##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



---



FORM 10-K/A



(Amendment No. 3)



ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



For
the fiscal year ended September 25, 2003



Commission File
Number 33-72574



---



THE PANTRY, INC.

(Exact name of
registrant as specified in its charter)



|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                       |  | 56-1574463                             
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)



P.O. Box 1410

1801 Douglas Drive

Sanford, North Carolina

27331-1410

(Address of principal executive offices)



---



Registrants telephone number, including area code: (919) 774-6700



---



Securities registered pursuant to Section 12(b) of the Act:



NONE



Securities registered pursuant to Section 12(g) of the Act:



common stock, $.01 par value



---



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



Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form
10-K. ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ̈No x



The aggregate market value of the voting common stock held by non-affiliates of the registrant as of March 27, 2003 was $27,376,994.



As of December 9, 2003, there were issued and outstanding 19,743,615 shares
of the registrants common stock.



---





---

##### Table of Contents

Explanatory Note



The undersigned registrant hereby amends Item 1 of Part I, Item 6, Item 7 and Item 8 of Part II, and Item 15 of Part IV
of its Annual Report on Form 10-K for the fiscal year ended September 25, 2003, filed with the Securities and Exchange Commission on December 9, 2003, as amended by Amendment No. 1 to Form 10-K/A filed with the Securities and Exchange Commission on
January 7, 2004 and by Amendment No. 2 to Form 10-K/A filed with the Securities and Exchange Commission on June 29, 2004, for the purpose of restating to reclassify certain amounts of merchandise sales, total revenues, merchandise cost of sales, and
total cost of sales for the periods reflected therein. The Company has also reclassified items previously reported as commission revenue as a component of merchandise revenue. The changes had no effect on previously reported gross profit, income
from operations, net income or shareholders equity.



Subsequent to the issuance of its consolidated financial statements for the year ended September 25, 2003, the Company determined that its accounting for sales of prepaid phone cards should be restated to reclassify revenues net of related
costs consistent with the approach set forth in Emerging Issues Task Force (EITF) Issue No. 99-19, Reporting Revenue Gross as a Principal Versus Net as an Agent. The primary effects of the restatement to reclassify these
amounts are discussed in Note 20 in the consolidated financial statements and supplementary data.



This report continues to be presented as of the date of the original filing, and the Company has not updated the disclosure in this report to a later
date. All information contained in this report and the original filing is subject to updating and supplementing as provided in the Companys periodic reports filed with the Securities and Exchange Commission.



THE PANTRY, INC.



INDEX TO ANNUAL REPORT ON FORM 10-K/A



|         |  |                                                                                       |  |     
|-------- |  | ------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                       |  | Page
|Part I   |  |                                                                                       |  |     
|Item 1:  |  | Business                                                                              |  | 1   
|         |  |                                                                                      
|Part II  |  |                                                                                       |  |     
|Item 6:  |  | Selected Financial Data                                                               |  | 10  
|Item 7:  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 13  
|Item 8:  |  | Consolidated Financial Statements and Supplementary Data                              |  | 38  
|Item 9A: |  | Controls and Procedures                                                               |  | 77  
|         |  |                                                                                      
|Part IV  |  |                                                                                       |  |     
|Item 15: |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  | 78  



i



---

##### Table of Contents

PART I



Item 1.Business



General



We are the leading independently operated convenience store chain in the
southeastern United States and the third largest independently operated convenience store chain in the country based on store count. As of December 1, 2003, we operated 1,392 stores in ten states under several banners including The Pantry®, Kangaroo Express, Golden Gallon®, and Lil Champ Food Store®. On October 16, 2003, we acquired 138 stores operating under the Golden Gallon® banner. Our stores offer a broad selection of merchandise, gasoline and ancillary
products and services designed to appeal to the convenience needs of our customers.



Operations



The following charts set forth
revenues and gross profit, respectively, for fiscal 2003 from our merchandise and gasoline operations, each as a percentage of total revenues or total gross profit, respectively, for fiscal 2003:



|    
|----
|LOGO



Merchandise
Operations.    In fiscal 2003, our merchandise sales were 36.7% of total revenues. The following table highlights certain information with respect to our merchandise sales for the last five fiscal years:



|                                                                                                                     |  |                    |       |   |                    |   |       |                    |  |   |                    |    |  |                    |         |   |  |   |         |  
|-------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ----- | - | ------------------ | - | ----- | ------------------ |  | - | ------------------ | -- |  | ------------------ | ------- | - |  | - | ------- | -
|                                                                                                                     |  | Fiscal Year Ended  |      
|                                                                                                                     |  | September 30, 1999 |       |   | September 28, 2000 |   |       | September 27, 2001 |  |   | September 26, 2002 |    |  | September 25, 2003 |        
|Merchandise sales (in millions)                                                                                      |  | $                  | 755.1 |   |                    | $ | 933.5 |                    |  | $ | 990.3              |    |  | $                  | 1,012.8 |   |  | $ | 1,009.7 |  
|Average merchandise sales per store(in thousands)                                                                    |  | $                  | 687.7 |   |                    | $ | 734.5 |                    |  | $ | 747.4              |    |  | $                  | 776.1   |   |  | $ | 791.9   |  
|Comparable store merchandise sales increase                                                                          |  |                    | 9.6   | % |                    |   | 7.1   | %                  |  |   | (0.8               | )% |  |                    | 2.8     | % |  |   | 0.9     | %
|Merchandise gross margins (after purchase rebates, markdowns, inventory spoilage, inventory shrink and LIFO reserve) |  |                    | 35.2  | % |                    |   | 35.2  | %                  |  |   | 34.9               | %  |  |                    | 34.9    | % |  |   | 36.2    | %



The increase in
average merchandise sales per store in fiscal 2003 is primarily due to the fiscal 2003 comparable store merchandise sales increase of 0.9% and the closure of 35 underperforming stores.



1



---

##### Table of Contents

Based on merchandise purchase and sales information, we estimate category sales as a percentage of total
merchandise sales for the last five fiscal years as follows:



|                                            |  |                    |   |  |                    |   |  |                    |   |  |                    |   |  |                    |  
|------------------------------------------- |  | ------------------ | - |  | ------------------ | - |  | ------------------ | - |  | ------------------ | - |  | ------------------ | -
|                                            |  | Fiscal Year Ended  |  
|                                            |  | September 30, 1999 |   |  | September 28, 2000 |   |  | September 27, 2001 |   |  | September 26, 2002 |   |  | September 25, 2003 |  
|Tobacco Products                            |  | 32.1               | % |  | 34.9               | % |  | 33.9               | % |  | 33.9               | % |  | 31.7               | %
|Beer and wine                               |  | 15.6               |   |  | 15.7               |   |  | 15.9               |   |  | 15.9               |   |  | 15.6               |  
|Packaged beverages                          |  | 14.3               |   |  | 13.3               |   |  | 13.9               |   |  | 14.2               |   |  | 14.6               |  
|Self-service fast foods and beverages       |  | 5.2                |   |  | 5.2                |   |  | 5.9                |   |  | 5.2                |   |  | 5.2                |  
|General merchandise, health and beauty care |  | 6.2                |   |  | 6.5                |   |  | 5.6                |   |  | 6.2                |   |  | 6.1                |  
|Fast food service                           |  | 2.9                |   |  | 3.5                |   |  | 4.2                |   |  | 4.1                |   |  | 4.2                |  
|Salty snacks                                |  | 3.9                |   |  | 3.6                |   |  | 3.7                |   |  | 3.8                |   |  | 4.0                |  
|Candy                                       |  | 3.7                |   |  | 3.3                |   |  | 3.5                |   |  | 3.5                |   |  | 3.9                |  
|Dairy products                              |  | 3.4                |   |  | 2.9                |   |  | 2.9                |   |  | 2.7                |   |  | 2.7                |  
|Bread and cakes                             |  | 1.8                |   |  | 2.2                |   |  | 2.4                |   |  | 2.2                |   |  | 2.3                |  
|Newspapers and magazines                    |  | 2.8                |   |  | 2.2                |   |  | 2.2                |   |  | 1.9                |   |  | 1.8                |  
|Grocery and other merchandise               |  | 5.2                |   |  | 4.0                |   |  | 3.6                |   |  | 3.7                |   |  | 4.7                |  
|Services                                    |  | 3.1                |   |  | 2.8                |   |  | 2.2                |   |  | 2.6                |   |  | 3.2                |  
|                                            |  |                    |   |  |                    |   |  |                    |   |  |                    |   |  |                    |  
|Total                                       |  | 100.0              | % |  | 100.0              | % |  | 100.0              | % |  | 100.0              | % |  | 100.0              | %
|                                            |  |                    |   |  |                    |   |  |                    |   |  |                    |   |  |                    |  



As of December 1,
2003, we operated 226 quick service restaurants within 201 of our locations. In 127 of these stores, we offer products from nationally branded food franchises including Subway®, Hardees®, TCBY®, Churchs®, Dairy Queen®,
Bojangles® and Krystal®. In addition, we offer a variety of proprietary food service programs
featuring breakfast biscuits, fried chicken, deli, pizza, tacos and other hot food offerings in 99 of our locations.



We purchase over 50% of our merchandise, including most tobacco and grocery items, from a single wholesale grocer, McLane. We have a distribution services
agreement with McLane pursuant to which McLane is the primary distributor of traditional grocery products to our stores. We purchase the products at McLanes cost plus an agreed upon percentage, reduced by any promotional allowances and volume
rebates offered by manufacturers and McLane. In addition, we receive per store service allowances from McLane which are amortized over the remaining term of the agreement, which expires in October 2008. We purchase the balance of our merchandise
from a variety of other distributors under contract terms of up to four years. We do not have written contracts with a number of these vendors.



Services revenue is derived from lottery ticket sales, money orders, car wash, public telephones, ATMs, amusement and video gaming and other ancillary
product and service offerings.



Gasoline
Operations.    We purchase our gasoline from major oil companies and independent refiners. At our locations, we offer a mix of branded and private brand gasoline based on an evaluation of local market conditions. Of the 1,365
stores that sold gasoline as of December 1, 2003, 976 (including locations operated by third parties selling under these brands) or 71.5% were branded under the Amoco®, BP®, Chevron®, Citgo®, Shell®, Mobil®, Exxon® or Texaco® brand names. In conjunction with our acquisition of Golden Gallon®, we added 137 gas selling locations, of which 113 sell gas under national brands. We
purchase our branded gasoline and diesel fuel from major oil companies under supply agreements. The fuel is purchased at the stated rack price, or market price, quoted at each terminal as adjusted per applicable contracts. The initial terms of these
supply agreements range from three to ten years and generally contain minimum annual purchase requirements as well as provisions for various payments to us based on volume of purchases and vendor allowances. We purchase the balance of our gasoline
from a variety of independent fuel distributors. There are approximately 30 gasoline terminals in our operating areas, allowing us to choose from more than one distribution point for most of our stores. Our inventories of gasoline (both branded and
private branded) turn approximately every five days.



2



---

##### Table of Contents

Gasoline supply agreements typically contain provisions relating to, among other things, payment terms,
use of the suppliers brand names, compliance with the suppliers requirements, minimum use of credit cards, insurance coverage, and compliance with legal and environmental requirements. As is typical in the industry, gasoline suppliers
generally can terminate the supply contracts if, among other reasons, we do not comply with a reasonable and important requirement of the relationship, we fail to make payments which are due, or the supplier withdraws from marketing activities in
the area in which we operate, and in connection with fraud, criminal misconduct, bankruptcy or insolvency involving our company. In some cases, gasoline suppliers have the right of first refusal to acquire assets used by us to sell their branded
gasoline.



We have begun our brand consolidation project, which
we believe will enable us to provide a more consistent operating identity while helping us in our efforts to optimize our gasoline gallon growth and gross profit dollars. In addition, we have recently consolidated and re-negotiated our principal
gasoline supply contracts, enabling us to better leverage our purchasing power among fewer, but more significant, suppliers.



In fiscal 2003, our gasoline revenues were 63.3% of total revenues. The following table highlights certain information regarding our gasoline operations
for the last five fiscal years:



|                                                  |  |                    |       |   |                    |   |         |                    |  |   |                    |    |  |                    |         |   |  |   |         |  
|------------------------------------------------- |  | ------------------ | ----- | - | ------------------ | - | ------- | ------------------ |  | - | ------------------ | -- |  | ------------------ | ------- | - |  | - | ------- | -
|                                                  |  | Fiscal Year Ended  |      
|                                                  |  | September 30, 1999 |       |   | September 28, 2000 |   |         | September 27, 2001 |  |   | September 26, 2002 |    |  | September 25, 2003 |        
|Gasoline sales (in millions)                      |  | $                  | 923.8 |   |                    | $ | 1,497.7 |                    |  | $ | 1,652.7            |    |  | $                  | 1,470.7 |   |  | $ | 1,740.7 |  
|Gasoline gallons sold (in millions)               |  |                    | 855.7 |   |                    |   | 1,062.4 |                    |  |   | 1,142.4            |    |  |                    | 1,171.9 |   |  |   | 1,170.3 |  
|Average gallons sold per store (in thousands)     |  |                    | 834.8 |   |                    |   | 872.5   |                    |  |   | 890.4              |    |  |                    | 924.2   |   |  |   | 940.7   |  
|Comparable store gallon growth                    |  |                    | 5.9   | % |                    |   | (2.4    | )%                 |  |   | (3.8               | )% |  |                    | 1.5     | % |  |   | 0.7     | %
|Average retail price per gallon                   |  | $                  | 1.08  |   |                    | $ | 1.41    |                    |  | $ | 1.45               |    |  | $                  | 1.25    |   |  | $ | 1.49    |  
|Average gross profit per gallon                   |  | $                  | 0.123 |   |                    | $ | 0.132   |                    |  | $ | 0.125              |    |  | $                  | 0.104   |   |  | $ | 0.124   |  
|Locations selling gasoline                        |  |                    | 1,152 |   |                    |   | 1,267   |                    |  |   | 1,286              |    |  |                    | 1,253   |   |  |   | 1,232   |  
|Company-operated branded locations                |  |                    | 852   |   |                    |   | 997     |                    |  |   | 997                |    |  |                    | 950     |   |  |   | 863     |  
|Company-operated private brand locations          |  |                    | 280   |   |                    |   | 253     |                    |  |   | 277                |    |  |                    | 291     |   |  |   | 357     |  
|Third-party locations (branded & private branded) |  |                    | 21    |   |                    |   | 17      |                    |  |   | 12                 |    |  |                    | 12      |   |  |   | 12      |  
|Locations with pay-at-pump credit card readers    |  |                    | 682   |   |                    |   | 945     |                    |  |   | 1,009              |    |  |                    | 1,008   |   |  |   | 1,005   |  
|Locations with multi-product dispensers           |  |                    | 945   |   |                    |   | 1,085   |                    |  |   | 1,129              |    |  |                    | 1,119   |   |  |   | 1,100   |  



The increase in
average gallons sold per store in fiscal 2003 is primarily due to the 0.7% increase in comparable store gallon growth, the closure of 35 under performing stores and our continued efforts to re-brand or re-image our gasoline facilities. In fiscal
2003, the gasoline markets were volatile with domestic crude oil hitting a low in November 2002 of approximately $25 per barrel and highs in March 2003 of approximately $38 per barrel. Generally, we attempt to pass along wholesale gasoline cost
changes to our customers through retail price changes. However, our ability to pass along wholesale cost changes is influenced by gasoline market conditions and the retail prices offered by our competitors. We make no assurances that significant
volatility in gasoline wholesale prices will not negatively affect gasoline gross margins or demand for gasoline within our markets.



As of December 1, 2003, we owned the gasoline operations at 1,354 locations and at 11 locations had gasoline operations that were operated under
third-party arrangements. At company-operated locations, we own the gasoline storage tanks, pumping equipment and canopies, and retain 100% of the gross profit received from gasoline sales. In fiscal 2003, these locations accounted for approximately
99% of total gallons sold. Under third-party arrangements, an independent gasoline distributor owns and maintains the gasoline storage tanks and



3



---

##### Table of Contents

pumping equipment at the site, prices the gasoline and pays us approximately 50% of the gross profit. In fiscal 2003, third-party locations accounted for
approximately 1% of the total gallons we sold. We are phasing out third-party arrangements because our company-operated locations are more profitable.



Store Locations.    As of December 1, 2003, we operated 1,392 convenience stores located primarily in growing markets,
coastal/resort areas and along major interstates and highways. Approximately 40% of our total stores are strategically located in coastal/resort areas such as Jacksonville, Orlando/Disney World, Myrtle Beach, Charleston, St. Augustine, Hilton Head
and Gulfport/Biloxi that attract a large number of tourists who we believe value convenience shopping. Additionally, approximately 18% of our total stores are situated along major interstates and highways which benefit from high traffic
counts and customers seeking convenient fueling locations, including some stores in coastal or resort areas. Almost all of our stores are freestanding structures averaging approximately 2,400 square feet and provide ample customer parking. The
following table shows the geographic distribution by state of our stores for each of the last five fiscal years and as of December 1, 2003:



|               |  |                                        |  |                                    |  |                                               |  |                    |  |                    |  |       |  |      |  
|-------------- |  | -------------------------------------- |  | ---------------------------------- |  | --------------------------------------------- |  | ------------------ |  | ------------------ |  | ----- |  | ---- | -
|               |  | Number of Stores as of Fiscal Year End |  | Number ofStores atDecember 1, 2003 |  | Percentage of TotalStores at December 1, 2003 | 
|State          |  | September 30, 1999                     |  | September 28, 2000                 |  | September 27, 2001                            |  | September 26, 2002 |  | September 25, 2003 |  |      
|Florida        |  | 533                                    |  | 517                                |  | 505                                           |  | 494                |  | 477                |  | 474   |  | 34.1 | %
|North Carolina |  | 336                                    |  | 343                                |  | 341                                           |  | 331                |  | 328                |  | 328   |  | 23.6 |  
|South Carolina |  | 232                                    |  | 251                                |  | 254                                           |  | 248                |  | 240                |  | 240   |  | 17.2 |  
|Georgia        |  | 12                                     |  | 57                                 |  | 57                                            |  | 56                 |  | 56                 |  | 104   |  | 7.5  |  
|Tennessee      |  | 19                                     |  | 15                                 |  | 14                                            |  | 14                 |  | 14                 |  | 104   |  | 7.5  |  
|Mississippi    |  |                                       |  | 37                                 |  | 56                                            |  | 54                 |  | 53                 |  | 53    |  | 3.8  |  
|Kentucky       |  | 45                                     |  | 45                                 |  | 42                                            |  | 39                 |  | 38                 |  | 38    |  | 2.7  |  
|Virginia       |  | 18                                     |  | 30                                 |  | 31                                            |  | 30                 |  | 30                 |  | 30    |  | 2.2  |  
|Indiana        |  | 20                                     |  | 18                                 |  | 16                                            |  | 15                 |  | 14                 |  | 13    |  | 0.9  |  
|Louisiana      |  |                                       |  |                                   |  | 8                                             |  | 8                  |  | 8                  |  | 8     |  | 0.6  |  
|               |  |                                        |  |                                    |  |                                               |  |                    |  |                    |  |       |  |      |  
|Total          |  | 1,215                                  |  | 1,313                              |  | 1,324                                         |  | 1,289              |  | 1,258              |  | 1,392 |  | 100  | %
|               |  |                                        |  |                                    |  |                                               |  |                    |  |                    |  |       |  |      |  



New
Stores.    In opening new stores in recent years, we have focused on selecting store sites on highly traveled roads in coastal/resort and suburban markets or near highway exit and entrance ramps that provide convenient access
to the store location. In selecting sites for new stores, we use an evaluation process designed to enhance our return on investment. This process focuses on market area demographics, population density, traffic volume, visibility, ingress and egress
and economic development in the market area. We also review the location of competitive stores and customer activity at those stores.



Acquisitions.    We focus on selectively acquiring chains within and contiguous to our existing market areas. In evaluating
potential acquisition candidates, we consider a number of factors, including strategic fit, desirability of location, price and our ability to improve the productivity and profitability of a location through the implementation of our operating
strategy. During fiscal 2003, we acquired two locations in South Carolina and one location in North Carolina. On October 16, 2003, we acquired 138 convenience stores operating under the Golden Gallon® banner from Ahold, USA, Inc., consisting of 90 stores in Tennessee and 48 stores in
northwest Georgia.



4



---

##### Table of Contents

Store Closures.    We continually evaluate the performance of each of our
stores to determine whether any particular store should be closed or sold based on profitability trends and our market presence in the surrounding area. Although closing or selling underperforming stores reduces revenues, our operating results
typically improve as these stores are generally unprofitable. The following table summarizes our activities related to acquisitions, store openings and store closures during the last five fiscal years and for the period between September 25, 2003
and December 1, 2003:



|                                        |  |                    |   |  |                                               |   |  |                    |   |  |                    |   |  |                    |   |  |       |  
|--------------------------------------- |  | ------------------ | - |  | --------------------------------------------- | - |  | ------------------ | - |  | ------------------ | - |  | ------------------ | - |  | ----- | -
|                                        |  | Fiscal Year Ending |   |  | Between September 25,2003 and December 1,2003 |  
|                                        |  | September 30, 1999 |   |  | September 28, 2000                            |   |  | September 27, 2001 |   |  | September 26, 2002 |   |  | September 25, 2003 |   | 
|Number of stores at beginning of period |  | 954                |   |  | 1,215                                         |   |  | 1,313              |   |  | 1,324              |   |  | 1,289              |   |  | 1,258 |  
|Acquired or opened                      |  | 300                |   |  | 145                                           |   |  | 47                 |   |  | 3                  |   |  | 4                  |   |  | 139   |  
|Closed or sold                          |  | (39                | ) |  | (47                                           | ) |  | (36                | ) |  | (38                | ) |  | (35                | ) |  | (5    | )
|                                        |  |                    |   |  |                                               |   |  |                    |   |  |                    |   |  |                    |   |  |       |  
|Number of stores at end of period       |  | 1,215              |   |  | 1,313                                         |   |  | 1,324              |   |  | 1,289              |   |  | 1,258              |   |  | 1,392 |  
|                                        |  |                    |   |  |                                               |   |  |                    |   |  |                    |   |  |                    |   |  |       |  



Improvement of
Store Facilities and Equipment.    During fiscal 2003 and fiscal 2002, we upgraded the facilities and equipment, including gasoline equipment, at many of our existing and acquired store locations. These upgrades cost
approximately $15.6 million in fiscal 2003 and $17.6 million in fiscal 2002. This store renovation program is an integral part of our operating strategy. We continually evaluate the performance of individual stores and periodically upgrade
store facilities and equipment based on sales volumes, the lease term for leased locations and managements assessment of the potential return on investment. Typically, re-modeling for stores include improvements to:



| |  | interior fixtures and updated equipment for self-service food and beverages;
| | - | ----------------------------------------------------------------------------



| |  | interior lighting;
| | - | ------------------



| |  | in-store restrooms for customers; and
| | - | -------------------------------------



| |  | exterior painting, lighting and signage.
| | - | ----------------------------------------



The upgrading program for our gasoline operations includes:



| |  | the addition of automated gasoline dispensing and payment systems, such as multi-product dispensers and pay-at-the-pump credit card readers;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



| |  | upgrades and replacements of canopy fixtures and lighting; and
| | - | --------------------------------------------------------------



| |  | the installation of underground storage tank leak detection and other equipment in accordance with applicable Environmental Protection Agency, or EPA, regulations.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



For further discussion of the EPA and other
environmental regulations, see Government Regulation and Environmental Matters.



Store Operations.    Each convenience store is staffed with a manager, an assistant manager and sales associates who work
various shifts to enable most stores to remain open 24 hours a day, seven days a week. Our field operations organization is comprised of a network of regional, divisional and district managers who, with our corporate management, evaluate store
operations. District managers typically oversee eight to ten stores. We also monitor store conditions, maintenance and customer service through a regular store visitation program by district and regional management.



5



---

##### Table of Contents

Competition



The convenience store and retail gasoline industries are highly competitive. We compete with numerous other convenience stores, supermarkets, drug stores,
discount clubs, gasoline service stations, fast food operations and other similar retail outlets. The performance of individual stores can be affected by changes in traffic patterns and the type, number and location of competing stores. Principal
competitive factors include, among others, location, ease of access, gasoline brands, pricing, product and service selections, customer service, store appearance, cleanliness and safety. We believe that our modernized store base, strategic mix of
locations, gasoline offerings and use of competitive market data, including our Gasoline Pricing System which helps us optimize competitive gasoline pricing, combined with our managements expertise provides us with competitive advantages and
allows us to effectively react to changes in the competitive environment.



Technology and Store Automation



We invest a
portion of our capital spending on technology-based initiatives to improve organizational efficiency, track and influence operational performance and provide management with enhanced decision support tools. Our Retail Automation System initiatives
have been the building blocks to support our rapid growth, enhancing our ability to transform detailed transaction data into useful operational, marketing and financial information and support synergies throughout the Company.



Over the last several fiscal years, including fiscal year 2003, we have
invested capital and resources to:



| |  | enhance our systems infrastructure to support anticipated and continued acquisitions and related growth and improve the delivery and reliability of enhanced applications;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | reduce the number and standardize the point-of-sale vendors throughout the entire retail network;
| | - | -------------------------------------------------------------------------------------------------



| |  | upgrade and expand the use of an industry-specific general ledger and retail automation software designed to improve internal cash and inventory controls and increase the
transaction level data collected;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | implement an electronic price book for each store in our network which supports point-of-sale scanning, item level receiving and electronic invoicing; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | develop, enhance and utilize package applications to improve store level gasoline pricing, gasoline and merchandise inventory management and enhance decision support tools.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During fiscal 2003, we continued to invest in
programs and system upgrades targeted to improve store level gasoline pricing and merchandise inventory management, along with new decision support and training tools. These systems include:



| |  | Gasoline Pricing Systeman internally developed price optimization program that has been further enhanced to leverage current competitive and historical price and sales data to
optimize pricing to meet sales, volume and margin objectives.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | TelaFuela gasoline inventory management tool developed by TelaPoint, Inc., which allows us to coordinate fuel inventory management with our gasoline hauling vendors and has helped control and reduce average inventory
levels and, thus, improve working capital.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Point-of-Sale Integration and ScanningAt fiscal year end, 33% of our stores were scanning and polling sales and other reporting data. The data that this system provides is
used by our marketing department to facilitate sales analyses and recognition of market and customer trends.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | FocalPointDeveloped and enhanced for our needs by our Retail Automation System partner, PDI, FocalPoint is a web-based decision support tool fully integrated
with their other store and back office software products. This system established the infrastructure necessary to build a comprehensive data
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



6



---

##### Table of Contents

| | warehouse. The data that this system provides is used to further enhance the decision-making tools that our marketing, operations and other support
departments use to access promotional analysis and comparison reports; to know what is selling and what is not; and to analyze and make decisions based on up-to-date historic trends and explore corporate data.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Computer Based TrainingThe planning and development of a more comprehensive computer-based training, or CBT, program was initiated toward the end of the fiscal year. This new
system will be rolled out to all stores, enhancing our current CBT implementation in our Florida stores, and will provide up-to-date training for new hires and additional management control.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We will continue to evaluate and invest in strategic technology-based
initiatives to improve our operating efficiency, strengthen internal controls and reporting systems, enhance our financial performance and promote our long-term strategic objectives.



Trade Names, Service Marks and Trademarks



We have registered, acquired the registration of, applied for the registration of and claim ownership of a variety of trade names, service marks and
trademarks for use in our business, including The Pantry®, Worth®, Golden
Gallon®, Bean Street Coffee Company®, Big Chill®, Celeste®, The Chill ZoneSM, Lil Champ Food Store®, Handy Way®, Quick
StopSM, Kangaroo®, Kangaroo ExpressSM, Fast Lane®, Big KSM, Mini MartSM, DepotSM, Food Chief®, Express StopSM, SprintSMand Smokers ExpressSM. We are not aware of any facts which would negatively impact our continuing use of any of the above trade names, service marks or trademarks.



Government Regulation and Environmental Matters



Many aspects of our operations are subject to regulation under federal, state
and local laws. A violation or change of these laws could have a material adverse effect on our business, financial condition and results of operations. We describe below the most significant of the regulations that impact all aspects of our
operations.



Storage and Sale of
Gasoline.    We are subject to various federal, state and local environmental laws. We make financial expenditures in order to comply with regulations governing underground storage tanks adopted by federal, state and local
regulatory agencies. In particular, at the federal level, the Resource Conservation and Recovery Act of 1976, as amended, requires the EPA to establish a comprehensive regulatory program for the detection, prevention and cleanup of leaking
underground storage tanks.



Federal and state regulations
require us to provide and maintain evidence that we are taking financial responsibility for corrective action and compensating third parties in the event of a release from our underground storage tank systems. In order to comply with these
requirements, as of December 1, 2003, we maintain letters of credit in the aggregate amount of approximately $1.1 million in favor of state environmental agencies in North Carolina, South Carolina, Virginia, Georgia, Indiana, Tennessee, Kentucky and
Louisiana. We also rely on reimbursements from applicable state trust funds. In Florida, we meet our financial responsibility requirements by state trust fund coverage through December 31, 1998 and meet such requirements thereafter through private
commercial liability insurance. In Georgia, we meet our financial responsibility requirements by state trust fund coverage through December 29, 1999 and meet such requirements thereafter through private commercial liability insurance and a letter of
credit. In Mississippi, we meet our financial responsibility requirements through coverage under the state trust fund.



Regulations enacted by the EPA in 1988 established requirements for:



| |  | installing underground storage tank systems;
| | - | --------------------------------------------



| |  | upgrading underground storage tank systems;
| | - | -------------------------------------------



| |  | taking corrective action in response to releases;
| | - | -------------------------------------------------



| |  | closing underground storage tank systems;
| | - | -----------------------------------------



7



---

##### Table of Contents

| |  | keeping appropriate records; and
| | - | --------------------------------



| |  | maintaining evidence of financial responsibility for taking corrective action and compensating third parties for bodily injury and property damage resulting from releases.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



These regulations permit states to develop,
administer and enforce their own regulatory programs, incorporating requirements which are at least as stringent as the federal standards. In 1998, Florida developed their own regulatory program, which incorporated requirements more stringent than
the 1988 EPA regulations. We believe our facilities in Florida meet or exceed those regulations developed by the State of Florida in 1998. We believe all company-owned underground storage tank systems are in material compliance with these 1988 EPA
regulations and all applicable state environmental regulations.



State Trust Funds.    All states in which we operate or have operated underground storage tank systems have established trust funds for the sharing, recovering and reimbursing of certain cleanup costs and
liabilities incurred as a result of releases from underground storage tank systems. These trust funds, which essentially provide insurance coverage for the cleanup of environmental damages caused by the operation of underground storage tank systems,
are funded by an underground storage tank registration fee and a tax on the wholesale purchase of motor fuels within each state. We have paid underground storage tank registration fees and gasoline taxes to each state where we operate to participate
in these trust fund programs. We have filed claims and received reimbursements in North Carolina, South Carolina, Kentucky, Indiana, Georgia, Florida, Tennessee, Mississippi and Virginia. The coverage afforded by each state fund varies but generally
provides up to $1.0 million per site or occurrence for the cleanup of environmental contamination, and most provide coverage for third-party liabilities. Costs for which we do not receive reimbursement include:



| |  | the per-site deductible;
| | - | ------------------------



| |  | costs incurred in connection with releases occurring or reported to trust funds prior to their inception;
| | - | ---------------------------------------------------------------------------------------------------------



| |  | removal and disposal of underground storage tank systems; and
| | - | -------------------------------------------------------------



| |  | costs incurred in connection with sites otherwise ineligible for reimbursement from the trust funds.
| | - | ----------------------------------------------------------------------------------------------------



The trust funds generally require us to pay deductibles ranging from $5 thousand to $150 thousand per occurrence depending
on the upgrade status of our underground storage tank system, the date the release is discovered and/or reported and the type of cost for which reimbursement is sought. The Florida trust fund will not cover releases first reported after December 31,
1998. We obtained private insurance coverage for remediation and third-party claims arising out of releases reported after December 31, 1998. We believe that this coverage exceeds federal and Florida financial responsibility regulations. In Georgia,
we opted not to participate in the state trust fund effective December 30, 1999. We obtained private insurance coverage for remediation and third party claims arising out of releases reported after December 29, 1999. We believe that this coverage
exceeds federal and Georgia financial responsibility regulations.



Environmental Reserves.    Environmental reserves of $13.8 million and $13.3 million as of September 25, 2003 and September 26, 2002, respectively, represent our estimates for future expenditures for remediation,
tank removal and litigation associated with 236 and 240 known contaminated sites, respectively, as a result of releases (e.g., overfills, spills and underground storage tank releases) and are based on current regulations, historical results and
certain other factors. We estimate that approximately $12.5 million of our environmental obligations will be funded by state trust funds and third party insurance. Our environmental reserve, dated as of September 25, 2003, does not include the
31 Golden Gallon® sites that were known to be
contaminated at the time of our October 2003 acquisition of Golden Gallon®. State trust funds, insurers or other third parties are responsible for the costs of remediation at all 31 Golden Gallon® sites. Also, as of September 25, 2003 and September 26, 2002, there were an additional 487 and 470 sites, respectively, that are known to be
contaminated sites that are being remediated by third parties, and therefore, the costs to remediate such sites are not included in our environmental reserve. To the extent third parties do not pay for remediation as we anticipate, we will be



8



---

##### Table of Contents

obligated to make such payments. This could materially adversely affect our financial condition, results of operations and cash flows. Reimbursements from
state trust funds will be dependent upon the continued maintenance and continued solvency of the various funds.



Several of the locations identified as contaminated are being remediated by third parties who have indemnified us as to responsibility for cleanup
matters. Additionally, we are awaiting closure notices on several other locations which will release us from responsibility related to known contamination at those sites. These sites continue to be included in our environmental reserve until a final
closure notice is received.



Sale of Alcoholic
Beverages.    In certain areas where stores are located, state or local laws limit the hours of operation for the sale of alcoholic beverages. State and local regulatory agencies have the authority to approve, revoke, suspend
or deny applications for and renewals of permits and licenses relating to the sale of alcoholic beverages. These agencies may also impose various restrictions and sanctions. In many states, retailers of alcoholic beverages have been held responsible
for damages caused by intoxicated individuals who purchased alcoholic beverages from them. While the potential exposure for damage claims as a seller of alcoholic beverages is substantial, we have adopted procedures intended to minimize such
exposure. In addition, we maintain general liability insurance which may mitigate the effect of any liability.



Store Operations.    Our stores are subject to regulation by federal agencies and to licensing and regulations by state and
local health, sanitation, safety, fire and other departments relating to the development and operation of convenience stores, including regulations relating to zoning and building requirements and the preparation and sale of food. Difficulties in
obtaining or failures to obtain the required licenses or approvals could delay or prevent the development of a new store in a particular area.



Our operations are also subject to federal and state laws governing such matters as wage rates, overtime, working conditions and citizenship requirements.
At the federal level, there are proposals under consideration from time to time to increase minimum wage rates and to introduce a system of mandated health insurance which could affect our results of operations.



Employees



As of December 1, 2003, we employed approximately 8,386 full-time and 1,470 part-time employees. Fewer part-time employees
are employed during the winter months than during the peak spring and summer seasons. Approximately 9,316 of our employees are employed in our stores and 540 are corporate and field management personnel. None of our employees are represented by
unions. We consider our employee relations to be good.



