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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 27, 2007

Commission File Number: 000-25813



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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 No.)

P.O. Box 1410

1801 Douglas Drive

Sanford, North Carolina

27331-1410

(Zip Code)

(Address of principal executive offices)



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



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



|                             |  |                                          
|---------------------------- |  | -----------------------------------------
|Title of each class          |  | Name of each exchange on which registered
|Common Stock, $.01 par value |  | The NASDAQ Stock Market LLC              

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

NONE



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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ̈No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ̈No x

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 a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):



|                          |  |                    |  |                       
|------------------------- |  | ------------------ |  | ----------------------
|Large accelerated filer x |  | Accelerated filer ̈ |  | Non-accelerated filer ̈

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

The aggregate market value of the voting common stock held by non-affiliates of the registrant as of March 29, 2007 was $902,971,148

As of November 21, 2007, there were issued and outstanding 22,193,949 shares of the registrants common stock.

Documents Incorporated by Reference



|                                                                                         |  |                   
|---------------------------------------------------------------------------------------- |  | ------------------
|Document                                                                                 |  | Where Incorporated
|1.      Proxy Statement for the Annual Meeting of Stockholders to be held March 27, 2008 |  | Part III          



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##### Table of Contents

THE PANTRY, INC.

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS



|         |  |                                                                                                     |  |     
|-------- |  | --------------------------------------------------------------------------------------------------- |  | ----
|         |  |                                                                                                     |  | Page
|Part I   |  |                                                                                                     |  |     
|Item 1:  |  | Business                                                                                            |  | 1   
|Item 1A: |  | Risk Factors                                                                                        |  | 11  
|Item 1B: |  | Unresolved Staff Comments                                                                           |  | 21  
|Item 2:  |  | Properties                                                                                          |  | 21  
|Item 3:  |  | Legal Proceedings                                                                                   |  | 21  
|Item 4:  |  | Submission of Matters to a Vote of Security Holders                                                 |  | 23  
|         |  |                                                                                                    
|Part II  |  |                                                                                                     |  |     
|Item 5:  |  | Market for Our Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 24  
|Item 6:  |  | Selected Financial Data                                                                             |  | 26  
|Item 7:  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations               |  | 30  
|Item 7A: |  | Quantitative and Qualitative Disclosures About Market Risk                                          |  | 53  
|Item 8:  |  | Consolidated Financial Statements and Supplementary Data                                            |  | 55  
|Item 9:  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                |  | 92  
|Item 9A: |  | Controls and Procedures                                                                             |  | 92  
|Item 9B: |  | Other Information                                                                                   |  | 95  
|         |  |                                                                                                    
|Part III |  |                                                                                                     |  |     
|Item 10: |  | Directors, Executive Officers and Corporate Governance                                              |  | 96  
|Item 11: |  | Executive Compensation                                                                              |  | 96  
|Item 12: |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters      |  | 96  
|Item 13: |  | Certain Relationships and Related Transactions, and Director Independence                           |  | 96  
|Item 14: |  | Principal Accounting Fees and Services                                                              |  | 96  
|         |  |                                                                                                    
|Part IV  |  |                                                                                                     |  |     
|Item 15: |  | Exhibits and Financial Statement Schedule                                                           |  | 97  
|         |  | Signatures                                                                                          |  | 104 
|         |  | Schedule IIValuation and Qualifying Accounts and Reserves                                          |  | 105 



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PART I

Item 1.    Business.

General

We are the leading independently operated convenience store chain in the southeastern United
States and the third largest independently operated convenience store chain in the country based on store count. As of September 27, 2007, we operated 1,644 stores in 11 states under a number of selected banners including Kangaroo Express®, our primary operating banner. Our stores offer a broad selection of merchandise, gasoline and ancillary products and services designed to appeal to the convenience needs of our customers. Our
strategy is to continue to improve upon our position as the leading independently operated convenience store chain in the southeastern United States by generating profitable growth through merchandising initiatives, sophisticated management of our
gasoline business, upgrading our stores, leveraging our geographic economies of scale, benefiting from the favorable demographics of our markets, continuing to selectively pursue acquisitions and developing new stores.

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

Our Internet address is www.thepantry.com. We make available through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (Exchange Act), as soon as reasonably practicable after we electronically
file such material with, or furnish such material to, the Securities and Exchange Commission (SEC).

References in this annual
report to The Pantry, Pantry, we, us, our and our company refer to The Pantry, Inc. and its subsidiaries, and references to fiscal 2007 refer to our fiscal year
which ended September 27, 2007, references to fiscal 2006 refer to our fiscal year which ended September 28, 2006, references to fiscal 2005 refer to our fiscal year which ended September 29, 2005, references
to fiscal 2004 refer to our fiscal year which ended September 30, 2004, and references to fiscal 2003 refer to our fiscal year which ended September 25, 2003. Our fiscal year ended September 30, 2004 included
53 weeks, and all other periods presented included 52 weeks.

Operations

Merchandise Operations.    In fiscal 2007, our merchandise sales were 22.8% of our total revenues and gross profit on our
merchandise sales was 72.3% of our total gross profit. The following table highlights certain information with respect to our merchandise sales for the last five fiscal years:



|                                                                                                                     |  |                   |         |   |                   |   |         |                   |  |   |                   |   |  |                   |         |   |  |   |         |  
|-------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | ----------------- |  | - | ----------------- | - |  | ----------------- | ------- | - |  | - | ------- | -
|                                                                                                                     |  | Fiscal Year Ended |        
|                                                                                                                     |  | September 27,2007 |         |   | September 28,2006 |   |         | September 29,2005 |  |   | September 30,2004 |   |  | September 25,2003 |        
|Merchandise sales (in millions)                                                                                      |  | $                 | 1,575.9 |   |                   | $ | 1,385.7 |                   |  | $ | 1,228.9           |   |  | $                 | 1,172.8 |   |  | $ | 1,009.7 |  
|Average merchandise sales per store (in thousands)                                                                   |  | $                 | 998.7   |   |                   | $ | 954.3   |                   |  | $ | 897.7             |   |  | $                 | 856.7   |   |  | $ | 791.9   |  
|Comparable store merchandise sales increase                                                                          |  |                   | 2.3     | % |                   |   | 4.9     | %                 |  |   | 5.3               | % |  |                   | 3.4     | % |  |   | 0.9     | %
|Merchandise gross margins (after purchase rebates, markdowns, inventory spoilage, inventory shrink and LIFO reserve) |  |                   | 37.2    | % |                   |   | 37.4    | %                 |  |   | 36.6              | % |  |                   | 36.3    | % |  |   | 36.2    | %



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The increase in average merchandise sales per store in fiscal 2007 is primarily due to the fiscal 2007
comparable store merchandise sales increase of 2.3% and our fiscal 2007 acquisitions, which on average had higher per store merchandise volume than our typical store.

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



|                                            |  |                   |   |  |                   |   |  |                   |   |  |                   |   |  |                   |  
|------------------------------------------- |  | ----------------- | - |  | ----------------- | - |  | ----------------- | - |  | ----------------- | - |  | ----------------- | -
|                                            |  | Fiscal Year Ended |  
|                                            |  | September 27,2007 |   |  | September 28,2006 |   |  | September 29,2005 |   |  | September 30,2004 |   |  | September 25,2003 |  
|Tobacco products                            |  | 31.1              | % |  | 31.0              | % |  | 31.1              | % |  | 30.8              | % |  | 32.7              | %
|Packaged beverages                          |  | 17.5              |   |  | 16.9              |   |  | 16.3              |   |  | 15.7              |   |  | 15.1              |  
|Beer and wine                               |  | 15.6              |   |  | 15.9              |   |  | 16.3              |   |  | 16.8              |   |  | 16.1              |  
|General merchandise, health and beauty care |  | 5.9               |   |  | 6.0               |   |  | 6.3               |   |  | 6.0               |   |  | 6.3               |  
|Self-service fast foods and beverages       |  | 5.5               |   |  | 5.7               |   |  | 5.6               |   |  | 5.5               |   |  | 5.4               |  
|Salty snacks                                |  | 4.4               |   |  | 4.5               |   |  | 4.2               |   |  | 4.2               |   |  | 4.2               |  
|Fast food service                           |  | 4.3               |   |  | 4.2               |   |  | 4.2               |   |  | 3.9               |   |  | 4.2               |  
|Candy                                       |  | 4.0               |   |  | 3.9               |   |  | 3.9               |   |  | 3.8               |   |  | 4.1               |  
|Services                                    |  | 3.5               |   |  | 3.4               |   |  | 3.0               |   |  | 3.3               |   |  | 3.2               |  
|Dairy products                              |  | 2.5               |   |  | 2.7               |   |  | 3.1               |   |  | 3.3               |   |  | 2.7               |  
|Bread and cakes                             |  | 2.2               |   |  | 2.2               |   |  | 2.3               |   |  | 2.3               |   |  | 2.4               |  
|Grocery and other merchandise               |  | 2.2               |   |  | 2.1               |   |  | 2.1               |   |  | 2.7               |   |  | 1.8               |  
|Newspapers and magazines                    |  | 1.3               |   |  | 1.5               |   |  | 1.6               |   |  | 1.7               |   |  | 1.8               |  
|                                            |  |                   |   |  |                   |   |  |                   |   |  |                   |   |  |                   |  
|Total                                       |  | 100.0             | % |  | 100.0             | % |  | 100.0             | % |  | 100.0             | % |  | 100.0             | %
|                                            |  |                   |   |  |                   |   |  |                   |   |  |                   |   |  |                   |  

As of September 27, 2007, we operated
234 quick service restaurants within 222 of our locations. In 142 of these quick service restaurants, we offer products from nationally branded food franchises including Subway®,
Quiznos®, Hardees®, Krystal®, Churchs®, Dairy Queen®, and Bojangles®. In addition, we offer a variety of
proprietary food service programs in 92 quick service restaurants featuring breakfast biscuits, fried chicken, deli and other hot food offerings.

We purchase over 50% of our merchandise, including most tobacco and grocery items, from a single wholesale grocer, McLane Company, Inc. (McLane), a wholly owned subsidiary of Berkshire Hathaway Inc. We have a distribution
services agreement with McLane pursuant to which McLane is the primary distributor of traditional grocery products to our stores. We purchase the products at McLanes cost plus an agreed upon percentage, reduced by any promotional allowances
and volume rebates offered by manufacturers and McLane. In addition, we receive per store service allowances from McLane that are amortized over the remaining term of the agreement, which expires in April 2010. We purchase the balance of our
merchandise from a variety of other distributors. We do not have written contracts with a number of these vendors. All merchandise is delivered directly to our stores by McLane or other vendors. We do not maintain additional product inventories
other than what is in our stores.

Our services revenue is derived from sales of lottery tickets, prepaid products, money orders, services
such as public telephones, ATMs, amusement and video gaming and other ancillary product and service offerings. We also generate car wash revenue at over 250 of our stores.

Gasoline Operations.    We purchase our gasoline from major oil
companies and independent refiners. At our locations we offer a mix of branded and private brand gasoline based on an evaluation of local market conditions. Of our 1,623 stores that sold gasoline as of September 27, 2007, 1,093, or 67.3%, were
branded under the BP®, CITGO®, Chevron®, or ExxonMobil® brand names. We purchase our branded gasoline and diesel fuel from major oil companies under supply agreements. We purchase the fuel at the stated rack price, or market



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price, quoted at each terminal as adjusted per the terms of applicable contracts. The initial terms of these supply agreements have expiration dates ranging
from 2010 to 2012 and generally contain provisions for various payments to us based on volume of purchases and vendor allowances. We purchase the majority of our private branded gallons from CITGO Petroleum Corporation (CITGO®) There are approximately 60 gasoline terminals in our operating areas, allowing us to choose from more than one distribution point for most of our stores. Our inventories of gasoline
(both branded and private branded) turn approximately every four days.

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

In our wholesale business we purchase branded and unbranded gasoline
and arrange for its distribution to contracted independent operators of convenience stores and commercial end users. For fiscal 2007 our wholesale business accounted for approximately 3.0% of our total gasoline gallon volume and less than 1.0% of
our total gasoline gallon volume in fiscal 2006 and fiscal 2005.

In fiscal 2007, our gasoline revenues were 77.2% of our total revenues
and gross profit on our gasoline revenues was 27.7% of our total gross profit. The following table highlights certain information regarding our gasoline operations for the last five fiscal years:



|                                              |  |                   |         |   |                   |   |         |                   |  |   |                   |   |  |                   |         |   |  |   |         |  
|--------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | ----------------- |  | - | ----------------- | - |  | ----------------- | ------- | - |  | - | ------- | -
|                                              |  | Fiscal Year Ended |        
|                                              |  | September 27,2007 |         |   | September 28,2006 |   |         | September 29,2005 |  |   | September 30,2004 |   |  | September 25,2003 |        
|Retail                                        |  |                   |         |   |                   |   |         |                   |  |   |                   |   |  |                   |         |   |  |   |         |  
|Gasoline sales (in millions)                  |  | $                 | 5,192.2 |   |                   | $ | 4,533.4 |                   |  | $ | 3,191.3           |   |  | $                 | 2,313.2 |   |  | $ | 1,730.3 |  
|Gasoline gallons sold (in millions)           |  |                   | 2,032.8 |   |                   |   | 1,757.8 |                   |  |   | 1,496.5           |   |  |                   | 1,372.4 |   |  |   | 1,161.1 |  
|Average gallons sold per store (in thousands) |  |                   | 1,306.4 |   |                   |   | 1,230.1 |                   |  |   | 1,114.3           |   |  |                   | 1,022.6 |   |  |   | 933.3   |  
|Comparable store gallon growth                |  |                   | 1.0     | % |                   |   | 3.1     | %                 |  |   | 4.7               | % |  |                   | 2.0     | % |  |   | 0.7     | %
|Average price per gallon                      |  | $                 | 2.55    |   |                   | $ | 2.58    |                   |  | $ | 2.13              |   |  | $                 | 1.69    |   |  | $ | 1.49    |  
|Average gross profit per gallon               |  | $                 | 0.109   |   |                   | $ | 0.159   |                   |  | $ | 0.143             |   |  | $                 | 0.120   |   |  | $ | 0.125   |  
|Locations selling gasoline                    |  |                   | 1,623   |   |                   |   | 1,470   |                   |  |   | 1,377             |   |  |                   | 1,335   |   |  |   | 1,232   |  
|Branded locations                             |  |                   | 1,093   |   |                   |   | 971     |                   |  |   | 878               |   |  |                   | 890     |   |  |   | 872     |  
|Private brand locations                       |  |                   | 530     |   |                   |   | 499     |                   |  |   | 499               |   |  |                   | 445     |   |  |   | 360     |  
|Wholesale                                     |  |                   |         |   |                   |   |         |                   |  |   |                   |   |  |                   |         |   |  |   |         |  
|Gasoline sales (in millions)                  |  | $                 | 143.0   |   |                   | $ | 42.7    |                   |  | $ | 9.0               |   |  | $                 | 7.0     |   |  | $ | 10.4    |  
|Gasoline gallons sold (in millions)           |  |                   | 62.9    |   |                   |   | 17.1    |                   |  |   | 4.5               |   |  |                   | 4.5     |   |  |   | 9.2     |  
|Average gross profit per gallon               |  | $                 | 0.036   |   |                   | $ | 0.082   |                   |  | $ | 0.060             |   |  | $                 | 0.078   |   |  | $ | 0.037   |  

The increase in average gallons sold per store in fiscal 2007 is primarily due to the comparable
store gallon growth of 1.0%, our fiscal 2007 acquisitions which on average had higher per store gasoline volumes than our typical store, and our continued efforts to re-brand or re-image our gasoline facilities. In fiscal 2007, the gasoline markets
were volatile, with domestic crude oil hitting a low in January 2007 of approximately $50 per barrel and a high in September 2007 of approximately $84 per barrel. We attempt to pass along wholesale gasoline cost changes to our customers through
retail price changes; however, we are not always able to do so. The timing of any related increase or decrease in retail prices is affected by competitive conditions. As a result, we tend to experience lower gasoline margins in periods of rising
wholesale costs and higher margins in periods of decreasing wholesale costs. We are unable to ensure that significant volatility in gasoline wholesale prices will not negatively affect gasoline gross margins or demand for gasoline within our
markets.



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Store Locations.    As of September 27, 2007, we operated 1,644
convenience stores located primarily in growing markets, coastal/resort areas and along major interstates and highways. Approximately 32% of our stores are strategically located in coastal/resort areas such as Jacksonville, Orlando/Disney World,
Myrtle Beach, Charleston, St. Augustine, Hilton Head and Gulfport/Biloxi that attract a large number of tourists who we believe value convenience shopping. Additionally, approximately 25% of our total stores are situated along major interstates and
highways, which benefit from high traffic counts and customers seeking convenient fueling locations, including some stores in coastal/resort areas. Almost all of our stores are freestanding structures averaging approximately 2,700 square feet and
provide ample customer parking.

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



|               |  |                                               |   |  |                                          |  |                    |  |                    |  |                    |  |                   
|-------------- |  | --------------------------------------------- | - |  | ---------------------------------------- |  | ------------------ |  | ------------------ |  | ------------------ |  | ------------------
|               |  |                                               |   |  | Number of Stores as of Fiscal Year Ended
|State          |  | Percentage ofTotal Stores atSeptember 27,2007 |   |  | September 27, 2007                       |  | September 28, 2006 |  | September 29, 2005 |  | September 30, 2004 |  | September 25, 2003
|Florida        |  | 28.0                                          | % |  | 461                                      |  | 441                |  | 442                |  | 461                |  | 477               
|North Carolina |  | 23.5                                          |   |  | 387                                      |  | 325                |  | 304                |  | 322                |  | 328               
|South Carolina |  | 16.9                                          |   |  | 277                                      |  | 236                |  | 235                |  | 239                |  | 240               
|Georgia        |  | 8.3                                           |   |  | 136                                      |  | 125                |  | 126                |  | 98                 |  | 56                
|Tennessee      |  | 6.3                                           |   |  | 104                                      |  | 101                |  | 101                |  | 103                |  | 14                
|Alabama        |  | 5.1                                           |   |  | 83                                       |  | 77                 |  | 38                 |  |                   |  |                  
|Mississippi    |  | 5.0                                           |   |  | 82                                       |  | 73                 |  | 53                 |  | 51                 |  | 53                
|Virginia       |  | 3.0                                           |   |  | 50                                       |  | 50                 |  | 50                 |  | 30                 |  | 30                
|Kentucky       |  | 1.8                                           |   |  | 30                                       |  | 31                 |  | 33                 |  | 37                 |  | 38                
|Louisiana      |  | 1.5                                           |   |  | 25                                       |  | 25                 |  | 8                  |  | 8                  |  | 8                 
|Indiana        |  | 0.6                                           |   |  | 9                                        |  | 9                  |  | 10                 |  | 12                 |  | 14                
|               |  |                                               |   |  |                                          |  |                    |  |                    |  |                    |  |                   
|Total          |  | 100                                           | % |  | 1,644                                    |  | 1,493              |  | 1,400              |  | 1,361              |  | 1,258             
|               |  |                                               |   |  |                                          |  |                    |  |                    |  |                    |  |                   

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



|                                        |  |                   |   |  |                   |   |  |                   |   |  |                   |   |  |                   |  
|--------------------------------------- |  | ----------------- | - |  | ----------------- | - |  | ----------------- | - |  | ----------------- | - |  | ----------------- | -
|                                        |  | Fiscal Year Ended |  
|                                        |  | September 27,2007 |   |  | September 28,2006 |   |  | September 29,2005 |   |  | September 30,2004 |   |  | September 25,2003 |  
|Number of stores at beginning of period |  | 1,493             |   |  | 1,400             |   |  | 1,361             |   |  | 1,258             |   |  | 1,289             |  
|Acquired or opened                      |  | 162               |   |  | 117               |   |  | 97                |   |  | 140               |   |  | 4                 |  
|Closed or sold                          |  | (11               | ) |  | (24               | ) |  | (58               | ) |  | (37               | ) |  | (35               | )
|                                        |  |                   |   |  |                   |   |  |                   |   |  |                   |   |  |                   |  
|Number of stores at endof period        |  | 1,644             |   |  | 1,493             |   |  | 1,400             |   |  | 1,361             |   |  | 1,258             |  
|                                        |  |                   |   |  |                   |   |  |                   |   |  |                   |   |  |                   |  

Acquisitions.    We generally focus on selectively acquiring chains
within and contiguous to our existing market areas. In evaluating potential acquisition candidates, we consider a number of factors, including strategic fit, desirability of location, price and our ability to improve the productivity and
profitability of a location through the implementation of our operating strategy. Additionally, we would consider acquiring stores that are not within or contiguous to our current markets if the opportunity met certain criteria including, among
others, a minimum number of stores, sales volumes and profitability.



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The tables below provide information concerning the acquisitions we completed in fiscal 2007 and in
fiscal 2006:



|                             |  |                                                                                  |  |                         |  |                                                                                         |  |                 
|---------------------------- |  | -------------------------------------------------------------------------------- |  | ----------------------- |  | --------------------------------------------------------------------------------------- |  | ----------------
|Fiscal 2007                 
|Date Acquired                |  | Seller                                                                           |  | Trade Name              |  | Locations                                                                               |  | Number of Stores
|December 21, 2006            |  | Graves Oil Co.                                                                   |  | Rascals                 |  | Mississippi                                                                             |  | 7               
|January 11, 2007             |  | Anglers Mini-Mart, Inc.                                                         |  | Anglers Mini-Mart      |  | South Carolina                                                                          |  | 16              
|February 1, 2007             |  | Rousseau Enterprises, Inc.                                                       |  | LeStore                 |  | Florida                                                                                 |  | 8               
|February 8, 2007             |  | Southwest Georgia Oil Co., Inc.                                                  |  | Sun Stop®               |  | Alabama, Florida, and Georgia                                                           |  | 24              
|April 5, 2007                |  | Petro Express, Inc.                                                              |  | Petro Express®          |  | North Carolina and South Carolina                                                       |  | 66              
|April 19, 2007               |  | Willard Oil Company, Inc., Fast Phils of SC, Inc. and Willard Realty Associates |  | Fast Phils             |  | South Carolina                                                                          |  | 11              
|Others (fewer than 5 stores) |  | Various                                                                          |  | Various                 |  | Alabama, Florida, Louisiana, Mississippi, North Carolina, South Carolina, and Tennessee |  | 20              
|                             |  |                                                                                  |  |                         |  |                                                                                         |  |                 
|Total                        |  |                                                                                  |  |                         |  |                                                                                         |  | 152             
|                             |  |                                                                                  |  |                         |  |                                                                                         |  |                 
|                            
|Fiscal 2006                 
|Date Acquired                |  | Seller                                                                           |  | Trade Name              |  | Locations                                                                               |  | Number of Stores
|February 9, 2006             |  | Lee-Moore Oil Company                                                            |  | TruBuy and On The Run®  |  | North Carolina                                                                          |  | 19              
|February 16, 2006            |  | Waring Oil Company, LLC                                                          |  | Interstate Food Stops   |  | Mississippi and Louisiana                                                               |  | 39              
|May 11, 2006                 |  | Shop-A-Snak Food Mart, Inc.                                                      |  | Shop-A-Snak Food MartSM |  | Alabama                                                                                 |  | 38              
|August 10, 2006              |  | Fuel Mate, LLC                                                                   |  | Fuel Mate               |  | North Carolina                                                                          |  | 6               
|Others (fewer than 5 stores) |  | Various                                                                          |  | Various                 |  | Georgia, Florida, Mississippi, North Carolina, and South Carolina                       |  | 11              
|                             |  |                                                                                  |  |                         |  |                                                                                         |  |                 
|Total                        |  |                                                                                  |  |                         |  |                                                                                         |  | 113             
|                             |  |                                                                                  |  |                         |  |                                                                                         |  |                 

New Stores.    In opening new stores in recent years, we have focused
on selecting store sites on highly traveled roads in coastal/resort and suburban markets or near highway exit and entrance ramps that provide convenient access to the store location. In selecting sites for new stores, we use an evaluation process
designed to enhance our return on investment that focuses on market area demographics, population density, traffic volume, visibility, ingress and egress and economic development in the market area. We also review the location of competitive stores
and customer activity at those stores. During fiscal 2007, we opened ten new locations. During fiscal 2008, we plan to expand our new store development and open approximately 15 new larger format stores. We believe the larger store layout in the
correct location provides opportunity for higher merchandise and gasoline revenues.

Improvement of Store Facilities and
Equipment.    During fiscal 2007, we upgraded the facilities and equipment at many of our existing and acquired store locations. To determine locations for remodels and



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rebuilds, management assesses potential return on investment, sales volume, existing and potential competition and lease term. During fiscal 2007, we spent
approximately $23.4 million on store remodels and rebuilds. We completed remodels at 30 locations and completed rebuilds at five locations.

Store Closures.    We continually evaluate the performance of each of our stores to determine whether any particular store should be closed or sold based on profitability trends and our market presence in the
surrounding area. Although closing or selling underperforming stores reduces revenues, our operating results typically improve as these stores are generally unprofitable. During fiscal 2007, we closed or sold 11 stores compared to 24 stores in
fiscal 2006.

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

Seasonality.    Due to the nature of our business and our reliance, in part, on consumer spending
patterns in coastal, resort and tourist markets, we typically generate higher revenues and gross margins during warm weather months in the southeastern United States, which fall within our third and fourth fiscal quarters.

Competition

The convenience store and retail
gasoline industries are highly competitive and marked by ease of entry and constant change in the number and type of retailers offering the products and services found in our stores. We compete with numerous other convenience stores, supermarkets,
drug stores, discount clubs, gasoline service stations, out of channel retailers, mass merchants, fast food operations and other similar retail outlets.

The performance of individual stores can be affected by changes in traffic patterns and the type, number and location of competing stores. Principal competitive factors include, among others, location, ease of access,
gasoline brands, pricing, product and service selections, customer service, store appearance, cleanliness and safety. We believe that our modernized store base, strategic mix of locations, gasoline offerings and use of competitive market data,
including our Gasoline Pricing System, which helps us optimize competitive gasoline pricing, combined with our managements expertise, allow us to be an effective and significant competitor in our markets.

Technology and Store Automation

In fiscal 2007 we
continued to invest in and deploy technologies we identified and prioritized in our systems roadmap. The roadmap focuses on both strategic and tactical system upgrades and replacing legacy systems that align with our business strategy and create
synergies by effectively combining people, process and technology capabilities. We will continue to integrate technology and business initiatives to ensure the maximum benefit to our company and strategically involve subject matter experts and
benchmarking to ensure we implement proven solutions.

Our initiatives include:



| |  |  | Routine assessments of our systems strategy to ensure alignment with our overall business strategy;
| | - |  | ---------------------------------------------------------------------------------------------------



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| |  |  | Responding to and planning for future growth and garnering expected efficiencies as we continue to grow;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | Continuing efforts to improve processes and apply systems (applications and technology) solutions;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | Compliance requirements such as Sarbanes-Oxley and Payment Card Industry Standards, which require more reliable and consistent technology-based controls.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

We also continue to invest in complementary technology programs and system upgrades targeted to improve store level
gasoline pricing, overall store operations and merchandise inventory management, along with new decision support tools. These initiatives include:



| |  |  | Selection of a business partner that can assist us in the wide-scale rollout of a communications network that will create a real-time connection between our
Corporate Support Center and our stores. Pilot store locations have been used to test the new high performance network and have produced benefits in the form of reduced sales transaction times for customers.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The implementation of a Point-Of-Sale solution in pilot stores in advance of a chain-wide rollout, that in addition to completing sales transactions, should
facilitate improvements in store operations, merchandising opportunities, and accounting processing.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We continue to
develop, enhance and utilize proprietary and packaged applications to improve store level gasoline pricing, gasoline and merchandise inventory management, automate functions throughout our administrative departments and expand the use of decision
support tools. We anticipate that we will continue to invest in information systems that make our business operations competitive.

Trade Names, Service
Marks and Trademarks

We have registered, acquired the registration of, applied
for the registration of and claim ownership of a variety of trade names, service marks and trademarks for use in our business, including The Pantry®, Worth®, Golden Gallon®, Bean Street Coffee Company®, Big Chill®, Celeste®, The Chill Zone®, Lil Champ Food Store®, Kangaroo®, Kangaroo Express®, SprintSM, Cowboys®, Smokers ExpressSMand Petro Express®. In the highly competitive business in which we operate, our trade names, service marks and trademarks are critical to distinguish our products and services
from those of our competitors. We are not aware of any facts which would negatively impact our continuing use of any of the above trade names, service marks or trademarks.

Government Regulation and Environmental Matters

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

Storage and Sale of Gasoline.    We
are subject to various federal, state and local environmental laws and regulations. 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 U.S. Environmental Protection Agency (EPA) to establish a comprehensive regulatory program for the detection, prevention and
cleanup of leaking underground storage tanks (e.g. overfills, spills and underground storage tank releases). At the state level, we are sometimes required to upgrade or replace underground storage tanks.



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Federal and state regulations require us to provide and maintain evidence that we are taking financial
responsibility for corrective action and compensating third parties in the event of a release from our underground storage tank systems. In order to comply with these requirements, as of September 27, 2007, we maintained letters of credit in
the aggregate amount of approximately $1.3 million in favor of state environmental agencies in North Carolina, South Carolina, Virginia, Georgia, Indiana, Tennessee, Kentucky and Louisiana.

We also rely upon the reimbursement provisions of applicable state trust funds. In Florida, we meet our financial responsibility requirements by state
trust fund coverage for releases occurring through December 31, 1998 and meet such requirements for releases thereafter through private commercial liability insurance. In Georgia, we meet our financial responsibility requirements by a
combination of state trust fund coverage, private commercial liability insurance and a letter of credit.

Regulations enacted by the EPA in
1988 established requirements for:



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



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



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



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



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



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

These regulations permit states to develop, administer and enforce their own regulatory programs,
incorporating requirements that are at least as stringent as the federal standards. In 1998, Florida developed its own regulatory program, which incorporated requirements more stringent than the 1988 EPA regulations. For example, Florida regulations
require all single-walled underground storage tanks to be upgraded/replaced with secondary containment by December 31, 2009. In order to comply with those Florida regulations, we will be required to upgrade or replace underground storage
tanks at approximately 90 locations by December 31, 2009. We anticipate that these capital expenditures will be approximately $20 million over the next two years. At this time, we believe our facilities in Florida meet or exceed those
regulations developed by the State of Florida in 1998. In addition, we believe all company-owned underground storage tank systems are in material compliance with these 1988 EPA regulations and all applicable state environmental regulations.

