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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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FORM 10-K/A

(Amendment No. 2)



ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



For the
fiscal year ended September 25, 2003



Commission File Number
33-72574



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THE PANTRY, INC.

(Exact name of
registrant as specified in its charter)



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



P.O. Box 1410

1801 Douglas Drive

Sanford, North Carolina

27331-1410

(Address of principal executive offices)



---



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



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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 ̈No x



The aggregate market value of the voting common stock held by non-affiliates of the registrant as of March 27, 2003 was $15,415,625.



As of June 24, 2004, there were issued and outstanding 20,121,709 shares of
the registrants common stock.



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EXPLANATORY NOTE



The undersigned registrant hereby amends Item 8 of Part II and Item 15 of Part IV of its Annual Report on Form 10-K, filed
with the Securities and Exchange Commission on December 9, 2003, as amended on January 7, 2004, for the fiscal year ended September 25, 2003, solely for the purposes of including a footnote (Note 20) providing financial information regarding the
subsidiaries guaranteeing the Companys senior credit facility and senior subordinated notes, as set forth below.





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THE PANTRY, INC.



INDEX TO ANNUAL REPORT ON FORM 10-K



|         |  |                                                                 |  |     
|-------- |  | --------------------------------------------------------------- |  | ----
|         |  |                                                                 |  | Page
|Part II  |  |                                                                 |  |     
|Item 8:  |  | Consolidated Financial Statements and Supplementary Data        |  | 3   
|         |  |                                                                
|Part IV  |  |                                                                 |  |     
|Item 15: |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K |  | 43  
|         |  | Signatures                                                      |  | 48  



2



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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Part II



Item 8. Consolidated Financial Statements and Supplemental Data



|                                                                                                                                  |  |     
|--------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                  |  | Page
|                                                                                                                                  | 
|The Pantry, Inc. Financial Statements:                                                                                            |  |     
|Audited Consolidated Financial Statements:                                                                                        |  |     
|Report of Independent Registered Public Accounting Firm                                                                           |  | 4   
|Consolidated Balance Sheets as of September 25, 2003 and September 26, 2002                                                       |  | 5   
|Consolidated Statements of Operations for the years ended September 25, 2003, September 26, 2002 and September 27, 2001           |  | 6   
|Consolidated Statements of Shareholders Equity for the years ended September 25, 2003, September 26, 2002 and September 27, 2001 |  | 7   
|Consolidated Statements of Cash Flows for the years ended September 25, 2003, September 26, 2002 and September 27, 2001           |  | 8   
|Notes to Consolidated Financial Statements                                                                                        |  | 10  



3



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To The Board of Directors and Shareholders of

The Pantry, Inc.

Sanford, North Carolina



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



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



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



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



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

December 4, 2003, except for Note 20 as to which the date is February 12, 2004



4



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THE PANTRY, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)



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



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



5



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THE PANTRY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share amounts)



|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|------------------------------------------------- |  | ------------------ | --------- | - | ------------------ | - | --------- | ------------------ |  | - | --------- | -
|                                                  |  | September 25, 2003 |           |   | September 26, 2002 |   |           | September 27, 2001 | 
|                                                  |  | (52 weeks)         |           |   | (52 weeks)         |   |           | (52 weeks)         | 
|Revenues:                                         |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Merchandise sales                                 |  | $                  | 1,008,902 |   |                    | $ | 998,621   |                    |  | $ | 968,614   |  
|Gasoline sales                                    |  |                    | 1,740,662 |   |                    |   | 1,470,732 |                    |  |   | 1,652,725 |  
|Commissions                                       |  |                    | 26,797    |   |                    |   | 24,711    |                    |  |   | 21,705    |  
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Total revenues                                    |  |                    | 2,776,361 |   |                    |   | 2,494,064 |                    |  |   | 2,643,044 |  
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Cost of sales:                                    |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Merchandise                                       |  |                    | 670,179   |   |                    |   | 669,479   |                    |  |   | 645,012   |  
|Gasoline                                          |  |                    | 1,595,378 |   |                    |   | 1,349,183 |                    |  |   | 1,510,389 |  
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Total cost of sales                               |  |                    | 2,265,557 |   |                    |   | 2,018,662 |                    |  |   | 2,155,401 |  
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Gross profit                                      |  |                    | 510,804   |   |                    |   | 475,402   |                    |  |   | 487,643   |  
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Operating expenses:                               |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Operating, general and administrative expenses    |  |                    | 385,570   |   |                    |   | 367,299   |                    |  |   | 364,134   |  
|Restructuring and other charges (Note 8)          |  |                    |          |   |                    |   |          |                    |  |   | 4,771     |  
|Depreciation and amortization                     |  |                    | 54,403    |   |                    |   | 54,251    |                    |  |   | 63,545    |  
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Total operating expenses                          |  |                    | 439,973   |   |                    |   | 421,550   |                    |  |   | 432,450   |  
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Income from operations                            |  |                    | 70,831    |   |                    |   | 53,852    |                    |  |   | 55,193    |  
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Other income (expense):                           |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Interest expense (Note 10)                        |  |                    | (49,265   | ) |                    |   | (51,646   | )                  |  |   | (58,731   | )
|Miscellaneous                                     |  |                    | 2,805     |   |                    |   | 728       |                    |  |   | 1,753     |  
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Total other expense                               |  |                    | (46,460   | ) |                    |   | (50,918   | )                  |  |   | (56,978   | )
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Income (loss) before income taxes                 |  |                    | 24,371    |   |                    |   | 2,934     |                    |  |   | (1,785    | )
|Income tax expense (Note 11)                      |  |                    | (9,385    | ) |                    |   | (1,130    | )                  |  |   | (871      | )
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Income (loss) before cumulative effect adjustment |  | $                  | 14,986    |   |                    | $ | 1,804     |                    |  | $ | (2,656    | )
|Cumulative effect adjustment, net of tax (Note 9) |  |                    | (3,482    | ) |                    |   |          |                    |  |   |          |  
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Net income (loss)                                 |  | $                  | 11,504    |   |                    | $ | 1,804     |                    |  | $ | (2,656    | )
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Earnings (loss) per share (Note 17):              |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Basic:                                            |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Income (loss) before cumulative effect adjustment |  | $                  | 0.83      |   |                    | $ | 0.10      |                    |  | $ | (0.15     | )
|Cumulative effect adjustment                      |  |                    | (0.19     | ) |                    |   |          |                    |  |   |          |  
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Income (loss)                                     |  | $                  | 0.64      |   |                    | $ | 0.10      |                    |  | $ | (0.15     | )
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Diluted:                                          |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Income (loss) before cumulative effect adjustment |  | $                  | 0.82      |   |                    | $ | 0.10      |                    |  | $ | (0.15     | )
|Cumulative effect adjustment                      |  |                    | (0.19     | ) |                    |   |          |                    |  |   |          |  
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  
|Income (loss)                                     |  | $                  | 0.63      |   |                    | $ | 0.10      |                    |  | $ | (0.15     | )
|                                                  |  |                    |           |   |                    |   |           |                    |  |   |           |  



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



6



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THE PANTRY, INC.