9



---

##### Table of Contents

PART II



Item 6.    Selected Financial Data



The following table sets forth our historical consolidated financial data and store operating information for the periods indicated. The selected historical annual consolidated statement of operations and balance
sheet data as of and for each of the five fiscal years ended September 1999, 2000, 2001, 2002 and 2003 are derived from, and are qualified in their entirety by, our consolidated financial statements. Historical results are not necessarily indicative
of the results to be expected in the future. You should read the following data together with Item 1. Business, Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations, and our
consolidated financial statements and the related notes appearing in Item 8. In the following table, dollars are in millions, except per share, per store and per gallon data and as otherwise indicated.



|                                                               |  |                                               |         |     |                    |   |         |                    |  |   |                    |     |  |                    |         |   |  |   |         |     
|-------------------------------------------------------------- |  | --------------------------------------------- | ------- | --- | ------------------ | - | ------- | ------------------ |  | - | ------------------ | --- |  | ------------------ | ------- | - |  | - | ------- | ----
|                                                               |  | Fiscal Year Ended (As Restated - See Note 20) |        
|                                                               |  | September 30, 1999                            |         |     | September 28, 2000 |   |         | September 27, 2001 |  |   | September 26, 2002 |     |  | September 25, 2003 |        
|Statement of Operations Data:                                  |  |                                               |         |     |                    |   |         |                    |  |   |                    |     |  |                    |         |   |  |   |         |     
|Revenues:                                                      |  |                                               |         |     |                    |   |         |                    |  |   |                    |     |  |                    |         |   |  |   |         |     
|Merchandise revenue                                            |  | $                                             | 755.1   |     |                    | $ | 933.5   |                    |  | $ | 990.3              |     |  | $                  | 1,012.8 |   |  | $ | 1,009.7 |     
|Gasoline revenue                                               |  |                                               | 923.8   |     |                    |   | 1,497.7 |                    |  |   | 1,652.7            |     |  |                    | 1,470.7 |   |  |   | 1,740.7 |     
|                                                               |  |                                               |         |     |                    |   |         |                    |  |   |                    |     |  |                    |         |   |  |   |         |     
|Total revenues                                                 |  |                                               | 1,678.9 |     |                    |   | 2,431.2 |                    |  |   | 2,643.0            |     |  |                    | 2,483.5 |   |  |   | 2,750.4 |     
|Gross profit:                                                  |  |                                               |         |     |                    |   |         |                    |  |   |                    |     |  |                    |         |   |  |   |         |     
|Merchandise gross profit                                       |  |                                               | 265.8   |     |                    |   | 328.4   |                    |  |   | 345.3              |     |  |                    | 353.9   |   |  |   | 365.5   |     
|Gasoline gross profit                                          |  |                                               | 105.0   |     |                    |   | 139.9   |                    |  |   | 142.3              |     |  |                    | 121.5   |   |  |   | 145.3   |     
|                                                               |  |                                               |         |     |                    |   |         |                    |  |   |                    |     |  |                    |         |   |  |   |         |     
|Total gross profit                                             |  |                                               | 370.8   |     |                    |   | 468.3   |                    |  |   | 487.6              |     |  |                    | 475.4   |   |  |   | 510.8   |     
|                                                               |  |                                               |         |     |                    |   |         |                    |  |   |                    |     |  |                    |         |   |  |   |         |     
|Operating, general and administrative expenses                 |  |                                               | 268.8   | (a) |                    |   | 337.1   |                    |  |   | 364.1              |     |  |                    | 367.3   |   |  |   | 385.6   | (a) 
|Restructuring and other charges                                |  |                                               |        |     |                    |   |        |                    |  |   | 4.8                | (b) |  |                    |        |   |  |   |        |     
|Depreciation and amortization(c)                               |  |                                               | 42.8    |     |                    |   | 56.1    |                    |  |   | 63.5               |     |  |                    | 54.3    |   |  |   | 54.4    | (d) 
|Income from operations                                         |  |                                               | 59.3    |     |                    |   | 75.2    |                    |  |   | 55.2               |     |  |                    | 53.9    |   |  |   | 70.8    |     
|Interest expense                                               |  |                                               | 41.3    |     |                    |   | 52.3    |                    |  |   | 58.7               |     |  |                    | 51.6    |   |  |   | 49.3    |     
|Income (loss) before cumulative effect adjustment              |  |                                               | 10.4    |     |                    |   | 14.0    |                    |  |   | (2.7               | )   |  |                    | 1.8     |   |  |   | 15.0    |     
|Cumulative effect adjustment, net of tax                       |  |                                               |        |     |                    |   |        |                    |  |   |                   |     |  |                    |        |   |  |   | (3.5    | )(e)
|                                                               |  |                                               |         |     |                    |   |         |                    |  |   |                    |     |  |                    |         |   |  |   |         |     
|Net income (loss)                                              |  |                                               | 10.4    |     |                    |   | 14.0    |                    |  |   | (2.7               | )   |  |                    | 1.8     |   |  |   | 11.5    |     
|Net income (loss) applicable to common shareholders(f)         |  | $                                             | 6.2     |     |                    | $ | 14.0    |                    |  | $ | (2.7               | )   |  | $                  | 1.8     |   |  | $ | 11.5    |     
|Earnings (loss) per share before cumulative effect adjustment: |  |                                               |         |     |                    |   |         |                    |  |   |                    |     |  |                    |         |   |  |   |         |     
|Basic                                                          |  | $                                             | 0.45    |     |                    | $ | 0.77    |                    |  | $ | (0.15              | )   |  | $                  | 0.10    |   |  | $ | 0.83    |     
|Diluted                                                        |  | $                                             | 0.41    |     |                    | $ | 0.74    |                    |  | $ | (0.15              | )   |  | $                  | 0.10    |   |  | $ | 0.82    |     
|Earnings (loss) per share:                                     |  |                                               |         |     |                    |   |         |                    |  |   |                    |     |  |                    |         |   |  |   |         |     
|Basic                                                          |  | $                                             | 0.45    |     |                    | $ | 0.77    |                    |  | $ | (0.15              | )   |  | $                  | 0.10    |   |  | $ | 0.64    |     
|Diluted                                                        |  | $                                             | 0.41    |     |                    | $ | 0.74    |                    |  | $ | (0.15              | )   |  | $                  | 0.10    |   |  | $ | 0.63    |     
|Weighted-average shares outstanding:                           |  |                                               |         |     |                    |   |         |                    |  |   |                    |     |  |                    |         |   |  |   |         |     
|Basic                                                          |  |                                               | 13,768  |     |                    |   | 18,111  |                    |  |   | 18,113             |     |  |                    | 18,108  |   |  |   | 18,108  |     
|Diluted                                                        |  |                                               | 15,076  |     |                    |   | 18,932  |                    |  |   | 18,113             |     |  |                    | 18,109  |   |  |   | 18,370  |     
|Dividends paid on common stock                                 |  |                                               |        |     |                    |   |        |                    |  |   |                   |     |  |                    |        |   |  |   |        |     
|Other Financial Data:                                          |  |                                               |         |     |                    |   |         |                    |  |   |                    |     |  |                    |         |   |  |   |         |     
|Adjusted EBITDA(g)                                             |  | $                                             | 108.8   |     |                    | $ | 133.2   |                    |  | $ | 120.5              |     |  | $                  | 108.8   |   |  | $ | 128.0   |     
|Cash provided by (used in):                                    |  |                                               |         |     |                    |   |         |                    |  |   |                    |     |  |                    |         |   |  |   |         |     
|Operating activities                                           |  | $                                             | 68.6    |     |                    | $ | 88.2    |                    |  | $ | 76.7               |     |  | $                  | 54.0    |   |  | $ | 68.3    |     
|Investing activities(h)                                        |  |                                               | (228.9  | )   |                    |   | (148.7  | )                  |  |   | (93.9              | )   |  |                    | (20.3   | ) |  |   | (22.4   | )   
|Financing activities                                           |  |                                               | 157.1   | (i) |                    |   | 82.7    |                    |  |   | 14.5               |     |  |                    | (42.0   | ) |  |   | (15.2   | )   
|Gross capital expenditures(j)                                  |  |                                               | 47.4    |     |                    |   | 56.4    |                    |  |   | 43.6               |     |  |                    | 26.5    |   |  |   | 25.5    |     
|Capital expenditures, net(k)                                   |  |                                               | 30.1    |     |                    |   | 32.1    |                    |  |   | 31.6               |     |  |                    | 18.8    |   |  |   | 18.9    |     
|Store Operating Data:                                          |  |                                               |         |     |                    |   |         |                    |  |   |                    |     |  |                    |         |   |  |   |         |     
|Number of stores (end of period)                               |  |                                               | 1,215   |     |                    |   | 1,313   |                    |  |   | 1,324              |     |  |                    | 1,289   |   |  |   | 1,258   |     
|Average sales per store:                                       |  |                                               |         |     |                    |   |         |                    |  |   |                    |     |  |                    |         |   |  |   |         |     
|Merchandise revenue (in thousands)                             |  | $                                             | 687.7   |     |                    | $ | 734.5   |                    |  | $ | 747.4              |     |  | $                  | 776.1   |   |  | $ | 791.9   |     
|Gasoline gallons (in thousands)                                |  |                                               | 834.8   |     |                    |   | 872.5   |                    |  |   | 890.4              |     |  |                    | 924.2   |   |  |   | 940.7   |     
|Comparable store sales(l):                                     |  |                                               |         |     |                    |   |         |                    |  |   |                    |     |  |                    |         |   |  |   |         |     
|Merchandise                                                    |  |                                               | 9.6     | %   |                    |   | 7.1     | %                  |  |   | (0.8               | )%  |  |                    | 2.8     | % |  |   | 0.9     | %   
|Gasoline gallons                                               |  |                                               | 5.9     | %   |                    |   | (2.4    | )%                 |  |   | (3.8               | )%  |  |                    | 1.5     | % |  |   | 0.7     | %   
|Operating Data:                                                |  |                                               |         |     |                    |   |         |                    |  |   |                    |     |  |                    |         |   |  |   |         |     
|Merchandise gross margin                                       |  |                                               | 35.2    | %   |                    |   | 35.2    | %                  |  |   | 34.9               | %   |  |                    | 34.9    | % |  |   | 36.2    | %   
|Gasoline gallons sold (in millions)                            |  |                                               | 855.7   |     |                    |   | 1,062.4 |                    |  |   | 1,142.4            |     |  |                    | 1,171.9 |   |  |   | 1,170.3 |     
|Average retail gasoline price per gallon                       |  | $                                             | 1.08    |     |                    | $ | 1.41    |                    |  | $ | 1.45               |     |  | $                  | 1.25    |   |  | $ | 1.49    |     
|Average gasoline gross profit per gallon                       |  | $                                             | 0.123   |     |                    | $ | 0.132   |                    |  | $ | 0.125              |     |  | $                  | 0.104   |   |  | $ | 0.124   |     
|Balance Sheet Data (end of period):                            |  |                                               |         |     |                    |   |         |                    |  |   |                    |     |  |                    |         |   |  |   |         |     
|Cash and cash equivalents                                      |  | $                                             | 31.2    |     |                    | $ | 53.4    |                    |  | $ | 50.6               |     |  | $                  | 42.2    |   |  | $ | 72.9    |     
|Working capital (deficiency)                                   |  |                                               | (20.4   | )   |                    |   | (4.9    | )                  |  |   | (29.8              | )   |  |                    | (43.4   | ) |  |   | 17.5    |     
|Total assets                                                   |  |                                               | 793.7   |     |                    |   | 930.9   |                    |  |   | 945.4              |     |  |                    | 909.7   |   |  |   | 914.2   |     
|Total debt and capital lease obligations                       |  |                                               | 455.6   |     |                    |   | 541.4   |                    |  |   | 559.6              |     |  |                    | 521.1   |   |  |   | 514.7   |     
|Shareholders equity                                           |  |                                               | 104.2   | (j) |                    |   | 118.0   |                    |  |   | 111.1              |     |  |                    | 115.2   |   |  |   | 128.7   |     



(footnotes on
following page)



10



---

##### Table of Contents

---

|(a) | On January 28, 1999, we recognized an extraordinary loss of approximately $5.9 million in connection with the repurchase of the senior notes. This loss was previously classified as
an extraordinary loss. In accordance with Statement of Financial Accounting Standards, or SFAS, No. 145, Rescission of FASB Statement No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections,we have reclassified this
loss to operating, general and administrative expenses.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On April 14, 2003, we entered into a new senior secured credit facility. In connection with the refinancing, we recorded a non-cash charge of approximately $2.9 million related to the write-off of deferred financing
costs associated with the previous credit facility.

|(b) | During fiscal 2001, we recorded restructuring and other charges of $4.8 million pursuant to a formal plan to centralize administrative functions.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | During fiscal 2002, we adopted the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, or SFAS No. 142, which eliminated the amortization of goodwill. Goodwill
amortization expense was $5.8 million, $3.4 million and $3.1 million for the fiscal years ended September 27, 2001, September 28, 2000 and September 30, 1999, respectively.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | Effective March 28, 2003, we accelerated the depreciation on certain assets related to our gasoline and store branding. These changes were the result of our gasoline brand
consolidation project which will result in either updating or changing the image of the majority of our stores within the next two years. Accordingly, we reassessed the remaining useful lives of these assets based on our plans and recorded an
increase in depreciation expense of $3.4 million.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(e) | Effective September 27, 2002, we adopted the provisions of SFAS No. 143, Accounting for Asset Retirement Obligations, or SFAS No. 143, and, as a result, we recognize the
future cost to remove an underground storage tank over the estimated useful life of the storage tank in accordance with SFAS No. 143. A liability for the fair value of an asset retirement obligation with a corresponding increase to the carrying
value of the related long-lived asset is recorded at the time an underground storage tank is installed. We will amortize the amount added to property and equipment and recognize accretion expense in connection with the discounted liability over the
remaining life of the respective underground storage tanks. Upon adoption, we recorded a discounted liability of $8.4 million, which is included in other noncurrent liabilities, increased net property and equipment by $2.7 million and recognized a
one-time cumulative effect adjustment of $3.5 million (net of deferred tax benefit of $2.2 million).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(f) | Net income (loss) applicable to common shareholders represents net income (loss) adjusted for our preferred stock dividend requirements and any redemption of preferred stock in
excess of the carrying amount. Our previously outstanding Series B preferred stock was redeemed during our 1999 fiscal year.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(g) | Adjusted EBITDA is defined by us as net income before interest expense, income taxes, depreciation and amortization and cumulative effect of change in accounting principle. Adjusted
EBITDA is not a measure of performance under accounting principles generally accepted in the United States of America, and should not be considered as a substitute for net income, cash flows from operating activities and other income or cash flow
statement data. We have included information concerning Adjusted EBITDA as one measure of our cash flow and historical ability to service debt and because we believe investors find this information useful because it reflects the resources available
for strategic opportunities including, among others, to invest in the business, make strategic acquisitions and to service debt. Adjusted EBITDA as defined by us may not be comparable to similarly titled measures reported by other companies.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



(footnotes continued on following page)



11



---

##### Table of Contents

The following table contains a reconciliation of Adjusted EBITDA to net cash provided by operating
activities and cash flows from investing and financing activities (amounts in thousands):



|                                                                                                                                                                                                                       |  |                    |          |   |                    |   |          |                    |  |   |                    |   |  |                    |         |   |  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | -------- | - | ------------------ | - | -------- | ------------------ |  | - | ------------------ | - |  | ------------------ | ------- | - |  | - | ------- | -
|                                                                                                                                                                                                                       |  | Fiscal Year Ended  |         
|                                                                                                                                                                                                                       |  | September 30, 1999 |          |   | September 28, 2000 |   |          | September 27, 2001 |  |   | September 26, 2002 |   |  | September 25, 2003 |        
|Adjusted EBITDA                                                                                                                                                                                                        |  | $                  | 108,828  |   |                    | $ | 133,163  |                    |  | $ | 120,491            |   |  | $                  | 108,831 |   |  | $ | 128,039 |  
|Interest expense                                                                                                                                                                                                       |  |                    | (41,280  | ) |                    |   | (52,329  | )                  |  |   | (58,731            | ) |  |                    | (51,646 | ) |  |   | (49,265 | )
|Adjustments to reconcile net loss to net cash provided by operating activities (other than depreciation and amortization, provision for
deferred income taxes and cumulative effect of change in accounting principle) |  |                    | 2,749    |   |                    |   | 1,089    |                    |  |   | 8,592              |   |  |                    | 3,983   |   |  |   | 9,016   |  
|Changes in operating assets and liabilities, net:                                                                                                                                                                      |  |                    |          |   |                    |   |          |                    |  |   |                    |   |  |                    |         |   |  |   |         |  
|Assets                                                                                                                                                                                                                 |  |                    | (3,261   | ) |                    |   | (2,364   | )                  |  |   | 9,778              |   |  |                    | (7,463  | ) |  |   | (1,796  | )
|Liabilities                                                                                                                                                                                                            |  |                    | 1,531    |   |                    |   | 8,600    |                    |  |   | (3,428             | ) |  |                    | 279     |   |  |   | (17,730 | )
|                                                                                                                                                                                                                       |  |                    |          |   |                    |   |          |                    |  |   |                    |   |  |                    |         |   |  |   |         |  
|Net cash provided by operating activities                                                                                                                                                                              |  | $                  | 68,567   |   |                    | $ | 88,159   |                    |  | $ | 76,702             |   |  | $                  | 53,984  |   |  | $ | 68,264  |  
|Net cash used in investing activities                                                                                                                                                                                  |  | $                  | (228,918 | ) |                    | $ | (148,691 | )                  |  | $ | (93,947            | ) |  | $                  | (20,313 | ) |  | $ | (22,357 | )
|Net cash (used in) provided by financing activities                                                                                                                                                                    |  | $                  | 157,104  |   |                    | $ | 82,729   |                    |  | $ | 14,502             |   |  | $                  | (42,046 | ) |  | $ | (15,242 | )



|(h) | Investing activities include expenditures for acquisitions.
|--- | -----------------------------------------------------------

|(i) | On June 8, 1999, we offered and sold 6,250,000 shares of our common stock in our initial public offering. The initial offering price was $13.00 per share and we received $75.6
million in proceeds, before expenses.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(j) | Purchases of assets to be held for sale are excluded from these amounts.
|--- | ------------------------------------------------------------------------

|(k) | Net capital expenditures include vendor reimbursements for capital improvements and proceeds from asset dispositions and sale-leaseback transactions.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|(l) | The stores included in calculating comparable store sales growth are existing or replacement stores, which were in operation during the entire comparable period of both fiscal
years. Remodeling, physical expansion or changes in store square footage are not considered when computing comparable store sales growth.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



12



---

##### Table of Contents

Item 7.    Managements Discussion and Analysis of Financial Condition and Results of Operations



This discussion and analysis of our financial condition and results of operations should be read in conjunction with Item 6. Selected Financial
Data and our consolidated financial statements and the related notes appearing elsewhere in this report.



Subsequent to the issuance of our consolidated financial statements for the year ended September 25, 2003, we determined that our accounting for sales of
prepaid phone cards should be restated to reclassify revenues net of related costs consistent with the approach set forth in Emerging Issues Task Force (EITF) Issue No. 99-19, Reporting Revenue Gross as a Principal Versus Net as an
Agent. We have also reclassified items previously reported as commission revenue as a component of merchandise revenue.



The changes had no effect on previously reported gross profit, income from operations, net income or shareholders equity. The primary effects of the
restatement are discussed in Note 20 to the consolidated financial statements and supplementary data. The following discussion and analysis gives effect to the restatement to reclassify these items.



|                                       |  |                                      |  |                                      |  |                                      |  |             |  |                        |  |            
|-------------------------------------- |  | ------------------------------------ |  | ------------------------------------ |  | ------------------------------------ |  | ----------- |  | ---------------------- |  | -----------
|                                       |  | Fiscal Year Ended September 25, 2003 |  | Fiscal Year Ended September 26, 2002 |  | Fiscal Year Ended September 27, 2001
|                                       |  | As Previously Reported               |  | As Restated                          |  | As Previously Reported               |  | As Restated |  | As Previously Reported |  | As Restated
|Consolidated Statements of Operations: |  |                                      |  |                                      |  |                                      |  |             |  |                        |  |            
|Merchandise sales                      |  | 1,008,902                            |  | 1,009,698                            |  | 998,621                              |  | 1,012,786   |  | 968,614                |  | 990,319    
|Commission income                      |  | 26,797                               |  | N/A                                  |  | 24.711                               |  | N/A         |  | 21,705                 |  | N/A        
|Total revenues                         |  | 2,776,361                            |  | 2,750,360                            |  | 2,494,064                            |  | 2,483,518   |  | 2,643,044              |  | 2,643,044  
|Merchandise cost of sales              |  | 670,179                              |  | 644,178                              |  | 669,479                              |  | 658,933     |  | 645,012                |  | 645,012    
|Total cost of sales                    |  | 2,265,557                            |  | 2,239,556                            |  | 2,018,662                            |  | 2,008,116   |  | 2,155,401              |  | 2,155,401  



Safe Harbor Discussion



This report, including without limitation, our discussion
and analysis of our financial condition and results of operations, contains statements that we believe are forward-looking statements under the meaning of the Private Securities Litigation Reform Act of 1995 and are intended to enjoy
protection of the safe harbor for forward-looking statements provided by that Act. These forward-looking statements generally can be identified by use of phrases such as believe, plan, expect,
anticipate, intend, forecast or other similar words or phrases. Descriptions of our objectives, goals, targets, plans, strategies, costs and burdens of environmental remediation, anticipated capital expenditures,
anticipated gasoline suppliers and percentages of our requirements to be supplied by particular companies, anticipated store banners and percentages of our stores that we believe will operate under particular banners, expected cost savings and
benefits and anticipated synergies from the Golden Gallon® acquisition, anticipated costs of re-branding our stores, anticipated sharing of costs of conversion with our gasoline suppliers, and expectations regarding re-modeling, re-branding, re-imaging or otherwise converting
our stores are also forward-looking statements. These forward-looking statements are based on our current plans and expectations and involve a number of risks and uncertainties that could cause actual results and events to vary materially from the
results and events anticipated or implied by such forward-looking statements, including:



| |  | Competitive pressures from convenience stores, gasoline stations and other non-traditional retailers located in our markets;
| | - | ----------------------------------------------------------------------------------------------------------------------------



| |  | Changes in economic conditions generally and in the markets we serve;
| | - | ---------------------------------------------------------------------



| |  | Unfavorable weather conditions;
| | - | -------------------------------



13



---

##### Table of Contents

| |  | Political conditions in crude oil producing regions, including South America and the Middle East;
| | - | -------------------------------------------------------------------------------------------------



| |  | Volatility in crude oil and wholesale petroleum costs;
| | - | ------------------------------------------------------



| |  | Wholesale cost increases of tobacco products;
| | - | ---------------------------------------------



| |  | Consumer behavior, travel and tourism trends;
| | - | ---------------------------------------------



| |  | Changes in state and federal environmental and other regulations;
| | - | -----------------------------------------------------------------



| |  | Dependence on one principal supplier for merchandise and two principal suppliers for gasoline;
| | - | ----------------------------------------------------------------------------------------------



| |  | Financial leverage and debt covenants;
| | - | --------------------------------------



| |  | Changes in the credit ratings assigned to our debt securities, credit facilities and trade credit;
| | - | --------------------------------------------------------------------------------------------------



| |  | Inability to identify, acquire and integrate new stores;
| | - | --------------------------------------------------------



| |  | The interests of our largest stockholder;
| | - | -----------------------------------------



| |  | Dependence on senior management;
| | - | --------------------------------



| |  | Acts of war and terrorism; and
| | - | ------------------------------



| |  | Other unforeseen factors.
| | - | -------------------------



For a discussion of these and other risks and uncertainties, please refer to Risk Factors beginning on page 33. The list of factors
that could affect future performance and the accuracy of forward-looking statements is illustrative but by no means exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty. The
forward-looking statements included in this report are based on, and include, our estimates as of January 6, 2004. We anticipate that subsequent events and market developments will cause our estimates to change. However, while we may elect to
update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if new information becomes available in the future.



This discussion and analysis of our financial condition and results of operations should be read in conjunction with our
Item 6. Selected Financial Data and our consolidated financial statements and the related notes appearing elsewhere in this report.



Introduction



We are the leading independently operated convenience store chain in the southeastern United States and the third largest independently operated
convenience store chain in the country based on store count with 1,392 stores in ten states as of December 1, 2003. Our stores offer a broad selection of merchandise, gasoline and ancillary products and services designed to appeal to the convenience
needs of our customers. Our strategy is to continue to improve upon our position as the leading independently operated convenience store chain in the southeastern United States by generating profitable growth through merchandising initiatives,
sophisticated management of our gasoline business, upgrading our stores, leveraging our geographic economies of scale, benefiting from the favorable demographics of our markets and continuing to selectively pursue opportunistic acquisitions.



During fiscal 2003, we focused on several initiatives we
believe will continue to help maximize the performance of our existing store network and position our company for continued improvement in financial results.



In the merchandise segment, we completed our store reset program, which we began during fiscal 2002, introduced our Candy LaneSMaisle and began the conversion of many of our store banners to Kangaroo ExpressSM. We
also rolled out our Celeste® private label beverage
line and Deli Express® sandwich program to



14



---

##### Table of Contents

all locations. We believe these initiatives have improved our gross margin and contributed to a 0.9% increase in comparable store merchandise revenue for
fiscal 2003, despite unusually wet weather throughout the Southeast and significant retail price deflation in our cigarette category.



In the gasoline segment, we began our brand consolidation project, which we believe will enable us to provide a more consistent operating identity while
helping us in our efforts to maximize our gasoline gallon growth and gross profit dollars. To date, we have completed the gasoline conversions and/or image upgrades related to the branding and supply agreements at a total of 240 locations, including
106 stores to BP®/Amoco®, 55 stores to Citgo® and 79 stores to our Kangaroo® private brand format. All of these stores have also been converted to Kangaroo
ExpressSMbranding for their merchandise operations. Over the two year conversion period, we anticipate that a total
of approximately 1,000 stores will be converted or re-imaged to Kangaroo ExpressSMon the merchandise side and
converted and/or re-imaged to BP®/Amoco®, Citgo® or Kangaroo® on the gasoline side.



During the third quarter of fiscal 2003, we completed a $356 million refinancing of our senior secured credit facility. This refinancing provided us
greater liquidity and flexibility through a $7.0 million increase in the revolving credit facility to a total of $52.0 million and a $118 million reduction of scheduled principal payments through fiscal 2005. Subsequent to September 25, 2003, we
entered into amendments to our senior credit facility to increase the borrowings under the first lien term loan by $80.0 million and to increase the revolving credit facility to $56.0 million.



During fiscal 2003, we closed 35 underperforming locations. Historically, the
stores we close are underperforming in terms of volume and profitability, and, generally, we benefit from closing the locations by reducing direct overhead expenses and eliminating certain fixed costs.



On October 16, 2003, we completed the acquisition of 138 convenience stores
operating under the Golden Gallon® banner from
Ahold, USA, Inc. This acquisition included 90 stores in Tennessee and 48 stores in northwest Georgia and enhances our strong regional presence, increasing our store count to 1,392 stores as of December 1, 2003. The aggregate purchase
price was $187 million. The acquisition included (1) the purchase of certain real estate assets (114 fee-owned stores), financed through a $94.5 million sale-leaseback transaction and (2) the purchase of the Golden Gallon® operations and the balance of the real estate assets (17 fee-owned stores,
corporate headquarters building and certain undeveloped properties) for approximately $92.5 million in cash, financed with $12.5 million of existing cash and $80 million of debt through borrowings under our amended senior secured credit facility.
The acquired assets also included a dairy plant and related assets and a fuel hauling operation, which we subsequently sold to two of our existing suppliers.



15



---

##### Table of Contents

Results of Operations



The following table presents for the periods indicated selected items in the consolidated statements of income as a percentage of our total revenue:



|                                                  |  |                   |   |  |                   |   |  |                   |  
|------------------------------------------------- |  | ----------------- | - |  | ----------------- | - |  | ----------------- | -
|                                                  |  | Fiscal Year Ended |  
|                                                  |  | September 27,2001 |   |  | September 26,2002 |   |  | September 25,2003 |  
|Total revenue                                     |  | 100.0             | % |  | 100.0             | % |  | 100.0             | %
|Gasoline revenue                                  |  | 62.5              |   |  | 59.2              |   |  | 63.3              |  
|Merchandise revenue                               |  | 37.5              |   |  | 40.8              |   |  | 36.7              |  
|Cost of sales                                     |  | 81.5              |   |  | 80.9              |   |  | 81.4              |  
|                                                  |  |                   |   |  |                   |   |  |                   |  
|Gross profit                                      |  | 18.5              |   |  | 19.1              |   |  | 18.6              |  
|Gasoline gross profit                             |  | 5.4               |   |  | 4.9               |   |  | 5.3               |  
|Merchandise gross profit                          |  | 13.1              |   |  | 14.2              |   |  | 13.3              |  
|Operating, general and administrative expenses    |  | 13.8              |   |  | 14.7              |   |  | 14.0              |  
|Restructuring and other changes                   |  | 0.2               |   |  |                  |   |  |                  |  
|Depreciation and amortization                     |  | 2.4               |   |  | 2.2               |   |  | 2.0               |  
|                                                  |  |                   |   |  |                   |   |  |                   |  
|Income from operations                            |  | 2.1               |   |  | 2.2               |   |  | 2.6               |  
|Interest and miscellaneous expense                |  | (2.2              | ) |  | (2.1              | ) |  | (1.8              | )
|                                                  |  |                   |   |  |                   |   |  |                   |  
|Income (loss) before taxes                        |  | (0.1              | ) |  | 0.1               |   |  | 0.8               |  
|Tax expense                                       |  | (0.0              | ) |  | (0.0              | ) |  | (0.3              | )
|                                                  |  |                   |   |  |                   |   |  |                   |  
|Income (loss) before cumulative effect adjustment |  | (0.1              | ) |  | 0.1               |   |  | 0.5               |  
|Cumulative effect adjustment, net of tax          |  |                  |   |  |                  |   |  | (0.1              | )
|                                                  |  |                   |   |  |                   |   |  |                   |  
|Net income (loss)                                 |  | (0.1              | ) |  | 0.1               |   |  | 0.4               |  
|                                                  |  |                   |   |  |                   |   |  |                   |  



The table below
provides a summary of our selected financial data for fiscal 2001, 2002 and 2003. In the table, dollars are in millions, except per gallon data.



|                             |  |                   |         |    |                   |   |         |                   |  |   |         |  
|---------------------------- |  | ----------------- | ------- | -- | ----------------- | - | ------- | ----------------- |  | - | ------- | -
|                             |  | Fiscal Year Ended |        
|                             |  | September 27,2001 |         |    | September 26,2002 |   |         | September 25,2003 | 
|Merchandise margin           |  |                   | 34.9    | %  |                   |   | 34.9    | %                 |  |   | 36.2    | %
|Gasoline gallons             |  |                   | 1,142.4 |    |                   |   | 1,171.9 |                   |  |   | 1,170.3 |  
|Gasoline margin per gallon   |  | $                 | 0.1246  |    |                   | $ | 0.1037  |                   |  | $ | 0.1241  |  
|Gasoline retail per gallon   |  | $                 | 1.45    |    |                   | $ | 1.25    |                   |  | $ | 1.49    |  
|                             |  |                   |        
|Comparable store data:       |  |                   |         |    |                   |   |         |                   |  |   |         |  
|Merchandise sales %          |  |                   | (0.8    | )% |                   |   | 2.8     | %                 |  |   | 0.9     | %
|Gasoline gallons %           |  |                   | (3.8    | )% |                   |   | 1.5     | %                 |  |   | 0.7     | %
|                             |  |                   |        
|Number of stores:            |  |                   |         |    |                   |   |         |                   |  |   |         |  
|End of period                |  |                   | 1,324   |    |                   |   | 1,289   |                   |  |   | 1,258   |  
|Weighted-average store count |  |                   | 1,325   |    |                   |   | 1,305   |                   |  |   | 1,275   |  



Fiscal 2003 Compared to Fiscal
2002



Total
Revenue.    Total revenue for fiscal 2003 was $2.8 billion compared to $2.5 billion for fiscal 2002, an increase of $266.8 million or 10.7%. The increase in total revenue is primarily due to a 19.2% increase in our average
retail price of gasoline gallons sold, comparable store increases in merchandise sales of $9.1 million and in gasoline gallons of 7.6 million. The impact of these factors was partially offset by lost volume from 35 closed
stores.



16



---

##### Table of Contents

Merchandise Revenue.    Total merchandise revenue for fiscal 2003 and fiscal
2002 was $1.0 billion. Merchandise revenue is consistent from fiscal 2002 to fiscal 2003 as a result of comparable store merchandise sales increase of 0.9% offset by lost volume from closed stores of approximately $12.9 million. This
comparable store sales increase has been achieved despite significant retail price deflation in the cigarette category. With respect to the cigarette category, while the volume of cartons sold per store increased, the negative impact of cigarette
retail price deflation was approximately 1.8% on merchandise sales. This deflation of cigarette retail prices during the period did not impact our gross dollar margin on the sale of cigarettes. Sales of tobacco products comprised approximately
one-third of our merchandise sales during fiscal 2003.



Gasoline Revenue and Gallons.    Total gasoline revenue for fiscal 2003 was $1.7 billion compared to $1.5 billion for fiscal 2002, an increase of $269.9 million or 18.4%. The increase in gasoline revenue is
primarily due to higher average gasoline retail prices and a comparable store gallon volume increase of 0.7%. In fiscal 2003, our average retail price of gasoline was $1.49 per gallon, which represents a 24.0 cent per gallon or 19.2% increase in
average retail price from fiscal 2002.



In fiscal 2003,
gasoline gallon volume was 1.2 billion gallons, a decrease of 1.7 million gallons or 0.1% from fiscal 2002. The decrease in gasoline gallons was primarily due to lost volume from 34 closed stores of 14.2 million gallons, partially offset by the
comparable store gallon volume increase of 0.7%. We believe that the fiscal 2003 comparable store gallon increase was driven by a more consistent and competitive gasoline pricing philosophy as well as the positive impact that our upgrade and remodel
activity has had on gallon volume.



Total Gross
Profit.    Our fiscal 2003 gross profit was $510.8 million compared to $475.4 million for fiscal 2002, an increase of $35.4 million or 7.4%. The increase in gross profit is primarily attributable to increases in gasoline
gross profit per gallon and merchandise margin, coupled with comparable store volume increases.



Merchandise Gross Profit and Margin.    Merchandise gross profit was $365.5 million for fiscal 2003 compared to $353.9 million
for fiscal 2002, an increase of $11.7 million or 3.3%. This increase is primarily attributable to the increase in merchandise revenue discussed above, coupled with a 130 basis points increase in our merchandise margin. Our merchandise gross margin
increased to 36.2% for fiscal 2003, primarily driven by the retail price deflation in the cigarette category.



Gasoline Gross Profit and Margin Per Gallon.    Gasoline gross profit was $145.3 million for fiscal 2003 compared to $121.5
million for fiscal 2002, an increase of $23.7 million or 19.5%. The increase is primarily attributable to a 2.0 cents per gallon increase in gasoline margin, partially offset by the lost volume from closed stores. Gasoline gross profit per gallon
was 12.4 cents in fiscal 2003 compared to 10.4 cents in fiscal 2002. The increase was due to our more advantageous gas supply contracts, a more favorable retail gasoline environment and our ongoing initiatives to better manage gasoline pricing and
inventories.



Operating, General and Administrative
Expenses.    Operating expenses for fiscal 2003 were $385.6 million compared to $367.3 million for fiscal 2002, an increase of $18.3 million or 5.0%. The increase is primarily attributable to the write-off of deferred
financing costs of approximately $2.9 million related to our debt refinancing completed in April 2003, higher insurance costs of approximately $3.1 million, larger losses on asset disposals and closed store activity of approximately $5.9 million and
increased employee benefit costs of approximately $1.7 million.



Income from Operations.    Income from operations for fiscal 2003 was $70.8 million compared to $53.8 million for fiscal 2002, an increase of $17.0 million or 31.5%. The increase is primarily attributable to
the increases in gasoline and merchandise gross margins and higher commission income. These increases were partially offset by a change in accounting estimate related to estimated useful lives of certain gasoline imaging assets and the increase in
operating, general and administrative costs discussed above. The change in accounting estimate resulted in an increase in depreciation expense of approximately $3.4 million in fiscal 2003.



17



---

##### Table of Contents

Adjusted EBITDA.    Adjusted EBITDA is defined by us as net income before
interest expense, income taxes, depreciation and amortization and cumulative effect of change in accounting principle. Adjusted EBITDA for fiscal 2003 was $128.0 million compared to $108.8 million for fiscal 2002, an increase of $19.2 million or
17.6%. The increase is primarily due to the items discussed above.



Adjusted EBITDA is not a measure of performance under accounting principles generally accepted in the United States of America, and should not be considered as a substitute for net income, cash flows from operating activities and other
income or cash flow statement data. We have included information concerning Adjusted EBITDA as one measure of our cash flow and historical ability to service debt and because we believe investors find this information useful because it reflects the
resources available for strategic opportunities including, among others, to invest in the business, make strategic acquisitions and to service debt. Adjusted EBITDA as defined by us may not be comparable to similarly titled measures reported by
other companies.



The following table contains a reconciliation
of Adjusted EBITDA to net cash provided by operating activities and cash flows from investing and financing activities:

|                                                                                                                                                                                                                       |  |                        |         |   |                    |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ------------------ | - | ------- | -
|                                                                                                                                                                                                                       |  | Fiscal Year Ended      |        
|                                                                                                                                                                                                                       |  | September 26,2002      |         |   | September 25, 2003 |  
|                                                                                                                                                                                                                       |  | (amounts in thousands) |        
|Adjusted EBITDA                                                                                                                                                                                                        |  | $                      | 108,831 |   |                    | $ | 128,039 |  
|Interest expense                                                                                                                                                                                                       |  |                        | (51,646 | ) |                    |   | (49,265 | )
|Adjustments to reconcile net loss to net cash provided by operating activities (other than depreciation and amortization, provision for
deferred income taxes and cumulative effect of change in accounting principle) |  |                        | 3,983   |   |                    |   | 9,016   |  
|Changes in operating assets and liabilities, net:                                                                                                                                                                      |  |                        |         |   |                    |   |         |  
|Assets                                                                                                                                                                                                                 |  |                        | (7,463  | ) |                    |   | (1,796  | )
|Liabilities                                                                                                                                                                                                            |  |                        | 279     |   |                    |   | (17,730 | )
|                                                                                                                                                                                                                       |  |                        |         |   |                    |   |         |  
|Net cash provided by operating activities                                                                                                                                                                              |  | $                      | 53,984  |   |                    | $ | 68,264  |  
|Net cash used in investing activities                                                                                                                                                                                  |  | $                      | (20,313 | ) |                    | $ | (22,357 | )
|Net cash used in financing activities                                                                                                                                                                                  |  | $                      | (42,046 | ) |                    | $ | (15,242 | )



Interest Expense
(seeLiquidity and Capital Resources).    Interest expense is primarily interest on borrowings under our senior credit facility and senior subordinated notes. Interest expense for fiscal 2003 was $49.3
million compared to $51.6 million for fiscal 2002, a decrease of $2.4 million or 4.6%. The decrease is primarily attributable to $3.4 million in income from the fair market value changes in our non-qualifying derivatives for fiscal 2003 compared to
$926 thousand of expense in fiscal 2002.



Income Tax
Expense.    We recorded income tax expense of $9.4 million in fiscal 2003 compared to $1.1 million for fiscal 2002. The increase in income tax expense was primarily attributable to the $21.4 million increase in income before
taxes. Consistent with fiscal 2002, our effective tax rate was 38.5%.



Cumulative Effect Adjustment.    We recorded a one-time cumulative effect charge of $3.5 million (net of taxes of $2.2 million) relating to the disposal of our underground storage tanks in accordance with the
adoption of SFAS No. 143 during the first quarter of fiscal 2003.



Net Income or Loss.    Net income for fiscal 2003 was $11.5 million compared to $1.8 million for fiscal 2002. The increase is due to the items discussed above.



Fiscal 2002 Compared to Fiscal 2001



Total Revenue.    Total revenue for fiscal 2002
was $2.5 billion compared to $2.6 billion for fiscal 2001, a decrease of $159.5 million or 6.0%. The decrease in total revenue is primarily due to a 13.8% decrease in our



18



---

##### Table of Contents

average retail price of gasoline gallons sold and lost volume from 38 closed stores. The impact of these factors was partially offset by comparable store
increases in merchandise sales and gasoline gallons of 2.8% and 1.5%, respectively, as well as the effect of the full year impact of our fiscal 2001 acquisitions.



Merchandise Revenue.    Total merchandise revenue for fiscal 2002 was $1.0 billion compared to
$990.3 million for fiscal 2001, an increase of $22.5 million or 2.3%. The increase in merchandise revenue is primarily due to a comparable store merchandise sales increase of 2.8% and the effect of a full year of merchandise revenue from our fiscal
2001 acquisitions. The impact of these factors was partially offset by lost volume from closed stores of $15.7 million. The comparable store volume increases were primarily due to our efforts to enhance and reposition our merchandise offerings, to
increase promotional activity and to more aggressively price key categories in an effort to drive customer traffic.



Gasoline Revenue and Gallons.    Total gasoline revenue for fiscal 2002 was $1.5 billion compared to $1.7 billion for fiscal
2001, a decrease of $182.0 million or 11.0%. The decrease in gasoline revenue is primarily due to lower average gasoline retail prices and lost volume from closed stores of 11.9 million gallons. In fiscal 2002, our average retail price of gasoline
was $1.25 per gallon, which represents a 20.0 cent per gallon or 13.8% decrease in average retail price from fiscal 2001. The impact of the decline in average retail price and fewer retail locations was partially offset by gasoline gallon comparable
store volume increases of 1.5%.



In fiscal 2002, gasoline
gallon volume was 1.2 billion gallons, an increase of 29.6 million gallons or 2.6% over fiscal 2001. The increase in gasoline gallons was primarily due to the effect of a full year of gasoline volume from fiscal 2001 acquisitions and a comparable
store gasoline volume increase of 1.5%. The fiscal 2002 comparable store gallon increase was primarily due to a more consistent and competitive gasoline pricing philosophy as well as the impact our re-branding and re-imaging activity had on gallon
volume.



Total Gross Profit.    Our
fiscal 2002 gross profit was $475.4 million compared to $487.6 million for fiscal 2001, a decrease of $12.2 million or 2.5%. The decrease in gross profit is primarily attributable to declines in gasoline gross profit per gallon, partially offset by
comparable store volume increases of $25.8 million in merchandise revenue and 15.7 million gasoline gallons.



Merchandise Gross Profit and Margin.    Merchandise gross profit was $353.9 million for fiscal 2002 compared to $345.3 million
for fiscal 2001, an increase of $8.5 million or 2.5%. This increase is primarily attributable to the increase in merchandise revenue discussed above. Merchandise gross margin for fiscal 2002 was comparable to fiscal 2001 at 34.9%.



Gasoline Gross Profit and Margin Per
Gallon.    Gasoline gross profit was $121.5 million for fiscal 2002 compared to $142.3 million for fiscal 2001, a decrease of $20.8 million or 14.6%. The decrease is primarily attributable to a 2.1 cents per gallon decline in
gasoline margin, and was partially offset by the comparable store gasoline gallon increase of 1.5% and the contribution of stores acquired or opened since September 28, 2000. Gasoline gross profit per gallon was 10.4 cents in fiscal 2002 compared to
12.5 cents in fiscal 2001. The decrease was due to fluctuations in petroleum markets, particularly in the second and fourth quarters of fiscal 2002, competition factors influenced by general market and economic indicators as well as our efforts to
maintain a more consistent and competitive gasoline pricing philosophy.



Operating, General and Administrative Expenses.    Operating expenses for fiscal 2002 were $367.3 million compared to $364.1 million for fiscal 2001, an increase of $3.2 million or 0.9%. The increase in operating
expenses is primarily due to increases in lease expense of $1.9 million and insurance expense of $3.4 million as well as larger losses on asset disposals and closed store activity of approximately $1.5 million. The increases associated
with these factors were partially offset by savings associated with our restructuring initiatives.



Income from Operations.    Income from operations for fiscal 2002 was $53.9 million compared to $55.2 million for fiscal 2001,
a decrease of $1.3 million or 2.4%. The decrease was primarily attributable to a 2.1 cents decline in gasoline margin per gallon as well as the operating, general and administrative expense variances



19



---

##### Table of Contents

discussed above. These decreases were partially offset by the positive commission income and merchandise gross profit variances discussed above as well as a
$9.3 million decrease in depreciation and amortization expense primarily as a result of the adoption of SFAS No. 142 and the absence of $4.8 million in restructuring charges incurred in fiscal 2001.



Adjusted EBITDA.    Adjusted EBITDA is defined by
us as net income before interest expense, income taxes, depreciation and amortization and cumulative effect of change in accounting principle. Adjusted EBITDA for fiscal 2002 was $108.8 million compared to $120.5 million for fiscal 2001, a decrease
of $11.7 million or 9.7%. The decrease is primarily due to the items discussed above.



Adjusted EBITDA is not a measure of performance under accounting principles generally accepted in the United States of America, and should not be considered as a substitute for net income, cash flows from operating
activities and other income or cash flow statement data. We have included information concerning Adjusted EBITDA as one measure of our cash flow and historical ability to service debt and because we believe investors find this information useful
because it reflects the resources available for strategic opportunities including, among others, to invest in the business, make strategic acquisitions and to service debt. Adjusted EBITDA as defined by us may not be comparable to similarly titled
measures reported by other companies.