State Trust Funds.    All states in which we operate or have operated underground storage tank systems have
established trust funds for the sharing, recovering and reimbursing of certain cleanup costs and liabilities incurred as a result of releases from underground storage tank systems. These trust funds, which essentially provide insurance coverage for
the cleanup of environmental damages caused by the operation of underground storage tank systems, are funded by an underground storage tank registration fee and a tax on the wholesale purchase of motor fuels within each state. We have paid
underground storage tank registration fees and gasoline taxes to each state where we operate to participate in these trust fund programs. We have filed claims and received reimbursements in North Carolina, South Carolina, Kentucky, Indiana, Georgia,
Florida, Tennessee, Mississippi and Virginia. The coverage afforded by each state trust 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;
| | - |  | ---------------------------------------------------------------------------------------------------------



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



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

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 that occurred in Florida and were 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, except for certain sites, including sites where our lease requires us to participate in the Georgia trust fund. For all such sites where we have opted not to participate in the
Georgia trust fund, we have obtained private insurance coverage for remediation and third-party claims. We believe that this coverage exceeds federal and Georgia financial responsibility regulations.

As of September 27, 2007, environmental reserves of approximately $1.1 million and $20.2 million are included in other accrued liabilities and other
noncurrent liabilities, respectively. As of September 28, 2006, environmental reserves of approximately $1.0 million and $17.4 million are included in other accrued liabilities and other noncurrent liabilities, respectively. These reserves
represent our estimates for future expenditures for remediation, tank removal and litigation associated with 285 and 269 known contaminated sites as of September 27, 2007 and September 28, 2006, 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 $19.6 million of our environmental obligations will be funded by state trust
funds and third-party insurance; as a result we may spend up to $1.7 million for remediation, tank removal and litigation. Also, as of September 27, 2007 and September 28, 2006, there were an additional 557 and 534 sites, respectively,
that are known to be contaminated sites that are being remediated by third parties, and therefore, the costs to remediate such sites are not included in our environmental reserve. Remediation costs for known sites are expected to be incurred over
the next one to ten years. Environmental reserves have been established with remediation costs based on internal and external estimates for each site. Future remediation for which the timing of payments can be reasonably estimated is discounted at
8.0% to determine the reserve.

We anticipate that we will be reimbursed for expenditures from state trust funds and private insurance. As
of September 27, 2007, anticipated reimbursements of $19.7 million are recorded as other noncurrent assets and $2.7 million are recorded as current receivables related to all sites. In Florida, remediation of such contamination reported before
January 1, 1999 will be performed by the state (or state approved independent contractors) and substantially all of the remediation costs, less any applicable deductibles, will be paid by the state trust fund. We will perform remediation in
other states through independent contractor firms engaged by us. For certain sites, the trust fund does not cover a deductible or has a co-pay which may be less than the cost of such remediation. Although we are not aware of releases or
contamination at other locations where we currently operate or have operated stores, any such releases or contamination could require substantial remediation expenditures, some or all of which may not be eligible for reimbursement from state trust
funds or private insurance.

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

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



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is substantial, we have adopted procedures intended to minimize such exposure. In addition, we maintain general liability insurance that may mitigate the
effect of any liability.

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

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

Employees

As of September 27,
2007, we had 13,232 total employees (11,248 full-time and 1,984 part-time), with 12,399 employed in our stores and 833 in corporate and field management. Fewer part-time employees are employed during the winter months than during the peak spring and
summer seasons. None of our employees are subject to collective bargaining agreements, and we consider our employee relations to be good.

Executive
Officers of the Registrant

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



|                    |  |     |  |                                                             
|------------------- |  | --- |  | ------------------------------------------------------------
|Name                |  | Age |  | Position with our Company                                   
|Peter J. Sodini     |  | 66  |  | President, Chief Executive Officer and Chairman of the Board
|Melissa H. Anderson |  | 43  |  | Senior Vice President, Human Resources                      
|Keith S. Bell       |  | 44  |  | Senior Vice President, Fuels                                
|Steven J. Ferreira  |  | 51  |  | Senior Vice President, Administration                       
|Frank G. Paci       |  | 50  |  | Senior Vice President, Finance, and Chief Financial Officer 
|David M. Zaborski   |  | 52  |  | Senior Vice President, Operations                           

Peter J. Sodini has served as our President and Chief Executive Officer since June 1996 and became
the Chairman of our Board in February 2006. He previously served as our Chief Operating Officer from February 1996 until June 1996. Mr. Sodini was Chief Executive Officer and a director of Purity Supreme, Inc. from December 1991 through
February 1996. Prior to 1991, Mr. Sodini held executive positions at several supermarket chains including Boys Markets, Inc. and Piggly Wiggly Southern, Inc. Mr. Sodini has served as a director since November 1995.

Melissa H. Anderson has served as our Senior Vice President, Human Resources since November 2006. Prior to joining The Pantry, Ms. Anderson was with
International Business Machines Corporation (IBM) where for the last three years, she was the Vice President of Human Resources for IBM Global Financing. Previously, Ms. Anderson held numerous human resource positions in her 17-year
tenure with IBM, including Human Resource Director for IBMs Tivoli unit.

Keith S. Bell has served as our Senior Vice President,
Fuels since July 2006. Mr. Bell is an 18-year veteran of BP p.l.c. (BP) and Amoco Company (Amoco), which was acquired by BP in 1998. During his career at BP and Amoco, Mr. Bell progressed through a variety of sales
and marketing positions, and most recently was Vice President in charge of BPs U.S. branded jobber business.



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

Frank G. Paci joined The Pantry as our Senior Vice President,
Finance, Chief Financial Officer and Secretary on July 2, 2007. Prior to joining The Pantry, Mr. Paci was with Blockbuster, Inc., where he served as Executive Vice President and had varying responsibilities in Finance and Accounting,
Strategic Planning and Business Development. Prior to joining Blockbuster in 1999, he was with Yum! Brands where he served for three years as Vice President in charge of Pizza Huts nontraditional location business, and later in
Strategic Planning. Prior to that, Mr. Paci was with Burger King Corporation in a variety of roles for seven years. Early in his career, he was also with Pillsbury Co. and General Nutrition Centers, Inc.

David M. Zaborski has served as our Senior Vice President, Operations since January 2006. Mr. Zaborski served as Vice President, Marketing from
November 2001 to January 2006. Mr. Zaborski also served as Vice President, Operations from June 2000 until November 2001. From March 1999 to June 2000, Mr. Zaborski served as Vice President, Strategic Planning. Prior to joining The Pantry,
Mr. Zaborski served as Director of Marketing for Handy Way Food Stores from August 1990 to February 1999.

Item 1A.    Risk Factors.

You should carefully consider the risks described below
and under Part II.Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations before making a decision to invest in our securities. The risks and uncertainties described below and
elsewhere in this report are not the only ones facing us. Additional risks and uncertainties not presently known to us, or that we currently deem immaterial, could negatively impact our results of operations or financial condition in the future. If
any such risks actually occur, our business, financial condition or results of operations could be materially adversely affected. In that case, the trading price of our securities could decline, and you may lose all or part of your investment.

Risks Related to Our Industry

The convenience store industry is highly competitive and impacted by new entrants. Increased competition could result in lower margins.

The convenience store industry in the geographic areas in which we operate is highly competitive and marked by ease of entry and constant change in the number and type of retailers offering the products and services
found in our stores. We compete with other convenience store chains, independently owned convenience stores, gasoline stations, supermarkets, drugstores, discount stores, club stores, out of channel retailers and mass merchants. In some of our
markets, our competitors have been in existence longer and have greater financial, marketing and other resources than we do. As a result, our competitors may be able to respond better to changes in the economy and new opportunities within the
industry. To remain competitive, we must constantly analyze consumer preferences and competitors offerings and prices to ensure we offer a selection of convenience products and services at competitive prices to meet consumer demand. We must
also maintain and upgrade our customer service levels, facilities and locations to remain competitive and drive customer traffic to our stores. Major competitive factors include, among others, location, ease of access, gasoline brands, pricing,
product and service selections, customer service, store appearance, cleanliness and safety. In a number of our markets, our competitors that sell ethanol-blended gasoline may have a competitive advantage over us because, in certain regions of the
country, the wholesale cost of ethanol-blended gasoline is less than pure gasoline. Competitive pressures or our inability to introduce ethanol-blended gasoline in certain markets in a timely manner or at all could materially impact our gasoline
gallon volume, gasoline gross profit and overall customer traffic, which could in turn have a material adverse effect on our business, financial condition and results of operations.



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Volatility of wholesale petroleum costs could impact our operating results.

Over the past three fiscal years, our gasoline revenue accounted for approximately 75.8% of total revenues and our gasoline gross profit accounted for
approximately 31.7% of total gross profit. Crude oil and domestic wholesale petroleum markets are volatile. General political conditions, acts of war or terrorism and instability in oil producing regions, particularly in the Middle East and South
America, could significantly impact crude oil supplies and wholesale petroleum costs. In addition, the supply of gasoline and our wholesale purchase costs could be adversely impacted in the event of a shortage, which could result from, among other
things, lack of capacity at United States oil refineries or the fact that our gasoline contracts do not guarantee an uninterrupted, unlimited supply of gasoline. Significant increases and volatility in wholesale petroleum costs could result in
significant increases in the retail price of petroleum products and in lower gasoline gross margin per gallon. Increases in the retail price of petroleum products could impact consumer demand for gasoline. This volatility makes it extremely
difficult to predict the impact future wholesale cost fluctuations will have on our operating results and financial condition. Dramatic increases in crude oil prices squeeze retail fuel margins because fuel costs typically increase faster than
retailers are able to pass them along to customers. Higher fuel prices also trigger higher credit card expenses, because credit card fees are calculated as a percentage of the transaction amount, not as a percentage of gasoline gallons sold. A
significant change in any of these factors could materially impact our gasoline gallon volume, gasoline gross profit and overall customer traffic, which in turn could have a material adverse effect on our business, financial condition and results of
operations.

Wholesale cost increases of, and tax increases on, tobacco products could adversely impact our operating results.

Sales of tobacco products have averaged approximately 6.7% of our total revenue over the past three fiscal years, and our tobacco gross profit accounted
for approximately 13.0% of total gross profit for the same period. Significant increases in wholesale cigarette costs and tax increases on tobacco products, as well as national and local campaigns to discourage smoking in the United States, may have
an adverse effect on demand for cigarettes. Currently, major cigarette manufacturers offer substantial rebates to retailers. We include these rebates as a component of our gross margin from sales of cigarettes. In the event these rebates are no
longer offered, or decreased, our wholesale cigarette costs will increase accordingly. In general, we attempt to pass price increases on to our customers. However, due to competitive pressures in our markets, we may not be able to do so. In
addition, reduced retail display allowances on cigarettes offered by cigarette manufacturers negatively impact gross margins. These factors could materially impact our retail price of cigarettes, cigarette unit volume and revenues, merchandise gross
profit and overall customer traffic, which could in turn have a material adverse effect on our business, financial condition and results of operations.

Changes in consumer behavior, travel and tourism could impact our business.

In the convenience store industry,
customer traffic is generally driven by consumer preferences and spending trends, growth rates for automobile and commercial truck traffic and trends in travel, tourism and weather. Changes in economic conditions generally or in the southeastern
United States specifically could adversely impact consumer spending patterns and travel and tourism in our markets. Approximately 32% of our stores are located in coastal, resort or tourist destinations. Historically, travel and consumer behavior in
such markets is more severely impacted by weak economic conditions. If visitors to resort or tourist locations decline due to economic conditions, changes in consumer preferences, changes in discretionary consumer spending or otherwise, our sales
could decline which in turn could have a material adverse effect on our business, financial condition and results of operations.



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Risks Related to Our Business

Unfavorable weather conditions or other trends or developments in the southeastern United States could adversely affect our business.

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

Inability to identify, acquire and integrate new stores could adversely affect our ability to grow our business.

An important part of our historical growth strategy has been to acquire other convenience stores that complement our existing stores or broaden our
geographic presence. Since 1996, we have successfully completed and integrated more than 90 acquisitions, growing our store base from 379 to 1,644 stores. We expect to continue to selectively review acquisition opportunities as an element of our
growth strategy. Acquisitions involve risks that could cause our actual growth or operating results to differ significantly from our expectations or the expectations of securities analysts. For example:



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



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



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



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



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



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

Our indebtedness could negatively impact our financial health.

As of September 27, 2007, we had consolidated debt, including lease finance obligations, of approximately $1.2 billion. As of September 27,
2007, the availability under our revolving credit facility for borrowing was approximately $168.3 million (approximately $63.3 million of which was available for issuance of letters of credit).



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Our substantial indebtedness could have important consequences. For example, it could:



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



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



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



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



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



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

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

If we are unable to meet our debt obligations, we could be forced to restructure or refinance our obligations, seek additional equity financing or sell assets, which we may not be able to do on satisfactory terms or at all. As a result, we
could default on those obligations.

In addition, the credit agreement governing our senior credit facility, and the indenture governing
our senior subordinated notes, each contains financial and other restrictive covenants that will limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with these covenants could result in an
event of default which, if not cured or waived, could result in the acceleration of all of our indebtedness, which would adversely affect our financial health and could prevent us from fulfilling our obligations.

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

We are able to incur additional indebtedness. The terms of the indenture that governs our senior
subordinated notes permit us to incur additional indebtedness under certain circumstances. The indenture governing our senior subordinated convertible notes, or convertible notes, does not contain any limit on our ability to incur debt. In addition,
the credit agreement governing our senior credit facility permits us to incur up to $100.0 million under the delayed draw term loan facility and other additional indebtedness (assuming certain financial conditions are met at the time) beyond the
$225.0 million under our revolving credit facility. If we incur additional indebtedness, the related risks that we now face could increase.

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

Our ability to make payments on our indebtedness, including without limitation any payments required to be made to holders of our senior subordinated notes and our convertible notes, and to refinance our indebtedness
and fund planned capital expenditures will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our
control.



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For example, upon the occurrence of a fundamental change (as such term is defined in the
indenture governing our convertible notes), holders of our convertible notes have the right to require us to purchase for cash all outstanding convertible notes at 100% of their principal amount plus accrued and unpaid interest, including additional
interest (if any), up to but not including the date of purchase. We also may be required to make substantial cash payments upon other conversion events related to the convertible notes. We may not have enough available cash or be able to obtain
third-party financing to satisfy these obligations at the time we are required to make purchases of tendered notes.

Based on our current
level of operations, we believe our cash flow from operations, available cash and available borrowings under our revolving credit facility will be adequate to meet our future liquidity needs for at least the next 12 months.

We cannot assure you, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available to us
under our revolving credit facility in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before maturity, sell assets, reduce or delay
capital expenditures, seek additional equity financing or seek third-party financing to satisfy such obligations. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all. Our failure
to fund indebtedness obligations at any time could constitute an event of default under the instruments governing such indebtedness, which would likely trigger a cross-default under our other outstanding debt.

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

The credit agreement governing our senior credit facility and the indenture governing our senior subordinated notes require us to comply with certain
covenants. In particular, our credit agreement prohibits us from incurring any additional indebtedness except in specified circumstances or materially amending the terms of any agreement relating to existing indebtedness without lender approval.
Further, our credit agreement restricts our ability to acquire and dispose of assets, engage in mergers or reorganizations, pay dividends, or make investments or capital expenditures. Other restrictive covenants require that we meet a maximum total
adjusted leverage ratio and a minimum interest coverage ratio, as defined in our credit agreement. A violation of any of these covenants could cause an event of default under our credit agreement.

If we default on the credit agreement governing our senior credit facility or either of the indentures governing our senior subordinated or convertible
notes because of a covenant breach or otherwise, all outstanding amounts could become immediately due and payable. We cannot assure you that we would have sufficient funds to repay all the outstanding amounts, and any acceleration of amounts due
under our credit agreement or either of the indentures governing our outstanding indebtedness likely would have a material adverse effect on us.

We
are subject to state and federal environmental and other regulations. Failure to comply with these state and federal environmental and other regulations may result in penalties or costs that could have a material adverse effect on our business.

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

Under
various federal, state and local laws, ordinances and regulations, we may, as the owner or operator of our locations, be liable for the costs of removal or remediation of contamination at these or our former locations,



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

Compliance with existing and future environmental laws regulating underground storage
tanks may require significant capital expenditures and increased operating and maintenance costs. The remediation costs and other costs required to clean up or treat contaminated sites could be substantial. We pay tank registration fees and other
taxes to state trust funds established in our operating areas and maintain private insurance coverage in Florida and Georgia in support of future remediation obligations.

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

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

Failure to
comply with state laws regulating the sale of alcohol and tobacco products may result in the loss of necessary licenses and the imposition of fines and penalties on us, which could have a material adverse effect on our business.

State laws regulate the sale of alcohol and tobacco products. A violation or change of these laws could adversely affect our business, financial
condition and results of operations because state and local regulatory agencies have the power to approve, revoke, suspend or deny applications for, and renewals of, permits and licenses relating to the sale of these products or to seek other
remedies. Such a loss or imposition could have a material adverse effect on our business. In addition, certain states regulate relationships, including overlapping ownership, among alcohol manufacturers, wholesalers and retailers, and may deny or
revoke licensure if relationships in violation of the state laws exist. We are not aware of any alcoholic beverage manufacturers or wholesalers having a prohibited relationship with our company.

Failure to comply with the other state and federal regulations we are subject to may result in penalties or costs that could have a material adverse effect on our
business.

Our business is subject to various other state and federal regulations, including, without limitation, employment laws
and regulations, minimum wage requirements, overtime requirements, working condition requirements and other laws and regulations. Any appreciable increase in the statutory minimum wage rate, income or overtime pay, or adoption of mandated healthcare
benefits would likely result in an increase in our labor costs and such cost increase, or the penalties for failing to comply with such statutory minimums or regulations, could have a material adverse effect on our business, financial condition and
results of operations.



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We depend on one principal supplier for the majority of our merchandise. A disruption in supply or a change in our
relationship could have a material adverse effect on our business.

We purchase over 50% of our general merchandise, including most
tobacco products and grocery items, from a single wholesale grocer, McLane. We have a contract with McLane until April 2010, but we may not be able to renew the contract when it expires, or on similar terms. A change of merchandise suppliers, a
disruption in supply or a significant change in our relationship with our principal merchandise suppliers could have a material adverse effect on our business, cost of goods sold, financial condition and results of operations.

We depend on two principal suppliers for the majority of our gasoline. A disruption in supply or a change in our relationship could have a material adverse effect
on our business.

BP® and CITGO® supply approximately 76% of our gasoline purchases. We have contracts with CITGO® until 2010 and BP® until 2012, but we may not be able to renew either contract upon expiration. A change of suppliers, a disruption in supply or a significant change in our relationship with our principal
suppliers could materially increase our cost of goods sold, which would negatively impact our financial condition and results of operations.

CITGO® obtains a significant portion
of the crude oil it refines from its ultimate parent, Petroleos de Venezuela, SA (PDVSA), which is owned and controlled by the government of Venezuela. The political and economic environment in Venezuela can disrupt PDVSAs
operations and adversely affect CITGO®s ability to obtain crude oil. In addition, the Venezuelan government can order, and in the past has ordered, PDVSA to curtail the production of
oil in response to a decision by the Organization of Petroleum Exporting Countries to reduce production. The inability of CITGO® to obtain crude oil in sufficient quantities would adversely
affect its ability to provide gasoline to us and could have a material adverse effect on our business, financial condition and results of operations.

Because we depend on our senior managements experience and knowledge of our industry, we would be adversely affected if we were to lose any members of our senior management team.

We are dependent on the continued efforts of our senior management team, including our President and Chief Executive Officer, Peter J. Sodini.
Mr. Sodinis employment contract terminates in September 2009. If, for any reason, our senior executives do not continue to be active in management, our business, financial condition or results of operations could be adversely affected. We
may not be able to attract and retain additional qualified senior personnel as needed in the future. In addition, we do not maintain key personnel life insurance on our senior executives and other key employees. We also rely on our ability to
recruit qualified store managers, regional managers and other store personnel. If we fail to continue to attract these individuals at reasonable compensation levels, our operating results may be adversely affected.

Pending litigation could adversely affect our financial condition and results of operations.

We are party to various legal actions in the ordinary course of our business. We believe these actions are routine in nature and incidental to the
operation of our business. While the outcome of these actions cannot be predicted with certainty, managements present judgment is that the ultimate resolution of these matters will not have a material adverse impact on our business, financial
condition or prospects. If, however, our assessment of these actions is inaccurate, or there are any significant adverse developments in these actions, our financial condition and results of operations could be adversely affected.

Litigation and publicity concerning food quality, health and other related issues could result in significant liabilities or litigation costs and cause consumers
to avoid our convenience stores.

Convenience store businesses and other food service operators can be adversely affected by
litigation and complaints from customers or government agencies resulting from food quality, illness, or other health or



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environmental concerns or operating issues stemming from one or more locations. Adverse publicity about these allegations may negatively affect us,
regardless of whether the allegations are true, by discouraging customers from purchasing gasoline, merchandise or food service at one or more of our convenience stores. We could also incur significant liabilities if a lawsuit or claim results in a
decision against us or litigation costs regardless of results, and may divert time and money away from our operations and hurt our performance.

Pending SEC matters could adversely affect us.

As previously disclosed, on July 28, 2005 we announced that we
would restate earnings for the period from fiscal 2000 to fiscal 2005 arising from sale-leaseback accounting for certain transactions. In connection with our decision to restate, we filed a Form 8-K on July 28, 2005, as well as a Form 10-K/A on
August 31, 2005 restating the transactions. The SEC issued a comment letter to us in connection with the Form 8-K, and we responded to the comments. Beginning in September 2005, we received from the SEC requests that we voluntarily provide certain
information to the SEC Staff in connection with our sale-leaseback accounting, our decision to restate our financial statements with respect to sale-leaseback accounting and other lease accounting matters. In November 2006, the SEC informed us that
in connection with the inquiry it had issued a formal order of private investigation. As previously disclosed, we are cooperating with the SEC in this ongoing investigation. We are unable to predict how long this investigation will continue or
whether it will result in any adverse action.

If we fail to maintain an effective system of internal control over financial reporting, we may not be
able to accurately report our financial results. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business and the trading price of our stock.

Effective internal control over financial reporting is necessary for us to provide reliable financial reports. If we cannot provide reliable financial
reports, our business and operating results could be harmed. The Sarbanes-Oxley Act of 2002, as well as related new rules and regulations implemented by the SEC, NASDAQ and the Public Company Accounting Oversight Board, have required changes in the
corporate governance practices and financial reporting standards for public companies. These new laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002, have increased our legal and financial
compliance costs and made many activities more time-consuming and more burdensome. These laws, regulations and standards are subject to varying interpretations in many cases. As a result, their application in practice may evolve over time as
regulatory and governing bodies provide new guidance, which could result in continuing uncertainty regarding compliance matters. The costs of compliance with these laws, rules and regulations have adversely affected our financial results. Moreover,
we run the risk of non-compliance, which could adversely affect our financial condition or results of operations or the trading price of our stock.

We have in the past discovered, and may in the future discover, areas of our internal control over financial reporting that need improvement. We have devoted significant resources to remediate our deficiencies and improve our internal
control over financial reporting. Although we believe that these efforts have strengthened our internal control over financial reporting, we are continuing to work to improve our internal control over financial reporting. Any failure to implement
required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. Inferior internal control over financial reporting could also cause
investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.

Other Risks

Future sales of additional shares into the market may depress the market price of our common stock.

If we or our existing stockholders sell shares of our common stock in the public market, including shares issued upon the exercise of outstanding
options, or if the market perceives such sales or issuances could occur, the market price of our common stock could decline. As of November 21, 2007, there are 22,193,949 shares of



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our common stock outstanding, most of which are freely tradable (unless held by one of our affiliates). Pursuant to Rule 144 under the Securities Act of
1933, as amended, or the Securities Act, during any three-month period our affiliates can resell up to the greater of (a) 1% of our aggregate outstanding common stock or (b) the average weekly trading volume for the four weeks prior to the
sale. Sales by our existing stockholders also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate or to use equity as consideration for future acquisitions.

In addition, we have filed with the SEC a registration statement that covers up to 839,385 shares issuable upon the exercise of stock
options currently outstanding under our 1999 Stock Option Plan, as well as a registration statement that covers up to 2.4 million shares issuable pursuant to share-based awards under our Omnibus Plan, plus any options issued under our 1999
Stock Option Plan that are forfeited or cancelled after March 29, 2007. Shares registered on a registration statement may be sold freely at any time after issuance.

Any issuance of shares of our common stock in the future could have a dilutive effect on your investment.

We may sell securities in the public or private equity markets if and when conditions are favorable, even if we do not have an immediate need for capital at that time. In other circumstances, we may issue shares of
our common stock pursuant to existing agreements or arrangements. For example, upon conversion of our outstanding convertible notes, we may, at our option, issue shares of our common stock. In addition, if our convertible notes are converted in
connection with a change of control, we may be required to deliver additional shares by increasing the conversion rate with respect to such notes. Notwithstanding the requirement to issue additional shares if convertible notes are converted on a
change of control, the maximum conversion rate for our outstanding convertible notes is 25.4517 per $1,000 principal amount of convertible notes.

We have also issued warrants to purchase up to 2,993,000 shares of our common stock to an affiliate of Merrill Lynch in connection with the note hedge and warrant transactions entered into at the time of our offering
of convertible notes.

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

The market price for our common stock has been and may in the
future be volatile, which could cause the value of your investment to decline.

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



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



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



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



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



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



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| |  |  | Sales or other issuances of common stock by us or our senior officers or other affiliates; or
| | - |  | ---------------------------------------------------------------------------------------------



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

The market price of our common stock will also be impacted by our quarterly operating results and quarterly comparable store sales growth, which may be
expected to fluctuate from quarter to quarter. Factors that may impact our quarterly results and comparable store sales include, among others, general regional and national economic conditions, competition, unexpected costs and changes in pricing,
consumer trends, the number of stores we open and/or close during any given period, costs of compliance with corporate governance and Sarbanes-Oxley requirements, and other factors discussed in this Item 1A and throughout Part
II.Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations. You may not be able to resell your shares of our common stock at or above the price you pay.

Provisions in our certificate of incorporation, our bylaws and Delaware law may have the effect of preventing or hindering a change in control and adversely
affecting the market price of our common stock.

Provisions in our certificate of incorporation and our bylaws and applicable
provisions of the Delaware General Corporation Law may make it more difficult and expensive for a third party to acquire control of us even if a change of control would be beneficial to the interests of our stockholders. These provisions could
discourage potential takeover attempts and could adversely affect the market price of our common stock. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. Our certificate of incorporation
and bylaws:



| |  |  | authorize the issuance of up to five million shares of blank check preferred stock that could be issued by our Board of Directors to thwart a takeover
attempt without further stockholder approval;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | prohibit cumulative voting in the election of Directors, which would otherwise allow holders of less than a majority of stock to elect some Directors;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | limit who may call special meetings;
| | - |  | ------------------------------------



| |  |  | limit stockholder action by written consent, generally requiring all actions to be taken at a meeting of the stockholders; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | establish advance notice requirements for any stockholder that wants to propose a matter to be acted upon by stockholders at a stockholders meeting, including
the nomination of candidates for election to our Board of Directors.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We are also subject to the provisions of
Section 203 of the Delaware General Corporation Law, which limits business combination transactions with stockholders of 15% or more of our outstanding voting stock that our Board of Directors has not approved.

These provisions and other similar provisions make it more difficult for stockholders or potential acquirers to acquire us without negotiation and may
apply even if some of our stockholders consider the proposed transaction beneficial to them. For example, these provisions might discourage a potential acquisition proposal or tender offer, even if the acquisition proposal or tender offer is at a
premium over the then current market price for our common stock. These provisions could also limit the price that investors are willing to pay in the future for shares of our common stock.

We may, in the future, adopt other measures that may have the effect of delaying, deferring or preventing an unsolicited takeover, even if such a change
in control were at a premium price or favored by a majority of unaffiliated stockholders. Such measures may be adopted without vote or action by our stockholders.



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Item 1B.    Unresolved Staff Comments.

None.

Item 2.    Properties.

As of September 27, 2007, we own the real property at 369
of our stores and lease the real property at 1,275 stores. Management believes that none of these leases is individually material. Most of these leases are net leases requiring us to pay all costs related to the property, including taxes, insurance
and maintenance costs. Certain of these leases are accounted for as lease finance obligations whereby the leased assets and related lease liabilities are included in our Consolidated Balance Sheets. The aggregate rent paid in fiscal 2007 for
operating leases and leases accounted for as lease finance obligations was $68.0 million and $35.9 million, respectively. The following table lists the expiration dates of our leases, including renewal options:



|                 |  |                  |  |                |  |             
|---------------- |  | ---------------- |  | -------------- |  | ------------
|Lease Expiration |  | Operating Leases |  | Finance Leases |  | Total Leased
|2007-2010        |  | 59               |  | 3              |  | 62          
|2011-2015        |  | 76               |  |               |  | 76          
|2016-2020        |  | 84               |  | 2              |  | 86          
|2021-2025        |  | 125              |  | 11             |  | 136         
|2026-2030        |  | 94               |  | 26             |  | 120         
|2031-2035        |  | 237              |  | 10             |  | 247         
|2036-2040        |  | 20               |  | 53             |  | 73          
|2041-2045        |  | 163              |  | 23             |  | 186         
|2046-2050        |  | 33               |  | 19             |  | 52          
|2051-2055        |  | 15               |  | 222            |  | 237         
|                 |  |                  |  |                |  |             
|Total            |  | 906              |  | 369            |  | 1,275       
|                 |  |                  |  |                |  |             

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

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

We own our corporate headquarters, a three story, 51,000 square foot office building in Sanford, North Carolina and lease
our corporate annex buildings in Jacksonville, Florida and Sanford, North Carolina. Although management believes that our headquarters are adequate for our present needs, we are currently reviewing alternatives to accommodate expected future growth.

Item 3.    Legal Proceedings.

