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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-K/A

(Amendment No. 1)



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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



For
the fiscal year ended September 30, 2004



Commission File
Number: 000-25813



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THE PANTRY, INC.

(Exact name of
registrant as specified in its charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|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



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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



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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  x    No ̈



Indicate by check mark whether the registrant is a shell company (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 25, 2004 was $170,933,235.



As of December 7, 2004, there were issued and outstanding 20,313,242 shares of the
registrants common stock.



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Documents Incorporated by Reference



|                                                                                         |  |                   
|---------------------------------------------------------------------------------------- |  | ------------------
|Document                                                                                 |  | Where Incorporated
|1.      Proxy Statement for the Annual Meeting of Stockholders to be held March 29, 2005 |  | Part III          



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##### Table of Contents

THE PANTRY, INC .



Explanatory Note



As previously disclosed in our Current Report on Form 8-K dated July 28, 2005, on July 26, 2005, our management and audit committee of the Board of
Directors have determined that our financial statements for each of the three years in the period ending September 30, 2004 and for the first two quarters of fiscal 2005 should be restated to correct the accounting for certain sale-leaseback
transactions entered into by the Company. The restatement is the result of the determination by the Company that such transactions must be accounted for as financing transactions rather than as sale-leaseback transactions. The restatement
recharacterizes the transactions as financing transactions, with the assets and related financing obligation carried on the balance sheet. These transactions had previously been recorded primarily as operating leases.These non-cash
adjustments have no impact on historical or future cash flows or the timing of payments under the impacted lease agreements.



This Amendment No. 1 to Annual Report on Form 10-K/A amends Item 3 of Part I, Items 6, 7, 8 and 9A of Part II and Item 15 of Part IV of our Annual Report
on Form 10-K for the fiscal year ended September 30, 2004, filed with the Securities and Exchange Commission on December 14, 2004. The remaining Items contained within this Amendment No. 1 to Annual Report on Form 10-K/A consist of all other Items
originally contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2004 in the form filed on December 14, 2004. This Form 10-K/A does not reflect events occurring after the filing of the original Form 10-K, nor modify or
update those disclosures in any way other than as required to reflect the effects of the restatement, except for disclosures contained in Item 3 of Part I and except that disclosure regarding certain events that occurred subsequent to our fiscal
year ended September 30, 2004, has been added to Item 8. Consolidated Financial Statements and Supplementary Data  Notes to Consolidated Financial Statements  Note 20  Subsequent Events.



THE PANTRY, INC.



ANNUAL REPORT ON FORM 10-K/A



TABLE OF CONTENTS



|         |  |                                                                                                     |  |     
|-------- |  | --------------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                     |  | Page
|Part I   |  |                                                                                                     |  |     
|Item 1:  |  | Business                                                                                            |  | 3   
|Item 2:  |  | Properties                                                                                          |  | 8   
|Item 3:  |  | Legal Proceedings                                                                                   |  | 9   
|Item 4:  |  | Submission of Matters to a Vote of Security Holders                                                 |  | 9   
|         |  |                                                                                                    
|Part II  |  |                                                                                                     |  |     
|Item 5:  |  | Market for Our Common Equity and Related Stockholder Matters                                        |  | 10  
|Item 6:  |  | Selected Financial Data (As Restated)                                                               |  | 11  
|Item 7:  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations (As Restated) |  | 12  
|Item 7A: |  | Quantitative and Qualitative Disclosures About Market Risk                                          |  | 27  
|Item 8:  |  | Consolidated Financial Statements and Supplementary Data (As Restated)                              |  | 29  
|Item 9:  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                |  | 61  
|Item 9A: |  | Controls and Procedures                                                                             |  | 61  
|Item 9B: |  | Other Information                                                                                   |  | 61  
|         |  |                                                                                                    
|Part III |  |                                                                                                     |  |     
|Item 10: |  | Our Directors and Executive Officers                                                                |  | 62  
|Item 11: |  | Executive Compensation                                                                              |  | 62  
|Item 12: |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters      |  | 62  
|Item 13: |  | Certain Relationships and Related Transactions                                                      |  | 62  
|Item 14: |  | Principal Accounting Fees and Services                                                              |  | 62  
|         |  |                                                                                                    
|Part IV  |  |                                                                                                     |  |     
|Item 15: |  | Exhibits and Financial Statement Schedules                                                          |  | 63  
|         |  | Signatures                                                                                          |  | 67  
|         |  | Schedule II
Valuation and Qualifying Accounts and Reserves                                         |  | 68  





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##### 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 September 30, 2004, we operated 1,361 stores in ten states under several banners including Kangaroo
ExpressSM, The Pantry®, Golden Gallon®, and Lil Champ Food Store®. Our stores offer a broad selection of merchandise, gasoline and ancillary products and services designed to appeal to the
convenience needs of our customers.



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 enhanced our strong regional presence. The aggregate purchase price was approximately $185.1 million. The acquisition included (1)
the purchase of certain real estate assets (114 fee-owned stores), financed through a $94.5 million lease finance transaction and (2) the purchase of the Golden Gallon®operations and the balance of its 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 additional borrowings. 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.



Our principal executive offices are located at 1801 Douglas Drive, Sanford, North Carolina 27331. Our telephone number is 919/774-6700.



Our Internet address iswww.thepantry.com. We make available through our website our annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the
SEC.



Operations



Merchandise Operations. In fiscal 2004, our merchandise sales were
33.6% 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 30,2004 |         |   | September 25,2003 |   |         | September 26,2002 |  |   | September 27,2001 |   |  | September 28,2000 |      
|Merchandise sales (in millions)                                                                                      |  | $                 | 1,172.8 |   |                   | $ | 1,009.7 |                   |  | $ | 1,012.8           |   |  | $                 | 990.3 |    |  | $ | 933.5 |  
|Average merchandise sales per store (in thousands)                                                                   |  | $                 | 856.7   |   |                   | $ | 791.9   |                   |  | $ | 776.1             |   |  | $                 | 747.4 |    |  | $ | 734.5 |  
|Comparable store merchandise sales increase                                                                          |  |                   | 3.4     | % |                   |   | 0.9     | %                 |  |   | 2.8               | % |  |                   | (0.8  | )% |  |   | 7.1   | %
|Merchandise gross margins (after purchase rebates, markdowns, inventory spoilage, inventory shrink and LIFO reserve) |  |                   | 36.3    | % |                   |   | 36.2    | %                 |  |   | 34.9              | % |  |                   | 34.9  | %  |  |   | 35.2  | %



The increase in
average merchandise sales per store in fiscal 2004 is primarily due to the fiscal 2004 comparable store merchandise sales increase of 3.4% and the acquisition of the Golden Gallon®stores, which generated higher per store merchandise revenue.



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 30,2004 |   |  | September 25,2003 |   |  | September 26,2002 |   |  | September 27,2001 |   |  | September 28,2000 |  
|Tobacco products                            |  | 30.0              | % |  | 31.7              | % |  | 33.9              | % |  | 33.9              | % |  | 34.9              | %
|Beer and wine                               |  | 16.3              |   |  | 15.6              |   |  | 15.9              |   |  | 15.9              |   |  | 15.7              |  
|Packaged beverages                          |  | 15.3              |   |  | 14.6              |   |  | 14.2              |   |  | 13.9              |   |  | 13.3              |  
|General merchandise, health and beauty care |  | 5.8               |   |  | 6.1               |   |  | 6.2               |   |  | 5.6               |   |  | 6.5               |  
|Self-service fast foods and beverages       |  | 5.3               |   |  | 5.2               |   |  | 5.2               |   |  | 5.9               |   |  | 5.2               |  
|Grocery and other merchandise               |  | 5.2               |   |  | 4.7               |   |  | 3.8               |   |  | 3.7               |   |  | 3.9               |  
|Salty snacks                                |  | 4.1               |   |  | 4.0               |   |  | 3.8               |   |  | 3.7               |   |  | 3.6               |  
|Fast food service                           |  | 3.9               |   |  | 4.2               |   |  | 4.1               |   |  | 4.2               |   |  | 3.5               |  
|Candy                                       |  | 3.7               |   |  | 3.9               |   |  | 3.5               |   |  | 3.5               |   |  | 3.3               |  
|Services                                    |  | 3.2               |   |  | 3.2               |   |  | 2.6               |   |  | 2.2               |   |  | 2.8               |  
|Dairy products                              |  | 3.2               |   |  | 2.7               |   |  | 2.7               |   |  | 2.9               |   |  | 2.9               |  
|Bread and cakes                             |  | 2.3               |   |  | 2.3               |   |  | 2.2               |   |  | 2.4               |   |  | 2.2               |  
|Newspapers and magazines                    |  | 1.7               |   |  | 1.8               |   |  | 1.9               |   |  | 2.2               |   |  | 2.2               |  
|                                            |  |                   |   |  |                   |   |  |                   |   |  |                   |   |  |                   |  
|Total                                       |  | 100.0             | % |  | 100.0             | % |  | 100.0             | % |  | 100.0             | % |  | 100.0             | %
|                                            |  |                   |   |  |                   |   |  |                   |   |  |                   |   |  |                   |  



As of September 30,
2004, we operated 211 quick service restaurants within 188 of our locations. In 119 of these quick service restaurants, we offer products from nationally branded food franchises including Subway®, Hardees®, Krystal®, Churchs®, Dairy Queen®, and Bojangles®. In addition, we offer a variety of proprietary food service programs in 92 quick service restaurants featuring breakfast biscuits, fried chicken, deli and other hot food offerings.



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We purchase over 50% of our merchandise, including most tobacco and grocery items, from a single
wholesale grocer, McLane Company, Inc., or 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 sales of lottery tickets, prepaid products,
money orders, and car washes, and services such as 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 1,335 stores that sold gasoline as of September 30, 2004, 890, or 66.7%, were branded under the Amoco®, BP®, Chevron®, Citgo®, Shell®, Mobil®, Exxon®or Texaco®brand names. 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 provisions
for various payments to us based on volume of purchases and vendor allowances. We purchase the majority of our private branded gallons from Citgo Petroleum Corporation, or Citgo®. 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 four days.



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, acceptance of suppliers 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 we do not comply with any reasonable and important requirement of the relationship, including if we were to fail to make payments when due, if the supplier withdraws from marketing activities in the area in which we operate, or if our
company is involved in fraud, criminal misconduct, bankruptcy or insolvency. In some cases, gasoline suppliers have the right of first refusal to acquire assets used by us to sell their branded gasoline.



In fiscal 2004, our gasoline revenues were 66.4% of total revenues. The
following table highlights certain information regarding our gasoline operations for the last five fiscal years:



|                                               |  |                   |         |   |                   |   |         |                   |  |   |                   |   |  |                   |         |    |  |   |         |   
|---------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | ----------------- |  | - | ----------------- | - |  | ----------------- | ------- | -- |  | - | ------- | --
|                                               |  | Fiscal Year Ended |        
|                                               |  | September 30,2004 |         |   | September 25,2003 |   |         | September 26,2002 |  |   | September 27,2001 |   |  | September 28,2000 |        
|Gasoline sales (in millions)                   |  | $                 | 2,320.2 |   |                   | $ | 1,740.7 |                   |  | $ | 1,470.7           |   |  | $                 | 1,652.7 |    |  | $ | 1,497.7 |   
|Gasoline gallons sold (in millions)            |  |                   | 1,376.9 |   |                   |   | 1,170.3 |                   |  |   | 1,171.9           |   |  |                   | 1,142.4 |    |  |   | 1,062.4 |   
|Average gallons sold per store (in thousands)  |  |                   | 1,026.0 |   |                   |   | 940.7   |                   |  |   | 924.2             |   |  |                   | 890.4   |    |  |   | 872.5   |   
|Comparable store gallon growth                 |  |                   | 2.0     | % |                   |   | 0.7     | %                 |  |   | 1.5               | % |  |                   | (3.8    | )% |  |   | (2.4    | )%
|Average retail price per gallon                |  | $                 | 1.69    |   |                   | $ | 1.49    |                   |  | $ | 1.25              |   |  | $                 | 1.45    |    |  | $ | 1.41    |   
|Average gross profit per gallon                |  | $                 | 0.120   |   |                   | $ | 0.124   |                   |  | $ | 0.104             |   |  | $                 | 0.125   |    |  | $ | 0.132   |   
|Locations selling gasoline                     |  |                   | 1,335   |   |                   |   | 1,232   |                   |  |   | 1,253             |   |  |                   | 1,286   |    |  |   | 1,267   |   
|Branded locations                              |  |                   | 890     |   |                   |   | 872     |                   |  |   | 959               |   |  |                   | 1,006   |    |  |   | 1,008   |   
|Private brand locations                        |  |                   | 445     |   |                   |   | 360     |                   |  |   | 294               |   |  |                   | 280     |    |  |   | 259     |   
|Locations with pay-at-pump credit card readers |  |                   | 1,113   |   |                   |   | 1,005   |                   |  |   | 1,008             |   |  |                   | 1,009   |    |  |   | 945     |   
|Locations with multi-product dispensers        |  |                   | 1,266   |   |                   |   | 1,100   |                   |  |   | 1,119             |   |  |                   | 1,129   |    |  |   | 1,085   |   



The increase in
average gallons sold per store in fiscal 2004 is primarily due to the 2.0% increase in comparable store gallon growth, the acquisition of the Golden Gallon®stores, which generated higher average gallon volume, and our continued efforts to re-brand or re-image our gasoline facilities. In
fiscal 2004, the gasoline markets were volatile, with domestic crude oil hitting a low in September 2003 of approximately $28 per barrel and a high in September 2004 of approximately $50 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 are unable to ensure that
significant volatility in gasoline wholesale prices will not negatively affect gasoline gross margins or demand for gasoline within our markets.



Store Locations. As of September 30, 2004, we operated 1,361 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.



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The following table shows the geographic distribution by state of our stores for each of the last five
fiscal years:



|               |  |                                               |                   |  |                                          |  |                   |  |                   |  |                   |  |      
|-------------- |  | --------------------------------------------- | ----------------- |  | ---------------------------------------- |  | ----------------- |  | ----------------- |  | ----------------- |  | -----
|               |  | Percentage ofTotal Stores atSeptember 30,2004 |                   |  | Number of Stores as of Fiscal Year Ended
|State          |  |                                               | September 30,2004 |  | September 25,2003                        |  | September 26,2002 |  | September 27,2001 |  | September 28,2000
|Florida        |  | 33.9                                          | %                 |  | 461                                      |  | 477               |  | 494               |  | 505               |  | 517  
|North Carolina |  | 23.7                                          |                   |  | 322                                      |  | 328               |  | 331               |  | 341               |  | 343  
|South Carolina |  | 17.6                                          |                   |  | 239                                      |  | 240               |  | 248               |  | 254               |  | 251  
|Tennessee      |  | 7.6                                           |                   |  | 103                                      |  | 14                |  | 14                |  | 14                |  | 15   
|Georgia        |  | 7.2                                           |                   |  | 98                                       |  | 56                |  | 56                |  | 57                |  | 57   
|Mississippi    |  | 3.7                                           |                   |  | 51                                       |  | 53                |  | 54                |  | 56                |  | 37   
|Kentucky       |  | 2.7                                           |                   |  | 37                                       |  | 38                |  | 39                |  | 42                |  | 45   
|Virginia       |  | 2.2                                           |                   |  | 30                                       |  | 30                |  | 30                |  | 31                |  | 30   
|Indiana        |  | 0.9                                           |                   |  | 12                                       |  | 14                |  | 15                |  | 16                |  | 18   
|Louisiana      |  | 0.5                                           |                   |  | 8                                        |  | 8                 |  | 8                 |  | 8                 |  |     
|               |  |                                               |                   |  |                                          |  |                   |  |                   |  |                   |  |      
|Total          |  | 100                                           | %                 |  | 1,361                                    |  | 1,258             |  | 1,289             |  | 1,324             |  | 1,313
|               |  |                                               |                   |  |                                          |  |                   |  |                   |  |                   |  |      



The following table
summarizes our activities related to acquisitions, store openings and store closures during the last five fiscal years:



|                                        |  |                   |   |  |                   |   |  |                   |   |  |                   |   |  |                   |  
|--------------------------------------- |  | ----------------- | - |  | ----------------- | - |  | ----------------- | - |  | ----------------- | - |  | ----------------- | -
|                                        |  | Fiscal Year Ended |  
|                                        |  | September 30,2004 |   |  | September 25,2003 |   |  | September 26,2002 |   |  | September 27,2001 |   |  | September 28,2000 |  
|Number of stores at beginning of period |  | 1,258             |   |  | 1,289             |   |  | 1,324             |   |  | 1,313             |   |  | 1,215             |  
|Acquired or opened                      |  | 140               |   |  | 4                 |   |  | 3                 |   |  | 47                |   |  | 145               |  
|Closed or sold                          |  | (37               | ) |  | (35               | ) |  | (38               | ) |  | (36               | ) |  | (47               | )
|                                        |  |                   |   |  |                   |   |  |                   |   |  |                   |   |  |                   |  
|Number of stores at end of period       |  | 1,361             |   |  | 1,258             |   |  | 1,289             |   |  | 1,324             |   |  | 1,313             |  
|                                        |  |                   |   |  |                   |   |  |                   |   |  |                   |   |  |                   |  



Acquisitions.
We generally 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 2004, 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, and one additional
store located in South Carolina in a separate acquisition. Additionally, we would consider acquiring stores that are not within or contiguous to our current markets if the opportunity were significant, attractive and accretive to earnings per share.



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. During fiscal 2004, we opened one new location. During fiscal 2005, we plan to open three additional locations and to more actively pursue sites for future growth.



Improvement of Store Facilities and Equipment. During fiscal 2004 and
fiscal 2003, we upgraded the facilities and equipment at many of our existing and acquired store locations. These upgrades cost approximately $44.3 million in fiscal 2004 and $22.7 million in fiscal 2003. Prior to making these expenditures,
management assesses potential return on investment, sales volumes, and the lease term for lease locations. Following is a breakdown of these expenditures:



| |  |  | we spent $10.6 million on rebuilds and remodels in fiscal 2004 compared to $5.5 million in fiscal 2003;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | we spent $18.6 million on gasoline and store branding in fiscal 2004 compared to $5.0 million in fiscal 2003. After entering into new gasoline supply contracts in February 2003, we
began our initiative to consolidate our gasoline brands and store brands, which will include 1,100 of our locations by the end of the project; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we spent $15.1 million on other capital improvements in fiscal 2004 compared to $12.3 million in fiscal 2003. These amounts included gasoline upgrades, building improvements, new
store equipment, quick service restaurant installations and improvements, self-service food service installations and improvements, installation of scanning equipment and other store-related improvements.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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.



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.



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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 believe
our information system initiatives are building blocks for a number of key projects and during 2004 saw the results of that in the successful systems integration of the Golden Gallon®stores, the expanded use of scan-based marketing data for category and item decision-making, and the ability to improve operational
activities in our stores and corporate support center by automating manual processes.



Over the last several fiscal years, including fiscal year 2004, 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;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 point-of-sale scanning, back office system integration, and electronic invoicing throughout our store network; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | develop, enhance and utilize proprietary and packaged applications to improve store level gasoline pricing, gasoline and merchandise inventory management, automate functions in our
accounting and procurement departments and enhance decision support tools.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During fiscal 2004, 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 provide analysts and management with additional analytical
capabilities, which we believe will continue to optimize pricing to meet sales, volume and margin objectives.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Point-of-Sale Integration and ScanningAt fiscal year end, 69% of our stores were scanning and polling sales and other reporting data. We use the data that this system provides
to facilitate sales analyses and recognition of market and customer trends and in other accounting and marketing systems developed this past year.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | FocalPoint The use of this decision support and data warehouse system has expanded considerably in 2004. We use item movement data from our point-of-sale scanning locations to
access promotional analysis and comparison reports for private label products, top selling items, and other category information. Armed with this data, our people know what is selling and what is not and can make informed decisions based on
up-to-date historic trends. We have capitalized on other corporate data in Focal Point by using it in new applications developed for our accounting and gasoline marketing departments.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Computer Based Training This new system was rolled out throughout our company in conjunction with a regionally based training approach and enhancements to our current CBT
systems implemented in our Florida stores. CBT provides up-to-date training for new hires and additional management control.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Business-to-Business Data Exchange  We expanded our use of data available from our vendor partners to improve the accuracy and efficiencies associated with our store
receiving, accounts payable, and accounts reconciliation processes. Several of these initiatives, through the use of industry technical standards, set the groundwork for easy expansion of electronic business with other vendors.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We believe our commitment to the ongoing
evaluation of, and investments in, strategic technology-based initiatives to advance our operating effectiveness, to strengthen internal controls and reporting systems, and to streamline various business functions will enhance our financial
performance and support 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 K Food StoresSM, 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 (e.g.
overfills, spills and underground storage tank releases).



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 September 30, 2004, we maintain letters of credit in the aggregate amount of approximately $1.3 million in favor of state environmental agencies in North Carolina, South Carolina, Virginia, Georgia,
Indiana, Tennessee, Kentucky and Louisiana.



6



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We also rely on reimbursements from applicable state trust funds. In Florida, we meet our financial
responsibility requirements by state trust fund coverage for releases occurring through December 31, 1998 and meet such requirements for releases thereafter through private commercial liability insurance. In Georgia, we meet our financial
responsibility requirements by state trust fund coverage for releases occurring through December 29, 1999 and meet such requirements for releases thereafter through private commercial liability insurance and a letter of credit.



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;
| | - |  | -----------------------------------------



| |  |  | 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 that are at least as stringent as the federal standards. In 1998, Florida developed its 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. In addition, 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 $14.1 million and $13.8 million as of September 30, 2004 and September 25, 2003, respectively, represent our estimates for future expenditures for remediation, tank removal and
litigation associated with 251 and 236 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 $13.1 million of our environmental obligations will be funded by state trust funds and third party insurance; as a result, we may spend up to $1.0 million for remediation, tank removal and litigation. Also, as
of September 30, 2004 and September 25, 2003, there were an additional 503 and 487 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 with remediation costs based on internal and external estimates for
each site. Future remediation for which the timing of payments can be reasonably estimated are discounted using an appropriate rate to determine the reserve.



We anticipate that we will be reimbursed for expenditures from state trust funds and private insurance. As of September 30, 2004, anticipated
reimbursements of $15.1 million are recorded as long-term environmental receivables and $3.2 million are recorded as current receivables related to all sites. 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. We will perform remediation in other states through independent
contractor firms engaged by us. 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 we are not aware of releases or contamination at other locations where we
currently operate or have 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 us as to responsibility for cleanup matters. Additionally, we are awaiting closure notices on several other locations that 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 that 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



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##### Table of Contents

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,
each of which could affect our results of operations.



Employees



As of September 30, 2004, we employed approximately 8,344
full-time and 1,407 part-time employees. Fewer part-time employees are employed during the winter months than during the peak spring and summer seasons. Approximately 9,228 of our employees are employed in our stores and 523 are corporate and field
management personnel. None of our employees are represented by unions. We consider our employee relations to be good.



Executive Officers



The following table provides information on our executive officers. There are no family relationships between any of our executive officers:



|                   |  |     |  |                                                
|------------------ |  | --- |  | -----------------------------------------------
|Name               |  | Age |  | Position with our Company                      
|Peter J. Sodini    |  | 63  |  | President, Chief Executive Officer and Director
|Steven J. Ferreira |  | 48  |  | Senior Vice President, Administration          
|Joseph A. Krol     |  | 56  |  | Senior Vice President, Operations              
|Daniel J. Kelly    |  | 52  |  | Vice President and Chief Financial Officer     
|David M. Zaborski  |  | 49  |  | Vice President, Marketing                      



Peter J. Sodini has
served as our President and Chief Executive Officer since June 1996 and served as our Chief Operating Officer from February 1996 until June 1996. Mr. Sodini was Chief Executive Officer and a director of Purity Supreme, Inc. from December 1991
through February 1996. Prior to 1991, Mr. Sodini held executive positions at several supermarket chains including Boys Markets, Inc. and Piggly Wiggly Southern, Inc. Mr. Sodini has served as a director since November 1995.



Steven J. Ferreira has served as our Senior Vice President, Administration
since February 2001 and prior to that served as Vice President, Strategic Planning since May 1997. Prior to joining The Pantry he was with The Store 24 Companies, Inc. for nearly 20 years where he held various executive positions including Vice
President Operations, Vice President Marketing and, finally, Chief Operating Officer.



Joseph A. Krol has served as our Senior Vice President, Operations since October 2002, and prior to that he was Group Vice President, Operations for Lil Champ from February 1999 to October 2002 and our Vice
President, Operations from August 1996 to February 1999. Prior to joining The Pantry in August 1996, Mr. Krol was a Division Manager, Operations with Food 4 Less.



Daniel J. Kelly has served as our Vice President and Chief Financial Officer since January 2003. From November 1999 to
November 2002, Mr. Kelly was with Konover Property Trust, Inc., a public Real Estate Investment Trust, where he served as Chief Financial Officer and Executive Vice President. Prior to joining Konover, Mr. Kelly was a partner in the audit division
of Arthur Andersen LLP. Prior to being named partner in 1993, Mr. Kelly had various other positions during his sixteen-year tenure with that firm.



David M. Zaborski has served as Vice President, Marketing since November 2001 and served as Vice President, Operations from June 2000 until November 2001.
From March 1999 to June 2000, Mr. Zaborski served as Vice President, Strategic Planning. Mr. Zaborski served as Director of Marketing for Handy Way Food Stores from August 1990 to February 1999.



Item 2. Properties



As of
September 30, 2004, we own the real property at 358 of our stores and lease the real property at 1,003 stores. Management believes that none of these leases is individually material. Most of these leases are net leases requiring us to pay all costs
related to the property, including taxes, insurance and maintenance costs. The aggregate rent paid for fiscal 2004 was $70.1 million. The following table lists the expiration dates of our leases, including renewal options:



|                    |  |                
|------------------- |  | ---------------
|Lease Expiration    |  | Number ofStores
|2004-2005           |  | 15             
|2006-2010           |  | 78             
|2011-2015           |  | 88             
|2016-2020           |  | 89             
|2021-2025           |  | 120            
|2026-2030           |  | 70             
|2031-2035           |  | 285            
|2036 and thereafter |  | 258            



Management anticipates
that it will be able to negotiate acceptable extensions of the leases that expire for those locations that we intend to continue operating. Beyond payment of our contractual lease obligations through the end of the term, early termination of these
leases would result in minimal, if any, penalty to us.



When
appropriate, we have chosen to sell and then lease back properties. Factors leading to this decision include alternative desires for use of cash, beneficial taxation, minimization of the risks associated with owning the property (especially changes
in valuation due to population shifts, urbanization and/or proximity to high volume streets) and the economic terms of such sales-leaseback transactions.



We own our corporate headquarters, a three story, 51,000 square foot office building in Sanford, North Carolina and lease our corporate annex buildings in
Jacksonville, Florida and Sanford, North Carolina. Management believes that our headquarters are adequate for our present and foreseeable needs.



8



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##### Table of Contents

Item 3. Legal Proceedings



On July
17, 2004, we were served with a summons and complaint styled Constance Barton, Kimberly Clark, Wesley Clark, Tracie Hunt, Eleanor Walters, Karen Meredith, Gilbert Breeden, LaCentia Thompson, and Mathesia Peterson, on behalf of themselves and
on behalf of classes of those similarly situated vs. The Pantry, Inc. filed in the Superior Court for Forsyth County, State of North Carolina. The suit seeks class action status and asserts claims on behalf of The Pantrys North Carolina
present and former employees for unpaid wages under the North Carolina Wage and Hour laws. The suit also seeks an injunction against any unlawful practices, damages, liquidated damages, costs and attorneys fees. We have filed an Answer denying
any wrongdoing or liability to plaintiffs in any regard. On August 17, 2004, we filed a Notice of Removal, removing the case to the United States District Court for the Middle District of North Carolina. The Plaintiffs have filed a motion to remand
the case to the Superior Court for Forsyth County, which is presently pending before the federal district court. We believe our employment policies and procedures comply with applicable law and intend to vigorously defend this litigation.



We are party to various other legal actions in the ordinary
course of our business. We believe these other actions are routine in nature and incidental to the operation of our business. While the outcome of these actions and the above lawsuit cannot be predicted with certainty, we believe that the ultimate
resolution of these matters will not have a material adverse impact on our business, financial condition or prospects.



We make routine applications to state trust funds for the sharing, recovering and reimbursement of certain cleanup costs and liabilities incurred as a
result of releases from underground storage tank systems. For more information about these cleanup costs and liabilities, see Item 1. BusinessGovernment Regulation and Environmental Matters and Item 7. Management Discussion
and Analysis of Financial Condition and Results of OperationsContractual Obligations and CommitmentsEnvironmental Considerations.



Item 4. Submission of Matters to a Vote of Security Holders



None.



9



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##### Table of Contents

PART II



Item 5. Market for Our Common Equity and Related Stockholder Matters



(a) Market InformationOur common stock, $.01 par value, represents our only voting securities. There are 20,313,242 shares of common stock issued
and outstanding as of December 7, 2004. Our common stock is traded on the Nasdaq National Market under the symbol PTRY. The following table sets forth for each fiscal quarter the high and low sale prices per share of our common stock
over the last two fiscal years as reported on the Nasdaq National Market through September 30, 2004, based on published financial sources.



|        |  |             |       |             |   |       |  |     |       |  |   |     
|------- |  | ----------- | ----- | ----------- | - | ----- |  | --- | ----- |  | - | ----
|        |  | Fiscal 2004 |       | Fiscal 2003
|Quarter |  | High        |       | Low         |   | High  |  | Low
|First   |  | $           | 27.45 |             | $ | 10.22 |  | $   | 4.32  |  | $ | 0.83
|Second  |  | $           | 29.64 |             | $ | 17.27 |  | $   | 5.05  |  | $ | 3.65
|Third   |  | $           | 22.60 |             | $ | 17.56 |  | $   | 9.45  |  | $ | 3.78
|Fourth  |  | $           | 25.35 |             | $ | 18.49 |  | $   | 11.25 |  | $ | 6.42



(b) HoldersAs of
December 7, 2004, there were approximately 32 holders of record of our common stock. This number does not include beneficial owners of our common stock whose stock is held in nominee or street name accounts through brokers.



(c) DividendsDuring the last two fiscal years, we have not paid any
cash dividends on our common stock, and we do not expect to pay cash dividends on our common stock for the foreseeable future. We intend to retain earnings to support operations, to reduce debt and to finance expansion. The payment of cash dividends
in the future will depend upon our ability to remove certain loan restrictions and other factors such as our earnings, operations, capital requirements, financial condition and other factors deemed relevant by our board of directors. Currently, the
payment of cash dividends is prohibited under restrictions contained in the indenture relating to our senior subordinated notes and our senior credit facility. See Item 7. Managements Discussion and Analysis of Financial Condition and
Results of OperationsLiquidity and Capital Resources and Item 8. Consolidated Financial Statements and Supplementary DataNotes to Consolidated Financial StatementsNote 7Long-Term Debt.