CONSOLIDATED STATEMENTS OF

SHAREHOLDERS EQUITY

(Shares and dollars in thousands)



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



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



7



---

THE PANTRY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)



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



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



8



---

SUPPLEMENTAL DISCLOSURE OF CASH FLOW

(Dollars in thousands)



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



SUPPLEMENTAL NONCASH
INVESTING AND FINANCING ACTIVITIES



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



9



---

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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



The Pantry



The consolidated financial statements include the accounts of The Pantry, Inc. (the Company or The
Pantry) and its wholly-owned subsidiaries. Transactions and balances of each of these wholly-owned subsidiaries are also immaterial to the consolidated financial statements. All intercompany transactions and balances have been eliminated in
consolidation. The Pantry owns and operates 1,259 convenience stores in Florida (477), North Carolina (329), South Carolina (240), Georgia (56), Mississippi (53), Kentucky (38), Virginia (30), Indiana (14), Tennessee (14), and Louisiana (8).



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



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



Accounting Period



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



Acquisition Accounting



Generally, 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 Statement of Operations for the fiscal years presented includes the results of operations
for each of the acquisitions from the date of acquisition only.



Cash and
Cash Equivalents



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



Inventories



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



10



---

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Property Held for Sale



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



Property and Equipment



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



Estimated useful lives for financial statement
purposes are as follows:



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



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



Goodwill



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



Long-Lived Assets



Long-lived assets are reviewed for impairment 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, including an allocation of goodwill if appropriate, to determine if a
write-down to fair value is required. We recorded a provision of approximately $1.9 million, $383 thousand and $2.3 million for asset impairments for certain real estate, leasehold improvements and store and gasoline equipment at certain
underperforming stores for fiscal 2003,



11



---

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



2002 and 2001, respectively. We record asset impairment as a component of operating, general and administrative expenses.



Revenue Recognition



Revenues from the Companys three primary product categories, gasoline, merchandise and commissions, are recognized at
the point of sale. The Company derives commission revenues from lottery ticket sales, money orders, car washes, public telephones, 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.



Operating, General and Administrative Expenses



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



Deferred Financing Cost



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



Vendor Allowances, Rebates and Other Vendor Payments



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



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



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



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



12



---

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



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



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



Environmental Costs



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



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



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



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



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



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



Income Taxes



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



13



---

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Excise and Use Taxes



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



Advertising Costs



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



Stock-Based Compensation



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



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



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



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



14



---

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



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



Reclassifications



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



Recently Adopted Accounting Standards



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



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



Effective September 27, 2002, we adopted the provisions of SFAS No. 143,
Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143 requires that
the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the



15



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THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



carrying amount of the long-lived asset. SFAS No. 143 requires us to recognize an estimated liability associated with the removal of our underground storage
tanks. See Note 9 for a discussion of our adoption of SFAS No. 143.



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



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



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



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



In April 2003, the FASB
issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, to provide clarification on the meaning of an underlying derivative, the characteristics of a derivative that contains financing components and
the meaning of an initial investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors. This statement is effective for contracts entered into or
modified after June 30, 2003 and for hedging



16



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THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



relationships designated after June 30, 2003. In addition, all provisions of this statement should be applied prospectively. The provisions of this statement
that relate to Statement 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. The adoption of SFAS No. 149 did
not have a material impact on our results of operations and financial condition.



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



Recently Issued Accounting Standards Not Yet Adopted



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



Change in Accounting
Estimate



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



17



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THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 2INVENTORIES:



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



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



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



NOTE 3PROPERTY AND EQUIPMENT:



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



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



NOTE 4GOODWILL AND OTHER
INTANGIBLE ASSETS:



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



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



We completed our annual goodwill impairment test as of January 23, 2003 by comparing the enterprise fair value to its carrying or book value. This valuation indicated an aggregate fair value in excess of our book
value; therefore, we have determined that no impairment existed. Fair value was measured using a valuation by an



18



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THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



independent third party as of January 23, 2003, which was based on market multiples, comparable transactions and discounted cash flow methodologies. We
utilized an independent valuation to determine our fair value rather than our market capitalization, as we believe our market capitalization may not be representative of the fair value of the Company because two institutions own approximately 84% of
our outstanding common stock.



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



Other intangible assets consist of noncompete agreements with a carrying value of $6.6 million and $7.2 million at September 25, 2003 and September 26,
2002, respectively, net of accumulated amortization of $2.4 million and $1.8 million, respectively. Amortization expense was $626 thousand, $725 thousand and $665 thousand for fiscal 2003, 2002 and 2001, respectively. The weighted average
amortization period of all noncompete agreements is 29.2 years. Estimated amortization expense for each of the five fiscal years following September 25, 2003 and thereafter is: $428 thousand in fiscal 2004; $351 thousand in fiscal 2005; $305
thousand in fiscal 2006; $206 thousand in fiscal 2007; $197 thousand in fiscal 2008 and $5.1 million thereafter. Noncompete agreements are classified in other noncurrent assets in the accompanying audited consolidated balance sheets.



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



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



19



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THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 5LONG-TERM DEBT:



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



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



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



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



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



20



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THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



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



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



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



NOTE
6DERIVATIVE FINANCIAL INSTRUMENTS:



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



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



21



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THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 7COMPREHENSIVE INCOME:



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



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



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



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



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



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



NOTE 8RESTRUCTURING AND OTHER
CHARGES:



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



As a result of these actions, we recorded pre-tax restructuring and other charges of $4.8 million during fiscal 2001. The restructuring charge consisted
of $1.7 million of employee termination benefits, $650 thousand of lease obligations and $490 thousand of legal and other professional consultant fees. During fiscal 2001, the Company also incurred and expended $1.9 million in other non-recurring
charges for related actions. Employee termination benefits represent severance and outplacement benefits for 100 employees, 49 of which are in administrative positions and 51 of which are in managerial positions. Lease obligations represent
remaining lease payments in excess of estimated sublease rental income for the Jacksonville facility. Substantially all remaining



22



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THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



obligations as of the balance sheet date will be expended by the end of fiscal 2003 (except for lease obligations which expire in fiscal 2005). Fiscal 2002
and 2001 activity related to the restructuring reserve was as follows (amounts in thousands):



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



NOTE 9ASSET RETIREMENT
OBLIGATIONS:



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



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



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



23



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THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



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



NOTE 10INTEREST EXPENSE:



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



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



NOTE 11INCOME TAXES:



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



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



24



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THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



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



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



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



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



25



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THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



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



NOTE 12LEASES:



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



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



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



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



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



26



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THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



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



NOTE 13COMMITMENTS AND CONTINGENCIES:



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



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



Unamortized Liabilities Associated with Vendor Payments



In accordance with the terms of each service or supply agreement and in accordance with accounting principles generally accepted in the United States of
America, service and supply allowances are amortized over the life of each agreement in accordance with the specific terms. At September 25, 2003, other accrued liabilities and other noncurrent liabilities include the unamortized liabilities
associated with these payments of $7.7 million and $37.3 million, respectively. At September 26, 2002, other accrued liabilities and other noncurrent liabilities include the unamortized liabilities associated with these payments of $3.3 million and
$51.7 million, respectively.