As previously reported, on July 17, 2004 Constance
Barton, Kimberly Clark, Wesley Clark, Tracie Hunt, Eleanor Walters, Karen Meredith, Gilbert Breeden, LaCentia Thompson, and Mathesia Peterson, on behalf of themselves and on behalf of classes of those similarly situated, filed suit against The
Pantry, Inc. seeking class action status and asserting claims on behalf of our North Carolina present and former employees for unpaid wages under North Carolina Wage and Hour laws. The suit also seeks an injunction against any unlawful practices,
damages, liquidated damages, costs and attorneys fees. We filed an Answer denying any wrongdoing or liability to plaintiffs in any regard. The suit originally was filed in the Superior Court for Forsyth County,



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State of North Carolina. On August 17, 2004, the case was removed to the United States District Court for the Middle District of North Carolina and on
July 18, 2005, plaintiffs filed an Amended Complaint asserting certain additional claims under the federal Fair Labor Standards Act on behalf of all our present and former store employees. We filed a motion to dismiss parts of the Amended
Complaint and on May 17, 2006, the court granted in part and denied in part our motion. On January 16, 2007, plaintiffs filed a motion to file a Second Amended Complaint asserting on behalf of themselves and classes of those similarly
situated state law claims for alleged unpaid wages in all 11 states in which we do business. On February 8, 2007, we filed a motion opposing the filing of the Seconded Amended Complaint. The motion is pending before the court. While we deny
liability in this case, to avoid the burdens, expense and uncertainty of further litigation, on March 26, 2007, we reached a proposed settlement in principle with class counsel. The proposed settlement will establish a settlement fund of
$1,000,000 from which payments will be made to settlement class members and class counsel. Additionally, the proposed settlement provides for us to bear all costs of sending notices, processing and preparing payments and other administrative costs
of the settlement. No other payments will be made to class members or class counsel. The proposed settlement is subject to court approvals. Final approval of the proposed settlement is expected to take several months and there can be no assurance
that the court will approve the proposed settlement. We incurred a one-time charge in the second quarter of fiscal 2007 of $1.25 million for the proposed settlement and associated costs.

Since the beginning of fiscal 2007, over 45 class action lawsuits have been filed in federal courts across the country against numerous companies in the
petroleum industry. Major petroleum companies and significant retailers in the industry have been named as defendants in these lawsuits. To date, we have been named as a defendant in seven cases: one in Florida (Cozza, et al. v. Murphy Oil USA, Inc.
et al., S.D. Fla., No. 9:07-cv-80156-DMM, filed 2/16/07); one in Delaware (Becker, et al. v. Marathon Petroleum Company LLC, et al., D. Del., No. 1:07-cv-00136, filed 3/7/07); one in North Carolina (Neese, et al. v. Abercrombie Oil
Company, Inc., et al., E.D.N.C., No. 5:07-cv-00091-FL, filed 3/7/07); one in Alabama (Snable, et al. v. Murphy Oil USA, Inc., et al., N.D. Ala., No. 7:07-cv-00535-LSC, filed 3/26/07); one in Georgia (Rutherford, et al. v. Murphy Oil USA,
Inc., et al., No. 4:07-cv-00113-HLM, filed 6/5/07); and one in Tennessee (Shields, et al. v. RaceTrac Petroleum, Inc., et al., No. 1:07-cv-00169, filed 7/13/07); and one in South Carolina (Korleski v. BP Corporation North America, Inc., et
al., D.S.C., No 6:07-cv-03218-MDL, filed 9/24/07. Pursuant to an Order entered by the Joint Panel on Multi-District Litigation, all of the cases, including the seven in which we are named, have been or will be transferred to the United States
District Court for the District of Kansas where the cases will be consolidated for all pre-trial proceedings. The plaintiffs in the lawsuits generally allege that they are retail purchasers who received less motor fuel than the defendants agreed to
deliver because the defendants measured the amount of motor fuel they delivered in non-temperature adjusted gallons which, at higher temperatures, contain less energy. These cases seek, among other relief, an order requiring the defendants to
install temperature adjusting equipment on their retail motor fuel dispensing devices. In certain of the cases, including some of the cases in which we are named, plaintiffs also have alleged that because defendants pay fuel taxes based on
temperature adjusted 60 degree gallons, but allegedly collect taxes from consumers in non-temperature adjusted gallons, defendants receive a greater amount of tax from consumers than they paid on the same gallon of fuel. The plaintiffs in these
cases seek, among other relief, recovery of excess taxes paid and punitive damages. Both types of cases seek compensatory damages, injunctive relief, attorneys fees and costs, and prejudgment interest. We believe that there are substantial
factual and legal defenses to the theories alleged in these lawsuits. As the cases are at a very early stage, we cannot at this time estimate our ultimate exposure to loss or liability, if any, related to these lawsuits.

On November 16, 2007, Arnesa Jones, Burdeen Smith, Patricia Taylor, and Sandra Holt, on behalf of themselves and on behalf of classes of those
similarly situated, filed suit against us in the United States District Court for the Northern District of Alabama (Jones, et al. v. The Pantry, Inc., No. CV-07-P-2097-S). The plaintiffs seek class action status and assert claims on behalf of our
present and former employees for unpaid wages under the Fair Labor Standards Act. The plaintiffs in this lawsuit generally allege that they were/are employed by us as store managers, but their managerial duties were non-existent or minimal compared
to their nonmanagerial duties. The plaintiffs further allege that we required our store managers to work over 40 hours per week for a



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salaried amount without overtime compensation. The suit seeks permission to give notice of this action to all of our employees during the three years
immediately preceding the filing of this suit and to all other potential plaintiffs who may be similarly situated. The plaintiffs also seek damages, liquidated damages, costs, pre-judgment interest and attorneys fees, and any injunctive and/or
declaratory relief to which they may be entitled. We believe that there are substantial factual and legal defenses to the plaintiffs allegations. As the case is at a very early stage, we cannot at this time estimate our ultimate exposure to
loss or liability, if any, related to this lawsuit.

We are party to various other legal actions in the ordinary course of our business. We
believe these other actions are routine in nature and incidental to the operation of our business. While the outcome of these actions cannot be predicted with certainty, managements present judgment is that the ultimate resolution of these
matters will not have a material adverse impact on our business, financial condition or prospects. If, however, our assessment of these actions is inaccurate, or there are any significant adverse developments in these actions, our financial
condition and results of operations could be adversely affected.

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

None.



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PART II

Item 5.    Market for Our Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock, $.01 par value, represents our only voting securities. There were 22,193,949 shares of common stock issued and outstanding as of September 27, 2007. Our common stock is traded on The NASDAQ
Global Select Market under the symbol PTRY. The following table sets forth for each fiscal quarter the high and low sale prices per share of our common stock over the last two fiscal years as reported by NASDAQ, based on published
financial sources.

|        |  |             |       |             |   |       |  |     |       |  |   |      
|------- |  | ----------- | ----- | ----------- | - | ----- |  | --- | ----- |  | - | -----
|        |  | Fiscal 2007 |       | Fiscal 2006
|Quarter |  | High        |       | Low         |   | High  |  | Low
|First   |  | $           | 60.35 |             | $ | 45.53 |  | $   | 49.70 |  | $ | 32.34
|Second  |  | $           | 51.72 |             | $ | 41.65 |  | $   | 63.27 |  | $ | 46.20
|Third   |  | $           | 48.96 |             | $ | 42.46 |  | $   | 70.10 |  | $ | 49.31
|Fourth  |  | $           | 47.40 |             | $ | 26.67 |  | $   | 58.55 |  | $ | 43.20

As of November 21, 2007, there were 26 holders of record of our common stock. This number
does not include beneficial owners of our common stock whose stock is held in nominee or street name accounts through brokers.

During the last three fiscal years, we have not paid any cash dividends on our common stock, and we do not expect to pay cash dividends on our common stock for the foreseeable future. We intend to retain earnings to support operations,
reduce debt, repurchase our common stock, and finance expansion. The payment of cash dividends in the future will depend upon our ability to remove certain loan restrictions and other factors such as our earnings, operations, capital requirements,
financial condition and other factors deemed relevant by our Board of Directors. Currently, the payment of cash dividends is prohibited under restrictions contained in the indenture relating to our senior subordinated notes and our senior credit
facility. See Part II.Item 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources and Part II.Item 8. Consolidated Financial Statements and
Supplementary DataNotes to Consolidated Financial StatementsNote 6Long-Term Debt.

In August 2007, our Board of
Directors approved a program under which we are authorized to repurchase up to $35.0 million of our common stock during each of fiscal 2007 and fiscal 2008, but not to exceed an aggregate of $50.0 million. The repurchase program authorizes us to
repurchase shares of our common stock until September 25, 2008 in the open market or through private transactions, in accordance with regulations set forth by the SEC.



24



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The following table provides information regarding repurchases of our common stock during the quarter
ended September 27, 2007:

Issuer Purchases of Equity Securities

(In thousands, except average price paid per share)



|                                   |  |                               |  |                            |       |                                                                              |       |                                                                                         |   |         
|---------------------------------- |  | ----------------------------- |  | -------------------------- | ----- | ---------------------------------------------------------------------------- | ----- | --------------------------------------------------------------------------------------- | - | --------
|Period                             |  | TotalNumber ofSharesPurchased |  | AveragePrice Paidper Share |       | Total Number ofShares Purchased asPart of
PubliclyAnnounced Plans orPrograms |       | ApproximateDollar Value ofShares that
MayYet Be PurchasedUnder the Plansor Programs (1)
|June 29, 2007July 26, 2007        |  |                              |  |                            |      |                                                                              |      |                                                                                         | $ | 50,000.0
|July 27, 2007August 30, 2007      |  | 157.2                         |  | $                          | 33.58 |                                                                              | 157.2 |                                                                                         | $ | 44,720.6
|August 31, 2007September 27, 2007 |  | 535.6                         |  | $                          | 30.66 |                                                                              | 535.6 |                                                                                         | $ | 28,299.2
|Total                              |  | 692.8                         |  | $                          | 31.32 |                                                                              | 692.8 |                                                                                         | $ | 28,299.2



|(1) | In August 2007, our Board of Directors authorized the purchase of up to $35.0 million of our common stock in each of fiscal 2007 and fiscal 2008, but not to exceed an aggregate of
$50.0 million. We intend to use available cash to purchase additional shares under the share repurchase program. At the discretion of our management, the repurchase program can be implemented through open market or privately negotiated transactions,
in accordance with SEC regulations. The repurchase program will expire on September 25, 2008. As of September 27, 2007, the total remaining authorization under the repurchase program was $28.3 million.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



25



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##### Table of Contents

Item 6.    Selected Financial Data.

The following table sets forth our historical
consolidated financial data and store operating information for the periods indicated. The selected historical annual consolidated statement of operations and balance sheet data as of and for each of the five fiscal years presented are derived from,
and are qualified in their entirety by, our consolidated financial statements. Historical results are not necessarily indicative of the results to be expected in the future. You should read the following data together with Part I.Item 1.
Business, Part II.Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and the related notes appearing in Part II.Item 8.
Consolidated Financial Statements and Supplementary Data. In the following table, dollars are in millions, except per share, per store and per gallon data and as otherwise indicated. Our fiscal year ended September 30, 2004 included 53
weeks, and all other periods presented included 52 weeks.



|                                                        |  |                   |         |     |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |     
|------------------------------------------------------- |  | ----------------- | ------- | --- | ----------------- | - | ------- | ----------------- |  | - | ----------------- | - |  | ----------------- | ------- | --- |  | - | ------- | ----
|                                                        |  | Fiscal Year Ended |        
|                                                        |  | September 27,2007 |         |     | September 28,2006 |   |         | September 29,2005 |  |   | September 30,2004 |   |  | September 25,2003 |        
|Statement of Operations Data:                           |  |                   |         |     |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |     
|Revenues:                                               |  |                   |         |     |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |     
|Merchandise revenue                                     |  | $                 | 1,575.9 |     |                   | $ | 1,385.7 |                   |  | $ | 1,228.9           |   |  | $                 | 1,172.8 |     |  | $ | 1,009.7 |     
|Gasoline revenue                                        |  |                   | 5,335.2 |     |                   |   | 4,576.0 |                   |  |   | 3,200.3           |   |  |                   | 2,320.2 |     |  |   | 1,740.7 |     
|                                                        |  |                   |         |     |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |     
|Total revenues                                          |  |                   | 6,911.1 |     |                   |   | 5,961.7 |                   |  |   | 4,429.2           |   |  |                   | 3,493.1 |     |  |   | 2,750.4 |     
|Gross profit:(a)                                        |  |                   |         |     |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |     
|Merchandise gross profit                                |  |                   | 586.0   |     |                   |   | 517.9   |                   |  |   | 449.2             |   |  |                   | 425.4   |     |  |   | 365.5   |     
|Gasoline gross profit                                   |  |                   | 224.7   |     |                   |   | 281.2   |                   |  |   | 213.9             |   |  |                   | 165.4   |     |  |   | 145.3   |     
|                                                        |  |                   |         |     |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |     
|Total gross profit                                      |  |                   | 810.7   |     |                   |   | 799.1   |                   |  |   | 663.1             |   |  |                   | 590.8   |     |  |   | 510.8   |     
|                                                        |  |                   |         |     |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |     
|Store operating and general and administrative          |  |                   | 597.3   |     |                   |   | 521.1   |                   |  |   | 450.3             |   |  |                   | 419.3   |     |  |   | 373.4   |     
|Depreciation and amortization(b)                        |  |                   | 95.9    |     |                   |   | 76.0    |                   |  |   | 64.3              |   |  |                   | 60.9    |     |  |   | 55.8    |     
|Income from operations                                  |  |                   | 117.5   |     |                   |   | 202.0   |                   |  |   | 148.5             |   |  |                   | 110.6   |     |  |   | 81.7    |     
|Loss on extinguishment of debt                          |  |                   | 2.2     | (c) |                   |   | 1.8     | (d)               |  |   |                  |   |  |                   | 23.1    | (e) |  |   | 2.9     | (f) 
|Interest expense, net                                   |  |                   | 72.2    |     |                   |   | 54.7    |                   |  |   | 54.3              |   |  |                   | 63.5    |     |  |   | 57.4    |     
|Income before cumulative effect adjustment              |  |                   | 26.7    |     |                   |   | 89.2    |                   |  |   | 57.8              |   |  |                   | 15.7    |     |  |   | 14.6    |     
|Cumulative effect adjustment, net of tax                |  |                   |        |     |                   |   |        |                   |  |   |                  |   |  |                   |        |     |  |   | (3.5    | )(g)
|                                                        |  |                   |         |     |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |     
|Net income                                              |  |                   | 26.7    |     |                   |   | 89.2    |                   |  |   | 57.8              |   |  |                   | 15.7    |     |  |   | 11.1    |     
|Earnings per share before cumulative effect adjustment: |  |                   |         |     |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |     
|Basic                                                   |  | $                 | 1.17    |     |                   | $ | 3.95    |                   |  | $ | 2.74              |   |  | $                 | 0.80    |     |  | $ | 0.81    |     
|Diluted                                                 |  | $                 | 1.17    |     |                   | $ | 3.88    |                   |  | $ | 2.64              |   |  | $                 | 0.76    |     |  | $ | 0.80    |     
|Earnings per share:                                     |  |                   |         |     |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |     
|Basic                                                   |  | $                 | 1.17    |     |                   | $ | 3.95    |                   |  | $ | 2.74              |   |  | $                 | 0.80    |     |  | $ | 0.61    |     
|Diluted                                                 |  | $                 | 1.17    |     |                   | $ | 3.88    |                   |  | $ | 2.64              |   |  | $                 | 0.76    |     |  | $ | 0.61    |     
|Weighted-average shares outstanding:                    |  |                   |         |     |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |     
|Basic                                                   |  |                   | 22,776  |     |                   |   | 22,559  |                   |  |   | 21,100            |   |  |                   | 19,606  |     |  |   | 18,108  |     
|Diluted                                                 |  |                   | 22,911  |     |                   |   | 22,987  |                   |  |   | 21,930            |   |  |                   | 20,669  |     |  |   | 18,370  |     
|Other Financial Data:                                   |  |                   |         |     |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |     
|Adjusted EBITDA(h)                                      |  | $                 | 178.1   |     |                   | $ | 254.2   |                   |  | $ | 189.4             |   |  | $                 | 150.2   |     |  | $ | 127.0   |     
|EBITDA(h)                                               |  | $                 | 214.0   |     |                   | $ | 278.9   |                   |  | $ | 213.9             |   |  | $                 | 172.5   |     |  | $ | 139.9   |     
|Cash provided by (used in):                             |  |                   |         |     |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |     
|Operating activities                                    |  | $                 | 140.6   |     |                   | $ | 154.3   |                   |  | $ | 133.6             |   |  | $                 | 117.0   |     |  | $ | 68.7    |     
|Investing activities(i)                                 |  |                   | (528.7  | )   |                   |   | (219.3  | )                 |  |   | (166.2            | ) |  |                   | (227.1  | )   |  |   | (24.4   | )   
|Financing activities                                    |  |                   | 339.2   |     |                   |   | 73.9    |                   |  |   | 36.1              |   |  |                   | 145.2   |     |  |   | (13.7   | )   
|Gross capital expenditures                              |  |                   | 146.4   |     |                   |   | 96.8    |                   |  |   | 73.4              |   |  |                   | 49.4    |     |  |   | 25.5    |     
|Net capital expenditures(j)                             |  |                   | 110.2   |     |                   |   | 87.0    |                   |  |   | 58.7              |   |  |                   | 32.8    |     |  |   | 18.9    |     
|Store Operating Data:                                   |  |                   |         |     |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |     
|Number of stores (end of period)                        |  |                   | 1,644   |     |                   |   | 1,493   |                   |  |   | 1,400             |   |  |                   | 1,361   |     |  |   | 1,258   |     
|Average sales per store:                                |  |                   |         |     |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |     
|Merchandise revenue (in thousands)                      |  | $                 | 998.7   |     |                   | $ | 954.3   |                   |  | $ | 897.7             |   |  | $                 | 856.7   |     |  | $ | 791.9   |     
|Gasoline gallons (in thousands)Retail                  |  |                   | 1,306.4 |     |                   |   | 1,230.1 |                   |  |   | 1,114.3           |   |  |                   | 1,022.7 |     |  |   | 933.4   |     
|Comparable store sales(k):                              |  |                   |         |     |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |     
|Merchandise                                             |  |                   | 2.3     | %   |                   |   | 4.9     | %                 |  |   | 5.3               | % |  |                   | 3.4     | %   |  |   | 0.9     | %   
|Gasoline gallons                                        |  |                   | 1.0     | %   |                   |   | 3.1     | %                 |  |   | 4.7               | % |  |                   | 2.0     | %   |  |   | 0.7     | %   
|Operating Data:                                         |  |                   |         |     |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |     
|Merchandise gross margin                                |  |                   | 37.2    | %   |                   |   | 37.4    | %                 |  |   | 36.6              | % |  |                   | 36.3    | %   |  |   | 36.2    | %   
|Gasoline gallons sold (in millions)Retail              |  |                   | 2,032.8 |     |                   |   | 1,757.8 |                   |  |   | 1,496.5           |   |  |                   | 1,372.4 |     |  |   | 1,161.1 |     
|Average gasoline price per gallonRetail                |  | $                 | 2.55    |     |                   | $ | 2.58    |                   |  | $ | 2.13              |   |  | $                 | 1.69    |     |  | $ | 1.49    |     
|Average gasoline gross profit per gallon(l)Retail      |  | $                 | 0.109   |     |                   | $ | 0.159   |                   |  | $ | 0.143             |   |  | $                 | 0.120   |     |  | $ | 0.125   |     
|Gasoline gallons sold (in millions)Wholesale           |  |                   | 62.9    |     |                   |   | 17.1    |                   |  |   | 4.5               |   |  |                   | 4.5     |     |  |   | 9.2     |     
|Average gasoline gross profit per gallon(l)Wholesale   |  | $                 | 0.036   |     |                   | $ | 0.082   |                   |  | $ | 0.060             |   |  | $                 | 0.078   |     |  | $ | 0.037   |     
|Balance Sheet Data (end of period):                     |  |                   |         |     |                   |   |         |                   |  |   |                   |   |  |                   |         |     |  |   |         |     
|Cash and cash equivalents                               |  | $                 | 71.5    |     |                   | $ | 120.4   |                   |  | $ | 111.5             |   |  | $                 | 108.0   |     |  | $ | 72.9    |     
|Working capital                                         |  |                   | 33.9    |     |                   |   | 98.2    |                   |  |   | 69.8              |   |  |                   | 61.3    |     |  |   | 16.1    |     
|Total assets                                            |  |                   | 2,029.4 |     |                   |   | 1,587.9 |                   |  |   | 1,388.2           |   |  |                   | 1,232.9 |     |  |   | 992.4   |     
|Total debt and lease finance obligations                |  |                   | 1,208.2 |     |                   |   | 848.4   |                   |  |   | 758.5             |   |  |                   | 760.3   |     |  |   | 596.4   |     
|Shareholders equity                                    |  |                   | 353.8   |     |                   |   | 337.0   |                   |  |   | 251.9             |   |  |                   | 148.9   |     |  |   | 127.2   |     

(footnotes on following pages)



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|(a) | Gross profit does not include depreciation or allocation of store operating and general and administrative expenses.
|--- | --------------------------------------------------------------------------------------------------------------------



|(b) | Effective March 28, 2003, we accelerated the depreciation on certain assets related to our gasoline and store branding. These changes were the result of our gasoline brand
consolidation project that resulted in either updating or changing the image of the majority of our stores. Accordingly, we reassessed the remaining useful lives of these assets based on our plans and recorded an increase in depreciation expense of
$2.0 million and $3.4 million in fiscal 2004 and 2003, respectively.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(c) | On May 15, 2007, we refinanced our then-existing senior credit facility and, in connection with the refinancing, recorded a non-cash charge of approximately $2.2 million
related to the write-off of unamortized deferred financing costs associated with the then-existing senior credit facility.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(d) | On December 29, 2005, we refinanced our then-existing senior credit facility and, in connection with the refinancing, recorded a non-cash charge of approximately $1.8 million
related to the write-off of unamortized deferred financing costs associated with the then-existing senior credit facility.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|(f) | On April 14, 2003, we refinanced our then-existing senior credit facility and, in connection with the refinancing, recorded a non-cash charge of approximately $2.9 million
related to the write-off of the unamortized deferred financing costs associated with the then-existing senior credit facility.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(g) | Effective September 27, 2002, we adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 143,Accounting for Asset Retirement
Obligations, and, as a result, we recognize the future cost to remove an underground storage tank over the estimated useful life of the storage tank. Upon adoption, we recorded a discounted liability of $8.4 million, which is included in other
noncurrent liabilities, increased net property and equipment by $2.7 million and recognized a one-time cumulative effect adjustment of $3.5 million (net of deferred income tax benefit of $2.2 million).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(h) | We define EBITDA as net income before interest expense, net, loss on extinguishment of debt, income taxes, depreciation and amortization. Adjusted EBITDA excludes cumulative effect
adjustment and includes the lease payments we make under our lease finance obligations as a reduction to EBITDA. EBITDA and Adjusted EBITDA are not measures of operating performance or liquidity under accounting principles generally accepted in the
United States of America (GAAP) and should not be considered as substitutes for net income, cash flows from operating activities or other income or cash flow statement data. We have included information concerning EBITDA and Adjusted
EBITDA because we believe investors find this information useful as a reflection of the resources available for strategic opportunities including, among others, to invest in our business, make strategic acquisitions and to service debt. Management
also uses EBITDA and Adjusted EBITDA to review the performance of our business directly resulting from our retail operations and for budgeting and field operations compensation targets.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In accordance with GAAP, certain of our leases, including all of our sale-leaseback arrangements, are accounted for as lease finance obligations. As a
result, payments made under these lease arrangements are accounted for as interest expense and a reduction of the principal amounts outstanding on our lease finance obligations. By including in Adjusted EBITDA the amounts we pay under our lease
finance obligations, we are able to present such payments as operating costs instead of financing costs. We believe that this presentation helps investors better understand our operating performance relative to other companies that do not account
for their leases as lease finance obligations.



27



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##### Table of Contents

Any measure that excludes interest expense, loss on extinguishment of debt, depreciation, amortization or
income taxes has material limitations because we use debt and lease financing in order to fund our operations and acquisitions, we use capital and intangible assets in our business and the payment of income taxes is a necessary element of our
operations. Due to these limitations, we use EBITDA and Adjusted EBITDA only in addition to and in conjunction with results presented in accordance with GAAP. We strongly encourage investors to review our consolidated financial statements and
publicly filed reports in their entirety and not to rely on any single financial measure.

Because non-GAAP financial measures are not
standardized, EBITDA and Adjusted EBITDA, as defined by us, may not be comparable to similarly titled measures reported by other companies. It therefore may not be possible to compare our use of EBITDA and Adjusted EBITDA with non-GAAP financial
measures having the same or similar names used by other companies.

The following table contains a reconciliation of EBITDA and Adjusted
EBITDA to net income (amounts in thousands):



|                                                         |  |                   |         |   |                   |   |         |                   |  |   |                   |   |  |                   |         |   |  |   |         |  
|-------------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | ----------------- |  | - | ----------------- | - |  | ----------------- | ------- | - |  | - | ------- | -
|                                                         |  | Fiscal Year Ended |        
|                                                         |  | September 27,2007 |         |   | September 28,2006 |   |         | September 29,2005 |  |   | September 30,2004 |   |  | September 25,2003 |        
|Adjusted EBITDA                                          |  | $                 | 178,097 |   |                   | $ | 254,151 |                   |  | $ | 189,390           |   |  | $                 | 150,210 |   |  | $ | 127,038 |  
|Payments made for lease finance obligations              |  |                   | 35,889  |   |                   |   | 24,719  |                   |  |   | 24,471            |   |  |                   | 22,247  |   |  |   | 12,826  |  
|Cumulative effect adjustment                             |  |                   |        |   |                   |   |        |                   |  |   |                  |   |  |                   |        |   |  |   | (3,482  | )
|                                                         |  |                   |         |   |                   |   |         |                   |  |   |                   |   |  |                   |         |   |  |   |         |  
|EBITDA                                                   |  |                   | 213,986 |   |                   |   | 278,870 |                   |  |   | 213,861           |   |  |                   | 172,457 |   |  |   | 136,382 |  
|Interest expense, net and loss on extinguishment of debt |  |                   | (74,411 | ) |                   |   | (56,493 | )                 |  |   | (54,314           | ) |  |                   | (86,619 | ) |  |   | (60,332 | )
|Depreciation and amortization                            |  |                   | (95,887 | ) |                   |   | (76,025 | )                 |  |   | (64,341           | ) |  |                   | (60,911 | ) |  |   | (55,767 | )
|Provision for income taxes                               |  |                   | (16,956 | ) |                   |   | (57,154 | )                 |  |   | (37,396           | ) |  |                   | (9,201  | ) |  |   | (9,152  | )
|                                                         |  |                   |         |   |                   |   |         |                   |  |   |                   |   |  |                   |         |   |  |   |         |  
|Net income                                               |  | $                 | 26,732  |   |                   | $ | 89,198  |                   |  | $ | 57,810            |   |  | $                 | 15,726  |   |  | $ | 11,131  |  
|                                                         |  |                   |         |   |                   |   |         |                   |  |   |                   |   |  |                   |         |   |  |   |         |  



28



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##### Table of Contents

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



|                                                         |  |                   |          |   |                   |   |          |                   |  |   |                   |   |  |                   |          |   |  |   |         |  
|-------------------------------------------------------- |  | ----------------- | -------- | - | ----------------- | - | -------- | ----------------- |  | - | ----------------- | - |  | ----------------- | -------- | - |  | - | ------- | -
|                                                         |  | Fiscal Year Ended |         
|                                                         |  | September 27,2007 |          |   | September 28,2006 |   |          | September 29,2005 |  |   | September 30,2004 |   |  | September 25,2003 |         
|Adjusted EBITDA                                          |  | $                 | 178,097  |   |                   | $ | 254,151  |                   |  | $ | 189,390           |   |  | $                 | 150,210  |   |  | $ | 127,038 |  
|Payments made for lease finance obligations              |  |                   | 35,889   |   |                   |   | 24,719   |                   |  |   | 24,471            |   |  |                   | 22,247   |   |  |   | 12,826  |  
|Cumulative effect adjustment                             |  |                   |         |   |                   |   |         |                   |  |   |                  |   |  |                   |         |   |  |   | (3,482  | )
|                                                         |  |                   |          |   |                   |   |          |                   |  |   |                   |   |  |                   |          |   |  |   |         |  
|EBITDA                                                   |  |                   | 213,986  |   |                   |   | 278,870  |                   |  |   | 213,861           |   |  |                   | 172,457  |   |  |   | 136,382 |  
|Interest expense, net and loss on extinguishment of debt |  |                   | (74,411  | ) |                   |   | (56,493  | )                 |  |   | (54,314           | ) |  |                   | (86,619  | ) |  |   | (60,332 | )
|Provision for income taxes                               |  |                   | (16,956  | ) |                   |   | (57,154  | )                 |  |   | (37,396           | ) |  |                   | (9,201   | ) |  |   | (9,152  | )
|Non-cash stock based compensation                        |  |                   | 3,657    |   |                   |   | 2,812    |                   |  |   |                  |   |  |                   |         |   |  |   |        |  
|Changes in operating assets and liabilities              |  |                   | 8,268    |   |                   |   | (12,763  | )                 |  |   | (7,364            | ) |  |                   | 175      |   |  |   | (19,811 | )
|Non-cash loss on extinguishment of debt                  |  |                   | 2,212    |   |                   |   | 1,832    |                   |  |   |                  |   |  |                   | 23,087   |   |  |   | 2,888   |  
|Other                                                    |  |                   | 3,880    |   |                   |   | (2,841   | )                 |  |   | 18,794            |   |  |                   | 17,073   |   |  |   | 18,762  |  
|                                                         |  |                   |          |   |                   |   |          |                   |  |   |                   |   |  |                   |          |   |  |   |         |  
|Net cash provided by operating activities                |  | $                 | 140,636  |   |                   | $ | 154,263  |                   |  | $ | 133,581           |   |  | $                 | 116,972  |   |  | $ | 68,737  |  
|                                                         |  |                   |          |   |                   |   |          |                   |  |   |                   |   |  |                   |          |   |  |   |         |  
|Net cash used in investing activities                    |  | $                 | (528,723 | ) |                   | $ | (219,285 | )                 |  | $ | (166,240          | ) |  | $                 | (227,069 | ) |  | $ | (24,357 | )
|                                                         |  |                   |          |   |                   |   |          |                   |  |   |                   |   |  |                   |          |   |  |   |         |  
|Net cash provided by (used in) financing activities      |  | $                 | 339,196  |   |                   | $ | 73,944   |                   |  | $ | 36,083            |   |  | $                 | 145,244  |   |  | $ | (13,715 | )
|                                                         |  |                   |          |   |                   |   |          |                   |  |   |                   |   |  |                   |          |   |  |   |         |  



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



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



|(k) | The stores included in calculating comparable store sales growth are existing or replacement stores, which were in operation during the entire comparable period of both fiscal
years. Remodeling, physical expansion or changes in store square footage are not considered when computing comparable store sales growth. Comparable store sales as defined by us may not be comparable to similarly titled measures reported by other
companies.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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

This discussion and analysis of our financial condition and results of operations should be read in conjunction with Part II.Item 6. Selected Financial Data and our consolidated financial statements
and the related notes appearing in Part II.Item 8. Consolidated Financial Statements and Supplementary Data.