10



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##### Table of Contents

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 presented 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. Consolidated Financial Statements and Supplemental Data. In the following table, dollars are in millions, except per share, per store and per gallon data and as otherwise indicated.



|                                                               |  |                   |         |   |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |   
|-------------------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | ----------------- |  | - | ----------------- | - |  | ----------------- | ------- | --- |  | - | ------- | --
|                                                               |  | Fiscal Year Ended |        
|                                                               |  | September 30,2004 |         |   | September 25,2003 |   |         | September 26,2002 |  |   | September 27,2001 |   |  | September 28,2000 |        
|                                                               |  | (As restated) (l) |         |   | (As restated) (l) |   |         | (As restated) (l) |  |   | (As restated) (m) |   |  | (As restated) (m) |        
|Statement of Operations Data:                                  |  |                   |         |   |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |   
|Revenues:                                                      |  |                   |         |   |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |   
|Merchandise revenue                                            |  | $                 | 1,172.8 |   |                   | $ | 1,009.7 |                   |  | $ | 1,012.8           |   |  | $                 | 990.3   |     |  | $ | 933.5   |   
|Gasoline revenue                                               |  |                   | 2,320.2 |   |                   |   | 1,740.7 |                   |  |   | 1,470.7           |   |  |                   | 1,652.7 |     |  |   | 1,497.7 |   
|                                                               |  |                   |         |   |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |   
|Total revenues                                                 |  |                   | 3,493.1 |   |                   |   | 2,750.4 |                   |  |   | 2,483.5           |   |  |                   | 2,643.0 |     |  |   | 2,431.2 |   
|Gross profit:                                                  |  |                   |         |   |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |   
|Merchandise gross profit                                       |  |                   | 425.4   |   |                   |   | 365.5   |                   |  |   | 353.9             |   |  |                   | 345.3   |     |  |   | 328.4   |   
|Gasoline gross profit                                          |  |                   | 165.4   |   |                   |   | 145.3   |                   |  |   | 121.5             |   |  |                   | 142.3   |     |  |   | 139.9   |   
|                                                               |  |                   |         |   |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |   
|Total gross profit                                             |  |                   | 590.8   |   |                   |   | 510.8   |                   |  |   | 475.4             |   |  |                   | 487.6   |     |  |   | 468.3   |   
|                                                               |  |                   |         |   |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |   
|Operating, general and administrative expenses                 |  |                   | 419.3   |   |                   |   | 373.4   |                   |  |   | 358.3             |   |  |                   | 356.3   |     |  |   | 332.2   |   
|Restructuring and other charges                                |  |                   |        |   |                   |   |        |                   |  |   |                  |   |  |                   | 4.8     | (a) |  |   |        |   
|Depreciation and amortization(b)                               |  |                   | 60.9    |   |                   |   | 55.8    | (c)               |  |   | 55.6              |   |  |                   | 64.8    |     |  |   | 57.0    |   
|Income from operations                                         |  |                   | 110.6   |   |                   |   | 81.7    |                   |  |   | 61.5              |   |  |                   | 61.8    |     |  |   | 79.2    |   
|Loss on debt extinguishment(d)                                 |  |                   | 23.1    |   |                   |   | 2.9     |                   |  |   |                  |   |  |                   |        |     |  |   |        |   
|Interest expense                                               |  |                   | 64.3    |   |                   |   | 57.8    |                   |  |   | 59.9              |   |  |                   | 66.0    |     |  |   | 56.9    |   
|Income (loss) before cumulative effect adjustment              |  |                   | 15.7    |   |                   |   | 14.6    |                   |  |   | 1.4               |   |  |                   | (3.0    | )   |  |   | 13.6    |   
|Cumulative effect adjustment, net of tax                       |  |                   |        |   |                   |   | (3.5    | )(e)              |  |   |                  |   |  |                   |        |     |  |   |        |   
|                                                               |  |                   |         |   |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |   
|Net income (loss)                                              |  |                   | 15.7    |   |                   |   | 11.1    |                   |  |   | 1.4               |   |  |                   | (3.0    | )   |  |   | 13.6    |   
|Earnings (loss) per share before cumulative effect adjustment: |  |                   |         |   |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |   
|Basic                                                          |  | $                 | 0.80    |   |                   | $ | 0.81    |                   |  | $ | 0.08              |   |  | $                 | (0.17   | )   |  | $ | 0.75    |   
|Diluted                                                        |  | $                 | 0.76    |   |                   | $ | 0.80    |                   |  | $ | 0.08              |   |  | $                 | (0.17   | )   |  | $ | 0.72    |   
|Earnings (loss) per share:                                     |  |                   |         |   |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |   
|Basic                                                          |  | $                 | 0.80    |   |                   | $ | 0.61    |                   |  | $ | 0.08              |   |  | $                 | (0.17   | )   |  | $ | 0.75    |   
|Diluted                                                        |  | $                 | 0.76    |   |                   | $ | 0.61    |                   |  | $ | 0.08              |   |  | $                 | (0.17   | )   |  | $ | 0.72    |   
|Weighted-average shares outstanding:                           |  |                   |         |   |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |   
|Basic                                                          |  |                   | 19,606  |   |                   |   | 18,108  |                   |  |   | 18,108            |   |  |                   | 18,113  |     |  |   | 18,111  |   
|Diluted                                                        |  |                   | 20,669  |   |                   |   | 18,370  |                   |  |   | 18,109            |   |  |                   | 18,113  |     |  |   | 18,932  |   
|Dividends paid on common stock                                 |  |                   |        |   |                   |   |        |                   |  |   |                  |   |  |                   |        |     |  |   |        |   
|Other Financial Data:                                          |  |                   |         |   |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |   
|Adjusted EBITDA(f)                                             |  | $                 | 173.2   |   |                   | $ | 140.2   |                   |  | $ | 117.8             |   |  | $                 | 128.4   |     |  | $ | 138.1   |   
|Cash provided by (used in):                                    |  |                   |         |   |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |   
|Operating activities                                           |  | $                 | 117.0   |   |                   | $ | 68.7    |                   |  | $ | 54.4              |   |  | $                 | 77.0    |     |  | $ | 88.5    |   
|Investing activities(g)                                        |  |                   | (227.1  | ) |                   |   | (24.4   | )                 |  |   | (23.1             | ) |  |                   | (125.7  | )   |  |   | (159.4  | ) 
|Financing activities                                           |  |                   | 145.2   |   |                   |   | (13.7   | )                 |  |   | (39.6             | ) |  |                   | 45.9    |     |  |   | 93.1    |   
|Gross capital expenditures(h)                                  |  |                   | 49.4    |   |                   |   | 25.5    |                   |  |   | 26.5              |   |  |                   | 43.6    |     |  |   | 56.4    |   
|Capital expenditures, net(i)                                   |  |                   | 32.8    |   |                   |   | 18.9    |                   |  |   | 18.8              |   |  |                   | 31.6    |     |  |   | 32.1    |   
|Store Operating Data:                                          |  |                   |         |   |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |   
|Number of stores (end of period)                               |  |                   | 1,361   |   |                   |   | 1,258   |                   |  |   | 1,289             |   |  |                   | 1,324   |     |  |   | 1,313   |   
|Average sales per store:                                       |  |                   |         |   |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |   
|Merchandise revenue (in thousands)                             |  | $                 | 856.7   |   |                   | $ | 791.9   |                   |  | $ | 776.1             |   |  | $                 | 747.4   |     |  | $ | 734.5   |   
|Gasoline gallons (in thousands)                                |  |                   | 1,026.0 |   |                   |   | 940.7   |                   |  |   | 924.2             |   |  |                   | 890.4   |     |  |   | 872.5   |   
|Comparable store sales(j):                                     |  |                   |         |   |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |   
|Merchandise                                                    |  |                   | 3.4     | % |                   |   | 0.9     | %                 |  |   | 2.8               | % |  |                   | (0.8    | )%  |  |   | 7.1     | % 
|Gasoline gallons                                               |  |                   | 2.0     | % |                   |   | 0.7     | %                 |  |   | 1.5               | % |  |                   | (3.8    | )%  |  |   | (2.4    | )%
|Operating Data:                                                |  |                   |         |   |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |   
|Merchandise gross margin                                       |  |                   | 36.3    | % |                   |   | 36.2    | %                 |  |   | 34.9              | % |  |                   | 34.9    | %   |  |   | 35.2    | % 
|Gasoline gallons sold (in millions)                            |  |                   | 1,376.9 |   |                   |   | 1,170.3 |                   |  |   | 1,171.9           |   |  |                   | 1,142.4 |     |  |   | 1,062.4 |   
|Average retail gasoline price per gallon                       |  | $                 | 1.69    |   |                   | $ | 1.49    |                   |  | $ | 1.25              |   |  | $                 | 1.45    |     |  | $ | 1.41    |   
|Average gasoline gross profit per gallon(k)                    |  | $                 | 0.120   |   |                   | $ | 0.124   |                   |  | $ | 0.104             |   |  | $                 | 0.125   |     |  | $ | 0.132   |   
|Balance Sheet Data (end of period):                            |  |                   |         |   |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |   
|Cash and cash equivalents                                      |  | $                 | 108.0   |   |                   | $ | 72.9    |                   |  | $ | 42.2              |   |  | $                 | 50.6    |     |  | $ | 53.4    |   
|Working capital (deficiency)                                   |  |                   | 61.3    |   |                   |   | 16.1    |                   |  |   | (43.4             | ) |  |                   | (29.8   | )   |  |   | (4.9    | ) 
|Total assets                                                   |  |                   | 1,232.9 |   |                   |   | 992.4   |                   |  |   | 987.3             |   |  |                   | 1,026.7 |     |  |   | 980.7   |   
|Total debt and lease finance obligations                       |  |                   | 760.3   |   |                   |   | 596.4   |                   |  |   | 601.3             |   |  |                   | 638.0   |     |  |   | 592.0   |   
|Shareholders equity                                           |  |                   | 148.9   |   |                   |   | 127.2   |                   |  |   | 114.1             |   |  |                   | 110.4   |     |  |   | 117.5   |   



(footnotes on
following page)



11



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##### Table of Contents

---

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

|(b) | During fiscal 2002, we adopted the provisions of Statement of Financial Accounting Standards (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 and $3.4 million for the fiscal years ended September 27, 2001 and September 28, 2000, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | 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 that will result in either updating or changing the image of the majority of our stores by the end of fiscal 2005. 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.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | During fiscal 2004, we recorded $23.1 million in charges in connection with the refinancing of our senior credit facility and senior subordinated notes. These charges include the
write-off of approximately $11.8 million in unamortized deferred financing costs, the write-off of approximately $3.5 million of original issue discount and call premiums of approximately $7.8 million. 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 the unamortized deferred financing costs associated with the previous credit facility.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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. 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 income tax benefit of $2.2 million).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(f) | 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.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 30,2004 |          |   | September 25,2003 |   |         | September 26,2002 |  |   | September 27,2001 |   |  | September 28,2000 |         
|Adjusted EBITDA                                                                                                                                                                                                                 |  | $                 | 173,182  |   |                   | $ | 140,225 |                   |  | $ | 117,834           |   |  | $                 | 128,353  |   |  | $ | 138,058  |  
|Interest expense and loss on extinguishment of debt                                                                                                                                                                             |  |                   | (87,344  | ) |                   |   | (60,693 | )                 |  |   | (59,932           | ) |  |                   | (65,992  | ) |  |   | (56,928  | )
|Adjustments to reconcile net income (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) |  |                   | 30,959   |   |                   |   | 9,016   |                   |  |   | 3,983             |   |  |                   | 8,592    |   |  |   | 1,089    |  
|Changes in operating assets and liabilities, net:                                                                                                                                                                               |  |                   |          |   |                   |   |         |                   |  |   |                   |   |  |                   |          |   |  |   |          |  
|Assets                                                                                                                                                                                                                          |  |                   | (18,886  | ) |                   |   | (1,796  | )                 |  |   | (7,463            | ) |  |                   | 9,778    |   |  |   | (2,364   | )
|Liabilities                                                                                                                                                                                                                     |  |                   | 19,061   |   |                   |   | (18,015 | )                 |  |   | (38               | ) |  |                   | (3,683   | ) |  |   | 8,600    |  
|                                                                                                                                                                                                                                |  |                   |          |   |                   |   |         |                   |  |   |                   |   |  |                   |          |   |  |   |          |  
|Net cash provided by operating activities                                                                                                                                                                                       |  | $                 | 116,972  |   |                   | $ | 68,737  |                   |  | $ | 54,384            |   |  | $                 | 77,048   |   |  | $ | 88,455   |  
|Net cash used in investing activities                                                                                                                                                                                           |  | $                 | (227,069 | ) |                   | $ | (24,357 | )                 |  | $ | (23,112           | ) |  | $                 | (125,664 | ) |  | $ | (159,401 | )
|Net cash provided by (used in) financing activities                                                                                                                                                                             |  | $                 | 145,244  |   |                   | $ | (13,715 | )                 |  | $ | (39,647           | ) |  | $                 | 45,873   |   |  | $ | 93,143   |  



---

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

|(h) | Purchases of assets to be held for sale are excluded from gross capital expenditures.
|--- | -------------------------------------------------------------------------------------

|(i) | Net capital expenditures include vendor reimbursements for capital improvements and proceeds from asset dispositions and lease finance transactions.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------

|(j) | 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.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(k) | Gasoline gross profit per gallon represents gasoline revenue less costs of product and expenses associated with credit card processing fees and repairs and maintenance on gasoline
equipment. Gasoline gross profit per gallon as presented may not be comparable to similarly titled measures reported by other companies.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(l) | As discussed in Item 8. Consolidated Financial Statements and Supplementary Data  Notes to Consolidated Financial Statements  Note 2  Restatement of
Previously Issued Financial Statements, which is included in this Form 10-K/A, we have restated our previously reported consolidated financial statements to reflect certain adjustments.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(m) | Amounts have been restated to reflect the matters discussed in Item 8. Consolidated Financial Statements and Supplementary Data  Notes to Consolidated Financial
Statements  Note 2  Restatement of Previously Issued Financial Statements.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



On July 28, 2005, we announced our intention to restate the consolidated financial statements included in our Annual Report filed on Form 10-K for the
fiscal year ended September 30, 2004 and our unaudited interim financial statements included in our Quarterly Reports on Form 10-Q for the periods ended December 30, 2004 and March 31, 2005, to correct the accounting for certain sale-leaseback
transactions entered into by our company. The restatement is the result of our determination that such transactions should have been accounted for as financing transactions rather than as sale-leaseback transactions. We had previously accounted for
the leases included in these transactions primarily as operating leases. The restatement recharacterizes the transactions as financing transactions, with the assets and related financing obligation carried on our balance sheet. The primary effects
of the restatement are discussed in Item 8. Consolidated Financial Statements and Supplementary DataNotes to Consolidated Financial StatementsNote 2Restatement of Previously Issued Financial Statements. The following
discussion and analysis gives effect to the restatement.



12



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##### Table of Contents

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 in Item 8. Consolidated Financial Statements and Supplementary Data.



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;
| | - |  | -------------------------------



| |  |  | 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;
| | - |  | --------------------------------



| |  |  | Our ability to finance future transactions in light of the restatement of our previously issued financial statements described herein;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 23. 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 December 7, 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.



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 1,361 stores in ten states as of September 30, 2004. 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.



Fiscal 2004 was a successful year for our
company as we realized benefits from several strategic and operating initiatives, which are highlighted below:



Re-branding of Store Base



During fiscal 2004, we made significant progress in our store re-branding/re-imaging initiative and as of September 30, 2004 have completed the gasoline conversions and/or image upgrades at a total of 575 locations, including 285
BP®/Amoco®locations, 144 Citgo®locations and 146 locations to our Kangaroo®private gas brand. All of these stores have also been converted to Kangaroo ExpressSMbranding for
their merchandise operations. We believe that a modern store base with more consistent branding under the Kangaroo ExpressSMbanner contributed to our comparable store merchandise revenue and gasoline gallon increases of 3.4% and 2.0%, respectively, and positions us well for continued steady improvements in our comparable store performance in future
periods. During fiscal 2004, we closed 37 locations due to a variety of factors, including underperformance and condemnations by local departments of transportation. 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.



13



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##### Table of Contents

Acquisition of Golden Gallon®



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 enhanced our
strong regional presence. The integration of the Golden Gallon®stores into our base was
successful and we believe that the acquisition was approximately $0.45 accretive to fiscal 2004 earnings per share. The aggregate purchase price was approximately $185.1 million. The acquisition included (1) the purchase of certain real estate
assets (114 fee-owned stores), financed through a $94.5 million lease finance transaction and (2) the purchase of the Golden Gallon®operations and the balance of its 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.



Financial Restructuring and Stock
Offerings



During the second quarter of fiscal 2004, we
completed a refinancing of virtually all of our long term debt. Our new $415.0 million senior secured credit facility, together with our offering of $250.0 million in 10-year senior subordinated notes reduced our average borrowing rate by
approximately 250 basis points. Primarily as a result of this refinancing, our interest expense for fiscal 2004 declined $2.1 million from fiscal 2003 despite increased average outstanding borrowings as a result of the Golden Gallon®acquisition. On September 30, 2004 we amended our senior credit facility to reduce the effective rate
on those borrowings by an additional 50 basis points and to increase the potential add-on term loan to fund acquisitions to $75.0 million. In addition, we prepaid $20.0 million in principal on the senior credit facility, which reduced our
outstanding debt balance to $567.0 million as of September 30, 2004. We believe these actions have enhanced our flexibility to further pursue our growth strategy.



During 2004, we also expanded our public stock float through two secondary offerings. In January, existing stockholders,
primarily investments funds associated with Freeman Spogli & Co., or Freeman Spogli, our largest stockholder, sold 5.75 million shares of our common stock. Subsequent to September 30, 2004, we completed another offering totaling 5.35 million
shares of our common stock, with 3.85 million shares coming from funds associated with Freeman Spogli. We sold the remaining 1.5 million shares pursuant to a forward equity sale agreement with Merrill Lynch International, as forward purchaser. See
Item 8. Consolidated Financial Statements and Supplementary DataNotes to Consolidated Financial StatementsNote 20Subsequent Event. As a result of these two transactions, our shares held by non-affiliates have increased
from approximately 6 million shares at the end of fiscal 2003 to approximately 16 million shares as of December 7, 2004.



Results of Operations



Our operations for fiscal 2004 contained 53 weeks and fiscal 2003 and 2002 each contained 52 weeks. 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 30,2004 |   |  | September 25,2003 |   |  | September 26,2002 |  
|Total revenue                                   |  | 100.0             | % |  | 100.0             | % |  | 100.0             | %
|Gasoline revenue                                |  | 66.4              |   |  | 63.3              |   |  | 59.2              |  
|Merchandise revenue                             |  | 33.6              |   |  | 36.7              |   |  | 40.8              |  
|Cost of sales                                   |  | 83.1              |   |  | 81.4              |   |  | 80.9              |  
|                                                |  |                   |   |  |                   |   |  |                   |  
|Gross profit                                    |  | 16.9              |   |  | 18.6              |   |  | 19.1              |  
|Gasoline gross profit                           |  | 4.7               |   |  | 5.3               |   |  | 4.9               |  
|Merchandise gross profit                        |  | 12.2              |   |  | 13.3              |   |  | 14.2              |  
|Operating, general and administrative expenses  |  | 12.0              |   |  | 13.6              |   |  | 14.4              |  
|Depreciation and amortization                   |  | 1.7               |   |  | 2.0               |   |  | 2.2               |  
|                                                |  |                   |   |  |                   |   |  |                   |  
|Income from operations                          |  | 3.2               |   |  | 3.0               |   |  | 2.5               |  
|Loss on extinguishment of debt                  |  | (0.7              | ) |  | (0.1              | ) |  |                  |  
|Interest and miscellaneous expense              |  | (1.8              | ) |  | (2.0              | ) |  | (2.4              | )
|                                                |  |                   |   |  |                   |   |  |                   |  
|Income before income taxes                      |  | 0.7               |   |  | 0.9               |   |  | 0.1               |  
|Income tax expense                              |  | (0.2              | ) |  | (0.4              | ) |  |                  |  
|                                                |  |                   |   |  |                   |   |  |                   |  
|Net income before cumulative effect adjustment  |  | 0.5               |   |  | 0.5               |   |  | 0.1               |  
|Cumulative effect adjustment, net of income tax |  |                  |   |  | (0.1              | ) |  |                  |  
|                                                |  |                   |   |  |                   |   |  |                   |  
|Net income                                      |  | 0.5               |   |  | 0.4               |   |  | 0.1               |  
|                                                |  |                   |   |  |                   |   |  |                   |  



14



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##### Table of Contents

The table below provides a summary of our selected financial data for fiscal 2004, 2003 and 2002.



|                             |  |                   |         |   |                   |   |         |                   |  |   |         |  
|---------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | ----------------- |  | - | ------- | -
|                             |  | Fiscal Year Ended |        
|                             |  | September 30,2004 |         |   | September 25,2003 |   |         | September 26,2002 | 
|Merchandise margin           |  |                   | 36.3    | % |                   |   | 36.2    | %                 |  |   | 34.9    | %
|Gasoline gallons (millions)  |  |                   | 1,376.9 |   |                   |   | 1,170.3 |                   |  |   | 1,171.9 |  
|Gasoline margin per gallon   |  | $                 | 0.1201  |   |                   | $ | 0.1241  |                   |  | $ | 0.1037  |  
|Gasoline retail per gallon   |  | $                 | 1.69    |   |                   | $ | 1.49    |                   |  | $ | 1.25    |  
|                             |  |                   |        
|Comparable store data:       |  |                   |         |   |                   |   |         |                   |  |   |         |  
|Merchandise sales %          |  |                   | 3.4     | % |                   |   | 0.9     | %                 |  |   | 2.8     | %
|Gasoline gallons %           |  |                   | 2.0     | % |                   |   | 0.7     | %                 |  |   | 1.5     | %
|                             |  |                   |        
|Number of stores:            |  |                   |         |   |                   |   |         |                   |  |   |         |  
|End of period                |  |                   | 1,361   |   |                   |   | 1,258   |                   |  |   | 1,289   |  
|Weighted-average store count |  |                   | 1,369   |   |                   |   | 1,275   |                   |  |   | 1,305   |  



Fiscal 2004 Compared to Fiscal
2003



Total Revenue. Total revenue for fiscal
2004 was $3.5 billion compared to $2.8 billion for fiscal 2003, an increase of $742.7 million, or 27.0%. The increase in total revenue is primarily due to $411 million in revenue from the acquisition of the Golden Gallon®stores, approximately $66.0 million in revenue from the fifty-third week, comparable store increases
in merchandise sales of $33.6 million and in gasoline gallons of 23.7 million, and a 13.4% increase in our average retail price of gasoline gallons sold. The impact of these factors was partially offset by lost volume from 37 closed stores.



Merchandise Revenue. Total merchandise revenue for
fiscal 2004 was $1.2 billion compared to $1.0 billion for fiscal 2003, an increase of $163.1 million, or 16.2%. This increase is primarily the result of $125.5 million in revenue from the acquisition of the Golden Gallon®stores, $19.9 million in revenue from the fifty-third week, and the comparable store merchandise
sales increase of 3.4% offset by lost volume from closed stores of approximately $17.1 million.



Gasoline Revenue and Gallons. Total gasoline revenue for fiscal 2004 was $2.3 billion compared to $1.7 billion for fiscal 2003, an increase of
$579.6 million, or 33.3%. The increase in gasoline revenue is primarily due to $285.5 million in revenues from the Golden Gallon®acquisition, $45.6 million in revenue from the fifty-third week, higher average gasoline retail prices and a comparable store gallon volume increase of 2.0%. In fiscal 2004, our average retail price
of gasoline was $1.69 per gallon, which represents a 20.0 cent per gallon, or 13.4%, increase in average retail price from fiscal 2003.



In fiscal 2004, gasoline gallon volume was 1.4 billion gallons, an increase of 206.6 million gallons, or 17.7%, from fiscal 2003. The increase in gasoline
gallons was due to an additional 172.2 million gallons from the acquisition of the Golden Gallon®stores, 24.2 million gallons from the fifty-third week, and the comparable store gallon volume increase of 2.0%, partially offset by the lost volume from closed stores of 15.4 million gallons. We believe that the fiscal 2004
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 2004 gross profit was $590.8 million
compared to $510.8 million for fiscal 2003, an increase of $80.0 million, or 15.7%. The increase in gross profit is primarily attributable to $63.5 million in gross profit from the Golden Gallon®acquisition, $9.2 million in gross profit from the fifty-third week, as well as with comparable store volume increases discussed
above.



Merchandise Gross Profit and Margin. Merchandise
gross profit was $425.4 million for fiscal 2004 compared to $365.5 million for fiscal 2003, an increase of $59.9 million, or 16.4%. This increase is primarily attributable to the increases in merchandise revenue discussed above and a 10 basis point
improvement in merchandise gross margin.



Gasoline Gross
Profit and Margin Per Gallon. Gasoline gross profit was $165.4 million for fiscal 2004 compared to $145.3 million for fiscal 2003, an increase of $20.1 million, or 13.9%. The increase is primarily attributable to increased volumes as a result of
the Golden Gallon®acquisition and comparable store sales gains discussed above, partially
offset by the lost volume from closed stores. Gasoline gross profit per gallon was 12.0 cents in fiscal 2004 compared to 12.4 cents in fiscal 2003. The decrease in gasoline gross profit was primarily due to the significant increase in wholesale
crude costs during fiscal 2004. We present gasoline gross profit per gallon inclusive of credit card processing fees and repairs and maintenance on gasoline equipment. These expenses totaled 2.9 cents per gallon and 2.7 cents per gallon for fiscal
2004 and fiscal 2003, respectively. The increase in expenses was primarily related to an increase in credit card fees associated with an increase in the retail price of gasoline.



Operating, General and Administrative Expenses. Operating expenses for fiscal 2004 were $419.3 million compared to
$373.4 million for fiscal 2003, an increase of $46.0 million, or 12.3%. The increase is primarily attributable to approximately $32.7 million in operating, general and administrative expenses associated with the acquisition of the Golden
Gallon®stores, approximately $6.1 million in additional expenses due to the fifty-third
week, hurricane related losses of $4.3 million, increased insurance costs of approximately $2.0 million, and comparable store increases in labor and other variable expenses partially offset by a net gain related to the total of asset disposals and
closed store activity. As a percentage of total revenue, operating, general and administrative expenses were 12.0% in fiscal 2004, and adjusted for the impact of gasoline inflation were 12.5% in fiscal 2003.



Income from Operations. Income from operations for fiscal 2004 was
$110.6 million compared to $81.7 million for fiscal 2003, an increase of $28.9 million, or 35.5%. The increase is primarily attributable to approximately $27.7 million in operating income from the acquisition of the Golden Gallon®stores and $2.1 million in operating income from the fifty-third week.



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 2004 was $173.2 million compared to $140.2 million for fiscal 2003, an increase of $33.0 million, or
23.5%. The increase is primarily due to $30.8 million from the acquisition of the Golden Gallon®stores, $3.1 million from the fifty-third week, and the increases in comparable store sales partially offset by the increased operating, general and administrative expense 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.



15



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##### 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:



|                                                                                                                                                                                                                         |  |                        |          |   |                   |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------- | -------- | - | ----------------- | - | ------- | -
|                                                                                                                                                                                                                         |  | Fiscal Year Ended      |         
|                                                                                                                                                                                                                         |  | September 30,2004      |          |   | September 25,2003 |  
|                                                                                                                                                                                                                         |  | (amounts in thousands) |         
|Adjusted EBITDA                                                                                                                                                                                                          |  | $                      | 173,182  |   |                   | $ | 140,225 |  
|Interest expense and loss on extinguishment of debt                                                                                                                                                                      |  |                        | (87,344  | ) |                   |   | (60,693 | )
|Adjustments to reconcile net income 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) |  |                        | 30,959   |   |                   |   | 9,016   |  
|Changes in operating assets and liabilities, net:                                                                                                                                                                        |  |                        |          |   |                   |   |         |  
|Assets                                                                                                                                                                                                                   |  |                        | (18,886  | ) |                   |   | (1,796  | )
|Liabilities                                                                                                                                                                                                              |  |                        | 19,061   |   |                   |   | (18,015 | )
|                                                                                                                                                                                                                         |  |                        |          |   |                   |   |         |  
|Net cash provided by operating activities                                                                                                                                                                                |  | $                      | 116,972  |   |                   | $ | 68,737  |  
|Net cash used in investing activities                                                                                                                                                                                    |  | $                      | (227,069 | ) |                   | $ | (24,357 | )
|Net cash provided by (used in) financing activities                                                                                                                                                                      |  | $                      | 145,244  |   |                   | $ | (13,715 | )





Loss on Debt Extinguishment. As a result of the retirement of our 10.25% subordinated notes and the refinancing of our senior credit facility
during the second quarter of fiscal 2004, we incurred $23.1 million in debt extinguishment costs that have been included as a component of interest expense. These charges include the write-off of approximately $11.8 million in unamortized deferred
financing costs, the write-off of approximately $3.5 million of unamortized original issue discount and call premiums of approximately $7.8 million. During the third quarter of fiscal 2003, we incurred $2.9 million in debt extinguishment costs
related to the refinancing of our then outstanding senior credit facility, which represented the write-off of unamortized deferred financing costs.



Interest Expense (seeLiquidity and Capital Resources).Interest expense is primarily interest on borrowings under our senior
credit facility and senior subordinated notes, lease finance obligations and the loss on debt extinguishment referred to above. Interest expense, excluding the loss on debt extinguishment, for fiscal 2004 was $64.3 million compared to $57.8 million
for fiscal 2003, an increase of $6.5 million, or 11.2%. The increase is primarily attributable to an increase in our weighted average borrowings and lease finance obligations as a result of the Golden Gallon®acquisition, a reduction in the fair market value of derivative instruments of $2.1 million, and additional interest from
the fifty-third week of approximately $600 thousand. These increases were partially offset by a reduction of approximately 250 basis points in our effective interest rate as a result of the refinancing of our senior credit facility and subordinated
notes in February and March of fiscal 2004.



Income Tax
Expense. We recorded income tax expense of $9.2 million in fiscal 2004 and fiscal 2003. Our effective tax rate for fiscal 2004 was 36.9% compared to 38.5% for fiscal 2003. The decrease in the effective rate is primarily the result of the
reversal of approximately $400 thousand in tax reserves due to the expected utilization of various tax credits and net operating losses.



Net Income. As a result of the items discussed above, net income for fiscal 2004 was $15.7 million compared to $11.1 million for fiscal 2003.



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.



Merchandise Revenue. Total merchandise revenue for each of fiscal 2003 and fiscal 2002 was $1.0 billion. Merchandise revenue was 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 was 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 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 point 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 cent 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



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##### Table of Contents

2003 compared to 10.4 cents in fiscal 2002. The increase in gasoline gross profit 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. We present gasoline gross profit per gallon inclusive of credit card processing fees and repairs and
maintenance on gasoline equipment. These expenses totaled 2.7 cents per gallon and 2.3 cents per gallon for fiscal 2003 and fiscal 2002, respectively. The increase in expenses was primarily related to an increase in credit card fees associated with
an increase in the retail price of gasoline.



Operating,
General and Administrative Expenses. Operating expenses for fiscal 2003 were $373.4 million compared to $358.3 million for fiscal 2002, an increase of $15.1 million, or 4.2%. The increase is primarily attributable to 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. As a percentage of total revenue, operating, general and
administrative expenses were 13.6% in fiscal 2003, and adjusted for the impact of gasoline inflation, were 13.0% in fiscal 2002.



Income from Operations. Income from operations for fiscal 2003 was $81.7 million compared to $61.5 million for fiscal 2002, an increase of $20.2
million, or 32.7%. The increase is primarily attributable to the increases in gasoline and merchandise gross margins. 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.



Adjusted EBITDA. Adjusted EBITDA for fiscal 2003 was $140.2 million
compared to $117.8 million for fiscal 2002, an increase of $22.4 million, or 19.0%. The increase is primarily due to the items discussed above.



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 25,2003      |         |   | September 26,2002 |  
|                                                                                                                                                                                                                         |  | (amounts in thousands) |        
|Adjusted EBITDA                                                                                                                                                                                                          |  | $                      | 140,225 |   |                   | $ | 117,834 |  
|Interest expense and loss on extinguishment of debt                                                                                                                                                                      |  |                        | (60,693 | ) |                   |   | (59,932 | )
|Adjustments to reconcile net income 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) |  |                        | 9,016   |   |                   |   | 3,983   |  
|Changes in operating assets and liabilities, net:                                                                                                                                                                        |  |                        |         |   |                   |   |         |  
|Assets                                                                                                                                                                                                                   |  |                        | (1,796  | ) |                   |   | (7,463  | )
|Liabilities                                                                                                                                                                                                              |  |                        | (18,015 | ) |                   |   | (38     | )
|                                                                                                                                                                                                                         |  |                        |         |   |                   |   |         |  
|Net cash provided by operating activities                                                                                                                                                                                |  | $                      | 68,737  |   |                   | $ | 54,384  |  
|Net cash used in investing activities                                                                                                                                                                                    |  | $                      | (24,357 | ) |                   | $ | (23,112 | )
|Net cash used in financing activities                                                                                                                                                                                    |  | $                      | (13,715 | ) |                   | $ | (39,647 | )



Loss on Debt
Extinguishment. During the third quarter of fiscal 2003, we incurred $2.9 million in debt extinguishment costs related to the refinancing of our then outstanding senior credit facility, which represented the write-off of unamortized deferred
financing costs.



Interest Expense (seeLiquidity
and Capital Resources). Interest expense is primarily interest on borrowings under our senior credit facility, senior subordinated notes, lease finance obligations, and the loss on extinguishment of debt discussed above. Interest expense,
excluding the loss on extinguishment of debt, for fiscal 2003 was $57.8 million compared to $59.9 million for fiscal 2002, a decrease of $2.1 million, or 3.6%. 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 $9.2 million in fiscal 2003 compared to $0.9 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 for fiscal 2003 was 38.5%.



Cumulative Effect Adjustment. During the first quarter of fiscal 2003, 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.



Net Income. As a result of the items discussed above, net income for fiscal 2003 was $11.1 million compared to $1.4 million for fiscal 2002.



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, lease finance transactions, and asset dispositions to finance our operations, pay interest and principal payments and fund capital expenditures. Cash provided by operations for fiscal 2004 totaled $117.0 million, for fiscal 2003
totaled $68.7 million and for fiscal 2002 totaled $54.4 million. Our increase in net cash provided by operating activities for fiscal 2004 over fiscal 2003 is primarily attributable to the increase in gasoline and merchandise gross profit and its
impact on operating income and Adjusted EBITDA. As a result of our net operating loss carryforwards, our cash paid for income taxes has been relatively insignificant in recent periods. We anticipate full utilization of our net operating loss
carryforwards during fiscal 2005 and therefore expect an increase in our cash paid for income taxes. We had $108.0 million of cash and cash equivalents on hand at September 30, 2004.



Capital Expenditures. Gross capital expenditures (excluding all acquisitions) for fiscal 2004 were $51.9 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 lease finance obligations and asset dispositions and vendor reimbursements.



Our lease finance 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 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
lease financing transactions that we can use to fund our operations or capital expenditures. We received $97.1 million in proceeds from lease finance obligations in fiscal 2004, including $94.5 million related to the Golden Gallon®acquisition and $2.0 million during fiscal 2003.



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##### Table of Contents

In fiscal 2004, we had proceeds of $19.1 million including asset dispositions ($10.4 million), vendor
reimbursements ($6.1 million) and lease finance obligations ($2.6 million). As a result, our net capital expenditures, excluding all acquisitions, for fiscal 2004 were $32.8 million. We anticipate that net capital expenditures for fiscal 2005 will
be approximately $55.0 million.



Cash Flows from Financing
Activities. For fiscal 2004, net cash provided by financing activities was $145.2 million. The net cash provided was primarily the result of additional net borrowings of $57.6 million, $94.5 million lease financing obligations in connection with
the Golden Gallon acquisition, and proceeds from the exercise of incentive stock options, offset by additional financing costs paid during fiscal 2004 of approximately $11.8 million. The $57.6 million in net borrowings is primarily the result of the
issuance of debt totaling $80.0 million in connection with the Golden Gallon®acquisition
offset by principal payments. At September 30, 2004, our long-term debt consisted primarily of $317.0 million in loans under our senior credit facility and $250.0 million of our 7.75% senior subordinated notes. See Contractual
Obligations and Commitments for a summary of our long-term debt principal amortization commitments.



Senior Credit Facility.On March 12, 2004, we entered into an Amended and Restated Credit Agreement, which consists of a $345.0 million term loan
that matures in March, 2011 and a $70.0 million revolving credit facility that expires in March, 2010. Proceeds from the new senior secured credit facility were used to repay all amounts outstanding under our previous credit facility and loan
origination costs. In connection with the amendment, we incurred debt extinguishment charges of $12.4 million, which consisted of the $3.5 million write-off of unamortized original issue discount, $7.9 million in unamortized deferred financing costs
and $1.0 million in call premium. We incurred approximately $2.2 million in costs associated with the amendment, which were deferred and will be amortized over the term of the loan agreement. As of September 30, 2004, our outstanding term loan
balance was $317.0 million.