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



Major Oil CompaniesThe Pantry has entered into product brand imaging
agreements with numerous oil companies to buy specified quantities of gasoline at market prices. The length of these contracts range from five to thirteen years and in some cases include minimum annual purchase requirements. In connection with these
agreements, The Pantry may receive upfront vendor allowances, volume incentive payments and other vendor assistance payments. If The Pantry were to default under the terms of any contract or terminate the supply



27



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THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



agreement prior to the end of the initial term, The Pantry must reimburse the respective oil company for the unearned, unamortized portion of the payments
received to date. In accordance with accounting principles generally accepted in the United States of America, these payments are amortized to cost of goods sold using the specific amortization periods in accordance with the terms of each agreement,
either using the straight-line method or based on gasoline volume purchased.



Environmental Liabilities and Contingencies



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



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



Regulations enacted by the EPA in 1988 established requirements for:



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



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



| |  | 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



28



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THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



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



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



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



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



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



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



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



29



---

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



which The Pantry does not expect to be reimbursed for each of the five fiscal years and thereafter at September 25, 2003 and other cost amounts covered by
responsible third parties are as follows (in thousands):



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



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



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



NOTE 14BENEFIT PLANS:



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



NOTE 15COMMON STOCK:



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



30



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THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



NOTE 16STOCK OPTIONS AND OTHER EQUITY INSTRUMENTS:



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



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



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



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



31



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THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



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



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



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



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



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



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



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



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



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



32



---

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 17EARNINGS (LOSS) PER SHARE:



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



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



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



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



NOTE 18QUARTERLY FINANCIAL DATA (unaudited):



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



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



33



---

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 19SUBSEQUENT EVENTS:



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



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



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



34



---

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 20GUARANTOR SUBSIDIARIES:



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

THE PANTRY, INC. AND SUBSIDIARIES

SUPPLEMENTAL COMBINING BALANCE SHEETS

September 25, 2003

(Dollars in thousands)



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



35



---

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



THE PANTRY, INC. AND SUBSIDIARIES



SUPPLEMENTAL COMBINING STATEMENT OF OPERATIONS



Year Ended September 25, 2003

(Dollars in thousands)



|                                               |  |                     |           |   |                              |   |              |  |       |   |  |   |           |  
|---------------------------------------------- |  | ------------------- | --------- | - | ---------------------------- | - | ------------ |  | ----- | - |  | - | --------- | -
|                                               |  | The Pantry (Issuer) |           |   | Total Guarantor Subsidiaries |   | Eliminations |  | Total |  
|Revenues:                                      |  |                     |           |   |                              |   |              |  |       |   |  |   |           |  
|Merchandise sales                              |  | $                   | 1,008,902 |   |                              | $ |             |  | $     |  |  | $ | 1,008,902 |  
|Gasoline sales                                 |  |                     | 1,740,662 |   |                              |   |             |  |       |  |  |   | 1,740,662 |  
|Commissions                                    |  |                     | 26,797    |   |                              |   |             |  |       |  |  |   | 26,797    |  
|                                               |  |                     |           |   |                              |   |              |  |       |   |  |   |           |  
|Total revenues                                 |  |                     | 2,776,361 |   |                              |   |             |  |       |  |  |   | 2,776,361 |  
|                                               |  |                     |           |   |                              |   |              |  |       |   |  |   |           |  
|Cost of sales:                                 |  |                     |           |   |                              |   |              |  |       |   |  |   |           |  
|Merchandise                                    |  |                     | 670,179   |   |                              |   |             |  |       |  |  |   | 670,179   |  
|Gasoline                                       |  |                     | 1,595,378 |   |                              |   |             |  |       |  |  |   | 1,595,378 |  
|                                               |  |                     |           |   |                              |   |              |  |       |   |  |   |           |  
|Total cost of sales                            |  |                     | 2,265,557 |   |                              |   |             |  |       |  |  |   | 2,265,557 |  
|                                               |  |                     |           |   |                              |   |              |  |       |   |  |   |           |  
|Gross profit                                   |  |                     | 510,804   |   |                              |   |             |  |       |  |  |   | 510,804   |  
|                                               |  |                     |           |   |                              |   |              |  |       |   |  |   |           |  
|Operating expenses:                            |  |                     |           |   |                              |   |              |  |       |   |  |   |           |  
|Operating, general and administrative expenses |  |                     | 385,570   |   |                              |   |             |  |       |  |  |   | 385,570   |  
|Depreciation and amortization                  |  |                     | 54,403    |   |                              |   |             |  |       |  |  |   | 54,403    |  
|                                               |  |                     |           |   |                              |   |              |  |       |   |  |   |           |  
|Total operating expenses                       |  |                     | 439,973   |   |                              |   |             |  |       |  |  |   | 439,973   |  
|                                               |  |                     |           |   |                              |   |              |  |       |   |  |   |           |  
|Income from operations                         |  |                     | 70,831    |   |                              |   |             |  |       |  |  |   | 70,831    |  
|                                               |  |                     |           |   |                              |   |              |  |       |   |  |   |           |  
|Equity in earnings of subsidiaries             |  |                     |          |   |                              |   |             |  |       |  |  |   |          |  
|                                               |  |                     |           |   |                              |   |              |  |       |   |  |   |           |  
|Other income (expense):                        |  |                     |           |   |                              |   |              |  |       |   |  |   |           |  
|Interest expense                               |  |                     | (49,265   | ) |                              |   |             |  |       |  |  |   | (49,265   | )
|Miscellaneous                                  |  |                     | 2,805     |   |                              |   |             |  |       |  |  |   | 2,805     |  
|                                               |  |                     |           |   |                              |   |              |  |       |   |  |   |           |  
|Total other expense                            |  |                     | (46,460   | ) |                              |   |             |  |       |  |  |   | (46,460   | )
|                                               |  |                     |           |   |                              |   |              |  |       |   |  |   |           |  
|Income before income taxes                     |  |                     | 24,371    |   |                              |   |             |  |       |  |  |   | 24,371    |  
|Income tax expense                             |  |                     | (9,385    | ) |                              |   |             |  |       |  |  |   | (9,385    | )
|                                               |  |                     |           |   |                              |   |              |  |       |   |  |   |           |  
|Income before cumulative effect adjustment     |  |                     | 14,986    |   |                              |   |             |  |       |  |  |   | 14,986    |  
|Cumulative effect adjustment, net of tax       |  |                     | (3,482    | ) |                              |   |             |  |       |   |  |   | (3,482    | )
|                                               |  |                     |           |   |                              |   |              |  |       |   |  |   |           |  
|Net income                                     |  | $                   | 11,504    |   |                              | $ |             |  | $     |  |  | $ | 11,504    |  
|                                               |  |                     |           |   |                              |   |              |  |       |   |  |   |           |  



36



---

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



THE PANTRY, INC.