The following table
contains a reconciliation of Adjusted EBITDA to net cash provided by operating activities and cash flows from investing and financing activities:



|                                                                                                                                                                                                                       |  |                        |         |   |                    |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ------------------ | - | ------- | -
|                                                                                                                                                                                                                       |  | Fiscal Year Ended      |        
|                                                                                                                                                                                                                       |  | September 27,2001      |         |   | September 26, 2002 |  
|                                                                                                                                                                                                                       |  | (amounts in thousands) |        
|Adjusted EBITDA                                                                                                                                                                                                        |  | $                      | 120,491 |   |                    | $ | 108,831 |  
|Interest expense                                                                                                                                                                                                       |  |                        | (58,731 | ) |                    |   | (51,646 | )
|Adjustments to reconcile net loss to net cash provided by operating activities (other than depreciation and amortization, provision for
deferred income taxes and cumulative effect of change in accounting principle) |  |                        | 8,592   |   |                    |   | 3,983   |  
|Changes in operating assets and liabilities, net:                                                                                                                                                                      |  |                        |         |   |                    |   |         |  
|Assets                                                                                                                                                                                                                 |  |                        | 9,778   |   |                    |   | (7,463  | )
|Liabilities                                                                                                                                                                                                            |  |                        | (3,428  | ) |                    |   | 279     |  
|                                                                                                                                                                                                                       |  |                        |         |   |                    |   |         |  
|Net cash provided by operating activities                                                                                                                                                                              |  | $                      | 76,702  |   |                    | $ | 53,984  |  
|Net cash used in investing activities                                                                                                                                                                                  |  | $                      | (93,947 | ) |                    | $ | (20,313 | )
|Net cash (used in) provided by financing activities                                                                                                                                                                    |  | $                      | 14,502  |   |                    | $ | (42,046 | )



Interest
Expense.Interest expense in fiscal 2002 was $51.6 million compared to $58.7 million for fiscal 2001, a decrease of $7.1 million or 12.1%. In fiscal 2002, interest expense was primarily related to interest costs of $20.5
million on our senior subordinated notes and, $19.1 million on our senior credit facility, $8.8 million in settlements on our interest rate swaps, $2.2 million in capital lease interest and $926 thousand in fair value adjustments associated with our
non-qualifying derivative instruments. The decrease in interest expense is primarily attributable to a general decline in interest rates, the decrease in our weighted average outstanding borrowings and the change in fair market value of our
non-qualifying interest rate derivatives, partially offset by an increase in our interest rate swap settlements of $7.0 million.



Income Tax Expense.    We recorded income tax expense of $1.1 million in fiscal 2002 compared to $871 thousand for fiscal 2001.
The increase in income tax expense was primarily attributable to the increase in income before taxes partially offset by a decline in our effective tax rate to 38.5%. The change in our effective tax rate for fiscal 2002 was primarily due to the
elimination of non-deductive goodwill amortization expense associated with our adoption of SFAS No. 142.



Net Income or Loss.    Net income for fiscal 2002 was $1.8 million compared to a net loss of $2.7 million for fiscal 2001, an
increase of $4.5 million. The increase is due to the items discussed above.



20



---

##### Table of Contents

Liquidity and Capital Resources



Cash Flows from Operations.Due to the nature of our business, substantially all sales are for
cash and cash provided by operations is our primary source of liquidity. We rely primarily upon cash provided by operating activities, supplemented as necessary from time to time by borrowings under our revolving credit facility, sale-leaseback
transactions, and asset dispositions to finance our operations, pay interest and principal payments and fund capital expenditures. Cash provided by operations for fiscal 2003 totaled $68.3 million, for fiscal 2002 totaled $54.0 million and for
fiscal 2001 totaled $76.7 million. Our increase in net cash provided by operating activities for fiscal 2003 over fiscal 2002 is primarily attributable to the increase in gasoline and merchandise gross profit and its impact on operating income and
Adjusted EBITDA. We had $72.9 million of cash and cash equivalents on hand at September 25, 2003.



Capital Expenditures.    Gross capital expenditures (excluding all acquisitions) for fiscal 2003 were $28.2 million. Our
capital expenditures are primarily expenditures for store improvements, store equipment, new store development, information systems and expenditures to comply with regulatory statutes, including those related to environmental matters. We finance
substantially all capital expenditures and new store development through cash flow from operations, proceeds from sale-leaseback transactions and asset dispositions and vendor reimbursements.



Our sale-leaseback program includes the packaging of our owned convenience
store real estate, both land and buildings, for sale to investors in return for their agreement to lease the property back to us under long-term leases. We retain ownership of all personal property and gasoline marketing equipment. Our leases are
generally operating leases at market rates with lease terms between fifteen and twenty years plus several renewal option periods. The lease payment is based on market rates applied to the cost of each respective property. Our senior credit facility
limits or caps the proceeds of sale-leasebacks that we can use to fund our operations or capital expenditures. We received $2.3 million in proceeds from sale-leaseback transactions in fiscal 2003 and $6.2 million during fiscal 2002.



In fiscal 2003, we had proceeds of $9.4 million including asset dispositions
($6.3 million), vendor reimbursements ($0.9 million) and sale-leaseback transactions ($2.3 million). As a result, our net capital expenditures, excluding all acquisitions, for fiscal 2003 were $18.9 million. We anticipate that net capital
expenditures for fiscal 2004 will be approximately $40.0 million.



Cash Flows from Financing Activities.    For fiscal 2003, net cash used in financing activities was $15.2 million. The net cash used was primarily the result of scheduled principal payments totaling $23.2 million
and financing costs associated with the refinancing of our senior credit facility totaling $7.3 million. This decline was partially offset by new borrowings of $16.0 million under our senior credit facility. At September 25, 2003, our long-term debt
consisted primarily of $297.5 million in loans under our senior credit facility and $200.0 million of our 101⁄4% senior subordinated notes. See Contractual Obligations and Commitments for a summary of our long-term debt
principal amortization commitments.



Senior Credit
Facility.    On April 14, 2003, we entered into a new senior secured credit facility, which consisted of a $253.0 million first lien term loan, a $51.0 million second lien term loan and a $52.0 million revolving credit
facility (with the right, at our election through April 14, 2005, to increase the revolving credit facility by up to an additional $18.0 million, subject to participation by the existing lenders or new lenders we invite to participate), each
maturing March 31, 2007. Proceeds from the new senior secured credit facility were used to repay all amounts outstanding under the previous senior credit facility and loan origination costs. The term loans were issued with an original issue discount
of $4.6 million, which will be amortized over the life of the agreement. As of September 25, 2003, our outstanding term loan balance, net of unamortized original issue discount, was $297.5 million.



Subsequent to September 25, 2003, we entered into an amendment to our senior
credit facility to increase the borrowings under the first lien term loan by $80.0 million. The proceeds from the term loan were used to fund the Golden Gallon® acquisition. Also, subsequent to September 25, 2003, we increased the availability under our revolving credit facility
by $4.0 million to $56.0 million.



21



---

##### Table of Contents

Our senior credit facility bears interest at variable interest rates. The credit facility permits us to
choose between two basic rates for a given loan:



| |  | a rate based on the greater of the prime rate of interest in effect on the day the loan is made or the federal funds rate in effect on the day the loan is made plus 1⁄2 of 1% and
an additional margin, as described below; or
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | a rate based on the London interbank offered rate, or LIBOR, plus an additional margin as described below.
| | - | ----------------------------------------------------------------------------------------------------------



The actual interest rate we pay depends on whether the loan is a first lien
term loan, a second lien term loan or a revolving credit loan. The credit facility requires us to pay, in addition to the basic interest rate, an annual margin ranging from 3.00% to 6.50%, depending on the type of loan involved. We have from time to
time entered into certain hedging agreements in an effort to mitigate the fluctuations in interest rates and manage our interest rate risk, and anticipate that we will continue to use hedging agreements for these purposes in the future.



Our senior credit facility is secured by substantially all of our assets,
other than our leased real property, and guaranteed by our subsidiaries.



Our senior credit facility contains covenants restricting our ability and the ability of any of our subsidiaries to, among other things and subject to various exceptions:



| |  | incur additional indebtedness or issue letters of credit;
| | - | ---------------------------------------------------------



| |  | declare dividends or redeem or repurchase capital stock;
| | - | --------------------------------------------------------



| |  | prepay, redeem or purchase subordinated debt;
| | - | ---------------------------------------------



| |  | incur liens;
| | - | ------------



| |  | make loans and investments;
| | - | ---------------------------



| |  | make capital expenditures;
| | - | --------------------------



| |  | engage in mergers, acquisitions, asset sales or sale-leaseback transactions; and
| | - | --------------------------------------------------------------------------------



| |  | engage in transactions with affiliates.
| | - | ---------------------------------------



Our senior credit facility also contains financial ratios and tests that must be met with respect to maximum pro forma leverage ratios, minimum fixed
charge coverage ratios, minimum pro forma EBITDA, as defined in the agreement, and maximum capital expenditures. As of December 1, 2003, we have satisfied all financial ratios and tests under our senior credit facility. The senior credit
facility requires us to:



| |  | comply with maximum consolidated pro forma leverage ratios on a sliding scale ranging from a high of 5.00 to 1.00 to a low of 3.75 to 1.00 over quarterly periods between April 14,
2003 and March 31, 2006 and thereafter;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | maintain a consolidated fixed charge coverage ratio of at least 1.00 to 1.00 on a quarterly basis;
| | - | --------------------------------------------------------------------------------------------------



| |  | maintain minimum consolidated pro forma EBITDA for the trailing four quarters, of $115 million (quarters through March 25, 2004), $120 million (quarters through December 30, 2004)
and $125 million (thereafter); and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | limit consolidated capital expenditures in fiscal 2004 to $48.0 million and for fiscal years after 2004 to $44.0 million (plus unspent amounts that are permitted to be carried
forward from prior fiscal years up to a limit of 25% of the previous years dollar limit).
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The senior credit facility limits us to paying aggregate consideration of $20,000,000 for any acquisition and requires that we remain in pro forma
compliance with all of the financial ratios contained in the credit



22



---

##### Table of Contents

facility after giving effect to the acquisition. In addition, the senior credit agreement includes customary events of default, including payment defaults on
more than $5.0 million of debt, judgments exceeding $5.0 million, and upon a change of control. Under the credit agreement, a change of control occurs if among other things (a) any person other than a permitted holder (our current largest
stockholder) holds more than 30% of the voting power of our common stock unless the permitted holder owns a greater percentage than such person or (b) permitted holders hold less than 35% of our common stock or (c) a change of control as defined by
the indenture governing the senior subordinated notes occurs.



Our $56.0 million revolving credit facility is available to fund working capital, finance general corporate purposes and support the issuance of standby letters of credit. Borrowings under the revolving credit facility are limited by our
outstanding letters of credit of approximately $30.0 million. Furthermore, the revolving credit facility limits our total outstanding letters of credit to $45.0 million. As of September 25, 2003, we had no borrowings outstanding under the revolving
credit facility, we had approximately $22.0 million in available borrowing capacity and $30 million of standby letters of credit were issued under the facility.



The first lien term loans amortize on a quarterly basis with balloon payments at maturity. In addition, we are required to prepay the loans under the
credit facility with (a) the net cash proceeds of most debt issuances, (b) 50% of the net cash proceeds received by us from any issuance of capital stock, (c) the net cash proceeds of asset sales (unless the proceeds are reinvested in the business)
and (d) 50% of excess cash flow as defined in the credit facility (beginning with the fiscal quarter ending December 30, 2004).



Senior Subordinated Notes.    We have outstanding $200.0 million of 101/4% senior subordinated notes due October 15, 2007. Interest on the senior subordinated notes is due on October 15 and April 15 of each year. Our senior
subordinated notes contain covenants that, among other things and subject to various exceptions, restrict our ability and any restricted subsidiarys ability to:



| |  | pay dividends, make distributions or repurchase stock, except, (a) assuming the ratio of our pro forma EBITDA to fixed charges is at least 2 to 1, in amounts not in excess of the
sum of 50% of our net income and 100% of the net proceeds of equity issuances or issuances of convertible debt which has been converted and (b) in amounts not in excess of $5.0 million;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | issue stock of subsidiaries;
| | - | ----------------------------



| |  | make investments in non-affiliated entities;
| | - | --------------------------------------------



| |  | incur liens to secure debt which is equal to or subordinate in right of payment to the senior subordinated notes, unless the notes are secured on an equal and ratable basis (or
senior basis) with the obligations so secured;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | enter into transactions with affiliates;
| | - | ----------------------------------------



| |  | enter into sale-leaseback transactions; or
| | - | ------------------------------------------



| |  | engage in mergers or consolidations.
| | - | ------------------------------------



We can incur debt under the senior subordinated notes if the ratio of our pro forma EBITDA to fixed charges, after giving effect to such incurrence, is at
least 2 to 1. Even if we do not meet this ratio we can incur:



| |  | debt under our bank credit facility in an amount not to exceed (a) up to $50.0 million for acquisitions plus (b) the greater of $45.0 million or 4.0% times our annualized revenues;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | capital leases or purchase money debt in amounts not to exceed in the aggregate 10% of our tangible assets at the time of incurrence;
| | - | -------------------------------------------------------------------------------------------------------------------------------------



| |  | intercompany debt;
| | - | ------------------



| |  | debt existing on the date the senior subordinated notes were issued;
| | - | --------------------------------------------------------------------



| |  | up to $15.0 million in any type of debt; or
| | - | -------------------------------------------



23



---

##### Table of Contents

| |  | debt for refinancing of the above described debt, so long as such debt is subordinated to the senior subordinated notes to the same extent as the debt refinanced and meets certain
other requirements.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The senior subordinated
notes also place conditions on the terms of asset sales or transfers and require us either to reinvest the cash proceeds of an asset sale or transfer, or, if we do not reinvest those proceeds, to pay down our senior credit facility or other senior
debt or to offer to redeem our senior subordinated notes with any asset sale proceeds not so used. In addition, upon the occurrence of a change of control, we will be required to offer to purchase all of the outstanding senior subordinated notes at
a price equal to 101% of their principal amount plus accrued and unpaid interest to the date of redemption. Under the indenture governing the senior subordinated notes, a change of control is deemed to occur if among other things (a) any person,
other than a permitted holder (our current largest stockholder), becomes the beneficial owner of 50% or more of our common stock or (b) any person becomes the owner of more than 33% of our common stock and the permitted holders own a lesser
percentage of our company than such other person and do not have the right or ability to elect a majority of the board. The senior subordinated notes may be redeemed, in whole or in part, at a redemption price that is currently 103.417% and
decreases to 101.708% after October 15, 2004 and 100.0% after October 15, 2005.



The senior subordinated notes contain standard events of default, including acceleration of other debt aggregating $10.0 million, default in the payment at final maturity of other debt aggregating $10.0 million, and
the imposition of final judgments in excess of $10.0 million.



Shareholders Equity.    As of September 25, 2003, our shareholders equity totaled $128.7 million. The increase of $13.5 million in shareholders equity from September 26, 2002 is primarily
attributable to fiscal 2003 net income of $11.5 million and a decrease of $1.4 million in accumulated other comprehensive deficit related to the fair value changes in our qualifying derivative financial instruments.



Long Term Liquidity.    We believe that
anticipated cash flows from operations and funds available from our existing revolving credit facility, together with cash on hand and vendor reimbursements, will provide sufficient funds to finance our operations at least for the next 12 months.
Changes in our operating plans, lower than anticipated sales, increased expenses, additional acquisitions or other events may cause us to need to seek additional debt or equity financing in future periods. There can be no guarantee that financing
will be available on acceptable terms or at all. Additional equity financing could be dilutive to the holders of our common stock; debt financing, if available, could impose additional cash payment obligations and additional covenants and operating
restrictions. We have no current plans to seek any such additional financing.



Contractual Obligations and Commitments



Contractual Obligations.    The following table shows our expected long-term debt payment schedule, future capital lease commitments (including principal and interest) and future operating lease commitments as of
September 25, 2003:



|                              |  |                        |        |             |   |             |  |             |        |             |   |            |  |       |         |  |   |         |  |   |          
|----------------------------- |  | ---------------------- | ------ | ----------- | - | ----------- |  | ----------- | ------ | ----------- | - | ---------- |  | ----- | ------- |  | - | ------- |  | - | ---------
|                              |  | Fiscal 2004            |        | Fiscal 2005 |   | Fiscal 2006 |  | Fiscal 2007 |        | Fiscal 2008 |   | Thereafter |  | Total
|                              |  | (Dollars in thousands)
|Long-term debt(1)             |  | $                      | 27,558 |             | $ | 16,029      |  | $           | 25,260 |             | $ | 232,751    |  | $     | 200,000 |  | $ |        |  | $ | 501,598  
|Capital lease obligations     |  |                        | 3,597  |             |   | 3,271       |  |             | 3,050  |             |   | 2,994      |  |       | 2,740   |  |   | 22,659  |  |   | 38,311   
|Operating leases(2)           |  |                        | 54,599 |             |   | 51,990      |  |             | 48,885 |             |   | 46,947     |  |       | 44,964  |  |   | 312,465 |  |   | 559,850  
|                              |  |                        |        |             |   |             |  |             |        |             |   |            |  |       |         |  |   |         |  |   |          
|Total contractual obligations |  | $                      | 85,754 |             | $ | 71,290      |  | $           | 77,195 |             | $ | 282,692    |  | $     | 247,704 |  | $ | 335,124 |  | $ | 1,099,759
|                              |  |                        |        |             |   |             |  |             |        |             |   |            |  |       |         |  |   |         |  |   |          

---

|(1) | On October 16, 2003, we increased our borrowings under our senior credit facility by $80.0 million. The annual principal obligations on the increased borrowings are $7.9 million in
fiscal 2004, $5.0 million in fiscal 2005, $8.0 million in fiscal 2006 and $59.1 million in fiscal 2007.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | On October 16, 2003, we financed the acquisition of 114 Golden Gallon® stores pursuant to a $94.5 million sale-leaseback transaction. The incremental annual rental expense on the related lease is $9.06 million in fiscal
2004, $9.45 million in each of fiscal 2005-2008 and an aggregate of $142.14 million from 2009 through 2023.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



24



---

##### Table of Contents

Letter of Credit Commitments.The following table shows the expiration
dates of our standby letters of credit issued under our senior credit facility as of September 25, 2003:



|                          |  |                        |        |             |   |       |  |   |       
|------------------------- |  | ---------------------- | ------ | ----------- | - | ----- |  | - | ------
|                          |  | Fiscal 2004            |        | Fiscal 2005 |   | Total
|                          |  | (Dollars in thousands)
|Standby letters of credit |  | $                      | 24,883 |             | $ | 5,083 |  | $ | 29,966



Environmental
Considerations.Environmental reserves of $13.8 million and $13.3 million as of September 25, 2003 and September 26, 2002, respectively, represent our estimates for future expenditures for remediation,
tank removal and litigation associated with 236 and 240 known contaminated sites, respectively, as a result of releases (e.g., overfills, spills and underground storage tank releases) and are based on current regulations, historical results
and certain other factors. We estimate that approximately $12.5 million of our environmental obligations will be funded by state trust funds and third party insurance. Our environmental reserve, dated as of September 25, 2003, does not include the
31 Golden Gallon® sites that were known to be
contaminated at the time of our October 2003 acquisition of Golden Gallon®. State trust funds, insurers or other third parties are responsible for the costs of remediation at all 31 Golden Gallon® sites. Also, as of September 25, 2003 and September 26, 2002 there were an additional 487 and 470 sites, respectively, that are known to be
contaminated and that are being remediated by third parties and therefore, the costs to remediate such sites are not included in our environmental reserve.



Florida environmental regulations require all single-walled underground storage tanks to be upgraded/replaced with secondary containment by December 31,
2009. In order to comply with these Florida regulations, we will be required to upgrade or replace underground storage tanks at approximately 185 locations. We anticipate that these capital expenditures will be approximately $16.5 million and will
begin during fiscal 2004. The ultimate costs incurred will depend on several factors including future store closures, changes in the number of locations upgraded or replaced and changes in the costs to upgrade or replace the underground storage
tanks.



Merchandise Supply
Agreement.    We have a distribution service agreement with McLane pursuant to which McLane is the primary distributor of traditional grocery products to our stores. We also purchase a significant percentage of the cigarettes
we sell from McLane. The agreement with McLane continues through October 10, 2008 and contains no minimum purchase requirements. We purchase products at McLanes cost plus an agreed upon percentage, reduced by any promotional allowances and
volume rebates offered by manufacturers and McLane. In addition, we received an initial service allowance, which is being amortized over the term of the agreement, and also receive additional per store service allowances, both of which are subject
to adjustment based on the number of stores in operation. Total purchases from McLane exceeded 50% of total merchandise purchases in fiscal 2003.



Gasoline Supply Agreements.    We have historically purchased our branded gasoline and diesel fuel under supply agreements with
major oil companies, including BP®, Chevron®, Citgo®, Shell®, Mobil® and Texaco®. The fuel purchased has generally been based on the stated rack price, or market price, quoted at each terminal. The initial terms of these supply agreements range from three to ten
years and generally contain minimum annual purchase requirements as well as provisions for various payments to us based on volume of purchases and vendor allowances. These agreements also, in certain instances, give the supplier a right of first
refusal to purchase certain assets that we may want to sell. In order to receive certain benefits under the contracts, we must first meet certain purchase levels. We have met such purchase levels and expect to continue to do so. We purchase the
majority of our private branded gallons from Citgo®.



During February 2003, we
signed new gasoline supply agreements with both BP®
and Citgo® to brand and supply most of our gasoline
products for the next five years.  After a conversion of approximately 760 locations over the next 18 months we expect that BP® will supply approximately 25% of our total gasoline volume, which will be sold under the BP®/Amoco® brand. Citgo® will supply both our private brand gasoline, which will be sold under our own Kangaroo® and other brands, and Citgo® branded gasoline. Including our private brand gasoline, we expect that after the
18-month conversion period, Citgo® will supply
approximately 60% of our total gasoline volume. The remaining locations, primarily in Florida, will remain branded and



25



---

##### Table of Contents

supplied by Chevron® or Exxon®. We entered into these branding and supply agreements to provide a more consistent operating identity while helping us in our efforts to maximize our gasoline gallon growth and gasoline gross profit dollars.



Other Commitments.    We make
various other commitments and become subject to various other contractual obligations which we believe to be routine in nature and incidental to the operation of the business. Management believes that such routine commitments and contractual
obligations do not have a material impact on our business, financial condition or results of operations. In addition, like all public companies, we expect that we may face slightly increased costs in order to comply with new rules and standards
relating to corporate governance and corporate disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and Nasdaq Stock Market rules. We intend to devote all reasonably necessary resources to comply with evolving standards.



Quarterly Results of Operations and Seasonality



The following table sets forth certain unaudited financial and operating data
for each fiscal quarter during fiscal 2001, fiscal 2002 and fiscal 2003. The unaudited quarterly information includes all normal recurring adjustments that we consider necessary for a fair presentation of the information shown. This information
should be read in conjunction with our consolidated financial statements and the related notes appearing elsewhere in this report. Due to the nature of our business and its reliance, in part, on consumer spending patterns in coastal, resort and
tourist markets, we typically generate higher revenues and gross margins during warm weather months in the southeastern United States, which fall within our third and fourth fiscal quarters. In the following table, dollars are in thousands, except
per gallon data.



|                                                            |  |                |         |    |                |   |         |                |  |   |                |    |  |              |         |   |               |   |         |              |  |   |               |   |  |               |         |   |                |   |         |               |  |   |                |    |  |   |         |    |  |   |         |    |  |   |         |  
|----------------------------------------------------------- |  | -------------- | ------- | -- | -------------- | - | ------- | -------------- |  | - | -------------- | -- |  | ------------ | ------- | - | ------------- | - | ------- | ------------ |  | - | ------------- | - |  | ------------- | ------- | - | -------------- | - | ------- | ------------- |  | - | -------------- | -- |  | - | ------- | -- |  | - | ------- | -- |  | - | ------- | -
|                                                            |  | Fiscal 2001(1) |         |    | Fiscal 2002(1) |   |         | Fiscal 2003(1) | 
|                                                            |  | First Quarter  |         |    | Second Quarter |   |         | ThirdQuarter   |  |   | Fourth Quarter |    |  | FirstQuarter |         |   | SecondQuarter |   |         | ThirdQuarter |  |   | FourthQuarter |   |  | First Quarter |         |   | Second Quarter |   |         | Third Quarter |  |   | Fourth Quarter |   
|Total Revenue                                               |  | $              | 634,243 |    |                | $ | 635,703 |                |  | $ | 707,957        |    |  | $            | 665,141 |   |               | $ | 577,357 |              |  | $ | 558,858       |   |  | $             | 677,564 |   |                | $ | 669,739 |               |  | $ | 645,353        |    |  | $ | 666,697 |    |  | $ | 704,486 |    |  | $ | 733,824 |  
|Merchandise revenue                                         |  |                | 234,036 |    |                |   | 235,328 |                |  |   | 261,449        |    |  |              | 259,506 |   |               |   | 243,044 |              |  |   | 236,843       |   |  |               | 267,871 |   |                |   | 265,028 |               |  |   | 243,420        |    |  |   | 234,978 |    |  |   | 263,393 |    |  |   | 267,907 |  
|Gasoline revenue                                            |  |                | 400,207 |    |                |   | 400,375 |                |  |   | 446,508        |    |  |              | 405,635 |   |               |   | 334,313 |              |  |   | 322,015       |   |  |               | 409,693 |   |                |   | 404,711 |               |  |   | 401,933        |    |  |   | 431,719 |    |  |   | 441,093 |    |  |   | 465,917 |  
|Gross Profit                                                |  |                | 118,945 |    |                |   | 116,260 |                |  |   | 128,796        |    |  |              | 123,642 |   |               |   | 115,479 |              |  |   | 108,100       |   |  |               | 127,025 |   |                |   | 124,798 |               |  |   | 125,991        |    |  |   | 113,129 |    |  |   | 135,017 |    |  |   | 136,667 |  
|Merchandise gross profit                                    |  |                | 83,128  |    |                |   | 84,445  |                |  |   | 89,891         |    |  |              | 87,843  |   |               |   | 83,135  |              |  |   | 82,708        |   |  |               | 93,602  |   |                |   | 94,408  |               |  |   | 86,477         |    |  |   | 84,320  |    |  |   | 94,974  |    |  |   | 99,749  |  
|Gasoline gross profit                                       |  |                | 35,817  |    |                |   | 31,815  |                |  |   | 38,905         |    |  |              | 35,799  |   |               |   | 32,344  |              |  |   | 25,392        |   |  |               | 33,423  |   |                |   | 30,390  |               |  |   | 39,514         |    |  |   | 28,809  |    |  |   | 40,043  |    |  |   | 36,918  |  
|Income from operations                                      |  |                | 16,397  |    |                |   | 5,955   |                |  |   | 20,111         |    |  |              | 12,730  |   |               |   | 13,111  |              |  |   | 4,626         |   |  |               | 20,503  |   |                |   | 15,612  |               |  |   | 20,343         |    |  |   | 7,708   |    |  |   | 21,870  |    |  |   | 20,910  |  
|Income (loss) before cumulative effect                      |  |                | 1,907   |    |                |   | (4,889  | )              |  |   | 3,616          |    |  |              | (3,290  | ) |               |   | 475     |              |  |   | (4,138        | ) |  |               | 4,064   |   |                |   | 1,403   |               |  |   | 4,920          |    |  |   | (2,353  | )  |  |   | 6,085   |    |  |   | 6,334   |  
|Income from operations as a percentage of full year         |  |                | 29.7    | %  |                |   | 10.8    | %              |  |   | 36.4           | %  |  |              | 23.1    | % |               |   | 24.3    | %            |  |   | 8.6           | % |  |               | 38.1    | % |                |   | 29.0    | %             |  |   | 28.7           | %  |  |   | 10.9    | %  |  |   | 30.9    | %  |  |   | 29.5    | %
|Comparable store merchandise sales increase (decrease)      |  |                | 0.8     | %  |                |   | (2.4    | )%             |  |   | (1.5           | )% |  |              | 0.3     | % |               |   | 1.7     | %            |  |   | 1.3           | % |  |               | 3.7     | % |                |   | 3.5     | %             |  |   | 1.5            | %  |  |   | 0.8     | %  |  |   | (0.5    | )% |  |   | 2.2     | %
|Comparable store sales gasoline gallons increase (decrease) |  |                | (6.1    | )% |                |   | (4.7    | )%             |  |   | (3.8           | )% |  |              | 0.8     | % |               |   | 0.8     | %            |  |   | 0.2           | % |  |               | 4.4     | % |                |   | 0.7     | %             |  |   | (0.7           | )% |  |   | (0.2    | )% |  |   | 0.6     | %  |  |   | 3.1     | %
|Merchandise gross profit as a percentage of total revenue   |  |                | 13.1    | %  |                |   | 13.3    | %              |  |   | 12.7           | %  |  |              | 13.2    | % |               |   | 14.4    | %            |  |   | 14.8          | % |  |               | 13.8    | % |                |   | 14.1    | %             |  |   | 13.4           | %  |  |   | 12.6    | %  |  |   | 13.5    | %  |  |   | 13.6    | %
|Gasoline gross profit per gallon                            |  |                | 0.132   |    |                |   | 0.114   |                |  |   | 0.134          |    |  |              | 0.119   |   |               |   | 0.112   |              |  |   | 0.090         |   |  |               | 0.111   |   |                |   | 0.101   |               |  |   | 0.139          |    |  |   | 0.104   |    |  |   | 0.133   |    |  |   | 0.120   |  

---

|(1) | Quarterly information has been restated. See Note 20.
|--- | -----------------------------------------------------



26



---

##### Table of Contents

Inflation



During fiscal 2003, wholesale gasoline fuel prices remained volatile, hitting a high of approximately $38 per barrel in March 2003 and a low of
approximately $25 per barrel in November 2002. Generally, we pass along wholesale gasoline cost changes to our customers through retail price changes. Gasoline price volatility has had an impact on total revenue, gross profit dollars and gross
profit percentage.



General CPI, excluding energy, increased
1.4% during fiscal 2003 and food at home CPI, which is most indicative of our merchandise inventory, increased similarly. While we have generally been able to pass along these price increases to our customers, we can make no assurances that
continued inflation will not have a material adverse effect on our sales and gross profit dollars.



Recently Adopted Accounting Standards



Effective December 27, 2002, we adopted the provisions of Emerging Issues Task Force, or EITF, No. 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor, or
EITF 02-16. EITF 02-16 requires that certain cash consideration received by a customer from a vendor is presumed to be a reduction of the prices of the vendors products or services and should, therefore, be characterized as a reduction of cost
of sales when recognized in the customers income statement. However, that presumption is overcome if certain criteria are met. If the presumption is overcome, the consideration would be presented as revenue if it represents a payment for goods
or services provided by the reseller to the vendor, or as an offset to an expense if it represents a reimbursement of a cost incurred by the reseller. The adoption of EITF 02-16 did not have a material impact on our results of operations or
classification of expenses.



Effective December 27, 2002, we
adopted the provisions of SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities,or SFAS No. 146, which requires companies to recognize costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. The adoption of SFAS No. 146 did not have a material impact on our results of operations and financial condition.



Effective September 27, 2002, we adopted the provisions of SFAS No. 143 which addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which
it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS No. 143 requires us to recognize an estimated liability associated
with the removal of our underground storage tanks. See Notes to Consolidated Financial StatementsNote 9Asset Retirement Obligations for a discussion of our adoption of SFAS No. 143.



Effective September 27, 2002, we adopted the provisions of SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets,or SFAS No. 144. This statement supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed ofand Accounting
Principles Board No. 30, Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and how the results of a discontinued operation are to be measured and presented. The adoption of SFAS No. 144 did not have a material impact on our results of operations
and financial condition.



Effective September 27, 2002, we
adopted the provisions of SFAS No. 145. SFAS No. 145 rescinds FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, or SFAS No. 4. SFAS No. 145 also rescinds and amends other existing authoritative pronouncements. SFAS
No. 145 eliminates SFAS No. 4 and, thus, the exception to applying APB Opinion No. 30, Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events



27



---

##### Table of Contents

and Transactions, or Opinion 30, to all gains and losses related to extinguishments of debt. As a result, gains and losses from extinguishment of debt
should be classified as extraordinary items only if they meet the criteria in Opinion 30. See Notes to Consolidated Financial StatementsNote 5 Long-Term Debt for our discussion on our debt extinguishment.



Effective September 27, 2002, we adopted the provisions of SFAS No. 148,
Accounting for Stock-Based CompensationTransition and Disclosure, or SFAS No. 148, an amendment of SFAS No. 123, Accounting for Stock-Based Compensation,or SFAS No. 123. SFAS No. 148 was issued to provide alternative
methods of transition for a voluntary change to the fair value based method of accounting for stock-based compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. We are following the disclosure requirements of SFAS No. 148 in our 2003 consolidated financial
statements.



In November 2002, the Financial Accounting
Standards Board, or FASB, issued FASB Interpretation, or FIN, 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, or FIN 45. This interpretation addresses the
disclosure requirements for guarantees and indemnification agreements entered into by an entity. FIN 45 requires that upon issuance of a guarantee, the entity (i.e., the guarantor) must recognize a liability for the fair value of the obligation it
assumes under the guarantee. The disclosure provisions of FIN 45 are effective for financial statements of interim or annual periods that end after December 15, 2002. The provisions of FIN 45 for initial recognition and measurement are to be applied
on a prospective basis to guarantees issued or modified after December 15, 2002, irrespective of the guarantors fiscal year-end. The guarantors previous accounting for guarantees that were issued before initial application of FIN 45 are
not required to be revised or restated to reflect the effect of the recognition and measurement provisions of FIN 45. The adoption of FIN 45 did not have a material impact on our results of operations and financial condition.



In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities,or SFAS No. 149, to provide clarification on the meaning of an underlying derivative, the characteristics of a derivative that contains financing components and the meaning of an initial
investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and
for hedging relationships designated after June 30, 2003. In addition, all provisions of SFAS No. 149 should be applied prospectively. The provisions of SFAS No. 149 that relate to Statement 133 Implementation Issues that have been effective for
fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. The adoption of SFAS No. 149 did not have a material impact on our results of operations and financial condition.



In May 2003, the FASB issued SFAS No. 150, Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and Equity,or SFAS No. 150. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. Some of the provisions of
SFAS No. 150 are consistent with the current definition of liabilities in FASB Concepts Statement No. 6, Elements of Financial Statements. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, thus we adopted the provisions of SFAS No. 150 for our fourth quarter beginning June 27, 2003. The adoption of this SFAS No. 150 did not have a
material impact on our results of operations and financial condition.



Recently Issued Accounting Standards Not Yet Adopted



In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entitiesan Interpretation of ARB No. 51, or FIN 46. This interpretation provides guidance related to identifying variable



28



---

##### Table of Contents

interest entities (previously known as special purpose entities or SPEs) and determining whether such entities should be consolidated. Certain disclosures
are required if it is reasonably possible that a company will consolidate or disclose information about a variable interest entity when it initially applies FIN 46. This interpretation will be effective for our first quarter beginning September 26,
2003. We have no investment in or contractual relationship or other business relationship with a variable interest entity and therefore the adoption of FIN 46 will not have any impact on our results of operations and financial condition. However, if
we enter into any such arrangement with a variable interest entity in the future (or an entity with which we currently have a relationship is reconsidered based on guidance in FIN 46 to be a variable interest entity), our results of operations and
financial condition will be impacted.



Critical Accounting Policies



We prepare our consolidated financial statements in
conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.



Critical accounting policies are those we believe are both most important to
the portrayal of our financial condition and results, and require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Judgments and
uncertainties affecting the application of those polices may result in materially different amounts being reported under different conditions or using different assumptions. We believe the following policies to be the most critical in understanding
the judgments that are involved in preparing our consolidated financial statements.



Environmental Liabilities and Related Receivables.    We account for the cost incurred to comply with federal and state environmental regulations as follows:



| |  | Environmental reserves reflected in the financial statements are based on internal and external estimates of costs to remediate sites relating to the operation of underground
storage tanks. Factors considered in the estimates of the reserve are the expected cost and the estimated length of time to remediate each contaminated site.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Deductibles and remediation costs not covered by state trust fund programs and third party insurance arrangements, and for which the timing of payments can be reasonably estimated,
are discounted using a ten-percent discount rate.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Reimbursement under state trust fund programs or third party insurers are recognized as receivables and a provision for uncollectible reimbursements is recorded based on historical
and expected collection rates. Our historical collection experience exceeds 95%. All recorded reimbursements are expected to be collected within a period of twelve to eighteen months after submission of the reimbursement claim. The adequacy of the
liability and uncollectible receivable reserve is evaluated quarterly and adjustments are made based on updated experience at existing sites, newly identified sites and changes in governmental policy.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Changes in laws and government regulation, the financial condition of the
state trust funds and third party insurers and actual remediation expenses compared to historical experience could significantly impact our statement of operations and financial position.



Revenue Recognition.    Revenues from our two primary product categories, gasoline and
merchandise, are recognized at the point of sale. We derive service revenue from lottery ticket sales, money orders, car washes, public telephones, amusement and video gaming and other ancillary product and service offerings, which are included in
merchandise revenue.



29



---

##### Table of Contents

Vendor Allowances and Rebates.    We receive payments for vendor allowances,
volume rebates and other supply arrangements in connection with various programs. Payments are recorded as a reduction to cost of sales or expenses to which the particular payment relates. Unearned payments are deferred and amortized as earned over
the term of the respective agreement.



Long-Lived Assets and
Closed Stores.    Long-lived assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. When an evaluation is required, the projected future
undiscounted cash flows due to each store are compared to the carrying value of the long-lived assets of that store to determine if a write-down to fair value is required.



Property and equipment of stores we are closing are written down to their estimated net realizable value at the time we
close such stores. If applicable, we provide for future estimated rent and other exit costs associated with the store closure, net of sublease income, using a discount rate to calculate the present value of the remaining rent payments on closed
stores. We estimate the net realizable value based on our experience in utilizing or disposing of similar assets and on estimates provided by our own and third-party real estate experts. Changes in real estate markets could significantly impact the
net realizable value from the sale of assets and rental or sublease income.



Insurance Liabilities.    We self-insure a significant portion of expected losses under our workers compensation and employee medical programs. Accrued liabilities have been recorded
based on our estimates of the ultimate costs to settle incurred and incurred but not reported claims. Our accounting policies regarding self-insurance programs include judgments and actuarial assumptions regarding economic conditions, the frequency
and severity of claims, claim development patterns and claim management and settlement practices. Significant changes in actual expenditures compared to historical experience rates as a result of increased medical costs or incidence rates could
significantly impact our statement of operations and financial position.



Goodwill Impairment.    We have adopted the provisions of SFAS No. 142, which requires allocating goodwill to each reporting unit and testing for impairment using a two-step approach. Based
on our current reporting structure, we have determined that we operate as one reporting unit and therefore have assigned goodwill at the enterprise level. Fair value is measured using a valuation based on market multiples, comparable transactions
and discounted cash flow methodologies. The goodwill impairment test is performed annually or whenever an event has occurred that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Should the enterprise
carrying value exceed the estimated fair market value we would have to perform additional valuations to determine if any goodwill impairment exists. Any impairment recognized will be recorded as a component of operating expenses.



Changes in the long-term economics of the gasoline and convenience store
markets, fluctuations in capital markets and competition could impact our fair value measurements which could significantly impact our statement of operations and financial position.



Derivative Financial Instruments.    We enter into interest rate swap and collar agreements to
modify the interest characteristics of our outstanding long-term debt and we have designated each qualifying instrument as a cash flow hedge. We formally document our hedge relationships, including identifying the hedge instruments and hedged items,
as well as our risk management objectives and strategies for entering into the hedge transaction. At hedge inception, and at least quarterly thereafter, we assess whether derivatives used to hedge transactions are highly effective in offsetting
changes in the cash flow of the hedged item. We measure effectiveness by the ability of the interest rate swaps to offset cash flows associated with changes in the variable LIBOR rate associated with our term loan facilities using the hypothetical
derivative method. To the extent the instruments are considered to be effective, changes in fair value are recorded as a component of other comprehensive income. To the extent there is any hedge ineffectiveness, any changes in fair value relating to
the ineffective portion are immediately recognized in earnings as interest expense. When it is determined that a derivative ceases to be a highly effective hedge, we discontinue hedge accounting, and subsequent changes in fair value of the hedge
instrument are recognized in earnings.



30



---

##### Table of Contents

The fair values of our interest rate swaps and collars are obtained from dealer quotes. These values
represent the estimated amount that we would receive or pay to terminate the agreement taking into account the difference between the contract rate of interest and rates currently quoted for agreements of similar terms and maturities.



Risk Factors



You should carefully consider the risks described below before making a decision to invest in our securities. The risks
and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to us, or that we currently deem immaterial, could negatively impact our results of operations or financial condition in the
future. If any of such risks actually occur, our business, financial condition or results of operations could be materially adversely affected. In that case, the trading price of our securities could decline, and you may lose all or part of your
investment.



Risks Related to Our Industry



The Convenience Store Industry Is Highly Competitive and Impacted
by New Entrants.