Our $70.0 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
$34.8 million. Furthermore, the revolving credit facility limits our total outstanding letters of credit to $50.0 million. As of September 30, 2004, we had no borrowings outstanding under the revolving credit facility, we had approximately $35.2
million in available borrowing capacity and $34.8 million of standby letters of credit were issued under the facility.



The term loan portion of our senior credit facility bears interest at variable interest rates. Our senior credit facility permits us to choose between two
basic rates for our term 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 plus1/2 of 1%, plus 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.
| | - |  | ----------------------------------------------------------------------------------------------------------



Our senior credit facility requires us to pay, in addition to the basic
interest rate, an additional margin of 2.25% on term loans that are based on a LIBOR interest rate. Our senior credit facility also requires us to pay, in addition to the basic interest rate (i) an additional margin of 2.75% on revolving credit
loans that are based on a LIBOR interest rate or (ii) an additional margin of 1.50% on revolving credit loans that are based on a prime rate. 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. Any
redemption of our senior credit facility on or before September 30, 2005 would require repayment of outstanding loan amounts at 101% of par.



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;
| | - |  | ------------------------------



| |  |  | 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 or similar fundamental corporate changes; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------



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



As a result of the restatement described in Item 8. Consolidated Financial Statements and Supplementary Data  Notes to Consolidated Financial
Statements  Note 2Restatement of Previously Issued Financial Statements, we recorded a lease finance obligation in excess of the amount allowed under our covenants described above. On August 5, 2005, we amended the loan agreement under
our senior credit facility to, among other things, eliminate the restriction on capital lease and other lease financing obligations and increase our leverage ratio requirement by 50 basis points. In addition, we received a waiver of the default
caused by a breach of the indebtedness and related covenants. The waiver and amendment brought us back into compliance with our covenants and restrictions under our senior credit facility.



Our senior credit facility also contains financial ratios and tests that must
be met with respect to maximum total leverage ratios, minimum fixed charge coverage ratios, minimum pro forma EBITDA, each as defined in the agreement, and maximum capital expenditures. Specifically, the senior credit facility requires us to:



| |  |  | comply with maximum consolidated pro forma leverage ratios on a sliding scale ranging from a high of 4.75 to 1.00 to a low of 3.50 to 1.00 over quarterly periods between March 12,
2004 and September 25, 2008 and thereafter;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | limit consolidated capital expenditures to $55.0 million in fiscal 2004, $50.0 million in fiscal 2005, and $45.0 million in fiscal years after 2005 (plus unspent amounts that are
permitted to be carried forward from prior fiscal years up to a limit of $12.5 million).
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



18



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##### Table of Contents

As of September 30, 2004, we have satisfied all financial ratios and tests under our senior credit
facility.



The senior credit facility requires that we remain
in pro forma compliance with all of the financial covenants contained in the credit agreement after giving effect to an acquisition. In addition, the senior credit agreement includes customary events of default, including payment defaults on more
than $5.0 million of contingent obligations, 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 or group of persons acting together, other than
certain permitted holders (defined as our current largest stockholder), has acquired or holds 35% or more of the voting power (or economic interest) of our common stock unless the permitted holders beneficially own a greater percentage
of our company than such other person or group, (b) the members of our board of directors who were in office at the time of entry into the credit agreement or their nominees do not continue to comprise a majority of our board of directors, or (c) a
change of control as defined in the indenture for our senior subordinated notes, occurs.



Senior Subordinated Notes. On February 19, 2004, we completed the sale of $250.0 million of 7.75% senior subordinated notes due February 19, 2014.
Interest on the senior subordinated notes is due on February 19 and August 19 of each year. Proceeds from the sale of the senior subordinated notes were used to redeem $200.0 million in outstanding 101/4% senior subordinated
notes, including a $6.8 million call premium, pay principal of approximately $28.0 million on our senior credit facility and pay related financing costs. We incurred debt extinguishment charges of $10.7 million which consisted of the $6.8 million
call premium and $3.9 million of unamortized deferred financing costs. We incurred approximately $6.6 million in costs associated with the new notes, which were deferred and will be amortized over the life of the new notes.



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;
| | - |  | ------------------------------------------------------



| |  |  | 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; or
| | - |  | -------------------------------------------



| |  |  | engage in mergers, consolidations or sales of all or substantially all of our properties or assets.
| | - |  | ---------------------------------------------------------------------------------------------------



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 2.0 to 1.0. Even if we do not meet this ratio we can incur:



| |  |  | debt under our senior credit facility;
| | - |  | --------------------------------------



| |  |  | capital leases or purchase money debt in amounts not to exceed the greater of $35.0 million in the aggregate and 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 $25.0 million in any type of debt;
| | - |  | ----------------------------------------



| |  |  | debt related to insurance and similar obligations arising in the ordinary course of business; or
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | debt related to guarantees, earn-outs, or obligations in respect of purchase price adjustments in connection with the acquisition or disposition of property or assets.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 (a) any person, other than certain permitted
holders (defined as our current largest stockholder or any member of the senior management of our company), becomes the beneficial owner of more than 50% of the voting power of our common stock, (b) any person, or group of persons acting
together, other than a permitted holder, becomes the beneficial owner of more than 35% of the voting power of our common stock and the permitted holders own a lesser percentage than such other person, or (c) the first day on which a majority of the
members of our board of directors are not continuing directors (as defined in the indenture). At any time prior to February 15, 2007, we may redeem on any one or more occasions up to 35% of the aggregate principal amount of the senior
subordinated notes with the net cash proceeds of one or more public equity offerings at a redemption price that is currently 107.75% of the principal amount thereof, plus accrued and unpaid interest. Except in this circumstance, the senior
subordinated notes are not redeemable at our option prior to February 15, 2009. On or after February 15, 2009, we may redeem the senior subordinated notes in whole or in part at a redemption price that is 103.875% and decreases to 102.583% after
February 15, 2010, 101.292% after February 15, 2011 and 100.0% after February 15, 2012.



Shareholders Equity. As of September 30, 2004, our shareholders equity totaled $148.9 million. The increase of $21.7 million in shareholders equity from September 25, 2003 is primarily
attributable to fiscal 2004 net income of $15.7 million and additional paid-in capital as a result of option exercises of $4.9 million.



Long Term Liquidity. We believe that anticipated cash flows from operations, funds available from our existing revolving credit facility, and funds
available under the forward sale agreement entered into in October, 2004 with Merrill Lynch International, together with cash on hand and vendor reimbursements, will provide sufficient funds to finance our operations at least for the next 12 months.
As of September 30, 2004 we had $35.2 million available under our revolving credit facility. Additionally, if we elect to physically settle the forward sale agreement, we would receive aggregate proceeds of $32.8 million. For further discussion of
the forward sale agreement, see Item 8. Consolidated Financial Statements and Supplementary DataNotes to Consolidated Financial Statements-Note 20-Subsequent Event. 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.



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Contractual Obligations and Commitments



Contractual Obligations.The following table summarizes by fiscal year our expected long-term debt payment schedule,
lease finance obligation commitments and future operating lease commitments as of September 30, 2004:



Contractual Obligations

(Dollars in thousands)



|                              |  |            |         |            |   |            |  |            |         |            |   |            |  |       |         |  |   |           |  |   |          
|----------------------------- |  | ---------- | ------- | ---------- | - | ---------- |  | ---------- | ------- | ---------- | - | ---------- |  | ----- | ------- |  | - | --------- |  | - | ---------
|                              |  | Fiscal2005 |         | Fiscal2006 |   | Fiscal2007 |  | Fiscal2008 |         | Fiscal2009 |   | Thereafter |  | Total
|Long-term debt(1)             |  | $          | 12,029  |            | $ | 16,010     |  | $          | 16,000  |            | $ | 16,000     |  | $     | 16,000  |  | $ | 491,000   |  | $ | 567,039  
|Interest(2)                   |  |            | 33,994  |            |   | 32,621     |  |            | 31,121  |            |   | 30,447     |  |       | 29,774  |  |   | 98,720    |  |   | 256,677  
|Lease finance obligations(3)  |  |            | 22,506  |            |   | 22,392     |  |            | 22,407  |            |   | 22,233     |  |       | 22,167  |  |   | 275,531   |  |   | 387,236  
|Operating leases(4)           |  |            | 45,566  |            |   | 42,073     |  |            | 39,448  |            |   | 37,107     |  |       | 33,278  |  |   | 155,180   |  |   | 352,652  
|                              |  |            |         |            |   |            |  |            |         |            |   |            |  |       |         |  |   |           |  |   |          
|Total contractual obligations |  | $          | 114,095 |            | $ | 113,096    |  | $          | 108,976 |            | $ | 105,787    |  | $     | 101,219 |  | $ | 1,020,431 |  | $ | 1,563,604
|                              |  |            |         |            |   |            |  |            |         |            |   |            |  |       |         |  |   |           |  |   |          

---

|(1) | Included in long-term debt are amounts owed on our senior subordinated notes and senior credit facility. These borrowings are further explained in Item 8. Consolidated
Financial Statements and Supplemental Data  Notes to Consolidated Financial Statements - Note 7 - Long-Term Debt. The table assumes our long-term debt is held to maturity.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Included in interest are expected payments on our senior subordinated notes, senior credit facility and interest rate swap agreements. Variable interest on the senior credit
facility and swap agreements is set at the October 29, 2004 rate.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Included in lease finance obligations is both principal and interest.
|--- | ---------------------------------------------------------------------

|(4) | Some of our retail store leases require percentage rentals on sales and contain escalation clauses. The minimum future operating lease payments shown above, do not include
contingent rental expense. Some lease agreements provide us with an option to renew. Our future operating lease obligations will change if we exercise these renewal options and if we enter into additional operating lease agreements.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Letter of Credit Commitments.The
following table summarizes by fiscal year the expiration dates of our standby letters of credit issued under our senior credit facility as of September 30, 2004 (in thousands):



|                          |  |            |        |            |   |            |  |            |   |            |   |            |  |       |   |  |   |   |  |   |       
|------------------------- |  | ---------- | ------ | ---------- | - | ---------- |  | ---------- | - | ---------- | - | ---------- |  | ----- | - |  | - | - |  | - | ------
|                          |  | Fiscal2005 |        | Fiscal2006 |   | Fiscal2007 |  | Fiscal2008 |   | Fiscal2009 |   | Thereafter |  | Total
|Standby letters of credit |  | $          | 34,729 |            | $ | 93         |  | $          |  |            | $ |           |  | $     |  |  | $ |  |  | $ | 34,822



At maturity, we expect
to renew a significant number of our standby letters of credit.



Environmental Considerations.Environmental reserves of $14.1 million and $13.8 million as of September 30, 2004 and September 25, 2003, respectively, represent our estimates for future expenditures for remediation, tank removal and
litigation associated with 251 and 236 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 $13.1 million of our environmental obligations will be funded by state trust funds and third party insurance; as a result, we may spend up to $1.0 million for remediation, tank removal and litigation. Also, as
of September 30, 2004 and September 25, 2003 there were an additional 503 and 487 sites, respectively, that are known to be contaminated sites and 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 with remediation costs based on internal and external estimates for
each site. Future remediation for which the timing of payments can be reasonably estimated are discounted using an appropriate rate to determine the 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 $18.0 million and will
begin during fiscal 2005. The ultimate number of locations and 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 2004.



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 as adjusted per
applicable contracts. The initial terms of these supply agreements range from three to ten years and contain 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.



During February 2003, we signed new gasoline supply agreements with both BP Products, N.A., or BP®, and Citgo®to brand and supply most of
our gasoline products for the next five years. Also, during the third quarter of fiscal 2004, we negotiated an expansion of the scope and extension of the term of our gasoline supply agreement with BP®, which will now expire in 2009. We intend to re-brand and/or upgrade images for gasoline offerings at approximately 1,100 locations
by the end of calendar 2005, with



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##### Table of Contents

575 locations completed as of September 30, 2004. We expect that, after the conversion has been completed, BP®will supply approximately 30% of our total gasoline volume, which will be sold under the BP®/Amoco®brand, and Citgo®will supply
approximately 60% of our total gasoline volume. Citgo®will supply both our private brand
gasoline, which will be sold under our own Kangaroo®and other brands, and
Citgo®branded gasoline. The remaining locations, primarily in Florida, will remain
branded by Chevron®. 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. In order to receive certain benefits under these contracts, we must first meet certain purchase levels. To
date, we have met these purchase levels and expect to continue to do so.



Other Commitments. We make various other commitments and become subject to various other contractual obligations that 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 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 2004, fiscal 2003 and fiscal 2002. 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 our 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, gasoline gallons and dollars are in thousands, except per gallon data.



|                                                            |  |              |         |   |               |   |         |              |  |   |               |   |  |              |           |   |               |   |         |              |  |   |               |    |  |              |         |    |               |   |         |              |  |   |               |   |  |   |         |   |  |   |         |   |  |   |         |  
|----------------------------------------------------------- |  | ------------ | ------- | - | ------------- | - | ------- | ------------ |  | - | ------------- | - |  | ------------ | --------- | - | ------------- | - | ------- | ------------ |  | - | ------------- | -- |  | ------------ | ------- | -- | ------------- | - | ------- | ------------ |  | - | ------------- | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                            |  | Fiscal 2004  |         |   | Fiscal 2003   |   |         | Fiscal 2002  | 
|                                                            |  | FirstQuarter |         |   | SecondQuarter |   |         | ThirdQuarter |  |   | FourthQuarter |   |  | FirstQuarter |           |   | SecondQuarter |   |         | ThirdQuarter |  |   | FourthQuarter |    |  | FirstQuarter |         |    | SecondQuarter |   |         | ThirdQuarter |  |   | FourthQuarter |  
|Total Revenue                                               |  | $            | 744,441 |   |               | $ | 786,353 |              |  | $ | 928,327       |   |  | $            | 1,033,964 |   |               | $ | 645,353 |              |  | $ | 666,697       |    |  | $            | 704,486 |    |               | $ | 733,824 |              |  | $ | 577,357       |   |  | $ | 558,858 |   |  | $ | 677,564 |   |  | $ | 669,739 |  
|                                                            |  |              |         |   |               |   |         |              |  |   |               |  
|Merchandise revenue                                         |  |              | 270,149 |   |               |   | 270,073 |              |  |   | 302,879       |   |  |              | 329,745   |   |               |   | 243,420 |              |  |   | 234,978       |    |  |              | 263,393 |    |               |   | 267,907 |              |  |   | 243,044       |   |  |   | 236,843 |   |  |   | 267,871 |   |  |   | 265,028 |  
|Gasoline revenue                                            |  |              | 474,292 |   |               |   | 516,280 |              |  |   | 625,448       |   |  |              | 704,219   |   |               |   | 401,933 |              |  |   | 431,719       |    |  |              | 441,093 |    |               |   | 465,917 |              |  |   | 334,313       |   |  |   | 322,015 |   |  |   | 409,693 |   |  |   | 404,711 |  
|Gross Profit                                                |  |              | 140,110 |   |               |   | 133,227 |              |  |   | 153,710       |   |  |              | 163,796   |   |               |   | 125,991 |              |  |   | 113,129       |    |  |              | 135,017 |    |               |   | 136,667 |              |  |   | 115,479       |   |  |   | 108,100 |   |  |   | 127,025 |   |  |   | 124,798 |  
|Merchandise gross profit                                    |  |              | 99,174  |   |               |   | 99,486  |              |  |   | 109,255       |   |  |              | 117,512   |   |               |   | 86,477  |              |  |   | 84,320        |    |  |              | 94,974  |    |               |   | 99,749  |              |  |   | 83,135        |   |  |   | 82,708  |   |  |   | 93,602  |   |  |   | 94,408  |  
|Gasoline gross profit                                       |  |              | 40,936  |   |               |   | 33,741  |              |  |   | 44,455        |   |  |              | 46,284    |   |               |   | 39,514  |              |  |   | 28,809        |    |  |              | 40,043  |    |               |   | 36,918  |              |  |   | 32,344        |   |  |   | 25,392  |   |  |   | 33,423  |   |  |   | 30,390  |  
|Income from operations(1)                                   |  |              | 24,200  |   |               |   | 17,817  |              |  |   | 34,475        |   |  |              | 34,103    |   |               |   | 22,323  |              |  |   | 9,695         |    |  |              | 26,745  |    |               |   | 22,890  |              |  |   | 15,010        |   |  |   | 6,551   |   |  |   | 22,434  |   |  |   | 17,548  |  
|Income (loss) before cumulative effect(1)                   |  |              | 4,527   |   |               |   | (14,558 | )            |  |   | 13,202        |   |  |              | 12,555    |   |               |   | 4,828   |              |  |   | (2,448        | )  |  |              | 5,992   |    |               |   | 6,241   |              |  |   | 385           |   |  |   | (4,231  | ) |  |   | 3,974   |   |  |   | 1,310   |  
|Income from operations as a percentage of full year         |  |              | 21.9    | % |               |   | 16.1    | %            |  |   | 31.2          | % |  |              | 30.8      | % |               |   | 27.3    | %            |  |   | 11.9          | %  |  |              | 32.8    | %  |               |   | 28.0    | %            |  |   | 24.4          | % |  |   | 10.6    | % |  |   | 36.5    | % |  |   | 28.5    | %
|Comparable store merchandise sales increase (decrease)      |  |              | 2.4     | % |               |   | 3.4     | %            |  |   | 3.9           | % |  |              | 3.8       | % |               |   | 1.5     | %            |  |   | 0.8           | %  |  |              | (0.5    | )% |               |   | 2.2     | %            |  |   | 1.7           | % |  |   | 1.3     | % |  |   | 3.7     | % |  |   | 3.5     | %
|Comparable store sales gasoline gallons increase (decrease) |  |              | 3.4     | % |               |   | 1.2     | %            |  |   | 0.2           | % |  |              | 3.2       | % |               |   | (0.7    | )%           |  |   | (0.2          | )% |  |              | 0.6     | %  |               |   | 3.1     | %            |  |   | 0.8           | % |  |   | 0.2     | % |  |   | 4.4     | % |  |   | 0.7     | %
|Merchandise gross profit as a percentage of total revenue   |  |              | 13.3    | % |               |   | 12.7    | %            |  |   | 11.8          | % |  |              | 11.4      | % |               |   | 13.4    | %            |  |   | 12.6          | %  |  |              | 13.5    | %  |               |   | 13.6    | %            |  |   | 14.4          | % |  |   | 14.8    | % |  |   | 13.8    | % |  |   | 14.1    | %
|Gasoline gross profit per gallon                            |  |              | 0.126   |   |               |   | 0.105   |              |  |   | 0.130         |   |  |              | 0.120     |   |               |   | 0.139   |              |  |   | 0.104         |    |  |              | 0.133   |    |               |   | 0.120   |              |  |   | 0.112         |   |  |   | 0.090   |   |  |   | 0.111   |   |  |   | 0.101   |  
|Gasoline gallons                                            |  |              | 325,580 |   |               |   | 321,805 |              |  |   | 342,818       |   |  |              | 386,657   |   |               |   | 283,834 |              |  |   | 277,129       |    |  |              | 301,473 |    |               |   | 307,832 |              |  |   | 287,907       |   |  |   | 281,030 |   |  |   | 302,080 |   |  |   | 300,905 |  

---

|(1) | As discussed in Item 8. Consolidated Financial Statements and Supplementary Data  Notes to Consolidated Financial Statements  Note 2  Restatement of
Previously Issued Financial Statements, which is included in this Form 10-K/A, we have restated our previously reported consolidated financial statements to reflect certain adjustments.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Inflation



During fiscal 2004, wholesale gasoline fuel prices remained volatile, hitting a high of approximately $50 per barrel in
September 2004 and a low of approximately $28 per barrel in September 2003. 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 2.2% during fiscal 2004 and food at home CPI, which is most indicative of our merchandise inventory, increased slightly more than general CPI. 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



No recent authoritative pronouncements that affect accounting, reporting, and disclosure of financial information by us have occurred during the year
ended September 30, 2004, other than the items described below.



In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation (FIN) 46, Consolidation of Variable Interest Entitiesan Interpretation of ARB No. 51 (revised December 2003, FIN 46R).
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



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that a company will consolidate or disclose information about a variable interest entity when it initially applies FIN
46. This interpretation was effective beginning in our second fiscal quarter ending March 25, 2004. We have no investment in or contractual relationship or other business relationship with a variable interest entity and therefore the adoption of FIN
46 did 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 46R to be a variable interest entity), our results of operations and financial condition may be impacted.



Recently Issued Accounting Standards



In March 2004, the FASB issued an exposure draft on Share-Based Payment. The proposed Statement addresses the accounting for transactions in
which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprises equity instruments or that may be settled by the issuance of such
equity instruments. This proposed Statement would eliminate the ability to account for share-based compensation transactions using Accounting Principles Board (APB) Opinion No. 25,Accounting for Stock Issued to Employees, and
generally would require instead that such transactions be accounted for using a fair-value-based method. This Statement, if approved, was scheduled to be effective for awards that are granted, modified, or settled in periods beginning after December
15, 2004 for public entities. On October 16, 2004, the FASB delayed the effective date of this proposal by six months and anticipates it will be effective for the fourth quarter of fiscal 2005. Retrospective application of this Statement is not
permitted. The adoption of this Statement, if approved, could have an impact on our financial position or results of operations.



Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future
date are not expected to have a material impact on our financial condition, results of operations or cash flows upon adoption.



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.



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.



Insurance Liabilities. We self-insure a significant portion of expected losses under our workers compensation, general liability 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.



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.



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 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.



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.



Asset Retirement Obligation. Since
fiscal 2003, we have recognized the estimated future cost to remove an underground storage tank over the estimated useful life of the storage tank in accordance with the provisions of SFAS No. 143,Accounting for Asset Retirement Obligations.
We record a discounted liability for the fair value of an asset retirement obligation with a corresponding increase to the carrying value of the related long-lived asset at the time an underground storage tank is



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installed. We amortize the amount added to property and equipment and recognize accretion expense in connection with the
discounted liability over the remaining life of the tank. We base our estimates of the anticipated future costs for removal of an underground storage tank on our prior experience with removal. See also, Item 8. Consolidated Financial
Statements and Supplementary Data  Notes to Consolidated Financial Statements  Note11  Asset Retirement Obligations.



Vendor Allowances and Rebates. We receive payments for vendor allowances, volume rebates and other supply arrangements in connection with various
programs. Some of these vendor rebate, credit and promotional allowance arrangements require that we 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. 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.



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 an appropriate 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. 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.



RISK FACTORS



You should carefully consider the risks described below and the section entitled Cautionary Statement Concerning Forward-Looking Statements
before making a decision to invest in our securities. The risks and uncertainties described below and elsewhere in this report 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 competitors 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 averaged approximately 63.4% of total revenues and our gasoline gross
profit averaged approximately 27.4% 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 and our wholesale purchase costs could be adversely impacted in the event of a
shortage, which could result from, among other things, lack of capacity at United States oil refineries or the fact that 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 operating results.



Sales of tobacco products have averaged approximately 10.7% of our total revenue over the past three fiscal years and our tobacco gross profit accounted
for approximately 16.3% of total gross profit for the same period. Significant increases in wholesale cigarette costs and tax increases on tobacco products, as well as 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.



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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 2004. 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 September 2004, we acquired
1,304 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 that 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.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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 substantial indebtedness and lease finance obligations
could adversely affect our financial health.



We have
a significant amount of indebtedness. As of September 30, 2004, we had consolidated debt, including lease finance obligations, of approximately $760.3 million. As of September 30, 2004, our availability under our senior credit facility for borrowing
or issuing additional letters of credit was approximately $35.2 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 substantial indebtedness could have important consequences to you. For example, it could:



| |  |  | make it more difficult for us to satisfy our obligations with respect to our debt and our leases;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | increase our vulnerability to general adverse economic and industry conditions;
| | - |  | -------------------------------------------------------------------------------



| |  |  | require us to dedicate a substantial portion of our cash flow from operations to payments on our debt and lease obligations, thereby reducing the availability of our cash flow to
fund working capital, capital expenditures and other general corporate purposes;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | place us at a competitive disadvantage compared to our competitors that have less indebtedness or better access to capital by, for example, limiting our ability to enter into new
markets or renovate our stores; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limit our ability to borrow additional funds in the future.
| | - |  | -----------------------------------------------------------



If we are unable to meet our debt and lease obligations, we could be forced to restructure or refinance our obligations, seek additional equity financing
or sell assets, which we may not be able to do on satisfactory terms or at all. As a result, we could default on those obligations. In addition, the indenture governing our senior subordinated notes and our senior credit facility, which includes a
term loan and a revolving credit facility, contain financial and other restrictive covenants that will limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in
an event of default which, if not cured or waived, could result in the acceleration of all of our indebtedness, which would adversely affect our financial health and could prevent us from fulfilling our obligations.



Despite current indebtedness levels, we and our subsidiaries may still be able to incur
additional debt. This could further increase the risks associated with our substantial leverage.



We and our subsidiaries are still able to incur additional indebtedness. The terms of the indenture that governs our senior subordinated notes permit us
to incur additional indebtedness under certain circumstances. In addition, our senior credit facility, as amended, permits us to potentially borrow up to an additional $75.0 million for permitted acquisitions (assuming certain financial conditions
are met at the time) beyond the $70.0 million we can borrow under our revolving credit facility. If we and our subsidiaries incur additional indebtedness, the related risks that we and they now face could intensify.



To service our indebtedness, we will require a significant amount of cash. Our ability
to generate cash depends on many factors beyond our control.



Our ability to make payments on our indebtedness and to refinance our indebtedness and fund planned capital expenditures will depend on our ability to



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generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control. Based on our current level of operations, we believe our cash flow from operations, available cash and available borrowings under our revolving credit facility, will be adequate
to meet our future liquidity needs for at least the next 12 months. We cannot assure you, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our revolving credit
facility in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we will be able to refinance
any of our indebtedness on commercially reasonable terms or at all.



If
we do not comply with the covenants in our senior credit facility and the indenture governing our senior subordinated notes or otherwise default under them, we may not have the funds necessary to pay all of our indebtedness that could become due.



Our senior credit facility and our indenture
governing our senior subordinated notes require us to comply with certain covenants. In particular, our senior credit facility prohibits us from incurring any additional indebtedness except in specified circumstances or materially amending the terms
of any agreement relating to existing indebtedness without lender approval. In addition, our senior credit facility limits our ability to make capital expenditures. Further, our senior credit facility restricts our ability to acquire and dispose of
assets, engage in mergers or reorganizations, pay dividends, or make investments. Other restrictive covenants require that we meet fixed charge coverage and leverage tests, and also maximum capital expenditure limits as defined in the senior credit
facility agreement. A violation of any of these covenants could cause an event of default under the senior credit facility. If we default under that facility because of a covenant breach or otherwise, all outstanding amounts could become immediately
due and payable. We cannot assure you that we would have sufficient funds to repay all the outstanding amounts, and any acceleration of amounts due under our senior credit facility or our indenture governing our senior subordinated notes likely
would have a material adverse effect on us.



On July 28, 2005,
we announced our intention to restate our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2004, and our unaudited interim period results included in our Quarterly Reports on Form 10-Q
for the periods ended December 30, 2004 and March 31, 2005, to correct the recording of certain sale-leaseback transactions entered into by our company. The restatement is the result of our determination, in consultation with our independent
registered public accountants, that such transactions must be accounted for as financing transactions rather than as sale-leaseback transactions. The restatement recharacterizes the transactions as financing transactions, with the assets and related
financing obligation carried on our balance sheet. As a result, approximately $177.4 million in additional debt has been recorded as of September 30, 2004, with a proportionate increase in assets. While we have remained in compliance with all of the
financial ratio covenants of the loan agreement under our senior credit facility, the increase in debt put our company in default because of provisions that limit our ability to incur additional indebtedness. On August 5, 2005, we obtained a waiver
of default and amendment to our loan agreement, the effect of which has been to bring our company into compliance with the loan agreement after giving effect to the restatement of financial statements.



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, public accessibility
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 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 increased
operating and maintenance costs. The remediation costs and other costs required to clean up or treat contaminated sites could be substantial. We pay tank registration fees and other taxes to state trust funds established in our operating areas and
maintain private insurance coverage in Florida and Georgia 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 maintenance and continued solvency of the various 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 laws, ordinances or 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 that 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 that, 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. 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 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.



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We depend on two principal suppliers for the majority of our gasoline.



During February of 2003, we signed new gasoline supply agreements with
BP®and Citgo®. We expect that BP®and Citgo®will supply approximately 90%
of our future gasoline purchases after an approximately 27 to 33 month conversion process that began in March 2003. We have contracts with Citgo®until 2008 and BP®until 2009, 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 expect to generate approximately $10 to $12 million of annualized cost savings and other benefits from our gasoline supplier and brand consolidation
initiatives. 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. In addition, we cannot assure you that unforeseen factors
will not offset the estimated cost savings and other benefits from these initiatives. As a result, our actual cost savings and other anticipated benefits could differ or be delayed, compared to our estimates and to the other information contained or
incorporated by reference in this report.



We may not achieve the full
expected cost savings and other benefits of our acquisition of Golden Gallon®.



We expect to achieve $8 to $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 to the other
information contained or incorporated by reference in this report.



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 we or our existing stockholders sell
shares of our common stock in the public market, including shares issued upon the exercise of outstanding options or upon settlement of the forward sale agreement recently entered into by us, or if the market perceives such sales or issuances could
occur, the market price of our common stock could decline. As of December 7, 2004, there are 20,313,242 shares of our common stock outstanding; of these shares, 17,121,689 shares are freely tradable (unless held by one of our affiliates), and
3,884,369 shares are held by affiliate investment funds of Freeman Spogli & Co, or Freeman Spogli. Pursuant to Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, 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 investment funds 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.



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 after issuance.



The interests of our largest stockholder may conflict with our interests and the interests of our other stockholders.



As of December 7, 2004, Freeman Spogli owns 3,884,369 shares of our common stock and its beneficial ownership of our common stock is approximately 19.1%.
In addition, three of the eight 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 our interests or 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.



We may sell securities in the
public or private equity markets if and when conditions are favorable, even if we do not have an immediate need for capital at that time. We may also, either mandatorily or at our option, issue shares upon settlement of the forward sale agreement
recently entered into by us. We may elect to settle the forward sale by means of a physical stock, cash or net stock settlement. If we elect to physically settle the forward sale agreement in total, we would be required to issue 1,500,000 shares of
our common stock. In no event are we required to deliver more than 1,500,000 shares under the forward sale agreement.



Raising funds by issuing securities will dilute the ownership of our existing stockholders. 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;
| | - |  | -----------------------------------------------------------------------------------------------------------



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



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



| |  |  | Sales or other issuances 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 23 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.



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. For example, our certificate of incorporation makes
us subject to the anti-takeover provisions of Section 203 of the General Corporation Law of the State of Delaware. In general, Section 203 prohibits publicly-held Delaware corporations to which it applies from engaging in a business
combination with an interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. This
provision could discourage others from bidding for our shares and could, as a result, reduce the likelihood of an increase in our stock price that would otherwise occur if a bidder sought to buy our stock.



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.



Our recently announced restatement could impair our ability to secure future financing



As described above, on July 28, 2005, we announced our intention to restate certain of our audited and unaudited financial statements to correct the
accounting for certain sale-leaseback transactions entered into by our company. The fact that we are restating certain of our previously issued financial statements may factor into negotiations with lenders on future financing. As a result of the
restatement, we may find it more difficult to secure additional financing in the future, on satisfactory terms or at all.



Item 7A. Quantitative And Qualitative Disclosures About Market Risk



Quantitative Disclosures. We are subject to interest rate risk on our existing long-term debt and any future financing requirements. Our fixed rate
debt consists primarily of outstanding balances on our senior subordinated notes and our variable rate debt relates to borrowings under our senior credit facility. We are exposed to market risks inherent in our financial instruments. These
instruments arise from transactions entered into in the normal course of business and, in some cases, relate to our acquisitions of related businesses. We hold derivative instruments primarily to manage our exposure to these risks and all derivative
instruments are matched against specific debt obligations. There have been no material changes in the primary risk exposures or management of the risks since the prior year. Our debt and interest rate swap instruments outstanding at September 30,
2004, including applicable interest rates, are discussed below, in Item 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources and Item 8. Consolidated
Financial Statements and Supplementary DataNotes to Consolidated Financial StatementsNote 9Derivative Financial Instruments.



The following table presents the future principal cash flows and weighted average interest rates based on rates in effect at September 30, 2004, on our
existing long-term debt instruments. Fair values have been determined based on quoted market prices as of September 30, 2004.



Expected Maturity Date

as of
September 30, 2004

(Dollars in thousands)



|                               |  |            |        |   |            |   |        |            |  |   |            |   |  |            |        |   |            |   |        |       |  |   |            |   |  |   |         |   |  |   |        
|------------------------------ |  | ---------- | ------ | - | ---------- | - | ------ | ---------- |  | - | ---------- | - |  | ---------- | ------ | - | ---------- | - | ------ | ----- |  | - | ---------- | - |  | - | ------- | - |  | - | -------
|                               |  | Fiscal2005 |        |   | Fiscal2006 |   |        | Fiscal2007 |  |   | Fiscal2008 |   |  | Fiscal2009 |        |   | Thereafter |   |        | Total |  |   | Fair Value
|Long-term debt                 |  | $          | 12,029 |   |            | $ | 16,010 |            |  | $ | 16,000     |   |  | $          | 16,000 |   |            | $ | 16,000 |       |  | $ | 491,000    |   |  | $ | 567,039 |   |  | $ | 580,857
|Weighted average interest rate |  |            | 6.06   | % |            |   | 5.99   | %          |  |   | 5.88       | % |  |            | 5.94   | % |            |   | 5.99   | %     |  |   | 6.93       | % |  |   | 6.31    | % |  |   |        



In order to reduce our
exposure to interest rate fluctuations, we have entered into interest rate swap arrangements in which we agree to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to an agreed upon
notional amount. The interest rate differential is reflected as an adjustment to interest expense over the life of the swaps. Fixed rate swaps are used to reduce our risk of increased interest costs during periods of rising interest rates. At
September 30, 2004, the interest rate on 79.7% of our debt was fixed by either the nature of the obligation or through the interest rate swap arrangements compared to 80.8% at September 25, 2003. The annualized effect of a one percentage point
change in floating interest rates on our interest rate swap agreements and other floating rate debt obligations at September 30, 2004, would be to change interest expense by approximately $1.0 million.