SUPPLEMENTAL COMBINING STATEMENTS OF CASH FLOWS



Year Ended September 25, 2003

(Dollars in thousands)



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



37



---

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



THE PANTRY, INC. AND SUBSIDIARIES



SUPPLEMENTAL COMBINING BALANCE SHEETS



September 26, 2002

(Dollars in thousands)



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



38



---

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



THE PANTRY, INC. AND SUBSIDIARIES



SUPPLEMENTAL COMBINING STATEMENT OF OPERATIONS



Year Ended September 26, 2002

(Dollars in thousands)



|                                               |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|---------------------------------------------- |  | ------------------- | --------- | - | --------------------------- | - | ------------ |  | ----- | - |  | - | --------- | -
|                                               |  | The Pantry (Issuer) |           |   | Total GuarantorSubsidiaries |   | Eliminations |  | Total |  
|Revenues:                                      |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Merchandise sales                              |  | $                   | 998,621   |   |                             | $ |             |  | $     |  |  | $ | 998,621   |  
|Gasoline sales                                 |  |                     | 1,470,732 |   |                             |   |             |  |       |  |  |   | 1,470,732 |  
|Commissions                                    |  |                     | 24,711    |   |                             |   |             |  |       |  |  |   | 24,711    |  
|                                               |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Total revenues                                 |  |                     | 2,494,064 |   |                             |   |             |  |       |  |  |   | 2,494,064 |  
|                                               |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Cost of sales:                                 |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Merchandise                                    |  |                     | 669,479   |   |                             |   |             |  |       |  |  |   | 669,479   |  
|Gasoline                                       |  |                     | 1,349,183 |   |                             |   |             |  |       |  |  |   | 1,349,183 |  
|                                               |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Total cost of sales                            |  |                     | 2,018,662 |   |                             |   |             |  |       |  |  |   | 2,018,662 |  
|                                               |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Gross profit                                   |  |                     | 475,402   |   |                             |   |             |  |       |  |  |   | 475,402   |  
|                                               |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Operating expenses:                            |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Operating, general and administrative expenses |  |                     | 367,299   |   |                             |   |             |  |       |  |  |   | 367,299   |  
|Depreciation and amortization                  |  |                     | 54,251    |   |                             |   |             |  |       |  |  |   | 54,251    |  
|                                               |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Total operating expenses                       |  |                     | 421,550   |   |                             |   |             |  |       |  |  |   | 421,550   |  
|                                               |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Income from operations                         |  |                     | 53,852    |   |                             |   |             |  |       |  |  |   | 53,852    |  
|                                               |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Equity in earnings of subsidiaries             |  |                     |          |   |                             |   |             |  |       |  |  |   |          |  
|                                               |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Other income (expense):                        |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Interest expense                               |  |                     | (51,646   | ) |                             |   |             |  |       |  |  |   | (51,646   | )
|Miscellaneous                                  |  |                     | 728       |   |                             |   |             |  |       |  |  |   | 728       |  
|                                               |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Total other expense                            |  |                     | (50,918   | ) |                             |   |             |  |       |  |  |   | (50,918   | )
|                                               |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Income before income taxes                     |  |                     | 2,934     |   |                             |   |             |  |       |  |  |   | 2,934     |  
|Income tax expense                             |  |                     | (1,130    | ) |                             |   |             |  |       |  |  |   | (1,130    | )
|                                               |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Net income                                     |  | $                   | 1,804     |   |                             | $ |             |  | $     |  |  | $ | 1,804     |  
|                                               |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  



39



---

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



THE PANTRY, INC. AND SUBSIDIARIES



SUPPLEMENTAL COMBINING STATEMENTS OF CASH FLOWS



Year Ended September 26, 2002

(Dollars in thousands)



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



40



---

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



THE PANTRY, INC. AND SUBSIDIARIES



SUPPLEMENTAL COMBINING STATEMENT OF OPERATIONS



Year Ended September 27, 2001

(Dollars in thousands)



|                                               |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|---------------------------------------------- |  | ------------------- | --------- | - | --------------------------- | - | ------------ |  | ----- | - |  | - | --------- | -
|                                               |  | The Pantry (Issuer) |           |   | Total GuarantorSubsidiaries |   | Eliminations |  | Total |  
|Revenues:                                      |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Merchandise sales                              |  | $                   | 968,614   |   |                             | $ |             |  | $     |  |  | $ | 968,614   |  
|Gasoline sales                                 |  |                     | 1,652,725 |   |                             |   |             |  |       |  |  |   | 1,652,725 |  
|Commissions                                    |  |                     | 21,705    |   |                             |   |             |  |       |  |  |   | 21,705    |  
|                                               |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Total revenues                                 |  |                     | 2,643,044 |   |                             |   |             |  |       |  |  |   | 2,643,044 |  
|                                               |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Cost of sales:                                 |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Merchandise                                    |  |                     | 645,012   |   |                             |   |             |  |       |  |  |   | 645,012   |  
|Gasoline                                       |  |                     | 1,510,389 |   |                             |   |             |  |       |  |  |   | 1,510,389 |  
|                                               |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Total cost of sales                            |  |                     | 2,155,401 |   |                             |   |             |  |       |  |  |   | 2,155,401 |  
|                                               |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Gross profit                                   |  |                     | 487,643   |   |                             |   |             |  |       |  |  |   | 487,643   |  
|                                               |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Operating expenses:                            |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Operating, general and administrative expenses |  |                     | 364,134   |   |                             |   |             |  |       |  |  |   | 364,134   |  
|Restructuring and other charges                |  |                     | 4,771     |   |                             |   |             |  |       |  |  |   | 4,771     |  
|Depreciation and amortization                  |  |                     | 63,545    |   |                             |   |             |  |       |  |  |   | 63,545    |  
|                                               |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Total operating expenses                       |  |                     | 432,450   |   |                             |   |             |  |       |  |  |   | 432,450   |  
|                                               |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Income from operations                         |  |                     | 55,193    |   |                             |   |             |  |       |  |  |   | 55,193    |  
|                                               |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Equity in earnings of subsidiaries             |  |                     |          |   |                             |   |             |  |       |  |  |   |          |  
|                                               |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Other income (expense):                        |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Interest expense                               |  |                     | (58,731   | ) |                             |   |             |  |       |  |  |   | (58,731   | )
|Miscellaneous                                  |  |                     | 1,753     |   |                             |   |             |  |       |  |  |   | 1,753     |  
|                                               |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Total other expense                            |  |                     | (56,978   | ) |                             |   |             |  |       |  |  |   | (56,978   | )
|                                               |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Loss before income taxes                       |  |                     | (1,785    | ) |                             |   |             |  |       |  |  |   | (1,785    | )
|Income tax expense                             |  |                     | (871      | ) |                             |   |             |  |       |  |  |   | (871      | )
|                                               |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  
|Net loss                                       |  | $                   | (2,656    | ) |                             | $ |             |  | $     |  |  | $ | (2,656    | )
|                                               |  |                     |           |   |                             |   |              |  |       |   |  |   |           |  