Safe Harbor Discussion

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



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



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



| |  |  | Unfavorable weather conditions or other trends or developments in the southeastern United States;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | Political conditions in crude oil producing regions and global demand;
| | - |  | ----------------------------------------------------------------------



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



| |  |  | Wholesale cost increases of, and tax increases on, tobacco products;
| | - |  | --------------------------------------------------------------------



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



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



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



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



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



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



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



| |  |  | Litigation risks, including with respect to food quality, health and other related issues;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | Inability to maintain an effective system of internal control over financial reporting;
| | - |  | ---------------------------------------------------------------------------------------



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



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



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For a discussion of these and other risks and uncertainties, please refer to Part
I.Item 1A. Risk Factors. The list of factors that could affect future performance and the accuracy of forward-looking statements is illustrative but by no means exhaustive. Accordingly, all forward-looking statements should be
evaluated with the understanding of their inherent uncertainty. The forward-looking statements included in this report are based on, and include, our estimates as of November 26, 2007. We anticipate that subsequent events and market
developments will cause our estimates to change. However, while we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if new information becomes available.

Our Business

We are the leading independently operated convenience store chain in the southeastern United States with 1,644 stores in 11 states as of September 27, 2007. Our stores operate under a number of select banners,
with 1,415 of our stores operating under Kangaroo Express®, our primary operating banner. We derive our revenue from the sale of merchandise, gasoline and other ancillary products and
services designed to appeal to the convenience needs of our customers. Our strategy is to continue to improve upon our position as the leading independently operated convenience store chain in the southeastern United States in the following ways:



| |  |  | generating profitable growth through merchandising initiatives,
| | - |  | ---------------------------------------------------------------



| |  |  | sophisticated management of our gasoline business,
| | - |  | --------------------------------------------------



| |  |  | upgrading our stores,
| | - |  | ---------------------



| |  |  | leveraging our geographic economies of scale,
| | - |  | ---------------------------------------------



| |  |  | benefiting from the favorable demographics or our markets,
| | - |  | ----------------------------------------------------------



| |  |  | selectively pursuing acquisitions and
| | - |  | -------------------------------------



| |  |  | developing new stores.
| | - |  | ----------------------

Executive Summary

Our total revenues for fiscal 2007 increased 15.9% over fiscal 2006 to $6.9 billion. We believe this growth in revenue was achieved
through the continued execution of our strategy of enhancing same store sales volume and expanding our Southeast market presence through acquisitions and new store development. While we were able to grow revenues, we experienced significant
challenges with weak gasoline margins due to large increases in crude oil prices, tight gasoline supplies and scattered refinery shutdowns. In fiscal 2007, we reported net income of $26.7 million and diluted earnings per share of $1.17 compared to
net income of $89.2 million and diluted earnings per share of $3.88 in the fiscal year 2006.

During fiscal 2007, we executed on several
key initiatives that we believe have enhanced our long-term earnings potential.



| | (1) | During the third quarter of fiscal 2007, we refinanced our then-existing senior credit facility and, in connection with the refinancing, increased our revolving credit facility to
$225.0 million, added a $100.0 million delayed draw facility and renegotiated covenants that we believe to be less restrictive. We believe this refinancing enhances our overall financial flexibility.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | We completed construction of ten new stores and five rebuilds in our existing markets. As these new stores mature, we believe they will add to our long-term profitability.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | (3) | From an operational perspective we recently completed a corporate reorganization that eliminated several field management as well as other corporate general and administrative
positions. This reorganization will allow better communication between the various levels of store management and increase our span of control in the field. The goal of the reorganization is to allow us to manage expense growth in line with store
and volume increases. We believe this strategic move will allow us to reduce expenses by $6.0 million in fiscal 2008 and allow us to remain proactive in delivering the leverage we need on our store operating and general and administrative expenses.
Results for the fourth quarter of fiscal 2007 included a one-time after-tax charge of $1.8 million related to our organizational restructuring.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | We initiated a share repurchase program in August 2007, which we believe represents a sound use of our capital. We repurchase shares under the repurchase program based on our
evaluation of market conditions and other factors. During fiscal 2007, we repurchased 692,844 shares.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (5) | We completed the acquisition of 152 stores in 21 separate transactions.
| | --- | -----------------------------------------------------------------------



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The tables below provide information concerning the acquisitions we completed in fiscal 2007 and fiscal
2006:



|                             |  |                                                                               |  |                        |  |                                                                                    |  |                 
|---------------------------- |  | ----------------------------------------------------------------------------- |  | ---------------------- |  | ---------------------------------------------------------------------------------- |  | ----------------
|Fiscal 2007                 
|Date Acquired                |  | Seller                                                                        |  | Trade Name             |  | Locations                                                                          |  | Number of Stores
|December 21, 2006            |  | Graves Oil Co.                                                                |  | Rascals                |  | Mississippi                                                                        |  | 7               
|January 11, 2007             |  | Anglers Mini-Mart, Inc.                                                      |  | Anglers Mini-Mart     |  | South Carolina                                                                     |  | 16              
|February 1, 2007             |  | Rousseau Enterprises,Inc.                                                     |  | LeStore                |  | Florida                                                                            |  | 8               
|February 8, 2007             |  | Southwest Georgia OilCo., Inc.                                                |  | Sun Stop®              |  | Alabama, Florida,and Georgia                                                       |  | 24              
|April 5, 2007                |  | Petro Express, Inc.                                                           |  | Petro Express®         |  | North Carolinaand SouthCarolina                                                    |  | 66              
|April 19, 2007               |  | Willard Oil Company,Inc., Fast Phils of SC,Inc. and Willard RealtyAssociates |  | Fast Phils            |  | South Carolina                                                                     |  | 11              
|Others (fewer than 5 stores) |  | Various                                                                       |  | Various                |  | Alabama, Florida,Louisiana,Mississippi, NorthCarolina, SouthCarolina, andTennessee |  | 20              
|                             |  |                                                                               |  |                        |  |                                                                                    |  |                 
|Total                        |  |                                                                               |  |                        |  |                                                                                    |  | 152             
|                             |  |                                                                               |  |                        |  |                                                                                    |  |                 
|                            
|Fiscal 2006                 
|Date Acquired                |  | Seller                                                                        |  | Trade Name             |  | Locations                                                                          |  | Number of Stores
|February 9, 2006             |  | Lee-Moore Oil Company                                                         |  | TruBuy and On The Run® |  | North Carolina                                                                     |  | 19              
|February 16, 2006            |  | Waring Oil Company,LLC                                                        |  | Interstate Food Stops  |  | Mississippi andLouisiana                                                           |  | 39              
|May 11, 2006                 |  | Shop-A-Snak FoodMart, Inc.                                                    |  | Shop-A-Snak FoodMartSM |  | Alabama                                                                            |  | 38              
|August 10, 2006              |  | Fuel Mate, LLC                                                                |  | Fuel Mate              |  | North Carolina                                                                     |  | 6               
|Others (fewer than 5 stores) |  | Various                                                                       |  | Various                |  | Georgia, Florida,Mississippi, NorthCarolina, andSouth Carolina                     |  | 11              
|                             |  |                                                                               |  |                        |  |                                                                                    |  |                 
|Total                        |  |                                                                               |  |                        |  |                                                                                    |  | 113             
|                             |  |                                                                               |  |                        |  |                                                                                    |  |                 

We believe growth through acquisition is key to our core business strategy; however, we will
continue to take a conservative approach to new acquisitions in fiscal 2008 and beyond, requiring that any acquisition offer a strong return on our investment, allow us to leverage existing company resources and complement our existing store base.
The convenience store industry remains highly fragmented, providing us the opportunity for long-term consolidation through selective acquisitions that meet our return on investment goals and strategic objectives.

Fiscal 2007 was one of our most challenging years ever in regards to meeting our gasoline margin and same store gasoline sales targets. Crude oil prices
reached an all-time high in fiscal 2007 and coupled with refinery outages, led to volatile market conditions where gasoline prices rose and fell faster than customary, removing the normal margin benefit derived through a slow decline in costs and
retails. Fiscal 2008 poses many challenges to



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our gasoline business with a depressed housing sector, a weakening dollar and geopolitical risks. We believe, however, there are a number of strategic
opportunities for us in the gasoline market. For example, our image refresh program at a number of stores has proven to provide positive year over year comparable store gallon growth. In addition, we believe the strategic use of ethanol blending may
provide incremental gross profit opportunities. Finally, we believe our market knowledge of trends, competitors and the ability to optimize profits on a site by site basis will help us continue to see market gains.

Merchandise and services revenue grew 13.7% year over year in fiscal 2007 despite a challenging retail market. Approximately 28.0% of our stores are
located in the state of Florida, and throughout fiscal 2007, Floridas economy experienced a significant slowdown. As a result, our same store comparables in Florida suffered, which depressed same store sales and margins for our entire company.
Despite Floridas soft economy, we were still able to grow same store sales at a rate of 2.3% for fiscal 2007. Our private label merchandise products continue to provide merchandising opportunities within our stores, and we are currently
working on adding several new private label products. Additionally, we expect to see continued growth in our service sector with car wash, ATM and prepaid phone card categories contributing as primary growth drivers.

Results of Operations

We believe the selected sales
data and the percentage change in the dollar amounts of each of the items presented below are important in evaluating the performance of our business operations. We operate in one business segment and believe the information presented in our
Managements Discussion and Analysis of Financial Condition and Results of Operations provides an understanding of our business segment, our operations and our financial condition. The table below provides a summary of our selected financial
data for fiscal 2007, fiscal 2006 and fiscal 2005, each of which contained 52 weeks.



|                               |  |                   |         |   |                   |   |         |                   |  |   |         |  
|------------------------------ |  | ----------------- | ------- | - | ----------------- | - | ------- | ----------------- |  | - | ------- | -
|                               |  | Fiscal Year Ended |        
|                               |  | September 27,2007 |         |   | September 28,2006 |   |         | September 29,2005 | 
|Selected financial data:       |  |                   |         |   |                   |   |         |                   |  |   |         |  
|Merchandise gross profit[1]    |  | $                 | 586,028 |   |                   | $ | 517,942 |                   |  | $ | 449,252 |  
|Merchandise margin             |  |                   | 37.2    | % |                   |   | 37.4    | %                 |  |   | 36.6    | %
|Retail gasoline data:          |  |                   |         |   |                   |   |         |                   |  |   |         |  
|Gallons                        |  |                   | 2,032.8 |   |                   |   | 1,757.8 |                   |  |   | 1,496.5 |  
|Margin per gallon              |  | $                 | 0.109   |   |                   | $ | 0.159   |                   |  | $ | 0.143   |  
|Retail price per gallon        |  | $                 | 2.55    |   |                   | $ | 2.58    |                   |  | $ | 2.13    |  
|Wholesale gasoline data:       |  |                   |         |   |                   |   |         |                   |  |   |         |  
|Gallons                        |  |                   | 62.9    |   |                   |   | 17.1    |                   |  |   | 4.5     |  
|Margin per gallon              |  | $                 | 0.036   |   |                   | $ | 0.082   |                   |  | $ | 0.060   |  
|Total gasoline gross profit[1] |  | $                 | 224,696 |   |                   | $ | 281,204 |                   |  | $ | 213,895 |  
|Comparable store data:         |  |                   |         |   |                   |   |         |                   |  |   |         |  
|Merchandise sales %            |  |                   | 2.3     | % |                   |   | 4.9     | %                 |  |   | 5.3     | %
|Gasoline gallons %             |  |                   | 1.0     | % |                   |   | 3.1     | %                 |  |   | 4.7     | %
|Number of stores:              |  |                   |         |   |                   |   |         |                   |  |   |         |  
|End of period                  |  |                   | 1,644   |   |                   |   | 1,493   |                   |  |   | 1,400   |  
|Weighted-average store count   |  |                   | 1,578   |   |                   |   | 1,452   |                   |  |   | 1,369   |  



|[1] | We compute gross profit exclusive of depreciation and allocation of store operating and general and administrative expenses.
|--- | ----------------------------------------------------------------------------------------------------------------------------



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Fiscal 2007 Compared to Fiscal 2006

Total Revenue.    Total revenue for fiscal 2007 was $6.9 billion compared to $6.0 billion for fiscal 2006, an increase of $950
million, or 15.9%. The increase in total revenue is primarily due to revenue from stores acquired in fiscal 2007 and the effect of a full year of revenue from stores acquired in fiscal 2006 of $862.4 million and comparable store increases in
merchandise sales of $29.4 million and in gasoline gallons of 16.1 million. The impact of these factors was partially offset by lost revenue from closed stores.

Merchandise Revenue and Gross Profit.    Total merchandise revenue for fiscal 2007 was $1.6 billion compared to $1.4 billion for fiscal 2006, an increase of $190.3 million, or 13.7%. This
increase is primarily due to the merchandise revenue from stores acquired in fiscal 2007 and the effect of a full year of revenue from 2006 acquisitions of $166.4 million and a 2.3% increase in comparable store merchandise sales. These increases
were partially offset by lost revenue from closed stores of approximately $9.2 million. Merchandise gross profit was $586.0 million for fiscal 2007 compared to $517.9 million for fiscal 2006, an increase of $68.1 million, or 13.1%. This increase is
primarily attributable to the increased merchandise revenue discussed above. We compute gross profit exclusive of depreciation and allocation of store operating and general and administrative expenses. Total service revenue for fiscal 2007 was $55.5
million compared to $46.4 million for fiscal 2006, an increase of $9.1 million or 19.6%. The increase was primarily due to growth in the car wash, ATM and prepaid phone card categories.

Going forward, we expect to maintain our high merchandise margins with continued investment in our private label program and development of additional
quick service restaurants, which on average represent higher margin categories.

Gasoline Revenue, Gallons, and Gross
Profit.    Total gasoline revenue for fiscal 2007 was $5.3 billion compared to $4.6 billion for fiscal 2006, an increase of $759.2 million, or 16.6%. The increase in gasoline revenue is primarily due to revenue from stores
acquired in fiscal 2007 and the effect of a full year of revenue from 2006 acquisitions of $696.0 million and an increase in comparable store gallons of 16.1 million. In fiscal 2007, our average retail price of gasoline was $2.55 per gallon,
which represents a 3.0 cents per gallon decrease in average retail price from fiscal 2006. The decrease in our average retail price is primarily the result of average retail prices in fiscal 2006 being unusually high following Hurricane Katrina in
the first quarter of fiscal 2006. The increases in gasoline revenue were partially offset by lost revenue from closed stores of approximately $18.9 million. Gasoline gross profit was $224.7 million for fiscal 2007 compared to $281.2 million for
fiscal 2006, a decrease of $56.5 million, or 20.1%. The decrease is primarily attributable to a decrease in our retail gross profit per gallon to $0.109 for fiscal 2007 from $0.159 in fiscal 2006. Rising oil and gas prices, political unrest in the
Middle East, a weak dollar, a depressed housing market and tight gasoline supplies have all contributed to lower than expected gasoline margins. We compute gross profit exclusive of depreciation and allocation of store operating and general and
administrative expenses. We present gasoline gross profit per gallon inclusive of credit card processing fees and repairs and maintenance on gasoline equipment. These fees and costs totaled $0.044 per gallon and $0.041 per gallon for fiscal 2007 and
fiscal 2006, respectively. The increase in these fees was primarily due to increased credit card usage by our customers.

In fiscal 2007,
gasoline gallons sold were 2.1 billion, an increase of 320.8 million gallons, or 18.1%, from fiscal 2006. The increase is primarily attributable to gasoline gallons from stores acquired in fiscal 2007 and the effect of a full year of gallons
from stores acquired in fiscal 2006 of 264.2 million gallons and the comparable store gasoline gallon increase discussed above, partially offset by lost gasoline volume from closed stores of approximately 7.0 million gallons.



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Total Gross Profit.    Our fiscal 2007 gross profit was $810.7 million
compared to $799.1 million for fiscal 2006, an increase of $11.6 million, or 1.4%. The increase is primarily attributable to the gross profit contribution of stores acquired in fiscal 2007 and the effect of a full year of gross profit contribution
from stores acquired in fiscal 2006 of $85.5 million and our comparable store volume increases discussed above. These increases were partially offset by lost gross profit from closed stores and a decrease in our gasoline gross profit per gallon. We
compute gross profit exclusive of depreciation and allocation of store operating and general and administrative expenses.

Store
Operating and General and Administrative.    Store operating and general and administrative expenses for fiscal 2007 were $597.3 million compared to $521.1 million for fiscal 2006, an increase of $76.2 million, or 14.6%. This
increase is primarily due to increased store count from acquisitions and comparable store increases in labor and other variable expenses. As a percentage of the sum of merchandise revenue and gasoline gallons, store operating and general and
administrative expenses were 16.6% for fiscal 2007 and fiscal 2006.

Depreciation and
Amortization.    Depreciation and amortization expenses were $95.9 million for fiscal 2007 compared to $76.0 million for fiscal 2006, an increase of $19.9 million, or 26.1%. This increase is primarily attributable to
increased fiscal 2007 acquisition activity, a full years depreciation expense from fiscal 2006 acquisitions and increased capital expenditures. The increase in capital expenditures is primarily due to expansion in our new store development as
we have opened ten new stores and completed five rebuilds since the beginning of fiscal 2007.

Income from
Operations.    Income from operations for fiscal 2007 was $117.5 million compared to $202.0 million for fiscal 2006, a decrease of $84.5 million, or 41.8%. This decrease is primarily due to the decrease in gasoline gross
profit and the increases in store operating and general and administrative expenses and depreciation and amortization as discussed above. The impact of these factors was partially offset by the increase in merchandise gross profit.

EBITDA and Adjusted EBITDA.    We define EBITDA as net income before interest expense, net, loss on extinguishment of debt,
income taxes, depreciation and amortization. Adjusted EBITDA excludes cumulative effect adjustment and includes the lease payments we make under our lease finance obligations as a reduction to EBITDA. EBITDA for fiscal 2007 was $214.0 million
compared to $278.9 million for fiscal 2006, a decrease of $64.9 million, or 23.3%. Adjusted EBITDA for fiscal 2007 was $178.1 million compared to $254.2 million for fiscal 2006, a decrease of $76.1 million, or 29.9%. These declines are primarily due
to the variances discussed above.

EBITDA and Adjusted EBITDA are not measures of operating performance or liquidity under accounting
principles generally accepted in the United States of America (GAAP) and should not be considered as substitutes for net income, cash flows from operating activities or other income or cash flow statement data. We have included
information concerning EBITDA and Adjusted EBITDA because we believe investors find this information useful as a reflection of the resources available for strategic opportunities including, among others, to invest in our business, make strategic
acquisitions and to service debt. Management also uses EBITDA and Adjusted EBITDA to review the performance of our business directly resulting from our retail operations and for budgeting and field operations compensation targets.

In accordance with GAAP, certain of our leases, including all of our sale-leaseback arrangements, are accounted for as lease finance obligations. As a
result, payments made under these lease arrangements are accounted for as interest expense and a reduction of the principal amounts outstanding on our lease finance obligations. By including in Adjusted EBITDA the amounts we pay under our lease
finance obligations, we are able to present such payments as operating costs instead of financing costs. We believe that this presentation helps investors better understand our operating performance relative to other companies that do not account
for their leases as lease finance obligations.



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Any measure that excludes interest expense, loss on extinguishment of debt, depreciation, amortization or
income taxes has material limitations because we use debt and lease financing in order to fund our operations and acquisitions, we use capital and intangible assets in our business and the payment of income taxes is a necessary element of our
operations. Due to these limitations, we use EBITDA and Adjusted EBITDA only in addition to and in conjunction with results presented in accordance with GAAP. We strongly encourage investors to review our consolidated financial statements and
publicly filed reports in their entirety and not to rely on any single financial measure.

Because non-GAAP financial measures are not
standardized, EBITDA and Adjusted EBITDA, as defined by us, may not be comparable to similarly titled measures reported by other companies. It therefore may not be possible to compare our use of EBITDA and Adjusted EBITDA with non-GAAP financial
measures having the same or similar names used by other companies.

The following table contains a reconciliation of EBITDA and Adjusted
EBITDA to net income (amounts in thousands):



|                                                         |  |                   |         |   |                   |   |         |  
|-------------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                                         |  | Fiscal Year Ended |        
|                                                         |  | September 27,2007 |         |   | September 28,2006 |  
|Adjusted EBITDA                                          |  | $                 | 178,097 |   |                   | $ | 254,151 |  
|Payments made for lease finance obligations              |  |                   | 35,889  |   |                   |   | 24,719  |  
|                                                         |  |                   |         |   |                   |   |         |  
|EBITDA                                                   |  |                   | 213,986 |   |                   |   | 278,870 |  
|Interest expense, net and loss on extinguishment of debt |  |                   | (74,411 | ) |                   |   | (56,493 | )
|Depreciation and amortization                            |  |                   | (95,887 | ) |                   |   | (76,025 | )
|Provision for income taxes                               |  |                   | (16,956 | ) |                   |   | (57,154 | )
|                                                         |  |                   |         |   |                   |   |         |  
|Net income                                               |  | $                 | 26,732  |   |                   | $ | 89,198  |  
|                                                         |  |                   |         |   |                   |   |         |  

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



|                                                         |  |                   |          |   |                   |   |          |  
|-------------------------------------------------------- |  | ----------------- | -------- | - | ----------------- | - | -------- | -
|                                                         |  | Fiscal Year Ended |         
|                                                         |  | September 27,2007 |          |   | September 28,2006 |  
|Adjusted EBITDA                                          |  | $                 | 178,097  |   |                   | $ | 254,151  |  
|Payments made for lease finance obligations              |  |                   | 35,889   |   |                   |   | 24,719   |  
|                                                         |  |                   |          |   |                   |   |          |  
|EBITDA                                                   |  |                   | 213,986  |   |                   |   | 278,870  |  
|Interest expense, net and loss on extinguishment of debt |  |                   | (74,411  | ) |                   |   | (56,493  | )
|Provision for income taxes                               |  |                   | (16,956  | ) |                   |   | (57,154  | )
|Non-cash stock based compensation                        |  |                   | 3,657    |   |                   |   | 2,812    |  
|Changes in operating assets and liabilities              |  |                   | 8,268    |   |                   |   | (12,763  | )
|Non-cash loss on extinguishment of debt                  |  |                   | 2,212    |   |                   |   | 1,832    |  
|Other                                                    |  |                   | 3,880    |   |                   |   | (2,841   | )
|                                                         |  |                   |          |   |                   |   |          |  
|Net cash provided by operating activities                |  | $                 | 140,636  |   |                   | $ | 154,263  |  
|                                                         |  |                   |          |   |                   |   |          |  
|Net cash used in investing activities                    |  | $                 | (528,723 | ) |                   | $ | (219,285 | )
|                                                         |  |                   |          |   |                   |   |          |  
|Net cash provided by financing activities                |  | $                 | 339,196  |   |                   | $ | 73,944   |  
|                                                         |  |                   |          |   |                   |   |          |  

Loss on Extinguishment of Debt.The loss on extinguishment of debt
of $2.2 million during fiscal 2007 and the loss on extinguishment of debt of $1.8 million during fiscal 2006 represent write-offs of unamortized deferred financing costs associated with separate refinancings of our senior credit facility.

Interest Expense, Net.    Interest expense, net is primarily comprised of interest on our long-term debt and lease finance
obligations, net of interest income. Interest expense, net for fiscal 2007 was $72.2 million compared



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to $54.7 million for fiscal 2006, an increase of $17.5 million, or 32.1%. The increase is primarily a result of increased lease finance obligations,
increased borrowings under our senior credit facility and a general increase in short-term interest rates.

Income Tax
Expense.    We recorded income tax expense of $17.0 million in fiscal 2007 as compared to $57.2 million in fiscal 2006. Our effective tax rate for fiscal 2007 was 38.8% compared to 39.1% for fiscal 2006. The decrease in the
effective rate is primarily the result of the resolution of certain federal and state tax contingencies.

Fiscal 2006 Compared to Fiscal 2005

Total Revenue.    Total revenue for fiscal 2006 was $6.0 billion compared to $4.4 billion for fiscal
2005, an increase of $1.5 billion, or 34.6%. The increase in total revenue is primarily due to a 21.0% increase in our average retail price of gasoline gallons sold, revenue from stores acquired in fiscal 2006 and the effect of a full year of
revenue from stores acquired in fiscal 2005 of $776.1 million and comparable store increases in merchandise sales of $57.0 million and in gasoline gallons of 43.2 million. The impact of these factors was partially offset by lost revenue from closed
stores.

Merchandise Revenue and Gross Profit.    Total merchandise revenue for fiscal 2006 was $1.4 billion
compared to $1.2 billion for fiscal 2005, an increase of $156.8 million, or 12.8%. This increase is primarily due to the merchandise revenue from stores acquired in fiscal 2006 and the effect of a full year of revenue from stores acquired in 2005 of
$119.1 million and a 4.9% increase in comparable store merchandise sales. These increases were partially offset by lost revenue from closed stores of approximately $23.6 million. Merchandise gross profit was $517.9 million for fiscal 2006 compared
to $449.3 million for fiscal 2005, an increase of $68.6 million, or 15.3%. This increase is primarily attributable to the increased merchandise revenue discussed above and an 80 basis point increase in our merchandise margin to 37.4% for fiscal 2006
compared to 36.6% for fiscal 2005. We compute gross profit exclusive of depreciation and allocation of store operating and general and administrative expenses. The margin improvement is primarily attributable to increased service revenue and the
continued growth in food service revenue and revenue from private label products, which on average represent higher margin categories. Total service revenue for fiscal 2006 was $46.4 million compared to $36.9 million for fiscal 2005, an increase of
$9.5 million, or 25.7%. The increase was primarily due to higher lottery commission income driven by the introduction of the North Carolina Educational Lottery, and growth in the car wash, ATM and prepaid phone card categories.

Gasoline Revenue, Gallons, and Gross Profit.    Total gasoline revenue for fiscal 2006 was $4.6 billion compared to $3.2
billion for fiscal 2005, an increase of $1.4 billion, or 43.0%. The increase in gasoline revenue is primarily due to $657.0 million in revenue from stores acquired in fiscal 2006 and the effect of a full year of revenue from stores acquired in
fiscal 2005, an increase in comparable store gallons of 43.2 million and a 21.1% increase in our average retail price of gasoline. In fiscal 2006, our average retail price of gasoline was $2.58 per gallon, which represents a 45.0 cents per
gallon increase in average retail price from fiscal 2005. The increase in our average retail price is the result of increasing wholesale prices from a volatile gasoline market for much of fiscal 2006. The resulting increases in gasoline revenue were
partially offset by lost revenue from closed stores of approximately $34.8 million. Gasoline gross profit was $281.2 million for fiscal 2006 compared to $213.9 million for fiscal 2005, an increase of $67.3 million, or 31.5%. The increase is
primarily attributable to an increase in our gross profit per gallon to $0.158 for fiscal 2006 from $0.142 in fiscal 2005. The increase in gasoline gross profit was primarily due to our ability to pass along wholesale crude cost changes to retail
prices during fiscal 2006. We compute gross profit exclusive of depreciation and allocation of store operating and general and administrative expenses. We present gasoline gross profit per gallon inclusive of credit card processing fees and repairs
and maintenance on gasoline equipment. These fees and costs totaled $0.041 per gallon and $0.036 per gallon for fiscal 2006 and fiscal 2005, respectively. The increase in these fees was primarily due to higher credit card fees as a result of a 21.1%
increase in retail gasoline prices.



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In fiscal 2006, gasoline gallons sold were 1.8 billion, an increase of 273.9 million gallons, or
18.2%, from fiscal 2005. The increase is primarily attributable to 245.2 million gasoline gallons from stores acquired in fiscal 2006 and the effect of a full year of gallons from stores acquired in fiscal 2005 and the comparable store gasoline
gallon increase discussed above, partially offset by lost gasoline volume from closed stores of approximately 18.2 million gallons.

Total Gross Profit.    Our fiscal 2006 gross profit was $799.1 million compared to $663.1 million for fiscal 2005, an increase of $136.0 million, or 20.5%. The increase is primarily attributable to the gross
profit contribution from stores acquired in fiscal 2006, the effect of a full year of gross profit contribution from stores acquired in fiscal 2005 of $80.7 million, the increase in our gasoline gross profit per gallon and our comparable store
volume increases discussed above. These increases were partially offset by lost gross profit from closed stores. We compute gross profit exclusive of depreciation and allocation of store operating and general and administrative expenses.

Store Operating and General and Administrative.    Store operating and general and administrative expenses for fiscal 2006
were $521.1 million compared to $450.3 million for fiscal 2005, an increase of $70.8 million, or 15.7%. This increase is primarily due to increased store count from acquisitions and comparable store increases in labor and other variable expenses. As
a percentage of the sum of merchandise revenue and gasoline gallons, store operating and general and administrative expenses were 16.6% and 16.5% for fiscal 2006 and fiscal 2005, respectively.

Depreciation and Amortization.    Depreciation and amortization expenses were $76.0 million for fiscal 2006 compared to $64.3
million for fiscal 2005, an increase of $11.7 million, or 18.2%. This increase is primarily attributable to increased fiscal 2006 acquisition activity, a full years depreciation expense from fiscal 2005 acquisitions and increased capital
expenditures. The increase in capital expenditures is primarily due to expansion in our new store development as we opened four new stores during fiscal 2006.