The industry and geographic areas in
which we operate are highly competitive and marked by ease of entry and constant change in the number and type of retailers offering the products and services found in our stores. We compete with other convenience store chains, gasoline stations,
supermarkets, drugstores, discount stores, club stores and mass merchants. In recent years, several non-traditional retailers, such as supermarkets, club stores and mass merchants, have impacted the convenience store industry by entering the
gasoline retail business. These non-traditional gasoline retailers have obtained a significant share of the motor fuels market and their market share is expected to grow. In some of our markets, our competitors have been in existence longer and have
greater financial, marketing and other resources than we do. As a result, our competitors may be able to respond better to changes in the economy and new opportunities within the industry. To remain competitive, we must constantly analyze consumer
preferences and competitors offerings and prices to ensure we offer a selection of convenience products and services consumers demand at competitive prices. We must also maintain and upgrade our customer service levels, facilities and
locations to remain competitive and drive customer traffic to our stores. Major competitive factors include, among others, location, ease of access, gasoline brands, pricing, product and service selections, customer service, store appearance,
cleanliness and safety.



Volatility of Wholesale Petroleum Costs Could
Impact Our Operating Results.



Over the past three fiscal
years, our gasoline revenue accounted for approximately 61.8% of total revenues and our gasoline gross profit accounted for approximately 27.8% of total gross profit. Crude oil and domestic wholesale petroleum markets are marked by significant
volatility. General political conditions, acts of war or terrorism, and instability in oil producing regions, particularly in the Middle East and South America, could significantly impact crude oil supplies and wholesale petroleum costs. In
addition, the supply of gasoline for our private brand locations and our wholesale purchase costs could be adversely impacted in the event of a shortage as our gasoline contracts do not guarantee an uninterrupted, unlimited supply of gasoline.
Significant increases and volatility in wholesale petroleum costs could result in significant increases in the retail price of petroleum products and in lower gasoline gross margin per gallon. Increases in the retail price of petroleum products
could impact consumer demand for gasoline. This volatility makes it extremely difficult to predict the impact future wholesale cost fluctuations will have on our operating results and financial condition. These factors could materially impact our
gasoline gallon volume, gasoline gross profit and overall customer traffic, which in turn would impact our merchandise sales.



Wholesale Cost Increases of Tobacco Products Could Impact Our Merchandise Gross Profit.



Sales of tobacco products have averaged approximately 12.7% of our total revenue over the past three fiscal years.
Significant increases in wholesale cigarette costs and tax increases on tobacco products, as well as



31



---

##### Table of Contents

national and local campaigns to discourage smoking in the United States, may have an adverse effect on unit demand for cigarettes domestically. In general,
we attempt to pass price increases on to our customers. However, due to competitive pressures in our markets, we may not be able to do so. These factors could materially impact our retail price of cigarettes, cigarette unit volume and revenues,
merchandise gross profit and overall customer traffic.



Changes in Consumer
Behavior, Travel and Tourism Could Impact Our Business.



In
the convenience store industry, customer traffic is generally driven by consumer preferences and spending trends, growth rates for automobile and truck traffic and trends in travel, tourism and weather. Changes in economic conditions generally or in
the Southeast specifically could adversely impact consumer spending patterns and travel and tourism in our markets. Approximately 40% of our stores are located in coastal, resort or tourist destinations. Historically, travel and consumer behavior in
such markets is more severely impacted by weak economic conditions. If visitors to resort or tourist locations decline due to economic conditions, changes in consumer preferences, changes in discretionary consumer spending or otherwise, our sales
could decline.



Risks Related to Our Business



Unfavorable Weather Conditions or Other Trends or Developments in
the Southeast Could Adversely Affect Our Business.



Substantially all of our stores are located in the southeast region of the United States. Although the Southeast is generally known for its mild weather, the region is susceptible to severe storms including hurricanes, thunderstorms,
extended periods of rain, ice storms and heavy snow, all of which we experienced in fiscal 2003. Inclement weather conditions as well as severe storms in the Southeast could damage our facilities or could have a significant impact on consumer
behavior, travel and convenience store traffic patterns as well as our ability to operate our locations. In addition, we typically generate higher revenues and gross margins during warmer weather months in the Southeast, which fall within our third
and fourth quarters. If weather conditions are not favorable during these periods, our operating results and cash flow from operations could be adversely affected. We would also be impacted by regional occurrences in the Southeast such as energy
shortages or increases in energy prices, fires or other natural disasters.



Inability to Identify, Acquire and Integrate New Stores Could Adversely Affect Our Ability to Grow Our Business.



An important part of our historical growth strategy has been to acquire other convenience stores that complement our existing stores or broaden our
geographic presence, such as our acquisition of 138 convenience stores operating under the Golden Gallon® banner on October 16, 2003. From April 1997 through October 2003, we acquired 1,303 convenience stores in 21 major and numerous smaller transactions. We expect to continue to selectively
review acquisition opportunities as an element of our growth strategy.



Acquisitions involve risks that could cause our actual growth or operating results to differ adversely compared to our expectations or the expectations of securities analysts. For example:



| |  | We may not be able to identify suitable acquisition candidates or acquire additional convenience stores on favorable terms. We compete with others to acquire convenience stores. We
believe that this competition may increase and could result in decreased availability or increased prices for suitable acquisition candidates. It may be difficult to anticipate the timing and availability of acquisition candidates.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | During the acquisition process we may fail or be unable to discover some of the liabilities of companies or businesses which we acquire. These liabilities may result from a prior
owners noncompliance with applicable federal, state or local laws.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We may not be able to obtain the necessary financing, on favorable terms or at all, to finance any of our potential acquisitions.
| | - | ---------------------------------------------------------------------------------------------------------------------------------



32



---

##### Table of Contents

| |  | We may fail to successfully integrate or manage acquired convenience stores.
| | - | ----------------------------------------------------------------------------



| |  | Acquired convenience stores may not perform as we expect or we may not be able to obtain the cost savings and financial improvements we anticipate.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We face the risk that our existing systems, financial controls, information systems, management resources and human resources will need to grow to support significant growth.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our Financial Leverage and Debt Covenants Impact Our Fiscal
and Financial Flexibility.



We are highly leveraged, which
means that the amount of our outstanding debt is large compared to the net book value of our assets, and we have substantial repayment obligations under our outstanding debt. We have to use a portion of our cash flow from operations for debt
service, rather than for investing in our operations or to implement our growth strategy. As of September 25, 2003, on a pro forma basis giving effect to the Golden Gallon® acquisition, we had consolidated debt including capital lease obligations of approximately $594.7 million and
shareholders equity of approximately $128.7 million. As of September 25, 2003, on a pro forma basis giving effect to the Golden Gallon® acquisition, our availability under our senior credit facility for borrowing or issuing additional letters of credit was approximately $23.6 million.



We are vulnerable to increases in interest rates because the
debt under our senior credit facility is at a variable interest rate. Although in the past we have on occasion entered into certain hedging instruments in an effort to manage our interest rate risk, we cannot assure you that we will continue to do
so, on favorable terms or at all, in the future.



Our senior
credit facility and the indenture governing our senior subordinated notes contain numerous financial and operating covenants that limit our ability to engage in activities such as acquiring or disposing of assets, engaging in mergers or
reorganizations, making investments or capital expenditures and paying dividends. These covenants require that we meet interest coverage, minimum pro forma EBITDA, as defined in the agreement, and leverage tests. Our senior credit facility and
indenture permit us and our subsidiaries to incur or guarantee additional debt, subject to various limitations.



Any breach of these covenants could cause a default under our debt obligations and result in our debt becoming immediately due and payable, which would
adversely affect our business, financial condition and results of operations. For the twelve-month period ending September 27, 2001, we failed to satisfy two financial covenants required by our senior credit facility. During the first quarter of
fiscal 2002, we received a waiver from our senior credit group and executed an amendment to the senior credit facility that included, among other things, a modification to the financial covenants and certain increases in the floating interest rate.
Our ability to respond to changing business conditions and to secure additional financing may be restricted by these covenants, which may become more restrictive in the future. We also may be prevented from engaging in transactions, including
acquisitions that may be important to our long-term growth strategy, as a result of covenant restrictions or borrowing capabilities under our credit facilities.



We Are Subject to State and Federal Environmental and Other Regulations.



Our business is subject to extensive governmental laws and regulations including, but not limited to, environmental
regulations, employment laws and regulations, regulations governing the sale of alcohol and tobacco, minimum wage requirements, working condition requirements, citizenship requirements and other laws and regulations. A violation or change of these
laws could have a material adverse effect on our business, financial condition and results of operations.



Under various federal, state and local laws, ordinances and regulations, we may, as the owner or operator of our locations, be liable for the costs of
removal or remediation of contamination at these or our former locations, whether or not we knew of, or were responsible for, the presence of such contamination. The failure to properly remediate such contamination may subject us to liability to
third parties and may adversely



33



---

##### Table of Contents

affect our ability to sell or rent such property or to borrow money using such property as collateral. Additionally, persons who arrange for the disposal or
treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of such substances at sites where they are located, whether or not such site is owned or operated by such person. Although we do not typically
arrange for the treatment or disposal of hazardous substances, we may be deemed to have arranged for the disposal or treatment of hazardous or toxic substances and, therefore, may be liable for removal or remediation costs, as well as other related
costs, including governmental fines, and injuries to persons, property and natural resources.



Compliance with existing and future environmental laws regulating underground storage tanks may require significant capital expenditures and the remediation costs and other costs required to clean up or treat
contaminated sites could be substantial. We pay tank fees and other taxes to state trust funds in support of future remediation obligations.



These state trust funds or other responsible third parties including insurers are expected to pay or reimburse us for remediation expenses less a
deductible. To the extent third parties do not pay for remediation as we anticipate, we will be obligated to make these payments, which could materially adversely affect our financial condition and results of operations. Reimbursements from state
trust funds will be dependent on the continued viability of these funds.



In the future, we may incur substantial expenditures for remediation of contamination that has not been discovered at existing locations or locations that we may acquire. We cannot assure you that we have identified
all environmental liabilities at all of our current and former locations; that material environmental conditions not known to us do not exist; that future laws, ordinances or regulations will not impose material environmental liability on us; or
that a material environmental condition does not otherwise exist as to any one or more of our locations. In addition, failure to comply with any environmental regulations or an increase in regulations could adversely affect our operating results and
financial condition.



State laws regulate the sale of alcohol
and tobacco products. A violation or change of these laws could adversely affect our business, financial condition and results of operations because state and local regulatory agencies have the power to approve, revoke, suspend or deny applications
for, and renewals of, permits and licenses relating to the sale of these products or to seek other remedies. In addition, certain states regulate relationships, including overlapping ownership, among alcohol manufacturers, wholesalers and retailers
and may deny or revoke licensure if relationships in violation of the state laws exist. While we are not aware of any alcoholic beverage manufacturers or wholesalers having a prohibited relationship with our company, an investment fund related to
our largest stockholder recently acquired an interest in a wine wholesaler. Although we do not believe this relationship is prohibited by the laws of any state in which we operate, if a regulatory authority were to take a contrary view and revoke
our retail alcohol license, it could have a material adverse effect on our business and results of operations. In addition, our ability to expand into certain states, should we desire to do so, may be adversely affected if the laws of any such state
prohibit the type of relationship which exists among our largest stockholder, the investment fund affiliated with it, the wine wholesaler in which the fund invested, and us.



Any appreciable increase in the statutory minimum wage rate or income or overtime pay or adoption of mandated health
benefits would result in an increase in our labor costs and such cost increase, or the penalties for failing to comply with such statutory minimums, could adversely affect our business, financial condition and results of operations.



From time to time, regulations are proposed which, if adopted, could also
have an adverse effect on our business, financial condition or results of operations.



We Depend on One Principal Supplier for the Majority of Our Merchandise.



We purchase over 50% of our general merchandise, including most tobacco products and grocery items, from a single wholesale grocer, McLane Company, Inc., or McLane. We have a contract with McLane until October 2008,
but we may not be able to renew the contract upon expiration. A change of suppliers, a disruption



34



---

##### Table of Contents

in supply or a significant change in our relationship with our principal suppliers could have a material adverse effect on our business, cost of goods,
financial condition and results of operations.



We Depend on Two Principal
Suppliers for the Majority of Our Gasoline.



During
February of 2003, we signed new gasoline supply agreements with BP Products, NA, or BP®, and Citgo Petroleum Corporation, or Citgo®. We expect that BP® and Citgo® will
supply approximately 85% of our projected gasoline purchases after an approximately 18-month conversion process. We have contracts with each of BP® and Citgo® until 2008, but we may not be able to renew either contract upon expiration. A change of suppliers, a disruption in supply or a significant change in our relationship with our principal
suppliers could have a material adverse effect on our business, cost of goods, financial condition and results of operations.



We May Not Achieve the Full Expected Cost Savings and Other Benefits of Our Acquisition of Golden Gallon®



We expect to achieve $8-$10 million of cost savings and benefits within the 12 to 24 months following the acquisition of
Golden Gallon®. These cost savings and benefits
include, among others, savings associated with the elimination of duplicate overhead and infrastructure, benefits received by Golden Gallon® under our merchandise and gas supply agreements and the expansion of quick service restaurants in selected stores. While we believe our estimates of
these cost savings and benefits to be reasonable, they are estimates which are difficult to predict and are necessarily speculative in nature. There can be no assurance that we will be able to replicate the results that we achieved at our stores at
the Golden Gallon® stores. In addition, we cannot
assure you that unforeseen factors will not offset the estimated cost savings and other benefits from the acquisition. As a result, our actual cost savings and other anticipated benefits could differ or be delayed, compared to our estimates and from
the other information contained in this prospectus.



Because We Depend on
Our Senior Managements Experience and Knowledge of Our Industry, We Would Be Adversely Affected if Senior Management Left The Pantry.



We are dependent on the continued efforts of our senior management team, including our President and Chief Executive Officer, Peter J. Sodini. Mr.
Sodinis employment contract terminates in September 2006. If, for any reason, our senior executives do not continue to be active in management, our business, financial condition or results of operations could be adversely affected. We cannot
assure you that we will be able to attract and retain additional qualified senior personnel as needed in the future. In addition, we do not maintain key personnel life insurance on our senior executives and other key employees. We also rely on our
ability to recruit store managers, regional managers and other store personnel. If we fail to continue to attract these individuals, our operating results may be adversely affected.



Other Risks



Future Sales of Additional Shares into the Market May Depress the Market Price of Our Common Stock.



If our existing stockholders sell shares of our common stock in the public market, including shares issued upon the exercise
of outstanding options, or if the market perceives such sales could occur, the market price of our common stock could decline. As of December 9, 2003, there were 19,743,615 shares of our common stock outstanding. Of these shares,
6,420,299 shares are freely tradable (unless held by one of our affiliates) and 13,423,393 shares are held by affiliate investment funds of Freeman Spogli & Co. Pursuant to Rule 144 under the Securities Act of 1933,
as amended, during any three-month period our affiliates can resell up to the greater of (a) 1% of our aggregate outstanding common stock or (b) the average weekly trading volume for the four weeks prior to the sale. In addition, the Freeman Spogli
& Co. investment funds, or Freeman Spogli, have registration rights allowing them to require us to register the resale of their shares. Sales by our existing stockholders also might make it more difficult for us to sell equity or equity-related
securities in the future at a time and price that we deem appropriate or to use equity as consideration for future acquisitions.



35



---

##### Table of Contents

In addition, we have filed registration statements with the Securities and Exchange Commission that cover
up to 5,100,000 shares issuable pursuant to the exercise of stock options granted and to be granted under our stock option plans. Shares registered on a registration statement may be sold freely at any time.



The Interests of Our Largest Stockholder May Conflict with Our Interests and the Interests
of Our Other Stockholders.



As of December 9, 2003, Freeman
Spogli owned 13,423,393 shares of our common stock. Freeman Spoglis beneficial ownership of our common stock is approximately 67.9%. In addition, four of the nine members of our board of directors are
representatives of, or have consulting arrangements with, Freeman Spogli. As a result of its stock ownership and board representation, Freeman Spogli is in a position to affect our corporate actions such as mergers or takeover attempts of us or may
take action on its own in a manner that could conflict with the interests of our other stockholders. In the past from time to time we have considered strategic alternatives, including a sale of The Pantry, at the request of Freeman Spogli and with
the consent of our board of directors. Although we are not currently considering any strategic alternatives, we may do so in the future.



Any Issuance of Shares of Our Common Stock in the Future Could Have a Dilutive Effect on Your Investment.



If we raise funds in the future by issuing additional shares of common stock,
you may experience dilution in the value of your shares. Additionally, certain types of equity securities that we may issue in the future could have rights, preferences or privileges senior to your rights as a holder of our common stock. We could
choose to issue additional shares for a variety of reasons including for investment or acquisitive purposes. Such issuances may have a dilutive impact on your investment.



The Market Price for Our Common Stock Has Been and May in the Future Be Volatile, Which Could Cause the Value of Your Investment to
Decline.



There currently is a public market for our common
stock, but there is no assurance that there will always be such a market. Securities markets worldwide experience significant price and volume fluctuations. This market volatility could significantly affect the market price of our common stock
without regard to our operating performance. In addition, the price of our common stock could be subject to wide fluctuations in response to the following factors among others:



| |  | A deviation in our results from the expectations of public market analysts and investors;
| | - | -----------------------------------------------------------------------------------------



| |  | Statements by research analysts about our common stock, our company or our industry;
| | - | ------------------------------------------------------------------------------------



| |  | Changes in market valuations of companies in our industry and market evaluations of our industry generally;
| | - | -----------------------------------------------------------------------------------------------------------



| |  | Additions or departures of key personnel;
| | - | -----------------------------------------



| |  | Actions taken by our competitors;
| | - | ---------------------------------



| |  | Sales of common stock by the company, senior officers or other affiliates; or
| | - | -----------------------------------------------------------------------------



| |  | Other general economic, political or market conditions, many of which are beyond our control.
| | - | ---------------------------------------------------------------------------------------------



The market price of our common stock will also be impacted by our quarterly operating results and quarterly comparable store
sales growth, which may be expected to fluctuate from quarter to quarter. Factors that may impact our quarterly results and comparable store sales include, among others, general regional and national economic conditions, competition, unexpected
costs and changes in pricing, consumer trends, the number of stores we open and/or close during any given period, costs of compliance with corporate governance and Sarbanes-Oxley requirements, and other factors discussed in Risk Factors
beginning on page 33 and throughout Managements Discussion and Analysis of Financial Condition and Results of Operations.



You may not be able to resell your shares of our common stock at or above the price you pay.



36



---

##### Table of Contents

Our Charter Includes Provisions that May Have the Effect of Preventing or Hindering a Change in Control and Adversely
Affecting the Market Price of Our Common Stock.



Our
certificate of incorporation gives our board of directors the authority to issue up to five million shares of preferred stock and to determine the rights and preferences of the preferred stock, without obtaining stockholder approval. The existence
of this preferred stock could make it more difficult or discourage an attempt to obtain control of The Pantry by means of a tender offer, merger, proxy contest or otherwise. Furthermore, this preferred stock could be issued with other rights,
including economic rights, senior to our common stock, and, therefore, issuance of the preferred stock could have an adverse effect on the market price of our common stock. We have no present plans to issue any shares of our preferred stock.



Other provisions of our certificate of incorporation and
bylaws and of Delaware law could make it more difficult for a third party to acquire us or hinder a change in management even if doing so would be beneficial to our stockholders. These governance provisions could affect the market price of our
common stock. We may, in the future, adopt other measures that may have the effect of delaying, deferring or preventing an unsolicited takeover, even if such a change in control were at a premium price or favored by a majority of unaffiliated
stockholders. These measures may be adopted without any further vote or action by our stockholders.



Any of the above factors may cause actual results to vary materially from anticipated results, historical results or recent trends in operating results
and financial condition.



37



---

##### Table of Contents

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Part II



Item 8. Consolidated Financial Statements and Supplemental Data



|                                                                                                                                      |  |     
|------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                      |  | Page
|                                                                                                                                      | 
|The Pantry, Inc. Financial Statements:                                                                                                |  |     
|Audited Consolidated Financial Statements:                                                                                            |  |     
|Report of Independent Registered Public Accounting Firm                                                                               |  | 39  
|Consolidated Balance Sheets as of September 25, 2003 and September 26, 2002                                                           |  | 40  
|Consolidated Statements of Operations for the years ended September 25, 2003, September 26, 2002 and September 27, 2001 (As Restated) |  | 41  
|Consolidated Statements of Shareholders Equity for the years ended September 25, 2003, September 26, 2002 and September 27, 2001     |  | 42  
|Consolidated Statements of Cash Flows for the years ended September 25, 2003, September 26, 2002 and September 27, 2001               |  | 43  
|Notes to Consolidated Financial Statements                                                                                            |  | 45  



38



---

##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To The Board of Directors and Shareholders of

The Pantry, Inc.

Sanford, North Carolina



We have audited the
accompanying consolidated balance sheets of The Pantry, Inc. and subsidiaries (The Pantry) as of September 25, 2003 and September 26, 2002, and the related consolidated statements of operations, shareholders equity, and cash flows
for each of the three fiscal years in the period ended September 25, 2003. These financial statements are the responsibility of The Pantrys management. Our responsibility is to express an opinion on the financial statements based on our
audits.



We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Pantry as of September 25,
2003 and September 26, 2002, and the results of their operations and their cash flows for each of the three fiscal years in the period ended September 25, 2003 in conformity with accounting principles generally accepted in the United States of
America.



As discussed in Note 9 to the consolidated financial
statements, in 2003, The Pantry adopted Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations. Also, as discussed in Note 4 to the consolidated financial statements, in 2002, The
Pantry adopted SFAS No. 142, Goodwill and Other Intangible Assets.



As discussed in Note 20, the accompanying consolidated financial statements have been restated.



|                         
|-------------------------
|/S/ DELOITTE & TOUCHE LLP
|                         
|Raleigh, North Carolina  

December 4, 2003, except for Note 21 as to which the date is February 12, 2004 and Note 20, as to which the date is
September 7, 2004.



39



---

##### Table of Contents

THE PANTRY, INC.



CONSOLIDATED
BALANCE SHEETS

(Dollars in thousands)



|                                                                                                                                                                                  |  |                    |         |   |                    |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ------------------ | - | ------- | -
|                                                                                                                                                                                  |  | September 25, 2003 |         |   | September 26, 2002 |  
|ASSETS                                                                                                                                                                            |  |                    |         |   |                    |   |         |  
|Current assets:                                                                                                                                                                   |  |                    |         |   |                    |   |         |  
|Cash and cash equivalents                                                                                                                                                         |  | $                  | 72,901  |   |                    | $ | 42,236  |  
|Receivables (net of allowance for doubtful accounts of $665 at September 25, 2003 and $159 at September 26, 2002)                                                                 |  |                    | 30,423  |   |                    |   | 34,316  |  
|Inventories (Note 2)                                                                                                                                                              |  |                    | 84,156  |   |                    |   | 84,437  |  
|Prepaid expenses                                                                                                                                                                  |  |                    | 6,326   |   |                    |   | 3,499   |  
|Property held for sale                                                                                                                                                            |  |                    | 2,013   |   |                    |   | 388     |  
|Deferred income taxes (Note 11)                                                                                                                                                   |  |                    | 4,334   |   |                    |   | 1,414   |  
|                                                                                                                                                                                  |  |                    |         |   |                    |   |         |  
|Total current assets                                                                                                                                                              |  |                    | 200,153 |   |                    |   | 166,290 |  
|                                                                                                                                                                                  |  |                    |         |   |                    |   |         |  
|Property and equipment, net (Notes 3, 9 and 12)                                                                                                                                   |  |                    | 400,609 |   |                    |   | 435,518 |  
|                                                                                                                                                                                  |  |                    |         |   |                    |   |         |  
|Other assets:                                                                                                                                                                     |  |                    |         |   |                    |   |         |  
|Goodwill (Note 4)                                                                                                                                                                 |  |                    | 278,629 |   |                    |   | 277,874 |  
|Deferred financing costs (net of accumulated amortization of $7,206 September 25, 2003 and $8,854 at September 26, 2002)                                                          |  |                    | 10,757  |   |                    |   | 8,965   |  
|Environmental receivables (Note 13)                                                                                                                                               |  |                    | 15,109  |   |                    |   | 11,696  |  
|Other                                                                                                                                                                             |  |                    | 8,908   |   |                    |   | 9,355   |  
|                                                                                                                                                                                  |  |                    |         |   |                    |   |         |  
|Total other assets                                                                                                                                                                |  |                    | 313,403 |   |                    |   | 307,890 |  
|                                                                                                                                                                                  |  |                    |         |   |                    |   |         |  
|Total assets                                                                                                                                                                      |  | $                  | 914,165 |   |                    | $ | 909,698 |  
|                                                                                                                                                                                  |  |                    |         |   |                    |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                              |  |                    |         |   |                    |   |         |  
|Current liabilities:                                                                                                                                                              |  |                    |         |   |                    |   |         |  
|Current maturities of long-term debt (Note 5)                                                                                                                                     |  | $                  | 27,558  |   |                    | $ | 43,255  |  
|Current maturities of capital lease obligations (Note 12)                                                                                                                         |  |                    | 1,375   |   |                    |   | 1,521   |  
|Accounts payable                                                                                                                                                                  |  |                    | 78,885  |   |                    |   | 93,858  |  
|Accrued interest (Note 5)                                                                                                                                                         |  |                    | 11,924  |   |                    |   | 13,175  |  
|Accrued compensation and related taxes                                                                                                                                            |  |                    | 12,840  |   |                    |   | 10,785  |  
|Other accrued taxes                                                                                                                                                               |  |                    | 16,510  |   |                    |   | 17,463  |  
|Accrued insurance                                                                                                                                                                 |  |                    | 12,293  |   |                    |   | 9,687   |  
|Other accrued liabilities (Notes 6 and 13)                                                                                                                                        |  |                    | 21,314  |   |                    |   | 19,969  |  
|                                                                                                                                                                                  |  |                    |         |   |                    |   |         |  
|Total current liabilities                                                                                                                                                         |  |                    | 182,699 |   |                    |   | 209,713 |  
|                                                                                                                                                                                  |  |                    |         |   |                    |   |         |  
|Long-term debt (Note 5)                                                                                                                                                           |  |                    | 470,011 |   |                    |   | 460,920 |  
|                                                                                                                                                                                  |  |                    |         |   |                    |   |         |  
|Other liabilities:                                                                                                                                                                |  |                    |         |   |                    |   |         |  
|Environmental reserves (Note 13)                                                                                                                                                  |  |                    | 13,823  |   |                    |   | 13,285  |  
|Deferred income taxes (Note 11)                                                                                                                                                   |  |                    | 50,015  |   |                    |   | 38,360  |  
|Deferred revenue (Note 13)                                                                                                                                                        |  |                    | 37,251  |   |                    |   | 51,772  |  
|Capital lease obligations (Note 12)                                                                                                                                               |  |                    | 15,779  |   |                    |   | 15,381  |  
|Other noncurrent liabilities (Notes 6, 9 and 13)                                                                                                                                  |  |                    | 15,922  |   |                    |   | 5,063   |  
|                                                                                                                                                                                  |  |                    |         |   |                    |   |         |  
|Total other liabilities                                                                                                                                                           |  |                    | 132,790 |   |                    |   | 123,861 |  
|                                                                                                                                                                                  |  |                    |         |   |                    |   |         |  
|Commitments and contingencies (Notes 4, 5, 12 and 13)                                                                                                                             |  |                    |         |   |                    |   |         |  
|Shareholders equity (Notes 7 and 15):                                                                                                                                            |  |                    |         |   |                    |   |         |  
|Common stock, $.01 par value, 50,000,000 shares authorized; 18,107,597 and 18,107,597 issued and outstanding at September 25, 2003 and
September 26, 2002, respectively (Note 15) |  |                    | 182     |   |                    |   | 182     |  
|Additional paid-in capital                                                                                                                                                        |  |                    | 128,002 |   |                    |   | 128,002 |  
|Shareholder loans                                                                                                                                                                 |  |                    | (173    | ) |                    |   | (708    | )
|Accumulated other comprehensive deficit (net of deferred taxes of $432 at September 25, 2003 and $1,354 at September 26, 2002) (Note
7)                                           |  |                    | (690    | ) |                    |   | (2,112  | )
|Accumulated earnings (deficit)                                                                                                                                                    |  |                    | 1,344   |   |                    |   | (10,160 | )
|                                                                                                                                                                                  |  |                    |         |   |                    |   |         |  
|Total shareholders equity                                                                                                                                                        |  |                    | 128,665 |   |                    |   | 115,204 |  
|                                                                                                                                                                                  |  |                    |         |   |                    |   |         |  
|Total liabilities and shareholders equity                                                                                                                                        |  | $                  | 914,165 |   |                    | $ | 909,698 |  
|                                                                                                                                                                                  |  |                    |         |   |                    |   |         |  



The accompanying notes
are an integral part of these consolidated financial statements.



40



---

##### Table of Contents

THE PANTRY, INC.



CONSOLIDATED
STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share amounts)



|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|------------------------------------------------- |  | ------------------ | --------- | - | ------------------ | - | --------- | ------------------ |  | - | --------- | -
|                                                  |  | September 25, 2003 |           |   | September 26, 2002 |   |           | September 27, 2001 | 
|                                                  |  | (52 weeks)         |           |   | (52 weeks)         |   |           | (52 weeks)         | 
|                                                  |  | Restated           |           |   | Restated           |   |           | Restated           | 
|Revenues:                                         |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Merchandise sales (Note 20)                       |  | $                  | 1,009,698 |   |                    | $ | 1,012,786 |                    |  | $ | 990,319   |  
|Gasoline sales                                    |  |                    | 1,740,662 |   |                    |   | 1,470,732 |                    |  |   | 1,652,725 |  
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Total revenues                                    |  |                    | 2,750,360 |   |                    |   | 2,483,518 |                    |  |   | 2,643,044 |  
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Cost of sales:                                    |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Merchandise (Note 20)                             |  |                    | 644,178   |   |                    |   | 658,933   |                    |  |   | 645,012   |  
|Gasoline                                          |  |                    | 1,595,378 |   |                    |   | 1,349,183 |                    |  |   | 1,510,389 |  
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Total cost of sales                               |  |                    | 2,239,556 |   |                    |   | 2,008,116 |                    |  |   | 2,155,401 |  
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Gross profit                                      |  |                    | 510,804   |   |                    |   | 475,402   |                    |  |   | 487,643   |  
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Operating expenses:                               |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Operating, general and administrative expenses    |  |                    | 385,570   |   |                    |   | 367,299   |                    |  |   | 364,134   |  
|Restructuring and other charges (Note 8)          |  |                    |          |   |                    |   |          |                    |  |   | 4,771     |  
|Depreciation and amortization                     |  |                    | 54,403    |   |                    |   | 54,251    |                    |  |   | 63,545    |  
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Total operating expenses                          |  |                    | 439,973   |   |                    |   | 421,550   |                    |  |   | 432,450   |  
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Income from operations                            |  |                    | 70,831    |   |                    |   | 53,852    |                    |  |   | 55,193    |  
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Other income (expense):                           |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Interest expense (Note 10)                        |  |                    | (49,265   | ) |                    |   | (51,646   | )                  |  |   | (58,731   | )
|Miscellaneous                                     |  |                    | 2,805     |   |                    |   | 728       |                    |  |   | 1,753     |  
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Total other expense                               |  |                    | (46,460   | ) |                    |   | (50,918   | )                  |  |   | (56,978   | )
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Income (loss) before income taxes                 |  |                    | 24,371    |   |                    |   | 2,934     |                    |  |   | (1,785    | )
|Income tax expense (Note 11)                      |  |                    | (9,385    | ) |                    |   | (1,130    | )                  |  |   | (871      | )
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Income (loss) before cumulative effect adjustment |  | $                  | 14,986    |   |                    | $ | 1,804     |                    |  | $ | (2,656    | )
|Cumulative effect adjustment, net of tax (Note 9) |  |                    | (3,482    | ) |                    |   |          |                    |  |   |          |  
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Net income (loss)                                 |  | $                  | 11,504    |   |                    | $ | 1,804     |                    |  | $ | (2,656    | )
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Earnings (loss) per share (Note 17):              |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Basic:                                            |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Income (loss) before cumulative effect adjustment |  | $                  | 0.83      |   |                    | $ | 0.10      |                    |  | $ | (0.15     | )
|Cumulative effect adjustment                      |  |                    | (0.19     | ) |                    |   |          |                    |  |   |          |  
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Income (loss)                                     |  | $                  | 0.64      |   |                    | $ | 0.10      |                    |  | $ | (0.15     | )
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Diluted:                                          |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Income (loss) before cumulative effect adjustment |  | $                  | 0.82      |   |                    | $ | 0.10      |                    |  | $ | (0.15     | )
|Cumulative effect adjustment                      |  |                    | (0.19     | ) |                    |   |          |                    |  |   |          |  
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Income (loss)                                     |  | $                  | 0.63      |   |                    | $ | 0.10      |                    |  | $ | (0.15     | )
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  



The accompanying notes
are an integral part of these consolidated financial statements.



41



---

##### Table of Contents

THE PANTRY, INC.



CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY

(Shares and dollars in thousands)



|                                                              |  |              |   |  |                          |     |   |                   |   |         |                                   |  |   |                              |   |  |       |        |   |  |   |         |   |  |   |         |  
|------------------------------------------------------------- |  | ------------ | - |  | ------------------------ | --- | - | ----------------- | - | ------- | --------------------------------- |  | - | ---------------------------- | - |  | ----- | ------ | - |  | - | ------- | - |  | - | ------- | -
|                                                              |  | Common Stock |   |  | AdditionalPaid-inCapital |     |   | Shareholder Loans |   |         | Accumulated Comprehensive Deficit |  |   | AccumulatedEarnings(Deficit) |   |  | Total |       
|                                                              |  | Shares       |   |  | ParValue                 |     |   |                   |   |         |                                  
|Balance at September 29, 2000                                 |  | 18,111       |   |  | $                        | 182 |   |                   | $ | 128,018 |                                   |  | $ | (912                         | ) |  |       |       |   |  | $ | (9,308  | ) |  | $ | 117,980 |  
|Comprehensive loss, net of tax:                               |  |              |   |  |                          |     |   |                   |   |         |                                   |  |   |                              |   |  |       |        |   |  |   |         |   |  |   |         |  
|Net loss                                                      |  |              |   |  |                          |     |   |                   |   |         |                                   |  |   |                              |   |  |       |        |   |  |   | (2,656  | ) |  |   | (2,656  | )
|Unrealized losses on qualifying cash flow hedges              |  |             |   |  |                          |    |   |                   |   |        |                                   |  |   |                             |   |  |       | (3,920 | ) |  |   |        |   |  |   | (3,920  | )
|Amortization of cumulative effect of adoption of SFAS No. 133 |  |             |   |  |                          |    |   |                   |   |        |                                   |  |   |                             |   |  |       | 98     |   |  |   |        |   |  |   | 98      |  
|                                                              |  |              |   |  |                          |     |   |                   |   |         |                                   |  |   |                              |   |  |       |        |   |  |   |         |   |  |   |         |  
|Comprehensive loss                                            |  |             |   |  |                          |    |   |                   |   |        |                                   |  |   |                             |   |  |       | (3,822 | ) |  |   | (2,656  | ) |  |   | (6,478  | )
|Cumulative effect of change in accounting principal           |  |             |   |  |                          |    |   |                   |   |        |                                   |  |   |                             |   |  |       | (461   | ) |  |   |        |   |  |   | (461    | )
|Repayment of shareholder loans                                |  |             |   |  |                          |    |   |                   |   |        |                                   |  |   | 75                           |   |  |       |       |   |  |   |        |   |  |   | 75      |  
|Share repurchase                                              |  | (4           | ) |  |                          | (1  | ) |                   |   | (43     | )                                 |  |   |                             |   |  |       |       |   |  |   |        |   |  |   | (44     | )
|Exercise of stock options                                     |  | 8            |   |  |                          | 1   |   |                   |   | 68      |                                   |  |   |                             |   |  |       |       |   |  |   |        |   |  |   | 69      |  
|                                                              |  |              |   |  |                          |     |   |                   |   |         |                                   |  |   |                              |   |  |       |        |   |  |   |         |   |  |   |         |  
|Balance, September 27, 2001                                   |  | 18,115       |   |  |                          | 182 |   |                   |   | 128,043 |                                   |  |   | (837                         | ) |  |       | (4,283 | ) |  |   | (11,964 | ) |  |   | 111,141 |  
|Comprehensive income, net of tax:                             |  |              |   |  |                          |     |   |                   |   |         |                                   |  |   |                              |   |  |       |        |   |  |   |         |   |  |   |         |  
|Net income                                                    |  |             |   |  |                          |    |   |                   |   |        |                                   |  |   |                             |   |  |       |       |   |  |   | 1,804   |   |  |   | 1,804   |  
|Unrealized gains on qualifying cash flow hedges               |  |             |   |  |                          |    |   |                   |   |        |                                   |  |   |                             |   |  |       | 1,966  |   |  |   |        |   |  |   | 1,966   |  
|Amortization of cumulative effect of adoption of SFAS No. 133 |  |             |   |  |                          |    |   |                   |   |        |                                   |  |   |                             |   |  |       | 205    |   |  |   |        |   |  |   | 205     |  
|                                                              |  |              |   |  |                          |     |   |                   |   |         |                                   |  |   |                              |   |  |       |        |   |  |   |         |   |  |   |         |  
|Comprehensive income                                          |  |             |   |  |                          |    |   |                   |   |        |                                   |  |   |                             |   |  |       | 2,171  |   |  |   | 1,804   |   |  |   | 3,975   |  
|Share repurchase                                              |  | (7           | ) |  |                          |    |   |                   |   | (41     | )                                 |  |   | 41                           |   |  |       |       |   |  |   |        |   |  |   |        |  
|Repayment of shareholder loans                                |  |             |   |  |                          |    |   |                   |   |        |                                   |  |   | 88                           |   |  |       |       |   |  |   |        |   |  |   | 88      |  
|                                                              |  |              |   |  |                          |     |   |                   |   |         |                                   |  |   |                              |   |  |       |        |   |  |   |         |   |  |   |         |  
|Balance, September 26, 2002                                   |  | 18,108       |   |  |                          | 182 |   |                   |   | 128,002 |                                   |  |   | (708                         | ) |  |       | (2,112 | ) |  |   | (10,160 | ) |  |   | 115,204 |  
|Comprehensive income, net of tax:                             |  |              |   |  |                          |     |   |                   |   |         |                                   |  |   |                              |   |  |       |        |   |  |   |         |   |  |   |         |  
|Net income                                                    |  |             |   |  |                          |    |   |                   |   |        |                                   |  |   |                             |   |  |       |       |   |  |   | 11,504  |   |  |   | 11,504  |  
|Unrealized gains on qualifying cash flow hedges               |  |             |   |  |                          |    |   |                   |   |        |                                   |  |   |                             |   |  |       | 1,264  |   |  |   |        |   |  |   | 1,264   |  
|Amortization of cumulative effect of adoption of SFAS No. 133 |  |             |   |  |                          |    |   |                   |   |        |                                   |  |   |                             |   |  |       | 158    |   |  |   |        |   |  |   | 158     |  
|                                                              |  |              |   |  |                          |     |   |                   |   |         |                                   |  |   |                              |   |  |       |        |   |  |   |         |   |  |   |         |  
|Comprehensive income                                          |  |             |   |  |                          |    |   |                   |   |        |                                   |  |   |                             |   |  |       | 1,422  |   |  |   | 11,504  |   |  |   | 12,926  |  
|Repayment of shareholder loans                                |  |             |   |  |                          |    |   |                   |   |        |                                   |  |   | 535                          |   |  |       |       |   |  |   |        |   |  |   | 535     |  
|                                                              |  |              |   |  |                          |     |   |                   |   |         |                                   |  |   |                              |   |  |       |        |   |  |   |         |   |  |   |         |  
|Balance, September 25, 2003                                   |  | 18,108       |   |  | $                        | 182 |   |                   | $ | 128,002 |                                   |  | $ | (173                         | ) |  | $     | (690   | ) |  | $ | 1,344   |   |  | $ | 128,665 |  
|                                                              |  |              |   |  |                          |     |   |                   |   |         |                                   |  |   |                              |   |  |       |        |   |  |   |         |   |  |   |         |  



The accompanying notes
are an integral part of these consolidated financial statements.



42



---

##### Table of Contents

THE PANTRY, INC.