41



---

THE PANTRY, INC.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



THE PANTRY, INC. AND SUBSIDIARIES



SUPPLEMENTAL COMBINING STATEMENTS OF CASH FLOWS



Year Ended September 27, 2001

(Dollars in thousands)



|                                                                                |  |                     |         |   |                      |   |        |              |  |   |       |   |  |   |         |  
|------------------------------------------------------------------------------- |  | ------------------- | ------- | - | -------------------- | - | ------ | ------------ |  | - | ----- | - |  | - | ------- | -
|                                                                                |  | The Pantry (Issuer) |         |   | Guarantor Subsidiary |   |        | Eliminations |  |   | Total |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                           |  |                     |         |   |                      |   |        |              |  |   |       |   |  |   |         |  
|Net loss                                                                        |  | $                   | (2,656  | ) |                      | $ |       |              |  | $ |      |   |  | $ | (2,656  | )
|Adjustments to reconcile net loss to net cash provided by operating activities: |  |                     |         |   |                      |   |        |              |  |   |       |   |  |   |         |  
|Depreciation and amortization                                                   |  |                     | 63,545  |   |                      |   |       |              |  |   |      |   |  |   | 63,545  |  
|Provision for deferred income taxes                                             |  |                     | 2,532   |   |                      |   | (1,661 | )            |  |   |      |   |  |   | 871     |  
|Loss on sale of property and equipment                                          |  |                     | 131     |   |                      |   |        |              |  |   |      |   |  |   | 131     |  
|Impairment of long-lived assets                                                 |  |                     | 2,298   |   |                      |   |       |              |  |   |      |   |  |   | 2,298   |  
|Fair market value change in non-qualifying derivatives                          |  |                     | 4,244   |   |                      |   |       |              |  |   |      |   |  |   | 4,244   |  
|Provision for closed stores                                                     |  |                     | 1,919   |   |                      |   |       |              |  |   |      |   |  |   | 1,919   |  
|Changes in operating assets and liabilities, net:                               |  |                     |         |   |                      |   |        |              |  |   |       |   |  |   |         |  
|Receivables                                                                     |  |                     | (5,059  | ) |                      |   | 199    |              |  |   |      |   |  |   | (4,860  | )
|Inventories                                                                     |  |                     | 9,469   |   |                      |   |       |              |  |   |      |   |  |   | 9,469   |  
|Prepaid expenses                                                                |  |                     | 2,121   |   |                      |   |       |              |  |   |      |   |  |   | 2,121   |  
|Other noncurrent assets                                                         |  |                     | 3,049   |   |                      |   | (1     | )            |  |   |      |   |  |   | 3,048   |  
|Accounts payable                                                                |  |                     | (7,762  | ) |                      |   |       |              |  |   |      |   |  |   | (7,762  | )
|Other current liabilities and accrued expenses                                  |  |                     | 1,194   |   |                      |   |       |              |  |   |      |   |  |   | 1,194   |  
|Reserves for environmental expenses                                             |  |                     | (1,859  | ) |                      |   |       |              |  |   |      |   |  |   | (1,859  | )
|Other noncurrent liabilities                                                    |  |                     | 5,585   |   |                      |   | (521   | )            |  |   | (65   | ) |  |   | 4,999   |  
|                                                                                |  |                     |         |   |                      |   |        |              |  |   |       |   |  |   |         |  
|Net cash provided (used) in operating activities                                |  |                     | 78,751  |   |                      |   | (1,984 | )            |  |   | (65   | ) |  |   | 76,702  |  
|                                                                                |  |                     |         |   |                      |   |        |              |  |   |       |   |  |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES:                                           |  |                     |         |   |                      |   |        |              |  |   |       |   |  |   |         |  
|Additions to property held for sale                                             |  |                     | (1,637  | ) |                      |   |       |              |  |   |      |   |  |   | (1,637  | )
|Additions to property and equipment                                             |  |                     | (43,582 | ) |                      |   |       |              |  |   |      |   |  |   | (43,582 | )
|Proceeds from sale lease-back transactions                                      |  |                     | 3,504   |   |                      |   |       |              |  |   |      |   |  |   | 3,504   |  
|Proceeds from sale of property and equipment                                    |  |                     | 3,567   |   |                      |   | 194    |              |  |   |      |   |  |   | 3,761   |  
|Intercompany notes receivable (payable)                                         |  |                     | (1,765  | ) |                      |   | 1,700  |              |  |   | 65    |   |  |   |        |  
|Acquisitions of related businesses, net of cash acquired                        |  |                     | (55,993 | ) |                      |   |       |              |  |   |      |   |  |   | (55,993 | )
|                                                                                |  |                     |         |   |                      |   |        |              |  |   |       |   |  |   |         |  
|Net cash provided (used) in investing activities                                |  |                     | (95,906 | ) |                      |   | 1,894  |              |  |   | 65    |   |  |   | (93,947 | )
|                                                                                |  |                     |         |   |                      |   |        |              |  |   |       |   |  |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                           |  |                     |         |   |                      |   |        |              |  |   |       |   |  |   |         |  
|Principal repayments under capital leases                                       |  |                     | (2,070  | ) |                      |   |       |              |  |   |      |   |  |   | (2,070  | )
|Principal repayments of long-term debt                                          |  |                     | (23,487 | ) |                      |   |       |              |  |   |      |   |  |   | (23,487 | )
|Proceeds from issuance of long-term debt                                        |  |                     | 40,037  |   |                      |   |       |              |  |   |      |   |  |   | 40,037  |  
|Proceeds from exercise of stock options, net of repurchases                     |  |                     | 25      |   |                      |   |        |              |  |   |       |   |  |   | 25      |  
|Repayments of shareholder loans                                                 |  |                     | 75      |   |                      |   |       |              |  |   |      |   |  |   | 75      |  
|Other financing costs                                                           |  |                     | (78     | ) |                      |   |       |              |  |   |      |   |  |   | (78     | )
|                                                                                |  |                     |         |   |                      |   |        |              |  |   |       |   |  |   |         |  
|Net cash provided by financing activities                                       |  |                     | 14,502  |   |                      |   |       |              |  |   |      |   |  |   | 14,502  |  
|                                                                                |  |                     |         |   |                      |   |        |              |  |   |       |   |  |   |         |  
|Net decrease in cash                                                            |  |                     | (2,653  | ) |                      |   | (90    | )            |  |   |      |   |  |   | (2,743  | )
|CASH & CASH EQUIVALENTS, BEGINNING OF YEAR                                      |  |                     | 53,264  |   |                      |   | 90     |              |  |   |      |   |  |   | 53,354  |  
|                                                                                |  |                     |         |   |                      |   |        |              |  |   |       |   |  |   |         |  
|CASH & CASH EQUIVALENTS, END OF YEAR                                            |  | $                   | 50,611  |   |                      | $ |       |              |  | $ |      |   |  | $ | 50,611  |  
|                                                                                |  |                     |         |   |                      |   |        |              |  |   |       |   |  |   |         |  



42



---

PART IV



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



(a) Financial Statements, Financial Statement Schedules and Exhibits.



| | (i) | Consolidated Financial StatementsSee index on page 3 of this Amendment No. 2 to the Annual Report on Form 10-K filed on December 9, 2003.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------