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The following table presents the notional principal amount, weighted average pay rate, weighted average
receive rate and weighted average years to maturity on our interest rate swap contracts:



Interest Rate Swap Contracts

(Dollars in thousands)



|                                   |  |                   |         |   |                   |   |         |  
|---------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                   |  | September 30,2004 |         |   | September 25,2003 |  
|Notional principal amount          |  | $                 | 202,000 |   |                   | $ | 202,000 |  
|Weighted average pay rate          |  |                   | 2.72    | % |                   |   | 3.77    | %
|Weighted average receive rate      |  |                   | 1.84    | % |                   |   | 1.03    | %
|Weighted average years to maturity |  |                   | 1.55    |   |                   |   | 1.68    |  



As of September 30,
2004, the fair value of our swap agreements represented a net liability of $0.1 million.



Qualitative Disclosures. Our primary exposure relates to:



| |  |  | interest rate risk on long-term and short-term borrowings;
| | - |  | ----------------------------------------------------------



| |  |  | our ability to pay or refinance long-term borrowings at maturity at market rates;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | the impact of interest rate movements on our ability to meet interest expense requirements and exceed financial covenants; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | the impact of interest rate movements on our ability to obtain adequate financing to fund future acquisitions.
| | - |  | --------------------------------------------------------------------------------------------------------------



We manage interest rate risk on our outstanding long-term and short-term debt
through our use of fixed and variable rate debt. We expect the interest rate swaps mentioned above will reduce our exposure to short-term interest rate fluctuations. While we cannot predict or manage our ability to refinance existing debt or the
impact interest rate movements will have on our existing debt, management evaluates our financial position on an ongoing basis.



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Item 8.
Consolidated Financial Statements and Supplementary Data



|                                                                                                                                                |  |     
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                                |  | Page
|The Pantry, Inc. Financial Statements:                                                                                                          |  |     
|Audited Consolidated Financial Statements:                                                                                                      |  |     
|Report of Independent Registered Public Accounting Firm                                                                                         |  | 30  
|Consolidated Balance Sheets as of September 30, 2004 and September 25, 2003 (As Restated)                                                       |  | 31  
|Consolidated Statements of Operations for the years ended September 30, 2004, September 25, 2003 and September 26, 2002 (As Restated)           |  | 32  
|Consolidated Statements of Shareholders Equity for the years ended September 30, 2004, September 25, 2003 and September 26, 2002 (As Restated) |  | 33  
|Consolidated Statements of Cash Flows for the years ended September 30, 2004, September 25, 2003 and September 26, 2002 (As Restated)           |  | 34  
|Notes to Consolidated Financial Statements (As Restated)                                                                                        |  | 36  



29



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##### 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 30, 2004 and September 25, 2003, and the related consolidated statements of operations, shareholders equity, and cash flows
for each of the three fiscal years in the period ended September 30, 2004. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and the financial statement schedule are the
responsibility of The Pantrys management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.



We conducted our audits in accordance with 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 30, 2004 and September 25, 2003, and the results of their
operations and their cash flows for each of the three fiscal years in the period ended September 30, 2004 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.



As discussed in Note 11 to the consolidated financial statements, in 2003, The Pantry adopted Statement of Financial Accounting Standards
No. 143, Accounting for Asset Retirement Obligations.



As to the effects
of Note 2, the accompanying consolidated financial statements have been restated.



Raleigh, North Carolina

December 10, 2004, except for the effects of Note 2 and Note 20 as to which the date is

August 30, 2005



30



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##### Table of Contents

THE PANTRY, INC.



CONSOLIDATED
BALANCE SHEETS

(Dollars in thousands)



|                                                                                                                                                                                          |  |                          |           |                          |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | --------- | ------------------------ | - | ------- | -
|                                                                                                                                                                                          |  | September 30,2004        |           | September 25,2003        |  
|                                                                                                                                                                                          |  | (As restated,see Note 2) |           | (As restated,see Note 2) |  
|ASSETS                                                                                                                                                                                    |  |                          |           |                          |   |         |  
|Current assets:                                                                                                                                                                           |  |                          |           |                          |   |         |  
|Cash and cash equivalents                                                                                                                                                                 |  | $                        | 108,048   |                          | $ | 72,901  |  
|Receivables (net of allowance for doubtful accounts of $417 at September 30, 2004 and $665 at September 25, 2003)                                                                         |  |                          | 43,664    |                          |   | 30,423  |  
|Inventories (Note 4)                                                                                                                                                                      |  |                          | 95,228    |                          |   | 84,156  |  
|Prepaid expenses and other current assets                                                                                                                                                 |  |                          | 13,446    |                          |   | 6,326   |  
|Property held for sale                                                                                                                                                                    |  |                          | 5,939     |                          |   | 2,013   |  
|Deferred income taxes (Note 13)                                                                                                                                                           |  |                          | 7,507     |                          |   | 4,334   |  
|                                                                                                                                                                                          |  |                          |           |                          |   |         |  
|Total current assets                                                                                                                                                                      |  |                          | 273,832   |                          |   | 200,153 |  
|                                                                                                                                                                                          |  |                          |           |                          |   |         |  
|Property and equipment, net (Notes 2, 3, 5, 8 and 11)                                                                                                                                     |  |                          | 582,242   |                          |   | 478,857 |  
|                                                                                                                                                                                          |  |                          |           |                          |   |         |  
|Other assets:                                                                                                                                                                             |  |                          |           |                          |   |         |  
|Goodwill (Note 3 and 6)                                                                                                                                                                   |  |                          | 341,652   |                          |   | 278,629 |  
|                                                                                                                                                                                          |  |                         
|Deferred financing costs (net of accumulated amortization of $563 September 30, 2004 and $7,206 at September 25, 2003)                                                                    |  |                          | 8,612     |                          |   | 10,757  |  
|Environmental receivables (Note 14)                                                                                                                                                       |  |                          | 15,137    |                          |   | 15,109  |  
|Other (Note 9)                                                                                                                                                                            |  |                          | 11,406    |                          |   | 8,908   |  
|                                                                                                                                                                                          |  |                          |           |                          |   |         |  
|Total other assets                                                                                                                                                                        |  |                          | 376,807   |                          |   | 313,403 |  
|                                                                                                                                                                                          |  |                          |           |                          |   |         |  
|Total assets                                                                                                                                                                              |  | $                        | 1,232,881 |                          | $ | 992,413 |  
|                                                                                                                                                                                          |  |                          |           |                          |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                      |  |                          |           |                          |   |         |  
|Current liabilities:                                                                                                                                                                      |  |                          |           |                          |   |         |  
|Current maturities of long-term debt (Note 7)                                                                                                                                             |  | $                        | 16,029    |                          | $ | 27,558  |  
|Current maturities of lease finance obligations (Notes 2 and 8)                                                                                                                           |  |                          | 2,774     |                          |   | 2,762   |  
|Accounts payable                                                                                                                                                                          |  |                          | 121,151   |                          |   | 78,885  |  
|Accrued interest (Note 7)                                                                                                                                                                 |  |                          | 2,742     |                          |   | 11,924  |  
|Accrued compensation and related taxes                                                                                                                                                    |  |                          | 14,369    |                          |   | 12,840  |  
|Other accrued taxes                                                                                                                                                                       |  |                          | 18,849    |                          |   | 16,510  |  
|Accrued insurance                                                                                                                                                                         |  |                          | 17,228    |                          |   | 12,293  |  
|Other accrued liabilities (Notes 9 and 14)                                                                                                                                                |  |                          | 19,393    |                          |   | 21,314  |  
|                                                                                                                                                                                          |  |                          |           |                          |   |         |  
|Total current liabilities                                                                                                                                                                 |  |                          | 212,535   |                          |   | 184,086 |  
|                                                                                                                                                                                          |  |                          |           |                          |   |         |  
|Other liabilities:                                                                                                                                                                        |  |                          |           |                          |   |         |  
|Long-term debt (Note 7)                                                                                                                                                                   |  |                          | 551,010   |                          |   | 470,011 |  
|Lease finance obligations (Notes 2 and 8)                                                                                                                                                 |  |                          | 190,440   |                          |   | 96,110  |  
|Environmental reserves (Note 14)                                                                                                                                                          |  |                          | 14,051    |                          |   | 13,823  |  
|Deferred income taxes (Note 13)                                                                                                                                                           |  |                          | 60,932    |                          |   | 48,834  |  
|Deferred revenue (Note 14)                                                                                                                                                                |  |                          | 35,051    |                          |   | 37,251  |  
|Other noncurrent liabilities (Notes 9, 11 and 14)                                                                                                                                         |  |                          | 19,935    |                          |   | 15,065  |  
|                                                                                                                                                                                          |  |                          |           |                          |   |         |  
|Total other liabilities                                                                                                                                                                   |  |                          | 871,419   |                          |   | 681,094 |  
|                                                                                                                                                                                          |  |                          |           |                          |   |         |  
|Commitments and contingencies (Notes 7, 8 and 14)                                                                                                                                         |  |                          |           |                          |   |         |  
|                                                                                                                                                                                          |  |                          |           |                          |   |         |  
|Shareholders equity (Notes 10, 16 and 17):                                                                                                                                               |  |                          |           |                          |   |         |  
|Common stock, $.01 par value, 50,000,000 shares authorized; 20,271,757 and 18,107,597 issued and outstanding at September 30, 2004 and
September 25, 2003, respectively (Notes 16 and 17) |  |                          | 204       |                          |   | 182     |  
|Additional paid-in capital                                                                                                                                                                |  |                          | 132,879   |                          |   | 128,002 |  
|Shareholder loans                                                                                                                                                                         |  |                          |          |                          |   | (173    | )
|Accumulated other comprehensive income (deficit) net of deferred income taxes of $(129) at September 30, 2004 and $432 at September 25, 2003
(Note 10)                                    |  |                          | 206       |                          |   | (690    | )
|Accumulated earnings (deficit)                                                                                                                                                            |  |                          | 15,638    |                          |   | (88     | )
|                                                                                                                                                                                          |  |                          |           |                          |   |         |  
|Total shareholders equity                                                                                                                                                                |  |                          | 148,927   |                          |   | 127,233 |  
|                                                                                                                                                                                          |  |                          |           |                          |   |         |  
|Total liabilities and shareholders equity                                                                                                                                                |  | $                        | 1,232,881 |                          | $ | 992,413 |  
|                                                                                                                                                                                          |  |                          |           |                          |   |         |  



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





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THE PANTRY, INC.



CONSOLIDATED
STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share amounts)



|                                                        |  |                          |           |   |                          |   |           |                          |  |   |           |  
|------------------------------------------------------- |  | ------------------------ | --------- | - | ------------------------ | - | --------- | ------------------------ |  | - | --------- | -
|                                                        |  | September 30,2004        |           |   | September 25,2003        |   |           | September 26,2002        | 
|                                                        |  | (As restated,see Note 2) |           |   | (As restated,see Note 2) |   |           | (As restated,see Note 2) | 
|                                                        |  | (53 weeks)               |           |   | (52 weeks)               |   |           | (52 weeks)               | 
|Revenues:                                               |  |                          |           |   |                          |   |           |                          |  |   |           |  
|Merchandise sales                                       |  | $                        | 1,172,846 |   |                          | $ | 1,009,698 |                          |  | $ | 1,012,786 |  
|Gasoline sales                                          |  |                          | 2,320,239 |   |                          |   | 1,740,662 |                          |  |   | 1,470,732 |  
|                                                        |  |                          |           |   |                          |   |           |                          |  |   |           |  
|Total revenues                                          |  |                          | 3,493,085 |   |                          |   | 2,750,360 |                          |  |   | 2,483,518 |  
|                                                        |  |                          |           |   |                          |   |           |                          |  |   |           |  
|Cost of sales:                                          |  |                          |           |   |                          |   |           |                          |  |   |           |  
|Merchandise                                             |  |                          | 747,419   |   |                          |   | 644,178   |                          |  |   | 658,933   |  
|Gasoline                                                |  |                          | 2,154,823 |   |                          |   | 1,595,378 |                          |  |   | 1,349,183 |  
|                                                        |  |                          |           |   |                          |   |           |                          |  |   |           |  
|Total cost of sales                                     |  |                          | 2,902,242 |   |                          |   | 2,239,556 |                          |  |   | 2,008,116 |  
|                                                        |  |                          |           |   |                          |   |           |                          |  |   |           |  
|Gross profit                                            |  |                          | 590,843   |   |                          |   | 510,804   |                          |  |   | 475,402   |  
|                                                        |  |                          |           |   |                          |   |           |                          |  |   |           |  
|Operating expenses:                                     |  |                          |           |   |                          |   |           |                          |  |   |           |  
|Operating, general and administrative expenses (Note 2) |  |                          | 419,337   |   |                          |   | 373,384   |                          |  |   | 358,296   |  
|Depreciation and amortization (Note 2)                  |  |                          | 60,911    |   |                          |   | 55,767    |                          |  |   | 55,563    |  
|                                                        |  |                          |           |   |                          |   |           |                          |  |   |           |  
|Total operating expenses                                |  |                          | 480,248   |   |                          |   | 429,151   |                          |  |   | 413,859   |  
|                                                        |  |                          |           |   |                          |   |           |                          |  |   |           |  
|Income from operations                                  |  |                          | 110,595   |   |                          |   | 81,653    |                          |  |   | 61,543    |  
|                                                        |  |                          |           |   |                          |   |           |                          |  |   |           |  
|Other income (expense):                                 |  |                          |           |   |                          |   |           |                          |  |   |           |  
|Loss on extinguishment of debt (Note 12)                |  |                          | (23,087   | ) |                          |   | (2,888    | )                        |  |   |          |  
|Interest expense (Notes 2 and 12)                       |  |                          | (64,257   | ) |                          |   | (57,805   | )                        |  |   | (59,932   | )
|Miscellaneous                                           |  |                          | 1,676     |   |                          |   | 2,805     |                          |  |   | 728       |  
|                                                        |  |                          |           |   |                          |   |           |                          |  |   |           |  
|Total other expense                                     |  |                          | (85,668   | ) |                          |   | (57,888   | )                        |  |   | (59,204   | )
|                                                        |  |                          |           |   |                          |   |           |                          |  |   |           |  
|Income before income taxes                              |  |                          | 24,927    |   |                          |   | 23,765    |                          |  |   | 2,339     |  
|Income tax expense (Note 13)                            |  |                          | (9,201    | ) |                          |   | (9,152    | )                        |  |   | (901      | )
|                                                        |  |                          |           |   |                          |   |           |                          |  |   |           |  
|Income before cumulative effect adjustment              |  | $                        | 15,726    |   |                          | $ | 14,613    |                          |  | $ | 1,438     |  
|Cumulative effect adjustment, net of tax (Note 11)      |  |                          |          |   |                          |   | (3,482    | )                        |  |   |          |  
|                                                        |  |                          |           |   |                          |   |           |                          |  |   |           |  
|Net income                                              |  | $                        | 15,726    |   |                          | $ | 11,131    |                          |  | $ | 1,438     |  
|                                                        |  |                          |           |   |                          |   |           |                          |  |   |           |  
|Earnings per share (Note 18):                           |  |                          |           |   |                          |   |           |                          |  |   |           |  
|Basic:                                                  |  |                          |           |   |                          |   |           |                          |  |   |           |  
|Income before cumulative effect adjustment              |  | $                        | 0.80      |   |                          | $ | 0.81      |                          |  | $ | 0.08      |  
|Cumulative effect adjustment                            |  |                          |          |   |                          |   | (0.19     | )                        |  |   |          |  
|                                                        |  |                          |           |   |                          |   |           |                          |  |   |           |  
|Net income                                              |  | $                        | 0.80      |   |                          | $ | 0.61      |                          |  | $ | 0.08      |  
|                                                        |  |                          |           |   |                          |   |           |                          |  |   |           |  
|Diluted:                                                |  |                          |           |   |                          |   |           |                          |  |   |           |  
|Income before cumulative effect adjustment              |  | $                        | 0.76      |   |                          | $ | 0.80      |                          |  | $ | 0.08      |  
|Cumulative effect adjustment                            |  |                          |          |   |                          |   | (0.19     | )                        |  |   |          |  
|                                                        |  |                          |           |   |                          |   |           |                          |  |   |           |  
|Net income                                              |  | $                        | 0.76      |   |                          | $ | 0.61      |                          |  | $ | 0.08      |  
|                                                        |  |                          |           |   |                          |   |           |                          |  |   |           |  



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





32



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##### Table of Contents

THE PANTRY, INC.



CONSOLIDATED
STATEMENTS OF SHAREHOLDERS EQUITY

(Shares and dollars in thousands)



|                                                              |  |              |   |                          |           |     |                  |   |         |                                               |  |   |                              |   |  |                          |        |   |                          |   |         |   |  |   |        
|------------------------------------------------------------- |  | ------------ | - | ------------------------ | --------- | --- | ---------------- | - | ------- | --------------------------------------------- |  | - | ---------------------------- | - |  | ------------------------ | ------ | - | ------------------------ | - | ------- | - |  | - | -------
|                                                              |  | Common Stock |   | AdditionalPaid-inCapital |           |     | ShareholderLoans |   |         | AccumulatedOtherComprehensiveIncome/(Deficit) |  |   | AccumulatedEarnings(Deficit) |   |  | Total                   
|                                                              |  | Shares       |   |                          | Par Value |     |                  |   |         |                                               |  |   |                              |   |  |                          |        |   |                         
|                                                              |  |              |   |                          |           |     |                  |   |         |                                               |  |   |                              |   |  | (As restated,see Note 2) |        |   | (As restated,see Note 2)
|Balance, September 27, 2001                                   |  | 18,115       |   |                          | $         | 182 |                  | $ | 128,043 |                                               |  | $ | (837                         | ) |  | $                        | (4,283 | ) |                          | $ | (12,657 | ) |  | $ | 110,448
|Comprehensive income, net of tax:                             |  |              |   |                          |           |     |                  |   |         |                                               |  |   |                              |   |  |                          |        |   |                          |   |         |   |  |   |        
|Net income                                                    |  |             |   |                          |           |    |                  |   |        |                                               |  |   |                             |   |  |                          |       |   |                          |   | 1,438   |   |  |   | 1,438  
|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  |   |                          |   | 1,438   |   |  |   | 3,609  
|Share repurchase                                              |  | (7           | ) |                          |           |    |                  |   | (41     | )                                             |  |   | 41                           |   |  |                          |       |   |                          |   |        |   |  |   |       
|Repayment of shareholder loans                                |  |             |   |                          |           |    |                  |   |        |                                               |  |   | 88                           |   |  |                          |       |   |                          |   |        |   |  |   | 88     
|                                                              |  |              |   |                          |           |     |                  |   |         |                                               |  |   |                              |   |  |                          |        |   |                          |   |         |   |  |   |        
|Balance, September 26, 2002                                   |  | 18,108       |   |                          | $         | 182 |                  | $ | 128,002 |                                               |  | $ | (708                         | ) |  | $                        | (2,112 | ) |                          | $ | (11,219 | ) |  | $ | 114,145
|                                                              |  |              |   |                          |           |     |                 
|Comprehensive income, net of tax:                             |  |              |   |                          |           |     |                  |   |         |                                               |  |   |                              |   |  |                          |        |   |                          |   |         |   |  |   |        
|Net income                                                    |  |             |   |                          |           |    |                  |   |        |                                               |  |   |                             |   |  |                          |       |   |                          |   | 11,131  |   |  |   | 11,131 
|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  |   |                          |   | 11,131  |   |  |   | 12,553 
|Repayment of shareholder loans                                |  |             |   |                          |           |    |                  |   |        |                                               |  |   | 535                          |   |  |                          |       |   |                          |   |        |   |  |   | 535    
|                                                              |  |              |   |                          |           |     |                  |   |         |                                               |  |   |                              |   |  |                          |        |   |                          |   |         |   |  |   |        
|Balance, September 25, 2003                                   |  | 18,108       |   |                          | $         | 182 |                  | $ | 128,002 |                                               |  | $ | (173                         | ) |  | $                        | (690   | ) |                          | $ | (88     | ) |  | $ | 127,233
|                                                              |  |              |   |                          |           |     |                 
|Comprehensive income, net of tax:                             |  |              |   |                          |           |     |                  |   |         |                                               |  |   |                              |   |  |                          |        |   |                          |   |         |   |  |   |        
|Net income                                                    |  |             |   |                          |           |    |                  |   |        |                                               |  |   |                             |   |  |                          |       |   |                          |   | 15,726  |   |  |   | 15,726 
|Unrealized gains on qualifying cash flow hedges               |  |             |   |                          |           |    |                  |   |        |                                               |  |   |                             |   |  |                          | 896    |   |                          |   |        |   |  |   | 896    
|                                                              |  |              |   |                          |           |     |                  |   |         |                                               |  |   |                              |   |  |                          |        |   |                          |   |         |   |  |   |        
|Comprehensive income                                          |  |             |   |                          |           |    |                  |   |        |                                               |  |   |                             |   |  |                          | 896    |   |                          |   | 15,726  |   |  |   | 16,622 
|Exercise of stock options and warrants                        |  | 2,164        |   |                          |           | 22  |                  |   | 4,877   |                                               |  |   |                             |   |  |                          |       |   |                          |   |        |   |  |   | 4,899  
|Repayment of shareholder loans                                |  |             |   |                          |           |    |                  |   |        |                                               |  |   | 173                          |   |  |                          |       |   |                          |   |        |   |  |   | 173    
|                                                              |  |              |   |                          |           |     |                  |   |         |                                               |  |   |                              |   |  |                          |        |   |                          |   |         |   |  |   |        
|Balance, September 30, 2004                                   |  | 20,272       |   |                          | $         | 204 |                  | $ | 132,879 |                                               |  | $ |                             |   |  | $                        | 206    |   |                          | $ | 15,638  |   |  | $ | 148,927
|                                                              |  |              |   |                          |           |     |                  |   |         |                                               |  |   |                              |   |  |                          |        |   |                          |   |         |   |  |   |        



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



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THE PANTRY, INC.



CONSOLIDATED
STATEMENTS OF CASH FLOWS

(Dollars in thousands)



|                                                                                  |  |                          |          |   |                          |   |          |                          |  |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------ | -------- | - | ------------------------ | - | -------- | ------------------------ |  | - | ------- | -
|                                                                                  |  | Year Ended               |         
|                                                                                  |  | September 30,2004        |          |   | September 25,2003        |   |          | September 26,2002        | 
|                                                                                  |  | (As restated,see Note 2) |          |   | (As restated,see Note 2) |   |          | (As restated,see Note 2) | 
|                                                                                  |  | (53 weeks)               |          |   | (52 weeks)               |   |          | (52 weeks)               | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                          |          |   |                          |   |          |                          |  |   |         |  
|Net income                                                                        |  | $                        | 15,726   |   |                          | $ | 11,131   |                          |  | $ | 1,438   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                          |          |   |                          |   |          |                          |  |   |         |  
|Depreciation and amortization                                                     |  |                          | 60,911   |   |                          |   | 55,767   |                          |  |   | 53,293  |  
|Provision for income taxes                                                        |  |                          | 9,201    |   |                          |   | 9,152    |                          |  |   | 901     |  
|Loss on extinguishment of debt                                                    |  |                          | 23,087   |   |                          |   | 2,888    |                          |  |   |        |  
|(Gain)/loss on sale of property and equipment                                     |  |                          | (2,929   | ) |                          |   | 2,051    |                          |  |   | 601     |  
|Impairment of long-lived assets                                                   |  |                          | 7,417    |   |                          |   | 1,850    |                          |  |   | 383     |  
|Fair market value change in non-qualifying derivatives                            |  |                          | (1,310   | ) |                          |   | (3,381   | )                        |  |   | 926     |  
|Provision for closed stores                                                       |  |                          | 1,933    |   |                          |   | 2,469    |                          |  |   | 2,073   |  
|Cumulative effect of change in accounting principle                               |  |                          |         |   |                          |   | 3,482    |                          |  |   |        |  
|Amortization of deferred loan costs                                               |  |                          | 2,227    |   |                          |   | 2,610    |                          |  |   | 2,270   |  
|Amortization of long-term debt discount                                           |  |                          | 534      |   |                          |   | 529      |                          |  |   |        |  
|Changes in operating assets and liabilities, net of effects of acquisitions:      |  |                          |          |   |                          |   |          |                          |  |   |         |  
|Receivables                                                                       |  |                          | (11,146  | ) |                          |   | 563      |                          |  |   | (5,085  | )
|Inventories                                                                       |  |                          | (977     | ) |                          |   | 281      |                          |  |   | (2,705  | )
|Prepaid expenses and other current assets                                         |  |                          | (7,005   | ) |                          |   | (2,818   | )                        |  |   | (43     | )
|Other noncurrent assets                                                           |  |                          | 242      |   |                          |   | 178      |                          |  |   | 370     |  
|Accounts payable                                                                  |  |                          | 30,830   |   |                          |   | (14,973  | )                        |  |   | (311    | )
|Other current liabilities and accrued expenses                                    |  |                          | (7,506   | ) |                          |   | 9,532    |                          |  |   | 12,688  |  
|Reserves for environmental expenses                                               |  |                          | (447     | ) |                          |   | 538      |                          |  |   | 1,078   |  
|Other noncurrent liabilities                                                      |  |                          | (3,816   | ) |                          |   | (13,112  | )                        |  |   | (13,493 | )
|                                                                                  |  |                          |          |   |                          |   |          |                          |  |   |         |  
|Net cash provided by operating activities                                         |  |                          | 116,972  |   |                          |   | 68,737   |                          |  |   | 54,384  |  
|                                                                                  |  |                          |          |   |                          |   |          |                          |  |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |                          |          |   |                          |   |          |                          |  |   |         |  
|Additions to property and equipment                                               |  |                          | (51,916  | ) |                          |   | (28,231  | )                        |  |   | (31,512 | )
|Proceeds from sale of land, building and equipment                                |  |                          | 10,454   |   |                          |   | 5,673    |                          |  |   | 8,912   |  
|Acquisitions of related businesses, net of cash acquired                          |  |                          | (185,607 | ) |                          |   | (1,799   | )                        |  |   | (512    | )
|                                                                                  |  |                          |          |   |                          |   |          |                          |  |   |         |  
|Net cash used in investing activities                                             |  |                          | (227,069 | ) |                          |   | (24,357  | )                        |  |   | (23,112 | )
|                                                                                  |  |                          |          |   |                          |   |          |                          |  |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |                          |          |   |                          |   |          |                          |  |   |         |  
|Principal repayments under lease finance obligations                              |  |                          | (2,760   | ) |                          |   | (1,856   | )                        |  |   | (1,599  | )
|Principal repayments of long-term debt                                            |  |                          | (617,412 | ) |                          |   | (306,577 | )                        |  |   | (40,000 | )
|Proceeds from issuance of long-term debt                                          |  |                          | 675,000  |   |                          |   | 299,440  |                          |  |   |        |  
|Proceeds from issuance of lease finance obligations                               |  |                          | 97,104   |   |                          |   | 2,000    |                          |  |   | 2,799   |  
|Proceeds from exercise of stock options, net of repurchases                       |  |                          | 4,899    |   |                          |   |         |                          |  |   | (41     | )
|Repayment of shareholder loans                                                    |  |                          | 173      |   |                          |   | 535      |                          |  |   | 129     |  
|Other financing costs                                                             |  |                          | (11,760  | ) |                          |   | (7,257   | )                        |  |   | (935    | )
|                                                                                  |  |                          |          |   |                          |   |          |                          |  |   |         |  
|Net cash provided by (used in) financing activities                               |  |                          | 145,244  |   |                          |   | (13,715  | )                        |  |   | (39,647 | )
|                                                                                  |  |                          |          |   |                          |   |          |                          |  |   |         |  
|Net increase (decrease)                                                           |  |                          | 35,147   |   |                          |   | 30,665   |                          |  |   | (8,375  | )
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                    |  |                          | 72,901   |   |                          |   | 42,236   |                          |  |   | 50,611  |  
|                                                                                  |  |                          |          |   |                          |   |          |                          |  |   |         |  
|CASH AND CASH EQUIVALENTS AT END OF YEAR                                          |  | $                        | 108,048  |   |                          | $ | 72,901   |                          |  | $ | 42,236  |  
|                                                                                  |  |                          |          |   |                          |   |          |                          |  |   |         |  



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





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##### Table of Contents

SUPPLEMENTAL DISCLOSURE OF CASH FLOW

(Dollars in thousands)



|                                                     |  |                          |        |                          |   |        |                          |  |   |        |  
|---------------------------------------------------- |  | ------------------------ | ------ | ------------------------ | - | ------ | ------------------------ |  | - | ------ | -
|                                                     |  | Year Ended               |       
|                                                     |  | September 30,2004        |        | September 25,2003        |   |        | September 26,2002        | 
|                                                     |  | (As restated,see Note 2) |        | (As restated,see Note 2) |   |        | (As restated,see Note 2) | 
|Cash paid (refunded) during the year:                |  |                          |        |                          |   |        |                          |  |   |        |  
|Interest                                             |  | $                        | 55,572 |                          | $ | 51,569 |                          |  | $ | 50,656 |  
|                                                     |  |                          |        |                          |   |        |                          |  |   |        |  
|Taxes                                                |  | $                        | 62     |                          | $ | (214   | )                        |  | $ | (3,708 | )
|                                                     |  |                          |        |                          |   |        |                          |  |   |        |  
|Non-cash transactions:                               |  |                          |        |                          |   |        |                          |  |   |        |  
|Capital expenditures financed through capital leases |  | $                        |       |                          | $ | 1,943  |                          |  | $ | 2,103  |  
|                                                     |  |                          |        |                          |   |        |                          |  |   |        |  
|Accrued purchases of property and equipment          |  | $                        | 6,211  |                          | $ | 6,877  |                          |  | $ | 4,660  |  
|                                                     |  |                          |        |                          |   |        |                          |  |   |        |  



Other non-cash disclosure:



During fiscal 2004, warrants to purchase 2,346,000 shares
of common stock were exercised at a 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. Consequently, upon exercise 1,607,855 shares of common stock were issued.



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##### Table of Contents

THE PANTRY, INC.



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



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



The Pantry



Our consolidated financial statements include the
accounts of The Pantry, Inc. and its wholly-owned subsidiaries. Transactions and balances of each of our wholly-owned subsidiaries are immaterial to the consolidated financial statements. All intercompany transactions and balances have been
eliminated in consolidation. As of September 30, 2004, we own and operate 1,361 convenience stores in Florida (461), North Carolina (322), South Carolina (239), Tennessee (103), Georgia (98), Mississippi (51), Kentucky (37), Virginia (30), Indiana
(12), and Louisiana (8).



Accounting Period



We operate on a 52 or 53 week fiscal year ending on the last Thursday in
September. Fiscal 2004 operated on a 53 week basis and fiscal years 2003 and 2002 each operated on a 52 week basis.



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
weighted average method for gasoline inventories.



Property Held for Sale



Property is classified as a current asset when
managements intent is to sell these assets in the ensuing fiscal year and the criteria under Statement of Financial Accounting Standards (SFAS) No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets, are
met. The asset is then 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 we identify a store as one that we believe we can finance on a sale-leaseback transaction prior to developing a new store, or if we enter into such a transaction for our 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 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),
whichever is less, 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 valuations, 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 6Goodwill and Other Intangible Assets.



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 $7.5 million, $1.9 million and $383 thousand for asset impairments for certain real estate, leasehold improvements and store and gasoline equipment at certain underperforming stores for fiscal 2004, 2003 and
2002, respectively. We record asset impairment as a component of operating, general and administrative expenses.



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##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Revenue Recognition



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



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 and as the related inventories are sold.



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 Costs



Deferred financing costs represent expenses related to issuing our long-term
debt, obtaining our lines of credit and obtaining lease financing. See Note 7Long-Term Debt and Note 8Lease Finance Obligations. 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



We receive payments for vendor allowances, volume rebates
and other supply arrangements in connection with various programs. Our accounting practices with regard to some of our most significant arrangements are 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 our 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 our stores are recorded as a reduction of cost of
sales over the period covered by the agreement.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Some of these typical vendor rebate, credit and promotional allowance arrangements require that we 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. We routinely review the relevant, significant factors and make adjustments where the facts and circumstances dictate.



The amounts recorded as a reduction of cost of sales were $96.9 million, $92.6 million and $96.6 million for fiscal 2004,
2003 and 2002, respectively.



Environmental Costs



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 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 an appropriate rate. All other environmental costs are provided for on an undiscounted basis.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Amounts that are probable of reimbursement under state trust fund programs or third party insurers, based on our 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 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.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Income Taxes



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



Excise Taxes



We collect and remit various federal and state excise taxes on petroleum
products. Gasoline sales and cost of sales included excise taxes of approximately $550.6 million, $497.6 million, and $471.9 million for fiscal 2004, 2003 and 2002, respectively.



Advertising Costs



Advertising costs are expensed as incurred. Advertising expense was approximately $2.0 million, $2.1 million and $1.8 million for fiscal 2004, 2003 and
2002, respectively.