CONSOLIDATED
STATEMENTS OF CASH FLOWS

(Dollars in thousands)



|                                                                                         |  |                    |          |   |                    |   |         |                    |  |   |         |  
|---------------------------------------------------------------------------------------- |  | ------------------ | -------- | - | ------------------ | - | ------- | ------------------ |  | - | ------- | -
|                                                                                         |  | Year Ended         |         
|                                                                                         |  | September 25, 2003 |          |   | September 26, 2002 |   |         | September 27, 2001 | 
|                                                                                         |  | (52 weeks)         |          |   | (52 weeks)         |   |         | (52 weeks)         | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                    |  |                    |          |   |                    |   |         |                    |  |   |         |  
|Net income (loss)                                                                        |  | $                  | 11,504   |   |                    | $ | 1,804   |                    |  | $ | (2,656  | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                    |          |   |                    |   |         |                    |  |   |         |  
|Depreciation and amortization                                                            |  |                    | 57,013   |   |                    |   | 54,251  |                    |  |   | 63,545  |  
|Provision for deferred income taxes                                                      |  |                    | 9,385    |   |                    |   | 1,130   |                    |  |   | 871     |  
|Loss on extinguishment of debt                                                           |  |                    | 2,888    |   |                    |   |        |                    |  |   |        |  
|Loss on sale of property and equipment                                                   |  |                    | 2,051    |   |                    |   | 601     |                    |  |   | 131     |  
|Impairment of long-lived assets                                                          |  |                    | 1,850    |   |                    |   | 383     |                    |  |   | 2,298   |  
|Fair market value change in non-qualifying derivatives                                   |  |                    | (3,381   | ) |                    |   | 926     |                    |  |   | 4,244   |  
|Provision for closed stores                                                              |  |                    | 2,469    |   |                    |   | 2,073   |                    |  |   | 1,919   |  
|Cumulative effect of change in accounting principle                                      |  |                    | 3,482    |   |                    |   |        |                    |  |   |        |  
|Amortization of long-term debt discount                                                  |  |                    | 529      |   |                    |   |        |                    |  |   |        |  
|Changes in operating assets and liabilities, net of effects of acquisitions:             |  |                    |          |   |                    |   |         |                    |  |   |         |  
|Receivables                                                                              |  |                    | 563      |   |                    |   | (5,085  | )                  |  |   | (4,860  | )
|Inventories                                                                              |  |                    | 281      |   |                    |   | (2,705  | )                  |  |   | 9,469   |  
|Prepaid expenses                                                                         |  |                    | (2,818   | ) |                    |   | (43     | )                  |  |   | 2,121   |  
|Other noncurrent assets                                                                  |  |                    | 178      |   |                    |   | 370     |                    |  |   | 3,048   |  
|Accounts payable                                                                         |  |                    | (14,973  | ) |                    |   | (311    | )                  |  |   | (7,762  | )
|Other current liabilities and accrued expenses                                           |  |                    | 9,532    |   |                    |   | 12,688  |                    |  |   | 1,194   |  
|Reserves for environmental expenses                                                      |  |                    | 538      |   |                    |   | 1,078   |                    |  |   | (1,859  | )
|Other noncurrent liabilities                                                             |  |                    | (12,827  | ) |                    |   | (13,176 | )                  |  |   | 4,999   |  
|                                                                                         |  |                    |          |   |                    |   |         |                    |  |   |         |  
|Net cash provided by operating activities                                                |  |                    | 68,264   |   |                    |   | 53,984  |                    |  |   | 76,702  |  
|                                                                                         |  |                    |          |   |                    |   |         |                    |  |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                    |  |                    |          |   |                    |   |         |                    |  |   |         |  
|Additions to property held for sale                                                      |  |                    | (2,761   | ) |                    |   | (5,006  | )                  |  |   | (1,637  | )
|Additions to property and equipment                                                      |  |                    | (25,470  | ) |                    |   | (26,506 | )                  |  |   | (43,582 | )
|Proceeds from sale lease-back transactions                                               |  |                    | 2,306    |   |                    |   | 6,208   |                    |  |   | 3,504   |  
|Proceeds from sale of property and equipment                                             |  |                    | 5,367    |   |                    |   | 5,503   |                    |  |   | 3,761   |  
|Acquisitions of related businesses, net of cash acquired                                 |  |                    | (1,799   | ) |                    |   | (512    | )                  |  |   | (55,993 | )
|                                                                                         |  |                    |          |   |                    |   |         |                    |  |   |         |  
|Net cash used in investing activities                                                    |  |                    | (22,357  | ) |                    |   | (20,313 | )                  |  |   | (93,947 | )
|                                                                                         |  |                    |          |   |                    |   |         |                    |  |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                    |  |                    |          |   |                    |   |         |                    |  |   |         |  
|Principal repayments under capital leases                                                |  |                    | (1,383   | ) |                    |   | (1,199  | )                  |  |   | (2,070  | )
|Principal repayments of long-term debt                                                   |  |                    | (306,577 | ) |                    |   | (40,000 | )                  |  |   | (23,487 | )
|Proceeds from issuance of long-term debt                                                 |  |                    | 299,440  |   |                    |   |        |                    |  |   | 40,037  |  
|Proceeds from exercise of stock options, net of repurchases                              |  |                    |         |   |                    |   | (41     | )                  |  |   | 25      |  
|Repayment of shareholder loans                                                           |  |                    | 535      |   |                    |   | 129     |                    |  |   | 75      |  
|Other financing costs                                                                    |  |                    | (7,257   | ) |                    |   | (935    | )                  |  |   | (78     | )
|                                                                                         |  |                    |          |   |                    |   |         |                    |  |   |         |  
|Net cash provided by (used in) financing activities                                      |  |                    | (15,242  | ) |                    |   | (42,046 | )                  |  |   | 14,502  |  
|                                                                                         |  |                    |          |   |                    |   |         |                    |  |   |         |  
|Net increase (decrease)                                                                  |  |                    | 30,665   |   |                    |   | (8,375  | )                  |  |   | (2,743  | )
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                           |  |                    | 42,236   |   |                    |   | 50,611  |                    |  |   | 53,354  |  
|                                                                                         |  |                    |          |   |                    |   |         |                    |  |   |         |  
|CASH AND CASH EQUIVALENTS AT END OF YEAR                                                 |  | $                  | 72,901   |   |                    | $ | 42,236  |                    |  | $ | 50,611  |  
|                                                                                         |  |                    |          |   |                    |   |         |                    |  |   |         |  



The accompanying notes
are an integral part of these consolidated financial statements.



43



---

##### Table of Contents

SUPPLEMENTAL DISCLOSURE OF CASH FLOW

(Dollars in thousands)



|                                      |  |                    |        |   |                    |   |        |                    |  |   |       
|------------------------------------- |  | ------------------ | ------ | - | ------------------ | - | ------ | ------------------ |  | - | ------
|                                      |  | Year Ended        
|                                      |  | September 25, 2003 |        |   | September 26, 2002 |   |        | September 27, 2001
|Cash paid (refunded) during the year: |  |                    |        |   |                    |   |        |                    |  |   |       
|Interest                              |  | $                  | 51,469 |   |                    | $ | 50,556 |                    |  | $ | 55,374
|                                      |  |                    |        |   |                    |   |        |                    |  |   |       
|Taxes                                 |  | $                  | (214   | ) |                    | $ | (3,708 | )                  |  | $ | 1,066 
|                                      |  |                    |        |   |                    |   |        |                    |  |   |       



SUPPLEMENTAL NONCASH
INVESTING AND FINANCING ACTIVITIES



During fiscal 2003,
2002 and 2001, The Pantry financed certain capital expenditures totaling $1.9 million, $2.7 million and $3.5 million respectively, through the issuance of capital leases.



44



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1HISTORY OF COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:



The Pantry



The consolidated financial statements include the accounts of The Pantry, Inc. (the Company or The
Pantry) and its wholly-owned subsidiaries. Transactions and balances of each of these wholly-owned subsidiaries are also immaterial to the consolidated financial statements. All intercompany transactions and balances have been eliminated in
consolidation. The Pantry owns and operates 1,258 convenience stores in Florida (477), North Carolina (328), South Carolina (240), Georgia (56), Mississippi (53), Kentucky (38), Virginia (30), Indiana (14), Tennessee (14), and Louisiana (8).



During fiscal 1996, Freeman Spogli & Co. (Freeman
Spogli) acquired a controlling interest in the Company through a series of transactions which included the purchase of common stock from certain stockholders and the purchase of newly issued common and preferred stock. During fiscal 1997 and
1998, the Company issued additional shares of common and preferred stock to existing stockholders and certain directors and executives of the Company. As of September 25, 2003, Freeman Spogli owns 11,815,538 shares of common stock and warrants to
purchase 2,346,000 shares of common stock, which represents beneficial ownership of approximately 69.2% of our outstanding shares, including shares underlying warrants.



On June 8, 1999, we offered and sold 6,250,000 shares of our common stock in our initial public offering (the
IPO). The initial offering price was $13.00 per share and the Company received $75.6 million in net proceeds, before expenses. The net proceeds were used (i) to repay $19.0 million in indebtedness under the senior credit facility; (ii)
to redeem $17.5 million in outstanding preferred stock and (iii) to pay accrued dividends on the preferred stock of $6.5 million. Of the remaining $32.6 million, $30.2 million was used to fund acquisitions closed during the fourth quarter of fiscal
1999 and $2.4 million was reserved to pay fees and expenses associated with the IPO.



Accounting Period



The Pantry operates on a 52
or 53 week fiscal year ending on the last Thursday in September. Each of the three years presented contained 52 weeks.



Acquisition Accounting



Our acquisitions are accounted for under the purchase method of accounting whereby purchase price is allocated to assets acquired and liabilities assumed
based on fair value. Excess of purchase price over fair value of net assets acquired is recorded as goodwill. Accordingly, the Consolidated Statements of Operations for the fiscal years presented include the results of operations for each of the
acquisitions from the date of acquisition only.



Cash and Cash Equivalents



For purposes of the consolidated financial statements,
cash and cash equivalents include cash on hand, demand deposits and short-term investments with original maturities of three months or less.



Inventories



Inventories are valued at the lower of cost or market. Cost is determined using the last-in, first-out method for merchandise inventories and using the
first-in, first-out method for gasoline inventories.



45



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Property Held for Sale



Property is classified as current assets when managements intent is to sell these assets in the ensuing fiscal year
and is recorded at the lower of cost or fair value less cost to sell. We attempt to identify third parties with which to enter into sale-leaseback transactions prior to developing new stores in order to minimize our capital outlays. If the Company
identifies a store as one that it will attempt to enter into a sale-leaseback transaction prior to developing a new store or if it is able to enter into such a transaction for its existing stores, the property is classified as held for sale. These
assets primarily consist of land and buildings.



Property and Equipment



Property and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation and amortization is provided primarily by the straight-line method over the estimated useful lives of the assets for financial statement purposes and by accelerated methods for income tax
purposes.



Estimated useful lives for financial statement
purposes are as follows:



|                                  |  |                 
|--------------------------------- |  | ----------------
|Buildings                         |  | 20 to 331/2years
|Equipment, furniture and fixtures |  | 3 to 30 years   
|Automobiles                       |  | 3 to 5 years    



Upon sale or
retirement of depreciable assets, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is recognized. Leased buildings capitalized in accordance with Statement of Financial Accounting Standards
(SFAS) No. 13, Accounting for Leases, are recorded at the lesser of fair value or the discounted present value of future lease payments at the inception of the leases. Amounts capitalized are amortized over the estimated useful
lives of the assets or terms of the leases (generally 5 to 20 years) using the straight-line method.



Goodwill



We have
adopted the provisions of SFAS No. 142, Goodwill and Other Intangible Assets,which requires allocating goodwill to each reporting unit and testing for impairment using a two-step approach. Based on our current reporting structure, we have
determined that we operate as one reporting unit and therefore have assigned goodwill at the enterprise level. Fair value is measured using a valuation based on market multiples, comparable transactions and discounted cash flow methodologies. The
goodwill impairment test is performed annually or whenever an event has occurred that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For future valuation, should the enterprise carrying value exceed
the estimated fair market value we would have to perform additional valuations to determine if any goodwill impairment exists. Any impairment recognized will be recorded as a component of operating expenses. See Note 4.



Long-Lived Assets



Long-lived assets are reviewed annually for impairment and whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. When an evaluation is required, the projected future undiscounted cash flows are compared to the carrying value of the long-lived assets to determine if a write-down to fair value is required. We
recorded a provision of approximately $1.9 million, $383 thousand and $2.3 million for asset impairments for certain real estate, leasehold improvements and store and gasoline equipment at certain underperforming stores for fiscal 2003, 2002 and
2001, respectively. We record asset impairment as a component of operating, general and administrative expenses.



46



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Revenue Recognition



Revenues from the Companys two primary product categories, gasoline and merchandise, are recognized at the point of sale. The Company derives
service revenue from lottery ticket sales, money orders, car washes, public telephones, amusement and video gaming and other ancillary product and service offerings, which are included in merchandise revenue.



Cost of Goods Sold



The primary components of cost of sales are gasoline, merchandise, repairs and maintenance of customer delivery equipment
(e.g. gasoline dispensers) and franchise fees for branded fast food service less vendor allowances and rebates. Vendor allowances and rebates are amortized into cost of sales in accordance with vendor agreements.



Operating, General and Administrative Expenses



The primary components of operating, general and administrative expenses are
store labor, store occupancy, operations management and administrative personnel, insurance, and other corporate costs necessary to operate the business.



Deferred Financing Cost



Deferred financing cost represents expenses related to issuing The Pantrys long-term debt, obtaining its lines of credit and obtaining lease
financing. See Note 5Long-Term Debt and Note 12Leases. Such amounts are being amortized over the remaining term of the respective financing and are included in interest expense.



Vendor Allowances, Rebates and Other Vendor Payments



The Company receives payments for vendor allowances, volume rebates and other
supply arrangements in connection with various programs. The Companys accounting practices with regard to some of its most significant arrangements are discussed as follows.



| |  | Vendor allowances for price markdowns are credited to cost of sales during the period in which the related markdown was taken and charged to cost of sales.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Store imaging allowances are recognized as a reduction of cost of sales in the period earned in accordance with the vendor agreement. Store imaging includes signage, canopies, and
other types of branding as defined in the Companys gasoline contracts.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Volume rebates by the vendor in the form of a reduction of the purchase price of the merchandise reduce cost of sales when the related merchandise is sold. Generally, volume rebates
under a structured purchase program with allowances awarded based on the level of purchases are recognized when realization is probable and reasonably estimable, as a reduction in the cost of sales in the appropriate monthly period based on the
actual level of purchases in the period relative to the total purchase commitment.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Slotting and stocking allowances received from a vendor to ensure that its products are carried or to introduce a new product at the Companys stores are recorded as a
reduction of cost of sales over the period covered by the agreement.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



47



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Some of these typical vendor rebate, credit and promotional allowance arrangements require that the
Company make assumptions and judgments regarding, for example, the likelihood of attaining specified levels of purchases or selling specified volumes of products, and the duration of carrying a specified product. The Company constantly reviews the
relevant, significant factors and makes adjustments where the facts and circumstances dictate.



The amounts recorded against cost of sales were $92.6 million, $96.6 million and $81.2 million for fiscal 2003, 2002 and 2001, respectively.



Environmental Costs



The Pantry accounts for the cost incurred to comply with federal and state environmental regulations as follows:



| |  | Environmental reserves reflected in the financial statements are based on internal and external estimates of the costs to remediate sites relating to the operation of underground
storage tanks. Factors considered in the estimates of the reserve are the expected cost to remediate each contaminated site and the estimated length of time to remediate each site.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Future remediation costs for amounts of deductibles under, or amounts not covered by, state trust fund programs and third party insurance arrangements and for which the timing of
payments can be reasonably estimated are discounted using a ten-percent rate. All other environmental costs are provided for on an undiscounted basis.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Amounts which are probable of reimbursement under state trust fund programs or third party insurers, based on The Pantrys experience, are recognized as receivables and are
expected to be collected within a period of twelve to eighteen months after the reimbursement claim has been submitted. These receivables exclude all deductibles and an estimate for uncollectible reimbursements. The Pantrys reimbursement
experience exceeds a 95% collection rate. The adequacy of the liability and uncollectible receivable reserve is evaluated quarterly and adjustments are made based on updated experience at existing sites, newly identified sites and changes in
governmental policy.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Annual fees for tank registration and environmental compliance testing are expensed as incurred.
| | - | ------------------------------------------------------------------------------------------------



| |  | Expenditures for upgrading tank systems including corrosion protection, installation of leak detectors and overfill/spill devices are capitalized and depreciated over the remaining
useful life of the asset or the respective lease term, whichever is less.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Income Taxes



All operations of The Pantry and
its subsidiaries are included in a consolidated Federal income tax return. Pursuant to SFAS No. 109, Accounting for Income Taxes, The Pantry recognizes deferred tax liabilities and assets for the expected future tax consequences of temporary
differences between financial statement carrying amounts and the related tax basis.



Excise and Use Taxes



The Pantry collects and
remits various federal and state excise taxes on petroleum products. Gasoline sales and cost of sales included excise taxes of approximately $497.6 million, $471.9 million, and $450.2 million for fiscal 2003, 2002 and 2001, respectively.



48



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Advertising Costs



Advertising costs are expensed as incurred. Advertising expense was approximately $2.1 million, $1.8 million and $2.0 million for fiscal 2003, 2002 and
2001, respectively.



Stock-Based Compensation



The Companys stock option plans are described more fully in Note 16.
The Company accounts for stock options under the intrinsic value method recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation
cost is reflected in net income (loss), as all options granted under these plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income (loss) and
earnings (loss) per share if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation:



|                                                                                                            |  |      |        |   |      |   |       |      |  |   |        |  
|----------------------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ----- | ---- |  | - | ------ | -
|                                                                                                            |  | 2003 |        |   | 2002 |   |       | 2001 | 
|Net income (loss) (in thousands):                                                                           |  |      |        |   |      |   |       |      |  |   |        |  
|As reported                                                                                                 |  | $    | 11,504 |   |      | $ | 1,804 |      |  | $ | (2,656 | )
|DeductTotal stock-based compensation expense determined under fair value method for all awards, net of tax |  |      | (287   | ) |      |   | (278  | )    |  |   | (234   | )
|                                                                                                            |  |      |        |   |      |   |       |      |  |   |        |  
|Pro forma                                                                                                   |  | $    | 11,217 |   |      | $ | 1,526 |      |  | $ | (2,890 | )
|                                                                                                            |  |      |        |   |      |   |       |      |  |   |        |  
|Basic earnings (loss) per share:                                                                            |  |      |        |   |      |   |       |      |  |   |        |  
|As reported                                                                                                 |  | $    | 0.64   |   |      | $ | 0.10  |      |  | $ | (0.15  | )
|Pro forma                                                                                                   |  | $    | 0.62   |   |      | $ | 0.08  |      |  | $ | (0.16  | )
|Diluted earnings (loss) per share:                                                                          |  |      |        |   |      |   |       |      |  |   |        |  
|As reported                                                                                                 |  | $    | 0.63   |   |      | $ | 0.10  |      |  | $ | (0.15  | )
|Pro forma                                                                                                   |  | $    | 0.61   |   |      | $ | 0.08  |      |  | $ | (0.16  | )



The fair value of each
option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions:



|                                                                                |  |      |      |   |      |   |      |      |  |   |      |  
|------------------------------------------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                                                                |  | 2003 |      |   | 2002 |   |      | 2001 | 
|Weighted-average grant date fair value                                          |  | $    | 0.87 |   |      | $ | 1.71 |      |  | $ | 3.93 |  
|Weighted-average expected lives (years)                                         |  |      | 2.00 |   |      |   | 2.00 |      |  |   | 2.00 |  
|Weighted-average grant date fair value-exercise price equals market price       |  | $    | 0.87 |   |      | $ | 1.71 |      |  | $ | 3.93 |  
|Weighted-average grant date fair value-exercise price greater than market price |  |      |     |   |      |   |     |      |  |   |     |  
|Risk-free interest rate                                                         |  |      | 1.8  | % |      |   | 3.0  | %    |  |   | 4.9  | %
|Expected volatility                                                             |  |      | 70   | % |      |   | 60   | %    |  |   | 66   | %
|Dividend yield                                                                  |  |      | 0.00 | % |      |   | 0.00 | %    |  |   | 0.00 | %



Due to the factors
(assumptions) described above, the above pro forma disclosures are not necessarily representative of pro forma effects on reported net income for future years.



Use of Estimates



The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.



49



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Segment Reporting



The Pantry provides segment reporting in accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which
establishes annual and interim reporting standards for an enterprises business segments and related disclosures about its products, services, geographic areas and major customers. The Pantry operates in one operating segment. The
Companys chief operating decision maker believes the Company operates in one segment due to the following: the sales of both gasoline and merchandise are interrelated, the target customers are the same for all products, and the Companys
stores are homogeneous in product offerings.



Reclassifications



Certain amounts in the fiscal 2002 and 2001 consolidated
financial statements have been reclassified to conform to the fiscal 2003 presentation.



Recently Adopted Accounting Standards



Effective December 27, 2002, we adopted the provisions of Emerging Issues Task Force (EITF) No. 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor. EITF 02-16 requires
that certain cash consideration received by a customer from a vendor is presumed to be a reduction of the prices of the vendors products or services and should, therefore, be characterized as a reduction of cost of sales when recognized in the
customers income statement. However, that presumption is overcome if certain criteria are met. If the presumption is overcome, the consideration would be presented as revenue if it represents a payment for goods or services provided by the
reseller to the vendor, or as an offset to an expense if it represents a reimbursement of a cost incurred by the reseller. The adoption of EITF 02-16 did not have a material impact on our results of operations or classification of expenses.



Effective December 27, 2002, we adopted the provisions of SFAS
No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or
disposal plan. The adoption of SFAS No. 146 did not have a material impact on our results of operations and financial condition.



Effective September 27, 2002, we adopted the provisions of SFAS No. 143, Accounting for Asset Retirement Obligations, which addresses financial
accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. SFAS No. 143 requires us to recognize
an estimated liability associated with the removal of our underground storage tanks. See Note 9 for a discussion of our adoption of SFAS No. 143.



Effective September 27, 2002, we adopted the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. This
statement supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of and Accounting Principles Board No. 30, Reporting the Results of OperationsReporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets and how the results
of a discontinued operation are to be measured and presented. The adoption of SFAS No. 144 did not have a material impact on our results of operations or financial condition.



50



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Effective September 27, 2002, we adopted the provisions of SFAS No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. This statement rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt. SFAS No. 145 also rescinds and amends other existing
authoritative pronouncements. This statement eliminates SFAS No. 4 and, thus, the exception to applying APB Opinion No. 30, Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions (Opinion 30), to all gains and losses related to extinguishments of debt. As a result, gains and losses from extinguishment of debt should be classified as extraordinary
items only if they meet the criteria in Opinion 30. See Note 5 for our discussion on our debt extinguishment.



Effective September 27, 2002, we adopted the provisions of SFAS No. 148, Accounting for Stock-Based CompensationTransition and Disclosure, an
amendment of SFAS No. 123, Accounting for Stock-Based Compensation. This statement was issued to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based compensation. In
addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the
method used on reported results. We are following the disclosure requirements of SFAS No. 148 in our 2003 consolidated financial statements.



In November 2002, the Financial Accounting Standards Board (FASB) issued FASB Interpretation (FIN) 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. This interpretation addresses the disclosure requirements for guarantees and indemnification agreements entered into by an entity.
FIN 45 requires that upon issuance of a guarantee, the entity (i.e., the guarantor) must recognize a liability for the fair value of the obligation it assumes under the guarantee. The disclosure provisions of FIN 45 are effective for financial
statements of interim or annual periods that end after December 15, 2002. The provisions of FIN 45 for initial recognition and measurement are to be applied on a prospective basis to guarantees issued or modified after December 15, 2002,
irrespective of the guarantors fiscal year-end. The guarantors previous accounting for guarantees that were issued before initial application of FIN 45 are not required to be revised or restated to reflect the effect of the recognition
and measurement provisions of FIN 45. The adoption of FIN 45 did not have a material impact on our results of operations and financial condition.



In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, to provide clarification
on the meaning of an underlying derivative, the characteristics of a derivative that contains financing components and the meaning of an initial investment that is smaller than would be required for other types of contracts that would be expected to
have a similar response to changes in market factors. This statement is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. In addition, all provisions of this statement
should be applied prospectively. The provisions of this statement that relate to Statement 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with
their respective effective dates. The adoption of SFAS No. 149 did not have a material impact on our results of operations and financial condition.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS
No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. Some of the provisions of this statement are consistent with the current definition of liabilities in FASB Concepts Statement No. 6,
Elements of Financial



51



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Statements. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003, thus the Company adopted the provisions of SFAS No. 150 for its fourth quarter beginning June 27, 2003. The adoption of this SFAS No. 150 did not have a material impact on our
results of operations and financial condition.



Recently Issued Accounting
Standards Not Yet Adopted



In January 2003, the FASB issued
FIN 46, Consolidation of Variable Interest Entitiesan Interpretation of ARB No. 51. This interpretation provides guidance related to identifying variable interest entities (previously known as special purpose entities or SPEs) and
determining whether such entities should be consolidated. Certain disclosures are required if it is reasonably possible that a company will consolidate or disclose information about a variable interest entity when it initially applies FIN 46. This
interpretation will be effective for the Companys first quarter beginning September 26, 2003. The Company has no investment in or contractual relationship or other business relationship with a variable interest entity and therefore the
adoption of FIN 46 will not have any impact on our results of operations and financial condition. However, if the Company enters into any such arrangement with a variable interest entity in the future (or an entity with which we currently have a
relationship is reconsidered based on guidance in FIN 46 to be a variable interest entity), the Companys results of operations and financial condition will be impacted.



Change in Accounting Estimate



Effective March 28, 2003 we accelerated the depreciation on certain assets related to our gasoline and store branding. These changes were the result of
our gasoline brand consolidation project which will result in either updating or changing the image of the majority of our stores within the next two years. Accordingly, we reassessed the remaining useful lives of these assets based on our plans and
recorded an increase in depreciation expense of $3.4 million. This additional expense had an impact on net income of $2.1 million and reduced earning per sharebasic and diluted by $0.11 per share.



NOTE 2INVENTORIES:



At September 25, 2003 and September 26, 2002, inventories consisted of the following (in thousands):



|                              |  |      |         |   |      |   |         |  
|----------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                              |  | 2003 |         |   | 2002 |  
|Inventories at FIFO cost:     |  |      |         |   |      |   |         |  
|Merchandise                   |  | $    | 74,483  |   |      | $ | 79,535  |  
|Gasoline                      |  |      | 20,996  |   |      |   | 21,669  |  
|                              |  |      |         |   |      |   |         |  
|                              |  |      | 95,479  |   |      |   | 101,204 |  
|Less adjustment to LIFO cost: |  |      |         |   |      |   |         |  
|Merchandise                   |  |      | (11,323 | ) |      |   | (16,767 | )
|                              |  |      |         |   |      |   |         |  
|Inventories at LIFO cost      |  | $    | 84,156  |   |      | $ | 84,437  |  
|                              |  |      |         |   |      |   |         |  



The positive effect on
cost of sales of LIFO inventory liquidations was $1.2 million, $692 thousand and $2.2 million for fiscal 2003, 2002 and 2001, respectively.



52



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 3PROPERTY AND EQUIPMENT:



At September 25, 2003 and September 26, 2002, property and equipment consisted of the following (in thousands):



|                                               |  |      |          |   |      |   |          |  
|---------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | -
|                                               |  | 2003 |          |   | 2002 |  
|Land                                           |  | $    | 78,586   |   |      | $ | 81,653   |  
|Buildings                                      |  |      | 138,857  |   |      |   | 140,793  |  
|Equipment                                      |  |      | 387,502  |   |      |   | 373,243  |  
|Leasehold improvements                         |  |      | 72,221   |   |      |   | 69,294   |  
|Construction in progress                       |  |      | 10,460   |   |      |   | 11,643   |  
|                                               |  |      |          |   |      |   |          |  
|                                               |  |      | 687,626  |   |      |   | 676,626  |  
|Lessaccumulated depreciation and amortization |  |      | (287,017 | ) |      |   | (241,108 | )
|                                               |  |      |          |   |      |   |          |  
|Property and equipment, net                    |  | $    | 400,609  |   |      | $ | 435,518  |  
|                                               |  |      |          |   |      |   |          |  



NOTE 4GOODWILL AND OTHER
INTANGIBLE ASSETS:



Effective September 28, 2001, we
adopted the provisions of SFAS No. 142 and as a result, our goodwill asset is no longer amortized but reviewed at least annually for impairment. Other intangible assets will continue to be amortized over their useful lives. We determined that we
operate in one reporting unit based on the current reporting structure and have thus assigned goodwill at the enterprise level.



During the quarter ended March 27, 2003, we changed the date of our annual goodwill impairment test to the last day of our monthly period ending in
January. We selected our period ending in January to perform our annual goodwill impairment test because we believe such date represents the end of our annual seasonal business cycle. Typically, our business increases during warmer weather months in
the southeastern United States and extends to the holiday season, which ends within our second fiscal quarter. We believe that the change will not delay, accelerate or avoid an impairment charge. Accordingly, we believe that the accounting change
described above is to an alternative date which is preferable under the circumstances.



We completed our annual goodwill impairment test as of January 23, 2003 by comparing the enterprise fair value to its carrying or book value. This valuation indicated an aggregate fair value in excess of our book
value; therefore, we have determined that no impairment existed. Fair value was measured using a valuation by an independent third party as of January 23, 2003, which was based on market multiples, comparable transactions and discounted cash flow
methodologies. We utilized an independent valuation to determine our fair value rather than our market capitalization, as we believe our market capitalization may not be representative of the fair value of the Company because two institutions own
approximately 84% of our outstanding common stock.



On an
ongoing basis, we will perform an annual goodwill impairment test at the end of January. At least quarterly, we will analyze whether an event has occurred that would more likely than not reduce our enterprise fair value below its carrying amount
and, if necessary, we will perform a goodwill impairment test between the annual dates. Impairment adjustments recognized after adoption, if any, will be recognized as operating expenses.



Other intangible assets consist of noncompete agreements with a carrying value of $6.6 million and $7.2 million at September
25, 2003 and September 26, 2002, respectively, net of accumulated amortization of $2.4 million and $1.8 million, respectively. Amortization expense was $626 thousand, $725 thousand and $665 thousand for fiscal 2003, 2002 and 2001, respectively. The
weighted average amortization period of all



53



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



noncompete agreements is 29.2 years. Estimated amortization expense for each of the five fiscal years following September 25, 2003 and thereafter is: $428
thousand in fiscal 2004; $351 thousand in fiscal 2005; $305 thousand in fiscal 2006; $206 thousand in fiscal 2007; $197 thousand in fiscal 2008 and $5.1 million thereafter. Noncompete agreements are classified in other noncurrent assets in the
accompanying consolidated balance sheets.



The following
information presents a summary of consolidated results of operations as if we adopted the provisions of SFAS No. 142 at the beginning of the fiscal year for each of the periods presented (amounts in thousands, except per share data):



|                                            |  |      |        |      |   |       |  |   |        |  
|------------------------------------------- |  | ---- | ------ | ---- | - | ----- |  | - | ------ | -
|                                            |  | 2003 |        | 2002 |   | 2001  | 
|Net income (loss)                           |  | $    | 11,504 |      | $ | 1,804 |  | $ | (2,656 | )
|Goodwill amortization, net                  |  |      |       |      |   |      |  |   | 5,846  |  
|                                            |  |      |        |      |   |       |  |   |        |  
|Adjusted net income                         |  | $    | 11,504 |      | $ | 1,804 |  | $ | 3,190  |  
|                                            |  |      |        |      |   |       |  |   |        |  
|Adjusted earnings (loss) per sharebasic:   |  |      |        |      |   |       |  |   |        |  
|Net income (loss)                           |  | $    | 0.64   |      | $ | 0.10  |  | $ | (0.15  | )
|Goodwill amortization, net                  |  |      |       |      |   |      |  |   | 0.32   |  
|                                            |  |      |        |      |   |       |  |   |        |  
|Adjusted net income per sharebasic         |  | $    | 0.64   |      | $ | 0.10  |  | $ | 0.17   |  
|                                            |  |      |        |      |   |       |  |   |        |  
|Adjusted earnings (loss) per sharediluted: |  |      |        |      |   |       |  |   |        |  
|Net income (loss)                           |  | $    | 0.63   |      | $ | 0.10  |  | $ | (0.15  | )
|Goodwill amortization, net                  |  |      |       |      |   |      |  |   | 0.32   |  
|                                            |  |      |        |      |   |       |  |   |        |  
|Adjusted net income per sharediluted       |  | $    | 0.63   |      | $ | 0.10  |  | $ | 0.17   |  
|                                            |  |      |        |      |   |       |  |   |        |  



NOTE 5LONG-TERM DEBT:



Long-term debt consisted of the following (amounts in
thousands):



|                                                                                                                                                                                         |  |                    |         |   |                    |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | - | ------------------ | - | ------- | -
|                                                                                                                                                                                         |  | September 25, 2003 |         |   | September 26, 2002 |  
|Senior subordinated notes payable; due October 15, 2007; interest payable semi-annually at 10.25%                                                                                        |  | $                  | 200,000 |   |                    | $ | 200,000 |  
|Tranche A term loan; interest payable monthly at LIBOR plus 3.5%                                                                                                                         |  |                    |        |   |                    |   | 26,906  |  
|Tranche B term loan; interest payable monthly at LIBOR plus 4.0%                                                                                                                         |  |                    |        |   |                    |   | 176,185 |  
|Tranche C term loan; interest payable monthly at LIBOR plus 4.25%                                                                                                                        |  |                    |        |   |                    |   | 73,125  |  
|Acquisition term loan; interest payable monthly at LIBOR plus 3.5%                                                                                                                       |  |                    |        |   |                    |   | 27,500  |  
|First lien term loan; interest payable monthly at LIBOR plus 4.25%; principal due in quarterly installments through March 31, 2007, net of
unamortized original issue discount of $3,347 |  |                    | 247,153 |   |                    |   |        |  
|Second lien term loan; interest payable monthly at LIBOR plus 6.5%; principal due in full on March 31, 2007, net of unamortized original issue
discount of $682                          |  |                    | 50,318  |   |                    |   |        |  
|Notes payable to McLane Company, Inc.; paid in full                                                                                                                                      |  |                    |        |   |                    |   | 297     |  
|Other notes payable; various interest rates and maturity dates                                                                                                                           |  |                    | 98      |   |                    |   | 162     |  
|                                                                                                                                                                                         |  |                    |         |   |                    |   |         |  
|Total long-term debt                                                                                                                                                                     |  |                    | 497,569 |   |                    |   | 504,175 |  
|Lesscurrent maturities                                                                                                                                                                  |  |                    | (27,558 | ) |                    |   | (43,255 | )
|                                                                                                                                                                                         |  |                    |         |   |                    |   |         |  
|Long-term debt, net of current maturities                                                                                                                                                |  | $                  | 470,011 |   |                    | $ | 460,920 |  
|                                                                                                                                                                                         |  |                    |         |   |                    |   |         |  



54



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



On April 14, 2003, we entered into a new senior secured credit facility, which consisted of a $253.0
million first lien term loan, a $51.0 million second lien term loan and a $52.0 million revolving credit facility, each maturing March 31, 2007. Proceeds from the new senior secured credit facility were used to repay all amounts outstanding under
the previously existing senior credit facility and loan origination costs. The term loans were issued with an original issue discount of $4.6 million, which will be amortized over the life of the agreement, using the effective interest method. In
connection with the refinancing, we recorded a non-cash charge of approximately $2.9 million related to the write-off of deferred financing costs associated with the previous credit facility and is included in operating, general and administrative
expenses.



At September 25, 2003, our senior credit facility
consists of a $52.0 million revolving credit facility, which expires March 31, 2007 and bears interest at a rate of LIBOR plus 4.25%, and $297.5 million in outstanding term loans. Our revolving credit facility is available for working capital
financing, general corporate purposes and issuing commercial and standby letters of credit. As of September 25, 2003, there were no outstanding borrowings under the revolving credit facility and we had approximately $30.0 million of standby letters
of credit issued under the facility. Therefore, we had approximately $22.0 million in available borrowing capacity. Furthermore, the revolving credit facility limits our total outstanding letters of credit to $45.0 million. The LIBOR associated with
our senior credit facility resets periodically and has certain LIBOR floors. As of September 25, 2003, the effective LIBOR rate was 1.75% for the first lien term loan and 1.50% for the second lien term loan.



The senior secured credit facility contains various restrictive covenants
including a minimum EBITDA, maximum leverage ratio, minimum fixed charge coverage, maximum capital expenditures as well as other customary covenants, representations and warranties and events of default. At September 25, 2003, we were in compliance
with all covenants and restrictions related to all outstanding borrowings. Substantially all of our net assets are restricted as to payment of dividends and distributions.



Subsequent to September 25, 2003, we entered into an amendment to our senior credit facility to increase the borrowings
under the first lien term loan by $80.0 million. The proceeds from the term loan were used to fund the Golden Gallon® acquisition. See Note 19Subsequent Events. Also, subsequent to September 25, 2003, we increased the availability under our revolving credit
facility by $4.0 million to $56.0. As of December 1, 2003 there were no borrowings outstanding under this facility and $30.0 million of standby letters of credit issued under the facility.



The remaining annual maturities of our long-term debt are as follows (amounts
in thousands):



|                              |  |   |         |  
|----------------------------- |  | - | ------- | -
|Year Ended September:         |  |   |         |  
|2004                          |  | $ | 27,558  |  
|2005                          |  |   | 16,029  |  
|2006                          |  |   | 25,260  |  
|2007                          |  |   | 232,751 |  
|2008                          |  |   | 200,000 |  
|Thereafter                    |  |   |        |  
|                              |  |   |         |  
|Total principal payments      |  | $ | 501,598 |  
|Less: Original issue discount |  |   | (4,029  | )
|                              |  |   |         |  
|Total long-term debtnet      |  | $ | 497,569 |  
|                              |  |   |         |  



The fair value of our
indebtedness approximated $509.2 million at September 25, 2003.



55



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 6DERIVATIVE FINANCIAL INSTRUMENTS:



We enter into interest rate swap agreements to modify the interest rate characteristics of our outstanding long-term debt
and have designated each qualifying instrument as a cash flow hedge. We formally document our hedge relationships, including identifying the hedge instruments and hedged items, as well as our risk management objectives and strategies for entering
into the hedge transaction. At hedge inception, and at least quarterly thereafter, the Company assesses whether derivatives used to hedge transactions are highly effective in offsetting changes in the cash flow of the hedged item. We measure
effectiveness by the ability of the interest rate swaps to offset cash flows associated with changes in the variable LIBOR rate associated with our term loan facilities using the hypothetical derivative method. To the extent there is any hedge
ineffectiveness, changes in fair value are recorded as a component of other comprehensive income (loss). To the extent the instruments are considered ineffective, any changes in fair value relating to the ineffective portion are immediately
recognized in earnings (interest expense). When it is determined that a derivative ceases to be a highly effective hedge, we discontinue hedge accounting, and subsequent changes in fair value of the hedge instrument are recognized in earnings.
Interest income (expense) was $3.4 million, $(926) thousand and $(4.2) million for fiscal 2003, 2002 and 2001, respectively, for the mark-to-market adjustment of those instruments that do not qualify for hedge accounting.



The fair values of our interest rate swaps are obtained from dealer quotes.
These values represent the estimated amount we would receive or pay to terminate the agreement taking into consideration the difference between the contract rate of interest and rates currently quoted for agreements of similar terms and maturities.
At September 25, 2003, other accrued liabilities and other noncurrent liabilities include derivative liabilities of $1.5 million and $1.4 million, respectively. At September 26, 2002, other accrued liabilities and other noncurrent liabilities
include derivative liabilities of $699 thousand and $7.9 million, respectively. Cash flow hedges at September 25, 2003 have various settlement dates, the latest of which are April 2006 interest rate swaps.