Income from Operations.    Income from operations for fiscal 2006 was $202.0 million compared to $148.5 million for fiscal 2005, an increase of $53.5 million, or 36.0%. This increase is
primarily due to the increases in gross profit discussed above, partially offset by the increases in store operating and general and administrative expenses also discussed above.

EBITDA and Adjusted EBITDA.    EBITDA for fiscal 2006 was $278.9 million compared to $213.9 million for fiscal 2005, an
increase of $65.0 million, or 30.4%. Adjusted EBITDA for fiscal 2006 was $254.2 million compared to $189.4 million for fiscal 2005, an increase of $64.8 million or 34.2%. These increases are primarily due to the variances discussed above.

The following table contains a reconciliation of EBITDA and Adjusted EBITDA to net income (amounts in thousands):



|                                                         |  |                   |         |   |                   |   |         |  
|-------------------------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                                         |  | Fiscal Year Ended |        
|                                                         |  | September 28,2006 |         |   | September 29,2005 |  
|Adjusted EBITDA                                          |  | $                 | 254,151 |   |                   | $ | 189,390 |  
|Payments made for lease financing obligations            |  |                   | 24,719  |   |                   |   | 24,471  |  
|                                                         |  |                   |         |   |                   |   |         |  
|EBITDA                                                   |  |                   | 278,870 |   |                   |   | 213,861 |  
|Interest expense, net and loss on extinguishment of debt |  |                   | (56,493 | ) |                   |   | (54,314 | )
|Depreciation and amortization                            |  |                   | (76,025 | ) |                   |   | (64,341 | )
|Provision for income taxes                               |  |                   | (57,154 | ) |                   |   | (37,396 | )
|                                                         |  |                   |         |   |                   |   |         |  
|Net income                                               |  | $                 | 89,198  |   |                   | $ | 57,810  |  
|                                                         |  |                   |         |   |                   |   |         |  



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



|                                                         |  |                   |          |   |                   |   |          |  
|-------------------------------------------------------- |  | ----------------- | -------- | - | ----------------- | - | -------- | -
|                                                         |  | Fiscal Year Ended |         
|                                                         |  | September 27,2006 |          |   | September 28,2005 |  
|Adjusted EBITDA                                          |  | $                 | 254,151  |   |                   | $ | 189,390  |  
|Payments made for lease finance obligations              |  |                   | 24,719   |   |                   |   | 24,471   |  
|                                                         |  |                   |          |   |                   |   |          |  
|EBITDA                                                   |  |                   | 278,870  |   |                   |   | 213,861  |  
|Interest expense, net and loss on extinguishment of debt |  |                   | (56,493  | ) |                   |   | (54,314  | )
|Provision for income taxes                               |  |                   | (57,154  | ) |                   |   | (37,396  | )
|Non-cash stock issued compensation                       |  |                   | 2,812    |   |                   |   |         |  
|Changes to operating assets and liabilities              |  |                   | (12,763  | ) |                   |   | (7,364   | )
|Non-cash loss on extinguishment of debt                  |  |                   | 1,832    |   |                   |   |         |  
|Other                                                    |  |                   | (2,841   | ) |                   |   | 18,794   |  
|                                                         |  |                   |          |   |                   |   |          |  
|Net cash provided by operating activities                |  | $                 | 154,263  |   |                   | $ | 133,581  |  
|                                                         |  |                   |          |   |                   |   |          |  
|Net cash used in investing activities                    |  | $                 | (219,285 | ) |                   | $ | (166,240 | )
|                                                         |  |                   |          |   |                   |   |          |  
|Net cash provided by financing activities                |  | $                 | 73,944   |   |                   | $ | 36,083   |  
|                                                         |  |                   |          |   |                   |   |          |  

Loss on Extinguishment of Debt.The loss on extinguishment of debt
of $1.8 million during fiscal 2006 represents write-offs of unamortized deferred financing costs associated with the refinancing of our then-existing senior credit facility.

Interest Expense, Net.    Interest expense, net is primarily comprised of interest on our long-term debt and lease finance
obligations, net of interest income. Interest expense, net for fiscal 2006 was $54.7 million compared to $54.3 million for fiscal 2005, an increase of $347 thousand, or 0.6%. The increase is primarily the result of an increase in our
weighted-average borrowings as a result of the issuance of the convertible notes and additional lease financing.

Income Tax
Expense.    We recorded income tax expense of $57.2 million in fiscal 2006 as compared to $37.4 million in fiscal 2005. Our effective tax rate for fiscal 2006 was 39.1% compared to 39.3% for fiscal 2005. The decrease in the
effective rate is primarily the result of the resolution of certain federal and state tax contingencies.

Liquidity and Capital Resources

Cash Flows from Operations.    Due to the nature of our business, substantially all sales are for cash and
cash provided by operations is our primary source of liquidity. We rely primarily upon cash provided by operating activities, supplemented as necessary from time to time by borrowings under our revolving credit facility, lease finance transactions,
and asset dispositions to finance our operations, pay interest and principal payments and fund capital expenditures. Cash provided by operations for fiscal 2007 totaled $140.6 million, for fiscal 2006 totaled $154.3 million and for fiscal 2005
totaled $133.6 million. The decrease in net cash provided by operating activities for fiscal 2007 from fiscal 2006 is primarily attributable to the decrease in gasoline gross profit offset by the impact of fiscal 2007 acquisitions on operating
income.

Capital Expenditures.    Gross capital expenditures (excluding all acquisitions) for fiscal 2007 were
$146.4 million. In fiscal 2007, we had cash proceeds of $6.0 million from asset dispositions, $26.9 million from lease finance obligations and vendor reimbursements of $3.3 million. As a result, our net capital expenditures, excluding all
acquisitions, for fiscal 2007 were $110.2 million. Our capital expenditures are primarily expenditures for store improvements, store equipment, new store development, information systems and expenditures to comply with regulatory statutes, including
those related to environmental matters. We finance substantially all capital expenditures and new store development through cash flows from operations, proceeds from lease finance transactions, borrowings under our senior credit facility and asset
dispositions and vendor reimbursements.



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Our lease finance program includes the packaging of our owned or acquired convenience store real estate,
both land and buildings, for sale to investors in return for their agreement to lease the property back to us under long-term leases. We retain ownership of all personal property. Our leases are at market rates with initial lease terms between 15
and 20 years plus several renewal option periods. The lease payment is based on market rates applied to the cost of each respective property. We received $215.3 million in proceeds from new lease finance transactions in fiscal 2007 and $42.9 million
in fiscal 2006.

We anticipate that net capital expenditures for fiscal 2008 will be approximately $110.0 million. We anticipate opening 15
new stores in fiscal 2008 compared to ten newly-constructed stores in fiscal 2007.

We expect our technology spending to increase during
fiscal 2008 as we make capital expenditures associated with upgrading, consolidating, and replacing our point-of-sale systems. We also expect to increase spending to automate functions throughout our administrative departments and expand the use of
decision support tools. We anticipate that our capital expenditures related to technology will be in a range of $20.0 million to $30.0 million annually over the next two years.

Acquisitions.    During fiscal 2007, we purchased 152 stores and their related businesses in 21 separate transactions for
approximately $395.6 million in aggregate purchase consideration. We do not anticipate that our fiscal 2008 acquisition activity will exceed our acquisition activity of fiscal 2007.

Cash Flows from Financing Activities.    For fiscal 2007, net cash provided by financing activities was $339.2 million. The
net cash provided by financing activities is primarily the result of the proceeds from the issuance of a new senior credit facility of $350.0 million less the repayments and retirement of the previously existing senior credit facility of $304.0
million. Additionally, we repurchased 692,844 shares of our common stock under our current share repurchase program at an aggregate cost of $21.7 million. We also entered into new lease financing transactions with proceeds totaling
$215.3 million, including $188.4 million related to acquisitions of businesses. At September 27, 2007, our debt consisted primarily of $350.0 million in loans under our senior credit facility, $250.0 million of outstanding 7.75% senior
subordinated notes, $458.0 million of outstanding lease finance obligations and $150.0 million of outstanding convertible notes.

Senior
Credit Facility.    During fiscal 2007, we entered into a Third Amended and Restated Credit Agreement (credit agreement). Our credit agreement defines the terms of our senior credit facility, which includes
(i) a $225.0 million revolving credit facility; (ii) a $350.0 million term loan facility; and (iii) a $100.0 million delayed draw term loan. A maximum of $120.0 million of the revolving credit facility is available as a
letter of credit sub-facility. The revolving credit facility has been, and will continue to be, used for our working capital and general corporate requirements and is also available for refinancing certain of our existing indebtedness and issuing
commercial and standby letters of credit. The senior credit facility matures in May 2014.

Our borrowings under the term loans bear
interest through the fiscal quarter ending December 27, 2007, at our option, at either the base rate (generally the applicable prime lending rate of Wachovia Bank, as announced from time to time) plus 0.50% or LIBOR plus 1.75%. Thereafter, if
our consolidated total leverage ratio (as defined in the credit agreement) is less than 4.00 to 1.00, the applicable margins on the borrowings under the term loans will be decreased by 0.25%.

Our borrowings under the revolving credit facility bear interest through the fiscal quarter ending December 27, 2007, at our option, at either the
base rate (generally the applicable prime lending rate of Wachovia Bank, as announced from time to time) plus 0.25% or LIBOR plus 1.50%. Thereafter, if our consolidated total leverage ratio (as defined in the credit agreement) is greater than or
equal to 4.00 to 1.00, the applicable margins on borrowings under the revolving credit facility will be increased by 0.25%, and if the consolidated total leverage ratio is less than or equal to 3.00 to 1.00, the applicable margins on borrowings
under the revolving credit facility will be decreased by 0.25%. In addition, we may use up to $15.0 million of the revolving credit facility for swingline loans and up to $120.0 million for the issuance of commercial and standby letters of credit.



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We are permitted to prepay principal amounts outstanding or reduce revolving credit facility or delayed
draw term loan commitments under our senior credit facility at any time, in whole or in part, without premium or penalty, upon the giving of proper notice. We may elect how the optional prepayments are applied. In addition, subject to certain
exceptions, we are required to prepay outstanding amounts under our senior credit facility with:



| |  |  | the net proceeds of insurance not applied toward the repair of damaged properties within 360 days following receipt of the insurance proceeds, to the extent that
such net proceeds exceed $10.0 million;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the net proceeds from asset sales other than in the ordinary course of business that are not reinvested within 270 days following the closing of the sale, to the
extent that such net proceeds exceed $15.0 million;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the net proceeds from the issuance of any other debt, other than permitted subordinated debt and certain other permitted debt; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | up to 50% of annual excess cash flow to the extent our consolidated total leverage ratio is greater than 3.50 to 1.0 at the end of our fiscal year.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------

All mandatory prepayments will be applied pro rata first to the term loan facility and second to the revolving credit
facility and, after all amounts under the revolving credit facility have been repaid, to a collateral account with respect to outstanding letters of credit.

The credit agreement governing our senior credit facility contains customary affirmative and negative covenants for financings of its type (subject to customary exceptions). The financial covenants include:



| |  |  | maximum total adjusted leverage ratio (as defined in the credit agreement); and
| | - |  | -------------------------------------------------------------------------------



| |  |  | minimum interest coverage ratio (as defined in the credit agreement).
| | - |  | ---------------------------------------------------------------------

Other covenants, among other things, limit our ability to:



| |  |  | incur indebtedness;
| | - |  | -------------------



| |  |  | incur liens or other encumbrances;
| | - |  | ----------------------------------



| |  |  | enter into joint ventures, acquisitions and other investments;
| | - |  | --------------------------------------------------------------



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



| |  |  | become liable with respect to certain contingent obligations;
| | - |  | -------------------------------------------------------------



| |  |  | change our line of business;
| | - |  | ----------------------------



| |  |  | enter into mergers, consolidations and similar combinations;
| | - |  | ------------------------------------------------------------



| |  |  | sell or dispose of our assets, other than in the ordinary course of business;
| | - |  | -----------------------------------------------------------------------------



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



| |  |  | pay dividends or make other distributions with respect to our common stock;
| | - |  | ---------------------------------------------------------------------------



| |  |  | redeem, retire, repurchase, or otherwise acquire for value any of our common stock or make payments to retire or obtain the surrender of warrants, options, or other
rights to acquire our common stock;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | make payments on any subordinated indebtedness (as defined in the credit agreement);
| | - |  | ------------------------------------------------------------------------------------



| |  |  | change our fiscal year;
| | - |  | -----------------------



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



| |  |  | change our organizational documents.
| | - |  | ------------------------------------

The credit agreement governing our senior credit facility contains customary events of default including, but not limited to:



| |  |  | failure to make payments when due;
| | - |  | ----------------------------------



| |  |  | breaches of representations and warranties;
| | - |  | -------------------------------------------



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| |  |  | breaches of covenants;
| | - |  | ----------------------



| |  |  | defaults under other indebtedness;
| | - |  | ----------------------------------



| |  |  | bankruptcy or insolvency;
| | - |  | -------------------------



| |  |  | judgments in excess of specified amounts;
| | - |  | -----------------------------------------



| |  |  | ERISA events;
| | - |  | -------------



| |  |  | a change of control (as such term is defined in our senior credit facility); and
| | - |  | --------------------------------------------------------------------------------



| |  |  | invalidity of the guaranty or other documents governing our senior credit facility.
| | - |  | -----------------------------------------------------------------------------------

An event of default under our credit agreement, if not cured or waived, could result in the acceleration of all our indebtedness under our senior credit
facility (and other indebtedness containing cross default provisions).

As of September 27, 2007, we had no borrowings outstanding
under the revolving credit facility and approximately $56.7 million of standby letters of credit had been issued. As of September 27, 2007, we have approximately $168.3 million in available borrowing capacity under the facility
(approximately $63.3 million of which was available for issuances of letters of credit).

Senior Subordinated
Notes.    In February 2004, we sold $250.0 million of 7.75% senior subordinated notes due February 15, 2014. Interest on the senior subordinated notes is due on February 15 and August 15 of each year. Proceeds
from the sale of the senior subordinated notes were used to redeem $200.0 million in outstanding 10.25% senior subordinated notes, including a $6.8 million call premium, pay principal of approximately $28.0 million outstanding under our
then-existing senior credit facility and pay related financing costs. We incurred debt extinguishment charges of $10.7 million, which consisted of the $6.8 million call premium and $3.9 million of unamortized deferred financing costs. We incurred
approximately $6.6 million in costs associated with the new notes, which were deferred and will be amortized over the life of the new notes.

The indenture governing our senior subordinated notes contains covenants that, among other things and subject to various exceptions, restrict our ability and any restricted subsidiarys ability to:



| |  |  | pay dividends, make distributions or repurchase stock;
| | - |  | ------------------------------------------------------



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



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



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



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



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

We can incur debt under the indenture governing our senior subordinated notes if our fixed charge ratio (as defined in the indenture) after giving effect
to such incurrence, is at least 2.0 to 1.0. Even if we do not meet this ratio we can incur:



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



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| |  |  | capital leases or purchase money debt in amounts not to exceed the greater of $35.0 million in the aggregate and 10% of our tangible assets at the time of
incurrence;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



| |  |  | up to $25.0 million in any type of debt;
| | - |  | ----------------------------------------



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



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

The indenture governing our senior subordinated notes also places conditions on the terms of asset sales or
transfers and requires us either to reinvest the cash proceeds of an asset sale or transfer, or, if we do not reinvest those proceeds, to pay down our senior credit facility or other senior debt or to offer to redeem our senior subordinated notes
with any asset sale proceeds not so used. In addition, upon the occurrence of a change of control, we will be required to offer to purchase all of the outstanding senior subordinated notes at a price equal to 101% of their principal amount plus
accrued and unpaid interest to the date of redemption. Under the indenture governing our senior subordinated notes, a change of control is deemed to occur if (a) any person, other than certain permitted holders (defined as any
member of our senior management), becomes the beneficial owner of more than 50% of the voting power of our common stock, (b) any person, or group of persons acting together, other than a permitted holder, becomes the beneficial owner of more
than 35% of the voting power of our common stock and the permitted holders own a lesser percentage than such other person, or (c) the first day on which a majority of the members of our Board of Directors are not continuing
Directors (as defined in the indenture). On or after February 15, 2009, we may redeem the senior subordinated notes in whole or in part at a redemption price that is 103.875% and decreases to 102.583% after February 15, 2010,
101.292% after February 15, 2011 and 100.0% after February 15, 2012.

Senior Subordinated Convertible
Notes.    On November 22, 2005, we completed a private offering of $150.0 million of our senior subordinated convertible notes due 2012 to qualified institutional buyers pursuant to Rule 144A under the
Securities Act. Subsequently, during the second quarter of fiscal 2006, we registered the convertible notes for resale by the holders thereof. The convertible notes bear interest at an annual rate of 3.0%, payable semi-annually on May 15th and
November 15th of each year, with the first interest payment made on May 15, 2006. The convertible notes are convertible into our common stock at an initial conversion price of $50.09 per share, upon the occurrence of certain events,
including the closing price of our common stock exceeding 120% of the conversion price per share for 20 of the last 30 trading days of any calendar quarter. If, upon the occurrence of certain events, the holders of the convertible notes exercise the
conversion provisions of the convertible notes, we may need to remit the principal balance of the convertible notes to them in cash (see below). As such, we would be required to classify the entire amount outstanding of the convertible notes as a
current liability in the following quarter. This evaluation of the classification of amounts outstanding associated with the convertible notes will occur every calendar quarter. Upon conversion, a holder will receive, in lieu of common stock, an
amount of cash equal to the lesser of (i) the principal amount of the convertible note, or (ii) the conversion value, determined in the manner set forth in the indenture governing the convertible notes, of a number of shares equal to the
conversion rate. If the conversion value exceeds the principal amount of the convertible note on the conversion date, we will also deliver, at our election, cash or common stock or a combination of cash and common stock with respect to the
conversion value upon conversion. If conversion occurs in connection with a change of control, we may be required to deliver additional shares of our common stock by increasing the conversion rate with respect to such notes. The maximum aggregate
number of shares that we would be obligated to issue upon conversion of the convertible notes is 3,817,775.



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Proceeds from the sale of the convertible notes were used to (a) repay approximately $100.0 million
of the $305.0 million outstanding under our then-existing senior credit facility, (b) pay a net cost of approximately $18.5 million associated with separate convertible bond hedge and warrant transactions entered into with one or more
affiliates of Merrill Lynch, Pierce, Fenner & Smith Incorporated, which were designed to limit our exposure to potential dilution from conversion of the convertible notes and (c) pay other expenses of approximately $4.7 million. We
used the remaining cash proceeds for general corporate purposes, including acquisitions.

Holders of the convertible notes may convert
their notes prior to the close of business on the business day before the stated maturity date based on the applicable conversion rate only under the following circumstances:



| |  |  | during any calendar quarter beginning after March 31, 2006 (and only during such calendar quarter), if the closing price of our common stock for at least 20
trading days in the 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is more than 120% of the conversion price per share, which is $1,000 divided by the then applicable conversion rate;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | during the five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of senior subordinated
convertible notes for each day of that period was less than 98% of the product of the closing price for our common stock for each day of that period and the number of shares of common stock issuable upon conversion of $1,000 principal amount of the
convertible notes;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | if specified distributions to holders of our common stock are made, or specified corporate transactions occur;
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | if a fundamental change occurs; or
| | - |  | ----------------------------------



| |  |  | at any time on or after May 15, 2012 and through the business day preceding the maturity date.
| | - |  | ----------------------------------------------------------------------------------------------

The initial conversion rate is 19.9622 shares of common stock per $1,000 principal amount of the convertible notes. This is equivalent to an initial
conversion price of approximately $50.09 per share of common stock.

Upon conversion, a holder will receive, in lieu of common stock, an
amount in cash equal to the lesser of (i) the principal amount of the convertible note, or (ii) the conversion value, determined in the manner set forth in the convertible note, of a number of shares equal to the conversion rate. If the
conversion value exceeds the principal amount of the convertible note on the conversion date, we will also deliver, at our election, cash or common stock or a combination of cash and common stock with respect to the remaining common stock
deliverable upon conversion.

The convertible notes are:



| |  |  | junior in right of payment to all of our existing and future senior debt;
| | - |  | -------------------------------------------------------------------------



| |  |  | equal in right of payment to all of our existing and future senior subordinated debt; and
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | senior in right of payment to any of our future subordinated debt.
| | - |  | ------------------------------------------------------------------

The indenture governing our convertible notes does not limit our ability or the ability of our subsidiaries to incur additional debt, including secured debt.

We have filed with the SEC a shelf registration statement with respect to the resale of the convertible notes and the shares of our common stock issuable
upon conversion of the convertible notes. We have agreed to keep



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such shelf registration statement effective until the earlier of (i) the sale pursuant to the shelf registration statement of all of the convertible
notes and/or shares of common stock issuable upon conversion of the convertible notes, and (ii) the date when the holders, other than the holders that are our affiliates, of the convertible notes and the common stock issuable upon
conversion or the convertible notes are able to sell all such securities immediately without restriction pursuant to the volume limitation provisions of Rule 144 under the Securities Act or any successor rule thereto or otherwise. We will be
required to pay additional interest, subject to certain limitations, to the holders of the convertible notes if we fail to comply with our obligations to keep such shelf registration statement effective for the specified time period.

Shareholders Equity.    As of September 27, 2007, our shareholders equity totaled $353.8 million. The
increase of $16.8 million in shareholders equity from September 28, 2006 is primarily attributable to fiscal 2007 net income of $26.7 million offset by a net decrease in additional paid-in capital of $9.0 million. The decrease in paid-in
capital is related to the net cost of the repurchase of 692,844 shares of our common stock for $21.7 million offset by approximately $12.7 million related to stock option exercises, stock-based compensation expense and related tax benefits. As of
September 27, 2007, we had a remaining authorization of $28.3 million for repurchases under our share repurchase program. The repurchase program will expire on September 25, 2008 (see Part II.Item 5. Market for Our Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity Securities for more information on our share repurchases).

Long Term
Liquidity.    We believe that anticipated cash flows from operations, funds available from our existing revolving credit facility, together with cash on hand and vendor reimbursements, will provide sufficient funds to finance
our operations at least for the next 12 months. As of September 27, 2007, we had approximately $168.3 million in available borrowing capacity under our revolving credit facility approximately $63.3 million of which was available for issuances
of letters of credit. Changes in our operating plans, lower than anticipated sales, increased expenses, additional acquisitions or other events may cause us to need to seek additional debt or equity financing in future periods. There can be no
guarantee that financing will be available on acceptable terms or at all. Additional equity financing could be dilutive to the holders of our common stock, and additional debt financing, if available, could impose greater cash payment obligations
and more covenants and operating restrictions.

Contractual Obligations and Commitments

Contractual Obligations.    The following table summarizes by fiscal year our expected long-term debt payment schedule, lease
finance obligation commitments, future operating lease commitments and purchase obligations as of September 27, 2007:

Contractual
Obligations

(Dollars in thousands)



|                              |  |            |         |            |   |            |  |            |         |            |   |            |  |       |         |  |   |           |  |   |          
|----------------------------- |  | ---------- | ------- | ---------- | - | ---------- |  | ---------- | ------- | ---------- | - | ---------- |  | ----- | ------- |  | - | --------- |  | - | ---------
|                              |  | Fiscal2008 |         | Fiscal2009 |   | Fiscal2010 |  | Fiscal2011 |         | Fiscal2012 |   | Thereafter |  | Total
|Long-term debt(1)             |  | $          | 3,541   |            | $ | 3,544      |  | $          | 3,548   |            | $ | 3,552      |  | $     | 3,556   |  | $ | 732,549   |  | $ | 750,290  
|Interest(2)                   |  |            | 47,927  |            |   | 48,378     |  |            | 48,823  |            |   | 48,566     |  |       | 48,310  |  |   | 68,088    |  |   | 310,092  
|Lease finance obligations(3)  |  |            | 46,050  |            |   | 45,859     |  |            | 45,810  |            |   | 45,814     |  |       | 45,600  |  |   | 425,567   |  |   | 654,700  
|Operating leases(4)           |  |            | 70,462  |            |   | 66,734     |  |            | 62,125  |            |   | 57,366     |  |       | 53,457  |  |   | 266,395   |  |   | 576,539  
|Purchase obligations(5)       |  |            | 9,699   |            |   | 11,409     |  |            | 11,637  |            |   | 11,754     |  |       | 11,872  |  |   |          |  |   | 56,371   
|                              |  |            |         |            |   |            |  |            |         |            |   |            |  |       |         |  |   |           |  |   |          
|Total contractual obligations |  | $          | 177,679 |            | $ | 175,924    |  | $          | 171,943 |            | $ | 167,052    |  | $     | 162,795 |  | $ | 1,492,599 |  | $ | 2,347,992
|                              |  |            |         |            |   |            |  |            |         |            |   |            |  |       |         |  |   |           |  |   |          



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|(1) | Included in long-term debt are principal amounts owed on our senior subordinated notes, convertible notes and senior credit facility. These borrowings are further explained in
Part II.Item 8. Consolidated Financial Statements and Supplementary DataNotes to Consolidated Financial StatementsNote 6Long-Term Debt. The table assumes our long-term debt is held to maturity.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Included in interest are expected payments on our senior subordinated notes, convertible notes, senior credit facility and interest rate swap agreements. Variable interest on our
senior credit facility and swap agreements is based on the September 27, 2007 rate. See Part II.Item 8. Consolidated Financial Statements and Supplementary DataNotes to Consolidated Financial StatementsNote
6Long-Term Debt.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



|(5) | Our contract with BP requires us to purchase a minimum volume of gasoline gallons. In any period in which we fail to
meet the minimum volume requirement as set forth in the agreement, we are required to pay an amount equal to two cents per gallon times the difference between the actual gallon volume of BP® branded product purchased and the minimum volume requirement for the given period. The amounts presented assume that we will not purchase any gasoline from BP, thus failing to meet the minimum volume requirement and
contractually obligating us to pay an amount equal to two cents per gallon times the difference between the actual volume of BP® branded product purchased (0) and the minimum volume
requirement for the given period. While the amounts presented assume we will not meet the minimum volume requirement, based on current forecasts we anticipate meeting such requirements.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Letter of Credit Commitments.    The following table summarizes by fiscal year the expiration dates of our standby letters of
credit issued under our senior credit facility as of September 27, 2007 (amounts in thousands):



|                          |  |            |        |       |   |       
|------------------------- |  | ---------- | ------ | ----- | - | ------
|                          |  | Fiscal2008 |        | Total
|Standby letters of credit |  | $          | 56,723 |       | $ | 56,723

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

Environmental Considerations.    Environmental reserves of $21.3 million and $18.4 million as of September 27, 2007
and September 28, 2006, respectively, represent our estimates for future expenditures for remediation, tank removal and litigation associated with 285 and 269 known contaminated sites as of September 27, 2007 and September 28, 2006,
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 $19.6 million of our
environmental obligations will be funded by state trust funds and third-party insurance; as a result, we may spend up to $1.7 million for remediation, tank removal and litigation. Also, as of September 27, 2007 and September 28, 2006,
there were an additional 557 and 534 sites, respectively, that are known to be contaminated sites but are being remediated by third parties, and therefore, the costs to remediate such sites are not included in our environmental reserve. Remediation
costs for known sites are expected to be incurred over the next one to ten years. Environmental reserves have been established with remediation costs based on internal and external estimates for each site. Future remediation for which the timing of
payments can be reasonably estimated is discounted at 8.0% to determine the reserve.



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Florida environmental regulations require all single-walled underground storage tanks to be
upgraded/replaced with secondary containment by December 31, 2009. In order to comply with these Florida regulations, we will be required to upgrade or replace underground storage tanks at approximately 90 locations. We anticipate that these
capital expenditures will be approximately $20.0 million over the next two years. The ultimate number of locations and costs incurred will depend on several factors including future store closures, changes in the number of locations upgraded or
replaced and changes in the costs to upgrade or replace the underground storage tanks.

Merchandise Supply
Agreement.    We have a distribution service agreement with McLane pursuant to which McLane is the primary distributor of traditional grocery products to our stores. We also purchase a significant percentage of the cigarettes
we sell from McLane. The agreement with McLane continues through April 10, 2010 and contains no minimum purchase requirements. We purchase products at McLanes cost plus an agreed upon percentage, reduced by any promotional allowances and
volume rebates offered by manufacturers and McLane. In addition, we received an initial service allowance, which is being amortized over the term of the agreement, and also receive additional per store service allowances, both of which are subject
to adjustment based on the number of stores in operation. Total purchases from McLane exceeded 50% of our total merchandise purchases in fiscal 2007.

Gasoline Supply Agreements.    We have historically purchased our
branded gasoline and diesel fuel under supply agreements with major oil companies, including BP®, CITGO®, Chevron®, and ExxonMobil®. The fuel purchased has generally been based on the stated rack price, or market price, quoted at each terminal as
adjusted per applicable contracts. These supply agreements have expiration dates ranging from 2010 to 2012 and contain provisions for various payments to us based on volume of purchases and vendor allowances. These agreements also, in certain
instances, give the supplier a right of first refusal to purchase certain assets used by us to sell their gasoline.

The Branded Jobber
Contract between us and BP dated as of February 1, 2003, as subsequently amended, sets forth certain minimum volume requirements per year and a minimum volume guarantee if such minimum volume requirements are not met.



| |  |  | Minimum VolumeOur obligation to purchase a minimum volume of BP® branded gasoline is subject to increase each year during the remaining term of the agreement and is measured over a one-year period. During fiscal 2007, we exceeded the requirement for the period ending
September 30, 2007. The minimum requirement for the one-year period ending September 30, 2008 is approximately 485 million gallons of BP® branded product.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Minimum Volume GuaranteeSubject to certain adjustments, in any one-year period in which we fail to meet our
minimum volume purchase obligation, we have agreed to pay BP two cents per gallon times the difference between the actual volume of BP® branded product purchased and the minimum volume
requirement. Based on current forecasts, we anticipate meeting the minimum volume requirements.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In fiscal 2003, we signed a gasoline supply agreement with CITGO® and in October 2005, we extended the term of the CITGO® agreement to 2010. We also have an agreement with ExxonMobil Corporation which provides us with another potential branded product supplier through 2010. We have re-branded and/or upgraded images for gasoline
offerings at approximately 1,100 locations since initially entering into these agreements. Currently, BP® supplies approximately 29.0% of our total gasoline volume, which is sold under the
BP®/Amoco® brand, and CITGO® supplies approximately 47.0% of our
total gasoline volume. CITGO® supplies both our



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private brand gasoline, which is sold under our own Kangaroo® and other brands, and CITGO® branded gasoline. The remaining locations, primarily in Florida, remain branded by Chevron®. We entered into these branding and
supply agreements to provide a more consistent operating identity while helping us to maximize our gasoline gallon growth and gasoline gross profit dollars. In order to receive certain benefits under these contracts, we must first meet certain
purchase levels. To date, we have met these purchase levels and expect to continue to do so.