Stock-Based Compensation



Our stock option plans are described more fully in Note 17Stock
Options and Other Equity Instruments. We account for stock options under the intrinsic value method recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25,Accounting for Stock Issued to
Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, 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 and earnings per share for each of the periods presented if we had applied the fair value recognition provisions of SFAS No. 123,Accounting for Stock-Based Compensation, to
stock-based employee compensation:



|                                                                                                                   |  |               |        |   |               |   |        |               |  |   |       |  
|------------------------------------------------------------------------------------------------------------------ |  | ------------- | ------ | - | ------------- | - | ------ | ------------- |  | - | ----- | -
|                                                                                                                   |  | 2004          |        |   | 2003          |   |        | 2002          | 
|                                                                                                                   |  | (As restated) |        |   | (As restated) |   |        | (As restated) | 
|Net income (in thousands):                                                                                         |  |               |        |   |               |   |        |               |  |   |       |  
|As reported                                                                                                        |  | $             | 15,726 |   |               | $ | 11,131 |               |  | $ | 1,438 |  
|DeductTotal stock-based compensation expense determined under fair value method for all awards, net of income tax |  |               | (324   | ) |               |   | (287   | )             |  |   | (278  | )
|                                                                                                                   |  |               |        |   |               |   |        |               |  |   |       |  
|Pro forma                                                                                                          |  | $             | 15,402 |   |               | $ | 10,814 |               |  | $ | 1,160 |  
|                                                                                                                   |  |               |        |   |               |   |        |               |  |   |       |  
|Basic earnings per share:                                                                                          |  |               |        |   |               |   |        |               |  |   |       |  
|As reported                                                                                                        |  | $             | 0.80   |   |               | $ | 0.61   |               |  | $ | 0.08  |  
|Pro forma                                                                                                          |  | $             | 0.79   |   |               | $ | 0.60   |               |  | $ | 0.06  |  
|Diluted earnings per share:                                                                                        |  |               |        |   |               |   |        |               |  |   |       |  
|As reported                                                                                                        |  | $             | 0.76   |   |               | $ | 0.61   |               |  | $ | 0.08  |  
|Pro forma                                                                                                          |  | $             | 0.75   |   |               | $ | 0.59   |               |  | $ | 0.06  |  



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 for each of the periods presented:



|                                                                                |  |      |      |   |      |   |      |      |  |   |      |  
|------------------------------------------------------------------------------- |  | ---- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                                                                |  | 2004 |      |   | 2003 |   |      | 2002 | 
|Weighted-average grant date fair value                                          |  | $    | 6.48 |   |      | $ | 0.87 |      |  | $ | 1.71 |  
|Weighted-average expected lives (years)                                         |  |      | 2.00 |   |      |   | 2.00 |      |  |   | 2.00 |  
|Weighted-average grant date fair value-exercise price equals market price       |  | $    | 6.48 |   |      | $ | 0.87 |      |  | $ | 1.71 |  
|Weighted-average grant date fair value-exercise price greater than market price |  |      |     |   |      |   |     |      |  |   |     |  
|Risk-free interest rate                                                         |  |      | 1.8  | % |      |   | 1.8  | %    |  |   | 3.0  | %
|Expected volatility                                                             |  |      | 77   | % |      |   | 70   | %    |  |   | 60   | %
|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.



Segment
Reporting



We provide 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. Our chief operating decision maker believes we operate 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
our stores are homogeneous in product offerings.



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##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Reclassifications



Certain amounts in the fiscal 2003 and 2002 consolidated financial statements have been reclassified to conform to the
fiscal 2004 presentation. Amounts reclassified include a $2.9 million loss on extinguishment of debt, which was reclassified from operating, general and administrative expenses in our fiscal 2003 financial statements.



Recently Adopted Accounting Standards



No recent authoritative pronouncements that affect accounting, reporting,
and disclosure of financial information by us have occurred during the year ended September 30, 2004, other than the items described below.



In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation (FIN) 46, Consolidation of Variable
Interest Entitiesan Interpretation of ARB No. 51 (revised December 2003, FIN 46R). 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 was effective beginning in our second fiscal quarter ending March 25, 2004. We have no investment in or contractual relationship or other business relationship with a variable interest entity and therefore the adoption of FIN 46 did
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 46R to be a variable interest entity), our results of operations and financial condition may be impacted.



Recently Issued Accounting Standards



In March 2004, the FASB issued an exposure draft on Share-Based Payment. The proposed Statement addresses the accounting for transactions in
which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprises equity instruments or that may be settled by the issuance of such
equity instruments. This proposed Statement would eliminate the ability to account for share-based compensation transactions using APB Opinion No. 25,Accounting for Stock Issued to Employees, and generally would require instead that such
transactions be accounted for using a fair-value-based method. This Statement, if approved, was scheduled to be effective for awards that are granted, modified, or settled in periods beginning after December 15, 2004 for public entities. On October
16, 2004, the FASB delayed the effective date of this proposal by six months and anticipates it will be effective for the fourth quarter of fiscal 2005. Retrospective application of this Statement is not permitted. The adoption of this Statement, if
approved, could have an impact on our financial position or results of operations.



Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our financial
condition, results of operations or cash flows upon adoption.



NOTE
2RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS



On July 28, 2005, we announced our intention to restate the consolidated financial statements included in our Annual Report filed on Form 10-K for the fiscal year ended September 30, 2004, and our unaudited interim financial statements
included in our Quarterly Reports filed on Form 10-Q for the periods ended December 30, 2004 and March 31, 2005, to correct the accounting for certain sale-leaseback transactions entered into by the Company. The restatement is the result of our
determination that such transactions should have been accounted for as financing transactions rather than as sale-leaseback transactions. We had previously accounted for the leases included in these transactions primarily as operating leases. The
restatement recharacterizes the transactions as financing transactions, with the assets and related financing obligation carried on our balance sheet.



Below is a summary of the effects of the restatement on our consolidated balance sheet as of September 30, 2004 and September 25, 2003 (amounts in
thousands):



|                                                |  |                       |           |                    |   |         |             |  |                       |           |            |   |         |            |   |        |   |  |   |         |  
|----------------------------------------------- |  | --------------------- | --------- | ------------------ | - | ------- | ----------- |  | --------------------- | --------- | ---------- | - | ------- | ---------- | - | ------ | - |  | - | ------- | -
|                                                |  | September 30, 2004    |           | September 25, 2003 |  
|                                                |  | As PreviouslyReported |           | Adjustment         |   |         | As Restated |  | As PreviouslyReported |           | Adjustment |   |         | AsRestated |  
|Consolidated Balance Sheet:                     |  |                       |           |                    |   |         |             |  |                       |           |            |   |         |            |   |        |   |  |   |         |  
|Property and equipment, net                     |  | $                     | 411,501   |                    | $ | 170,741 |             |  | $                     | 582,242   |            | $ | 400,609 |            | $ | 78,248 |   |  | $ | 478,857 |  
|Total assets                                    |  |                       | 1,062,140 |                    |   | 170,741 |             |  |                       | 1,232,881 |            |   | 914,165 |            |   | 78,248 |   |  |   | 992,413 |  
|Current maturities of lease finance obligations |  |                       | 1,197     |                    |   | 1,577   |             |  |                       | 2,774     |            |   | 1,375   |            |   | 1,387  |   |  |   | 2,762   |  
|Lease finance obligations                       |  |                       | 14,582    |                    |   | 175,858 |             |  |                       | 190,440   |            |   | 15,779  |            |   | 80,331 |   |  |   | 96,110  |  
|Deferred income taxes                           |  |                       | 63,257    |                    |   | (2,325  | )           |  |                       | 60,932    |            |   | 50,015  |            |   | (1,181 | ) |  |   | 48,834  |  
|Other noncurrent liabilities                    |  |                       | 21,045    |                    |   | (1,110  | )           |  |                       | 19,935    |            |   | 15,922  |            |   | (857   | ) |  |   | 15,065  |  
|Total other liabilities                         |  |                       | 698,996   |                    |   | 172,423 |             |  |                       | 871,419   |            |   | 602,801 |            |   | 78,293 |   |  |   | 681,094 |  
|Accumulated earnings                            |  |                       | 18,897    |                    |   | (3,259  | )           |  |                       | 15,638    |            |   | 1,344   |            |   | (1,432 | ) |  |   | (88     | )
|Total shareholders equity                      |  |                       | 152,186   |                    |   | (3,259  | )           |  |                       | 148,927   |            |   | 128,665 |            |   | (1,432 | ) |  |   | 127,233 |  
|Total liabilities and shareholders equity      |  |                       | 1,062,140 |                    |   | 170,741 |             |  |                       | 1,232,881 |            |   | 914,165 |            |   | 78,248 |   |  |   | 992,413 |  



39



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##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Below is a summary of the effects of the restatement on our consolidated
statement of operations stating both previously reported and restated amounts for the fiscal years ended September 30, 2004, September 25, 2003, and September 26, 2002, respectively (amounts in thousands):



|                                                |  |                       |         |   |                    |   |         |            |  |   |                       |   |  |            |         |   |            |   |        |   |  |   |         |  
|----------------------------------------------- |  | --------------------- | ------- | - | ------------------ | - | ------- | ---------- |  | - | --------------------- | - |  | ---------- | ------- | - | ---------- | - | ------ | - |  | - | ------- | -
|                                                |  | September 30, 2004    |         |   | September 25, 2003 |  
|                                                |  | As PreviouslyReported |         |   | Adjustment         |   |         | AsRestated |  |   | As PreviouslyReported |   |  | Adjustment |         |   | AsRestated |  
|Consolidated Statement of Operations:           |  |                       |         |   |                    |   |         |            |  |   |                       |   |  |            |         |   |            |   |        |   |  |   |         |  
|Operating, general, and administrative expenses |  | $                     | 438,026 |   |                    | $ | (18,689 | )          |  | $ | 419,337               |   |  | $          | 382,682 |   |            | $ | (9,298 | ) |  | $ | 373,384 |  
|Depreciation and amortization                   |  |                       | 56,302  |   |                    |   | 4,609   |            |  |   | 60,911                |   |  |            | 54,403  |   |            |   | 1,364  |   |  |   | 55,767  |  
|Total operating expenses                        |  |                       | 494,328 |   |                    |   | (14,080 | )          |  |   | 480,248               |   |  |            | 437,085 |   |            |   | (7,934 | ) |  |   | 429,151 |  
|Income from operations                          |  |                       | 96,515  |   |                    |   | 14,080  |            |  |   | 110,595               |   |  |            | 73,719  |   |            |   | 7,934  |   |  |   | 81,653  |  
|Interest expense                                |  |                       | (47,206 | ) |                    |   | (17,051 | )          |  |   | (64,257               | ) |  |            | (49,265 | ) |            |   | (8,540 | ) |  |   | (57,805 | )
|Total other expenses                            |  |                       | (68,617 | ) |                    |   | (17,051 | )          |  |   | (85,668               | ) |  |            | (49,348 | ) |            |   | (8,540 | ) |  |   | (57,888 | )
|Income before income taxes                      |  |                       | 27,898  |   |                    |   | (2,971  | )          |  |   | 24,927                |   |  |            | 24,371  |   |            |   | (606   | ) |  |   | 23,765  |  
|Income tax expense                              |  |                       | (10,345 | ) |                    |   | 1,144   |            |  |   | (9,201                | ) |  |            | (9,385  | ) |            |   | 233    |   |  |   | (9,152  | )
|Net income                                      |  |                       | 17,553  |   |                    |   | (1,827  | )          |  |   | 15,726                |   |  |            | 11,504  |   |            |   | (373   | ) |  |   | 11,131  |  



|                                                |  |                       |         |   |            |   |        |             |  |   |         |  
|----------------------------------------------- |  | --------------------- | ------- | - | ---------- | - | ------ | ----------- |  | - | ------- | -
|                                                |  | September 26, 2002    |        
|                                                |  | As PreviouslyReported |         |   | Adjustment |   |        | As Restated | 
|Consolidated Statement of Operations:           |  |                       |         |   |            |   |        |             |  |   |         |  
|Operating, general, and administrative expenses |  | $                     | 367,299 |   |            | $ | (9,003 | )           |  | $ | 358,296 |  
|Depreciation and amortization                   |  |                       | 54,251  |   |            |   | 1,312  |             |  |   | 55,563  |  
|Total operating expenses                        |  |                       | 421,550 |   |            |   | (7,691 | )           |  |   | 413,859 |  
|Income from operations                          |  |                       | 53,852  |   |            |   | 7,691  |             |  |   | 61,543  |  
|Interest expense                                |  |                       | (51,646 | ) |            |   | (8,286 | )           |  |   | (59,932 | )
|Total other expenses                            |  |                       | (50,918 | ) |            |   | (8,286 | )           |  |   | (59,204 | )
|Income before income taxes                      |  |                       | 2,934   |   |            |   | (595   | )           |  |   | 2,339   |  
|Income tax expense                              |  |                       | (1,130  | ) |            |   | 229    |             |  |   | (901    | )
|Net income                                      |  |                       | 1,804   |   |            |   | (366   | )           |  |   | 1,438   |  



Below is a summary of
the effects of the restatement on our consolidated statement of cash flows stating both previously reported amounts and restated amounts for the fiscal years ended September 30, 2005, September 25, 2003 and September 26, 2002, respectively (amounts
in thousands):



|                                                    |  |                       |          |   |                    |   |         |             |  |   |                        |   |  |            |         |   |             |   |        |   |  |   |         |  
|--------------------------------------------------- |  | --------------------- | -------- | - | ------------------ | - | ------- | ----------- |  | - | ---------------------- | - |  | ---------- | ------- | - | ----------- | - | ------ | - |  | - | ------- | -
|                                                    |  | September 30, 2004    |          |   | September 25, 2003 |  
|                                                    |  | As PreviouslyReported |          |   | Adjustment         |   |         | As Restated |  |   | As Previously Reported |   |  | Adjustment |         |   | As Restated |  
|Consolidated Statement of Cash Flows:               |  |                       |          |   |                    |   |         |             |  |   |                        |   |  |            |         |   |             |   |        |   |  |   |         |  
|Net cash provided by operating activities           |  | $                     | 115,587  |   |                    | $ | 1,385   |             |  | $ | 116,972                |   |  | $          | 68,264  |   |             | $ | 473    |   |  | $ | 68,737  |  
|Net cash used in investing activities               |  |                       | (129,965 | ) |                    |   | (97,104 | )           |  |   | (227,069               | ) |  |            | (22,357 | ) |             |   | (2,000 | ) |  |   | (24,357 | )
|Net cash provided by (used in) financing activities |  |                       | 49,525   |   |                    |   | 95,719  |             |  |   | 145,244                |   |  |            | (15,242 | ) |             |   | 1,527  |   |  |   | (13,715 | )
|Net increase in cash and cash equivalents           |  |                       | 35,147   |   |                    |   |        |             |  |   | 35,147                 |   |  |            | 30,665  |   |             |   |       |   |  |   | 30,665  |  



|                                          |  |                       |         |   |            |   |        |             |  |   |         |  
|----------------------------------------- |  | --------------------- | ------- | - | ---------- | - | ------ | ----------- |  | - | ------- | -
|                                          |  | September 26, 2002    |        
|                                          |  | As PreviouslyReported |         |   | Adjustment |   |        | As Restated | 
|Consolidated Statement of Cash Flows:     |  |                       |         |   |            |   |        |             |  |   |         |  
|Net cash provided by operating activities |  | $                     | 53,984  |   |            | $ | 400    |             |  | $ | 54,384  |  
|Net cash used in investing activities     |  |                       | (20,313 | ) |            |   | (2,799 | )           |  |   | (23,112 | )
|Net cash used in financing activities     |  |                       | (42,046 | ) |            |   | 2,399  |             |  |   | (39,647 | )
|Net decrease in cash and cash equivalents |  |                       | (8,375  | ) |            |   |       |             |  |   | (8,375  | )



Also, this restatement
includes the addition of non-cash disclosures to the cash flow statement related to accrued purchases of property and equipment and the cashless exercise of warrants to purchase common stock.



40



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##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 3ACQUISITION OF RELATED BUSINESS



On October 16, 2003, we completed the acquisition of 138 convenience stores
operating in Tennessee and Georgia 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, the fuel hauling operation and the corporate headquarters buildings, we intend to use the acquired assets in the convenience store retail business. Simultaneous with the closing, we sold the dairy plant and related assets and the
fuel hauling operation to our existing suppliers.



The
acquisition was structured as two simultaneous transactions, whereby 114 of the 131 fee-owned stores were purchased and financed through a $94.5 million lease finance transaction, and the Golden Gallon®operations and the balance of the real estate assets were purchased with cash. We funded the second transaction with $80.0 million of
debt through borrowings under an amendment to our existing senior secured credit facility, see Note 7Long-Term Debt, and available cash.



The following purchase price allocations for the Golden Gallon®acquisition are based on the fair values on the date of the acquisition (amounts in thousands):



|                                                                       |  |   |         |  
|---------------------------------------------------------------------- |  | - | ------- | -
|Assets Acquired:                                                       |  |   |         |  
|Receivables                                                            |  | $ | 3,464   |  
|Inventories                                                            |  |   | 10,018  |  
|Prepaid expenses                                                       |  |   | 116     |  
|Property held for sale                                                 |  |   | 101,566 |  
|Property and equipment                                                 |  |   | 27,976  |  
|                                                                       |  |   |         |  
|Total assets                                                           |  |   | 143,140 |  
|Liabilities Assumed:                                                   |  |   |         |  
|Accounts payable                                                       |  |   | (11,436 | )
|Other accrued liabilities                                              |  |   | (12,731 | )
|                                                                       |  |   |         |  
|Total liabilities                                                      |  |   | (24,167 | )
|                                                                       |  |   |         |  
|Net tangible assets acquired                                           |  |   | 118,973 |  
|Trademarks                                                             |  |   | 2,800   |  
|Goodwill                                                               |  |   | 63,286  |  
|                                                                       |  |   |         |  
|Total consideration paid, including direct costs, net of cash acquired |  | $ | 185,059 |  
|                                                                       |  |   |         |  



The following
unaudited pro forma information presents a summary of our consolidated results of operations and the acquired assets as if the transaction occurred at the beginning of the fiscal year for each of the periods presented (amounts in thousands, except
per share data):



|                                                       |  |               |           |               |   |          
|------------------------------------------------------ |  | ------------- | --------- | ------------- | - | ---------
|                                                       |  | 2004          |           | 2003         
|                                                       |  | (As restated) |           | (As restated)
|Total revenues                                         |  | $             | 3,504,934 |               | $ | 3,158,941
|                                                       |  |              
|Net income before cumulative effect adjustment         |  |               | 15,754    |               |   | 24,318   
|Net income                                             |  |               | 15,754    |               |   | 20,836   
|Earnings per share before cumulative effect adjustment |  |               |           |               |   |          
|Basic                                                  |  | $             | 0.80      |               | $ | 1.34     
|Diluted                                                |  | $             | 0.76      |               | $ | 1.32     
|Earnings per share                                     |  |               |           |               |   |          
|Basic                                                  |  | $             | 0.80      |               | $ | 1.15     
|Diluted                                                |  | $             | 0.76      |               | $ | 1.13     



During fiscal 2004, we
also acquired one store located in South Carolina in a separate immaterial acquisition.



NOTE 4INVENTORIES



At September 30, 2004
and September 25, 2003, inventories consisted of the following (in thousands):



|                              |  |      |         |   |      |   |         |  
|----------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                              |  | 2004 |         |   | 2003 |  
|Inventories at FIFO cost:     |  |      |         |   |      |   |         |  
|Merchandise                   |  | $    | 75,292  |   |      | $ | 74,483  |  
|Gasoline                      |  |      | 29,881  |   |      |   | 20,996  |  
|                              |  |      |         |   |      |   |         |  
|                              |  |      | 105,173 |   |      |   | 95,479  |  
|Less adjustment to LIFO cost: |  |      |         |   |      |   |         |  
|Merchandise                   |  |      | (9,945  | ) |      |   | (11,323 | )
|                              |  |      |         |   |      |   |         |  
|Inventories at LIFO cost      |  | $    | 95,228  |   |      | $ | 84,156  |  
|                              |  |      |         |   |      |   |         |  



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##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The positive effect on cost of sales of LIFO inventory liquidations was $42
thousand, $1.2 million and $692 thousand for fiscal 2004, 2003, and 2002, respectively.



NOTE 5PROPERTY AND EQUIPMENT



At
September 30, 2004 and September 25, 2003, property and equipment consisted of the following (in thousands):



|                                               |  |               |          |   |               |   |          |  
|---------------------------------------------- |  | ------------- | -------- | - | ------------- | - | -------- | -
|                                               |  | 2004          |          |   | 2003          |  
|                                               |  | (As restated) |          |   | (As restated) |  
|Land                                           |  | $             | 159,932  |   |               | $ | 126,011  |  
|Buildings                                      |  |               | 232,656  |   |               |   | 174,731  |  
|Equipment                                      |  |               | 428,605  |   |               |   | 387,502  |  
|Leasehold improvements                         |  |               | 81,678   |   |               |   | 72,221   |  
|Construction in progress                       |  |               | 15,655   |   |               |   | 10,460   |  
|                                               |  |               |          |   |               |   |          |  
|                                               |  |               | 918,526  |   |               |   | 770,925  |  
|Lessaccumulated depreciation and amortization |  |               | (336,284 | ) |               |   | (292,068 | )
|                                               |  |               |          |   |               |   |          |  
|Property and equipment, net                    |  | $             | 582,242  |   |               | $ | 478,857  |  
|                                               |  |               |          |   |               |   |          |  



NOTE 6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.



The changes in the balance of goodwill for the years ended September 30, 2004 and September 25, 2003 consisted of the following (in thousands):



|                                  |  |      |         |      |   |        
|--------------------------------- |  | ---- | ------- | ---- | - | -------
|                                  |  | 2004 |         | 2003
|Beginning balance                 |  | $    | 278,629 |      | $ | 277,874
|Goodwill acquired during the year |  |      | 63,023  |      |   | 755    
|                                  |  |      |         |      |   |        
|Ending balance                    |  | $    | 341,652 |      | $ | 278,629
|                                  |  |      |         |      |   |        



We completed our
annual goodwill impairment test as of January 22, 2004 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. 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 and a trademark. At
September 30, 2004 and September 25, 2003, noncompete agreements consisted of the following (in thousands):



|                              |  |      |        |   |      |   |        |  
|----------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                              |  | 2004 |        |   | 2003 |  
|Gross carrying value          |  | $    | 7,959  |   |      | $ | 8,559  |  
|Lessaccumulated amortization |  |      | (1,766 | ) |      |   | (1,938 | )
|                              |  |      |        |   |      |   |        |  
|Noncompete agreements, net    |  | $    | 6,193  |   |      | $ | 6,621  |  
|                              |  |      |        |   |      |   |        |  



Amortization expense
related to noncompete agreements was $428 thousand, $626 thousand and $725 thousand for fiscal 2004, 2003 and 2002, respectively. The weighted average amortization period of all noncompete agreements is 29.2 years. Additionally, as a result of the
Golden Gallon®acquisition we recorded $2.8 million related to the trademark. This asset
was determined to have an indefinite useful life and therefore no amortization was recorded, see also Note 3Acquisition of Related Business. Estimated amortization expense for each of the five fiscal years following September 30, 2004 and
thereafter is: $351 thousand in fiscal 2005; $305 thousand in fiscal 2006; $206 thousand in fiscal 2007; $197 thousand in fiscal 2008; $197 thousand in fiscal 2009 and a total of $4.9 million thereafter. Other intangible assets are classified in
other noncurrent assets in the accompanying consolidated balance sheets.



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THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 7LONG-TERM DEBT



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



|                                                                                                                                                                                         |  |                   |         |   |                   |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                                                                                                         |  | September 30,2004 |         |   | September 25,2003 |  
|Senior subordinated notes payable; due February 19, 2014; interest payable semi-annually at 7.75%                                                                                        |  | $                 | 250,000 |   |                   | $ |        |  
|Senior subordinated notes payable; due October 15, 2007; interest payable semi-annually at 10.25%                                                                                        |  |                   |        |   |                   |   | 200,000 |  
|Senior Credit Facility; interest payable monthly at LIBOR plus 2.25%; principal due in quarterly installments through March 12,
2011                                                     |  |                   | 317,000 |   |                   |   |        |  
|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  |  
|Other notes payable; various interest rates and maturity dates                                                                                                                           |  |                   | 39      |   |                   |   | 98      |  
|                                                                                                                                                                                         |  |                   |         |   |                   |   |         |  
|Total long-term debt                                                                                                                                                                     |  |                   | 567,039 |   |                   |   | 497,569 |  
|Lesscurrent maturities                                                                                                                                                                  |  |                   | (16,029 | ) |                   |   | (27,558 | )
|                                                                                                                                                                                         |  |                   |         |   |                   |   |         |  
|Long-term debt, net of current maturities                                                                                                                                                |  | $                 | 551,010 |   |                   | $ | 470,011 |  
|                                                                                                                                                                                         |  |                   |         |   |                   |   |         |  



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. We incurred
approximately $7.2 million in costs associated with issuance of the new senior credit facility, which were deferred and will be amortized over the life of the new senior 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 and which is included in loss on extinguishment of debt (see Note 12Interest Expense and Loss on
Extinguishment of Debt).



On October 16, 2003, we entered into
an amendment to our then existing senior credit facility to increase the borrowing under the first lien term loan by $80.0 million. The proceeds from the amendment to the term loan were used to fund the Golden Gallon®acquisition. We incurred approximately $2.6 million in costs associated with the amendment, which
were deferred and amortized over the life of the loan agreement.



On February 19, 2004, we called for redemption all of our outstanding $200.0 million principal amount of 10.25% senior subordinated notes due 2007 and completed the sale of $250.0 million of our 7.75% senior subordinated notes due 2014. The
redemption was completed on March 22, 2004. We incurred approximately $6.6 million in costs associated with the sale of the new notes, which were deferred and will be amortized over the life of the new notes.



On March 12, 2004, we entered into an Amended and Restated Credit Agreement
(senior credit facility), which consists of a $345.0 million term loan that matures in March, 2011 and a $70.0 million revolving credit facility that expires in March, 2010, to replace all amounts outstanding under our previous senior
secured credit facility. The senior credit facility is available for refinancing certain existing indebtedness of our company, working capital financing and general corporate purposes. In addition, the revolving credit facility is available for
issuing commercial and standby letters of credit. We incurred approximately $2.2 million in costs associated with the amendment, which were deferred and will be amortized over the term of the loan agreement.



We recorded a loss on the redemption of our 10.25% senior subordinated notes
and refinancing of the senior credit facility of approximately $23.1 million (see Note 12Interest Expense and Loss on Extinguishment of Debt).



The senior secured credit facility contains various restrictive covenants including a 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 30, 2004, we were not in compliance with all covenants and restrictions related to all outstanding borrowings. As a result
of the restatement described in Note 2Restatement of Previously Issued Financial Statements, we recorded a lease finance obligation in excess of the amount allowed under our covenants. On August 5, 2005, we amended the loan agreement under our
senior credit facility to, among other things, eliminate the restriction on capital lease and other lease financing obligations and increase our leverage ratio requirement by 50 basis points. In addition, we received a waiver of the default caused
by a breach of the indebtedness and related covenants. The waiver and amendment brought us back into compliance with our covenants and restrictions under our senior credit facility.



Substantially all of our net assets are restricted as to payment of dividends and distributions.



On September 30, 2004, we amended our senior credit facility to reduce the
applicable margin for our LIBOR rate loans to 2.25%. We also amended the aggregate amount of incremental borrowing as permitted to $75.0 million. Simultaneous with this amendment, we paid $20.0 million toward the principal, which was applied to the
final principal payment due March 2011.



At September 30, 2004,
our senior credit facility consists of a $317.0 million term loan and a $70.0 million revolving credit facility, which bear interest at a rate of LIBOR plus 2.25%. Our senior credit facility is secured by substantially all of our assets, other than
our leased real property and is guaranteed by our subsidiaries. As of September 30, 2004, there were no outstanding borrowings under the revolving credit facility and we had approximately $34.8 million of standby letters of credit issued under the
facility. As a result, we had approximately $35.2 million in available borrowing capacity. Furthermore, the revolving credit facility limits our total outstanding letters of credit to $50.0 million. The LIBOR associated with our senior credit
facility resets periodically, and as of September 30, 2004, the effective LIBOR rate was 1.84.



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THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The remaining annual maturities of our long-term debt as of September 30,
2004 are as follows (amounts in thousands):



|                         |  |   |        
|------------------------ |  | - | -------
|Year Ended September:    |  |   |        
|2005                     |  | $ | 12,029 
|2006                     |  |   | 16,010 
|2007                     |  |   | 16,000 
|2008                     |  |   | 16,000 
|2009                     |  |   | 16,000 
|Thereafter               |  |   | 491,000
|                         |  |   |        
|Total principal payments |  | $ | 567,039
|                         |  |   |        



Payments due in fiscal
2005 do not include the $4.0 million payment due September 30, 2005 as this date is in fiscal 2006, however, this amount is included in current maturities of long-term debt on the balance sheet as it is due within one year of the balance sheet date.



The fair value of our indebtedness approximated $580.9 million
at September 30, 2004.



NOTE 8LEASE FINANCE OBLIGATIONS



We lease certain facilities under capital leases and
through sale-leaseback arrangements accounted for using the financing method. The net book values of assets under capital leases and sale-leasebacks accounted for under the financing method at September 30, 2004 and September 25, 2003 are summarized
as follows (amounts in thousands):



|                         |  |                   |         |   |                   |   |         |  
|------------------------ |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                         |  | September 30,2004 |         |   | September 25,2003 |  
|                         |  | (As restated)     |         |   | (As restated)     |  
|Land                     |  | $                 | 80,241  |   |                   | $ | 47,425  |  
|Buildings                |  |                   | 118,978 |   |                   |   | 60,711  |  
|Equipment                |  |                   | 5,004   |   |                   |   |        |  
|Accumulated Depreciation |  |                   | (20,722 | ) |                   |   | (15,632 | )
|                         |  |                   |         |   |                   |   |         |  
|                         |  | $                 | 183,501 |   |                   | $ | 92,504  |  
|                         |  |                   |         |   |                   |   |         |  



Following are the
minimum lease payments net of sublease income that will have to be made in each of the years indicated based on non-cancelable leases in effect as of September 30, 2004 (amounts in thousands):



|                                        |  |                         |         |                 |   |        
|--------------------------------------- |  | ----------------------- | ------- | --------------- | - | -------
|Fiscal year                             |  | LeaseFinanceObligations |         | OperatingLeases
|2005                                    |  | $                       | 22,506  |                 | $ | 45,566 
|2006                                    |  |                         | 22,392  |                 |   | 42,073 
|2007                                    |  |                         | 22,407  |                 |   | 39,448 
|2008                                    |  |                         | 22,233  |                 |   | 37,107 
|2009                                    |  |                         | 22,167  |                 |   | 33,278 
|Later years                             |  |                         | 275,531 |                 |   | 155,180
|                                        |  |                         |         |                 |   |        
|Total minimum lease payments            |  | $                       | 387,236 |                 | $ | 352,652
|                                        |  |                         |         |                 |   |        
|Amount representing interest            |  |                         | 194,022 |                 |   |        
|                                        |  |                         |         |                 |   |        
|Present value of minimum lease payments |  |                         | 193,214 |                 |   |        
|Less  current maturities               |  |                         | 2,774   |                 |   |        
|                                        |  |                         |         |                 |   |        
|                                        |  | $                       | 190,440 |                 |   |        
|                                        |  |                         |         |                 |   |        



Rental expense for
operating leases was approximately $54.3 million for each of fiscal 2004, 2003 and 2002. We have facility leases with step rent provisions, capital improvement funding, and other forms of lease concessions. In accordance with generally accepted
accounting principles, we record step rent provisions and lease concessions on a straight-line basis over the minimum lease term. Some of our leases require contingent rental payments; such amounts are not material for the fiscal years presented.



During fiscal 2004, 2003 and 2002, we entered into lease
finance obligations with unrelated parties with net proceeds of $97.1 million, $2.0 million and $2.8 million, respectively. The assets sold in these transactions consisted of newly constructed or acquired convenience stores. Included in the fiscal
2004 lease finance obligations is $94.5 million related to the Golden Gallon®transaction
(see Note 3Acquisition of Related Business). We retained ownership of all personal property and gasoline marketing equipment at these locations.



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THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 9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, 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 (loss). To the extent there is any hedge ineffectiveness, 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 $1.3 million, $3.4 million, and $(926) thousand for fiscal 2004, 2003 and 2002, 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 30, 2004 other noncurrent liabilities included derivative liabilities of approximately $700 thousand and other noncurrent assets include derivative assets of approximately $600 thousand. At September 25, 2003, other
accrued liabilities and other noncurrent liabilities include derivative liabilities of $1.5 million and $1.4 million, respectively. Cash flow hedges at September 30, 2004 have various settlement dates, the latest of which are April 2006 interest
rate swaps with a notional amount of $202.0 million that have a weighted average pay rate of 2.72%.



NOTE 10COMPREHENSIVE INCOME (DEFICIT)



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



|                                                                                                                       |  |      |     |      |   |      |  
|---------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | ---- | - | ---- | -
|                                                                                                                       |  | 2004 |     | 2003 |  
|Unrealized gains/(losses) on qualifying cash flow hedges (net of related income taxes of $(129) and $432 respectively) |  |      | 206 |      |   | (690 | )
|                                                                                                                       |  |      |     |      |   |      |  
|Accumulated other comprehensive income/(deficit)                                                                       |  | $    | 206 |      | $ | (690 | )
|                                                                                                                       |  |      |     |      |   |      |  



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



|                                                                                                                               |  |      |     |      |   |       |  |   |      
|------------------------------------------------------------------------------------------------------------------------------ |  | ---- | --- | ---- | - | ----- |  | - | -----
|                                                                                                                               |  | 2004 |     | 2003 |   | 2002 
|Amortization of cumulative effect of adoption of SFAS No. 133 (net of deferred income taxes of $, $93 and $135,
respectively) |  | $    |    |      | $ | 158   |  | $ | 205  
|Net unrealized gains on qualifying cash flow hedges (net of deferred income taxes of $561, $708 and $1,292, respectively)      |  |      | 896 |      |   | 1,264 |  |   | 1,966
|                                                                                                                               |  |      |     |      |   |       |  |   |      
|Other comprehensive income                                                                                                     |  | $    | 896 |      | $ | 1,422 |  | $ | 2,171
|                                                                                                                               |  |      |     |      |   |       |  |   |      



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



|                                                               |  |      |        |   |      |   |        |      |  |   |        |  
|-------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                               |  | 2004 |        |   | 2003 |   |        | 2002 | 
|Unrealized gains on qualifying cash flow hedges                |  | $    | 2,169  |   |      | $ | 3,272  |      |  | $ | 5,465  |  
|Less: Reclassification adjustment recorded as interest expense |  |      | (1,273 | ) |      |   | (2,008 | )    |  |   | (3,499 | )
|                                                               |  |      |        |   |      |   |        |      |  |   |        |  
|Net unrealized gains on qualifying cash flow hedges            |  | $    | 896    |   |      | $ | 1,264  |      |  | $ | 1,966  |  
|                                                               |  |      |        |   |      |   |        |      |  |   |        |  



NOTE 11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.