NOTE 7COMPREHENSIVE INCOME (DEFICIT):



The components of accumulated other comprehensive deficit, net of related
taxes, are as follows (amounts in thousands):



|                                                                                                         |  |      |      |   |      |   |        |  
|-------------------------------------------------------------------------------------------------------- |  | ---- | ---- | - | ---- | - | ------ | -
|                                                                                                         |  | 2003 |      |   | 2002 |  
|Cumulative effect of adoption of SFAS No. 133 (net of related taxes of $0 and $93, respectively)         |  | $    |     |   |      | $ | (158   | )
|Unrealized losses on qualifying cash flow hedges (net of related taxes of $432 and $1,261, respectively) |  |      | (690 | ) |      |   | (1,954 | )
|                                                                                                         |  |      |      |   |      |   |        |  
|Accumulated other comprehensive deficit                                                                  |  | $    | (690 | ) |      | $ | (2,112 | )
|                                                                                                         |  |      |      |   |      |   |        |  



The components of
other comprehensive income, net of related taxes, for the periods presented are as follows (amounts in thousands):



|                                                                                                                                |  |      |       |      |   |       |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | ---- | - | ----- |  | - | ------ | -
|                                                                                                                                |  | 2003 |       | 2002 |   | 2001  | 
|Amortization of cumulative effect of adoption of SFAS No. 133 (net of deferred taxes of $93, $135 and $61, respectively)        |  | $    | 158   |      | $ | 205   |  | $ | 98     |  
|Net unrealized gains (losses) on qualifying cash flow hedges (net of deferred taxes of $708, $1,292 and $(2,553),
respectively) |  |      | 1,264 |      |   | 1,966 |  |   | (3,920 | )
|                                                                                                                                |  |      |       |      |   |       |  |   |        |  
|Other comprehensive income (loss)                                                                                               |  | $    | 1,422 |      | $ | 2,171 |  | $ | (3,822 | )
|                                                                                                                                |  |      |       |      |   |       |  |   |        |  



56



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The components of unrealized gains on qualifying cash flow hedges, net of related taxes, for the
periods presented are as follows (amounts in thousands):



|                                                               |  |      |        |   |      |   |        |      |  |   |        |  
|-------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                               |  | 2003 |        |   | 2002 |   |        | 2001 | 
|Unrealized gains (losses) on qualifying cash flow hedges       |  | $    | 3,272  |   |      | $ | 5,465  |      |  | $ | (4,674 | )
|Less: Reclassification adjustment recorded as interest expense |  |      | (2,008 | ) |      |   | (3,499 | )    |  |   | 754    |  
|                                                               |  |      |        |   |      |   |        |      |  |   |        |  
|Net unrealized gains (losses) on qualifying cash flow hedges   |  | $    | 1,264  |   |      | $ | 1,966  |      |  | $ | (3,920 | )
|                                                               |  |      |        |   |      |   |        |      |  |   |        |  



NOTE 8RESTRUCTURING AND OTHER
CHARGES:



During fiscal 2001, we completed a plan designed
to strengthen our organizational structure and reduce operating costs by centralizing corporate administrative functions. The plan included closing an administrative facility located in Jacksonville, Florida and integrating key marketing, finance
and administrative activities into our corporate headquarters located in Sanford, North Carolina.



As a result of these actions, we recorded pre-tax restructuring and other charges of $4.8 million during fiscal 2001. The restructuring charge consisted
of $1.7 million of employee termination benefits, $650 thousand of lease obligations and $490 thousand of legal and other professional consultant fees. During fiscal 2001, the Company also incurred and expended $1.9 million in other non-recurring
charges for related actions. Employee termination benefits represent severance and outplacement benefits for 100 employees, 49 of which are in administrative positions and 51 of which are in managerial positions. Lease obligations represent
remaining lease payments in excess of estimated sublease rental income for the Jacksonville facility. Substantially all remaining obligations as of the balance sheet date will be expended by the end of fiscal 2003 (except for lease obligations which
expire in fiscal 2005). Fiscal 2002 and 2001 activity related to the restructuring reserve was as follows (amounts in thousands):



|                                      |  |                       |       |             |   |                    |  |                    |       |             |   |                    |  |                    |     |             |   |                    |  |   |     |  |   |     |  |  
|------------------------------------- |  | --------------------- | ----- | ----------- | - | ------------------ |  | ------------------ | ----- | ----------- | - | ------------------ |  | ------------------ | --- | ----------- | - | ------------------ |  | - | --- |  | - | --- |  | -
|                                      |  | FiscalYear2001Expense |       | CashOutlays |   | Non-cashWrite-offs |  | September 27, 2001 |       | CashOutlays |   | Non-cashWrite-offs |  | September 26, 2002 |     | CashOutlays |   | September 25, 2003
|Employee termination benefits         |  | $                     | 1,736 |             | $ | 943                |  |                    |      |             | $ | 793                |  | $                  | 275 |             | $ | 499                |  | $ | 19  |  | $ | 19  |  | 
|Lease buyout costs                    |  |                       | 650   |             |   | 47                 |  |                    |      |             |   | 603                |  |                    | 397 |             |   |                   |  |   | 206 |  |   | 206 |  | 
|Legal and other professional costs    |  |                       | 490   |             |   | 341                |  |                    |      |             |   | 149                |  |                    | 109 |             |   | 40                 |  |   |    |  |   |    |  | 
|                                      |  |                       |       |             |   |                    |  |                    |       |             |   |                    |  |                    |     |             |   |                    |  |   |     |  |   |     |  |  
|Total restructuring reserve           |  |                       | 2,876 |             |   | 1,331              |  |                    |      |             |   | 1,545              |  |                    | 781 |             |   | 539                |  |   | 225 |  |   | 225 |  | 
|Other non-recurring charges           |  |                       | 1,895 |             |   | 845                |  |                    | 1,050 |             |   |                   |  |                    |    |             |   |                   |  |   |    |  |   |    |  | 
|                                      |  |                       |       |             |   |                    |  |                    |       |             |   |                    |  |                    |     |             |   |                    |  |   |     |  |   |     |  |  
|Total restructuring and other charges |  | $                     | 4,771 |             | $ | 2,176              |  | $                  | 1,050 |             | $ | 1,545              |  | $                  | 781 |             | $ | 539                |  | $ | 225 |  | $ | 225 |  | 
|                                      |  |                       |       |             |   |                    |  |                    |       |             |   |                    |  |                    |     |             |   |                    |  |   |     |  |   |     |  |  



NOTE 9ASSET RETIREMENT
OBLIGATIONS:



Effective September 27, 2002, we adopted the
provisions of SFAS No. 143 and, as a result, we recognize the future cost to remove an underground storage tank over the estimated useful life of the storage tank in accordance with SFAS No. 143. A liability for the fair value of an asset retirement
obligation with a corresponding increase to the carrying value of the related long-lived asset is recorded at the time an underground storage tank is installed. We will amortize the amount added to property and equipment and recognize accretion
expense in connection with the discounted liability over the remaining life of the respective underground storage tanks.



57



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The estimated liability is based on historical experience in removing these tanks, estimated tank
useful lives, external estimates as to the cost to remove the tanks in the future and federal and state regulatory requirements. The liability is a discounted liability using a credit-adjusted risk-free rate of approximately 9%. Revisions to the
liability could occur due to changes in tank removal costs, tank useful lives or if federal and/or state regulators enact new guidance on the removal of such tanks.



Upon adoption, we recorded a discounted liability of $8.4 million, which is included in other noncurrent liabilities,
increased net property and equipment by $2.7 million and recognized a one-time cumulative effect adjustment of $3.5 million (net of deferred tax benefit of $2.2 million). We will amortize the amount added to property and equipment and recognize
accretion expense in connection with the discounted liability over the remaining lives of the respective underground storage tanks. The effects on earnings from continuing operations before cumulative effect of change in accounting principle for
years ended September 26, 2002 and September 27, 2001, assuming the adoption of SFAS No. 143 as of September 28, 2000, were not material to net income or earnings per share.



A reconciliation of our liability for the year ended September 25, 2003, is as follows (amounts in thousands):



|                                    |  |   |       |  
|----------------------------------- |  | - | ----- | -
|Upon adoption at September 27, 2002 |  | $ | 8,443 |  
|Liabilities incurred                |  |   | 191   |  
|Liabilities settled                 |  |   | (159  | )
|Accretion expense                   |  |   | 765   |  
|                                    |  |   |       |  
|Total asset retirement obligation   |  | $ | 9,240 |  
|                                    |  |   |       |  



NOTE 10INTEREST EXPENSE:



The components of interest expense are as follows (amounts
in thousands):



|                                                                               |  |      |        |   |      |   |        |  |   |       
|------------------------------------------------------------------------------ |  | ---- | ------ | - | ---- | - | ------ |  | - | ------
|                                                                               |  | 2003 |        |   | 2002 |   | 2001  
|Interest on long-term debt, including amortization of deferred financing costs |  | $    | 41,572 |   |      | $ | 39,577 |  | $ | 50,652
|Fair market value change in non-qualifying derivatives                         |  |      | (3,381 | ) |      |   | 926    |  |   | 4,244 
|Interest on capital lease obligations                                          |  |      | 2,281  |   |      |   | 2,189  |  |   | 1,936 
|Interest rate swap settlements                                                 |  |      | 8,470  |   |      |   | 8,840  |  |   | 1,822 
|Miscellaneous                                                                  |  |      | 323    |   |      |   | 114    |  |   | 77    
|                                                                               |  |      |        |   |      |   |        |  |   |       
|                                                                               |  | $    | 49,265 |   |      | $ | 51,646 |  | $ | 58,731
|                                                                               |  |      |        |   |      |   |        |  |   |       



58



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 11INCOME TAXES:



The components of income tax expense are summarized below (in thousands):



|          |  |      |       |      |   |       |  |   |    
|--------- |  | ---- | ----- | ---- | - | ----- |  | - | ---
|          |  | 2003 |       | 2002 |   | 2001 
|Current:  |  |      |       |      |   |       |  |   |    
|Federal   |  | $    |      |      | $ |      |  | $ |   
|State     |  |      |      |      |   |      |  |   |   
|          |  |      |       |      |   |       |  |   |    
|          |  | $    |      |      | $ |      |  | $ |   
|          |  |      |       |      |   |       |  |   |    
|Deferred: |  |      |       |      |   |       |  |   |    
|Federal   |  | $    | 8,286 |      | $ | 998   |  | $ | 776
|State     |  |      | 1,099 |      |   | 132   |  |   | 95 
|          |  |      |       |      |   |       |  |   |    
|          |  |      | 9,385 |      |   | 1,130 |  |   | 871
|          |  |      |       |      |   |       |  |   |    
|          |  | $    | 9,385 |      | $ | 1,130 |  | $ | 871
|          |  |      |       |      |   |       |  |   |    



As of September 25,
2003 and September 26, 2002, deferred tax liabilities (assets) are comprised of the following (in thousands):



|                                 |  |      |         |   |      |   |         |  
|-------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                 |  | 2003 |         |   | 2002 |  
|Depreciation                     |  | $    | 67,541  |   |      | $ | 65,224  |  
|Inventories                      |  |      | 3,430   |   |      |   | 3,770   |  
|Amortization                     |  |      | 15,275  |   |      |   | 8,588   |  
|Miscellaneous expenses           |  |      |        |   |      |   | 3,013   |  
|Environmental expenses           |  |      | 824     |   |      |   | 1,101   |  
|Other                            |  |      | 67      |   |      |   | 80      |  
|                                 |  |      |         |   |      |   |         |  
|Gross deferred tax liabilities   |  |      | 87,137  |   |      |   | 81,776  |  
|                                 |  |      |         |   |      |   |         |  
|Capital lease obligations        |  |      | (1,987  | ) |      |   | (1,568  | )
|Allowance for doubtful accounts  |  |      | (256    | ) |      |   | (267    | )
|Accrued insurance                |  |      | (4,634  | ) |      |   | (3,631  | )
|Accrued compensation             |  |      | (461    | ) |      |   |        |  
|Derivative liabilities           |  |      | (1,019  | ) |      |   | (3,214  | )
|Asset retirement obligation      |  |      | (2,180  | ) |      |   |        |  
|Deferred income                  |  |      | (7,565  | ) |      |   | (5,191  | )
|Accrued vacation                 |  |      | (323    | ) |      |   | (391    | )
|Reserve for closed stores        |  |      | (1,382  | ) |      |   | (787    | )
|Restructuring reserve            |  |      |        |   |      |   | (87     | )
|Other                            |  |      | (819    | ) |      |   | (380    | )
|                                 |  |      |         |   |      |   |         |  
|Gross deferred tax assets        |  |      | (20,626 | ) |      |   | (15,516 | )
|Net operating loss carryforwards |  |      | (17,065 | ) |      |   | (25,613 | )
|General business credits         |  |      | (1,024  | ) |      |   | (1,233  | )
|AMT credits                      |  |      | (2,741  | ) |      |   | (2,468  | )
|                                 |  |      |         |   |      |   |         |  
|                                 |  | $    | 45,681  |   |      | $ | 36,946  |  
|                                 |  |      |         |   |      |   |         |  



As of September 25,
2003 and September 26, 2002, net current deferred income tax assets totaled $4.3 million and $1.4 million, respectively, and net noncurrent deferred income tax liabilities totaled $50.0 million and $38.4 million, respectively.



59



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Reconciliations of income taxes at the federal statutory rate (34%) to actual taxes provided are as
follows (in thousands):



|                                                             |  |      |       |      |   |       |  |   |       |  
|------------------------------------------------------------ |  | ---- | ----- | ---- | - | ----- |  | - | ----- | -
|                                                             |  | 2003 |       | 2002 |   | 2001  | 
|Tax expense (benefit) at Federal statutory rate              |  | $    | 8,286 |      | $ | 998   |  | $ | (607  | )
|Tax expense at state rate, net of Federal income tax expense |  |      | 926   |      |   | 109   |  |   |      |  
|Permanent differences:                                       |  |      |       |      |   |       |  |   |       |  
|Amortization of goodwill                                     |  |      |      |      |   |      |  |   | 1,320 |  
|Other                                                        |  |      | 173   |      |   | 23    |  |   | 158   |  
|                                                             |  |      |       |      |   |       |  |   |       |  
|Net income tax expense                                       |  | $    | 9,385 |      | $ | 1,130 |  | $ | 871   |  
|                                                             |  |      |       |      |   |       |  |   |       |  



As of September 25,
2003, The Pantry had net operating loss carryforwards, general business credits and AMT credits which can be used to offset future federal income taxes. The benefit of these carryforwards is recognized as deferred tax assets. Loss carryforwards as
of September 25, 2003 have the following expiration dates (in thousands):



|                         |  |         |        |       |   |       
|------------------------ |  | ------- | ------ | ----- | - | ------
|                         |  | Federal |        | State
|2009                     |  | $       |       |       | $ | 3,158 
|2010                     |  |         |       |       |   | 2,974 
|2011                     |  |         |       |       |   | 10,919
|2012                     |  |         |       |       |   | 5,101 
|2013                     |  |         |       |       |   | 13,274
|2014                     |  |         |       |       |   | 5,162 
|2015                     |  |         |       |       |   | 5,841 
|2016                     |  |         |       |       |   | 13,928
|2017                     |  |         |       |       |   | 6,969 
|2020                     |  |         | 20,171 |       |   |      
|2021                     |  |         | 21,108 |       |   |      
|                         |  |         |        |       |   |       
|Total loss carryforwards |  | $       | 41,279 |       | $ | 67,326
|                         |  |         |        |       |   |       



NOTE 12LEASES:



The Pantry leases store buildings, office facilities and
store equipment under both capital and operating leases. The asset balances related to capital leases at September 25, 2003 and September 26, 2002 are as follows (in thousands):



|                              |  |      |         |   |      |   |        |  
|----------------------------- |  | ---- | ------- | - | ---- | - | ------ | -
|                              |  | 2003 |         |   | 2002 |  
|Buildings                     |  | $    | 24,837  |   |      | $ | 24,466 |  
|Lessaccumulated amortization |  |      | (10,580 | ) |      |   | (9,936 | )
|                              |  |      |         |   |      |   |        |  
|                              |  | $    | 14,257  |   |      | $ | 14,530 |  
|                              |  |      |         |   |      |   |        |  



Amortization expense
related to capitalized leased assets was $1.5 million, $1.4 million and $1.3 million for fiscal 2003, 2002 and 2001, respectively.



60



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Future minimum lease payments as of September 25, 2003 for capital leases and operating leases that
have initial or remaining terms in excess of one year are as follows (in thousands):



|                                            |  |                |        |                  |   |        
|------------------------------------------- |  | -------------- | ------ | ---------------- | - | -------
|Fiscal Year                                 |  | Capital Leases |        | Operating Leases
|2004                                        |  | $              | 3,597  |                  | $ | 54,599 
|2005                                        |  |                | 3,271  |                  |   | 51,990 
|2006                                        |  |                | 3,050  |                  |   | 48,885 
|2007                                        |  |                | 2,994  |                  |   | 46,947 
|2008                                        |  |                | 2,740  |                  |   | 44,964 
|Thereafter                                  |  |                | 22,659 |                  |   | 312,465
|                                            |  |                |        |                  |   |        
|Net minimum lease payments                  |  |                | 38,311 |                  | $ | 559,850
|                                            |  |                |        |                  |   |        
|Amount representing interest (8% to 20%)    |  |                | 21,157 |                  |   |        
|                                            |  |                |        |                  |   |        
|Present value of net minimum lease payments |  |                | 17,154 |                  |   |        
|Lesscurrent maturities                     |  |                | 1,375  |                  |   |        
|                                            |  |                |        |                  |   |        
|                                            |  | $              | 15,779 |                  |   |        
|                                            |  |                |        |                  |   |        



Rental expense for
operating leases was approximately $56.3 million, $56.0 million and $54.0 million for fiscal 2003, 2002 and 2001, respectively. The Company has facility leases with step rent provisions, capital improvement funding, and other forms of lease
concessions. In accordance with generally accepted accounting principles, the Company records step rent provisions and lease concessions on a straight-line basis over the minimum lease term. Some of The Pantrys leases require contingent rental
payments; such amounts are not material for the fiscal years presented.



During fiscal 2003, 2002 and 2001, The Pantry entered into sale-leaseback transactions with unrelated parties with net proceeds of $2.3 million, $6.2 million and $3.5 million, respectively. The assets sold in these transactions consisted of
newly constructed or acquired convenience stores. The Pantry retained ownership of all personal property and gasoline marketing equipment at these locations. The net proceeds from these transactions approximated the carrying value of the assets at
the time of sale; accordingly, any gains or losses recognized on these transactions were insignificant for all periods presented. Generally, the leases are operating leases at market rates with terms of twenty years with four five-year renewal
options.



NOTE 13COMMITMENTS AND CONTINGENCIES:



As of September 25, 2003, The Pantry was contingently liable for outstanding
letters of credit in the amount of $30.0 million related primarily to several areas in which The Pantry is self-insured. The letters of credit are not to be drawn against unless The Pantry defaults on the timely payment of related liabilities.



The Pantry is involved in certain legal actions arising in the
normal course of business. In the opinion of management, based on a review of such legal proceedings, the ultimate outcome of these actions will not have a material effect on the consolidated financial statements.



Unamortized Liabilities Associated with Vendor Payments



In accordance with the terms of each service or supply agreement and in
accordance with accounting principles generally accepted in the United States of America, service and supply allowances are amortized over the life of each agreement in accordance with the specific terms. At September 25, 2003, other accrued
liabilities and other noncurrent liabilities include the unamortized liabilities associated with these payments of $7.7 million



61



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



and $37.3 million, respectively. At September 26, 2002, other accrued liabilities and other noncurrent liabilities include the unamortized liabilities
associated with these payments of $3.3 million and $51.7 million, respectively.



McLane Company, Inc. (McLane)The Pantry purchases over 50% of its general merchandise from a single wholesaler, McLane. The Pantrys arrangement with McLane is governed by a five-year
distribution service agreement, which was amended on October 5, 2002 and expires on October 10, 2008. The Pantry receives annual service allowances based on the number of stores operating on each contract anniversary date. If The Pantry were to
default under the contract or terminate the distribution service agreement prior to October 10, 2004, The Pantry must reimburse McLane the unearned, unamortized portion of the service allowance payments received to date. In accordance with the terms
of the distribution service agreement and in accordance with generally accepted accounting principles, the original service allowances received and all future service allowances are amortized to cost of goods sold on a straight-line method over the
life of the agreement.



Major Oil CompaniesThe Pantry has
entered into product brand imaging agreements with numerous oil companies to buy specified quantities of gasoline at market prices. The length of these contracts range from five to thirteen years and in some cases include minimum annual purchase
requirements. In connection with these agreements, The Pantry may receive upfront vendor allowances, volume incentive payments and other vendor assistance payments. If The Pantry were to default under the terms of any contract or terminate the
supply agreement prior to the end of the initial term, The Pantry must reimburse the respective oil company for the unearned, unamortized portion of the payments received to date. In accordance with accounting principles generally accepted in the
United States of America, these payments are amortized to cost of goods sold using the specific amortization periods in accordance with the terms of each agreement, either using the straight-line method or based on gasoline volume purchased.



Environmental Liabilities and Contingencies



We are subject to various federal, state and local environmental laws. We
make financial expenditures in order to comply with regulations governing underground storage tanks adopted by federal, state and local regulatory agencies. In particular, at the federal level, the Resource Conservation and Recovery Act of 1976, as
amended, requires the EPA to establish a comprehensive regulatory program for the detection, prevention and cleanup of leaking underground storage tanks.



Federal and state regulations require us to provide and maintain evidence that we are taking financial responsibility for corrective action and
compensating third parties in the event of a release from our underground storage tank systems. In order to comply with these requirements, as of December 10, 2003, we maintain letters of credit in the aggregate amount of approximately $1.1 million
in favor of state environmental agencies in North Carolina, South Carolina, Virginia, Georgia, Indiana, Tennessee, Kentucky and Louisiana. We also rely upon the reimbursement provisions of applicable state trust funds. In Florida, we meet our
financial responsibility requirements by state trust fund coverage through December 31, 1998 and meet such requirements thereafter through private commercial liability insurance. In Georgia, we meet our financial responsibility requirements by state
trust fund coverage through December 29, 1999 and meet such requirements thereafter through private commercial liability insurance and a letter of credit. In Mississippi, we meet our financial responsibility requirements through coverage under the
state trust fund.



Regulations enacted by the EPA in 1988
established requirements for:



| |  | installing underground storage tank systems;
| | - | --------------------------------------------



| |  | upgrading underground storage tank systems;
| | - | -------------------------------------------



62



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



| |  | taking corrective action in response to releases;
| | - | -------------------------------------------------



| |  | closing underground storage tank systems;
| | - | -----------------------------------------



| |  | keeping appropriate records; and
| | - | --------------------------------



| |  | maintaining evidence of financial responsibility for taking corrective action and compensating third parties for bodily injury and property damage resulting from releases.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



These regulations permit states to develop,
administer and enforce their own regulatory programs, incorporating requirements which are at least as stringent as the federal standards. In 1998, Florida developed their own regulatory program, which incorporated requirements more stringent than
the 1988 EPA regulations. We believe our facilities in Florida meet or exceed those regulations developed by the state of Florida in 1998. We believe all company-owned underground storage tank systems are in material compliance with these 1988 EPA
regulations and all applicable state environmental regulations.



All states in which we operate or have operated underground storage tank systems have established trust funds for the sharing, recovering and reimbursing of certain cleanup costs and liabilities incurred as a result of releases from
underground storage tank systems. These trust funds, which essentially provide insurance coverage for the cleanup of environmental damages caused by the operation of underground storage tank systems, are funded by an underground storage tank
registration fee and a tax on the wholesale purchase of motor fuels within each state. We have paid underground storage tank registration fees and gasoline taxes to each state where we operate to participate in these trust fund programs. We have
filed claims and received reimbursements in North Carolina, South Carolina, Kentucky, Indiana, Georgia, Florida, Tennessee, Mississippi and Virginia. The coverage afforded by each state fund varies but generally provides up to $1.0 million per site
or occurrence for the cleanup of environmental contamination, and most provide coverage for third-party liabilities. Costs for which we do not receive reimbursement include:



| |  | the per-site deductible;
| | - | ------------------------



| |  | costs incurred in connection with releases occurring or reported to trust funds prior to their inception;
| | - | ---------------------------------------------------------------------------------------------------------



| |  | removal and disposal of underground storage tank systems; and
| | - | -------------------------------------------------------------



| |  | costs incurred in connection with sites otherwise ineligible for reimbursement from the trust funds.
| | - | ----------------------------------------------------------------------------------------------------



The trust funds generally require us to pay deductibles ranging from $5 thousand to $150 thousand per occurrence depending
on the upgrade status of our underground storage tank system, the date the release is discovered and/or reported and the type of cost for which reimbursement is sought. The Florida trust fund will not cover releases first reported after December 31,
1998. We obtained private insurance coverage for remediation and third party claims arising out of releases reported after December 31, 1998. We believe that this coverage exceeds federal and Florida financial responsibility regulations. In Georgia,
we opted not to participate in the state trust fund effective December 30, 1999. We obtained private coverage for remediation and third party claims arising out of releases reported after December 29, 1999. We believe that this coverage exceeds
federal and Georgia financial responsibility regulations.



In
addition to immaterial amounts to be spent by The Pantry, a substantial amount will be expended for remediation on behalf of The Pantry by state trust funds established in The Pantrys operating areas or other responsible third parties
(including insurers). To the extent such third parties do not pay for remediation as anticipated by The Pantry, The Pantry will be obligated to make such payments, which could materially adversely affect The Pantrys financial condition and
results of operations. Reimbursement from state trust funds will be dependent upon the maintenance and continued solvency of the various funds.



63



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Environmental reserves of $13.8 million and $13.3 million as of September 25, 2003 and September 26,
2002, respectively, represent our estimates for future expenditures for remediation, tank removal and litigation associated with 236 and 240 known contaminated sites, respectively, as a result of releases (e.g., overfills, spills and underground
storage tank releases) and are based on current regulations, historical results and certain other factors. We estimate that approximately $12.5 million of our environmental obligation will be funded by state trust funds and third party insurance.
Our environmental reserve, dated as of September 25, 2003, does not include the 31 Golden Gallon® sites that were known to be contaminated at the time of our October 2003 acquisition. State trust funds, insurers or other third parties are responsible for the costs of remediation at
all 31 such Golden Gallon® sites. Also, as of
September 25, 2003 and September 26, 2002 there were an additional 495 and 470 sites, respectively, that are known to be contaminated sites that are being remediated by third parties and therefore the costs to remediate such sites are not included
in our environmental reserve. Remediation costs for known sites are expected to be incurred over the next one to ten years. Environmental reserves have been established on an undiscounted basis with remediation costs based on internal and external
estimates for each site. Future remediation costs for amounts of deductibles under, or amounts not covered by, state trust fund programs and third party insurance arrangements and for which the timing of payments can be reasonably estimated are
discounted using a ten-percent rate. The undiscounted amount of future estimated payments for which The Pantry does not expect to be reimbursed for each of the five fiscal years and thereafter at September 25, 2003 and other cost amounts covered by
responsible third parties are as follows (in thousands):



|                                                        |  |                   |        |  
|------------------------------------------------------- |  | ----------------- | ------ | -
|Fiscal Year                                             |  | Expected Payments |       
|2004                                                    |  | $                 | 508    |  
|2005                                                    |  |                   | 495    |  
|2006                                                    |  |                   | 370    |  
|2007                                                    |  |                   | 181    |  
|2008                                                    |  |                   | 42     |  
|Thereafter                                              |  |                   | 74     |  
|                                                        |  |                   |        |  
|Total undiscounted amounts not covered by a third party |  |                   | 1,670  |  
|Other current cost amounts                              |  |                   | 15,677 |  
|Amount representing interest (10%)                      |  |                   | (3,524 | )
|                                                        |  |                   |        |  
|Environmental reserve                                   |  | $                 | 13,823 |  
|                                                        |  |                   |        |  



The Pantry anticipates
that it will be reimbursed for a portion of these expenditures from state trust funds and private insurance. As of September 25, 2003, anticipated reimbursements of $15.1 million are recorded as long-term environmental receivables. In Florida,
remediation of such contamination reported before January 1, 1999 will be performed by the state (or state-approved independent contractors) and substantially all of the remediation costs, less any applicable deductibles, will be paid by the state
trust fund. The Pantry will perform remediation in other states through independent contractor firms engaged by The Pantry. For certain sites the trust fund does not cover a deductible or has a co-pay which may be less than the cost of such
remediation. Although The Pantry is not aware of releases or contamination at other locations where it currently operates or has operated stores, any such releases or contamination could require substantial remediation expenditures, some or all of
which may not be eligible for reimbursement from state trust funds.



Several of the locations identified as contaminated are being remediated by third parties who have indemnified The Pantry as to responsibility for clean up matters. Additionally, The Pantry is awaiting closure notices on several other
locations which will release The Pantry from responsibility related to known contamination at those sites. These sites continue to be included in our environmental reserve until a final closure notice is received.



64



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 14BENEFIT PLANS:



The Pantry sponsors a 401(k) Employee Retirement Savings Plan for eligible employees. Employees must be at least twenty-one
years of age and have one year of service with at least 1,000 hours worked to be eligible to participate in the plan. Employees may contribute up to 100% of their annual compensation, and contributions are matched by The Pantry on the basis of 50%
of the first 5% contributed. Matching contribution expense was $731 thousand, $719 thousand and $718 thousand for fiscal 2003, 2002 and 2001, respectively.



NOTE 15COMMON STOCK:



On June 8, 1999, the Company completed an initial public offering of 6,250,000 shares of its common stock at a public offering price of $13.00 per share
(the IPO). The net proceeds from the IPO of $75.6 million, before expenses, were used (i) to repay $19.0 million in indebtedness under the 1999 bank credit facility; (ii) to redeem $17.5 million in outstanding preferred stock; and (iii)
to pay accrued dividends on the preferred stock of $6.5 million. Of the remaining $32.6 million, $30.2 million was used to fund acquisitions closed during the fourth quarter of fiscal 1999 and $2.4 million was reserved to pay fees and expenses
associated with the IPO.



Upon completion of the IPO, Freeman
Spogli owned approximately 9,349,524 shares and owned warrants for the purchase of an additional 2,346,000 shares giving Freeman Spogli beneficial ownership of approximately 57.2% of the outstanding common stock (including shares underlying
warrants). Subsequent to the IPO, Freeman Spogli has purchased an additional 2,466,014 shares from other stockholders giving them beneficial ownership of approximately 69.2% of the outstanding common stock (including shares underlying warrants).



NOTE 16STOCK OPTIONS AND OTHER EQUITY INSTRUMENTS:



On January 1, 1998, we adopted an incentive and non-qualified stock option
plan. Pursuant to the provisions of the plan, options may be granted to officers, key employees, consultants or any of our subsidiaries and certain members of the board of directors to purchase up to 1,275,000 shares of common stock. On June 3,
1999, we adopted a new 1999 stock option plan providing for the grant of incentive stock options and non-qualified stock options to officers, directors, employees and consultants, with provisions similar to the 1998 stock option plan and up to
3,825,000 shares of the Companys common stock available for grant. The plans are administered by the board of directors or a committee of the board of directors. Options are granted at prices determined by the board of directors and may be
exercisable in one or more installments. All options granted vest over a three-year period, with one-third of each grant vesting on the anniversary of the initial grant and have contractual lives of seven years. Additionally, the terms and
conditions of awards under the plans may differ from one grant to another. Under the plans, incentive stock options may only be granted to employees with an exercise price at least equal to the fair market value of the related common stock on the
date the option is granted. Fair values are based on the most recent common stock sales.



On January 15, 2003, the board of directors amended the 1999 plan to increase the number of shares of common stock that may be issued under the plan by 882,505 shares. This number of shares corresponded to the number
of shares that remained available at that time for issuance under the 1998 plan, which the board of directors terminated (except for the purpose of continuing to govern options outstanding under that plan) on January 15, 2003.



65



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



A summary of the status of the plans for the three fiscal years ended September 25, 2003, September
26, 2002 and September 27, 2001 and changes during the years ending on those dates is as follows:



|                    |  |           |   |  |                        |             |                                          |   |      
|------------------- |  | --------- | - |  | ---------------------- | ----------- | ---------------------------------------- | - | -----
|                    |  | Shares    |   |  | Option price per share |             | Weightedaverage exercise price per share
|September 29, 2000  |  | 812,861   |   |  | $                      | 8.82-$13.00 |                                          | $ | 10.43
|Options granted     |  | 328,000   |   |  |                        | 10.00       |                                          |   | 10.00
|Options forfeited   |  | (111,878  | ) |  |                        | 8.82-13.00  |                                          |   | 10.50
|Options exercised   |  | (7,700    | ) |  |                        | 8.82        |                                          |   | 8.82 
|Options exercisable |  | 654,783   |   |  |                        | 8.82-13.00  |                                          |   | 10.15
|                    |  |           |   |  |                        |             |                                          |   |      
|September 27, 2001  |  | 1,021,283 |   |  |                        | 8.82-13.00  |                                          |   | 10.30
|Options granted     |  | 240,000   |   |  |                        | 4.00-  5.12 |                                          |   | 4.94 
|Options forfeited   |  | (136,078  | ) |  |                        | 5.12-13.00  |                                          |   | 10.54
|Options exercisable |  | 709,538   |   |  |                        | 4.00-13.00  |                                          |   | 10.30
|                    |  |           |   |  |                        |             |                                          |   |      
|September 26, 2002  |  | 1,125,205 |   |  |                        | 4.00-13.00  |                                          |   | 9.13 
|Options granted     |  | 430,000   |   |  |                        | 1.66-  8.09 |                                          |   | 2.23 
|Options forfeited   |  | (249,313  | ) |  |                        | 5.12-13.00  |                                          |   | 9.15 
|Options exercisable |  | 670,558   |   |  |                        | 4.00-13.00  |                                          |   | 9.82 
|                    |  |           |   |  |                        |             |                                          |   |      
|September 25, 2003  |  | 1,305,892 |   |  | $                      | 1.66-$13.00 |                                          | $ | 6.85 
|                    |  |           |   |  |                        |             |                                          |   |      



The following table
summarizes information about stock options outstanding at September 25, 2003:



|                |  |                 |  |                                          |  |                                             |  |                              
|--------------- |  | --------------- |  | ---------------------------------------- |  | ------------------------------------------- |  | -----------------------------
|Date Granted    |  | Exercise Prices |  | Number Outstanding at September 25, 2003 |  | Weighted-Average Remaining Contractual Life |  | Number of Options Exercisable
|1/1/98          |  | $8.82           |  | 242,607                                  |  | 4 years                                     |  | 242,607                      
|8/25/98         |  | $11.27          |  | 78,285                                   |  | 4 years                                     |  | 78,285                       
|6/8/99, 9/30/99 |  | $13.00          |  | 129,000                                  |  | 3 years                                     |  | 129,000                      
|12/29/00        |  | $10.00          |  | 236,000                                  |  | 4 years                                     |  | 157,333                      
|11/26/01        |  | $5.12           |  | 150,000                                  |  | 5 years                                     |  | 50,000                       
|3/26/02         |  | $4.00           |  | 40,000                                   |  | 6 years                                     |  | 13,333                       
|10/22/02        |  | $1.66           |  | 20,000                                   |  | 6 years                                     |  |                             
|11/13/02        |  | $1.70           |  | 335,000                                  |  | 6 years                                     |  |                             
|1/6/03          |  | $3.97           |  | 35,000                                   |  | 6 years                                     |  |                             
|3/25/03         |  | $4.50           |  | 30,000                                   |  | 7 years                                     |  |                             
|7/23/03         |  | $8.09           |  | 10,000                                   |  | 7 years                                     |  |                             
|                |  |                 |  |                                          |  |                                             |  |                              
|                |  | Total           |  | 1,305,892                                |  |                                             |  | 670,558                      



On August 31, 1998,
The Pantry adopted a stock subscription plan. The subscription plan allows The Pantry to offer to certain employees the right to purchase shares of common stock at a purchase price equal to the fair market value on the date of purchase. A purchaser
may not sell, transfer or pledge their shares:



| |  | prior to the first anniversary of the date on which the purchaser acquires the shares; or
| | - | -----------------------------------------------------------------------------------------



| |  | after the first anniversary, except in compliance with the provisions of the subscription agreement and a pledge agreement if part of the consideration for such shares includes a
secured promissory note.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



66



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



In the event that the purchasers employment with The Pantry and all of its subsidiaries
terminates for any reason, The Pantry has the option to repurchase from the purchaser all or any portion of the shares acquired by the purchaser under the subscription agreement for a period of six months after the effective date of such
termination. The repurchase option terminates upon the latter of;



| |  | the first anniversary of the date the shares were originally acquired; or
| | - | -------------------------------------------------------------------------



| |  | an initial public offering of common stock by The Pantry registered under the Securities Act (other than an offering registered on Form S-4 or Form S-8) resulting in gross proceeds
to The Pantry in excess of $25 million.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



After
the first anniversary of the date the shares were originally acquired by the purchaser, the purchaser may transfer the shares for cash (only) to a third party, subject to The Pantrys right of first refusal with respect to such sale. Finally,
under certain circumstances, a purchaser of shares under the stock subscription plan may be forced to sell all or part of the shares purchased under such plan if Freeman Spogli finds a third-party buyer for all or part of the shares of common stock
held by Freeman Spogli. No issuances of shares under the stock subscription plan had been made at September 24, 1998. On September 25, 1998 and November 30, 1999, 134,436 shares, net of subsequent repurchases of 6,273 shares, were sold under the
stock subscription plan. These shares were sold at fair value ($11.27), as determined by the most recent equity investment (July 1998).



In December 1996, in connection with its purchase of 17,500 shares of Series B preferred stock, Freeman Spogli acquired warrants to purchase 2,346,000
shares of common stock. The warrants are exercisable at $7.45 per share until December 30, 2006, and contain adjustment provisions in the event The Pantry declares dividends or distributions, makes stock splits or engages in mergers, reorganizations
or reclassifications. The fair value of the warrants at date of issuance approximated $600 thousand and is included in additional paid-in capital. None of these warrants had been exercised at September 25, 2003.



67



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 17EARNINGS (LOSS) PER SHARE:



We compute earnings per share data in accordance with the requirements of SFAS No. 128, Earnings Per Share. Basic
earnings per share is computed on the basis of the weighted average number of common shares outstanding. Diluted earnings per share is computed on the basis of the weighted average number of common shares outstanding plus the effect of outstanding
warrants and stock options using the treasury stock method.



The following table reflects the calculation of basic and diluted earnings per share (dollars in thousands, except per share data):



|                                                                    |  |      |        |   |      |   |        |  |   |        |  
|------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ |  | - | ------ | -
|                                                                    |  | 2003 |        |   | 2002 |   | 2001   | 
|Income (loss) before cumulative effect adjustment                   |  | $    | 14,986 |   |      | $ | 1,804  |  | $ | (2,656 | )
|Cumulative effect adjustment                                        |  |      | (3,482 | ) |      |   |       |  |   |       |  
|                                                                    |  |      |        |   |      |   |        |  |   |        |  
|Net income (loss)                                                   |  | $    | 11,504 |   |      | $ | 1,804  |  | $ | (2,656 | )
|                                                                    |  |      |        |   |      |   |        |  |   |        |  
|Earnings (loss) per sharebasic:                                    |  |      |        |   |      |   |        |  |   |        |  
|Weighted average shares outstanding                                 |  |      | 18,108 |   |      |   | 18,108 |  |   | 18,113 |  
|                                                                    |  |      |        |   |      |   |        |  |   |        |  
|Income (loss) per share before cumulative effect adjustmentbasic   |  | $    | 0.83   |   |      | $ | 0.10   |  | $ | (0.15  | )
|Loss per share on cumulative effect adjustmentbasic                |  |      | (0.19  | ) |      |   |       |  |   |       |  
|                                                                    |  |      |        |   |      |   |        |  |   |        |  
|Net income (loss) per sharebasic                                   |  | $    | 0.64   |   |      | $ | 0.10   |  | $ | (0.15  | )
|                                                                    |  |      |        |   |      |   |        |  |   |        |  
|Earnings (loss) per sharediluted:                                  |  |      |        |   |      |   |        |  |   |        |  
|Weighted average shares outstanding                                 |  |      | 18,108 |   |      |   | 18,108 |  |   | 18,113 |  
|Dilutive impact of options and warrants outstanding                 |  |      | 262    |   |      |   | 1      |  |   |       |  
|                                                                    |  |      |        |   |      |   |        |  |   |        |  
|Weighted average shares and potential dilutive shares outstanding   |  |      | 18,370 |   |      |   | 18,109 |  |   | 18,113 |  
|                                                                    |  |      |        |   |      |   |        |  |   |        |  
|Income (loss) per share before cumulative effect adjustmentdiluted |  | $    | 0.82   |   |      | $ | 0.10   |  | $ | (0.15  | )
|Loss per share on cumulative effect adjustmentdiluted              |  |      | (0.19  | ) |      |   |       |  |   |       |  
|                                                                    |  |      |        |   |      |   |        |  |   |        |  
|Net income (loss) per sharediluted                                 |  | $    | 0.63   |   |      | $ | 0.10   |  | $ | (0.15  | )
|                                                                    |  |      |        |   |      |   |        |  |   |        |  



Options and warrants
to purchase shares of common stock that were not included in the computation of diluted earnings per share, because their inclusion would have been antidilutive, were 3.0 million, 3.4 million and 3.4 million for fiscal 2003, 2002, and 2001,
respectively.