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

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have had or are reasonably likely to have a material current or future effect on our financial position, results of operations or cash flows.

Quarterly Results of Operations and Seasonality

The
following table sets forth certain unaudited financial and operating data for each fiscal quarter during fiscal 2007, fiscal 2006 and fiscal 2005. The unaudited quarterly information includes all normal recurring adjustments that we consider
necessary for a fair presentation of the information shown. This information should be read in conjunction with our consolidated financial statements and the related notes appearing elsewhere in this report. Due to the nature of our business and our
reliance, in part, on consumer spending patterns in coastal, resort and tourist markets, we typically generate higher revenues and gross margins during warm weather months in the southeastern United States, which fall within our third and fourth
fiscal quarters. In the following table, gasoline gallons and dollars are in thousands, except per gallon data.



|                                                    |  |              |           |   |               |   |           |              |  |   |               |   |  |              |           |   |               |   |           |              |  |   |               |   |  |              |           |   |               |   |           |              |  |   |               |   |  |   |         |   |  |   |           |   |  |   |           |  
|--------------------------------------------------- |  | ------------ | --------- | - | ------------- | - | --------- | ------------ |  | - | ------------- | - |  | ------------ | --------- | - | ------------- | - | --------- | ------------ |  | - | ------------- | - |  | ------------ | --------- | - | ------------- | - | --------- | ------------ |  | - | ------------- | - |  | - | ------- | - |  | - | --------- | - |  | - | --------- | -
|                                                    |  | Fiscal 2007  |           |   | Fiscal 2006   |   |           | Fiscal 2005  | 
|                                                    |  | FirstQuarter |           |   | SecondQuarter |   |           | ThirdQuarter |  |   | FourthQuarter |   |  | FirstQuarter |           |   | SecondQuarter |   |           | ThirdQuarter |  |   | FourthQuarter |   |  | FirstQuarter |           |   | SecondQuarter |   |           | ThirdQuarter |  |   | FourthQuarter |  
|Total revenue                                       |  | $            | 1,381,140 |   |               | $ | 1,456,078 |              |  | $ | 2,053,831     |   |  | $            | 2,020,114 |   |               | $ | 1,315,323 |              |  | $ | 1,315,746     |   |  | $            | 1,645,112 |   |               | $ | 1,685,521 |              |  | $ | 941,543       |   |  | $ | 945,760 |   |  | $ | 1,166,456 |   |  | $ | 1,375,480 |  
|Merchandise revenue                                 |  |              | 349,239   |   |               |   | 360,854   |              |  |   | 430,971       |   |  |              | 434,858   |   |               |   | 316,648   |              |  |   | 323,004       |   |  |              | 372,081   |   |               |   | 373,926   |              |  |   | 287,067       |   |  |   | 284,289 |   |  |   | 324,041   |   |  |   | 333,494   |  
|Gasoline revenue                                    |  |              | 1,031,901 |   |               |   | 1,095,224 |              |  |   | 1,622,860     |   |  |              | 1,585,256 |   |               |   | 998,675   |              |  |   | 992,742       |   |  |              | 1,273,031 |   |               |   | 1,311,595 |              |  |   | 654,476       |   |  |   | 661,471 |   |  |   | 842,415   |   |  |   | 1,041,986 |  
|Merchandise gross profit (1)                        |  |              | 131,316   |   |               |   | 136,205   |              |  |   | 157,654       |   |  |              | 160,853   |   |               |   | 118,736   |              |  |   | 121,547       |   |  |              | 139,143   |   |               |   | 138,516   |              |  |   | 104,092       |   |  |   | 105,732 |   |  |   | 118,574   |   |  |   | 120,854   |  
|Total gasoline gross profit (1)                     |  |              | 40,219    |   |               |   | 54,787    |              |  |   | 70,794        |   |  |              | 58,896    |   |               |   | 86,585    |              |  |   | 47,346        |   |  |              | 64,778    |   |               |   | 82,495    |              |  |   | 49,887        |   |  |   | 34,120  |   |  |   | 48,447    |   |  |   | 81,441    |  
|Income from operations                              |  |              | 14,326    |   |               |   | 28,598    |              |  |   | 43,202        |   |  |              | 31,391    |   |               |   | 69,756    |              |  |   | 27,853        |   |  |              | 47,323    |   |               |   | 57,113    |              |  |   | 33,217        |   |  |   | 18,802  |   |  |   | 40,444    |   |  |   | 56,080    |  
|Net income                                          |  |              | 125       |   |               |   | 8,360     |              |  |   | 12,645        |   |  |              | 5,602     |   |               |   | 32,971    |              |  |   | 9,196         |   |  |              | 20,291    |   |               |   | 26,740    |              |  |   | 12,440        |   |  |   | 3,341   |   |  |   | 16,601    |   |  |   | 25,428    |  
|Income from operations as a percentage of full year |  |              | 12.2      | % |               |   | 24.3      | %            |  |   | 36.8          | % |  |              | 26.7      | % |               |   | 34.5      | %            |  |   | 13.8          | % |  |              | 23.4      | % |               |   | 28.3      | %            |  |   | 22.4          | % |  |   | 12.7    | % |  |   | 27.2      | % |  |   | 37.8      | %
|Comparable store merchandise sales increase         |  |              | 1.9       | % |               |   | 2.7       | %            |  |   | 1.9           | % |  |              | 2.8       | % |               |   | 5.0       | %            |  |   | 5.4           | % |  |              | 5.8       | % |               |   | 3.0       | %            |  |   | 5.2           | % |  |   | 6.6     | % |  |   | 4.1       | % |  |   | 4.7       | %
|Comparable store sales gasoline gallons increase    |  |              | 2.0       | % |               |   | 0.8       | %            |  |   | 1.0           | % |  |              | 0.3       | % |               |   | 4.6       | %            |  |   | 4.0           | % |  |              | 2.3       | % |               |   | 0.3       | %            |  |   | 3.4           | % |  |   | 7.7     | % |  |   | 5.6       | % |  |   | 3.1       | %
|Retail gasoline gross profit per gallon             |  |              | 0.087     |   |               |   | 0.115     |              |  |   | 0.128         |   |  |              | 0.105     |   |               |   | 0.212     |              |  |   | 0.111         |   |  |              | 0.141     |   |               |   | 0.174     |              |  |   | 0.147         |   |  |   | 0.099   |   |  |   | 0.123     |   |  |   | 0.194     |  
|Retail gasoline gallons                             |  |              | 460,475   |   |               |   | 472,820   |              |  |   | 546,012       |   |  |              | 553,496   |   |               |   | 408,058   |              |  |   | 424,512       |   |  |              | 455,381   |   |               |   | 469,856   |              |  |   | 339,543       |   |  |   | 345,050 |   |  |   | 393,776   |   |  |   | 418,173   |  



|(1) | We compute gross profit exclusive of depreciation and allocation of store
operating and general and administrative expenses.
|--- | ----------------------------------------------------------------------------------------------------------------------------



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Inflation

Wholesale gasoline fuel prices were volatile during fiscal 2007, fiscal 2006 and fiscal 2005, and we expect that they will remain volatile into the foreseeable future. During fiscal 2007, wholesale crude oil prices hit a high of
approximately $84 per barrel in September 2007 and a low of approximately $50 per barrel in January 2007. During fiscal 2006, wholesale crude oil prices hit a high of approximately $77 per barrel in July 2006 and a low of approximately $56 per
barrel in November 2005. During fiscal 2005, wholesale crude oil prices hit a high of approximately $70 per barrel in August 2005 and a low of approximately $41 per barrel in December 2004.

We attempt to pass along wholesale gasoline cost changes to our customers through retail price changes; however, we are not always able to do so. The
timing of any related increase or decrease in retail prices is affected by competitive conditions. As a result, we tend to experience lower gasoline margins in periods of rising wholesale costs and higher margins in periods of decreasing wholesale
costs. We are unable to ensure that significant volatility in gasoline wholesale prices will not negatively affect gasoline gross margins or demand for gasoline within our markets.

General CPI, excluding energy, increased 2.5% during fiscal 2007 and 2.9% during fiscal 2006. While we have generally been able to pass along these price
increases to our customers, we can make no assurances that continued inflation will not have a material adverse effect on our sales and gross profit.

New Accounting Standards

In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS
No. 159,The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115. SFAS No. 159 permits entities to choose to measure many financial instruments and certain
other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. SFAS No. 159 is effective for financial statements issued for
fiscal years beginning after November 15, 2007. We are currently evaluating SFAS No. 159 to determine the impact, if any, on our financial statements.

In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair
value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are currently evaluating SFAS No. 157 to determine the
impact, if any, on our financial statements.

In September 2006, the SEC released Staff Accounting Bulletin (SAB) 108. SAB 108
provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. SAB 108 is effective for fiscal years ending after November 15, 2006.
The adoption of SAB 108 did not have a material impact on our financial statements.

In July 2006, the FASB issued Interpretation No.
48, Accounting for Uncertainty in Income Taxesan Interpretation of FASB Statement No. 109(FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements
in accordance with SFAS No. 109, Accounting for Income Taxes. The interpretation applies to all tax positions accounted for in accordance with SFAS No. 109 and requires a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or expected to be taken in an income tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure
and transition. The provisions of FIN 48 are effective for us as of the beginning of fiscal 2008, with the cumulative effect of the



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change in accounting principle recorded as an adjustment to opening retained earnings. We have done a preliminary review analyzing the cumulative effect
adjustment to retained earnings that will be recorded on adoption but expect the adjustment to be immaterial.

In June 2006, the FASB
ratified the consensus reached by the Emerging Issues Task Force (EITF) on Issue No. 06-3,How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross
versus Net Presentation). Issue No. 06-3 requires disclosure of either the gross or net presentation, and any such taxes reported on a gross basis should be disclosed in the interim and annual financial statements. Issue No. 06-3 is
effective for financial periods beginning after December 15, 2006. We have not changed our presentation of such taxes, and we are providing the disclosure required by Issue No. 06-3.

Critical Accounting Policies

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

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

Revenue Recognition.    Revenues from our two primary product categories, gasoline and merchandise, are
recognized at the point of sale. We derive service revenue from lottery ticket sales, money orders, car washes, public telephones, amusement and video gaming and other ancillary product and service offerings, which are included in merchandise
revenue. We evaluate the criteria of EITF 99-19,Reporting Revenue Gross as a Principal Versus Net as an Agent, in determining whether it is appropriate to record the gross amount of service revenue and related costs or the net amount earned
as commissions. Generally, when we are the primary obligor, are subject to inventory risk, have latitude in establishing prices and selecting suppliers, influence product or service specifications, or have several but not all of these indicators,
revenue is recorded on a gross basis. If we are not the primary obligor and do not possess other indicators of gross reporting as noted above, we record the revenue at net amounts.

Accounting for Leases.    We apply the criteria in SFAS No.13,Accounting for Leases, relating to our leased
facilities. Based upon this guidance, leases are accounted for as either operating or capital. We also enter into sale- leaseback transactions for certain locations and apply the criteria of SFAS No. 98,Accounting for Leases Sale-Leaseback
Transactions Involving Real Estate, Sales-Type Leases of Real Estate, Definition of the Lease Term, and Initial Direct Costs of Direct Financing Leasesan amendment of FASB Statements No. 13, 66, and 91 and a rescission of FASB Statement
No. 26 and Technical Bulletin No. 79-11. For all sale-leaseback transactions entered into through September 27, 2007, we retained ownership of the underground storage tanks, which represents a form of continuing involvement as
defined in SFAS No. 98, and as such we account for these transactions as financing leases.

Insurance
Liabilities.    We self-insure a significant portion of expected losses under our workers compensation, general liability and employee medical programs. We have recorded accrued liabilities based on our estimates of the
ultimate costs to settle incurred and incurred but not reported claims. Our accounting policies regarding self-insurance programs include judgments and actuarial assumptions regarding economic conditions,



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the frequency and severity of claims, claim development patterns and claim management and settlement practices. Although we have not experienced significant
changes in actual expenditures compared to actuarial assumptions as a result of increased medical costs or incidence rates, such changes could occur in the future and could significantly impact our results of operations and financial position.

Long-Lived Assets and Closed Stores.    Long-lived assets at the individual store level are reviewed for
impairment annually or whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. When an evaluation is required, the projected future undiscounted cash flows to be generated from each store are compared
to the carrying value of the long-lived assets of that store to determine if a write-down to fair value is required. Cash flows vary for each store year to year and as a result, we have identified and recorded impairment charges for operating and
closed stores for each of the past three years as changes in market demographics, traffic patterns, competition and other factors have impacted the overall operations of certain of our individual store locations. Similar changes may occur in the
future that will require us to record impairment charges.

Property and equipment of stores we are closing are written down to their
estimated net realizable value at the time we close such stores. If applicable, we provide for future estimated rent and other exit costs associated with the store closure, net of sublease income, using a discount rate to calculate the present value
of the remaining rent payments on closed stores. We estimate the net realizable value based on our experience in utilizing or disposing of similar assets and on estimates provided by our own and third-party real estate experts. Although we have not
experienced significant changes in our estimate of net realizable value or sublease income, changes in real estate markets could significantly impact the net values realized from the sale of assets and rental or sublease income.

Asset Retirement Obligations.    We recognize the estimated future cost to remove an underground storage tank over the
estimated useful life of the storage tank in accordance with the provisions of SFAS No. 143, Accounting for Asset Retirement Obligations. We record a discounted liability for the fair value of an asset retirement obligation with a
corresponding increase to the carrying value of the related long-lived asset at the time an underground storage tank is installed. We amortize the amount added to property and equipment and recognize accretion expense in connection with the
discounted liability over the remaining life of the tank. We base our estimates of the anticipated future costs for removal of an underground storage tank on our prior experience with removal. We compare our cost estimates with our actual removal
cost experience on an annual basis, and when the actual costs we experience exceed our original estimates, we will recognize an additional



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liability for estimated future costs to remove the underground storage tanks. See also Part II.Item 8. Consolidated Financial Statements and
Supplementary DataNotes to Consolidated Financial StatementsNote 9Asset Retirement Obligations.

Vendor
Allowances and Rebates.    We receive payments for vendor allowances, volume rebates and other supply arrangements in connection with various programs. Some of these vendor rebate, credit and promotional allowance
arrangements require that we make assumptions and judgments regarding, for example, the likelihood of attaining specified levels of purchases or selling specified volumes of products, and the duration of carrying a specified product. Payments are
recorded as a reduction to cost of goods sold or expenses to which the particular payment relates. Unearned payments are deferred and amortized as earned over the term of the respective agreement.

Environmental Liabilities and Related Receivables.    Environmental reserves reflected in the financial statements are based
on internal and external estimates of costs to remediate sites relating to the operation of underground storage tanks. Factors considered in the estimates of the reserve are the expected cost and the estimated length of time to remediate each
contaminated site. Deductibles and remediation costs not covered by state trust fund programs and third-party insurance arrangements, and for which the timing of payments can be reasonably estimated, are discounted using an appropriate rate.

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

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



|Item 7A. | Quantitative And Qualitative Disclosures About Market Risk.
|-------- | -----------------------------------------------------------

Quantitative Disclosures.    We are subject to interest rate risk on our existing long-term debt and any future financing requirements. Our fixed rate debt consists primarily of outstanding
balances on our senior subordinated notes and our convertible notes, and our variable rate debt relates to borrowings under our senior credit facility. We are exposed to market risks inherent in our financial instruments. These instruments arise
from transactions entered into in the normal course of business and, in some cases, relate to our acquisitions of related businesses. We hold derivative instruments primarily to manage our exposure to these risks and all derivative instruments are
matched against specific debt obligations. Our debt and interest rate swap instruments outstanding at September 27, 2007, including applicable interest rates, are discussed above in Part II.Item 7. Managements Discussion and
Analysis of Financial Condition and Results of OperationLiquidity and Capital Resources and Part II.Item 8. Consolidated Financial Statements and Supplementary DataNotes to Consolidated Financial StatementsNote
8Derivative Financial Instruments.



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The following table presents the future principal cash flows and weighted-average interest rates on our
existing long-term debt instruments based on rates in effect at September 27, 2007. Fair values have been determined based on quoted market prices as of September 27, 2007.

Expected Maturity Date

as of September 27, 2007

(Dollars in thousands)



|                               |  |            |       |   |            |   |       |            |  |   |            |   |  |            |       |   |            |   |       |       |  |   |            |   |  |   |         |   |  |   |        
|------------------------------ |  | ---------- | ----- | - | ---------- | - | ----- | ---------- |  | - | ---------- | - |  | ---------- | ----- | - | ---------- | - | ----- | ----- |  | - | ---------- | - |  | - | ------- | - |  | - | -------
|                               |  | Fiscal2008 |       |   | Fiscal2009 |   |       | Fiscal2010 |  |   | Fiscal2011 |   |  | Fiscal2012 |       |   | Thereafter |   |       | Total |  |   | Fair Value
|Long-term debt                 |  | $          | 3,541 |   |            | $ | 3,544 |            |  | $ | 3,548      |   |  | $          | 3,552 |   |            | $ | 3,556 |       |  | $ | 732,549    |   |  | $ | 750,290 |   |  | $ | 710,540
|Weighted-average interest rate |  |            | 6.41  | % |            |   | 6.50  | %          |  |   | 6.59       | % |  |            | 6.59  | % |            |   | 6.58  | %     |  |   | 7.39       | % |  |   | 6.70    | % |  |   |        

In order to reduce our exposure to interest rate fluctuations, we have entered into interest rate
swap arrangements in which we agree to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to an agreed upon notional amount. The interest rate differential is reflected as an
adjustment to interest expense over the life of the swaps. Fixed rate swaps are used to reduce our risk of increased interest costs during periods of rising interest rates. At September 27, 2007, the interest rate on 68.7% of our debt was fixed
by either the nature of the obligation or through interest rate swap arrangements compared to 87.8% at September 28, 2006. The annualized effect of a one percentage point change in floating interest rates on our interest rate swap agreements
and other floating rate debt obligations at September 27, 2007 would be to change interest expense by approximately $2.4 million.

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

Interest Rate Swap Contracts

(Dollars in thousands)



|                                       |  |                   |         |   |                   |   |         |  
|-------------------------------------- |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                                       |  | September 27,2007 |         |   | September 28,2006 |  
|Notional principal amount              |  | $                 | 115,000 |   |                   | $ | 130,000 |  
|Weighted-average fixed pay rate        |  |                   | 4.26    | % |                   |   | 4.24    | %
|Weighted-average variable receive rate |  |                   | 5.38    | % |                   |   | 5.52    | %
|Weighted-average years to maturity     |  |                   | 1.42    |   |                   |   | 2.21    |  

As of September 27, 2007, the fair value of our swap agreements represented a net asset of
$463 thousand.

Qualitative Disclosures.    Our primary exposure relates to:



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



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



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



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

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



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|Item 8. | Consolidated Financial Statements and Supplementary Data.
|------- | ---------------------------------------------------------



|                                                                                                                                  |  |     
|--------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                  |  | Page
|The Pantry, Inc. Audited Consolidated Financial Statements:                                                                       |  |     
|Report of Independent Registered Public Accounting Firm                                                                           |  | 56  
|Consolidated Balance Sheets as of September 27, 2007 and September 28, 2006                                                       |  | 57  
|Consolidated Statements of Operations for the years ended September 27, 2007, September 28, 2006 and September 29, 2005           |  | 58  
|Consolidated Statements of Shareholders Equity for the years ended September 27, 2007, September 28, 2006 and September 29, 2005 |  | 59  
|Consolidated Statements of Cash Flows for the years ended September 27, 2007, September 28, 2006 and September 29, 2005           |  | 60  
|Notes to Consolidated Financial Statements                                                                                        |  | 62  
|Financial Statement Schedule:                                                                                                     |  |     
|Schedule IIValuation and Qualifying Accounts and Reserves                                                                        |  | 105 



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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 Company) as of
September 27, 2007 and September 28, 2006, and the related consolidated statements of operations, shareholders equity, and cash flows for each of the three fiscal years in the period ended September 27, 2007. Our audits also
included the financial statement schedule listed in the Index at Item 15. These consolidated financial statements and financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an
opinion on the consolidated financial statements and financial statement schedule 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 Company as of September 27, 2007 and September 28, 2006, and the results of their operations and their cash flows for each of the three fiscal
years in the period ended September 27, 2007, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

We have also audited, in
accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Companys internal control over financial reporting as of September 27, 2007, based on the criteria established in
Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 26, 2007 expressed an unqualified opinion on managements assessment of the
effectiveness of the Companys internal control over financial reporting and an unqualified opinion on the effectiveness of the Companys internal control over financial reporting.

/s/ Deloitte & Touche LLP

Charlotte, North Carolina

November 26, 2007



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THE PANTRY, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)



|                                                                                                                                                                        |  |                   |           |                   |   |          
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | --------- | ----------------- | - | ---------
|                                                                                                                                                                        |  | September 27,2007 |           | September 28,2006
|ASSETS                                                                                                                                                                  |  |                   |           |                   |   |          
|Current assets:                                                                                                                                                         |  |                   |           |                   |   |          
|Cash and cash equivalents                                                                                                                                               |  | $                 | 71,503    |                   | $ | 120,394  
|Receivables, (net of allowance for doubtful accounts of $110 at September 27, 2007 and $262 at September 28, 2006)                                                      |  |                   | 84,445    |                   |   | 68,064   
|Inventories                                                                                                                                                             |  |                   | 169,647   |                   |   | 140,135  
|Prepaid expenses and other current assets                                                                                                                               |  |                   | 14,662    |                   |   | 18,783   
|Deferred income taxes                                                                                                                                                   |  |                   | 10,594    |                   |   | 8,348    
|                                                                                                                                                                        |  |                   |           |                   |   |          
|Total current assets                                                                                                                                                    |  |                   | 350,851   |                   |   | 355,724  
|                                                                                                                                                                        |  |                   |           |                   |   |          
|Property and equipment, net                                                                                                                                             |  |                   | 1,025,226 |                   |   | 745,721  
|                                                                                                                                                                        |  |                   |           |                   |   |          
|Other assets:                                                                                                                                                           |  |                   |           |                   |   |          
|Goodwill                                                                                                                                                                |  |                   | 584,336   |                   |   | 440,681  
|Other intangible assets                                                                                                                                                 |  |                   | 34,802    |                   |   | 12,496   
|Other noncurrent assets                                                                                                                                                 |  |                   | 34,224    |                   |   | 33,285   
|                                                                                                                                                                        |  |                   |           |                   |   |          
|Total other assets                                                                                                                                                      |  |                   | 653,362   |                   |   | 486,462  
|                                                                                                                                                                        |  |                   |           |                   |   |          
|Total assets                                                                                                                                                            |  | $                 | 2,029,439 |                   | $ | 1,587,907
|                                                                                                                                                                        |  |                   |           |                   |   |          
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                    |  |                   |           |                   |   |          
|Current liabilities:                                                                                                                                                    |  |                   |           |                   |   |          
|Current maturities of long-term debt                                                                                                                                    |  |                   | 3,541     |                   |   | 2,088    
|Current maturities of lease finance obligations                                                                                                                         |  |                   | 5,348     |                   |   | 3,511    
|Accounts payable                                                                                                                                                        |  |                   | 192,228   |                   |   | 139,939  
|Accrued compensation and related taxes                                                                                                                                  |  |                   | 15,739    |                   |   | 19,676   
|Other accrued taxes                                                                                                                                                     |  |                   | 26,416    |                   |   | 27,440   
|Self-insurance reserves                                                                                                                                                 |  |                   | 32,873    |                   |   | 29,898   
|Other accrued liabilities                                                                                                                                               |  |                   | 40,812    |                   |   | 34,978   
|                                                                                                                                                                        |  |                   |           |                   |   |          
|Total current liabilities                                                                                                                                               |  |                   | 316,957   |                   |   | 257,530  
|                                                                                                                                                                        |  |                   |           |                   |   |          
|Other liabilities:                                                                                                                                                      |  |                   |           |                   |   |          
|Long-term debt                                                                                                                                                          |  |                   | 746,749   |                   |   | 602,215  
|Lease finance obligations                                                                                                                                               |  |                   | 452,609   |                   |   | 240,564  
|Deferred income taxes                                                                                                                                                   |  |                   | 74,667    |                   |   | 72,435   
|Deferred vendor rebates                                                                                                                                                 |  |                   | 23,937    |                   |   | 23,876   
|Other noncurrent liabilities                                                                                                                                            |  |                   | 60,692    |                   |   | 54,280   
|                                                                                                                                                                        |  |                   |           |                   |   |          
|Total other liabilities                                                                                                                                                 |  |                   | 1,358,654 |                   |   | 993,370  
|                                                                                                                                                                        |  |                   |           |                   |   |          
|Commitments and contingencies (Note 12)                                                                                                                                 |  |                   |           |                   |   |          
|Shareholders equity:                                                                                                                                                   |  |                   |           |                   |   |          
|Common stock, $.01 par value, 50,000,000 shares authorized; 22,193,949 and 22,687,240 issued and outstanding at September 27, 2007 and
September 28, 2006, respectively |  |                   | 222       |                   |   | 227      
|Additional paid-in capital                                                                                                                                              |  |                   | 163,926   |                   |   | 172,940  
|Accumulated other comprehensive income, net of deferred income taxes of $(195) at September 27, 2007 and $(762) at September 28,
2006                                   |  |                   | 302       |                   |   | 1,194    
|Retained earnings                                                                                                                                                       |  |                   | 189,378   |                   |   | 162,646  
|                                                                                                                                                                        |  |                   |           |                   |   |          
|Total shareholders equity                                                                                                                                              |  |                   | 353,828   |                   |   | 337,007  
|                                                                                                                                                                        |  |                   |           |                   |   |          
|Total liabilities and shareholders equity                                                                                                                              |  | $                 | 2,029,439 |                   | $ | 1,587,907
|                                                                                                                                                                        |  |                   |           |                   |   |          

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



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THE PANTRY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share amounts)



|                                                                           |  |                   |           |   |                   |   |           |                   |  |   |           |  
|-------------------------------------------------------------------------- |  | ----------------- | --------- | - | ----------------- | - | --------- | ----------------- |  | - | --------- | -
|                                                                           |  | September 27,2007 |           |   | September 28,2006 |   |           | September 29,2005 | 
|                                                                           |  | (52 weeks)        |           |   | (52 weeks)        |   |           | (52 weeks)        | 
|Revenues:                                                                  |  |                   |           |   |                   |   |           |                   |  |   |           |  
|Merchandise                                                                |  | $                 | 1,575,922 |   |                   | $ | 1,385,659 |                   |  | $ | 1,228,891 |  
|Gasoline                                                                   |  |                   | 5,335,241 |   |                   |   | 4,576,043 |                   |  |   | 3,200,348 |  
|                                                                           |  |                   |           |   |                   |   |           |                   |  |   |           |  
|Total revenues                                                             |  |                   | 6,911,163 |   |                   |   | 5,961,702 |                   |  |   | 4,429,239 |  
|                                                                           |  |                   |           |   |                   |   |           |                   |  |   |           |  
|Costs and operating expenses:                                              |  |                   |           |   |                   |   |           |                   |  |   |           |  
|Merchandise cost of goods sold (exclusive of items shown separately below) |  |                   | 989,894   |   |                   |   | 867,717   |                   |  |   | 779,639   |  
|Gasoline cost of goods sold (exclusive of items shown separately below)    |  |                   | 5,110,545 |   |                   |   | 4,294,839 |                   |  |   | 2,986,453 |  
|Store operating                                                            |  |                   | 499,613   |   |                   |   | 437,935   |                   |  |   | 377,693   |  
|General and administrative                                                 |  |                   | 97,707    |   |                   |   | 83,141    |                   |  |   | 72,570    |  
|Depreciation and amortization                                              |  |                   | 95,887    |   |                   |   | 76,025    |                   |  |   | 64,341    |  
|                                                                           |  |                   |           |   |                   |   |           |                   |  |   |           |  
|Total costs and operating expenses                                         |  |                   | 6,793,646 |   |                   |   | 5,759,657 |                   |  |   | 4,280,696 |  
|                                                                           |  |                   |           |   |                   |   |           |                   |  |   |           |  
|Income from operations                                                     |  |                   | 117,517   |   |                   |   | 202,045   |                   |  |   | 148,543   |  
|                                                                           |  |                   |           |   |                   |   |           |                   |  |   |           |  
|Other income (expense):                                                    |  |                   |           |   |                   |   |           |                   |  |   |           |  
|Loss on extinguishment of debt                                             |  |                   | (2,212    | ) |                   |   | (1,832    | )                 |  |   |          |  
|Interest expense, net                                                      |  |                   | (72,199   | ) |                   |   | (54,661   | )                 |  |   | (54,314   | )
|Miscellaneous                                                              |  |                   | 582       |   |                   |   | 800       |                   |  |   | 977       |  
|                                                                           |  |                   |           |   |                   |   |           |                   |  |   |           |  
|Total other expense                                                        |  |                   | (73,829   | ) |                   |   | (55,693   | )                 |  |   | (53,337   | )
|                                                                           |  |                   |           |   |                   |   |           |                   |  |   |           |  
|Income before income taxes                                                 |  |                   | 43,688    |   |                   |   | 146,352   |                   |  |   | 95,206    |  
|Income tax expense                                                         |  |                   | (16,956   | ) |                   |   | (57,154   | )                 |  |   | (37,396   | )
|                                                                           |  |                   |           |   |                   |   |           |                   |  |   |           |  
|Net income                                                                 |  | $                 | 26,732    |   |                   | $ | 89,198    |                   |  | $ | 57,810    |  
|                                                                           |  |                   |           |   |                   |   |           |                   |  |   |           |  
|Earnings per share:                                                        |  |                   |           |   |                   |   |           |                   |  |   |           |  
|Basic                                                                      |  | $                 | 1.17      |   |                   | $ | 3.95      |                   |  | $ | 2.74      |  
|                                                                           |  |                   |           |   |                   |   |           |                   |  |   |           |  
|Diluted                                                                    |  | $                 | 1.17      |   |                   | $ | 3.88      |                   |  | $ | 2.64      |  
|                                                                           |  |                   |           |   |                   |   |           |                   |  |   |           |  