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 ranging from approximately 7.3% to 9.3%. 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.



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THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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 income tax benefit of $2.2 million).



We reviewed our estimate of this liability during the quarter ended September
30, 2004 due to changes in the estimate of future underground storage tank removal costs. The change in estimate resulted in an increase of $3.8 million to the carrying amount of the liability and the carrying amount of the related long-lived
assets. Since this revision is a change in estimates, we will depreciate the asset and amortize the liability over the remaining useful life of the related underground storage tanks.



A reconciliation of the changes in our liability is as follows (amounts in thousands):



|                                   |  |      |        |   |      |   |       |  
|---------------------------------- |  | ---- | ------ | - | ---- | - | ----- | -
|                                   |  | 2004 |        |   | 2003 |  
|Beginning balance                  |  | $    | 9,240  |   |      | $ | 8,443 |  
|Liabilities incurred               |  |      | 3,862  |   |      |   | 191   |  
|Liabilities assumed  acquisitions |  |      | 1,236  |   |      |   |      |  
|Liabilities settled                |  |      | (376   | ) |      |   | (159  | )
|Accretion expense                  |  |      | 856    |   |      |   | 765   |  
|                                   |  |      |        |   |      |   |       |  
|Ending balance                     |  | $    | 14,818 |   |      | $ | 9,240 |  
|                                   |  |      |        |   |      |   |       |  



NOTE 12INTEREST EXPENSE AND
LOSS ON EXTINGUISHMENT OF DEBT



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



|                                                                               |  |               |        |   |               |   |        |               |  |   |       
|------------------------------------------------------------------------------ |  | ------------- | ------ | - | ------------- | - | ------ | ------------- |  | - | ------
|                                                                               |  | 2004          |        |   | 2003          |   |        | 2002         
|                                                                               |  | (As restated) |        |   | (As restated) |   |        | (As restated)
|Interest on long-term debt, including amortization of deferred financing costs |  | $             | 43,180 |   |               | $ | 41,572 |               |  | $ | 39,577
|Interest on lease finance obligations                                          |  |               | 19,259 |   |               |   | 10,821 |               |  |   | 10,475
|Interest rate swap settlements                                                 |  |               | 3,427  |   |               |   | 8,470  |               |  |   | 8,840 
|Fair market value change in non-qualifying derivatives                         |  |               | (1,312 | ) |               |   | (3,381 | )             |  |   | 926   
|Miscellaneous                                                                  |  |               | (297   | ) |               |   | 323    |               |  |   | 114   
|                                                                               |  |               |        |   |               |   |        |               |  |   |       
|Subtotal: Interest expense                                                     |  | $             | 64,257 |   |               | $ | 57,805 |               |  | $ | 59,932
|Loss on debt extinguishment                                                    |  |               | 23,087 |   |               |   | 2,888  |               |  |   |      
|                                                                               |  |               |        |   |               |   |        |               |  |   |       
|Total interest expense and loss on extinguishment of debt                      |  | $             | 87,344 |   |               | $ | 60,693 |               |  | $ | 59,932
|                                                                               |  |               |        |   |               |   |        |               |  |   |       



The loss on debt
extinguishment in fiscal year 2004 relates to the redemption of our $200 million 10.25% senior subordinated notes and the refinancing of the senior credit facility. The loss includes the write-off of the unamortized portion of deferred financing
costs of $11.8 million, the call premium on the senior subordinated notes of $6.8 million, the call premium on the second lien term loan of $1.0 million, and the write-off of the unamortized original issue discount on the senior credit facility of
$3.5 million.



The loss on debt extinguishment during fiscal
year 2003 relates to the April 14, 2003 refinancing of our senior credit facility. In connection with this refinancing, we recorded a non-cash charge of $2.9 million related to the write-off of the unamortized portion of deferred financing charges
associated with the previous credit facility.



NOTE 13INCOME TAXES



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



|          |  |               |       |               |   |               |  |   |    
|--------- |  | ------------- | ----- | ------------- | - | ------------- |  | - | ---
|          |  | 2004          |       | 2003          |   | 2002         
|          |  | (As restated) |       | (As restated) |   | (As restated)
|Current:  |  |               |       |               |   |               |  |   |    
|Federal   |  | $             | 272   |               | $ |              |  | $ |   
|State     |  |               | 4     |               |   |              |  |   |   
|          |  |               |       |               |   |               |  |   |    
|          |  | $             | 276   |               | $ |              |  | $ |   
|          |  |               |       |               |   |               |  |   |    
|Deferred: |  |               |       |               |   |               |  |   |    
|Federal   |  | $             | 7,882 |               | $ | 8,082         |  | $ | 796
|State     |  |               | 1,043 |               |   | 1,070         |  |   | 105
|          |  |               |       |               |   |               |  |   |    
|          |  |               | 8,925 |               |   | 9,152         |  |   | 901
|          |  |               |       |               |   |               |  |   |    
|          |  | $             | 9,201 |               | $ | 9,152         |  | $ | 901
|          |  |               |       |               |   |               |  |   |    



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THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



As of September 30, 2004 and September 25, 2003, deferred income tax
(liabilities) and assets are comprised of the following (in thousands):



|                                      |  |               |         |   |               |   |         |  
|------------------------------------- |  | ------------- | ------- | - | ------------- | - | ------- | -
|                                      |  | 2004          |         |   | 2003          |  
|                                      |  | (As restated) |         |   | (As restated) |  
|Property and equipment                |  | $             | (58,761 | ) |               | $ | (66,360 | )
|Inventories                           |  |               | (3,335  | ) |               |   | (3,430  | )
|Amortization of intangibles           |  |               | (25,303 | ) |               |   | (15,275 | )
|Environmental                         |  |               | (1,533  | ) |               |   | (824    | )
|Other                                 |  |               | (2,781  | ) |               |   | (67     | )
|                                      |  |               |         |   |               |   |         |  
|Gross deferred income tax liabilities |  |               | (91,713 | ) |               |   | (85,956 | )
|                                      |  |               |         |   |               |   |         |  
|Accrued insurance                     |  |               | 6,534   |   |               |   | 4,634   |  
|Asset retirement obligation           |  |               | 3,024   |   |               |   | 2,180   |  
|Deferred revenue                      |  |               | 10,602  |   |               |   | 7,565   |  
|Reserve for closed stores             |  |               | 2,128   |   |               |   | 1,382   |  
|Impairment of long lived assets       |  |               | 1,924   |   |               |   |        |  
|Other                                 |  |               | 4,565   |   |               |   | 4,865   |  
|                                      |  |               |         |   |               |   |         |  
|Gross deferred income tax assets      |  |               | 28,777  |   |               |   | 20,626  |  
|                                      |  |               |         |   |               |   |         |  
|Net operating loss carryforwards      |  |               | 5,612   |   |               |   | 17,065  |  
|General business credits              |  |               | 1,239   |   |               |   | 1,024   |  
|AMT credits                           |  |               | 2,660   |   |               |   | 2,741   |  
|                                      |  |               |         |   |               |   |         |  
|Net deferred income tax liability     |  | $             | (53,425 | ) |               | $ | (44,500 | )
|                                      |  |               |         |   |               |   |         |  



As of September 30,
2004 and September 25, 2003, net current deferred income tax assets totaled $7.5 million and $4.3 million, respectively, and net noncurrent deferred income tax liabilities totaled $60.9 million and $48.8 million, respectively.



Reconciliations of income taxes at the federal statutory rate (34%) to actual
income tax expense for each of the periods presented are as follows (in thousands):



|                                                      |  |               |       |   |               |   |               |  |   |    
|----------------------------------------------------- |  | ------------- | ----- | - | ------------- | - | ------------- |  | - | ---
|                                                      |  | 2004          |       |   | 2003          |   | 2002         
|                                                      |  | (As restated) |       |   | (As restated) |   | (As restated)
|Tax expense at Federal statutory rate                 |  | $             | 8,475 |   |               | $ | 8,080         |  | $ | 795
|Tax expense at state rate, net of federal tax expense |  |               | 983   |   |               |   | 899           |  |   | 83 
|Permanent differences:                                |  |               |       |   |               |   |               |  |   |    
|Other permanent items, net                            |  |               | (257  | ) |               |   | 173           |  |   | 23 
|                                                      |  |               |       |   |               |   |               |  |   |    
|Net income tax expense                                |  | $             | 9,201 |   |               | $ | 9,152         |  | $ | 901
|                                                      |  |               |       |   |               |   |               |  |   |    



As of September 30,
2004, we had net operating loss carryforwards, general business credits and alternative minimum tax (AMT) credits that can be used to offset future federal income taxes. The benefit of these carryforwards is recognized as a deferred income tax
asset. Loss carryforwards as of September 30, 2004 have the following expiration dates (in thousands):



|                        |  |         |        |       |   |       
|----------------------- |  | ------- | ------ | ----- | - | ------
|Year of Expiration      |  | Federal |        | State
|2014                    |  | $       |       |       | $ | 846   
|2015                    |  |         |       |       |   | 3,179 
|2016                    |  |         |       |       |   | 3,847 
|2017                    |  |         |       |       |   | 2,891 
|2018                    |  |         |       |       |   | 3,515 
|2019                    |  |         |       |       |   | 2,470 
|2020                    |  |         |       |       |   | 2,836 
|2021                    |  |         |       |       |   | 1,774 
|2022                    |  |         | 10,419 |       |   | 2,443 
|                        |  |         |        |       |   |       
|Total loss carryforward |  | $       | 10,419 |       | $ | 23,801
|                        |  |         |        |       |   |       



47



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##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 14COMMITMENTS AND CONTINGENCIES



As of September 30, 2004, we were contingently liable for outstanding
letters of credit in the amount of $34.8 million related primarily to several areas in which we are self-insured. The letters of credit are not to be drawn against unless we default on the timely payment of related liabilities.



We are 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 30, 2004, other accrued
liabilities and other noncurrent liabilities include the unamortized liabilities associated with these payments of $5.2 million and $35.1 million, respectively. At September 25, 2003, other accrued liabilities and other noncurrent liabilities
include the unamortized liabilities associated with these payments of $7.7 million and $37.3 million, respectively.



McLane Company, Inc. (McLane)We purchase over 50% of our general merchandise from a single wholesaler, McLane. Our 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. We receive annual service allowances based on the number of stores operating on each contract anniversary date.
If we were to default under the contract or terminate the distribution service agreement prior to October 10, 2008, we 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 and recognized as a reduction to cost of goods sold
on a straight-line method over the life of the agreement.



Major Oil Companies We have entered into product brand imaging agreements with numerous oil companies to buy gasoline at market prices. These contracts range in length from three to ten years. In connection with these agreements, we
may receive upfront vendor allowances, volume incentive payments and other vendor assistance payments. If we were to default under the terms of any contract or terminate the supply agreement prior to the end of the initial term, we 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 and recognized as a
reduction 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 September 30, 2004, we maintain letters of credit in the aggregate amount of approximately $1.3 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 for releases occurring through December 31, 1998 and meet such requirements for releases thereafter through private commercial liability insurance. In Georgia, we meet our financial responsibility requirements by state trust fund
coverage for releases occurring through December 29, 1999 and meet such requirements for releases thereafter through private commercial liability insurance and a letter of credit.



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;
| | - |  | -----------------------------------------



| |  |  | 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;
| | - |  | ------------------------





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THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)





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



Environmental reserves of $14.1 million and $13.8 million as of September 30, 2004 and September 25, 2003, respectively, represent our estimates for future expenditures for remediation, tank removal and litigation
associated with 251 and 236 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 $13.1 million of our environmental obligations will be funded by state trust funds and third party insurance; as a result, we may spend up to $1.0 million for remediation, tank removal and litigation. Also, as of
September 30, 2004 and September 25, 2003, there were an additional 503 and 487 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 with remediation costs based on internal and external estimates for
each site. Future remediation for which the timing of payments can be reasonably estimated are discounted using an appropriate rate to determine the reserve. The undiscounted amount of future estimated payments for which we do not expect to be
reimbursed for each of the five fiscal years and thereafter at September 30, 2004 and other cost amounts covered by responsible third parties are as follows (in thousands):



|                                                        |  |                  |        |  
|------------------------------------------------------- |  | ---------------- | ------ | -
|Fiscal Year                                             |  | ExpectedPayments |       
|2005                                                    |  | $                | 517    |  
|2006                                                    |  |                  | 517    |  
|2007                                                    |  |                  | 391    |  
|2008                                                    |  |                  | 185    |  
|2009                                                    |  |                  | 46     |  
|Thereafter                                              |  |                  | 68     |  
|                                                        |  |                  |        |  
|Total undiscounted amounts not covered by a third party |  |                  | 1,724  |  
|Other current cost amounts                              |  |                  | 15,446 |  
|Amount representing interest                            |  |                  | (3,119 | )
|                                                        |  |                  |        |  
|Environmental reserves                                  |  | $                | 14,051 |  
|                                                        |  |                  |        |  



We anticipate that we
will be reimbursed for expenditures from state trust funds and private insurance. As of September 30, 2004, anticipated reimbursements of $15.1 million are recorded as long-term environmental receivables and $3.2 million are recorded as current
receivables related to all sites. 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. We will perform remediation in other states through independent contractor firms engaged by us. 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 we are not aware of releases or contamination at other locations where we currently operate or have 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 us as to responsibility for clean up
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.



NOTE 15BENEFIT PLANS



We sponsor 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 us on the basis of 50% of the first 5% contributed. Matching contribution expense was $709 thousand, $731 thousand and $719 thousand for fiscal 2004, 2003 and 2002, respectively.



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THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 16COMMON STOCK



On June 8, 1999, we completed an initial public offering of 6,250,000 shares
of our 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 & Co. (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). Prior to fiscal 2004, Freeman Spogli had purchased an additional 2,466,014 shares from other stockholders. On December 9, 2003,
Freeman Spogli exercised the 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, upon
exercise, Freeman Spogli received 1,607,855 shares of common stock. As there were no cash proceeds from the warrant exercise, we recorded the par value of the common stock issued with a corresponding reduction in additional paid-in capital.



During January, 2004 we completed a secondary stock offering
in which Freeman Spogli and other selling stockholders sold 5,750,000 shares at a public offering price of $20.00 per share, reducing Freeman Spoglis beneficial ownership to approximately 38.2% of our outstanding common stock.



NOTE 17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 our 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.



A summary of the status of the plans for the three fiscal years ended
September 30, 2004, September 25, 2003, and September 26, 2002 and changes during the years ending on those dates is as follows:



|                                                |  |           |   |  |                       |             |                                         |   |      
|----------------------------------------------- |  | --------- | - |  | --------------------- | ----------- | --------------------------------------- | - | -----
|                                                |  | Shares    |   |  | Option Priceper Share |             | WeightedAverage ExercisePrice per Share
|September 27, 2001 (709,538 shares exercisable) |  | 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
|                                                |  |           |   |  |                       |             |                                         |   |      
|September 26, 2002 (670,558 shares exercisable) |  | 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 
|                                                |  |           |   |  |                       |             |                                         |   |      
|September 25, 2003 (455,544 shares exercisable) |  | 1,305,892 |   |  |                       | 4.00-13.00  |                                         |   | 6.85 
|                                                |  |           |  
|Options granted                                 |  | 244,000   |   |  |                       | 14.80-19.95 |                                         |   | 15.33
|Options forfeited                               |  | (56,834   | ) |  |                       | 1.70-14.80  |                                         |   | 6.74 
|Options exercised                               |  | (556,305  | ) |  |                       | 1.70-13.00  |                                         |   | 8.81 
|                                                |  |           |   |  |                       |             |                                         |   |      
|September 30, 2004                              |  | 936,753   |   |  | $                     | 1.66-$19.95 |                                         | $ | 7.90 
|                                                |  |           |   |  |                       |             |                                         |   |      



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THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table summarizes information about stock options outstanding at
September 30, 2004:



|               |  |                 |       |                                       |         |                                             |         |                               |        
|-------------- |  | --------------- | ----- | ------------------------------------- | ------- | ------------------------------------------- | ------- | ----------------------------- | -------
|Date Granted   |  | Exercise Prices |       | Number Outstanding September 30, 2004 |         | Weighted-Average Remaining Contractual Life |         | Number of Options Exercisable
|1/15/98        |  | $               | 8.82  |                                       | 207,111 |                                             | 3 years |                               | 207,111
|8/31/98        |  |                 | 11.27 |                                       | 57      |                                             | 4 years |                               | 57     
|6/8/99,9/30/99 |  |                 | 13.00 |                                       | 41,100  |                                             | 2 years |                               | 41,100 
|12/29/00       |  |                 | 10.00 |                                       | 31,600  |                                             | 3 years |                               | 31,600 
|11/26/01       |  |                 | 5.12  |                                       | 76,143  |                                             | 4 years |                               | 50,762 
|3/26/02        |  |                 | 4.00  |                                       | 20,000  |                                             | 5 years |                               | 13,333 
|10/22/02       |  |                 | 1.66  |                                       | 20,000  |                                             | 5 years |                               | 6,667  
|11/13/02       |  |                 | 1.70  |                                       | 244,742 |                                             | 5 years |                               | 81,581 
|1/6/03         |  |                 | 3.97  |                                       | 35,000  |                                             | 5 years |                               | 11,667 
|3/25/03        |  |                 | 4.50  |                                       | 25,000  |                                             | 6 years |                               | 8,333  
|7/23/03        |  |                 | 8.09  |                                       | 10,000  |                                             | 6 years |                               | 3,333  
|10/22/03       |  |                 | 14.80 |                                       | 201,000 |                                             | 6 years |                               |       
|3/31/04        |  |                 | 19.95 |                                       | 25,000  |                                             | 7 years |                               |       
|               |  |                 |       |                                       |         |                                             |         |                               |        
|Total          |  | 936,753         |       |                                       |         | 455,544                                    
|               |  |                 |       |                                       |         |                                             |         |                               |        



As of September 30,
2004 we have approximately 3.5 million shares available for stock option grants.



NOTE 18EARNINGS 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 (amounts in thousands, except per share
data):



|                                                                  |  |      |        |      |   |        |      |  |   |       
|----------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------ | ---- |  | - | ------
|                                                                  |  | 2004 |        | 2003 |   |        | 2002
|Income before cumulative effect adjustment                        |  | $    | 15,726 |      | $ | 14,613 |      |  | $ | 1,438 
|Cumulative effect adjustment                                      |  |      |       |      |   | (3,482 | )    |  |   |      
|                                                                  |  |      |        |      |   |        |      |  |   |       
|Net income                                                        |  | $    | 15,726 |      | $ | 11,131 |      |  | $ | 1,438 
|                                                                  |  |      |        |      |   |        |      |  |   |       
|Earnings per sharebasic:                                         |  |      |        |      |   |        |      |  |   |       
|Weighted average shares outstanding                               |  |      | 19,606 |      |   | 18,108 |      |  |   | 18,108
|                                                                  |  |      |        |      |   |        |      |  |   |       
|Income per share before cumulative effect adjustmentbasic        |  | $    | 0.80   |      | $ | 0.81   |      |  | $ | 0.08  
|Loss per share on cumulative effect adjustmentbasic              |  |      |       |      |   | (0.19  | )    |  |   |      
|                                                                  |  |      |        |      |   |        |      |  |   |       
|Earnings per sharebasic                                          |  | $    | 0.80   |      | $ | 0.61   |      |  | $ | 0.08  
|                                                                  |  |      |        |      |   |        |      |  |   |       
|Earnings per sharediluted:                                       |  |      |        |      |   |        |      |  |   |       
|Weighted average shares outstanding                               |  |      | 19,606 |      |   | 18,108 |      |  |   | 18,108
|Dilutive impact of options and warrants outstanding               |  |      | 1,063  |      |   | 262    |      |  |   | 1     
|                                                                  |  |      |        |      |   |        |      |  |   |       
|Weighted average shares and potential dilutive shares outstanding |  |      | 20,669 |      |   | 18,370 |      |  |   | 18,109
|                                                                  |  |      |        |      |   |        |      |  |   |       
|Income per share before cumulative effect adjustmentdiluted      |  | $    | 0.76   |      | $ | 0.80   |      |  | $ | 0.08  
|Loss per share on cumulative effect adjustmentdiluted            |  |      |       |      |   | (0.19  | )    |  |   |      
|                                                                  |  |      |        |      |   |        |      |  |   |       
|Earnings per sharediluted                                        |  | $    | 0.76   |      | $ | 0.61   |      |  | $ | 0.08  
|                                                                  |  |      |        |      |   |        |      |  |   |       



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 and 3.4 million for fiscal 2003 and 2002, respectively.





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THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 19QUARTERLY FINANCIAL DATA (unaudited)



Summary quarterly financial data for fiscal 2004 and 2003, respectively, is
as follows (dollars in thousands, except per share amounts):



|                                           |  |                      |   |  |                  |   |  |            |   |  |                      |   |  |            |   |  |            |  
|------------------------------------------ |  | -------------------- | - |  | ---------------- | - |  | ---------- | - |  | -------------------- | - |  | ---------- | - |  | ---------- | -
|                                           |  | Fiscal Year 2004     |   |  | Fiscal Year 2003 |  
|First Quarter                              |  | AsPreviouslyReported |   |  | Adjustment       |   |  | AsRestated |   |  | AsPreviouslyReported |   |  | Adjustment |   |  | AsRestated |  
|Total revenue                              |  | 744,441              |   |  |                 |   |  | 744,441    |   |  | 645,353              |   |  |           |   |  | 645,353    |  
|Gross profit                               |  | 140,110              |   |  |                 |   |  | 140,110    |   |  | 125,991              |   |  |           |   |  | 125,991    |  
|Income (loss) before income taxes          |  | 8,029                |   |  | (667             | ) |  | 7,362      |   |  | 8,004                |   |  | (149       | ) |  | 7,855      |  
|Income before cumulative effect adjustment |  | 4,937                |   |  | (410             | ) |  | 4,527      |   |  | 4,920                |   |  | (92        | ) |  | 4,828      |  
|Cumulative effect adjustment, net of tax   |  |                     |   |  |                 |   |  |           |   |  | (3,482               | ) |  |           |   |  | (3,482     | )
|Net income (loss)                          |  | 4,937                |   |  | (410             | ) |  | 4,527      |   |  | 1,438                |   |  | (92        | ) |  | 1,346      |  
|                                           |  |                      |   |  |                  |   |  |            |   |  |                      |   |  |            |   |  |            |  
|Basic:                                     |  |                      |   |  |                  |   |  |            |   |  |                      |   |  |            |   |  |            |  
|Income before cumulative effect adjustment |  | 0.27                 |   |  | (0.02            | ) |  | 0.25       |   |  | 0.27                 |   |  | (0.01      | ) |  | 0.27       |  
|Cumulative effect adjustment               |  |                     |   |  |                 |   |  |           |   |  | (0.19                | ) |  |           |   |  | (0.19      | )
|Net income (loss)                          |  | 0.27                 |   |  | (0.02            | ) |  | 0.25       |   |  | 0.08                 |   |  | (0.01      | ) |  | 0.07       |  
|Diluted:                                   |  |                      |   |  |                  |   |  |            |   |  |                      |   |  |            |   |  |            |  
|Income before cumulative effect adjustment |  | 0.24                 |   |  | (0.02            | ) |  | 0.22       |   |  | 0.27                 |   |  | (0.01      | ) |  | 0.27       |  
|Cumulative effect adjustment               |  |                     |   |  |                 |   |  |           |   |  | (0.19                | ) |  |           |   |  | (0.19      | )
|Net income (loss)                          |  | 0.24                 |   |  | (0.02            | ) |  | 0.22       |   |  | 0.08                 |   |  | (0.01      | ) |  | 0.07       |  
|                                           |  |                      |   |  |                  |  
|Second Quarter                             |  | AsPreviouslyReported |   |  | Adjustment       |   |  | AsRestated |   |  | AsPreviouslyReported |   |  | Adjustment |   |  | AsRestated |  
|Total revenue                              |  | 786,353              |   |  |                 |   |  | 786,353    |   |  | 666,697              |   |  |           |   |  | 666,697    |  
|Gross profit                               |  | 133,227              |   |  |                 |   |  | 133,227    |   |  | 113,129              |   |  |           |   |  | 113,129    |  
|Income (loss) before income taxes          |  | (22,897              | ) |  | (773             | ) |  | (23,670    | ) |  | (3,827               | ) |  | (154       | ) |  | (3,981     | )
|Income before cumulative effect adjustment |  | (14,082              | ) |  | (476             | ) |  | (14,558    | ) |  | (2,353               | ) |  | (95        | ) |  | (2,448     | )
|Cumulative effect adjustment, net of tax   |  |                     |   |  |                 |   |  |           |   |  |                     |   |  |           |   |  |           |  
|Net income (loss)                          |  | (14,082              | ) |  | (476             | ) |  | (14,558    | ) |  | (2,353               | ) |  | (95        | ) |  | (2,448     | )
|Basic and diluted:                         |  |                      |   |  |                  |   |  |            |   |  |                      |   |  |            |   |  |            |  
|Income before cumulative effect adjustment |  | (0.71                | ) |  | (0.02            | ) |  | (0.74      | ) |  | (0.13                | ) |  | (0.01      | ) |  | (0.14      | )
|Cumulative effect adjustment               |  |                     |   |  |                 |   |  |           |   |  |                     |   |  |           |   |  |           |  
|Net loss                                   |  | (0.71                | ) |  | (0.02            | ) |  | (0.74      | ) |  | (0.13                | ) |  | (0.01      | ) |  | (0.14      | )
|                                           |  |                      |   |  |                  |  
|Third Quarter                              |  | AsPreviouslyReported |   |  | Adjustment       |   |  | AsRestated |   |  | AsPreviouslyReported |   |  | Adjustment |   |  | AsRestated |  
|                                           |  |                      |   |  |                  |   |  |            |   |  |                      |   |  |            |   |  |            |  
|Total revenue                              |  | 928,327              |   |  |                 |   |  | 928,327    |   |  | 704,486              |   |  |           |   |  | 704,486    |  
|Gross profit                               |  | 153,710              |   |  |                 |   |  | 153,710    |   |  | 135,017              |   |  |           |   |  | 135,017    |  
|Income (loss) before income taxes          |  | 22,234               |   |  | (768             | ) |  | 21,466     |   |  | 9,894                |   |  | (152       | ) |  | 9,742      |  
|Income before cumulative effect adjustment |  | 13,674               |   |  | (472             | ) |  | 13,202     |   |  | 6,085                |   |  | (93        | ) |  | 5,992      |  
|Cumulative effect adjustment, net of tax   |  |                     |   |  |                 |   |  |           |   |  |                     |   |  |           |   |  |           |  
|Net income (loss)                          |  | 13,674               |   |  | (472             | ) |  | 13,202     |   |  | 6,085                |   |  | (93        | ) |  | 5,992      |  
|Basic:                                     |  |                      |   |  |                  |   |  |            |   |  |                      |   |  |            |   |  |            |  
|Income before cumulative effect adjustment |  | 0.68                 |   |  | (0.02            | ) |  | 0.66       |   |  | 0.34                 |   |  | (0.01      | ) |  | 0.33       |  
|Cumulative effect adjustment               |  |                     |   |  |                 |   |  |           |   |  |                     |   |  |           |   |  |           |  
|Net income (loss)                          |  | 0.68                 |   |  | (0.02            | ) |  | 0.66       |   |  | 0.34                 |   |  | (0.01      | ) |  | 0.33       |  
|Diluted:                                   |  |                      |   |  |                  |   |  |            |   |  |                      |   |  |            |   |  |            |  
|Income before cumulative effect adjustment |  | 0.66                 |   |  | (0.02            | ) |  | 0.64       |   |  | 0.33                 |   |  | (0.01      | ) |  | 0.32       |  
|Cumulative effect adjustment               |  |                     |   |  |                 |   |  |           |   |  |                     |   |  |           |   |  |           |  
|Net income (loss)                          |  | 0.66                 |   |  | (0.02            | ) |  | 0.64       |   |  | 0.33                 |   |  | (0.01      | ) |  | 0.32       |  
|                                           |  |                      |   |  |                  |  
|Fourth Quarter (1)                         |  | AsPreviouslyReported |   |  | Adjustment       |   |  | AsRestated |   |  | AsPreviouslyReported |   |  | Adjustment |   |  | AsRestated |  
|Total revenue                              |  | 1,033,964            |   |  |                 |   |  | 1,033,964  |   |  | 733,824              |   |  |           |   |  | 733,824    |  
|Gross profit                               |  | 163,796              |   |  |                 |   |  | 163,796    |   |  | 136,667              |   |  |           |   |  | 136,667    |  
|Income (loss) before income taxes          |  | 20,532               |   |  | (763             | ) |  | 19,769     |   |  | 10,300               |   |  | (151       | ) |  | 10,149     |  
|Income before cumulative effect adjustment |  | 13,024               |   |  | (469             | ) |  | 12,555     |   |  | 6,334                |   |  | (93        | ) |  | 6,241      |  
|Cumulative effect adjustment, net of tax   |  |                     |   |  |                 |   |  |           |   |  |                     |   |  |           |   |  |           |  
|Net income (loss)                          |  | 13,024               |   |  | (469             | ) |  | 12,555     |   |  | 6,334                |   |  | (93        | ) |  | 6,241      |  
|Basic:                                     |  |                      |   |  |                  |   |  |            |   |  |                      |   |  |            |   |  |            |  
|Income before cumulative effect adjustment |  | 0.65                 |   |  | (0.02            | ) |  | 0.62       |   |  | 0.35                 |   |  | (0.01      | ) |  | 0.34       |  
|Cumulative effect adjustment               |  |                     |   |  |                 |   |  |           |   |  |                     |   |  |           |   |  |           |  
|Net income (loss)                          |  | 0.65                 |   |  | (0.02            | ) |  | 0.62       |   |  | 0.35                 |   |  | (0.01      | ) |  | 0.34       |  
|Diluted:                                   |  |                      |   |  |                  |   |  |            |   |  |                      |   |  |            |   |  |            |  
|Income before cumulative effect adjustment |  | 0.63                 |   |  | (0.02            | ) |  | 0.60       |   |  | 0.33                 |   |  | (0.00      | ) |  | 0.33       |  
|Cumulative effect adjustment               |  |                     |   |  |                 |   |  |           |   |  |                     |   |  |           |   |  |           |  
|Net income (loss)                          |  | 0.63                 |   |  | (0.02            | ) |  | 0.60       |   |  | 0.33                 |   |  | (0.00      | ) |  | 0.33       |  
|                                           |  |                      |   |  |                  |  
|Year                                       |  | AsPreviouslyReported |   |  | Adjustment       |   |  | AsRestated |   |  | AsPreviouslyReported |   |  | Adjustment |   |  | AsRestated |  
|Total revenue                              |  | 3,493,085            |   |  |                 |   |  | 3,493,085  |   |  | 2,750,360            |   |  |           |   |  | 2,750,360  |  
|Gross profit                               |  | 590,843              |   |  |                 |   |  | 590,843    |   |  | 510,804              |   |  |           |   |  | 510,804    |  
|Income (loss) before income taxes          |  | 27,898               |   |  | (2,971           | ) |  | 24,927     |   |  | 24,371               |   |  | (606       | ) |  | 23,765     |  
|Income before cumulative effect adjustment |  | 17,553               |   |  | (1,827           | ) |  | 15,726     |   |  | 14,986               |   |  | (373       | ) |  | 14,613     |  
|Cumulative effect adjustment, net of tax   |  |                     |   |  |                 |   |  |           |   |  | (3,482               | ) |  |           |   |  | (3,482     | )
|Net income (loss)                          |  | 17,553               |   |  | (1,827           | ) |  | 15,726     |   |  | 11,504               |   |  | (373       | ) |  | 11,131     |  
|Basic:                                     |  |                      |   |  |                  |   |  |            |   |  |                      |   |  |            |   |  |            |  
|Income before cumulative effect adjustment |  | 0.90                 |   |  | (0.09            | ) |  | 0.80       |   |  | 0.83                 |   |  | (0.02      | ) |  | 0.81       |  
|Cumulative effect adjustment               |  |                     |   |  |                 |   |  |           |   |  | (0.19                | ) |  |           |   |  | (0.19      | )
|Net income (loss)                          |  | 0.90                 |   |  | (0.09            | ) |  | 0.80       |   |  | 0.64                 |   |  | (0.02      | ) |  | 0.61       |  
|Diluted:                                   |  |                      |   |  |                  |   |  |            |   |  |                      |   |  |            |   |  |            |  
|Income before cumulative effect adjustment |  | 0.85                 |   |  | (0.09            | ) |  | 0.76       |   |  | 0.82                 |   |  | (0.02      | ) |  | 0.80       |  
|Cumulative effect adjustment               |  |                     |   |  |                 |   |  |           |   |  | (0.19                | ) |  |           |   |  | (0.19      | )
|Net income (loss)                          |  | 0.85                 |   |  | (0.09            | ) |  | 0.76       |   |  | 0.63                 |   |  | (0.02      | ) |  | 0.61       |  

---

|(1) | The fourth quarter of fiscal 2004 was a 14 week period due to the 53 week year, rather than a 13 week period as it was in fiscal 2003, which was a 52 week year.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



NOTE 20SUBSEQUENT EVENTS



Subsequent to the end of fiscal 2004, we completed a secondary stock
offering in which Freeman Spogli sold 3,850,000 shares of our stock at a public offering price of $22.96 per share. As a result of this sale, Freeman Spogli beneficially owns 3,884,369 shares, or approximately 19.1%, of our common stock as of
December 7, 2004. In connection with this secondary stock offering, we sold 1,500,000 shares of our common stock under a forward sale agreement with Merrill Lynch International, an affiliate of Merrill Lynch & Co., as forward purchaser, under
which, at our request, Merrill Lynch International borrowed 1,500,000 shares of our common stock from stock lenders and sold such borrowed shares at a price of $21.8694 per share to certain underwriters pursuant to a purchase agreement. In
accordance with EITF 00-19. Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock, we will account for the forward sale agreement as equity with an initial fair value of zero. We
will apply the treasury stock method of accounting to the shares covered by the forward sale agreement in determining diluted shares outstanding.