NOTE 18QUARTERLY FINANCIAL DATA (unaudited):



Summary quarterly financial data for fiscal 2003 and 2002,
respectively, is as follows (dollars in thousands, except per share amounts):



|                                   |  |                               |         |                               |   |         |              |  |               |         |      |   |              |  |               |           |  |              |         |               |   |         |   |  |   |         |  |   |         |  |   |          
|---------------------------------- |  | ----------------------------- | ------- | ----------------------------- | - | ------- | ------------ |  | ------------- | ------- | ---- | - | ------------ |  | ------------- | --------- |  | ------------ | ------- | ------------- | - | ------- | - |  | - | ------- |  | - | ------- |  | - | ---------
|                                   |  | Year Ended September 25, 2003 |         | Year Ended September 26, 2002
|                                   |  | FirstQuarter                  |         | SecondQuarter                 |   |         | ThirdQuarter |  | FourthQuarter |         | Year |   | FirstQuarter |  | SecondQuarter |           |  | ThirdQuarter |         | FourthQuarter |   | Year   
|Total revenue(1)                   |  | $                             | 650,977 |                               | $ | 673,444 |              |  | $             | 711,455 |      | $ | 740,485      |  | $             | 2,776,361 |  | $            | 577,373 |               | $ | 560,845 |   |  | $ | 681,308 |  | $ | 674,538 |  | $ | 2,494,064
|Total revenue(2)                   |  | $                             | 645,353 |                               | $ | 666,697 |              |  | $             | 704,486 |      | $ | 733,824      |  | $             | 2,750,360 |  | $            | 577,357 |               | $ | 558,858 |   |  | $ | 677,564 |  | $ | 669,739 |  | $ | 2,483,518
|Gross profit                       |  | $                             | 125,991 |                               | $ | 113,129 |              |  | $             | 135,017 |      | $ | 136,667      |  | $             | 510,804   |  | $            | 115,479 |               | $ | 108,100 |   |  | $ | 127,025 |  | $ | 124,798 |  | $ | 475,402  
|Income (loss) before income taxes: |  | $                             | 8,004   |                               | $ | (3,827  | )            |  | $             | 9,894   |      | $ | 10,300       |  | $             | 24,371    |  | $            | 793     |               | $ | (6,895  | ) |  | $ | 6,773   |  | $ | 2,263   |  | $ | 2,934    
|Net income (loss)                  |  | $                             | 1,438   |                               | $ | (2,353  | )            |  | $             | 6,085   |      | $ | 6,334        |  | $             | 11,504    |  | $            | 475     |               | $ | (4,138  | ) |  | $ | 4,064   |  | $ | 1,403   |  | $ | 1,804    
|Earnings per share:                |  |                               |         |                               |   |         |              |  |               |         |      |   |              |  |               |           |  |              |         |               |   |         |   |  |   |         |  |   |         |  |   |          
|Basic                              |  | $                             | 0.08    |                               | $ | (0.13   | )            |  | $             | 0.34    |      | $ | 0.35         |  | $             | 0.64      |  | $            | 0.03    |               | $ | (0.23   | ) |  | $ | 0.22    |  | $ | 0.08    |  | $ | 0.10     
|Diluted                            |  | $                             | 0.08    |                               | $ | (0.13   | )            |  | $             | 0.33    |      | $ | 0.33         |  | $             | 0.63      |  | $            | 0.03    |               | $ | (0.23   | ) |  | $ | 0.22    |  | $ | 0.08    |  | $ | 0.10     



|(1) | As originally reported.
|--- | -----------------------

|(2) | As restated for the reclassification of certain items. See Note 20.
|--- | -------------------------------------------------------------------



68



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 19SUBSEQUENT EVENTS:



On October 16, 2003, The Pantry completed the acquisition of 138 convenience stores operating under the Golden
Gallon®banner from Ahold USA, Inc. The acquired assets include 138 operating convenience
stores, 131 of which are fee-owned stores, a dairy plant and related assets, a fuel hauling operation, corporate headquarters buildings and 25 undeveloped sites. Other than the dairy plant and related assets and the fuel hauling operation, the
Company intends to use the acquired assets in the convenience store retail business. Simultaneous with the closing, the Company sold the dairy plant and related assets and the fuel hauling operation to existing suppliers of the Company.



The aggregate purchase price of the acquired assets, which was determined
through arms-length negotiations between the Company and Ahold USA, Inc., was $187 million. The acquisition was structured as two simultaneous transactions whereby certain real estate assets (114 of the 131 fee-owned stores) were purchased and
financed through a $94.5 million sale/leaseback transaction, and the Golden Gallon®operations and the balance of the real estate assets were purchased for approximately $92.5 million in cash. The Company funded the second transaction with $80 million of debt through borrowings under the Companys existing senior secured
credit facility (see Note 5Long Term Debt) and available cash.



On December 9, 2003, Freeman Spogli exercised its warrants to purchase 2,346,000 shares of common stock at an exercise price of $7.45 per share. The exercise was cashless whereby shares of common stock received were reduced by the number of
shares having an aggregate fair market value equal to the exercise price, or approximately $17.5 million. The aggregate fair market value was based on the average closing price on each of the ten days prior to December 9, 2003, or $23.68 per share.
Consequently, Freeman Spogli received 1,607,855 shares of common stock upon exercise (unaudited).



NOTE 20RESTATEMENT:



Subsequent to the issuance of its consolidated financial statements for the year ended September 25, 2003, we determined that our accounting for sales of prepaid phone cards should be restated to reclassify revenues net of related costs
consistent with the approach set forth in Emerging Issues Task Force (EITF) Issue No. 99-19, Reporting Revenue Gross as a Principal Versus Net as an Agent. As a result of this change, merchandise cost of sales amounts of
$26.0 million and $10.5 million for fiscal years ended September 25, 2003 and September 26, 2002, respectively, which were previously recorded in merchandise cost of sales, have been netted against merchandise revenue. We have also reclassified
items previously reported as commission revenue as a component of merchandise revenue.



The changes had no effect on previously reported gross profit, income from operations, net income or shareholders equity. A summary of the primary effects of the restatement to reclassify these amounts is as
follows:



|                                       |  |                                      |  |                                      |  |                                      |  |             |  |                        |  |            
|-------------------------------------- |  | ------------------------------------ |  | ------------------------------------ |  | ------------------------------------ |  | ----------- |  | ---------------------- |  | -----------
|                                       |  | Fiscal Year Ended September 25, 2003 |  | Fiscal Year Ended September 26, 2002 |  | Fiscal Year Ended September 27, 2001
|                                       |  | As Previously Reported               |  | As Restated                          |  | As Previously Reported               |  | As Restated |  | As Previously Reported |  | As Restated
|Consolidated Statements of Operations: |  |                                      |  |                                      |  |                                      |  |             |  |                        |  |            
|Merchandise sales                      |  | 1,008,902                            |  | 1,009,698                            |  | 998,621                              |  | 1,012,786   |  | 968,614                |  | 990,319    
|Commission income                      |  | 26,797                               |  | N/A                                  |  | 24.711                               |  | N/A         |  | 21,705                 |  | N/A        
|Total revenues                         |  | 2,776,361                            |  | 2,750,360                            |  | 2,494,064                            |  | 2,483,518   |  | 2,643,044              |  | 2,643,044  
|Merchandise cost of sales              |  | 670,179                              |  | 644,178                              |  | 669,479                              |  | 658,933     |  | 645,012                |  | 645,012    
|Total cost of sales                    |  | 2,265,557                            |  | 2,239,556                            |  | 2,018,662                            |  | 2,008,116   |  | 2,155,401              |  | 2,155,401  



69



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 21GUARANTOR SUBSIDIARIES:



The Company has two wholly owned subsidiaries, R. & H. Maxxon, Inc. and Kangaroo, Inc. (the Guarantor
Subsidiaries) that are guarantors of the Companys first lien term loan, second lien term loan and revolving credit facility. Kangaroo, Inc. is also a guarantor of the Companys subordinated notes. The guarantees are joint and
several in addition to full and unconditional. The Guarantor Subsidiaries do not conduct any operations and do not have significant assets. The Guarantor Subsidiaries comprise all direct and indirect subsidiaries of the Company. Combined financial
information for the Guarantor Subsidiaries is as follows:



THE PANTRY, INC. AND SUBSIDIARIES

SUPPLEMENTAL COMBINING BALANCE SHEETS

September 25, 2003

(Dollars in
thousands)



|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|----------------------------------------------- |  | ------------------- | ------- | - | --------------------- | - | ------ | ------------ |  | - | ------- | - |  | - | ------- | -
|                                                |  | The Pantry (Issuer) |         |   | GuarantorSubsidiaries |   |        | Eliminations |  |   | Total   |  
|ASSETS                                          |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Current assets:                                 |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Cash and cash equivalents                       |  | $                   | 72,901  |   |                       | $ |       |              |  | $ |        |   |  | $ | 72,901  |  
|Receivables, net                                |  |                     | 30,423  |   |                       |   |       |              |  |   |        |   |  |   | 30,423  |  
|Inventories                                     |  |                     | 84,156  |   |                       |   |       |              |  |   |        |   |  |   | 84,156  |  
|Prepaid expenses                                |  |                     | 6,324   |   |                       |   | 2      |              |  |   |        |   |  |   | 6,326   |  
|Property held for sale                          |  |                     | 2,013   |   |                       |   |       |              |  |   |        |   |  |   | 2,013   |  
|Deferred income taxes                           |  |                     | 4,334   |   |                       |   |       |              |  |   |        |   |  |   | 4,334   |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Total current assets                            |  |                     | 200,151 |   |                       |   | 2      |              |  |   |        |   |  |   | 200,153 |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Investment in subsidiaries                      |  |                     | 40,723  |   |                       |   |       |              |  |   | (40,723 | ) |  |   |        |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Property and equipment, net                     |  |                     | 400,609 |   |                       |   |       |              |  |   |        |   |  |   | 400,609 |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Other assets:                                   |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Goodwill                                        |  |                     | 278,629 |   |                       |   |       |              |  |   |        |   |  |   | 278,629 |  
|Deferred financing costs, net                   |  |                     | 10,757  |   |                       |   |       |              |  |   |        |   |  |   | 10,757  |  
|Environmental receivables                       |  |                     | 15,109  |   |                       |   |       |              |  |   |        |   |  |   | 15,109  |  
|Intercompany note receivable                    |  |                     | (23,477 | ) |                       |   | 43,872 |              |  |   | (20,395 | ) |  |   |        |  
|Other                                           |  |                     | 8,851   |   |                       |   | 57     |              |  |   |        |   |  |   | 8,908   |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Total other assets                              |  |                     | 289,869 |   |                       |   | 43,929 |              |  |   | (20,395 | ) |  |   | 313,403 |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Total assets                                    |  | $                   | 931,352 |   |                       | $ | 43,931 |              |  | $ | (61,118 | ) |  | $ | 914,165 |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY:           |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Current liabilities:                            |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Current maturities of long-term debt            |  | $                   | 27,558  |   |                       | $ |       |              |  | $ |        |   |  | $ | 27,558  |  
|Current maturities of capital lease obligations |  |                     | 1,375   |   |                       |   |       |              |  |   |        |   |  |   | 1,375   |  
|Accounts payable                                |  |                     | 78,885  |   |                       |   |       |              |  |   |        |   |  |   | 78,885  |  
|Accrued interest                                |  |                     | 11,924  |   |                       |   |       |              |  |   |        |   |  |   | 11,924  |  
|Accrued compensation and related taxes          |  |                     | 12,840  |   |                       |   |       |              |  |   |        |   |  |   | 12,840  |  
|Other accrued taxes                             |  |                     | 16,510  |   |                       |   |       |              |  |   |        |   |  |   | 16,510  |  
|Accrued insurance                               |  |                     | 12,293  |   |                       |   |       |              |  |   |        |   |  |   | 12,293  |  
|Other accrued liabilities                       |  |                     | 21,379  |   |                       |   |       |              |  |   | (65     | ) |  |   | 21,314  |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Total current liabilities                       |  |                     | 182,764 |   |                       |   |       |              |  |   | (65     | ) |  |   | 182,699 |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Long-term debt                                  |  |                     | 470,011 |   |                       |   |       |              |  |   |        |   |  |   | 470,011 |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Other liabilities:                              |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Environmental reserves                          |  |                     | 13,823  |   |                       |   |       |              |  |   |        |   |  |   | 13,823  |  
|Deferred income taxes                           |  |                     | 50,015  |   |                       |   |       |              |  |   |        |   |  |   | 50,015  |  
|Deferred revenue                                |  |                     | 37,251  |   |                       |   |       |              |  |   |        |   |  |   | 37,251  |  
|Capital lease obligations                       |  |                     | 15,779  |   |                       |   |       |              |  |   |        |   |  |   | 15,779  |  
|Intercompany note payable                       |  |                     | 17,124  |   |                       |   | 3,208  |              |  |   | (20,332 | ) |  |   |        |  
|Other noncurrent liabilities                    |  |                     | 15,920  |   |                       |   | 2      |              |  |   |        |   |  |   | 15,922  |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Total other liabilities                         |  |                     | 149,912 |   |                       |   | 3,210  |              |  |   | (20,332 | ) |  |   | 132,790 |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|SHAREHOLDERS EQUITY:                           |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Common stock                                    |  |                     | 182     |   |                       |   | 523    |              |  |   | (523    | ) |  |   | 182     |  
|Additional paid-in capital                      |  |                     | 128,002 |   |                       |   | 40,551 |              |  |   | (40,551 | ) |  |   | 128,002 |  
|Shareholder loans                               |  |                     | (173    | ) |                       |   |       |              |  |   |        |   |  |   | (173    | )
|Accumulated comprehensive deficit               |  |                     | (690    | ) |                       |   |       |              |  |   |        |   |  |   | (690    | )
|Accumulated earnings (deficit)                  |  |                     | 1,344   |   |                       |   | (353   | )            |  |   | 353     |   |  |   | 1,344   |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Total shareholders equity                      |  |                     | 128,665 |   |                       |   | 40,721 |              |  |   | (40,721 | ) |  |   | 128,665 |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Total liabilities and shareholders equity      |  | $                   | 931,352 |   |                       | $ | 43,931 |              |  | $ | (61,118 | ) |  | $ | 914,165 |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  



70



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



THE PANTRY, INC. AND SUBSIDIARIES



SUPPLEMENTAL COMBINING STATEMENT OF OPERATIONS



Year Ended September 25, 2003

(Dollars in thousands)



|                                               |  |                     |           |   |                              |   |              |  |          |   |  |   |           |  
|---------------------------------------------- |  | ------------------- | --------- | - | ---------------------------- | - | ------------ |  | -------- | - |  | - | --------- | -
|                                               |  | The Pantry (Issuer) |           |   | Total Guarantor Subsidiaries |   | Eliminations |  | Total    |  
|                                               |  | Restated            |           |   |                              |   |              |  | Restated |  
|Revenues:                                      |  |                     |           |   |                              |   |              |  |          |   |  |   |           |  
|Merchandise sales                              |  | $                   | 1,009,698 |   |                              | $ |             |  | $        |  |  | $ | 1,009,698 |  
|Gasoline sales                                 |  |                     | 1,740,662 |   |                              |   |             |  |          |  |  |   | 1,740,662 |  
|                                               |  |                     |           |   |                              |   |              |  |          |   |  |   |           |  
|Total revenues                                 |  |                     | 2,750,360 |   |                              |   |             |  |          |  |  |   | 2,750,360 |  
|                                               |  |                     |           |   |                              |   |              |  |          |   |  |   |           |  
|Cost of sales:                                 |  |                     |           |   |                              |   |              |  |          |   |  |   |           |  
|Merchandise                                    |  |                     | 644,178   |   |                              |   |             |  |          |  |  |   | 644,178   |  
|Gasoline                                       |  |                     | 1,595,378 |   |                              |   |             |  |          |  |  |   | 1,595,378 |  
|                                               |  |                     |           |   |                              |   |              |  |          |   |  |   |           |  
|Total cost of sales                            |  |                     | 2,239,556 |   |                              |   |             |  |          |  |  |   | 2,239,556 |  
|                                               |  |                     |           |   |                              |   |              |  |          |   |  |   |           |  
|Gross profit                                   |  |                     | 510,804   |   |                              |   |             |  |          |  |  |   | 510,804   |  
|                                               |  |                     |           |   |                              |   |              |  |          |   |  |   |           |  
|Operating expenses:                            |  |                     |           |   |                              |   |              |  |          |   |  |   |           |  
|Operating, general and administrative expenses |  |                     | 385,570   |   |                              |   |             |  |          |  |  |   | 385,570   |  
|Depreciation and amortization                  |  |                     | 54,403    |   |                              |   |             |  |          |  |  |   | 54,403    |  
|                                               |  |                     |           |   |                              |   |              |  |          |   |  |   |           |  
|Total operating expenses                       |  |                     | 439,973   |   |                              |   |             |  |          |  |  |   | 439,973   |  
|                                               |  |                     |           |   |                              |   |              |  |          |   |  |   |           |  
|Income from operations                         |  |                     | 70,831    |   |                              |   |             |  |          |  |  |   | 70,831    |  
|                                               |  |                     |           |   |                              |   |              |  |          |   |  |   |           |  
|Equity in earnings of subsidiaries             |  |                     |          |   |                              |   |             |  |          |  |  |   |          |  
|                                               |  |                     |           |   |                              |   |              |  |          |   |  |   |           |  
|Other income (expense):                        |  |                     |           |   |                              |   |              |  |          |   |  |   |           |  
|Interest expense                               |  |                     | (49,265   | ) |                              |   |             |  |          |  |  |   | (49,265   | )
|Miscellaneous                                  |  |                     | 2,805     |   |                              |   |             |  |          |  |  |   | 2,805     |  
|                                               |  |                     |           |   |                              |   |              |  |          |   |  |   |           |  
|Total other expense                            |  |                     | (46,460   | ) |                              |   |             |  |          |  |  |   | (46,460   | )
|                                               |  |                     |           |   |                              |   |              |  |          |   |  |   |           |  
|Income before income taxes                     |  |                     | 24,371    |   |                              |   |             |  |          |  |  |   | 24,371    |  
|Income tax expense                             |  |                     | (9,385    | ) |                              |   |             |  |          |  |  |   | (9,385    | )
|                                               |  |                     |           |   |                              |   |              |  |          |   |  |   |           |  
|Income before cumulative effect adjustment     |  |                     | 14,986    |   |                              |   |             |  |          |  |  |   | 14,986    |  
|Cumulative effect adjustment, net of tax       |  |                     | (3,482    | ) |                              |   |             |  |          |   |  |   | (3,482    | )
|                                               |  |                     |           |   |                              |   |              |  |          |   |  |   |           |  
|Net income                                     |  | $                   | 11,504    |   |                              | $ |             |  | $        |  |  | $ | 11,504    |  
|                                               |  |                     |           |   |                              |   |              |  |          |   |  |   |           |  



71



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



THE PANTRY, INC.



SUPPLEMENTAL COMBINING STATEMENTS OF CASH FLOWS



Year Ended September 25, 2003

(Dollars in thousands)



|                                                                                  |  |                    |          |   |                     |   |              |  |       |   |  |   |          |  
|--------------------------------------------------------------------------------- |  | ------------------ | -------- | - | ------------------- | - | ------------ |  | ----- | - |  | - | -------- | -
|                                                                                  |  | ThePantry (Issuer) |          |   | GuarantorSubsidiary |   | Eliminations |  | Total |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                    |          |   |                     |   |              |  |       |   |  |   |          |  
|Net Income                                                                        |  | $                  | 11,504   |   |                     | $ |             |  | $     |  |  | $ | 11,504   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                    |          |   |                     |   |              |  |       |   |  |   |          |  
|Depreciation and amortization                                                     |  |                    | 57,013   |   |                     |   |             |  |       |  |  |   | 57,013   |  
|Provision for deferred income taxes                                               |  |                    | 9,385    |   |                     |   |             |  |       |  |  |   | 9,385    |  
|Loss on extinguishment of debt                                                    |  |                    | 2,888    |   |                     |   |              |  |       |  |  |   | 2,888    |  
|Loss on sale of property and equipment                                            |  |                    | 2,051    |   |                     |   |              |  |       |  |  |   | 2,051    |  
|Impairment of long-lived assets                                                   |  |                    | 1,850    |   |                     |   |             |  |       |  |  |   | 1,850    |  
|Fair market value change in non-qualifying derivatives                            |  |                    | (3,381   | ) |                     |   |             |  |       |  |  |   | (3,381   | )
|Provision for closed stores                                                       |  |                    | 2,469    |   |                     |   |             |  |       |  |  |   | 2,469    |  
|Cumulative effect of change in accounting principle                               |  |                    | 3,482    |   |                     |   |             |  |       |  |  |   | 3,482    |  
|Amortization of long-term debt discount                                           |  |                    | 529      |   |                     |   |              |  |       |  |  |   | 529      |  
|Changes in operating assets and liabilities, net:                                 |  |                    |          |   |                     |   |              |  |       |   |  |   |          |  
|Receivables                                                                       |  |                    | 563      |   |                     |   |             |  |       |  |  |   | 563      |  
|Inventories                                                                       |  |                    | 281      |   |                     |   |             |  |       |  |  |   | 281      |  
|Prepaid expenses                                                                  |  |                    | (2,818   | ) |                     |   |             |  |       |  |  |   | (2,818   | )
|Other noncurrent assets                                                           |  |                    | 178      |   |                     |   |             |  |       |  |  |   | 178      |  
|Accounts payable                                                                  |  |                    | (14,973  | ) |                     |   |             |  |       |  |  |   | (14,973  | )
|Other current liabilities and accrued expenses                                    |  |                    | 9,532    |   |                     |   |             |  |       |  |  |   | 9,532    |  
|Reserves for environmental expenses                                               |  |                    | 538      |   |                     |   |             |  |       |  |  |   | 538      |  
|Other noncurrent liabilities                                                      |  |                    | (12,827  | ) |                     |   |             |  |       |  |  |   | (12,827  | )
|                                                                                  |  |                    |          |   |                     |   |              |  |       |   |  |   |          |  
|Net cash provided by operating activities                                         |  |                    | 68,264   |   |                     |   |             |  |       |  |  |   | 68,264   |  
|                                                                                  |  |                    |          |   |                     |   |              |  |       |   |  |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |                    |          |   |                     |   |              |  |       |   |  |   |          |  
|Additions to property held for sale                                               |  |                    | (2,761   | ) |                     |   |             |  |       |  |  |   | (2,761   | )
|Additions to property and equipment                                               |  |                    | (25,470  | ) |                     |   |             |  |       |  |  |   | (25,470  | )
|Proceeds from sale lease-back transactions                                        |  |                    | 2,306    |   |                     |   |             |  |       |  |  |   | 2,306    |  
|Proceeds from sale of property and equipment                                      |  |                    | 5,367    |   |                     |   |             |  |       |  |  |   | 5,367    |  
|Acquisitions of related businesses, net of cash acquired                          |  |                    | (1,799   | ) |                     |   |             |  |       |  |  |   | (1,799   | )
|                                                                                  |  |                    |          |   |                     |   |              |  |       |   |  |   |          |  
|Net cash used in investing activities                                             |  |                    | (22,357  | ) |                     |   |             |  |       |  |  |   | (22,357  | )
|                                                                                  |  |                    |          |   |                     |   |              |  |       |   |  |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |                    |          |   |                     |   |              |  |       |   |  |   |          |  
|Principal repayments under capital leases                                         |  |                    | (1,383   | ) |                     |   |             |  |       |  |  |   | (1,383   | )
|Principal repayments of long-term debt                                            |  |                    | (306,577 | ) |                     |   |             |  |       |  |  |   | (306,577 | )
|Proceeds from issuance of long-term debt                                          |  |                    | 299,440  |   |                     |   |             |  |       |  |  |   | 299,440  |  
|Repayments of shareholder loans                                                   |  |                    | 535      |   |                     |   |             |  |       |  |  |   | 535      |  
|Other financing costs                                                             |  |                    | (7,257   | ) |                     |   |             |  |       |  |  |   | (7,257   | )
|                                                                                  |  |                    |          |   |                     |   |              |  |       |   |  |   |          |  
|Net cash used in financing activities                                             |  |                    | (15,242  | ) |                     |   |             |  |       |  |  |   | (15,242  | )
|                                                                                  |  |                    |          |   |                     |   |              |  |       |   |  |   |          |  
|Net increase in cash                                                              |  |                    | 30,665   |   |                     |   |             |  |       |  |  |   | 30,665   |  
|CASH & CASH EQUIVALENTS, BEGINNING OF YEAR                                        |  |                    | 42,236   |   |                     |   |             |  |       |  |  |   | 42,236   |  
|                                                                                  |  |                    |          |   |                     |   |              |  |       |   |  |   |          |  
|CASH & CASH EQUIVALENTS, END OF YEAR                                              |  | $                  | 72,901   |   |                     | $ |             |  | $     |  |  | $ | 72,901   |  
|                                                                                  |  |                    |          |   |                     |   |              |  |       |   |  |   |          |  



72



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



THE PANTRY, INC. AND SUBSIDIARIES



SUPPLEMENTAL COMBINING BALANCE SHEETS



September 26, 2002

(Dollars in thousands)



|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|----------------------------------------------- |  | ------------------- | ------- | - | --------------------- | - | ------ | ------------ |  | - | ------- | - |  | - | ------- | -
|                                                |  | The Pantry (Issuer) |         |   | GuarantorSubsidiaries |   |        | Eliminations |  |   | Total   |  
|ASSETS                                          |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Current assets:                                 |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Cash and cash equivalents                       |  | $                   | 42,236  |   |                       | $ |       |              |  | $ |        |   |  | $ | 42,236  |  
|Receivables, net                                |  |                     | 34,316  |   |                       |   |       |              |  |   |        |   |  |   | 34,316  |  
|Inventories                                     |  |                     | 84,437  |   |                       |   |       |              |  |   |        |   |  |   | 84,437  |  
|Prepaid expenses                                |  |                     | 3,497   |   |                       |   | 2      |              |  |   |        |   |  |   | 3,499   |  
|Property held for sale                          |  |                     | 388     |   |                       |   |       |              |  |   |        |   |  |   | 388     |  
|Deferred income taxes                           |  |                     | 1,414   |   |                       |   |       |              |  |   |        |   |  |   | 1,414   |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Total current assets                            |  |                     | 166,288 |   |                       |   | 2      |              |  |   |        |   |  |   | 166,290 |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Investment in subsidiaries                      |  |                     | 40,723  |   |                       |   |       |              |  |   | (40,723 | ) |  |   |        |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Property and equipment, net                     |  |                     | 435,518 |   |                       |   |       |              |  |   |        |   |  |   | 435,518 |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Other assets:                                   |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Goodwill                                        |  |                     | 277,874 |   |                       |   |       |              |  |   |        |   |  |   | 277,874 |  
|Deferred financing costs, net                   |  |                     | 8,965   |   |                       |   |       |              |  |   |        |   |  |   | 8,965   |  
|Environmental receivables                       |  |                     | 11,696  |   |                       |   |       |              |  |   |        |   |  |   | 11,696  |  
|Intercompany note receivable                    |  |                     | (23,477 | ) |                       |   | 43,872 |              |  |   | (20,395 | ) |  |   |        |  
|Other                                           |  |                     | 9,298   |   |                       |   | 57     |              |  |   |        |   |  |   | 9,355   |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Total other assets                              |  |                     | 284,356 |   |                       |   | 43,929 |              |  |   | (20,395 | ) |  |   | 307,890 |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Total assets                                    |  | $                   | 926,885 |   |                       | $ | 43,931 |              |  | $ | (61,118 | ) |  | $ | 909,698 |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY:           |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Current liabilities:                            |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Current maturities of long-term debt            |  | $                   | 43,255  |   |                       | $ |       |              |  | $ |        |   |  | $ | 43,255  |  
|Current maturities of capital lease obligations |  |                     | 1,521   |   |                       |   |       |              |  |   |        |   |  |   | 1,521   |  
|Accounts payable                                |  |                     | 93,858  |   |                       |   |       |              |  |   |        |   |  |   | 93,858  |  
|Accrued interest                                |  |                     | 13,175  |   |                       |   |       |              |  |   |        |   |  |   | 13,175  |  
|Accrued compensation and related taxes          |  |                     | 10,785  |   |                       |   |       |              |  |   |        |   |  |   | 10,785  |  
|Other accrued taxes                             |  |                     | 17,463  |   |                       |   |       |              |  |   |        |   |  |   | 17,463  |  
|Accrued insurance                               |  |                     | 9,687   |   |                       |   |       |              |  |   |        |   |  |   | 9,687   |  
|Other accrued liabilities                       |  |                     | 20,034  |   |                       |   |       |              |  |   | (65     | ) |  |   | 19,969  |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Total current liabilities                       |  |                     | 209,778 |   |                       |   |       |              |  |   | (65     | ) |  |   | 209,713 |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Long-term debt                                  |  |                     | 460,920 |   |                       |   |       |              |  |   |        |   |  |   | 460,920 |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Other liabilities:                              |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Environmental reserves                          |  |                     | 13,285  |   |                       |   |       |              |  |   |        |   |  |   | 13,285  |  
|Deferred income taxes                           |  |                     | 38,360  |   |                       |   |       |              |  |   |        |   |  |   | 38,360  |  
|Deferred revenue                                |  |                     | 51,772  |   |                       |   |       |              |  |   |        |   |  |   | 51,772  |  
|Capital lease obligations                       |  |                     | 15,381  |   |                       |   |       |              |  |   |        |   |  |   | 15,381  |  
|Intercompany note payable                       |  |                     | 17,124  |   |                       |   | 3,208  |              |  |   | (20,332 | ) |  |   |        |  
|Other noncurrent liabilities                    |  |                     | 5,061   |   |                       |   | 2      |              |  |   |        |   |  |   | 5,063   |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Total other liabilities                         |  |                     | 140,983 |   |                       |   | 3,210  |              |  |   | (20,332 | ) |  |   | 123,861 |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|SHAREHOLDERS EQUITY:                           |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Common stock                                    |  |                     | 182     |   |                       |   | 523    |              |  |   | (523    | ) |  |   | 182     |  
|Additional paid-in capital                      |  |                     | 128,002 |   |                       |   | 40,551 |              |  |   | (40,551 | ) |  |   | 128,002 |  
|Shareholder loans                               |  |                     | (708    | ) |                       |   |       |              |  |   |        |   |  |   | (708    | )
|Accumulated comprehensive deficit               |  |                     | (2,112  | ) |                       |   |       |              |  |   |        |   |  |   | (2,112  | )
|Accumulated earnings (deficit)                  |  |                     | (10,160 | ) |                       |   | (353   | )            |  |   | 353     |   |  |   | (10,160 | )
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Total shareholders equity                      |  |                     | 115,204 |   |                       |   | 40,721 |              |  |   | (40,721 | ) |  |   | 115,204 |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Total liabilities and shareholders equity      |  | $                   | 926,885 |   |                       | $ | 43,931 |              |  | $ | (61,118 | ) |  | $ | 909,698 |  
|                                                |  |                     |         |   |                       |   |        |              |  |   |         |   |  |   |         |  



73



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



THE PANTRY, INC. AND SUBSIDIARIES



SUPPLEMENTAL COMBINING STATEMENT OF OPERATIONS



Year Ended September 26, 2002

(Dollars in thousands)



|                                               |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|---------------------------------------------- |  | ------------------- | --------- | - | --------------------------- | - | ------------ |  | -------- | - |  | - | --------- | -
|                                               |  | The Pantry (Issuer) |           |   | Total GuarantorSubsidiaries |   | Eliminations |  | Total    |  
|                                               |  | Restated            |           |   |                             |   |              |  | Restated |  
|Revenues:                                      |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Merchandise sales                              |  | $                   | 1,012,786 |   |                             | $ |             |  | $        |  |  | $ | 1,012,786 |  
|Gasoline sales                                 |  |                     | 1,470,732 |   |                             |   |             |  |          |  |  |   | 1,470,732 |  
|                                               |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Total revenues                                 |  |                     | 2,483,518 |   |                             |   |             |  |          |  |  |   | 2,483,518 |  
|                                               |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Cost of sales:                                 |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Merchandise                                    |  |                     | 658,933   |   |                             |   |             |  |          |  |  |   | 658,933   |  
|Gasoline                                       |  |                     | 1,349,183 |   |                             |   |             |  |          |  |  |   | 1,349,183 |  
|                                               |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Total cost of sales                            |  |                     | 2,008,116 |   |                             |   |             |  |          |  |  |   | 2,008,116 |  
|                                               |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Gross profit                                   |  |                     | 475,402   |   |                             |   |             |  |          |  |  |   | 475,402   |  
|                                               |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Operating expenses:                            |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Operating, general and administrative expenses |  |                     | 367,299   |   |                             |   |             |  |          |  |  |   | 367,299   |  
|Depreciation and amortization                  |  |                     | 54,251    |   |                             |   |             |  |          |  |  |   | 54,251    |  
|                                               |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Total operating expenses                       |  |                     | 421,550   |   |                             |   |             |  |          |  |  |   | 421,550   |  
|                                               |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Income from operations                         |  |                     | 53,852    |   |                             |   |             |  |          |  |  |   | 53,852    |  
|                                               |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Equity in earnings of subsidiaries             |  |                     |          |   |                             |   |             |  |          |  |  |   |          |  
|                                               |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Other income (expense):                        |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Interest expense                               |  |                     | (51,646   | ) |                             |   |             |  |          |  |  |   | (51,646   | )
|Miscellaneous                                  |  |                     | 728       |   |                             |   |             |  |          |  |  |   | 728       |  
|                                               |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Total other expense                            |  |                     | (50,918   | ) |                             |   |             |  |          |  |  |   | (50,918   | )
|                                               |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Income before income taxes                     |  |                     | 2,934     |   |                             |   |             |  |          |  |  |   | 2,934     |  
|Income tax expense                             |  |                     | (1,130    | ) |                             |   |             |  |          |  |  |   | (1,130    | )
|                                               |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Net income                                     |  | $                   | 1,804     |   |                             | $ |             |  | $        |  |  | $ | 1,804     |  
|                                               |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  



74



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



THE PANTRY, INC. AND SUBSIDIARIES



SUPPLEMENTAL COMBINING STATEMENTS OF CASH FLOWS



Year Ended September 26, 2002

(Dollars in thousands)



|                                                                                  |  |                     |         |   |                     |   |      |             |  |       |   |  |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------- | ------- | - | ------------------- | - | ---- | ----------- |  | ----- | - |  | - | ------- | -
|                                                                                  |  | The Pantry (Issuer) |         |   | GuarantorSubsidiary |   |      | Eliminators |  | Total |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                     |         |   |                     |   |      |             |  |       |   |  |   |         |  
|Net Income                                                                        |  | $                   | 1,804   |   |                     | $ |     |             |  | $     |  |  | $ | 1,804   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                     |         |   |                     |   |      |             |  |       |   |  |   |         |  
|Depreciation and amortization                                                     |  |                     | 54,251  |   |                     |   |     |             |  |       |  |  |   | 54,251  |  
|Provision for deferred income taxes                                               |  |                     | 1,130   |   |                     |   |     |             |  |       |  |  |   | 1,130   |  
|Loss on sale of property and equipment                                            |  |                     | 601     |   |                     |   |      |             |  |       |  |  |   | 601     |  
|Impairment of long-lived assets                                                   |  |                     | 383     |   |                     |   |     |             |  |       |  |  |   | 383     |  
|Fair market value change in non-qualifying derivatives                            |  |                     | 926     |   |                     |   |     |             |  |       |  |  |   | 926     |  
|Provision for closed stores                                                       |  |                     | 2,073   |   |                     |   |     |             |  |       |  |  |   | 2,073   |  
|Changes in operating assets and liabilities, net:                                 |  |                     |         |   |                     |   |      |             |  |       |   |  |   |         |  
|Receivables                                                                       |  |                     | (5,085  | ) |                     |   |     |             |  |       |  |  |   | (5,085  | )
|Inventories                                                                       |  |                     | (2,705  | ) |                     |   |     |             |  |       |  |  |   | (2,705  | )
|Prepaid expenses                                                                  |  |                     | (43     | ) |                     |   |     |             |  |       |  |  |   | (43     | )
|Other noncurrent assets                                                           |  |                     | 370     |   |                     |   |     |             |  |       |  |  |   | 370     |  
|Accounts payable                                                                  |  |                     | (311    | ) |                     |   |     |             |  |       |  |  |   | (311    | )
|Other current liabilities and accrued expenses                                    |  |                     | 12,688  |   |                     |   |     |             |  |       |  |  |   | 12,688  |  
|Reserves for environmental expenses                                               |  |                     | 1,078   |   |                     |   |     |             |  |       |  |  |   | 1,078   |  
|Other noncurrent liabilities                                                      |  |                     | (13,176 | ) |                     |   |     |             |  |       |  |  |   | (13,176 | )
|                                                                                  |  |                     |         |   |                     |   |      |             |  |       |   |  |   |         |  
|Net cash provided by operating activities                                         |  |                     | 53,984  |   |                     |   |     |             |  |       |  |  |   | 53,984  |  
|                                                                                  |  |                     |         |   |                     |   |      |             |  |       |   |  |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |                     |         |   |                     |   |      |             |  |       |   |  |   |         |  
|Additions to property held for sale                                               |  |                     | (5,006  | ) |                     |   |     |             |  |       |  |  |   | (5,006  | )
|Additions to property and equipment                                               |  |                     | (26,979 | ) |                     |   | 473  |             |  |       |  |  |   | (26,506 | )
|Proceeds from sale lease-back transactions                                        |  |                     | 6,208   |   |                     |   |     |             |  |       |  |  |   | 6,208   |  
|Proceeds from sale of property and equipment                                      |  |                     | 5,503   |   |                     |   |     |             |  |       |  |  |   | 5,503   |  
|Intercompany notes receivable (payable)                                           |  |                     | 473     |   |                     |   | (473 | )           |  |       |  |  |   |        |  
|Acquisitions of related businesses, net of cash acquired                          |  |                     | (512    | ) |                     |   |     |             |  |       |  |  |   | (512    | )
|                                                                                  |  |                     |         |   |                     |   |      |             |  |       |   |  |   |         |  
|Net cash used in investing activities                                             |  |                     | (20,313 | ) |                     |   |     |             |  |       |  |  |   | (20,313 | )
|                                                                                  |  |                     |         |   |                     |   |      |             |  |       |   |  |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |                     |         |   |                     |   |      |             |  |       |   |  |   |         |  
|Principal repayments under capital leases                                         |  |                     | (1,199  | ) |                     |   |     |             |  |       |  |  |   | (1,199  | )
|Principal repayments of long-term debt                                            |  |                     | (40,000 | ) |                     |   |     |             |  |       |  |  |   | (40,000 | )
|Proceeds from exercise of stock options, net of repurchases                       |  |                     | (41     | ) |                     |   |     |             |  |       |  |  |   | (41     | )
|Repayments of shareholder loans                                                   |  |                     | 129     |   |                     |   |     |             |  |       |  |  |   | 129     |  
|Other financing costs                                                             |  |                     | (935    | ) |                     |   |     |             |  |       |  |  |   | (935    | )
|                                                                                  |  |                     |         |   |                     |   |      |             |  |       |   |  |   |         |  
|Net cash used in financing activities                                             |  |                     | (42,046 | ) |                     |   |     |             |  |       |  |  |   | (42,046 | )
|                                                                                  |  |                     |         |   |                     |   |      |             |  |       |   |  |   |         |  
|Net increase in cash                                                              |  |                     | (8,375  | ) |                     |   |     |             |  |       |  |  |   | (8,375  | )
|CASH & CASH EQUIVALENTS, BEGINNING OF YEAR                                        |  |                     | 50,611  |   |                     |   |     |             |  |       |  |  |   | 50,611  |  
|                                                                                  |  |                     |         |   |                     |   |      |             |  |       |   |  |   |         |  
|CASH & CASH EQUIVALENTS, END OF YEAR                                              |  | $                   | 42,236  |   |                     | $ |     |             |  | $     |  |  | $ | 42,236  |  
|                                                                                  |  |                     |         |   |                     |   |      |             |  |       |   |  |   |         |  



75



---

##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



THE PANTRY, INC. AND SUBSIDIARIES



SUPPLEMENTAL COMBINING STATEMENT OF OPERATIONS



Year Ended September 27, 2001

(Dollars in thousands)



|                                               |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|---------------------------------------------- |  | ------------------- | --------- | - | --------------------------- | - | ------------ |  | -------- | - |  | - | --------- | -
|                                               |  | The Pantry (Issuer) |           |   | Total GuarantorSubsidiaries |   | Eliminations |  | Total    |  
|                                               |  | Restated            |           |   |                             |   |              |  | Restated |  
|Revenues:                                      |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Merchandise sales                              |  | $                   | 990,319   |   |                             | $ |             |  | $        |  |  | $ | 990,319   |  
|Gasoline sales                                 |  |                     | 1,652,725 |   |                             |   |             |  |          |  |  |   | 1,652,725 |  
|                                               |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Total revenues                                 |  |                     | 2,643,044 |   |                             |   |             |  |          |  |  |   | 2,643,044 |  
|                                               |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Cost of sales:                                 |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Merchandise                                    |  |                     | 645,012   |   |                             |   |             |  |          |  |  |   | 645,012   |  
|Gasoline                                       |  |                     | 1,510,389 |   |                             |   |             |  |          |  |  |   | 1,510,389 |  
|                                               |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Total cost of sales                            |  |                     | 2,155,401 |   |                             |   |             |  |          |  |  |   | 2,155,401 |  
|                                               |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Gross profit                                   |  |                     | 487,643   |   |                             |   |             |  |          |  |  |   | 487,643   |  
|                                               |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Operating expenses:                            |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Operating, general and administrative expenses |  |                     | 364,134   |   |                             |   |             |  |          |  |  |   | 364,134   |  
|Restructuring and other charges                |  |                     | 4,771     |   |                             |   |             |  |          |  |  |   | 4,771     |  
|Depreciation and amortization                  |  |                     | 63,545    |   |                             |   |             |  |          |  |  |   | 63,545    |  
|                                               |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Total operating expenses                       |  |                     | 432,450   |   |                             |   |             |  |          |  |  |   | 432,450   |  
|                                               |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Income from operations                         |  |                     | 55,193    |   |                             |   |             |  |          |  |  |   | 55,193    |  
|                                               |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Equity in earnings of subsidiaries             |  |                     |          |   |                             |   |             |  |          |  |  |   |          |  
|                                               |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Other income (expense):                        |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Interest expense                               |  |                     | (58,731   | ) |                             |   |             |  |          |  |  |   | (58,731   | )
|Miscellaneous                                  |  |                     | 1,753     |   |                             |   |             |  |          |  |  |   | 1,753     |  
|                                               |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Total other expense                            |  |                     | (56,978   | ) |                             |   |             |  |          |  |  |   | (56,978   | )
|                                               |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Loss before income taxes                       |  |                     | (1,785    | ) |                             |   |             |  |          |  |  |   | (1,785    | )
|Income tax expense                             |  |                     | (871      | ) |                             |   |             |  |          |  |  |   | (871      | )
|                                               |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  
|Net loss                                       |  | $                   | (2,656    | ) |                             | $ |             |  | $        |  |  | $ | (2,656    | )
|                                               |  |                     |           |   |                             |   |              |  |          |   |  |   |           |  



76



---

##### Table of Contents

Item 9A. Controls and Procedures



(a) Evaluation of disclosure controls and procedures.