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



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



|            |  |                                                                                                                                                                                                                                                                                                                                              
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                                                                                      
|            | 
|2.1(1)      |  | Purchase Agreement dated August 25, 2003 by and among The Pantry, Ahold Real Properties LLC, Golden Gallon Holding LLC, Golden Gallon-GA LLC, Golden Gallon-TN LLC, and for limited purposes,
Ahold USA, Inc., BI-LO, LLC and BI-LO Brands, Inc.                                                                                             
|            | 
|2.2(1)      |  | List of Exhibits and Schedules omitted from the Purchase Agreement referenced in Exhibit 2.1 above.                                                                                                                                                                                                                                          
|            | 
|2.3(1)      |  | Purchase and Sale Agreement dated October 9, 2003 by and among The Pantry, RI TN 1, LLC, RI TN 2, LLC, RI GA 1, LLC, and Crestnet 1, LLC.                                                                                                                                                                                                    
|            | 
|2.4(1)      |  | List of Exhibits omitted from the Purchase and Sale Agreement referenced in Exhibit 2.3 above.                                                                                                                                                                                                                                               
|            | 
|2.5(1)      |  | Form of Lease Agreement between The Pantry and certain parties to the Purchase and Sale Agreement referenced in Exhibit 2.3 above.                                                                                                                                                                                                           
|            | 
|2.6(1)      |  | Intellectual Property Transfer and Agreement to be Bound dated October 16, 2003 by and between Koninklijke Ahold N.V. and The Pantry.                                                                                                                                                                                                        
|            | 
|2.7(1)      |  | List of Schedules and Exhibits omitted from Intellectual Property Transfer and Agreement to be Bound referenced in Exhibit 2.6 above.                                                                                                                                                                                                        
|            | 
|3.1(2)      |  | Amended and Restated Certificate of Incorporation of The Pantry.                                                                                                                                                                                                                                                                             
|            | 
|3.2(2)      |  | Amended and Restated Bylaws of The Pantry.                                                                                                                                                                                                                                                                                                   
|            | 
|4.1(3)      |  | Indenture dated as of October 23, 1997 among The Pantry, Sandhills, Lil Champ and United States Trust Company of New York, as Trustee, with respect to the 101⁄4% Senior Subordinated
Notes due 2007 (including the form of 10 1/4% Senior Subordinated Notes due 2007).                                                                      
|            | 
|4.2(2)      |  | Amended and Restated Registration Rights Agreement dated July 2, 1998 among The Pantry, FS Equity Partners III, L.P. (FSEP III), FS Equity Partners IV, L.P. (FSEP IV),
FS Equity Partners International, L.P. (FSEP International), Peter J. Sodini, Chase Manhattan Capital, L.P., CB Capital Investors, L.P., and Baseball Partners.
|            | 
|4.3(4)      |  | Amendment No. 1 to the Amended and Restated Registration Rights Agreement dated as of June 1, 1999 among The Pantry, FSEP III, FSEP IV, FSEP International, Chase Manhattan Capital, L.P., CB
Capital Investors, L.P., Baseball Partners and Peter J. Sodini.                                                                                
|            | 
|4.4*        |  | Registration Rights Agreement dated December 30, 1996, by and among The Pantry, FSEP III and FSEP International.                                                                                                                                                                                                                             
|            | 
|10.1(5)(6)  |  | The Pantry, Inc. 1998 Stock Option Plan.                                                                                                                                                                                                                                                                                                     



43



---

|            |  |                                                                                                                                                                                                                                                                                                                                                     
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                                                                                             
|            | 
|10.2(2)     |  | Form of Incentive Stock Option Agreement.                                                                                                                                                                                                                                                                                                           
|            | 
|10.3(3)     |  | Stock Purchase Agreement dated October 23, 1997 among The Pantry, FSEP III, FSEP International, CB Capital Investors, L.P. and Peter J. Sodini.                                                                                                                                                                                                     
|            | 
|10.4(3)     |  | Contribution to Capital Agreement dated October 23, 1997 among The Pantry, FSEP III, FSEP International, Chase Manhattan Capital, L.P., and Baseball Partners.                                                                                                                                                                                      
|            | 
|10.5(7)     |  | Amended and Restated Credit Agreement dated April 14, 2003 among The Pantry, as borrower, R&H Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, as guarantors, Wachovia, as
administrative agent and lender, Wells Fargo, as syndication agent and lender and Credit Industriel Et Commercial and Smoky River CDO L.P., as lenders.      
|            | 
|10.6(1)     |  | First Amendment to Credit Agreement dated October 16, 2003 by and among The Pantry, as borrower, R&H Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, as guarantors, Wachovia,
as administrative agent and lender, Wells Fargo, as syndication agent and lender and certain other lenders, as identified in the signature pages thereto.
|            | 
|10.7(7)     |  | Amended and Restated Pledge Agreement dated as of April 14, 2003 between The Pantry and R&H Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, all as pledgors and Wachovia, as
administrative agent.                                                                                                                                     
|            | 
|10.8(7)     |  | Amended and Restated Security Agreement dated as of April 14, 2003 between The Pantry and R&H Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, all as obligors and Wachovia, as
administrative agent.                                                                                                                                   
|            | 
|10.9(3)     |  | Company Trademark Security Agreement dated as of October 23, 1997 between The Pantry and First Union, as administrative agent.                                                                                                                                                                                                                      
|            | 
|10.10(3)    |  | Form of Amended and Restated Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing (North Carolina) dated October 23, 1997 among The Pantry, David R. Cannon, as
Trustee, and First Union as Agent.                                                                                                                  
|            | 
|10.11(3)(6) |  | Employment Agreement dated October 1, 1997 between Peter J. Sodini and The Pantry.                                                                                                                                                                                                                                                                  
|            | 
|10.12(4)(6) |  | Amendment No. 1 to Employment Agreement between The Pantry and Peter J. Sodini.                                                                                                                                                                                                                                                                     
|            | 
|10.13(9)(6) |  | Amendment No. 2 to Employment Agreement between The Pantry and Peter J. Sodini.                                                                                                                                                                                                                                                                     
|            | 
|10.14(10)   |  | Amendment No. 3 to Employment Agreement between The Pantry and Peter J. Sodini.                                                                                                                                                                                                                                                                     
|            | 
|10.15(11)   |  | Employment Agreement dated May 2, 2003 between Daniel J. Kelly and The Pantry.                                                                                                                                                                                                                                                                      
|            | 
|10.16(11)   |  | Employment Agreement dated May 1, 2003 between Steven J. Ferreira and The Pantry.                                                                                                                                                                                                                                                                   
|            | 
|10.17(11)   |  | Employment Agreement dated May 3, 2003 between Joseph A. Krol and The Pantry.                                                                                                                                                                                                                                                                       
|            | 
|10.18(11)   |  | Employment Agreement dated May 6, 2003 between David M. Zaborski and The Pantry.                                                                                                                                                                                                                                                                    
|            | 
|10.19(11)   |  | Employment Agreement dated May 6, 2003 between Gregory J. Tornberg and The Pantry.                                                                                                                                                                                                                                                                  
|            | 
|10.20(3)    |  | Form of Amended and Restated Mortgage, Security Agreement, Assignment of Rents and Leases And Fixture Filing (South Carolina) dated October 23, 1997 between The Pantry and First Union, as
Agent.                                                                                                                                                  