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



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THE PANTRY, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

(Shares and dollars in thousands)



|                                                                      |  |              |   |  |                          |     |   |                                               |   |         |                  |  |       |       |   |  |   |         |  |   |         |  
|--------------------------------------------------------------------- |  | ------------ | - |  | ------------------------ | --- | - | --------------------------------------------- | - | ------- | ---------------- |  | ----- | ----- | - |  | - | ------- |  | - | ------- | -
|                                                                      |  | Common Stock |   |  | AdditionalPaid-inCapital |     |   | AccumulatedOtherComprehensiveIncome/(Deficit) |   |         | RetainedEarnings |  | Total |      
|                                                                      |  | Shares       |   |  | ParValue                 |     |   |                                               |   |         |                  |  |       |       |   |  |  
|Balance, September 30, 2004                                           |  | 20,272       |   |  | $                        | 204 |   |                                               | $ | 132,879 |                  |  | $     | 206   |   |  | $ | 15,638  |  | $ | 148,927 |  
|                                                                      |  |              |   |  |                          |    
|Comprehensive income, net of tax:                                     |  |              |   |  |                          |     |   |                                               |   |         |                  |  |       |       |   |  |   |         |  |   |         |  
|Net income                                                            |  |             |   |  |                          |    |   |                                               |   |        |                  |  |       |      |   |  |   | 57,810  |  |   | 57,810  |  
|Unrealized gains on qualifying cash flow hedges                       |  |             |   |  |                          |    |   |                                               |   |        |                  |  |       | 1,220 |   |  |   |        |  |   | 1,220   |  
|                                                                      |  |              |   |  |                          |     |   |                                               |   |         |                  |  |       |       |   |  |   |         |  |   |         |  
|Comprehensive income                                                  |  |             |   |  |                          |    |   |                                               |   |        |                  |  |       | 1,220 |   |  |   | 57,810  |  |   | 59,030  |  
|Issuance of stock-public offering                                     |  | 1,500        |   |  |                          | 15  |   |                                               |   | 32,835  |                  |  |       |      |   |  |   |        |  |   | 32,850  |  
|Excess income tax benefits from stock-based compensation arrangements |  |             |   |  |                          |    |   |                                               |   | 7,247   |                  |  |       |      |   |  |   |        |  |   | 7,247   |  
|Exercise of stock options and warrants                                |  | 544          |   |  |                          | 4   |   |                                               |   | 3,875   |                  |  |       |      |   |  |   |        |  |   | 3,879   |  
|                                                                      |  |              |   |  |                          |     |   |                                               |   |         |                  |  |       |       |   |  |   |         |  |   |         |  
|Balance, September 29, 2005                                           |  | 22,316       |   |  | $                        | 223 |   |                                               | $ | 176,836 |                  |  | $     | 1,426 |   |  | $ | 73,448  |  | $ | 251,933 |  
|                                                                      |  |              |   |  |                          |    
|Comprehensive income, net of tax:                                     |  |              |   |  |                          |     |   |                                               |   |         |                  |  |       |       |   |  |   |         |  |   |         |  
|Net income                                                            |  |             |   |  |                          |    |   |                                               |   |        |                  |  |       |      |   |  |   | 89,198  |  |   | 89,198  |  
|Unrealized losses on qualifying cash flow hedges                      |  |             |   |  |                          |    |   |                                               |   |        |                  |  |       | (232  | ) |  |   |        |  |   | (232    | )
|                                                                      |  |              |   |  |                          |     |   |                                               |   |         |                  |  |       |       |   |  |   |         |  |   |         |  
|Comprehensive income (loss)                                           |  |              |   |  |                          |     |   |                                               |   |         |                  |  |       | (232  | ) |  |   | 89,198  |  |   | 88,966  |  
|Payment for purchase of note hedge                                    |  |             |   |  |                          |    |   |                                               |   | (43,720 | )                |  |       |      |   |  |   |        |  |   | (43,720 | )
|Proceeds from issuance of warrant                                     |  |             |   |  |                          |    |   |                                               |   | 25,220  |                  |  |       |      |   |  |   |        |  |   | 25,220  |  
|Stock-based compensation expense                                      |  |             |   |  |                          |    |   |                                               |   | 2,812   |                  |  |       |      |   |  |   |        |  |   | 2,812   |  
|Exercise of stock options                                             |  | 371          |   |  |                          | 4   |   |                                               |   | 4,378   |                  |  |       |      |   |  |   |        |  |   | 4,382   |  
|Excess income tax benefits from stock-based compensation arrangements |  |             |   |  |                          |    |   |                                               |   | 5,826   |                  |  |       |      |   |  |   |        |  |   | 5,826   |  
|Income tax benefit of note hedge                                      |  |             |   |  |                          |    |   |                                               |   | 1,588   |                  |  |       |      |   |  |   |        |  |   | 1,588   |  
|                                                                      |  |              |   |  |                          |     |   |                                               |   |         |                  |  |       |       |   |  |   |         |  |   |         |  
|Balance, September 28, 2006                                           |  | 22,687       |   |  | $                        | 227 |   |                                               | $ | 172,940 |                  |  | $     | 1,194 |   |  | $ | 162,646 |  | $ | 337,007 |  
|                                                                      |  |              |   |  |                          |    
|Comprehensive income, net of tax:                                     |  |              |   |  |                          |     |   |                                               |   |         |                  |  |       |       |   |  |   |         |  |   |         |  
|Net income                                                            |  |             |   |  |                          |    |   |                                               |   |        |                  |  |       |      |   |  |   | 26,732  |  |   | 26,732  |  
|Unrealized losses on qualifying cash flow hedges                      |  |             |   |  |                          |    |   |                                               |   |        |                  |  |       | (892  | ) |  |   |        |  |   | (892    | )
|                                                                      |  |              |   |  |                          |     |   |                                               |   |         |                  |  |       |       |   |  |   |         |  |   |         |  
|Comprehensive income (loss)                                           |  |              |   |  |                          |     |   |                                               |   |         |                  |  |       | (892  | ) |  |   | 26,732  |  |   | 25,840  |  
|Stock-based compensation expense                                      |  |             |   |  |                          |    |   |                                               |   | 3,657   |                  |  |       |      |   |  |   |        |  |   | 3,657   |  
|Repurchase of common stock                                            |  | (693         | ) |  |                          | (7  | ) |                                               |   | (21,715 | )                |  |       |       |   |  |   |         |  |   | (21,722 | )
|Exercise of stock options                                             |  | 200          |   |  |                          | 2   |   |                                               |   | 5,109   |                  |  |       |      |   |  |   |        |  |   | 5,111   |  
|Excess income tax benefits from stock-based compensation arrangements |  |             |   |  |                          |    |   |                                               |   | 1,933   |                  |  |       |      |   |  |   |        |  |   | 1,933   |  
|Income tax benefit of note hedge                                      |  |             |   |  |                          |    |   |                                               |   | 2,002   |                  |  |       |      |   |  |   |        |  |   | 2,002   |  
|                                                                      |  |              |   |  |                          |     |   |                                               |   |         |                  |  |       |       |   |  |   |         |  |   |         |  
|Balance, September 27, 2007                                           |  | 22,194       |   |  | $                        | 222 |   |                                               | $ | 163,926 |                  |  | $     | 302   |   |  | $ | 189,378 |  | $ | 353,828 |  
|                                                                      |  |              |   |  |                          |     |   |                                               |   |         |                  |  |       |       |   |  |   |         |  |   |         |  

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



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THE PANTRY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)



|                                                                                  |  |                   |          |   |                   |   |          |                   |  |   |          |  
|--------------------------------------------------------------------------------- |  | ----------------- | -------- | - | ----------------- | - | -------- | ----------------- |  | - | -------- | -
|                                                                                  |  | Year Ended        |         
|                                                                                  |  | September 27,2007 |          |   | September 28,2006 |   |          | September 29,2005 | 
|                                                                                  |  | (52 weeks)        |          |   | (52 weeks)        |   |          | (52 weeks)        | 
|CASH FLOWS FROM OPERATING ACTIVITIES                                              |  |                   |          |   |                   |   |          |                   |  |   |          |  
|Net income                                                                        |  | $                 | 26,732   |   |                   | $ | 89,198   |                   |  | $ | 57,810   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                   |          |   |                   |   |          |                   |  |   |          |  
|Depreciation and amortization                                                     |  |                   | 95,887   |   |                   |   | 76,025   |                   |  |   | 64,341   |  
|(Benefit)/provision for deferred income taxes                                     |  |                   | (606     | ) |                   |   | (1,240   | )                 |  |   | 4,291    |  
|Loss on extinguishment of debt                                                    |  |                   | 2,212    |   |                   |   | 1,832    |                   |  |   |         |  
|Stock compensation expense                                                        |  |                   | 3,657    |   |                   |   | 2,812    |                   |  |   |         |  
|Other                                                                             |  |                   | 6,419    |   |                   |   | 4,223    |                   |  |   | 14,503   |  
|Changes in operating assets and liabilities, net of effects of acquisitions:      |  |                   |          |   |                   |   |          |                   |  |   |          |  
|Receivables                                                                       |  |                   | (23,857  | ) |                   |   | (6,582   | )                 |  |   | (18,539  | )
|Inventories                                                                       |  |                   | (15,430  | ) |                   |   | (5,121   | )                 |  |   | (22,393  | )
|Prepaid expenses and other current assets                                         |  |                   | 4,351    |   |                   |   | (4,811   | )                 |  |   | 1,565    |  
|Other noncurrent assets                                                           |  |                   | (592     | ) |                   |   | (46      | )                 |  |   | (2,015   | )
|Accounts payable                                                                  |  |                   | 48,876   |   |                   |   | 1,295    |                   |  |   | 10,467   |  
|Other current liabilities and accrued expenses                                    |  |                   | (2,895   | ) |                   |   | 7,861    |                   |  |   | 30,551   |  
|Other noncurrent liabilities                                                      |  |                   | (4,118   | ) |                   |   | (11,183  | )                 |  |   | (7,000   | )
|                                                                                  |  |                   |          |   |                   |   |          |                   |  |   |          |  
|Net cash provided by operating activities                                         |  |                   | 140,636  |   |                   |   | 154,263  |                   |  |   | 133,581  |  
|                                                                                  |  |                   |          |   |                   |   |          |                   |  |   |          |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                              |  |                   |          |   |                   |   |          |                   |  |   |          |  
|Additions to property and equipment                                               |  |                   | (146,390 | ) |                   |   | (96,826  | )                 |  |   | (73,387  | )
|Proceeds from sales of property and equipment                                     |  |                   | 6,028    |   |                   |   | 4,332    |                   |  |   | 10,215   |  
|Insurance recoveries                                                              |  |                   | 7,448    |   |                   |   |          |                   |  |   |          |  
|Acquisitions of businesses, net of cash acquired                                  |  |                   | (395,809 | ) |                   |   | (126,791 | )                 |  |   | (103,068 | )
|                                                                                  |  |                   |          |   |                   |   |          |                   |  |   |          |  
|Net cash used in investing activities                                             |  |                   | (528,723 | ) |                   |   | (219,285 | )                 |  |   | (166,240 | )
|                                                                                  |  |                   |          |   |                   |   |          |                   |  |   |          |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                              |  |                   |          |   |                   |   |          |                   |  |   |          |  
|Repayments of long-term debt, including redemption premiums                       |  |                   | (304,013 | ) |                   |   | (306,070 | )                 |  |   | (12,028  | )
|Proceeds from issuance of long-term debt                                          |  |                   | 450,000  |   |                   |   | 355,000  |                   |  |   |         |  
|Repayments of revolving credit facility                                           |  |                   | (25,000  | ) |                   |   |         |                   |  |   |         |  
|Borrowings under revolving credit facility                                        |  |                   | 25,000   |   |                   |   |         |                   |  |   |         |  
|Repayments of lease finance obligations                                           |  |                   | (4,023   | ) |                   |   | (3,004   | )                 |  |   | (2,719   | )
|Proceeds from lease finance obligations                                           |  |                   | 215,266  |   |                   |   | 42,929   |                   |  |   | 14,101   |  
|Proceeds from issuance of common stock, net                                       |  |                   |         |   |                   |   |         |                   |  |   | 32,850   |  
|Proceeds from exercise of stock options                                           |  |                   | 5,111    |   |                   |   | 4,382    |                   |  |   | 3,879    |  
|Payment for purchase of note hedge                                                |  |                   |         |   |                   |   | (43,720  | )                 |  |   |         |  
|Proceeds from issuance of warrant                                                 |  |                   |         |   |                   |   | 25,220   |                   |  |   |         |  
|Excess income tax benefits from stock-based compensation arrangements             |  |                   | 1,933    |   |                   |   | 5,826    |                   |  |   |         |  
|Repurchase of common stock                                                        |  |                   | (21,722  | ) |                   |   |         |                   |  |   |         |  
|Other financing costs                                                             |  |                   | (3,356   | ) |                   |   | (6,619   | )                 |  |   |         |  
|                                                                                  |  |                   |          |   |                   |   |          |                   |  |   |          |  
|Net cash provided by financing activities                                         |  |                   | 339,196  |   |                   |   | 73,944   |                   |  |   | 36,083   |  
|                                                                                  |  |                   |          |   |                   |   |          |                   |  |   |          |  
|Net (decrease) increase in cash                                                   |  |                   | (48,891  | ) |                   |   | 8,922    |                   |  |   | 3,424    |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                      |  |                   | 120,394  |   |                   |   | 111,472  |                   |  |   | 108,048  |  
|                                                                                  |  |                   |          |   |                   |   |          |                   |  |   |          |  
|CASH AND CASH EQUIVALENTS, END OF YEAR                                            |  | $                 | 71,503   |   |                   | $ | 120,394  |                   |  | $ | 111,472  |  
|                                                                                  |  |                   |          |   |                   |   |          |                   |  |   |          |  

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



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SUPPLEMENTAL DISCLOSURE OF CASH FLOW

(Dollars in thousands)



|                                                     |  |                    |        |                    |   |                    |  |   |       
|---------------------------------------------------- |  | ------------------ | ------ | ------------------ | - | ------------------ |  | - | ------
|                                                     |  | Year Ended        
|                                                     |  | September 27, 2007 |        | September 28, 2006 |   | September 29, 2005
|Cash paid during the year:                           |  |                    |        |                    |   |                    |  |   |       
|Interest                                             |  | $                  | 72,598 |                    | $ | 56,545             |  | $ | 54,085
|                                                     |  |                    |        |                    |   |                    |  |   |       
|Income taxes                                         |  | $                  | 17,284 |                    | $ | 60,812             |  | $ | 12,910
|                                                     |  |                    |        |                    |   |                    |  |   |       
|Non-cash investing and financing activities:         |  |                    |        |                    |   |                    |  |   |       
|Capital expenditures financed through capital leases |  | $                  | 3,981  |                    | $ | 164                |  | $ |      
|                                                     |  |                    |        |                    |   |                    |  |   |       
|Accrued purchases of property and equipment          |  | $                  | 10,630 |                    | $ | 3,807              |  | $ | 3,217 
|                                                     |  |                    |        |                    |   |                    |  |   |       

Other non-cash disclosure:

During fiscal 2006, we entered into a non-cash exchange of land and building assets for an estimated value of $2.3 million.

During fiscal 2005, we issued a note payable of approximately $400 thousand in exchange for the termination of a store lease.



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THE PANTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The
Pantry

Our consolidated financial statements include the accounts of The Pantry, Inc. and its wholly owned subsidiaries. Transactions
and balances of each of our wholly owned subsidiaries are immaterial to the consolidated financial statements. All intercompany transactions and balances have been eliminated in consolidation. As of September 27, 2007, we own and operate 1,644
convenience stores in Florida (461), North Carolina (387), South Carolina (277), Georgia (136), Tennessee (104), Alabama (83), Mississippi (82), Virginia (50), Kentucky (30), Louisiana (25) and Indiana (9).

Accounting Period

We operate on a 52 - 53 week
fiscal year ending on the last Thursday in September. Fiscal 2007, 2006 and 2005 each included 52 weeks.

Reclassifications

Certain selling, general and administrative expenses previously classified as operating, general and administrative expenses on our consolidated
statements of operations have been reclassified as store operating expenses. These reclassifications had no effect on shareholders equity or net income as previously reported.

Acquisition Accounting

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

Segment Reporting, Goodwill
and Other Intangibles

We provide segment reporting in accordance with Statement of Financial Accounting Standards (SFAS)
No. 131,Disclosures about Segments of an Enterprise and Related Information, which establishes annual and interim reporting standards for an enterprises business segments and related disclosures about its products, services,
geographic areas and major customers. Our chief operating decision maker regularly reviews our operating results on a consolidated basis, and therefore we have concluded that we have one operating and reporting segment under SFAS No. 131 and
one reporting unit under SFAS No. 142,Goodwill and Other Intangible Assets.

The provisions of SFAS No. 142 require
allocating goodwill to reporting units and testing for impairment using a two-step approach. The goodwill impairment test is performed annually or whenever an event has occurred that would more likely than not reduce the fair value of a reporting
unit below its carrying amount. For future valuations, should the enterprise carrying value exceed the estimated fair market value we would have to perform additional valuations to determine if any goodwill impairment exists. Any impairment
recognized would be recorded as a component of operating expenses. See Note 5Goodwill and Other Intangible Assets.

We account for
goodwill and other intangible assets acquired through business combinations in accordance with SFAS No. 141,Business Combinations, and SFAS No. 142. SFAS No. 141 clarifies the criteria for



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THE PANTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



recognizing other intangible assets separately from goodwill in a business combination. SFAS No. 142 states that goodwill and other intangible assets
deemed to have indefinite lives are not amortized but are reviewed for impairment annually (or more frequently if impairment indicators arise). Separable intangible assets that are not determined to have an indefinite life will continue to be
amortized over their useful lives and assessed for impairment under the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Other intangible assets are included in other noncurrent assets. We have
determined that we operate in one reporting unit based on our current reporting structure and have thus assigned goodwill at the enterprise level.

Cash
and Cash Equivalents

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

Inventories

Inventories are valued at the lower of cost or market. Cost is determined using the last-in, first-out method for merchandise inventories and using the
weighted-average method for gasoline inventories. The gasoline we purchase from our vendors is temperature adjusted. The gasoline we sell at retail is sold at ambient temperatures. The volume of gasoline we maintain in inventory can expand or
contract with changes in temperature. Depending on the actual temperature experience and other factors, we may realize a net increase or decrease in the volume of our gasoline inventory during our fiscal year. At interim periods, we record any
projected increases or decreases through cost of goods sold through the year based on gallon volume, which we believe more fairly reflects our results by better matching our costs to our retail sales. At the end of any fiscal year, the entire
variance, if any, is absorbed into cost of goods sold.

Property Held for Sale

Property is classified as a component of prepaid expenses and other current assets when managements intent is to sell these assets in the ensuing
fiscal year and the criteria under SFAS No. 144 are met. The asset is then recorded at the lower of cost or fair value less cost to sell. These assets primarily consist of land and buildings.

Property and Equipment

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

Estimated useful lives for financial statement purposes are as follows:



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

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



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THE PANTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



SFAS No. 13,Accounting for Leases, are recorded at the lesser of fair value or the discounted present value of future lease payments at the
inception of the leases. Amounts capitalized are amortized over the estimated useful lives of the assets or terms of the leases (generally 5 to 20 years); whichever is less, using the straight-line method.

Long-Lived Assets

Long-lived assets are reviewed
annually for impairment and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with SFAS No. 144. When an evaluation is required, the projected future undiscounted cash
flows are compared to the carrying value of the long-lived assets to determine if a write-down to fair value is required. Fair values are internal estimates based on our experience in utilizing or disposing of similar assets. We recorded losses of
approximately $1.5 million, $180 thousand and $3.0 million for asset impairments for certain real estate, leasehold improvements and store and gasoline equipment at certain underperforming stores for fiscal 2007, 2006 and 2005, respectively. We
record losses on asset impairments as a component of general and administrative expenses.

Lease Accounting

We apply the criteria in SFAS No. 13 to our leased facilities. Based upon this guidance, leases are accounted for as either operating or capital. We
also enter into sale-leaseback transactions for certain locations and apply the criteria of SFAS No. 98,Accounting for Leases Sale-Leaseback Transactions Involving Real Estate, Sales-Type Leases of Real Estate, Definition of the Lease Term,
and Initial Direct Costs of Direct Financing Leasesan amendment of FASB Statements No. 13, 66, and 91 and a rescission of FASB Statement No. 26 and Technical Bulletin No. 79-11. For all sale-leaseback transactions entered
into through September 27, 2007, we retained ownership of the underground storage tanks, which represents a form of continuing involvement as defined in SFAS No. 98, and as such, we account for these transactions as financing leases.

Revenue Recognition

Revenues from
our two primary product categories, gasoline and merchandise, are recognized at the point of sale. We derive service revenue, which is included in merchandise revenue, from sales of lottery tickets, money orders, and car washes and services such as
public telephones, ATMs, amusement and video gaming and other ancillary product and service offerings. We evaluate the criteria of Emerging Issues Task Force (EITF) 99-19,Reporting Revenue Gross as a Principal Versus Net as an
Agent, in determining whether it is appropriate to record the gross amount of service revenue and related costs or the net amount earned as commissions. When we are the primary obligor, are subject to inventory risk, have latitude in
establishing prices and selecting suppliers, influence product or service specifications or have several but not all of these indicators, revenue is recorded on a gross basis. If we are not the primary obligor and do not possess other indicators of
gross reporting as noted above, we record revenue on a net basis.

Cost of Goods Sold

The primary components of cost of goods sold 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 recognized in cost of goods sold in accordance with vendor agreements and as the related inventories are sold.



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THE PANTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Store Operating and General and Administrative Expenses

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

Deferred Financing Costs

Deferred financing costs represent expenses related to issuing long-term debt, obtaining lines of credit and obtaining lease
financing. See Note 6Long-Term Debt and Note 7Lease Finance Obligations. Such amounts are being amortized over the remaining term of the respective financing and are included in interest expense.

Vendor Allowances, Rebates and Other Vendor Payments

We receive payments for vendor allowances, volume rebates and other supply arrangements in connection with various programs. Our accounting practices with regard to some of our most significant arrangements are as follows:



| |  |  | Vendor allowances for price markdowns are credited to cost of goods sold during the period in which the related markdown is taken.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | Volume rebates by the vendor in the form of a reduction of the purchase price of the merchandise reduce cost of goods sold 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 goods sold in the appropriate
monthly period based on the actual level of purchases in the period relative to the total purchase commitment.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

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

The amounts recorded as a reduction of cost of goods sold were $141.3 million, $124.9 million and $111.1 million for fiscal 2007, 2006 and 2005, respectively.



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THE PANTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Environmental Costs

We account for the cost incurred to comply with federal and state environmental regulations as follows:



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



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



| |  |  | Amounts that are probable of reimbursement under state trust fund programs or third-party insurers, based on our experience, are recognized as receivables and are
expected to be collected within a period of 12 to 18 months after the reimbursement claim has been submitted. These receivables exclude all deductibles. The adequacy of the liability 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 of our operations, including those of our subsidiaries, are included in a consolidated federal income tax return. Pursuant to SFAS No. 109,Accounting for Income Taxes, we recognize deferred income tax liabilities and assets for the expected future income tax consequences of temporary differences between financial statement carrying amounts and the related income tax basis.

Excise and Other Taxes

We collect
and remit various federal and state excise and other taxes on petroleum products. Gasoline sales and cost of goods sold included excise and other taxes of approximately $896.1 million, $762.5 million and $631.3 million for fiscal 2007, 2006 and
2005, respectively.

Self-Insurance

We are self-insured for certain losses related to general liability, workers compensation and medical claims. The expected ultimate cost for claims incurred as of the balance sheet date is not discounted and is recognized as a
liability. The expected ultimate cost of claims is estimated based upon analysis of historical data and actuarial estimates.



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THE PANTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Advertising Costs

Advertising costs are expensed as incurred. Advertising expense was approximately $4.0 million, $3.0 million and $2.7 million for fiscal 2007, 2006 and 2005, respectively.

Use of Estimates

The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America (GAAP) 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.

New Accounting Standards

In February 2007, the FASB
issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115. SFAS No. 159 permits entities to choose to measure many financial instruments and
certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected will be recognized in earnings at each subsequent reporting date. SFAS No. 159 is effective for financial statements issued
for fiscal years beginning after November 15, 2007. We are currently evaluating SFAS No. 159 to determine the impact, if any, on our financial statements.

In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair
value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are currently evaluating SFAS No. 157 to determine the
impact, if any, on our financial statements.

In September 2006, the SEC released Staff Accounting Bulletin (SAB) 108. SAB 108
provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. SAB 108 is effective for fiscal years ending after November 15, 2006.
The adoption of SAB 108 did not have a material impact on our financial statements.

In July 2006, the FASB issued FIN 48, Accounting
for Uncertainty in Income Taxesan Interpretation of FASB Statement No. 109.FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements in accordance with SFAS
No. 109, Accounting for Income Taxes. The interpretation applies to all tax positions accounted for in accordance with SFAS No. 109 and requires a recognition threshold and measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken in an income tax return. It also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The
provisions of FIN 48 are effective for us as of the beginning of fiscal 2008, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. We have done a preliminary review analyzing the
cumulative effect adjustment to retained earnings that will be recorded on adoption but expect the adjustment to be immaterial.

In June
2006, the FASB ratified the consensus reached by the EITF on Issue No. 06-3,How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That



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THE PANTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Is, Gross versus Net Presentation). Issue No. 06-3 requires disclosure of either the gross or net presentation, and any such taxes reported on a
gross basis should be disclosed in the interim and annual financial statements. Issue No. 06-3 is effective for financial periods beginning after December 15, 2006. We have not changed our presentation of such taxes, and we are providing
the additional disclosure required by Issue No. 06-3.

NOTE 2ACQUISITIONS

We generally focus on selectively acquiring convenience store chains within and contiguous to our existing market areas. Our ability to create synergies
due to our relative size and geographic concentration contributes to a purchase price that is generally in excess of the fair value of assets acquired and liabilities assumed, which results in the recognition of goodwill.

Fiscal 2007 Acquisitions

During fiscal 2007, we
purchased 152 stores and their related businesses in 21 separate transactions for approximately $395.6 million in aggregate purchase consideration. The fiscal 2007 acquisitions were funded from available cash on hand, borrowings under our senior
credit facility and lease financing on acquired real property.

The table below provides information concerning the acquisitions we
completed in fiscal 2007:



|                            |  |                                                                                  |  |                    |  |                                                                                         |  |                 
|--------------------------- |  | -------------------------------------------------------------------------------- |  | ------------------ |  | --------------------------------------------------------------------------------------- |  | ----------------
|Fiscal 2007                
|Date Acquired               |  | Seller                                                                           |  | Trade Name         |  | Locations                                                                               |  | Number of Stores
|December 21, 2006           |  | Graves Oil Co.                                                                   |  | Rascals            |  | Mississippi                                                                             |  | 7               
|January 11, 2007            |  | Anglers Mini-Mart, Inc.                                                         |  | Anglers Mini-Mart |  | South Carolina                                                                          |  | 16              
|February 1, 2007            |  | Rousseau Enterprises, Inc.                                                       |  | LeStore            |  | Florida                                                                                 |  | 8               
|February 8, 2007            |  | Southwest Georgia Oil Co., Inc.                                                  |  | Sun Stop®          |  | Alabama, Florida, and Georgia                                                           |  | 24              
|April 5, 2007               |  | Petro Express, Inc.                                                              |  | Petro Express®     |  | North Carolina and South Carolina                                                       |  | 66              
|April 19, 2007              |  | Willard Oil Company, Inc., Fast Phils of SC, Inc. and Willard Realty Associates |  | Fast Phils        |  | South Carolina                                                                          |  | 11              
|Others (fewer than5 stores) |  | Various                                                                          |  | Various            |  | Alabama, Florida, Louisiana, Mississippi, North Carolina, South Carolina, and Tennessee |  | 20              
|                            |  |                                                                                  |  |                    |  |                                                                                         |  |                 
|Total                       |  |                                                                                  |  |                    |  |                                                                                         |  | 152             
|                            |  |                                                                                  |  |                    |  |                                                                                         |  |                 



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THE PANTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Following are the aggregate purchase price allocations for the 152 stores acquired during fiscal
2007. Certain allocations are preliminary estimates based on available information and certain assumptions management believes to be reasonable. These values are subject to change until certain valuations have been finalized and management completes
its fair value assessments. We do not expect any adjustments to the fair values of the assets and liabilities disclosed in the table below to have a significant impact on our consolidated financial statements. The allocations were based on the fair
values on the dates of the acquisitions (amounts in thousands):



|                                                                                   |  |   |        
|---------------------------------------------------------------------------------- |  | - | -------
|Assets Acquired:                                                                   |  |   |        
|Receivables                                                                        |  | $ | 861    
|Inventories                                                                        |  |   | 14,082 
|Prepaid expenses and other current assets                                          |  |   | 252    
|Other noncurrent assets                                                            |  |   | 2,580  
|Property and equipment, net                                                        |  |   | 223,646
|                                                                                   |  |   |        
|Total assets                                                                       |  |   | 241,421
|Liabilities Assumed:                                                               |  |   |        
|Accounts payable                                                                   |  |   | 3,413  
|Other accrued liabilities                                                          |  |   | 130    
|Deferred income taxes                                                              |  |   | 1,324  
|Deferred vendor rebates                                                            |  |   | 2,948  
|Other noncurrent liabilities                                                       |  |   | 5,511  
|                                                                                   |  |   |        
|Total liabilities                                                                  |  |   | 13,326 
|                                                                                   |  |   |        
|Net tangible assets acquired, net of cash                                          |  |   | 228,095
|Trade names                                                                        |  |   | 21,250 
|Customer agreements                                                                |  |   | 250    
|Non-compete agreements                                                             |  |   | 2,849  
|Goodwill                                                                           |  |   | 143,133
|                                                                                   |  |   |        
|Total consideration paid, including direct acquisition costs, net of cash acquired |  | $ | 395,577
|                                                                                   |  |   |        

We expect that goodwill associated with these transactions totaling $131.7 million will be
deductible for income tax purposes over 15 years and $11.4 million will not be deductible.