As required by paragraph (b) of Rule 13a-15 under the Exchange Act, our Chief Executive Officer and our Chief Financial
Officer have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our
Chief Executive Officer and our Chief Financial Officer conclude that, as of the end of the period covered by this report, our disclosure controls and procedures are effective, in that they provide reasonable assurance that the information required
to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods required by the United States Securities and Exchange Commissions rules and
forms.



In reaching the conclusion set forth above, the
Companys Chief Executive Officer and Chief Financial Officer considered the restatement of the Companys consolidated financial statements, as discussed elsewhere in this Form 10-K/A. The Companys Chief Executive Officer and Chief
Financial Officer have concluded that the circumstances giving rise to the restatement were not reflective of any material weakness in the Companys disclosure controls and procedures, and that such disclosure controls and procedures were
operating effectively throughout the period covered by this Annual Report on Form 10-K/A.



(b) Changes in internal control over financial reporting.



There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this report that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



77



---

##### Table of Contents

PART IV



Item 15.    
Exhibits, Financial Statement Schedules and Reports on Form 8-K



(a)    Financial Statements, Financial Statement Schedules and ExhibitsThe following documents are filed as part of the Annual Report on Form 10-K filed on December 9, 2003.



| | (i) | Consolidated Financial StatementsSee index on page 41 of the Annual Report on Form 10-K filed on December 9, 2003.
| | --- | -------------------------------------------------------------------------------------------------------------------



| | (ii) | Financial Statement ScheduleSee index on page 41 of the Annual Report on Form 10-K filed on December 9, 2003.
| | ---- | --------------------------------------------------------------------------------------------------------------



| | (iii) | Exhibits:
| | ----- | ---------



|            |        |  |                                                                                                                                                                                                                                                                                                                                              
|----------- | ------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |        |  | Description of Document                                                                                                                                                                                                                                                                                                                      
|2.1         | (1)    |  | Purchase Agreement dated August 25, 2003 by and among The Pantry, Ahold Real Properties LLC, Golden Gallon Holding LLC, Golden Gallon-GA LLC, Golden Gallon-TN LLC, and for limited purposes,
Ahold USA, Inc., BI-LO, LLC and BI-LO Brands, Inc.                                                                                             
|            |       
|2.2         | (1)    |  | List of Exhibits and Schedules omitted from the Purchase Agreement referenced in Exhibit 2.1 above.                                                                                                                                                                                                                                          
|            |       
|2.3         | (1)    |  | Purchase and Sale Agreement dated October 9, 2003 by and among The Pantry, RI TN 1, LLC, RI TN 2, LLC, RI GA 1, LLC, and Crestnet 1, LLC.                                                                                                                                                                                                    
|            |       
|2.4         | (1)    |  | List of Exhibits omitted from the Purchase and Sale Agreement referenced in Exhibit 2.3 above.                                                                                                                                                                                                                                               
|            |       
|2.5         | (1)    |  | Form of Lease Agreement between The Pantry and certain parties to the Purchase and Sale Agreement referenced in Exhibit 2.3 above.                                                                                                                                                                                                           
|            |       
|2.6         | (1)    |  | Intellectual Property Transfer and Agreement to be Bound dated October 16, 2003 by and between Koninklijke Ahold N.V. and The Pantry.                                                                                                                                                                                                        
|            |       
|2.7         | (1)    |  | List of Schedules and Exhibits omitted from Intellectual Property Transfer and Agreement to be Bound referenced in Exhibit 2.6 above.                                                                                                                                                                                                        
|            |       
|3.1         | (2)    |  | Amended and Restated Certificate of Incorporation of The Pantry.                                                                                                                                                                                                                                                                             
|            |       
|3.2         | (2)    |  | Amended and Restated Bylaws of The Pantry.                                                                                                                                                                                                                                                                                                   
|            |       
|4.1         | (3)    |  | Indenture dated as of October 23, 1997 among The Pantry, Sandhills, Lil Champ and United States Trust Company of New York, as Trustee, with respect to the 101⁄4% Senior Subordinated
Notes due 2007 (including the form of 101/4% Senior Subordinated Notes due 2007).                                                                       
|            |       
|4.2         | (2)    |  | Amended and Restated Registration Rights Agreement dated July 2, 1998 among The Pantry, FS Equity Partners III, L.P. (FSEP III), FS Equity Partners IV, L.P. (FSEP IV),
FS Equity Partners International, L.P. (FSEP International), Peter J. Sodini, Chase Manhattan Capital, L.P., CB Capital Investors, L.P., and Baseball Partners.
|            |       
|4.3         | (4)    |  | Amendment No. 1 to the Amended and Restated Registration Rights Agreement dated as of June 1, 1999 among The Pantry, FSEP III, FSEP IV, FSEP International, Chase Manhattan Capital, L.P., CB
Capital Investors, L.P., Baseball Partners and Peter J. Sodini.                                                                                
|            |       
|4.4         | *      |  | Registration Rights Agreement dated December 30, 1996, by and among The Pantry, FSEP III and FSEP International.                                                                                                                                                                                                                             
|            |       
|10.1        | (5)(6) |  | The Pantry, Inc. 1998 Stock Option Plan.                                                                                                                                                                                                                                                                                                     
|            |       
|10.2        | (2)    |  | Form of Incentive Stock Option Agreement.                                                                                                                                                                                                                                                                                                    



78



---

##### Table of Contents

|            |         |  |                                                                                                                                                                                                                                                                                                                                                     
|----------- | ------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |         |  | Description of Document                                                                                                                                                                                                                                                                                                                             
|10.3        | (3)     |  | Stock Purchase Agreement dated October 23, 1997 among The Pantry, FSEP III, FSEP International, CB Capital Investors, L.P. and Peter J. Sodini.                                                                                                                                                                                                     
|            |        
|10.4        | (3)     |  | Contribution to Capital Agreement dated October 23, 1997 among The Pantry, FSEP III, FSEP International, Chase Manhattan Capital, L.P., and Baseball Partners.                                                                                                                                                                                      
|            |        
|10.5        | (7)     |  | Amended and Restated Credit Agreement dated April 14, 2003 among The Pantry, as borrower, R&H Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, as guarantors, Wachovia, as
administrative agent and lender, Wells Fargo, as syndication agent and lender and Credit Industriel Et Commercial and Smoky River CDO L.P., as lenders.      
|            |        
|10.6        | (1)     |  | First Amendment to Credit Agreement dated October 16, 2003 by and among The Pantry, as borrower, R&H Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, as guarantors, Wachovia,
as administrative agent and lender, Wells Fargo, as syndication agent and lender and certain other lenders, as identified in the signature pages thereto.
|            |        
|10.7        | (7)     |  | Amended and Restated Pledge Agreement dated as of April 14, 2003 between The Pantry and R&H Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, all as pledgors and Wachovia, as
administrative agent.                                                                                                                                     
|            |        
|10.8        | (7)     |  | Amended and Restated Security Agreement dated as of April 14, 2003 between The Pantry and R&H Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, all as obligors and Wachovia, as
administrative agent.                                                                                                                                   
|            |        
|10.9        | (3)     |  | Company Trademark Security Agreement dated as of October 23, 1997 between The Pantry and First Union, as administrative agent.                                                                                                                                                                                                                      
|            |        
|10.10       | (3)     |  | Form of Amended and Restated Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing (North Carolina) dated October 23, 1997 among The Pantry, David R. Cannon, as
Trustee, and First Union as Agent.                                                                                                                  
|            |        
|10.11       | (3)(6)  |  | Employment Agreement dated October 1, 1997 between Peter J. Sodini and The Pantry.                                                                                                                                                                                                                                                                  
|            |        
|10.12       | (4)(6)  |  | Amendment No. 1 to Employment Agreement between The Pantry and Peter J. Sodini.                                                                                                                                                                                                                                                                     
|            |        
|10.13       | (9)(6)  |  | Amendment No. 2 to Employment Agreement between The Pantry and Peter J. Sodini.                                                                                                                                                                                                                                                                     
|            |        
|10.14       | (10)(6) |  | Amendment No. 3 to Employment Agreement between The Pantry and Peter J. Sodini.                                                                                                                                                                                                                                                                     
|            |        
|10.15       | (11)(6) |  | Employment Agreement dated May 2, 2003 between Daniel J. Kelly and The Pantry.                                                                                                                                                                                                                                                                      
|            |        
|10.16       | (11)(6) |  | Employment Agreement dated May 1, 2003 between Steven J. Ferreira and The Pantry.                                                                                                                                                                                                                                                                   
|            |        
|10.17       | (11)(6) |  | Employment Agreement dated May 3, 2003 between Joseph A. Krol and The Pantry.                                                                                                                                                                                                                                                                       
|            |        
|10.18       | (11)(6) |  | Employment Agreement dated May 6, 2003 between David M. Zaborski and The Pantry.                                                                                                                                                                                                                                                                    
|            |        
|10.19       | (11)(6) |  | Employment Agreement dated May 6, 2003 between Gregory J. Tornberg and The Pantry.                                                                                                                                                                                                                                                                  
|            |        
|10.20       | (3)     |  | Form of Amended and Restated Mortgage, Security Agreement, Assignment of Rents and Leases And Fixture Filing (South Carolina) dated October 23, 1997 between The Pantry and First Union, as
Agent.                                                                                                                                                  
|            |        
|10.21       | (3)     |  | Form of Amended and Restated Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Tennessee) dated October 23, 1997 among The Pantry, David R. Cannon, as
Trustee, and First Union, as Agent.                                                                                                                      
|            |        
|10.22       | (3)     |  | Form of Amended and Restated Mortgage, Security Agreement, Assignment of Rents and Leases (Kentucky) dated October 23, 1997 between The Pantry and First Union, as Agent.                                                                                                                                                                           



79



---

##### Table of Contents

|            |         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|----------- | ------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |         |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.23       | (3)     |  | Form of Amended and Restated Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Indiana) dated October 23, 1997 between The Pantry and First Union, as
Agent.                                                                                                                                                                                                                                                                             
|            |        
|10.24       | (3)     |  | Form of Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Florida) dated October 23, 1997 between Lil Champ and First Union, as Agent.                                                                                                                                                                                                                                                                                                  
|            |        
|10.25       | (3)     |  | Form of Deed to Secure Debt, Security Agreement, and Assignment of Rents (Georgia) dated October 23, 1997 between Lil Champ and First Union, as Agent.                                                                                                                                                                                                                                                                                                                 
|            |        
|10.26       | (2)     |  | Form of Subsidiary Guaranty.                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |        
|10.27       | (2)     |  | Form of Subsidiary Security Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |        
|10.28       | (2)     |  | Form of Subsidiary Pledge Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |        
|10.29       | (2)     |  | Form of Subsidiary Trademark Security Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |        
|10.30       | (8)     |  | The Pantry Inc. 1998 Stock Subscription Plan.                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |        
|10.31       | (2)     |  | Form of Stock Subscription Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |        
|10.32       | (2)     |  | Stock Purchase Agreement dated July 2, 1998 among The Pantry, FSEP IV and CB Capital Investors, L.P.                                                                                                                                                                                                                                                                                                                                                                    
|            |        
|10.33       | (9)     |  | Distribution Service Agreement dated as of October 10, 1999 among The Pantry, Lil Champ and McLane Company, Inc., as amended by the First Amendment to Distribution Service Agreement
dated June 28, 2001, and the Second Amendment to Distribution Service Agreement dated September 8, 2001 (asterisks located within the exhibit denote information which has been deleted pursuant to a confidential treatment filing with the Securities
and Exchange Commission).
|            |        
|10.34       | (12)    |  | Third Amendment to the Distribution Service Agreement by and among The Pantry, Lil Champ Food Stores, Inc. and McLane Company, Inc. dated October 5, 2002 (asterisks located within the
exhibit denote information which has been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission).                                                                                                                                    
|            |        
|10.35       | *       |  | Fourth Amendment to the Distribution Service Agreement dated October 16, 2003, by and between The Pantry and McLane Company, Inc. (asterisks located within the exhibit denote information
which has been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission).                                                                                                                                                             
|            |        
|10.36       | (2)     |  | Form of Indemnification Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |        
|10.37       | (2)     |  | Common Stock Purchase Warrant dated December 30, 1996.                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |        
|10.38       | (2)     |  | Common Stock Purchase Warrant dated December 30, 1996.                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |        
|10.39       | (6)(14) |  | 1999 Stock Option Plan, as amended.                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |        
|10.40       | (6)(12) |  | Management and Administrative Incentive Plan.                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |        
|10.41       | (13)    |  | Branded Jobber Contract between The Pantry and BP Products North America Inc. dated as of February 1, 2003, as amended by the Amendment to the Branded Jobber Contract dated February 14, 2003
(asterisks located within the exhibit denote information which has been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission).                                                                                                
|            |        
|10.42       | (13)    |  | Distributor Franchise Agreement between The Pantry and CITGO Petroleum Corporation dated as of August 2000, including Amended and Restated Addendum dated February 11, 2003 (asterisks located
within the exhibit denote information which has been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission).                                                                                                                   



80



---

##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.43(13)   |  | Letter of Preferability regarding change in Goodwill Impairment test date change from Deloitte & Touche LLP.                                                                                                                                                                                                                                                                                                                                                                                               
|            | 
|10.44*      |  | Letter Agreement dated November 4, 2003 by and among The Pantry, as borrower, R&H Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, as guarantors, and Wachovia, as
administrative agent and lender.                                                                                                                                                                                                                                                                                            
|            | 
|10.45*(6)   |  | Amendment No. 4 to Employment Agreement between The Pantry and Peter J. Sodini.                                                                                                                                                                                                                                                                                                                                                                                                                            
|            | 
|12.1*       |  | Statement regarding Computation of Earnings to Fixed Charges Ratio.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            | 
|21.1*       |  | Subsidiaries of The Pantry.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            | 
|23.1*       |  | Consent of Deloitte & Touche, LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            | 
|23.2***     |  | Consent of Deloitte & Touche, LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            | 
|23.3        |  | Consent of Deloitte & Touche, LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            | 
|31.1*       |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                               
|            | 
|31.2*       |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                               
|            | 
|31.3**      |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                               
|            | 
|31.4**      |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                               
|            | 
|31.5***     |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                               
|            | 
|31.6***     |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                               
|            | 
|31.7        |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                               
|            | 
|31.8        |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                               
|            | 
|32.1*       |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002. [This exhibit is being furnished pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by that act, be deemed to be incorporated by reference into any document or filed herewith for purposes of liability under the Securities Exchange Act of 1934, as amended, or
the Securities Act of 1933, as amended, as the case may be.]
|            | 
|32.2*       |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002. [This exhibit is being furnished pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by that act, be deemed to be incorporated by reference into any document or filed herewith for purposes of liability under the Securities Exchange Act of 1934, as amended, or
the Securities Act of 1933, as amended, as the case may be.]
|            | 
|32.3***     |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002. [This exhibit is being furnished pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by that act, be deemed to be incorporated by reference into any document or filed herewith for purposes of liability                                                                                                                       



81



---

##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |  | under the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, as the case may be.]                                                                                                                                                                                                                                                                                                                                                                                     
|            | 
|32.4***     |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002. [This exhibit is being furnished pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by that act, be deemed to be incorporated by reference into any document or filed herewith for purposes of liability under the Securities Exchange Act of 1934, as amended, or
the Securities Act of 1933, as amended, as the case may be.]
|            | 
|32.5        |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002. [This exhibit is being furnished pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by that act, be deemed to be incorporated by reference into any document or filed herewith for purposes of liability under the Securities Exchange Act of 1934, as amended, or
the Securities Act of 1933, as amended, as the case may be.]
|            | 
|32.6        |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002. [This exhibit is being furnished pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by that act, be deemed to be incorporated by reference into any document or filed herewith for purposes of liability under the Securities Exchange Act of 1934, as amended, or
the Securities Act of 1933, as amended, as the case may be.]

---

|* | Previously filed with the Annual Report on Form 10-K for the year ended September 25, 2003, filed with the Securities and Exchange Commission on December 9, 2003.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|** | Previously filed with Amendment No. 1 to Annual Report on Form 10-K/A, for the year then ended September 25, 2003, filed with the Securities and Exchange Commission on January 7,
2004.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*** | Previously filed with Amendment No. 2 to Annual Report on Form 10-K/A, for the year then ended September 25, 2003, filed with the Securities and Exchange Commission on June 29,
2004.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(1) | Incorporated by reference from The Pantrys current Report on Form 8-K dated October 31, 2003.
|--- | ----------------------------------------------------------------------------------------------

|(2) | Incorporated by reference from The Pantrys Registration Statement on Form S-1, as amended (Registration No. 333-74221).
|--- | ------------------------------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference from The Pantrys Registration Statement on Form S-4 (Registration No. 333-42811).
|--- | ------------------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference from The Pantrys Quarterly Report on Form 10-Q for the quarterly period ended June 24, 1999.
|--- | -----------------------------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference from The Pantrys Quarterly Report on Form 10-Q for the quarterly period ended December 25, 1997.
|--- | ---------------------------------------------------------------------------------------------------------------------------

|(6) | Represents a management contract or compensation plan arrangement.
|--- | ------------------------------------------------------------------

|(7) | Incorporated by reference from The Pantrys Current Report on Form 8-K dated April 24, 2003.
|--- | --------------------------------------------------------------------------------------------

|(8) | Incorporated by reference from The Pantrys Current Report on Form 8-K dated February 8, 1999.
|--- | ----------------------------------------------------------------------------------------------

|(9) | Incorporated by reference from The Pantrys Annual Report on Form 10-K, as amended, for the year ended September 27, 2001.
|--- | --------------------------------------------------------------------------------------------------------------------------

|(10) | Incorporated by reference from The Pantrys Quarterly Report on Form 10-Q for the quarterly period ended December 26, 2002.
|---- | ---------------------------------------------------------------------------------------------------------------------------

|(11) | Incorporated by reference from The Pantrys Quarterly Report on Form 10-Q for the quarterly period ended June 26, 2003.
|---- | -----------------------------------------------------------------------------------------------------------------------

|(12) | Incorporated by reference from The Pantrys Annual Report on Form 10-K for the year ended September 26, 2002.
|---- | -------------------------------------------------------------------------------------------------------------

|(13) | Incorporated by reference from The Pantrys Quarterly Report on Form 10-Q for the quarterly period ended March 27, 2003.
|---- | ------------------------------------------------------------------------------------------------------------------------

|(14) | Incorporated by reference from The Pantrys definitive Proxy Statement dated February 10, 2003.
|---- | -----------------------------------------------------------------------------------------------



82



---

##### Table of Contents

(b)    Reports on Form 8-K.



(i)    On July 31, 2003, we filed a
Current Report on Form 8-K containing a press release reporting final financial results for the quarter ended June 26, 2003, which included selected financial data for the quarter ended June 27, 2003 and for other selected periods. Information
furnished in the Form 8-K referenced in the prior sentence is not deemed to be filed with the SEC.



(ii)   On August 26, 2003, we filed a Current Report on Form 8-K announcing that we had signed a definitive agreement to
acquire from Ahold, U.S.A. the operating assets of 138 convenience stores, 90 in Tennessee and 48 in northwest Georgia, operating under the Golden Gallon name (the Golden Gallon Acquisition).



(c)    See (a)(iii) above.



(d)    See (a)(ii) above.



83



---

##### Table of Contents

SIGNATURE



Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment No. 3 to Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.



THE PANTRY, INC.By:

/s/ PETER J. SODINIPeter J. Sodini President and Chief Executive Officer




Date: September 13, 2004



Pursuant to the requirements
of the Securities Exchange Act of 1934, this Amendment No. 3 to Annual Report on Form 10-K/A has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.



|                                                          |  |                                                                               |  |                   
|--------------------------------------------------------- |  | ----------------------------------------------------------------------------- |  | ------------------
|Signature                                                 |  | Title                                                                         |  | Date              
|                                                          |  |                                                                              
|/s/    PETER J. SODINIPeter J. Sodini                     |  | President, Chief Executive Officer and Director (Principal Executive Officer) |  | September 13, 2004
|                                                          |  |                                                                              
|/s/    DANIEL J. KELLYDaniel J. Kelly                     |  | Vice President and Chief Financial Officer (Principal Accounting Officer)     |  | September 13, 2004
|                                                          |  |                                                                              
|/s/    TODD W.
HALLORANTodd W.
Halloran                   |  | Director                                                                      |  | September 13, 2004
|                                                          |  |                                                                              
|/s/    CHARLES P.
RULLMANCharles P.
Rullman               |  | Director                                                                      |  | September 13, 2004
|                                                          |  |                                                                              
|Byron E. Allumbaugh                                       |  | Director                                                                      |  |                   
|                                                          |  |                                                                              
|/s/    PETER M.
STARRETTPeter M.
Starrett                 |  | Director                                                                      |  | September 13, 2004
|                                                          |  |                                                                              
|/s/    PAUL L.
BRUNSWICKPaul M.
Brunswick                 |  | Director                                                                      |  | September 13, 2004
|                                                          |  |                                                                              
|/s/    HUBERT E. YARBOROUGH,
IIIHubert E. Yarborough, III |  | Director                                                                      |  | September 13, 2004
|                                                          |  |                                                                              
|/s/    THOMAS M.
MURNANEThomas M.
Murnane                 |  | Director                                                                      |  | September 13, 2004



84



---

##### Table of Contents

EXHIBIT INDEX



|            |        |  |                                                                                                                                                                                                                                                                                                                                              
|----------- | ------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |        |  | Description of Document                                                                                                                                                                                                                                                                                                                      
|            |       
|2.1         | (1)    |  | Purchase Agreement dated August 25, 2003 by and among The Pantry, Ahold Real Properties LLC, Golden Gallon Holding LLC, Golden Gallon-GA LLC, Golden Gallon-TN LLC, and for limited purposes,
Ahold USA, Inc., BI-LO, LLC and BI-LO Brands, Inc.                                                                                             
|            |       
|2.2         | (1)    |  | List of Exhibits and Schedules omitted from the Purchase Agreement referenced in Exhibit 2.1 above.                                                                                                                                                                                                                                          
|            |       
|2.3         | (1)    |  | Purchase and Sale Agreement dated October 9, 2003 by and among The Pantry, RI TN 1, LLC, RI TN 2, LLC, RI GA 1, LLC, and Crestnet 1, LLC.                                                                                                                                                                                                    
|            |       
|2.4         | (1)    |  | List of Exhibits omitted from the Purchase and Sale Agreement referenced in Exhibit 2.3 above.                                                                                                                                                                                                                                               
|            |       
|2.5         | (1)    |  | Form of Lease Agreement between The Pantry and certain parties to the Purchase and Sale Agreement referenced in Exhibit 2.3 above.                                                                                                                                                                                                           
|            |       
|2.6         | (1)    |  | Intellectual Property Transfer and Agreement to be Bound dated October 16, 2003 by and between Koninklijke Ahold N.V. and The Pantry.                                                                                                                                                                                                        
|            |       
|2.7         | (1)    |  | List of Schedules and Exhibits omitted from Intellectual Property Transfer and Agreement to be Bound referenced in Exhibit 2.6 above.                                                                                                                                                                                                        
|            |       
|3.1         | (2)    |  | Amended and Restated Certificate of Incorporation of The Pantry.                                                                                                                                                                                                                                                                             
|            |       
|3.2         | (2)    |  | Amended and Restated Bylaws of The Pantry.                                                                                                                                                                                                                                                                                                   
|            |       
|4.1         | (3)    |  | Indenture dated as of October 23, 1997 among The Pantry, Sandhills, Lil Champ and United States Trust Company of New York, as Trustee, with respect to the 101⁄4% Senior Subordinated
Notes due 2007 (including the form of 101/4% Senior Subordinated Notes due 2007).                                                                       
|            |       
|4.2         | (2)    |  | Amended and Restated Registration Rights Agreement dated July 2, 1998 among The Pantry, FS Equity Partners III, L.P. (FSEP III), FS Equity Partners IV, L.P. (FSEP IV),
FS Equity Partners International, L.P. (FSEP International), Peter J. Sodini, Chase Manhattan Capital, L.P., CB Capital Investors, L.P., and Baseball Partners.
|            |       
|4.3         | (4)    |  | Amendment No. 1 to the Amended and Restated Registration Rights Agreement dated as of June 1, 1999 among The Pantry, FSEP III, FSEP IV, FSEP International, Chase Manhattan Capital, L.P., CB
Capital Investors, L.P., Baseball Partners and Peter J. Sodini.                                                                                
|            |       
|4.4         | *      |  | Registration Rights Agreement dated December 30, 1996 by and among The Pantry, FSEP III and FSEP International.                                                                                                                                                                                                                              
|            |       
|10.1        | (5)(6) |  | The Pantry, Inc. 1998 Stock Option Plan.                                                                                                                                                                                                                                                                                                     
|            |       
|10.2        | (2)    |  | Form of Incentive Stock Option Agreement.                                                                                                                                                                                                                                                                                                    
|            |       
|10.3        | (3)    |  | Stock Purchase Agreement dated October 23, 1997 among The Pantry, FSEP III, FSEP International, CB Capital Investors, L.P. and Peter J. Sodini.                                                                                                                                                                                              
|            |       
|10.4        | (3)    |  | Contribution to Capital Agreement dated October 23, 1997 among The Pantry, FSEP III, FSEP International, Chase Manhattan Capital, L.P., and Baseball Partners.                                                                                                                                                                               



---

##### Table of Contents

|            |         |  |                                                                                                                                                                                                                                                                                                                                                     
|----------- | ------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |         |  | Description of Document                                                                                                                                                                                                                                                                                                                             
|            |        
|10.5        | (7)     |  | Amended and Restated Credit Agreement dated April 14, 2003 among The Pantry, as borrower, R&H Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, as guarantors, Wachovia, as
administrative agent and lender, Wells Fargo, as syndication agent and lender and Credit Industriel Et Commercial and Smoky River CDO L.P., as lenders.      
|            |        
|10.6        | (1)     |  | First Amendment to Credit Agreement dated October 16, 2003 by and among The Pantry, as borrower, R&H Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, as guarantors, Wachovia,
as administrative agent and lender, Wells Fargo, as syndication agent and lender and certain other lenders, as identified in the signature pages thereto.
|            |        
|10.7        | (7)     |  | Amended and Restated Pledge Agreement dated as of April 14, 2003 between The Pantry and R&H Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, all as pledgors and Wachovia, as
administrative agent.                                                                                                                                     
|            |        
|10.8        | (7)     |  | Amended and Restated Security Agreement dated as of April 14, 2003 between The Pantry and R&H Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, all as obligors and Wachovia, as
administrative agent.                                                                                                                                   
|            |        
|10.9        | (3)     |  | Company Trademark Security Agreement dated as of October 23, 1997 between The Pantry and First Union, as administrative agent.                                                                                                                                                                                                                      
|            |        
|10.10       | (3)     |  | Form of Amended and Restated Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing (North Carolina) dated October 23, 1997 among The Pantry, David R. Cannon, as
Trustee, and First Union as Agent.                                                                                                                  
|            |        
|10.11       | (3)(6)  |  | Employment Agreement dated October 1, 1997 between Peter J. Sodini and The Pantry.                                                                                                                                                                                                                                                                  
|            |        
|10.12       | (4)(6)  |  | Amendment No. 1 to Employment Agreement between The Pantry and Peter J. Sodini.                                                                                                                                                                                                                                                                     
|            |        
|10.13       | (9)(6)  |  | Amendment No. 2 to Employment Agreement between The Pantry and Peter J. Sodini.                                                                                                                                                                                                                                                                     
|            |        
|10.14       | (10)(6) |  | Amendment No. 3 to Employment Agreement between The Pantry and Peter J. Sodini.                                                                                                                                                                                                                                                                     
|            |        
|10.15       | (11)(6) |  | Employment Agreement dated May 2, 2003 between Daniel J. Kelly and The Pantry.                                                                                                                                                                                                                                                                      
|            |        
|10.16       | (11)(6) |  | Employment Agreement dated May 1, 2003 between Steven J. Ferreira and The Pantry.                                                                                                                                                                                                                                                                   
|            |        
|10.17       | (11)(6) |  | Employment Agreement dated May 3, 2003 between Joseph A. Krol and The Pantry.                                                                                                                                                                                                                                                                       
|            |        
|10.18       | (11)(6) |  | Employment Agreement dated May 6, 2003 between David M. Zaborski and The Pantry.                                                                                                                                                                                                                                                                    
|            |        
|10.19       | (11)(6) |  | Employment Agreement dated May 6, 2003 between Gregory J. Tornberg and The Pantry.                                                                                                                                                                                                                                                                  
|            |        
|10.20       | (3)     |  | Form of Amended and Restated Mortgage, Security Agreement, Assignment of Rents and Leases And Fixture Filing (South Carolina) dated October 23, 1997 between The Pantry and First Union, as
Agent.                                                                                                                                                  
|            |        
|10.21       | (3)     |  | Form of Amended and Restated Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Tennessee) dated October 23, 1997 among The Pantry, David R. Cannon, as
Trustee, and First Union, as Agent.                                                                                                                      
|            |        
|10.22       | (3)     |  | Form of Amended and Restated Mortgage, Security Agreement, Assignment of Rents and Leases (Kentucky) dated October 23, 1997 between The Pantry and First Union, as Agent.                                                                                                                                                                           
|            |        
|10.23       | (3)     |  | Form of Amended and Restated Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Indiana) dated October 23, 1997 between The Pantry and First Union, as
Agent.                                                                                                                                                         



---

##### Table of Contents

|            |         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|----------- | ------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |         |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.24       | (3)     |  | Form of Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Florida) dated October 23, 1997 between Lil Champ and First Union, as Agent.                                                                                                                                                                                                                                                                                                 
|            |        
|10.25       | (3)     |  | Form of Deed to Secure Debt, Security Agreement, and Assignment of Rents (Georgia) dated October 23, 1997 between Lil Champ and First Union, as Agent.                                                                                                                                                                                                                                                                                                                
|            |        
|10.26       | (2)     |  | Form of Subsidiary Guaranty.                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |        
|10.27       | (2)     |  | Form of Subsidiary Security Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |        
|10.28       | (2)     |  | Form of Subsidiary Pledge Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |        
|10.29       | (2)     |  | Form of Subsidiary Trademark Security Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |        
|10.30       | (8)     |  | The Pantry Inc. 1998 Stock Subscription Plan.                                                                                                                                                                                                                                                                                                                                                                                                                          
|            |        
|10.31       | (2)     |  | Form of Stock Subscription Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |        
|10.32       | (2)     |  | Stock Purchase Agreement dated July 2, 1998 among The Pantry, FSEP IV and CB Capital Investors, L.P.                                                                                                                                                                                                                                                                                                                                                                   
|            |        
|10.33       | (9)     |  | Distribution Service Agreement dated as of October 10, 1999 among The Pantry, Lil Champ and McLane Company, Inc., as amended by the First Amendment to Distribution Service Agreement
date June 28, 2001, and the Second Amendment to Distribution Service Agreement dated September 8, 2001 (asterisks located within the exhibit denote information which has been deleted pursuant to a confidential treatment filing with the Securities
and Exchange Commission).
|            |        
|10.34       | (12)    |  | Third Amendment to the Distribution Service Agreement by and among The Pantry, Lil Champ Food Stores, Inc. and McLane Company, Inc. dated October 5, 2002 (asterisks located within the
exhibit denote information which has been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission).                                                                                                                                   
|            |        
|10.35       | *       |  | Fourth Amendment to the Distribution Service Agreement dated October 16, 2003, by and between The Pantry and McLane Company, Inc. (asterisks located within the exhibit denote information
which has been deleted pursuant to confidential treatment filing with the Securities and Exchange Commission).                                                                                                                                                              
|            |        
|10.36       | (2)     |  | Form of Indemnification Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |        
|10.37       | (2)     |  | Common Stock Purchase Warrant dated December 30, 1996.                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |        
|10.38       | (2)     |  | Common Stock Purchase Warrant dated December 30, 1996.                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |        
|10.39       | (6)(14) |  | 1999 Stock Option Plan, as amended.                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |        
|10.40       | (6)(12) |  | Management and Administrative Incentive Plan.                                                                                                                                                                                                                                                                                                                                                                                                                          
|            |        
|10.41       | (13)    |  | Branded Jobber Contract between The Pantry and BP Products North America Inc. dated as of February 1, 2003, as amended by the Amendment to the Branded Jobber Contract dated February 14, 2003
(asterisks located within the exhibit denote information which has been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission).                                                                                               
|            |        
|10.42       | (13)    |  | Distributor Franchise Agreement between The Pantry and CITGO Petroleum Corporation dated as of August 2000, including Amended and Restated Addendum dated February 11, 2003 (asterisks located
within the exhibit denote information which has been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission).                                                                                                                  
|            |        
|10.43       | (13)    |  | Letter of Preferability regarding change in Goodwill Impairment test date change from Deloitte & Touche LLP.                                                                                                                                                                                                                                                                                                                                                           
|            |        
|10.44       | *       |  | Letter Agreement dated November 4, 2003 by and among The Pantry, as borrower, R&H Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, as guarantors, and Wachovia, as
administrative agent and lender.                                                                                                                                                                                                                                                        
|            |        
|10.45       | *(6)    |  | Amendment No. 4 to Employment Agreement between The Pantry and Peter J. Sodini.                                                                                                                                                                                                                                                                                                                                                                                        



---

##### Table of Contents

|            |     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|----------- | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |     |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |    
|12.1        | *   |  | Statement regarding Computation of Earnings to Fixed Charges Ratio.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |    
|21.1        | *   |  | Subsidiaries of The Pantry.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            |    
|23.1        | *   |  | Consent of Deloitte & Touche, LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            |    
|23.2        | *** |  | Consent of Deloitte & Touche, LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            |    
|23.3        |     |  | Consent of Deloitte & Touche, LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            |    
|31.1        | *   |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                               
|            |    
|31.2        | *   |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                               
|            |    
|31.3        | **  |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                               
|            |    
|31.4        | **  |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                               
|            |    
|31.5        | *** |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                               
|            |    
|31.6        | *** |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                               
|            |    
|31.7        |     |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                               
|            |    
|31.8        |     |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                               
|            |    
|32.1        | *   |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002. [This exhibit is being furnished pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by that act, be deemed to be incorporated by reference into any document or filed herewith for purposes of liability under the Securities Exchange Act of 1934, as amended, or
the Securities Act of 1933, as amended, as the case may be.]
|            |    
|32.2        | *   |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002. [This exhibit is being furnished pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by that act, be deemed to be incorporated by reference into any document or filed herewith for purposes of liability under the Securities Exchange Act of 1934, as amended, or
the Securities Act of 1933, as amended, as the case may be.]
|            |    
|32.3        | *** |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002. [This exhibit is being furnished pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by that act, be deemed to be incorporated by reference into any document or filed herewith for purposes of liability under the Securities Exchange Act of 1934, as amended, or
the Securities Act of 1933, as amended, as the case may be.]
|            |    
|32.4        | *** |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002. [This exhibit is being furnished pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by that act, be deemed to be incorporated by reference into any document or filed herewith for purposes of liability under the Securities Exchange Act of 1934, as amended, or
the Securities Act of 1933, as amended, as the case may be.]



---

##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            | 
|32.5        |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002. [This exhibit is being furnished pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by that act, be deemed to be incorporated by reference into any document or filed herewith for purposes of liability under the Securities Exchange Act of 1934, as amended, or
the Securities Act of 1933, as amended, as the case may be.]
|            | 
|32.6        |  | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002. [This exhibit is being furnished pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by that act, be deemed to be incorporated by reference into any document or filed herewith for purposes of liability under the Securities Exchange Act of 1934, as amended, or
the Securities Act of 1933, as amended, as the case may be.]

---

|* | Previously filed with the Annual Report on Form 10-K for the year ended September 25, 2003, filed with the Securities and Exchange Commission on December 9, 2003.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|** | Previously filed with Amendment No. 1 to Annual Report on Form 10-K/A, for the year then ended September 25, 2003, filed with the Securities and Exchange Commission on January 7,
2004.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*** | Previously filed with Amendment No. 2 to Annual Report on Form 10-K/A, for the year then ended September 25, 2003, filed with the Securities and Exchange Commission on June 29,
2004.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(1) | Incorporated by reference from The Pantrys current Report on Form 8-K dated October 31, 2003.
|--- | ----------------------------------------------------------------------------------------------

|(2) | Incorporated by reference from The Pantrys Registration Statement on Form S-1, as amended (Registration No. 333-74221).
|--- | ------------------------------------------------------------------------------------------------------------------------

|(3) | Incorporated by reference from The Pantrys Registration Statement on Form S-4 (Registration No. 333-42811).
|--- | ------------------------------------------------------------------------------------------------------------

|(4) | Incorporated by reference from The Pantrys Quarterly Report on Form 10-Q for the quarterly period ended June 24, 1999.
|--- | -----------------------------------------------------------------------------------------------------------------------

|(5) | Incorporated by reference from The Pantrys Quarterly Report on Form 10-Q for the quarterly period ended December 25, 1997.
|--- | ---------------------------------------------------------------------------------------------------------------------------

|(6) | Represents a management contract or compensation plan arrangement.
|--- | ------------------------------------------------------------------

|(7) | Incorporated by reference from The Pantrys Current Report on Form 8-K dated April 24, 2003.
|--- | --------------------------------------------------------------------------------------------

|(8) | Incorporated by reference from The Pantrys Current Report on Form 8-K dated February 8, 1999.
|--- | ----------------------------------------------------------------------------------------------

|(9) | Incorporated by reference from The Pantrys Annual Report on Form 10-K, as amended, for the year ended September 27, 2001.
|--- | --------------------------------------------------------------------------------------------------------------------------

|(10) | Incorporated by reference from The Pantrys Quarterly Report on Form 10-Q for the quarterly period ended December 26, 2002.
|---- | ---------------------------------------------------------------------------------------------------------------------------

|(11) | Incorporated by reference from The Pantrys Quarterly Report on Form 10-Q for the quarterly period ended June 26, 2003.
|---- | -----------------------------------------------------------------------------------------------------------------------

|(12) | Incorporated by reference from The Pantrys Annual Report on Form 10-K for the year ended September 26, 2002.
|---- | -------------------------------------------------------------------------------------------------------------

|(13) | Incorporated by reference from The Pantrys Quarterly Report on Form 10-Q for the quarterly period ended March 27, 2003.
|---- | ------------------------------------------------------------------------------------------------------------------------

|(14) | Incorporated by reference from The Pantrys definitive Proxy Statement dated February 10, 2003.
|---- | -----------------------------------------------------------------------------------------------