44



---

|             |  |                                                                                                                                                                                                                                                                                                                                     
|------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No.  |  | Description of Document                                                                                                                                                                                                                                                                                                             
|             | 
|10.21(3)     |  | Form of Amended and Restated Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Tennessee) dated October 23, 1997 among The Pantry, David R. Cannon, as
Trustee, and First Union, as Agent.                                                                                                      
|             | 
|10.22(3)     |  | Form of Amended and Restated Mortgage, Security Agreement, Assignment of Rents and Leases (Kentucky) dated October 23, 1997 between The Pantry and First Union, as Agent.                                                                                                                                                           
|             | 
|10.23(3)     |  | Form of Amended and Restated Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Indiana) dated October 23, 1997 between The Pantry and First Union, as
Agent.                                                                                                                                         
|             | 
|10.24(3)     |  | Form of Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Florida) dated October 23, 1997 between Lil Champ and First Union, as Agent.                                                                                                                                                              
|             | 
|10.25(3)     |  | Form of Deed to Secure Debt, Security Agreement, and Assignment of Rents (Georgia) dated October 23, 1997 between Lil Champ and First Union, as Agent.                                                                                                                                                                             
|             | 
|10.26(2)     |  | Form of Subsidiary Guaranty.                                                                                                                                                                                                                                                                                                        
|             | 
|10.27(2)     |  | Form of Subsidiary Security Agreement.                                                                                                                                                                                                                                                                                              
|             | 
|10.28(2)     |  | Form of Subsidiary Pledge Agreement.                                                                                                                                                                                                                                                                                                
|             | 
|10.29(2)     |  | Form of Subsidiary Trademark Security Agreement.                                                                                                                                                                                                                                                                                    
|             | 
|10.30(8)     |  | The Pantry Inc. 1998 Stock Subscription Plan.                                                                                                                                                                                                                                                                                       
|             | 
|10.31(2)     |  | Form of Stock Subscription Agreement.                                                                                                                                                                                                                                                                                               
|             | 
|10.32(2)     |  | Stock Purchase Agreement dated July 2, 1998 among The Pantry, FSEP IV and CB Capital Investors, L.P.                                                                                                                                                                                                                                
|             | 
|10.33(9)     |  | Distribution Service Agreement dated as of March 29, 1998 among The Pantry, Lil Champ and McLane Company, Inc., as amended (asterisks located within the exhibit denote information which
has been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission).                               
|             | 
|10.34(12)    |  | Third Amendment to the Distribution Service Agreement by and among The Pantry, Lil Champ Food Stores, Inc. and McLane Company, Inc. dated October 5, 2002 (asterisks located within the
exhibit denote information which has been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission).
|             | 
|10.35*       |  | Fourth Amendment to the Distribution Service Agreement dated October 16, 2003, by and between The Pantry and McLane Company, Inc. (asterisks located within the exhibit denote information
which has been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission).                         
|             | 
|10.36(2)     |  | Form of Indemnification Agreement.                                                                                                                                                                                                                                                                                                  
|             | 
|10.37(2)     |  | Common Stock Purchase Warrant dated December 30, 1996.                                                                                                                                                                                                                                                                              
|             | 
|10.38(2)     |  | Common Stock Purchase Warrant dated December 30, 1996.                                                                                                                                                                                                                                                                              
|             | 
|10.39(2)     |  | 1999 Stock Option Plan.                                                                                                                                                                                                                                                                                                             
|             | 
|10.40(6)(12) |  | Management and Administrative Incentive Plan.                                                                                                                                                                                                                                                                                       
|             | 
|10.41(13)    |  | Branded Jobber Contract between The Pantry and BP Products North America Inc. dated as of February 1, 2003, as amended (asterisks located within the exhibit denote information which has been
deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission).                                    



45



---

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            | 
|10.42(13)   |  | Distributor Franchise Agreement between The Pantry and CITGO Petroleum Corporation dated as of August 2000, including Amended and Restated Addendum dated February 11, 2003 (asterisks located
within the exhibit denote information which has been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission).                                                                                                                                                      
|            | 
|10.43(13)   |  | Letter of Preferability regarding change in Goodwill Impairment test date change from Deloitte & Touche LLP.                                                                                                                                                                                                                                                                                                                                                                                               
|            | 
|10.44*      |  | Letter Agreement dated November 4, 2003 by and among The Pantry, as borrower, R&H Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, as guarantors, and Wachovia, as
administrative agent and lender.                                                                                                                                                                                                                                                                                            
|            | 
|10.45*(6)   |  | Amendment No. 4 to Employment Agreement between The Pantry and Peter J. Sodini.                                                                                                                                                                                                                                                                                                                                                                                                                            
|            | 
|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.                                                                                                                                                                                                                                                                                                                                               
|            | 
|31.5        |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                               
|            | 
|31.6        |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                               
|            | 
|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.]



46



---

|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|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 25, 2003, filed with the Securities and Exchange Commission on December 9, 2003.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



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



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



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



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



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



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



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



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



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



(b) Reports on Form 8-K.



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



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



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



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



47



---

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. 2 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: June 29, 2004




Pursuant to the
requirements of the Securities Exchange Act of 1934 this Amendment No. 2 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) |  | June 29, 2004
|                                            |  |                                                                              
|/s/    Daniel J. KellyDaniel J. Kelly       |  | Vice President and Chief Financial Officer (Principal Accounting Officer)     |  | June 29, 2004
|                                            |  |                                                                              
|/s/    Berry L. EpleyBerry L. Epley         |  | Corporate Controller                                                          |  | June 29, 2004
|                                            |  |                                                                              
|/s/    Todd W. HalloranTodd W. Halloran     |  | Director                                                                      |  | June 29, 2004
|                                            |  |                                                                              
|/s/    Charles P. RullmanCharles P. Rullman |  | Director                                                                      |  | June 29, 2004
|                                            |  |                                                                              
|Byron E. Allumbaugh                         |  | Director                                                                      |  |              
|                                            |  |                                                                              
|Peter M. Starrett                           |  | Director                                                                      |  |              
|                                            |  |                                                                              
|/s/    Paul M. BrunswickPaul M. Brunswick   |  | Director                                                                      |  | June 29, 2004
|                                            |  |                                                                              
|Hubert E. Yarborough, III                   |  | Director                                                                      |  |              
|                                            |  |                                                                              
|/s/    Thomas M. MurnaneThomas M. Murnane   |  | Director                                                                      |  | June 29, 2004



