internal controls over
financing reporting.



21



# Part II. Other
Information

Item 2. Unregistered Sales of
Equity Securities and Use of Proceeds.

Issuer
Repurchases of Equity Securities. The table below is a listing of repurchases of Common
Stock during the third quarter of fiscal 2006.

|                                    | (a)Total Number ofShares Purchased |  | (b)Average PricePaid Per Share |        | (c)Total Number ofShares Purchased asPart of PubliclyAnnounced Plans orPrograms |   | (d)MaximumNumber of SharesThat May Yet BePurchased Underthe Plans orPrograms
|----------------------------------- | ---------------------------------- |  | ------------------------------ | ------ | ------------------------------------------------------------------------------- | - | ----------------------------------------------------------------------------
|                                   
|July 30 to August 26, 2006 (1)      |                                    |  |                                | 761    |                                                                                 | $ | 8.62                                                                        
|                                    |                                    |  |                                |        |                                                                                 |   |                                                                             
|August 27 to September 30, 2006 (1) |                                    |  |                                | 17,827 |                                                                                 | $ | 9.64                                                                        
|                                    |                                    |  |                                |        |                                                                                 |   |                                                                             
|October 1 to October 28, 2006 (1)   |                                    |  |                                | 6,022  |                                                                                 | $ | 10.03                                                                       
|                                    |                                    |  |                                |        |                                                                                 |   |                                                                             

---

|(1) |  | Represents
shares withheld, at the election of certain holders of restricted stock and
restricted stock units, by the Company from the vested portion of restricted
stock and restricted stock unit awards with a market value approximating the
amount of withholding taxes due.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

#### Item 6. Exhibits.

|10.1 |  | Deferred
Compensation Plan, effective as of August 25, 2005 (incorporated by reference from the
Company's         Current Report on Form 8-K as filed with SEC on September 27, 2006).
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.2 |  | Amendment
to John T. Standley's Employment Agreement, dated October 11, 2006, filed herewith.
|---- |  | ---------------------------------------------------------------------------------------------

|31.1 |  | Form
of CEO Certification, filed herewith.
|---- |  | ------------------------------------------

|31.2 |  | Form
of CFO Certification, filed herewith.
|---- |  | ------------------------------------------

|32.1 |  | Certification
of John T. Standley, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of         the Sarbanes-Oxley Act of 2002, filed herewith.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|32.2 |  | Certification
of Frank G. Vitrano, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of         the Sarbanes-Oxley Act of 2002, filed herewith.
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



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# Signatures

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

| | Pathmark Stores, Inc.
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| | By:                  
| |                      
| |                      
| |                      
| |                      
| |                      
| |                      
| | By:                  
| |                      
| |                      
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| |                      



Date:December 7, 2006



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