We may elect to settle the forward sale by means of a physical stock, cash or net stock settlement. The forward sale will settle in twelve months, or
earlier at our option. At any time during that period (up to a maximum of four settlement dates in total), we have the option to settle the forward sale in whole or in part. We may physically settle the forward sale by delivering all or a portion of
the shares to Merrill Lynch International for cash proceeds approximately equal to the product of the applicable number of shares and our share price as of the date of the forward sale, plus an imputed interest rate of the Federal Funds Rate minus
1.0%. The actual proceeds to be received by us will vary depending upon the settlement date, the portion of the shares designated by us for settlement on that settlement date and the method of settlement.



On April 20, 2005, we partially settled the forward sale agreement by issuing
and delivering 1,078,697 shares of our common stock, par value $.01 per share. In connection with the partial settlement, we received $23.8 million in proceeds. On August 17, 2005 we settled the remaining shares subject to the forward sale agreement
by issuing and delivering 421,303 shares of our common stock, par value $.01 per share. In connection with the final partial settlement, we received $9.3 million in proceeds.



On April 22, 2005, we completed the acquisition of 53 convenience stores operating under the Cowboys®banner in Alabama (23), Georgia (29) and Mississippi (1) from D&D Oil Company, Inc., or D&D
Oil. The purchase price was funded from available cash and approximately $23.8 million in proceeds from the partial settlement of the forward equity sale agreement we executed in October 2004, as described above. We will be leasing all of the stores
under operating leases primarily from the seller. In connection with the acquisition, we entered into an amendment to the Distribution Services Agreement dated October 10, 1999 by and between The Pantry, Inc., Lil Champ Food Stores, Inc. and
McLane Company, Inc. (the Agreement). The amendment extends the term of the Agreement until April 21, 2010. In addition, the amendment requires McLane to pay us certain additional fees relating to the stores currently covered by the
Agreement, as well as additional fees relating to the stores acquired by us in connection with the acquisition of D&D Oil, and modifies certain provisions of the Agreement relating to service charges and rebate amounts.



On August 5, 2005 we entered into an amendment to the loan agreement under
our senior credit facility that, among other things:



| |  |  | eliminates any dollar limitation on additional indebtedness and capital lease obligations so long as borrowings are incurred to finance acquisitions, certain capital expenditures
and related fees and expenses;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increases by 50 basis-points the loan agreements exiting leverage ratio requirements that are based on debt/EBITDA (as such terms are defined in the loan agreement); and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increases the limitation on net capital expenditures from 30 percent to 35 percent of EBITDA (as such term is defined in the loan agreement).
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



In connection with the amendment, we also received from our lenders a waiver
of certain defaults in the loan agreement caused by the restatement of our previously issued financial statements discussed herein.



On August 18, 2005, we completed the acquisition of 23 convenience stores operating under the Sentry Food Mart banner in Virginia. The purchase prices was
funded from available cash and approximately $9.3 million in proceeds from the final settlement of the forward equity sale agreement we executed in October 2004, as described above.



On August 29, 2005 Hurricane Katrina made landfall in Louisiana. We operate a total of 85 stores in Mississippi (53),
Alabama (24) and Louisiana (8) which were the states most heavily impacted. As of August 30, 2005 we are evaluating the damage from this storm and cannot provide an estimate of loss.



52



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##### Table of Contents

NOTE 21GUARANTOR SUBSIDIARIES



We have two wholly owned subsidiaries, R. & H. Maxxon, Inc. and Kangaroo, Inc. (the Guarantor Subsidiaries)
that are guarantors of our senior credit facility and our 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 of our direct and indirect subsidiaries. Combined financial information, which has been restated for the effects of the items discussed in Note 2 - Restatement of Previously Issued Financial Statements, for
the Guarantor Subsidiaries is as follows:



THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)



THE PANTRY, INC. AND
SUBSIDIARIES

SUPPLEMENTAL COMBINING BALANCE SHEETS

September 30, 2004

(Dollars in thousands)



|                                                |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |          
|----------------------------------------------- |  | ------------------ | --------- | - | --------------------- | - | ------ | ------------ |  | - | ------- | - |  | - | ---------
|                                                |  | The Pantry(Issuer) |           |   | GuarantorSubsidiaries |   |        | Eliminations |  |   | Total  
|ASSETS                                          |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |          
|Current assets:                                 |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |          
|Cash and cash equivalents                       |  | $                  | 108,048   |   |                       | $ |       |              |  | $ |        |   |  | $ | 108,048  
|Receivables, net                                |  |                    | 43,664    |   |                       |   |       |              |  |   |        |   |  |   | 43,664   
|Inventories                                     |  |                    | 95,228    |   |                       |   |       |              |  |   |        |   |  |   | 95,228   
|Prepaid expenses and other current assets       |  |                    | 13,444    |   |                       |   | 2      |              |  |   |        |   |  |   | 13,446   
|Property held for sale                          |  |                    | 5,939     |   |                       |   |       |              |  |   |        |   |  |   | 5,939    
|Deferred income taxes                           |  |                    | 7,507     |   |                       |   |       |              |  |   |        |   |  |   | 7,507    
|                                                |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |          
|Total current assets                            |  |                    | 273,830   |   |                       |   | 2      |              |  |   |        |   |  |   | 273,832  
|                                                |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |          
|Investment in subsidiaries                      |  |                    | 40,723    |   |                       |   |       |              |  |   | (40,723 | ) |  |   |         
|                                                |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |          
|Property and equipment, net                     |  |                    | 582,242   |   |                       |   |       |              |  |   |        |   |  |   | 582,242  
|                                                |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |          
|Other assets:                                   |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |          
|Goodwill                                        |  |                    | 341,652   |   |                       |   |       |              |  |   |        |   |  |   | 341,652  
|Deferred financing costs, net                   |  |                    | 8,612     |   |                       |   |       |              |  |   |        |   |  |   | 8,612    
|Environmental receivables                       |  |                    | 15,137    |   |                       |   |       |              |  |   |        |   |  |   | 15,137   
|Intercompany note receivable                    |  |                    | (23,477   | ) |                       |   | 43,872 |              |  |   | (20,395 | ) |  |   |         
|Other                                           |  |                    | 11,349    |   |                       |   | 57     |              |  |   |        |   |  |   | 11,406   
|                                                |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |          
|Total other assets                              |  |                    | 353,273   |   |                       |   | 43,929 |              |  |   | (20,395 | ) |  |   | 376,807  
|                                                |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |          
|Total assets                                    |  | $                  | 1,250,068 |   |                       | $ | 43,931 |              |  | $ | (61,118 | ) |  | $ | 1,232,881
|                                                |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |          
|LIABILITIES AND SHAREHOLDERS EQUITY:           |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |          
|Current liabilities:                            |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |          
|Current maturities of long-term debt            |  | $                  | 16,029    |   |                       | $ |       |              |  | $ |        |   |  | $ | 16,029   
|Current maturities of lease finance obligations |  |                    | 2,774     |   |                       |   |       |              |  |   |        |   |  |   | 2,774    
|Accounts payable                                |  |                    | 121,151   |   |                       |   |       |              |  |   |        |   |  |   | 121,151  
|Accrued interest                                |  |                    | 2,742     |   |                       |   |       |              |  |   |        |   |  |   | 2,742    
|Accrued compensation and related taxes          |  |                    | 14,369    |   |                       |   |       |              |  |   |        |   |  |   | 14,369   
|Other accrued taxes                             |  |                    | 18,849    |   |                       |   |       |              |  |   |        |   |  |   | 18,849   
|Accrued insurance                               |  |                    | 17,228    |   |                       |   |       |              |  |   |        |   |  |   | 17,228   
|Other accrued liabilities                       |  |                    | 19,458    |   |                       |   |       |              |  |   | (65     | ) |  |   | 19,393   
|                                                |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |          
|Total current liabilities                       |  |                    | 212,600   |   |                       |   |       |              |  |   | (65     | ) |  |   | 212,535  
|                                                |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |          
|Other liabilities:                              |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |          
|Long-term debt                                  |  |                    | 551,010   |   |                       |   |       |              |  |   |        |   |  |   | 551,010  
|Lease finance obligations                       |  |                    | 190,440   |   |                       |   |       |              |  |   |        |   |  |   | 190,440  
|Environmental reserves                          |  |                    | 14,051    |   |                       |   |       |              |  |   |        |   |  |   | 14,051   
|Deferred income taxes                           |  |                    | 60,932    |   |                       |   |       |              |  |   |        |   |  |   | 60,932   
|Deferred revenue                                |  |                    | 35,051    |   |                       |   |       |              |  |   |        |   |  |   | 35,051   
|Intercompany note payable                       |  |                    | 17,124    |   |                       |   | 3,208  |              |  |   | (20,332 | ) |  |   |         
|Other noncurrent liabilities                    |  |                    | 19,933    |   |                       |   | 2      |              |  |   |        |   |  |   | 19,935   
|                                                |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |          
|Total other liabilities                         |  |                    | 888,541   |   |                       |   | 3,210  |              |  |   | (20,332 | ) |  |   | 871,419  
|                                                |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |          
|SHAREHOLDERS EQUITY:                           |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |          
|Common stock                                    |  |                    | 204       |   |                       |   | 523    |              |  |   | (523    | ) |  |   | 204      
|Additional paid-in capital                      |  |                    | 132,879   |   |                       |   | 40,551 |              |  |   | (40,551 | ) |  |   | 132,879  
|Accumulated other comprehensive income          |  |                    | 206       |   |                       |   |       |              |  |   |        |   |  |   | 206      
|Accumulated earnings (deficit)                  |  |                    | 15,638    |   |                       |   | (353   | )            |  |   | 353     |   |  |   | 15,638   
|                                                |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |          
|Total shareholders equity                      |  |                    | 148,927   |   |                       |   | 40,721 |              |  |   | (40,721 | ) |  |   | 148,927  
|                                                |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |          
|Total liabilities and shareholders equity      |  | $                  | 1,250,068 |   |                       | $ | 43,931 |              |  | $ | (61,118 | ) |  | $ | 1,232,881
|                                                |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |          





53



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##### 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 30, 2004

(Dollars in thousands)



|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|---------------------------------------------- |  | ------------------ | --------- | - | --------------------- | - | ------------ |  | ----- | - |  | - | --------- | -
|                                               |  | The Pantry(Issuer) |           |   | GuarantorSubsidiaries |   | Eliminations |  | Total |  
|Revenues:                                      |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Merchandise sales                              |  | $                  | 1,172,846 |   |                       | $ |             |  | $     |  |  | $ | 1,172,846 |  
|Gasoline sales                                 |  |                    | 2,320,239 |   |                       |   |             |  |       |  |  |   | 2,320,239 |  
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Total revenues                                 |  |                    | 3,493,085 |   |                       |   |             |  |       |  |  |   | 3,493,085 |  
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Cost of sales:                                 |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Merchandise                                    |  |                    | 747,419   |   |                       |   |             |  |       |  |  |   | 747,419   |  
|Gasoline                                       |  |                    | 2,154,823 |   |                       |   |             |  |       |  |  |   | 2,154,823 |  
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Total cost of sales                            |  |                    | 2,902,242 |   |                       |   |             |  |       |  |  |   | 2,902,242 |  
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Gross profit                                   |  |                    | 590,843   |   |                       |   |             |  |       |  |  |   | 590,843   |  
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Operating expenses:                            |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Operating, general and administrative expenses |  |                    | 419,337   |   |                       |   |             |  |       |  |  |   | 419,337   |  
|Depreciation and amortization                  |  |                    | 60,911    |   |                       |   |             |  |       |  |  |   | 60,911    |  
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Total operating expenses                       |  |                    | 480,248   |   |                       |   |             |  |       |  |  |   | 480,248   |  
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Income from operations                         |  |                    | 110,595   |   |                       |   |             |  |       |  |  |   | 110,595   |  
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Equity in earnings of subsidiaries             |  |                    |          |   |                       |   |             |  |       |  |  |   |          |  
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Other income (expense):                        |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Loss on extinguishment of debt                 |  |                    | (23,087   | ) |                       |   |             |  |       |  |  |   | (23,087   | )
|Interest expense                               |  |                    | (64,257   | ) |                       |   |             |  |       |  |  |   | (64,257   | )
|Miscellaneous                                  |  |                    | 1,676     |   |                       |   |             |  |       |  |  |   | 1,676     |  
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Total other expense                            |  |                    | (85,668   | ) |                       |   |             |  |       |  |  |   | (85,668   | )
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Income before income taxes                     |  |                    | 24,927    |   |                       |   |             |  |       |  |  |   | 24,927    |  
|Income tax expense                             |  |                    | (9,201    | ) |                       |   |             |  |       |  |  |   | (9,201    | )
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Net income                                     |  | $                  | 15,726    |   |                       | $ |             |  | $     |  |  | $ | 15,726    |  
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  





54



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##### Table of Contents

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



THE PANTRY, INC.



SUPPLEMENTAL COMBINING STATEMENTS OF CASH FLOWS



Year Ended September 30, 2004

(Dollars in thousands)



|                                                                                  |  |                    |          |   |                       |   |              |  |       |   |  |   |          |  
|--------------------------------------------------------------------------------- |  | ------------------ | -------- | - | --------------------- | - | ------------ |  | ----- | - |  | - | -------- | -
|                                                                                  |  | The Pantry(Issuer) |          |   | GuarantorSubsidiaries |   | Eliminations |  | Total |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                    |          |   |                       |   |              |  |       |   |  |   |          |  
|Net Income                                                                        |  | $                  | 15,726   |   |                       | $ |             |  | $     |  |  | $ | 15,726   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                    |          |   |                       |   |              |  |       |   |  |   |          |  
|Depreciation and amortization                                                     |  |                    | 60,911   |   |                       |   |             |  |       |  |  |   | 60,911   |  
|Provision for income taxes                                                        |  |                    | 9,201    |   |                       |   |             |  |       |  |  |   | 9,201    |  
|Loss on extinguishment of debt                                                    |  |                    | 23,087   |   |                       |   |             |  |       |  |  |   | 23,087   |  
|Gain on sale of property and equipment                                            |  |                    | (2,929   | ) |                       |   |             |  |       |  |  |   | (2,929   | )
|Impairment of long-lived assets                                                   |  |                    | 7,417    |   |                       |   |             |  |       |  |  |   | 7,417    |  
|Fair market value change in non-qualifying derivatives                            |  |                    | (1,310   | ) |                       |   |             |  |       |  |  |   | (1,310   | )
|Provision for closed stores                                                       |  |                    | 1,933    |   |                       |   |             |  |       |  |  |   | 1,933    |  
|Amortization of deferred loan costs                                               |  |                    | 2,227    |   |                       |   |             |  |       |  |  |   | 2,227    |  
|Amortization of long-term debt discount                                           |  |                    | 534      |   |                       |   |             |  |       |  |  |   | 534      |  
|Changes in operating assets and liabilities, net:                                 |  |                    |          |   |                       |   |              |  |       |   |  |   |          |  
|Receivables                                                                       |  |                    | (11,146  | ) |                       |   |             |  |       |  |  |   | (11,146  | )
|Inventories                                                                       |  |                    | (977     | ) |                       |   |             |  |       |  |  |   | (977     | )
|Prepaid expenses and other current assets                                         |  |                    | (7,005   | ) |                       |   |             |  |       |  |  |   | (7,005   | )
|Other noncurrent assets                                                           |  |                    | 242      |   |                       |   |             |  |       |  |  |   | 242      |  
|Accounts payable                                                                  |  |                    | 30,830   |   |                       |   |             |  |       |  |  |   | 30,830   |  
|Other current liabilities and accrued expenses                                    |  |                    | (7,506   | ) |                       |   |             |  |       |  |  |   | (7,506   | )
|Reserves for environmental expenses                                               |  |                    | (447     | ) |                       |   |             |  |       |  |  |   | (447     | )
|Other noncurrent liabilities                                                      |  |                    | (3,816   | ) |                       |   |             |  |       |  |  |   | (3,816   | )
|                                                                                  |  |                    |          |   |                       |   |              |  |       |   |  |   |          |  
|Net cash provided by operating activities                                         |  |                    | 116,972  |   |                       |   |             |  |       |  |  |   | 116,972  |  
|                                                                                  |  |                    |          |   |                       |   |              |  |       |   |  |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |                    |          |   |                       |   |              |  |       |   |  |   |          |  
|Additions to property and equipment                                               |  |                    | (51,916  | ) |                       |   |             |  |       |  |  |   | (51,916  | )
|Proceeds from sale of land, building and equipment                                |  |                    | 10,454   |   |                       |   |             |  |       |  |  |   | 10,454   |  
|Acquisitions of related businesses, net of cash acquired                          |  |                    | (185,607 | ) |                       |   |             |  |       |  |  |   | (185,607 | )
|                                                                                  |  |                    |          |   |                       |   |              |  |       |   |  |   |          |  
|Net cash used in investing activities                                             |  |                    | (227,069 | ) |                       |   |             |  |       |  |  |   | (227,069 | )
|                                                                                  |  |                    |          |   |                       |   |              |  |       |   |  |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |                    |          |   |                       |   |              |  |       |   |  |   |          |  
|Principal repayments under lease finance obligations                              |  |                    | (2,760   | ) |                       |   |             |  |       |  |  |   | (2,760   | )
|Principal repayments of long-term debt                                            |  |                    | (617,412 | ) |                       |   |             |  |       |  |  |   | (617,412 | )
|Proceeds from issuance of long-term debt                                          |  |                    | 675,000  |   |                       |   |             |  |       |  |  |   | 675,000  |  
|Proceeds from issuance of lease finance obligations                               |  |                    | 97,104   |   |                       |   |             |  |       |  |  |   | 97,104   |  
|Proceeds from exercise of stock options, net of repurchases                       |  |                    | 4,899    |   |                       |   |             |  |       |  |  |   | 4,899    |  
|Repayments of shareholder loans                                                   |  |                    | 173      |   |                       |   |             |  |       |  |  |   | 173      |  
|Other financing costs                                                             |  |                    | (11,760  | ) |                       |   |             |  |       |  |  |   | (11,760  | )
|                                                                                  |  |                    |          |   |                       |   |              |  |       |   |  |   |          |  
|Net cash provided by financing activities                                         |  |                    | 145,244  |   |                       |   |             |  |       |  |  |   | 145,244  |  
|                                                                                  |  |                    |          |   |                       |   |              |  |       |   |  |   |          |  
|Net increase in cash                                                              |  |                    | 35,147   |   |                       |   |             |  |       |  |  |   | 35,147   |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                      |  |                    | 72,901   |   |                       |   |             |  |       |  |  |   | 72,901   |  
|                                                                                  |  |                    |          |   |                       |   |              |  |       |   |  |   |          |  
|CASH AND CASH EQUIVALENTS, END OF YEAR                                            |  | $                  | 108,048  |   |                       | $ |             |  | $     |  |  | $ | 108,048  |  
|                                                                                  |  |                    |          |   |                       |   |              |  |       |   |  |   |          |  



55



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THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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 and other current assets       |  |                    | 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                     |  |                    | 478,857   |   |                       |   |       |              |  |   |        |   |  |   | 478,857 |  
|                                                |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |         |  
|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                                    |  | $                  | 1,009,600 |   |                       | $ | 43,931 |              |  | $ | (61,118 | ) |  | $ | 992,413 |  
|                                                |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |         |  
|LIABILITIES AND SHAREHOLDERS EQUITY:           |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Current liabilities:                            |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Current maturities of long-term debt            |  | $                  | 27,558    |   |                       | $ |       |              |  | $ |        |   |  | $ | 27,558  |  
|Current maturities of lease finance obligations |  |                    | 2,762     |   |                       |   |       |              |  |   |        |   |  |   | 2,762   |  
|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                       |  |                    | 184,151   |   |                       |   |       |              |  |   | (65     | ) |  |   | 184,086 |  
|                                                |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Other liabilities:                              |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Long-term debt                                  |  |                    | 470,011   |   |                       |   |       |              |  |   |        |   |  |   | 470,011 |  
|Lease finance obligations                       |  |                    | 96,110    |   |                       |   |       |              |  |   |        |   |  |   | 96,110  |  
|Environmental reserves                          |  |                    | 13,823    |   |                       |   |       |              |  |   |        |   |  |   | 13,823  |  
|Deferred income taxes                           |  |                    | 48,834    |   |                       |   |       |              |  |   |        |   |  |   | 48,834  |  
|Deferred revenue                                |  |                    | 37,251    |   |                       |   |       |              |  |   |        |   |  |   | 37,251  |  
|Intercompany note payable                       |  |                    | 17,124    |   |                       |   | 3,208  |              |  |   | (20,332 | ) |  |   |        |  
|Other noncurrent liabilities                    |  |                    | 15,063    |   |                       |   | 2      |              |  |   |        |   |  |   | 15,065  |  
|                                                |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Total other liabilities                         |  |                    | 698,216   |   |                       |   | 3,210  |              |  |   | (20,332 | ) |  |   | 681,094 |  
|                                                |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |         |  
|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 other comprehensive deficit         |  |                    | (690      | ) |                       |   |       |              |  |   |        |   |  |   | (690    | )
|Accumulated earnings (deficit)                  |  |                    | (88       | ) |                       |   | (353   | )            |  |   | 353     |   |  |   | (88     | )
|                                                |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Total shareholders equity                      |  |                    | 127,233   |   |                       |   | 40,721 |              |  |   | (40,721 | ) |  |   | 127,233 |  
|                                                |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |         |  
|Total liabilities and shareholders equity      |  | $                  | 1,009,600 |   |                       | $ | 43,931 |              |  | $ | (61,118 | ) |  | $ | 992,413 |  
|                                                |  |                    |           |   |                       |   |        |              |  |   |         |   |  |   |         |  



56



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##### 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) |           |   | GuarantorSubsidiaries |   | Eliminations |  | Total |  
|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 |  |                    | 373,384   |   |                       |   |             |  |       |  |  |   | 373,384   |  
|Depreciation and amortization                  |  |                    | 55,767    |   |                       |   |             |  |       |  |  |   | 55,767    |  
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Total operating expenses                       |  |                    | 429,151   |   |                       |   |             |  |       |  |  |   | 429,151   |  
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Income from operations                         |  |                    | 81,653    |   |                       |   |             |  |       |  |  |   | 81,653    |  
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Equity in earnings of subsidiaries             |  |                    |          |   |                       |   |             |  |       |  |  |   |          |  
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Other income (expense):                        |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Loss on extinguishment of debt                 |  |                    | (2,888    | ) |                       |   |             |  |       |  |  |   | (2,888    | )
|Interest expense                               |  |                    | (57,805   | ) |                       |   |             |  |       |  |  |   | (57,805   | )
|Miscellaneous                                  |  |                    | 2,805     |   |                       |   |             |  |       |  |  |   | 2,805     |  
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Total other expense                            |  |                    | (57,888   | ) |                       |   |             |  |       |  |  |   | (57,888   | )
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Income before income taxes                     |  |                    | 23,765    |   |                       |   |             |  |       |  |  |   | 23,765    |  
|Income tax expense                             |  |                    | (9,152    | ) |                       |   |             |  |       |  |  |   | (9,152    | )
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Income before cumulative effect adjustment     |  |                    | 14,613    |   |                       |   |             |  |       |  |  |   | 14,613    |  
|Cumulative effect adjustment, net of tax       |  |                    | (3,482    | ) |                       |   |             |  |       |   |  |   | (3,482    | )
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Net income                                     |  | $                  | 11,131    |   |                       | $ |             |  | $     |  |  | $ | 11,131    |  
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  





57



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##### 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)



|                                                                                  |  |                    |          |   |                       |   |              |  |       |   |  |   |          |  
|--------------------------------------------------------------------------------- |  | ------------------ | -------- | - | --------------------- | - | ------------ |  | ----- | - |  | - | -------- | -
|                                                                                  |  | The Pantry(Issuer) |          |   | GuarantorSubsidiaries |   | Eliminations |  | Total |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                    |          |   |                       |   |              |  |       |   |  |   |          |  
|Net Income                                                                        |  | $                  | 11,131   |   |                       | $ |             |  | $     |  |  | $ | 11,131   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                    |          |   |                       |   |              |  |       |   |  |   |          |  
|Depreciation and amortization                                                     |  |                    | 55,767   |   |                       |   |             |  |       |  |  |   | 55,767   |  
|Provision for deferred income taxes                                               |  |                    | 9,152    |   |                       |   |             |  |       |  |  |   | 9,152    |  
|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 deferred loan costs                                               |  |                    | 2,610    |   |                       |   |             |  |       |  |  |   | 2,610    |  
|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                                                      |  |                    | (13,112  | ) |                       |   |             |  |       |  |  |   | (13,112  | )
|                                                                                  |  |                    |          |   |                       |   |              |  |       |   |  |   |          |  
|Net cash provided by operating activities                                         |  |                    | 68,737   |   |                       |   |             |  |       |  |  |   | 68,737   |  
|                                                                                  |  |                    |          |   |                       |   |              |  |       |   |  |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |                    |          |   |                       |   |              |  |       |   |  |   |          |  
|Additions to property and equipment                                               |  |                    | (28,231  | ) |                       |   |             |  |       |  |  |   | (28,231  | )
|Proceeds from sale of property and equipment                                      |  |                    | 5,673    |   |                       |   |             |  |       |  |  |   | 5,673    |  
|Acquisitions of related businesses, net of cash acquired                          |  |                    | (1,799   | ) |                       |   |             |  |       |  |  |   | (1,799   | )
|                                                                                  |  |                    |          |   |                       |   |              |  |       |   |  |   |          |  
|Net cash used in investing activities                                             |  |                    | (24,357  | ) |                       |   |             |  |       |  |  |   | (24,357  | )
|                                                                                  |  |                    |          |   |                       |   |              |  |       |   |  |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |                    |          |   |                       |   |              |  |       |   |  |   |          |  
|Principal repayments under capital leases                                         |  |                    | (1,856   | ) |                       |   |             |  |       |  |  |   | (1,856   | )
|Principal repayments of long-term debt                                            |  |                    | (306,577 | ) |                       |   |             |  |       |  |  |   | (306,577 | )
|Proceeds from issuance of long-term debt                                          |  |                    | 299,440  |   |                       |   |             |  |       |  |  |   | 299,440  |  
|Proceeds from issuance of lease finance obligations                               |  |                    | 2,000    |   |                       |   |             |  |       |  |  |   | 2,000    |  
|Repayments of shareholder loans                                                   |  |                    | 535      |   |                       |   |             |  |       |  |  |   | 535      |  
|Other financing costs                                                             |  |                    | (7,257   | ) |                       |   |             |  |       |  |  |   | (7,257   | )
|                                                                                  |  |                    |          |   |                       |   |              |  |       |   |  |   |          |  
|Net cash used in financing activities                                             |  |                    | (13,715  | ) |                       |   |             |  |       |  |  |   | (13,715  | )
|                                                                                  |  |                    |          |   |                       |   |              |  |       |   |  |   |          |  
|Net increase in cash                                                              |  |                    | 30,665   |   |                       |   |             |  |       |  |  |   | 30,665   |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                      |  |                    | 42,236   |   |                       |   |             |  |       |  |  |   | 42,236   |  
|                                                                                  |  |                    |          |   |                       |   |              |  |       |   |  |   |          |  
|CASH AND CASH EQUIVALENTS, END OF YEAR                                            |  | $                  | 72,901   |   |                       | $ |             |  | $     |  |  | $ | 72,901   |  
|                                                                                  |  |                    |          |   |                       |   |              |  |       |   |  |   |          |  





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##### 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) |           |   | GuarantorSubsidiaries |   | Eliminations |  | Total |  
|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 |  |                    | 358,296   |   |                       |   |             |  |       |  |  |   | 358,296   |  
|Depreciation and amortization                  |  |                    | 55,563    |   |                       |   |             |  |       |  |  |   | 55,563    |  
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Total operating expenses                       |  |                    | 413,859   |   |                       |   |             |  |       |  |  |   | 413,859   |  
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Income from operations                         |  |                    | 61,543    |   |                       |   |             |  |       |  |  |   | 61,543    |  
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Equity in earnings of subsidiaries             |  |                    |          |   |                       |   |             |  |       |  |  |   |          |  
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Other income (expense):                        |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Interest expense                               |  |                    | (59,932   | ) |                       |   |             |  |       |  |  |   | (59,932   | )
|Miscellaneous                                  |  |                    | 728       |   |                       |   |             |  |       |  |  |   | 728       |  
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Total other expense                            |  |                    | (59,204   | ) |                       |   |             |  |       |  |  |   | (59,204   | )
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Income before income taxes                     |  |                    | 2,339     |   |                       |   |             |  |       |  |  |   | 2,339     |  
|Income tax expense                             |  |                    | (901      | ) |                       |   |             |  |       |  |  |   | (901      | )
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  
|Net income                                     |  | $                  | 1,438     |   |                       | $ |             |  | $     |  |  | $ | 1,438     |  
|                                               |  |                    |           |   |                       |   |              |  |       |   |  |   |           |  





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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) |         |   | GuarantorSubsidiaries |   |      | Eliminators |  | Total |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                    |         |   |                       |   |      |             |  |       |   |  |   |         |  
|Net Income                                                                        |  | $                  | 1,438   |   |                       | $ |     |             |  | $     |  |  | $ | 1,438   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                    |         |   |                       |   |      |             |  |       |   |  |   |         |  
|Depreciation and amortization                                                     |  |                    | 53,293  |   |                       |   |     |             |  |       |  |  |   | 53,293  |  
|Provision for deferred income taxes                                               |  |                    | 901     |   |                       |   |     |             |  |       |  |  |   | 901     |  
|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   |  
|Amortization of deferred loan costs                                               |  |                    | 2,270   |   |                       |   |     |             |  |       |  |  |   | 2,270   |  
|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                                                      |  |                    | (13,493 | ) |                       |   |     |             |  |       |  |  |   | (13,493 | )
|                                                                                  |  |                    |         |   |                       |   |      |             |  |       |   |  |   |         |  
|Net cash provided by operating activities                                         |  |                    | 54,384  |   |                       |   |     |             |  |       |  |  |   | 54,384  |  
|                                                                                  |  |                    |         |   |                       |   |      |             |  |       |   |  |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |                    |         |   |                       |   |      |             |  |       |   |  |   |         |  
|Additions to property and equipment                                               |  |                    | (31,985 | ) |                       |   | 473  |             |  |       |  |  |   | (31,512 | )
|Proceeds from sale of land, building and equipment                                |  |                    | 8,912   |   |                       |   |     |             |  |       |  |  |   | 8,912   |  
|Intercompany notes receivable (payable)                                           |  |                    | 473     |   |                       |   | (473 | )           |  |       |  |  |   |        |  
|Acquisitions of related businesses, net of cash acquired                          |  |                    | (512    | ) |                       |   |     |             |  |       |  |  |   | (512    | )
|                                                                                  |  |                    |         |   |                       |   |      |             |  |       |   |  |   |         |  
|Net cash used in investing activities                                             |  |                    | (23,112 | ) |                       |   |     |             |  |       |  |  |   | (23,112 | )
|                                                                                  |  |                    |         |   |                       |   |      |             |  |       |   |  |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |                    |         |   |                       |   |      |             |  |       |   |  |   |         |  
|Principal repayments under capital leases                                         |  |                    | (1,599  | ) |                       |   |     |             |  |       |  |  |   | (1,599  | )
|Principal repayments of long-term debt                                            |  |                    | (40,000 | ) |                       |   |     |             |  |       |  |  |   | (40,000 | )
|Proceeds from issuance of lease finance obligations                               |  |                    | 2,799   |   |                       |   |      |             |  |       |   |  |   | 2,799   |  
|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                                             |  |                    | (39,647 | ) |                       |   |     |             |  |       |  |  |   | (39,647 | )
|                                                                                  |  |                    |         |   |                       |   |      |             |  |       |   |  |   |         |  
|Net decrease in cash                                                              |  |                    | (8,375  | ) |                       |   |     |             |  |       |  |  |   | (8,375  | )
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                      |  |                    | 50,611  |   |                       |   |     |             |  |       |  |  |   | 50,611  |  
|                                                                                  |  |                    |         |   |                       |   |      |             |  |       |   |  |   |         |  
|CASH AND CASH EQUIVALENTS, END OF YEAR                                            |  | $                  | 42,236  |   |                       | $ |     |             |  | $     |  |  | $ | 42,236  |  
|                                                                                  |  |                    |         |   |                       |   |      |             |  |       |   |  |   |         |  





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##### Table of Contents

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure



None.



Item 9A. Controls and Procedures



As required by paragraph (b) of Rule 13a-15 under the Securities Exchange Act of 1934, as amended (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 have
concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective, due to a material weakness which resulted in the restatement of the Companys previously issued financial statements
as discussed below.



As disclosed in the Form 8-K we filed with
the SEC on July 28, 2005, after extensive consultation with its independent registered public accountants, on July 26, 2005, the Companys Board of Directors concluded to restate the Companys audited financial statements in its Annual
Report on Form 10-K for the fiscal year ended September 30, 2004, and its unaudited interim period results included in its Quarterly Reports on Form 10-Q for the periods ended December 30, 2004 and March 31, 2005 to correct the accounting for
certain sale-leaseback transactions entered into by the Company. The restatement is the result of the determination by the Company that such transactions contained elements of continuing involvement that precluded the use of the sale-leaseback
accounting method. We completed a review of the lease terms in all of the sale-leaseback transactions previously entered into by the Company to verify that all instances of potential continuing involvement were identified that would preclude the use
of sale-leaseback accounting treatment. The restatement recharacterizes the transactions as financing transactions, with the assets and related financing obligations carried on the balance sheet.