48



---

EXHIBIT INDEX



|            |  |                                                                                                                                                                                                                                                                                                                                              
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                                                                                      
|            | 
|2.1(1)      |  | Purchase Agreement dated August 25, 2003 by and among The Pantry, Ahold Real Properties LLC, Golden Gallon Holding LLC, Golden Gallon-GA LLC, Golden Gallon-TN LLC, and for limited purposes,
Ahold USA, Inc., BI-LO, LLC and BI-LO Brands, Inc.                                                                                             
|            | 
|2.2(1)      |  | List of Exhibits and Schedules omitted from the Purchase Agreement referenced in Exhibit 2.1 above.                                                                                                                                                                                                                                          
|            | 
|2.3(1)      |  | Purchase and Sale Agreement dated October 9, 2003 by and among The Pantry, RI TN 1, LLC, RI TN 2, LLC, RI GA 1, LLC, and Crestnet 1, LLC.                                                                                                                                                                                                    
|            | 
|2.4(1)      |  | List of Exhibits omitted from the Purchase and Sale Agreement referenced in Exhibit 2.3 above.                                                                                                                                                                                                                                               
|            | 
|2.5(1)      |  | Form of Lease Agreement between The Pantry and certain parties to the Purchase and Sale Agreement referenced in Exhibit 2.3 above.                                                                                                                                                                                                           
|            | 
|2.6(1)      |  | Intellectual Property Transfer and Agreement to be Bound dated October 16, 2003 by and between Koninklijke Ahold N.V. and The Pantry.                                                                                                                                                                                                        
|            | 
|2.7(1)      |  | List of Schedules and Exhibits omitted from Intellectual Property Transfer and Agreement to be Bound referenced in Exhibit 2.6 above.                                                                                                                                                                                                        
|            | 
|3.1(2)      |  | Amended and Restated Certificate of Incorporation of The Pantry.                                                                                                                                                                                                                                                                             
|            | 
|3.2(2)      |  | Amended and Restated Bylaws of The Pantry.                                                                                                                                                                                                                                                                                                   
|            | 
|4.1(3)      |  | Indenture dated as of October 23, 1997 among The Pantry, Sandhills, Lil Champ and United States Trust Company of New York, as Trustee, with respect to the 101⁄4% Senior Subordinated
Notes due 2007 (including the form of 10 1/4% Senior Subordinated Notes due 2007).                                                                      
|            | 
|4.2(2)      |  | Amended and Restated Registration Rights Agreement dated July 2, 1998 among The Pantry, FS Equity Partners III, L.P. (FSEP III), FS Equity Partners IV, L.P. (FSEP IV),
FS Equity Partners International, L.P. (FSEP International), Peter J. Sodini, Chase Manhattan Capital, L.P., CB Capital Investors, L.P., and Baseball Partners.
|            | 
|4.3(4)      |  | Amendment No. 1 to the Amended and Restated Registration Rights Agreement dated as of June 1, 1999 among The Pantry, FSEP III, FSEP IV, FSEP International, Chase Manhattan Capital, L.P., CB
Capital Investors, L.P., Baseball Partners and Peter J. Sodini.                                                                                
|            | 
|4.4*        |  | Registration Rights Agreement dated December 30, 1996, by and among The Pantry, FSEP III and FSEP International.                                                                                                                                                                                                                             
|            | 
|10.1(5)(6)  |  | The Pantry, Inc. 1998 Stock Option Plan.                                                                                                                                                                                                                                                                                                     
|            | 
|10.2(2)     |  | Form of Incentive Stock Option Agreement.                                                                                                                                                                                                                                                                                                    
|            | 
|10.3(3)     |  | Stock Purchase Agreement dated October 23, 1997 among The Pantry, FSEP III, FSEP International, CB Capital Investors, L.P. and Peter J. Sodini.                                                                                                                                                                                              
|            | 
|10.4(3)     |  | Contribution to Capital Agreement dated October 23, 1997 among The Pantry, FSEP III, FSEP International, Chase Manhattan Capital, L.P., and Baseball Partners.                                                                                                                                                                               





---

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





---

|             |  |                                                                                                                                                                                                                                                                                                                                     
|------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No.  |  | Description of Document                                                                                                                                                                                                                                                                                                             
|             | 
|10.23(3)     |  | Form of Amended and Restated Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Indiana) dated October 23, 1997 between The Pantry and First Union, as
Agent.                                                                                                                                         
|             | 
|10.24(3)     |  | Form of Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Florida) dated October 23, 1997 between Lil Champ and First Union, as Agent.                                                                                                                                                              
|             | 
|10.25(3)     |  | Form of Deed to Secure Debt, Security Agreement, and Assignment of Rents (Georgia) dated October 23, 1997 between Lil Champ and First Union, as Agent.                                                                                                                                                                             
|             | 
|10.26(2)     |  | Form of Subsidiary Guaranty.                                                                                                                                                                                                                                                                                                        
|             | 
|10.27(2)     |  | Form of Subsidiary Security Agreement.                                                                                                                                                                                                                                                                                              
|             | 
|10.28(2)     |  | Form of Subsidiary Pledge Agreement.                                                                                                                                                                                                                                                                                                
|             | 
|10.29(2)     |  | Form of Subsidiary Trademark Security Agreement.                                                                                                                                                                                                                                                                                    
|             | 
|10.30(8)     |  | The Pantry Inc. 1998 Stock Subscription Plan.                                                                                                                                                                                                                                                                                       
|             | 
|10.31(2)     |  | Form of Stock Subscription Agreement.                                                                                                                                                                                                                                                                                               
|             | 
|10.32(2)     |  | Stock Purchase Agreement dated July 2, 1998 among The Pantry, FSEP IV and CB Capital Investors, L.P.                                                                                                                                                                                                                                
|             | 
|10.33(9)     |  | Distribution Service Agreement dated as of March 29, 1998 among The Pantry, Lil Champ and McLane Company, Inc., as amended (asterisks located within the exhibit denote information which
has been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission).                               
|             | 
|10.34(12)    |  | Third Amendment to the Distribution Service Agreement by and among The Pantry, Lil Champ Food Stores, Inc. and McLane Company, Inc. dated October 5, 2002 (asterisks located within the
exhibit denote information which has been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission).
|             | 
|10.35*       |  | Fourth Amendment to the Distribution Service Agreement dated October 16, 2003, by and between The Pantry and McLane Company, Inc. (asterisks located within the exhibit denote information
which has been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission).                         
|             | 
|10.36(2)     |  | Form of Indemnification Agreement.                                                                                                                                                                                                                                                                                                  
|             | 
|10.37(2)     |  | Common Stock Purchase Warrant dated December 30, 1996.                                                                                                                                                                                                                                                                              
|             | 
|10.38(2)     |  | Common Stock Purchase Warrant dated December 30, 1996.                                                                                                                                                                                                                                                                              
|             | 
|10.39(2)     |  | 1999 Stock Option Plan.                                                                                                                                                                                                                                                                                                             
|             | 
|10.40(6)(12) |  | Management and Administrative Incentive Plan.                                                                                                                                                                                                                                                                                       
|             | 
|10.41(13)    |  | Branded Jobber Contract between The Pantry and BP Products North America Inc. dated as of February 1, 2003, as amended (asterisks located within the exhibit denote information which has been
deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission).                                    





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|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            | 
|10.42(13)   |  | Distributor Franchise Agreement between The Pantry and CITGO Petroleum Corporation dated as of August 2000, including Amended and Restated Addendum dated February 11, 2003 (asterisks located
within the exhibit denote information which has been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission).                                                                                                                                                      
|            | 
|10.43(13)   |  | Letter of Preferability regarding change in Goodwill Impairment test date change from Deloitte & Touche LLP.                                                                                                                                                                                                                                                                                                                                                                                               
|            | 
|10.44*      |  | Letter Agreement dated November 4, 2003 by and among The Pantry, as borrower, R&H Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, as guarantors, and Wachovia, as
administrative agent and lender.                                                                                                                                                                                                                                                                                            
|            | 
|10.45* (6)  |  | Amendment No. 4 to Employment Agreement between The Pantry and Peter J. Sodini.                                                                                                                                                                                                                                                                                                                                                                                                                            
|            | 
|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.                                                                                                                                                                                                                                                                                                                                               
|            | 
|31.5        |  | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                               
|            | 
|31.6        |  | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                               
|            | 
|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.]





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|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|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 25, 2003, filed with the Securities and Exchange Commission on December 9, 2003.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



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



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



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



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



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



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



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



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



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