In the Public Company Accounting Oversight Boards Auditing Standard No.
2,An Audit of Internal Control Over Financial Reporting Performed in Conjunction With an Audit of Financial Statements, restatement of financial statements in prior filings with the SEC is a strong indicator of the existence of a
material weakness in the design or operation of internal control over financial reporting. Based on the restatement for sale-leaseback transactions, management concluded that, as of September 30, 2004 a material weakness existed in the
Companys internal control over financial reporting. Specifically, the Company determined that it failed to design and implement appropriate controls regarding the application of generally accepted accounting principles and the review process
of the implementation of accounting guidance for sale-leaseback transactions.



Subsequent to such evaluation, management identified and implemented the following enhancements to our internal controls over financial reporting:



| |  |  | Developed a checklist designed to assist management in the identification of all forms of continuing involvement in future sale-leaseback transactions; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Strengthened its training program for its accounting staff to include additional training, education and resource materials to ensure that its accounting personnel understand the
accounting regulations and standards for sale-leaseback transactions.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



At the time of preparation of this Form 10-K/A, all of the changes discussed above have been implemented, which we believe render the design and operation of our disclosure controls and procedures effective for
providing reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods required by the SECs rules
and forms.



From time to time, we make changes to our internal
control over financial reporting that are intended to enhance their effectiveness and which do not have a material effect on our overall internal control over financial reporting. We will continue to evaluate the effectiveness of our disclosure
controls and procedures and internal control over financial reporting on an ongoing basis and will take action as appropriate. 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 our fiscal quarter ended September 30, 2004 that we believe have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



Item 9B. Other Information



None.



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##### Table of Contents

PART III



Item 10. Our Directors and Executive Officers



Information on our directors is incorporated by reference from the section entitled Proposal 1: Election of Directors in our definitive proxy statement to be filed with respect to the Annual Meeting of
Stockholders to be held March 29, 2005. Information on our executive officers is included in the section entitled Executive Officers on page 8 of this report.



Item 11. Executive Compensation



This information is incorporated by reference from the section entitled Executive Compensation in our definitive proxy statement to be filed with respect to the Annual Meeting of Stockholders to be held March 29, 2005.



Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters



This information is incorporated by reference from the sections entitled Principal Stockholders and Equity Compensation Plan
Information in our definitive proxy statement to be filed with respect to the Annual Meeting of Stockholders to be held March 29, 2005.



Item 13. Certain Relationships and Related Transactions



This information is incorporated by reference from the sections entitled Principal Stockholders and Transactions with Affiliates in our definitive proxy statement to be filed with respect to
the Annual Meeting of Stockholders to be held March 29, 2005.



Item 14. Principal Accountant Fees and Services



This information is incorporated by reference from the section entitled Principal Accountant Fees and Services in our definitive proxy statement to be filed with respect to the Annual Meeting of
Stockholders to be held March 29, 2005.



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##### Table of Contents

PART IV



Item 15. Exhibits and Financial Statement Schedules



|(a) | Financial Statements, Financial Statement Schedules and ExhibitsThe following documents are filed as part of this Annual Report on Form 10-K/A for the year ended September 30,
2004:
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (i) | Consolidated Financial StatementsSee index on page 29 of this Annual Report on Form 10-K/A for the year ended September 30, 2004.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Financial Statement ScheduleSee index on page 29 of this Annual Report on Form 10-K/A for the year ended September 30, 2004.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------



| | (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 among Koninklijke Ahold N.V. and The Pantry.                                                                                                                                                                                                                 
|            | 
|2.7(1)      |  | List of Schedules and Exhibits omitted from the 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(2)      |  | Amended and Restated Registration Rights Agreement dated July 2, 1998 by and 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), Chase Manhattan Capital, L.P., CB Capital Investors, L.P., Baseball Partners, and Peter J. Sodini.
|            | 
|4.2(3)      |  | Amendment No. 1 to Amended and Restated Registration Rights Agreement dated as of June 1, 1999 by and 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.                                                                                    
|            | 
|4.3(13)     |  | Registration Rights Agreement dated December 30, 1996 by and between The Pantry, FSEP III and FSEP International.                                                                                                                                                                                                                                   
|            | 
|4.4(16)     |  | Indenture dated as of February 19, 2004 among The Pantry, R&H Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, as Guarantors, and Wachovia Bank, National Association
(Wachovia), as Trustee, with respect to the 7.75% Senior Subordinated Notes due 2014.                                                                           
|            | 
|4.5(16)     |  | Form of 7.75% Senior Subordinated Note due 2014 (included in Exhibit 4.4).                                                                                                                                                                                                                                                                          
|            | 
|4.6(16)     |  | Registration Rights Agreement dated February 13, 2004 by and among The Pantry, Credit Suisse First Boston LLC and Wachovia Capital Markets, LLC, as the Initial Purchasers.                                                                                                                                                                         
|            | 
|10.1(5)(6)  |  | The Pantry, Inc. 1998 Stock Option Plan.                                                                                                                                                                                                                                                                                                            
|            | 
|10.2(2)(6)  |  | Form of Incentive Stock Option Agreement.                                                                                                                                                                                                                                                                                                           



63



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|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.3(4)     |  | 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(4)     |  | Contribution to Capital Agreement dated October 23, 1997 by and among The Pantry, FSEP III, FSEP International, Chase Manhattan Capital, L.P., and Baseball Partners.                                                                                                                                                                                                                                                                                                                
|            | 
|10.5(15)    |  | Amended and Restated Credit Agreement dated as of March 12, 2004 among The Pantry, as borrower, R&H Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, as guarantors, Wachovia,
as administrative agent and lender, Credit Suisse First Boston, as syndication agent and lender, Wells Fargo Bank (Wells Fargo), as documentation agent and lender, and Credit Industrial et Commercial, Guaranty Bank, IKB Capital
Corporation, and Raymond James Bank, FSB, as lenders.
|            | 
|10.6(20)    |  | First Amendment to Amended and Restated Credit Agreement dated September 30, 2004 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, Credit Suisse First Boston, as syndication agent and lender, Wells Fargo, as documentation agent and lender, and certain other lenders, as identified in the signature pages
thereto.                                          
|            | 
|10.7(15)    |  | Amended and Restated Pledge Agreement dated March 12, 2004 by and among The Pantry and R&H Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, all as pledgors and Wachovia, as
administrative agent.                                                                                                                                                                                                                                                                       
|            | 
|10.8(15)    |  | Amended and Restated Security Agreement dated March 12, 2004 among The Pantry and R&H Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, all as obligors and Wachovia, as
administrative agent.                                                                                                                                                                                                                                                                            
|            | 
|10.9(4)     |  | Company Trademark Security Agreement dated as of October 23, 1997 by and between The Pantry and First Union National Bank (First Union), as administrative agent.                                                                                                                                                                                                                                                                                                                  
|            | 
|10.10(4)    |  | Form of Amended and Restated Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing (North Carolina) dated as of October 23, 1997 by and from The Pantry to David
R. Cannon, as Trustee, and First Union, as Agent.                                                                                                                                                                                                                                    
|            | 
|10.11(4)    |  | Form of Amended and Restated Mortgage, Security Agreement, Assignment of Rents and Leases And Fixture Filing (South Carolina) dated October 23, 1997 by and from The Pantry to First Union, as
Agent.                                                                                                                                                                                                                                                                                
|            | 
|10.12(4)    |  | Form of Amended and Restated Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Tennessee) dated October 23, 1997 by and from The Pantry to David R. Cannon,
as Trustee, and First Union, as Agent.                                                                                                                                                                                                                                               
|            | 
|10.13(4)    |  | Form of Amended and Restated Mortgage, Security Agreement, Assignment of Rents and Leases (Kentucky) dated October 23, 1997 by and from The Pantry to First Union, as Agent.                                                                                                                                                                                                                                                                                                         
|            | 
|10.14(4)    |  | Form of Amended and Restated Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Indiana) dated October 23, 1997 by and from The Pantry to First Union, as
Agent.                                                                                                                                                                                                                                                                                       
|            | 
|10.15(4)    |  | Form of Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Florida) dated October 23, 1997 by and from Lil Champ Food Stores, Inc. (Lil
Champ) to First Union, as Agent.                                                                                                                                                                                                                                                                           
|            | 
|10.16(4)    |  | Form of Deed to Secure Debt, Security Agreement, and Assignment of Rents (Georgia) dated October 23, 1997 by and from Lil Champ to First Union, as Agent.                                                                                                                                                                                                                                                                                                                           
|            | 
|10.17(2)    |  | Form of Subsidiary Guaranty.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            | 
|10.18(2)    |  | Form of Subsidiary Security Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                               
|            | 
|10.19(2)    |  | Form of Subsidiary Pledge Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            | 
|10.20(2)    |  | Form of Subsidiary Trademark Security Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            | 
|10.21(4)(6) |  | Employment Agreement dated October 1, 1997 between Peter J. Sodini and The Pantry.                                                                                                                                                                                                                                                                                                                                                                                                   
|            | 
|10.22(3)(6) |  | Amendment No. 1 to Employment Agreement by and between The Pantry and Peter J. Sodini.                                                                                                                                                                                                                                                                                                                                                                                               
|            | 
|10.23(8)(6) |  | Amendment No. 2 to Employment Agreement by and between The Pantry and Peter J. Sodini.                                                                                                                                                                                                                                                                                                                                                                                               



64



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##### Table of Contents

|             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No.  |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.24(9)(6)  |  | Amendment No. 3 to Employment Agreement by and between The Pantry and Peter J. Sodini.                                                                                                                                                                                                                                                                                                                                                                                     
|             | 
|10.25(13)(6) |  | Amendment No. 4 to Employment Agreement by and between The Pantry and Peter J. Sodini.                                                                                                                                                                                                                                                                                                                                                                                     
|             | 
|10.26(10)(6) |  | Employment Agreement dated May 2, 2003 by and between Daniel J. Kelly and The Pantry.                                                                                                                                                                                                                                                                                                                                                                                      
|             | 
|10.27(10)(6) |  | Employment Agreement dated May 1, 2003 by and between Steven J. Ferreira and The Pantry.                                                                                                                                                                                                                                                                                                                                                                                   
|             | 
|10.28(10)(6) |  | Employment Agreement dated May 3, 2003 by and between Joseph A. Krol and The Pantry.                                                                                                                                                                                                                                                                                                                                                                                       
|             | 
|10.29(10)(6) |  | Employment Agreement dated May 6, 2003 by and between David M. Zaborski and The Pantry.                                                                                                                                                                                                                                                                                                                                                                                    
|             | 
|10.30(7)     |  | The Pantry Inc. 1998 Stock Subscription Plan.                                                                                                                                                                                                                                                                                                                                                                                                                              
|             | 
|10.31(2)     |  | Form of Stock Subscription Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|             | 
|10.32(2)     |  | Stock Purchase Agreement dated as of July 2, 1998 among The Pantry, FSEP IV and CB Capital Investors, L.P.                                                                                                                                                                                                                                                                                                                                                                 
|             | 
|10.33(8)     |  | Distribution Service Agreement dated October 10, 1999 by and between 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(11)    |  | Third Amendment to Distribution Service Agreement by and between The Pantry, Lil Champ and McLane Company, Inc. (McLane) 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(13)    |  | Fourth Amendment to Distribution Service Agreement dated October 16, 2003, by and between The Pantry and McLane (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(19)(6) |  | 1999 Stock Option Plan, as amended.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|             | 
|10.38(19)(6) |  | Form of Incentive Stock Option Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                  
|             | 
|10.39(11)(6) |  | Management and Administrative Incentive Plan.                                                                                                                                                                                                                                                                                                                                                                                                                              
|             | 
|10.40(12)    |  | Branded Jobber Contract by and between The Pantry and BP Products North America Inc. dated 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).                                                                                                  
|             | 
|10.41(17)    |  | Second Amendment to the Branded Jobber Contract between The Pantry and BP Products North America Inc. dated June 11, 2004 (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(12)    |  | Distributor Franchise Agreement between The Pantry and CITGO Petroleum Corporation dated 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(18)    |  | First Amendment to the Amended and Restated Addendum dated July 7, 2004 to the Distributor Franchise Agreement between The Pantry and CITGO Petroleum Corporation, dated August 2000, as
amended by Amended and Restated Addendum to Distributor Franchise Agreement dated February 11, 2003.                                                                                                                                                                              





65



---

##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.44(12)   |  | Letter of Preferability regarding change in Goodwill Impairment test date change from Deloitte & Touche LLP.                                                                                                                                                                                                                                                                                                                                                                                               
|            | 
|10.45(13)   |  | 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.                                                                                                                                                                                                                                                                                            
|            | 
|10.46(14)   |  | Purchase Agreement dated January 22, 2004 by and among The Pantry, the persons listed in Schedule B thereto and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Goldman, Sachs & Co., William Blair & Company, L.L.C., Jefferies & Company, Inc., and Morgan Keegan & Company, Inc., as Representatives of the several underwriters.                                                                                                                                              
|            | 
|10.47(21)   |  | Purchase Agreement dated October 13, 2004 among the The Pantry, the persons listed in Schedule B-2 thereto, Merrill Lynch International and Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Goldman, Sachs & Co., William Blair & Company, L.L.C., Jefferies & Company, Inc., and Morgan Keegan & Company, Inc., as Representatives of the several underwriters.                                                                                                                  
|            | 
|10.48(21)   |  | Confirmation of Forward Stock Sale Transaction dated October 13, 2004 between The Pantry, Merrill Lynch International and Merrill Lynch, Pierce, Fenner & Smith
Incorporated                                                                                                                                                                                                                                                                                                                               
|            | 
|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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            | 
|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.                                                                                                                                                                                                                                                                                                                                               
|            | 
|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.]

---

|* | Previously filed with the Annual Report on Form 10-K for the year ended September 30, 2004, filed with the Securities and Exchange Commission on December 14, 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 Quarterly Report on Form 10-Q for the quarterly period ended June 24, 1999.
|--- | -----------------------------------------------------------------------------------------------------------------------

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

|(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 Annual Report on Form 10-K, as amended, for the year ended September 24, 1998.
|--- | --------------------------------------------------------------------------------------------------------------------------

|(8) | Incorporated by reference from The Pantrys Annual Report on Form 10-K, as amended, for the year ended September 27, 2001.
|--- | --------------------------------------------------------------------------------------------------------------------------

|(9) | Incorporated by reference from The Pantrys Quarterly Report on Form 10-Q for the quarterly period ended December 26, 2002.
|--- | ---------------------------------------------------------------------------------------------------------------------------

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

|(11) | Incorporated by reference from The Pantrys Annual Report on Form 10-K for the year ended September 26, 2002.
|---- | -------------------------------------------------------------------------------------------------------------

|(12) | Incorporated by reference from The Pantrys Quarterly Report on Form 10-Q for the quarterly period ended March 27, 2003.
|---- | ------------------------------------------------------------------------------------------------------------------------

|(13) | Incorporated by reference from The Pantrys Annual Report on Form 10-K, as amended, for the year ended September 25, 2003.
|---- | --------------------------------------------------------------------------------------------------------------------------

|(14) | Incorporated by reference from The Pantrys Quarterly Report on Form 10-Q for the quarterly period ended December 25, 2003.
|---- | ---------------------------------------------------------------------------------------------------------------------------

|(15) | Incorporated by reference from The Pantrys Current Report on Form 8-K dated March 17, 2004.
|---- | --------------------------------------------------------------------------------------------

|(16) | Incorporated by reference from The Pantrys Registration Statement on Form S-4, as amended (Registration No. 333-115060).
|---- | -------------------------------------------------------------------------------------------------------------------------

|(17) | Incorporated by reference from The Pantrys Current Report on Form 8-K dated June 29, 2004.
|---- | -------------------------------------------------------------------------------------------

|(18) | Incorporated by reference from The Pantrys Quarterly Report on Form 10-Q, as amended, for the quarterly period ended June 24, 2004.
|---- | ------------------------------------------------------------------------------------------------------------------------------------

|(19) | Incorporated by reference from The Pantrys Current Report on Form 8-K dated September 28, 2004.
|---- | ------------------------------------------------------------------------------------------------

|(20) | Incorporated by reference from The Pantrys Current Report on Form 8-K dated October 4, 2004.
|---- | ---------------------------------------------------------------------------------------------

|(21) | Incorporated by reference from The Pantrys Current Report on Form 8-K dated October 14, 2004.
|---- | ----------------------------------------------------------------------------------------------



(b) See (a)(iii) above.



(c) See (a)(ii) above.





66



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##### 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. 1 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 OfficerDate: August 30, 2005




Pursuant to the
requirements of the Securities Exchange Act of 1934, this Amendment No. 1 to Annual Report on Form 10-K 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) |  | August 30, 2005
|                                                       |  |                                                                              
|/s/ DANIEL J. KELLYDaniel J. Kelly                     |  | Vice President and Chief Financial Officer (Principal Accounting Officer)     |  | August 30, 2005
|                                                       |  |                                                                              
|/s/ TODD W. HALLORANTodd W. Halloran                   |  | Director                                                                      |  | August 30, 2005
|                                                       |  |                                                                              
|Bryan E. Monkhouse                                     |  | Director                                                                      |  |                
|                                                       |  |                                                                              
|/s/ BYRON E. ALLUMBAUGHByron E. Allumbaugh             |  | Director                                                                      |  | August 30, 2005
|                                                       |  |                                                                              
|/s/ PETER M. STARRETTPeter M. Starrett                 |  | Director                                                                      |  | August 30, 2005
|                                                       |  |                                                                              
|/s/ PAUL L. BRUNSWICKPaul M. Brunswick                 |  | Director                                                                      |  | August 30, 2005
|                                                       |  |                                                                              
|/S/ HUBERT E. YARBOROUGH, IIIHubert E. Yarborough, III |  | Director                                                                      |  | August 30, 2005
|                                                       |  |                                                                              
|/s/ THOMAS M. MURNANEThomas M. Murnane                 |  | Director                                                                      |  | August 30, 2005





67



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##### Table of Contents

SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS AND RESERVES

(Dollars in thousands)



|                                 |  |                              |        |                                      |   |                                 |  |                                      |     |  |                        |        |   |  |   |       
|-------------------------------- |  | ---------------------------- | ------ | ------------------------------------ | - | ------------------------------- |  | ------------------------------------ | --- |  | ---------------------- | ------ | - |  | - | ------
|                                 |  | Balance atbeginningof period |        | Additionscharged tocosts andexpenses |   | Additionsrelated toacquisitions |  | Deductions forpayments or write-offs |     |  | Balanceat end ofperiod
|Year ended September 30, 2004    |  |                              |        |                                      |   |                                 |  |                                      |     |  |                        |        |   |  |   |       
|Allowance for doubtful accounts  |  | $                            | 665    |                                      | $ | 700                             |  | $                                    |    |  | $                      | (948   | ) |  | $ | 417   
|Reserve for environmental issues |  |                              | 13,823 |                                      |   | 437                             |  |                                      | 675 |  |                        | (884   | ) |  |   | 14,051
|Reserve for closed stores        |  |                              | 3,201  |                                      |   | 1,736                           |  |                                      |    |  |                        | (1,908 | ) |  |   | 3,029 
|                                 |  |                              |        |                                      |   |                                 |  |                                      |     |  |                        |        |   |  |   |       
|                                 |  | $                            | 17,689 |                                      | $ | 2,873                           |  | $                                    | 675 |  | $                      | (3,740 | ) |  | $ | 17,497
|                                 |  |                              |        |                                      |   |                                 |  |                                      |     |  |                        |        |   |  |   |       
|Year ended September 25, 2003    |  |                              |        |                                      |   |                                 |  |                                      |     |  |                        |        |   |  |   |       
|Allowance for doubtful accounts  |  | $                            | 159    |                                      | $ | 544                             |  | $                                    |    |  | $                      | (38    | ) |  | $ | 665   
|Reserve for environmental issues |  |                              | 13,285 |                                      |   | 1,448                           |  |                                      |    |  |                        | (910   | ) |  |   | 13,823
|Reserve for closed stores        |  |                              | 2,629  |                                      |   | 2,469                           |  |                                      |    |  |                        | (1,897 | ) |  |   | 3,201 
|                                 |  |                              |        |                                      |   |                                 |  |                                      |     |  |                        |        |   |  |   |       
|                                 |  | $                            | 16,073 |                                      | $ | 4,461                           |  | $                                    |    |  | $                      | (2,845 | ) |  | $ | 17,689
|                                 |  |                              |        |                                      |   |                                 |  |                                      |     |  |                        |        |   |  |   |       
|Year ended September 26, 2002    |  |                              |        |                                      |   |                                 |  |                                      |     |  |                        |        |   |  |   |       
|Allowance for doubtful accounts  |  | $                            | 146    |                                      | $ | 496                             |  | $                                    |    |  | $                      | (483   | ) |  | $ | 159   
|Reserve for environmental issues |  |                              | 12,207 |                                      |   | 1,969                           |  |                                      |    |  |                        | (891   | ) |  |   | 13,285
|Reserve for closed stores        |  |                              | 2,407  |                                      |   | 2,073                           |  |                                      |    |  |                        | (1,914 | ) |  |   | 2,629 
|                                 |  |                              |        |                                      |   |                                 |  |                                      |     |  |                        |        |   |  |   |       
|                                 |  | $                            | 14,760 |                                      | $ | 4,538                           |  | $                                    |    |  | $                      | (3,288 | ) |  | $ | 16,073
|                                 |  |                              |        |                                      |   |                                 |  |                                      |     |  |                        |        |   |  |   |       





68



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##### 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 among Koninklijke Ahold N.V. and The Pantry.                                                                                                                                                                                                                                                                                                                                                  
|            | 
|2.7(1)      |  | List of Schedules and Exhibits omitted from the 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(2)      |  | Amended and Restated Registration Rights Agreement dated July 2, 1998 by and 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), Chase Manhattan Capital, L.P., CB Capital Investors, L.P., Baseball Partners, and Peter J. Sodini.                                                                                                                                 
|            | 
|4.2(3)      |  | Amendment No. 1 to Amended and Restated Registration Rights Agreement dated as of June 1, 1999 by and 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.                                                                                                                                                                                                                     
|            | 
|4.3(13)     |  | Registration Rights Agreement dated December 30, 1996 by and between The Pantry, FSEP III and FSEP International.                                                                                                                                                                                                                                                                                                                                                                    
|            | 
|4.4(16)     |  | Indenture dated as of February 19, 2004 among The Pantry, R&H Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, as Guarantors, and Wachovia Bank, National Association
(Wachovia), as Trustee, with respect to the 7.75% Senior Subordinated Notes due 2014.                                                                                                                                                                                                            
|            | 
|4.5(16)     |  | Form of 7.75% Senior Subordinated Note due 2014 (included in Exhibit 4.4).                                                                                                                                                                                                                                                                                                                                                                                                           
|            | 
|4.6(16)     |  | Registration Rights Agreement dated February 13, 2004 by and among The Pantry, Credit Suisse First Boston LLC and Wachovia Capital Markets, LLC, as the Initial Purchasers.                                                                                                                                                                                                                                                                                                          
|            | 
|10.1(5)(6)  |  | The Pantry, Inc. 1998 Stock Option Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            | 
|10.2(2)(6)  |  | Form of Incentive Stock Option Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            | 
|10.3(4)     |  | 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(4)     |  | Contribution to Capital Agreement dated October 23, 1997 by and among The Pantry, FSEP III, FSEP International, Chase Manhattan Capital, L.P., and Baseball Partners.                                                                                                                                                                                                                                                                                                                
|            | 
|10.5(15)    |  | Amended and Restated Credit Agreement dated as of March 12, 2004 among The Pantry, as borrower, R&H Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, as guarantors, Wachovia, as
administrative agent and lender, Credit Suisse First Boston, as syndication agent and lender, Wells Fargo Bank (Wells Fargo), as documentation agent and lender, and Credit Industrial et Commercial, Guaranty Bank, IKB Capital Corporation,
and Raymond James Bank, FSB, as lenders.
|            | 
|10.6(20)    |  | First Amendment to Amended and Restated Credit Agreement dated September 30, 2004 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, Credit Suisse First Boston, as syndication agent and lender, Wells Fargo, as documentation agent and lender, and certain other lenders, as identified in the signature pages
thereto.                                          



69



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##### Table of Contents

|             |  |                                                                                                                                                                                                                                                  
|------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No.  |  | Description of Document                                                                                                                                                                                                                          
|10.7(15)     |  | Amended and Restated Pledge Agreement dated March 12, 2004 by and among The Pantry and R&H Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, all as pledgors and Wachovia, as
administrative agent.                                   
|             | 
|10.8(15)     |  | Amended and Restated Security Agreement dated March 12, 2004 among The Pantry and R&H Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, all as obligors and Wachovia, as
administrative agent.                                        
|             | 
|10.9(4)      |  | Company Trademark Security Agreement dated as of October 23, 1997 by and between The Pantry and First Union National Bank (First Union), as administrative agent.                                                                              
|             | 
|10.10(4)     |  | Form of Amended and Restated Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing (North Carolina) dated as of October 23, 1997 by and from The Pantry to David
R. Cannon, as Trustee, and First Union, as Agent.
|             | 
|10.11(4)     |  | Form of Amended and Restated Mortgage, Security Agreement, Assignment of Rents and Leases And Fixture Filing (South Carolina) dated October 23, 1997 by and from The Pantry to First Union, as
Agent.                                            
|             | 
|10.12(4)     |  | Form of Amended and Restated Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Tennessee) dated October 23, 1997 by and from The Pantry to David R. Cannon,
as Trustee, and First Union, as Agent.           
|             | 
|10.13(4)     |  | Form of Amended and Restated Mortgage, Security Agreement, Assignment of Rents and Leases (Kentucky) dated October 23, 1997 by and from The Pantry to First Union, as Agent.                                                                     
|             | 
|10.14(4)     |  | Form of Amended and Restated Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Indiana) dated October 23, 1997 by and from The Pantry to First Union, as
Agent.                                                   
|             | 
|10.15(4)     |  | Form of Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Florida) dated October 23, 1997 by and from Lil Champ Food Stores, Inc. (Lil
Champ) to First Union, as Agent.                                       
|             | 
|10.16(4)     |  | Form of Deed to Secure Debt, Security Agreement, and Assignment of Rents (Georgia) dated October 23, 1997 by and from Lil Champ to First Union, as Agent.                                                                                       
|             | 
|10.17(2)     |  | Form of Subsidiary Guaranty.                                                                                                                                                                                                                     
|             | 
|10.18(2)     |  | Form of Subsidiary Security Agreement.                                                                                                                                                                                                           
|             | 
|10.19(2)     |  | Form of Subsidiary Pledge Agreement.                                                                                                                                                                                                             
|             | 
|10.20(2)     |  | Form of Subsidiary Trademark Security Agreement.                                                                                                                                                                                                 
|             | 
|10.21(4)(6)  |  | Employment Agreement dated October 1, 1997 between Peter J. Sodini and The Pantry.                                                                                                                                                               
|             | 
|10.22(3)(6)  |  | Amendment No. 1 to Employment Agreement by and between The Pantry and Peter J. Sodini.                                                                                                                                                           
|             | 
|10.23(8)(6)  |  | Amendment No. 2 to Employment Agreement by and between The Pantry and Peter J. Sodini.                                                                                                                                                           
|             | 
|10.24(9)(6)  |  | Amendment No. 3 to Employment Agreement by and between The Pantry and Peter J. Sodini.                                                                                                                                                           
|             | 
|10.25(13)(6) |  | Amendment No. 4 to Employment Agreement by and between The Pantry and Peter J. Sodini.                                                                                                                                                           
|             | 
|10.26(10)(6) |  | Employment Agreement dated May 2, 2003 by and between Daniel J. Kelly and The Pantry.                                                                                                                                                            
|             | 
|10.27(10)(6) |  | Employment Agreement dated May 1, 2003 by and between Steven J. Ferreira and The Pantry.                                                                                                                                                         
|             | 
|10.28(10)(6) |  | Employment Agreement dated May 3, 2003 by and between Joseph A. Krol and The Pantry.                                                                                                                                                             
|             | 
|10.29(10)(6) |  | Employment Agreement dated May 6, 2003 by and between David M. Zaborski and The Pantry.                                                                                                                                                          
|             | 
|10.30(7)     |  | The Pantry Inc. 1998 Stock Subscription Plan.                                                                                                                                                                                                    
|             | 
|10.31(2)     |  | Form of Stock Subscription Agreement.                                                                                                                                                                                                            
|             | 
|10.32(2)     |  | Stock Purchase Agreement dated as of July 2, 1998 among The Pantry, FSEP IV and CB Capital Investors, L.P.                                                                                                                                       



70



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##### Table of Contents

|             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No.  |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.33(8)     |  | Distribution Service Agreement dated October 10, 1999 by and between 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(11)    |  | Third Amendment to Distribution Service Agreement by and between The Pantry, Lil Champ and McLane Company, Inc. (McLane) 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(13)    |  | Fourth Amendment to Distribution Service Agreement dated October 16, 2003, by and between The Pantry and McLane (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(19)(6) |  | 1999 Stock Option Plan, as amended.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|             | 
|10.38(19)(6) |  | Form of Incentive Stock Option Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                  
|             | 
|10.39(11)(6) |  | Management and Administrative Incentive Plan.                                                                                                                                                                                                                                                                                                                                                                                                                              
|             | 
|10.40(12)    |  | Branded Jobber Contract by and between The Pantry and BP Products North America Inc. dated 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).                                                                                                  
|             | 
|10.41(17)    |  | Second Amendment to the Branded Jobber Contract between The Pantry and BP Products North America Inc. dated June 11, 2004 (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(12)    |  | Distributor Franchise Agreement between The Pantry and CITGO Petroleum Corporation dated 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(18)    |  | First Amendment to the Amended and Restated Addendum dated July 7, 2004 to the Distributor Franchise Agreement between The Pantry and CITGO Petroleum Corporation, dated August 2000, as
amended by Amended and Restated Addendum to Distributor Franchise Agreement dated February 11, 2003.                                                                                                                                                                              
|             | 
|10.44(12)    |  | Letter of Preferability regarding change in Goodwill Impairment test date change from Deloitte & Touche LLP.                                                                                                                                                                                                                                                                                                                                                               
|             | 
|10.45(13)    |  | 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.                                                                                                                                                                                                                                                            
|             | 
|10.46(14)    |  | Purchase Agreement dated January 22, 2004 by and among The Pantry, the persons listed in Schedule B thereto and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Goldman, Sachs & Co., William Blair & Company, L.L.C., Jefferies & Company, Inc., and Morgan Keegan & Company, Inc., as Representatives of the several underwriters.                                                                                                              
|             | 
|10.47(21)    |  | Purchase Agreement dated October 13, 2004 among the The Pantry, the persons listed in Schedule B-2 thereto, Merrill Lynch International and Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Goldman, Sachs & Co., William Blair & Company, L.L.C., Jefferies & Company, Inc., and Morgan Keegan & Company, Inc., as Representatives of the several underwriters.                                                                                  
|             | 
|10.48(21)    |  | Confirmation of Forward Stock Sale Transaction dated October 13, 2004 between The Pantry, Merrill Lynch International and Merrill Lynch, Pierce, Fenner & Smith
Incorporated                                                                                                                                                                                                                                                                                               



71



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##### 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            | 
|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.                                                                                                                                                                                                                                                                                                                                               
|            | 
|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.]

---

|* | Previously filed with the Annual Report on Form 10-K for the year ended September 30, 2004, filed with the Securities and Exchange Commission on December 14, 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 Quarterly Report on Form 10-Q for the quarterly period ended June 24, 1999.
|--- | -----------------------------------------------------------------------------------------------------------------------

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

|(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 Annual Report on Form 10-K, as amended, for the year ended September 24, 1998.
|--- | --------------------------------------------------------------------------------------------------------------------------

|(8) | Incorporated by reference from The Pantrys Annual Report on Form 10-K, as amended, for the year ended September 27, 2001.
|--- | --------------------------------------------------------------------------------------------------------------------------

|(9) | Incorporated by reference from The Pantrys Quarterly Report on Form 10-Q for the quarterly period ended December 26, 2002.
|--- | ---------------------------------------------------------------------------------------------------------------------------

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

|(11) | Incorporated by reference from The Pantrys Annual Report on Form 10-K for the year ended September 26, 2002.
|---- | -------------------------------------------------------------------------------------------------------------

|(12) | Incorporated by reference from The Pantrys Quarterly Report on Form 10-Q for the quarterly period ended March 27, 2003.
|---- | ------------------------------------------------------------------------------------------------------------------------

|(13) | Incorporated by reference from The Pantrys Annual Report on Form 10-K, as amended, for the year ended September 25, 2003.
|---- | --------------------------------------------------------------------------------------------------------------------------

|(14) | Incorporated by reference from The Pantrys Quarterly Report on Form 10-Q for the quarterly period ended December 25, 2003.
|---- | ---------------------------------------------------------------------------------------------------------------------------

|(15) | Incorporated by reference from The Pantrys Current Report on Form 8-K dated March 17, 2004.
|---- | --------------------------------------------------------------------------------------------

|(16) | Incorporated by reference from The Pantrys Registration Statement on Form S-4, as amended (Registration No. 333-115060).
|---- | -------------------------------------------------------------------------------------------------------------------------

|(17) | Incorporated by reference from The Pantrys Current Report on Form 8-K dated June 29, 2004.
|---- | -------------------------------------------------------------------------------------------

|(18) | Incorporated by reference from The Pantrys Quarterly Report on Form 10-Q, as amended, for the quarterly period ended June 24, 2004.
|---- | ------------------------------------------------------------------------------------------------------------------------------------

|(19) | Incorporated by reference from The Pantrys Current Report on Form 8-K dated September 28, 2004.
|---- | ------------------------------------------------------------------------------------------------

|(20) | Incorporated by reference from The Pantrys Current Report on Form 8-K dated October 4, 2004.
|---- | ---------------------------------------------------------------------------------------------

|(21) | Incorporated by reference from The Pantrys Current Report on Form 8-K dated October 14, 2004.
|---- | ----------------------------------------------------------------------------------------------



72