Fiscal 2006 Acquisitions

During fiscal 2006, we purchased 113 stores and their related businesses in 13 separate transactions for approximately $126.8 million in aggregate
purchase consideration. All of the fiscal 2006 acquisitions were funded from available cash.



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THE PANTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The table below provides information concerning the acquisitions we completed in fiscal 2006:



|                             |  |                             |  |                         |  |                                                                   |  |                 
|---------------------------- |  | --------------------------- |  | ----------------------- |  | ----------------------------------------------------------------- |  | ----------------
|Fiscal 2006                 
|Date Acquired                |  | Seller                      |  | Trade Name              |  | Locations                                                         |  | Number of Stores
|February 9, 2006             |  | Lee-Moore Oil Company       |  | TruBuy and On The Run®  |  | North Carolina                                                    |  | 19              
|February 16, 2006            |  | Waring Oil Company, LLC     |  | Interstate Food Stops   |  | Mississippi and Louisiana                                         |  | 39              
|May 11, 2006                 |  | Shop-A-Snak Food Mart, Inc. |  | Shop-A-Snak Food MartSM |  | Alabama                                                           |  | 38              
|August 10, 2006              |  | Fuel Mate, LLC              |  | Fuel Mate               |  | North Carolina                                                    |  | 6               
|Others (fewer than 5 stores) |  | Various                     |  | Various                 |  | Georgia, Florida, Mississippi, North Carolina, and South Carolina |  | 11              
|                             |  |                             |  |                         |  |                                                                   |  |                 
|Total                        |  |                             |  |                         |  |                                                                   |  | 113             
|                             |  |                             |  |                         |  |                                                                   |  |                 

Following are the aggregate purchase price allocations for the 113 stores acquired during fiscal
2006. The allocations were based on the fair values on the dates of the acquisitions (amounts in thousands):



|                                                                                   |  |   |        
|---------------------------------------------------------------------------------- |  | - | -------
|Assets Acquired:                                                                   |  |   |        
|Receivables                                                                        |  | $ | 556    
|Inventories                                                                        |  |   | 9,667  
|Prepaid expenses and other current assets                                          |  |   | 396    
|Other noncurrent assets                                                            |  |   | 1,347  
|Property and equipment, net                                                        |  |   | 91,771 
|                                                                                   |  |   |        
|Total assets                                                                       |  |   | 103,737
|Liabilities Assumed:                                                               |  |   |        
|Accounts payable                                                                   |  |   | 7,026  
|Other accrued liabilities                                                          |  |   | 888    
|Deferred income taxes                                                              |  |   | 6,223  
|Deferred vendor rebates                                                            |  |   | 8,255  
|Other noncurrent liabilities                                                       |  |   | 2,650  
|                                                                                   |  |   |        
|Total liabilities                                                                  |  |   | 25,042 
|                                                                                   |  |   |        
|Net tangible assets acquired, net of cash                                          |  |   | 78,695 
|Non-compete agreements                                                             |  |   | 605    
|Goodwill                                                                           |  |   | 47,532 
|                                                                                   |  |   |        
|Total consideration paid, including direct acquisition costs, net of cash acquired |  | $ | 126,832
|                                                                                   |  |   |        

We expect that goodwill associated with these transactions totaling $39.8 million will be
deductible for income tax purposes over 15 years and $7.7 million will not be deductible.



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THE PANTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



|                    |  |      |           |      |   |          
|------------------- |  | ---- | --------- | ---- | - | ---------
|                    |  | 2007 |           | 2006
|Total revenues      |  | $    | 7,391,688 |      | $ | 7,198,428
|Net income          |  | $    | 31,403    |      | $ | 104,468  
|Earnings per share: |  |      |           |      |   |          
|Basic               |  | $    | 1.38      |      | $ | 4.63     
|Diluted             |  | $    | 1.37      |      | $ | 4.54     

NOTE 3INVENTORIES

At September 27, 2007 and September 28, 2006, inventories consisted of the following (amounts in thousands):



|                                   |  |      |         |   |      |   |         |  
|---------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                   |  | 2007 |         |   | 2006 |  
|Inventories at FIFO cost:          |  |      |         |   |      |   |         |  
|Merchandise                        |  | $    | 107,102 |   |      | $ | 92,378  |  
|Less adjustment to LIFO cost       |  |      | (17,678 | ) |      |   | (13,855 | )
|                                   |  |      |         |   |      |   |         |  
|Merchandise inventory at LIFO cost |  |      | 89,424  |   |      |   | 78,523  |  
|Gasoline                           |  |      | 80,223  |   |      |   | 61,612  |  
|                                   |  |      |         |   |      |   |         |  
|Total Inventories                  |  | $    | 169,647 |   |      | $ | 140,135 |  
|                                   |  |      |         |   |      |   |         |  

The positive effect on merchandise cost of goods sold of LIFO inventory liquidations was $1.1
million and $184 thousand for fiscal 2006 and 2005, respectively. We did not have any LIFO inventory liquidations during fiscal 2007.

NOTE
4PROPERTY AND EQUIPMENT

At September 27, 2007 and September 28, 2006, property and equipment consisted of the
following (amounts in thousands):



|                                               |  |      |           |   |      |   |           |  
|---------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                               |  | 2007 |           |   | 2006 |  
|Land                                           |  | $    | 320,965   |   |      | $ | 210,847   |  
|Buildings                                      |  |      | 339,693   |   |      |   | 255,129   |  
|Equipment, furniture and fixtures              |  |      | 674,068   |   |      |   | 552,125   |  
|Leasehold improvements                         |  |      | 160,371   |   |      |   | 122,217   |  
|Construction in progress                       |  |      | 42,667    |   |      |   | 39,918    |  
|                                               |  |      |           |   |      |   |           |  
|                                               |  |      | 1,537,764 |   |      |   | 1,180,236 |  
|Lessaccumulated depreciation and amortization |  |      | (512,538  | ) |      |   | (434,515  | )
|                                               |  |      |           |   |      |   |           |  
|Property and equipment, net                    |  | $    | 1,025,226 |   |      | $ | 745,721   |  
|                                               |  |      |           |   |      |   |           |  

Depreciation expense was $93.4 million, $74.1 million and $63.4 million for fiscal 2007, 2006 and
2005, respectively.



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THE PANTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 5GOODWILL AND OTHER INTANGIBLE ASSETS

The following table reflects goodwill and other intangible asset balances as of September 29, 2005 and the activity thereafter through
September 27, 2007 (amounts in thousands, except weighted-average life data):



|                                               |  |             |         |           |             |   |             |  |   |                    |   |  |                        |       |   |  |   |        |  
|---------------------------------------------- |  | ----------- | ------- | --------- | ----------- | - | ----------- |  | - | ------------------ | - |  | ---------------------- | ----- | - |  | - | ------ | -
|                                               |  | Unamortized |         | Amortized |            
|                                               |  | Goodwill    |         |           | Trade Names |   | Trade Names |  |   | CustomerAgreements |   |  | Non-compete Agreements |      
|Weighted-average useful life in years          |  |             | N/A     |           |             |   | N/A         |  |   | 3.0                |   |  |                        | 9.7   |   |  |   | 22.5   |  
|Gross balance at September 29, 2005            |  | $           | 394,903 |           |             |   | 2,800       |  |   | 2,850              |   |  |                        |      |   |  |   | 9,009  |  
|Purchase accounting adjustments (1)            |  |             | (1,754  | )         |             |   |            |  |   |                   |   |  |                        |      |   |  |   |       |  
|Acquisitions                                   |  |             | 47,532  |           |             |   |            |  |   |                   |   |  |                        | 1,347 |   |  |   | 605    |  
|                                               |  |             |         |           |             |   |             |  |   |                    |   |  |                        |       |   |  |   |        |  
|Gross balance at September 28, 2006            |  |             | 440,681 |           |             | $ | 2,800       |  | $ | 2,850              |   |  | $                      | 1,347 |   |  | $ | 9,614  |  
|Purchase accounting adjustments(1)             |  |             | 522     |           |             |   |            |  |   |                   |   |  |                        | 331   |   |  |   |       |  
|Acquisitions                                   |  |             | 143,133 |           |             |   | 21,250      |  |   |                   |   |  |                        | 250   |   |  |   | 2,849  |  
|                                               |  |             |         |           |             |   |             |  |   |                    |   |  |                        |       |   |  |   |        |  
|Gross balance at September 27, 2007            |  | $           | 584,336 |           |             | $ | 24,050      |  | $ | 2,850              |   |  | $                      | 1,928 |   |  | $ | 12,463 |  
|                                               |  |             |         |           |             |   |             |  |   |                    |   |  |                        |       |   |  |   |        |  
|Accumulated amortization at September 29, 2005 |  |             |         |           |             |   |             |  | $ | (402               | ) |  |                        |      |   |  |   | (1,887 | )
|Amortization                                   |  |             |         |           |             |   |             |  |   | (950               | ) |  |                        | (203  | ) |  |   | (673   | )
|                                               |  |             |         |           |             |   |             |  |   |                    |   |  |                        |       |   |  |   |        |  
|Accumulated amortization at September 28, 2006 |  |             |         |           |             |   |             |  |   | (1,352             | ) |  | $                      | (203  | ) |  | $ | (2,560 | )
|Amortization                                   |  |             |         |           |             |   |             |  |   | (950               | ) |  |                        | (285  | ) |  |   | (1,139 | )
|                                               |  |             |         |           |             |   |             |  |   |                    |   |  |                        |       |   |  |   |        |  
|Accumulated amortization at September 27, 2007 |  |             |         |           |             |   |             |  | $ | (2,302             | ) |  | $                      | (488  | ) |  | $ | (3,699 | )
|                                               |  |             |         |           |             |   |             |  |   |                    |   |  |                        |       |   |  |   |        |  



|(1) | Amounts are purchase accounting adjustments related to the finalization of valuations for prior period acquisitions.
|--- | --------------------------------------------------------------------------------------------------------------------

The estimated future amortization expense for trade names, customer agreements and non-compete agreements is as follows (amounts in thousands):



|                                     |  |   |       
|------------------------------------ |  | - | ------
|Fiscal year                          |  |   |       
|2008                                 |  | $ | 2,349 
|2009                                 |  |   | 1,589 
|2010                                 |  |   | 916   
|2011                                 |  |   | 427   
|2012                                 |  |   | 360   
|Thereafter                           |  |   | 5,111 
|                                     |  |   |       
|Total estimated amortization expense |  | $ | 10,752
|                                     |  |   |       

In accordance with our policy, we conducted our annual impairment testing of goodwill in the
second quarter of 2007 and our annual testing of indefinite lived intangibles in the fourth quarter of 2007. In addition, goodwill and indefinite lived intangibles are reviewed for impairment more frequently if impairment indicators arise. No
impairment charges related to goodwill or other intangible assets were recognized in fiscal 2007, 2006 or 2005.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 6LONG-TERM DEBT

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



|                                                                                                                                     |  |                    |         |   |                    |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------ | ------- | - | ------------------ | - | ------- | -
|                                                                                                                                     |  | September 27, 2007 |         |   | September 28, 2006 |  
|Senior subordinated notes payable; due February 15, 2014; interest payablesemi-annually at 7.75%                                     |  | $                  | 250,000 |   |                    | $ | 250,000 |  
|Senior credit facility; interest payable monthly at LIBOR plus 1.75%; principaldue in quarterly installments through May 15, 2014    |  |                    | 350,000 |   |                    |   |        |  
|Senior credit facility; interest payable monthly at LIBOR plus 1.75%; principaldue in quarterly installments through January 2, 2012 |  |                    |        |   |                    |   | 203,975 |  
|Senior subordinated convertible notes payable; due November 15, 2012; interest payable semi-annually at 3.0%                         |  |                    | 150,000 |   |                    |   | 150,000 |  
|Other notes payable; various interest rates and maturity dates                                                                       |  |                    | 290     |   |                    |   | 328     |  
|                                                                                                                                     |  |                    |         |   |                    |   |         |  
|Total long-term debt                                                                                                                 |  |                    | 750,290 |   |                    |   | 604,303 |  
|Lesscurrent maturities                                                                                                              |  |                    | (3,541  | ) |                    |   | (2,088  | )
|                                                                                                                                     |  |                    |         |   |                    |   |         |  
|Long-term debt, net of current maturities                                                                                            |  | $                  | 746,749 |   |                    | $ | 602,215 |  
|                                                                                                                                     |  |                    |         |   |                    |   |         |  

We have outstanding $250.0 million of our 7.75% senior subordinated notes due 2014. We incurred
approximately $2.5 million in costs associated with the sale of these notes. We deferred these costs and are amortizing them over the life of the notes.

On December 29, 2005, we entered into a senior credit facility, which consisted of a $205.0 million term loan and a $150.0 million revolving credit facility, each maturing January 2, 2012. Proceeds from
that senior credit facility were used to repay all amounts outstanding under the previously existing senior credit facility and loan origination costs. In connection with the financing, we recorded a non-cash charge of approximately $1.8 million
related to the write-off of deferred financing costs associated with the existing senior credit facility.

On April 4, 2007, in accordance with the terms of our then-existing credit agreement, we borrowed an additional term loan in an aggregate principal amount of $100.0 million, or the additional term loan, and used
the proceeds to finance the Petro Express® acquisition. The additional term loan was subject to the same terms and conditions, including interest rate and maturity date, as was the original
$205.0 million term loan under the then-existing credit agreement. The principal amount of the additional term loan was scheduled to be repaid in 19 quarterly installments beginning on June 30, 2007, unless such payments were accelerated or
prepaid as provided in the then-existing credit agreement. The terms of the additional term loan were incorporated into the then-existing credit agreement through an amendment.

On May 15, 2007, we entered into a Third Amended and Restated Credit Agreement (credit agreement), which defines the terms of our senior
credit facility representing an initial aggregate amount of $675 million. Our senior credit facility includes: (i) a $225 million six-year revolving credit facility; (ii) a $350 million seven-year term loan facility; and (iii) a $100
million seven-year delayed draw term loan facility available, at our option, until May 15, 2008. In addition, we may at any time incur up to $200.0 million in incremental facilities in the form of additional revolving or term loans so long as
(i) such incremental facilities would not result in a default as defined in our credit agreement and (ii) we would be able to satisfy certain other conditions set forth in our credit agreement.

Proceeds from our senior credit facility were used to refinance our senior credit facility in existence at May 15, 2007 and pay related fees and
expenses. In connection with the refinancing, we recorded a non-cash



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charge of approximately $2.2 million related to the write-off of deferred financing costs associated with our previous senior credit facility. We incurred
approximately $2.5 million in costs associated with our current senior credit facility. We deferred these costs and are amortizing them over the life of the facility.

Our borrowings under the term loans bear interest through the fiscal quarter ending December 27, 2007, at our option, at either the base rate (generally the applicable prime lending rate of Wachovia Bank, as
announced from time to time) plus 0.50% or LIBOR plus 1.75%. Thereafter, if our consolidated total leverage ratio (as defined in the credit agreement) is less than 4.00 to 1.00, the applicable margins on the borrowings under the term loans will be
decreased by 0.25%.

Our borrowings under the revolving credit facility bear interest through the fiscal quarter ending December 27,
2007, at our option, at either the base rate (generally the applicable prime lending rate of Wachovia Bank, as announced from time to time) plus 0.25% or LIBOR plus 1.50%. Thereafter, if our consolidated total leverage ratio (as defined in the
credit agreement) is greater than or equal to 4.00 to 1.00, the applicable margins on borrowings under the revolving credit facility will be increased by 0.25%, and if the consolidated total leverage ratio is less than or equal to 3.00 to 1.00, the
applicable margins on borrowings under the revolving credit facility will be decreased by 0.25%. In addition, we may use up to $15.0 million of the revolving credit facility for swingline loans and up to $120.0 million for the issuance of commercial
and standby letters of credit.

As of September 27, 2007, there were no outstanding borrowings under our revolving credit facility and
we had approximately $56.7 million of standby letters of credit issued under the facility. As a result, we had approximately $168.3 million in available borrowing capacity under our revolving credit facility (approximately $63.3 million of which was
available for issuance of letters of credit). The LIBOR associated with our senior credit facility resets periodically, and was reset to 5.57% on September 27, 2007.

Our senior credit facility is secured by substantially all of our assets and is required to be fully and unconditionally guaranteed by any material, direct and indirect, domestic subsidiaries (of which we currently
have none). In addition, the credit agreement governing our senior credit facility contains customary affirmative and negative covenants for financings of its type, including the following financial covenants: maximum total adjusted leverage ratio
and minimum interest coverage ratio, as each is defined in the credit agreement. Additionally, our credit agreement contains restrictive covenants regarding our ability to incur indebtedness, make capital expenditures, enter into mergers,
acquisitions, and joint ventures, pay dividends, or change our line of business, among other things. As of September 27, 2007, we were in compliance with these covenants and restrictions.

We also have outstanding $150.0 million of senior subordinated convertible notes due 2012 (convertible notes). The convertible notes bear
interest at an annual rate of 3.0%, payable semi-annually on May 15th and November 15th of each year. The convertible notes are convertible into our common stock at an initial conversion price of $50.09 per share, upon the occurrence of
certain events, including the closing price of our common stock exceeding 120% of the conversion price per share for 20 of the last 30 trading days of any calendar quarter. The stock price at which the notes would be convertible is $60.11, and as of
September 27, 2007, our closing stock price was $26.96. If, upon the occurrence of certain events, the holders of the convertible notes exercise the conversion provisions of the convertible notes, we may need to remit the principal balance of
the convertible notes to them in cash (see below). As such, we would be required to classify the entire amount of the outstanding convertible notes as a current liability. This evaluation of the classification of amounts outstanding associated with
the convertible notes will occur every calendar quarter. Upon conversion, a holder will receive, in lieu of common stock, an amount of cash equal to the lesser of (i) the principal amount of the convertible note, or (ii) the conversion
value, determined in the manner set forth in the indenture governing the



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



convertible notes, of a number of shares equal to the conversion rate. If the conversion value exceeds the principal amount of the convertible note on the
conversion date, we will also deliver, at our election, cash or common stock or a combination of cash and common stock with respect to the additional conversion value upon conversion. If conversion occurs in connection with a change of control, we
may be required to deliver additional shares of our common stock by increasing the conversion rate with respect to such notes. The maximum aggregate number of shares that we would be obligated to issue upon conversion of the convertible notes is
3,817,775.

Concurrently with the sale of the convertible notes, we purchased a note hedge from an affiliate of Merrill Lynch, or the
counterparty, which is designed to mitigate potential dilution from the conversion of our convertible notes. Under the note hedge, the counterparty is required to deliver to us the number of shares of our common stock that we are obligated to
deliver to the holders of the convertible notes with respect to the conversion, calculated exclusive of shares deliverable by us by reason of any additional premium relating to the convertible notes or by reason of any election by us to unilaterally
increase the conversion rate pursuant to the indenture governing the convertible notes. The note hedge expires at the close of trading on November 15, 2012, which is the maturity date of the convertible notes, although the counterparty will
have ongoing obligations with respect to convertible notes properly converted on or prior to that date of which the counterparty has been timely notified.

In addition, we issued warrants to the counterparty that could require us to issue up to approximately 2,993,000 shares of our common stock on November 15, 2012 upon notice of exercise by the counterparty. The
exercise price is $62.86 per share, which represented a 60.0% premium over the closing price of our shares of common stock on November 16, 2005. If the counterparty exercises the warrant, we will have the option to settle in cash or shares the
excess of the price of our shares on that date over the initially established exercise price.

The note hedge and warrant are separate and
legally distinct instruments that bind us and the counterparty and have no binding effect on the holders of the convertible notes.

Pursuant to EITF 90-19,Convertible Bonds with Issuer Option to Settle for Cash upon Conversion, EITF 00-19,Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Companys Own Stock,
and EITF 01-6,The Meaning of Indexed to a Companys Own Stock (EITF 01-6), the convertible notes are accounted for as convertible debt in the accompanying consolidated balance sheets and the embedded conversion option in the
convertible notes has not been accounted for as a separate derivative. Additionally, pursuant to EITF 00-19 and EITF 01-6, the note hedge and warrants are accounted for as equity transactions, and therefore, the payment associated with the issuance
of the note hedge and the proceeds received from the issuance of the warrants were recorded as a charge and an increase, respectively, in additional paid-in capital in shareholders equity as separate equity transactions.

For income tax reporting purposes, we have elected to integrate the convertible notes and the note hedge transaction. Integration of the note hedge with
the convertible notes creates an in-substance original issue debt discount for income tax reporting purposes and therefore the cost of the note hedge will be accounted for as interest expense over the term of the convertible notes for income tax
reporting purposes. The associated income tax benefits will be recognized in the period that the deduction is taken for income tax reporting purposes as an increase in additional paid-in capital in shareholders equity.

Proceeds from the offering were used to pay down $100.0 million outstanding under our then-existing senior credit facility, pay $43.7 million for the
cost of the note hedge, pay approximately $4.7 million in issuance costs, including underwriting fees and for general corporate purposes, including acquisitions. Additionally, we received $25.2 million in proceeds from the issuance of the warrants.



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THE PANTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The remaining annual maturities of our long-term debt as of September 27, 2007 are as follows
(amounts in thousands):



|                         |  |   |        
|------------------------ |  | - | -------
|Fiscal year              |  |   |        
|2008                     |  | $ | 3,541  
|2009                     |  |   | 3,544  
|2010                     |  |   | 3,548  
|2011                     |  |   | 3,552  
|2012                     |  |   | 3,556  
|Thereafter               |  |   | 732,549
|                         |  |   |        
|Total principal payments |  | $ | 750,290
|                         |  |   |        

The fair value of our indebtedness approximated $710.5 million at September 27, 2007.
Substantially all of our net assets are restricted as to payment of dividends and other distributions.

NOTE 7LEASE FINANCE OBLIGATIONS

We lease certain facilities under capital leases and through sale-leaseback arrangements accounted for using the financing method. The
net book values of assets under capital leases and lease finance obligations at September 27, 2007 and September 28, 2006 are summarized as follows (amounts in thousands):



|                         |  |                   |         |   |                   |   |         |  
|------------------------ |  | ----------------- | ------- | - | ----------------- | - | ------- | -
|                         |  | September 27,2007 |         |   | September 28,2006 |  
|Land                     |  | $                 | 212,688 |   |                   | $ | 112,081 |  
|Buildings                |  |                   | 218,460 |   |                   |   | 140,565 |  
|Equipment                |  |                   | 5,961   |   |                   |   | 5,530   |  
|Accumulated depreciation |  |                   | (37,017 | ) |                   |   | (29,728 | )
|                         |  |                   |         |   |                   |   |         |  
|Total                    |  | $                 | 400,092 |   |                   | $ | 228,448 |  
|                         |  |                   |         |   |                   |   |         |  

Following are the minimum lease payments that will have to be made in each of the years indicated
based on non-cancelable leases in effect as of September 27, 2007 (amounts in thousands):



|                                                     |  |                         |          |   |                 |   |        
|---------------------------------------------------- |  | ----------------------- | -------- | - | --------------- | - | -------
|Fiscal year                                          |  | LeaseFinanceObligations |          |   | OperatingLeases
|2008                                                 |  | $                       | 46,050   |   |                 | $ | 70,462 
|2009                                                 |  |                         | 45,859   |   |                 |   | 66,734 
|2010                                                 |  |                         | 45,810   |   |                 |   | 62,125 
|2011                                                 |  |                         | 45,814   |   |                 |   | 57,366 
|2012                                                 |  |                         | 45,600   |   |                 |   | 53,457 
|Later years                                          |  |                         | 425,567  |   |                 |   | 266,395
|                                                     |  |                         |          |   |                 |   |        
|Total minimum lease payments                         |  | $                       | 654,700  |   |                 | $ | 576,539
|                                                     |  |                         |          |   |                 |   |        
|Amount representing interest                         |  |                         | (196,743 | ) |                 |   |        
|                                                     |  |                         |          |   |                 |   |        
|Present value of minimum lease payments              |  |                         | 457,957  |   |                 |   |        
|Lesscurrent maturities                              |  |                         | (5,348   | ) |                 |   |        
|                                                     |  |                         |          |   |                 |   |        
|Lease finance obligations, net of current maturities |  | $                       | 452,609  |   |                 |   |        
|                                                     |  |                         |          |   |                 |   |        



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Rental expense for operating leases was approximately $74.3 million for fiscal 2007, $65.4 million
for fiscal 2006, and $55.6 for fiscal 2005. We have facility leases with step rent provisions, capital improvement funding and other forms of lease concessions. In accordance with GAAP, we record step rent provisions and lease concessions on a
straight-line basis over the minimum lease term. Some of our leases require contingent rental payments; such amounts are not material for the fiscal years presented.

During fiscal 2007, 2006 and 2005, we entered into lease finance obligations with unrelated
parties with net proceeds of $215.3 million, $42.9 million and $14.1 million, respectively. The assets sold in these transactions consisted of newly constructed or acquired convenience stores. Included in the fiscal 2007 lease finance obligations is
$188.4 million associated with twelve acquisitions, of which $158.7 million related to the Petro Express® acquisition, included in the fiscal 2006 lease finance obligations is $16.5 million
associated with the Shop-A-Snak Food MartSMacquisition and included in the fiscal 2005 lease finance obligations is $12.1 million related to the Sentry
Food MartSMacquisition. We retained ownership of all personal property at these locations.

NOTE 8DERIVATIVE FINANCIAL INSTRUMENTS

We
enter into interest rate swap agreements to modify the interest rate characteristics of our outstanding long-term debt, and we have designated each qualifying instrument as a cash flow hedge. We formally document our hedge relationships (including
identifying the hedge instruments and hedged items) and our risk-management objectives and strategies for entering into hedge transactions. At hedge inception, and at least quarterly thereafter, we assess whether derivatives used to hedge
transactions are highly effective in offsetting changes in the cash flow of the hedged item. We measure effectiveness by the ability of the interest rate swaps to offset cash flows associated with changes in the variable LIBOR rate associated with
our term loan facilities using the hypothetical derivative method. To the extent the instruments are considered to be effective, changes in fair value are recorded as a component of other comprehensive income or loss. To the extent there is any
hedge ineffectiveness, any changes in fair value relating to the ineffective portion are immediately recognized in earnings as interest expense. When it is determined that a derivative ceases to be a highly effective hedge, we discontinue hedge
accounting, and subsequent changes in fair value of the hedge instrument are recognized in earnings. Interest (expense) income was ($25) thousand, ($7) thousand, and $423 thousand for fiscal 2007, 2006 and 2005, respectively, for the mark-to-market
adjustment of those instruments that did not qualify for hedge accounting and adjustments for hedge ineffectiveness.

The fair values of
our interest rate swaps are obtained from dealer quotes. These values represent the estimated amounts that 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 27, 2007, prepaid expenses and other current assets and other noncurrent assets included derivative assets of approximately $65 thousand and approximately $398
thousand, respectively. At September 28, 2006, prepaid expenses and other current assets and other noncurrent assets included derivative assets of approximately $107 thousand and approximately $1.8 million, respectively. Cash flow hedges at
September 27, 2007 represent interest rate swaps with a notional amount of $115.0 million, a weighted-average pay rate of 4.26%, and have various settlement dates, the latest of which is April 2009. Cash flow hedges at September 28, 2006
represent interest rate swaps with a notional amount of $130.0 million, a weighted-average pay rate of 4.24%, and have various settlement dates, the latest of which is April 2009.



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NOTE 9ASSET RETIREMENT OBLIGATIONS

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,Accounting for Asset Retirement Obligations. 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 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 our historical experience in removing these tanks, estimated tank useful lives, external estimates as
to the cost to remove the tanks in the future and federal and state regulatory requirements. The liability is a discounted liability using a credit-adjusted risk-free rate ranging from approximately 6.4% to 9.3%. Revisions to the liability could
occur due to changes in tank removal costs, tank useful lives or if federal and/or state regulators enact new guidance on the removal of such tanks. This liability is included in other noncurrent liabilities.

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



|                                 |  |      |        |   |      |   |        |  
|-------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                 |  | 2007 |        |   | 2006 |  
|Beginning balance                |  | $    | 19,847 |   |      | $ | 16,822 |  
|Liabilities incurred             |  |      | 504    |   |      |   | 1,470  |  
|Liabilities assumedacquisitions |  |      | 1,735  |   |      |   | 1,420  |  
|Liabilities settled              |  |      | (1,197 | ) |      |   | (1,507 | )
|Accretion expense                |  |      | 1,306  |   |      |   | 1,642  |  
|                                 |  |      |        |   |      |   |        |  
|Ending balance                   |  | $    | 22,195 |   |      | $ | 19,847 |  
|                                 |  |      |        |   |      |   |        |  



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NOTE 10INTEREST EXPENSE, NET AND LOSS ON EXTINGUISHMENT OF DEBT

The components of interest expense, net and loss on extinguishment of debt are as follows (amounts in thousands):



|                                                                               |  |      |        |   |      |   |        |      |  |   |        |  
|------------------------------------------------------------------------------ |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                               |  | 2007 |        |   | 2006 |   |        | 2005 | 
|Interest on long-term debt, including amortization of deferred financing costs |  | $    | 45,397 |   |      | $ | 39,554 |      |  | $ | 36,246 |  
|Interest on lease finance obligations                                          |  |      | 32,963 |   |      |   | 22,262 |      |  |   | 20,330 |  
|Interest rate swap settlements                                                 |  |      | (1,402 | ) |      |   | (2,374 | )    |  |   | (128   | )
|Fair market value change in non-qualifying derivatives                         |  |      | 25     |   |      |   | 7      |      |  |   | (423   | )
|Capitalized interest                                                           |  |      | (1,413 | ) |      |   |       |      |  |   |       |  
|Miscellaneous                                                                  |  |      | 59     |   |      |   | 153    |      |  |   | 105    |  
|                                                                               |  |      |        |   |      |   |        |      |  |   |        |  
|Subtotal: Interest expense                                                     |  |      | 75,629 |   |      |   | 59,602 |      |  |   | 56,130 |  
|Interest income                                                                |  |      | (3,430 | ) |      |   | (4,941 | )    |  |   | (1,816 | )
|                                                                               |  |      |        |   |      |   |        |      |  |   |        |  
|Subtotal: Interest expense, net                                                |  |      | 72,199 |   |      |   | 54,661 |      |  |   | 54,314 |  
|Loss on extinguishment of debt                                                 |  |      | 2,212  |   |      |   | 1,832  |      |  |   |       |  
|                                                                               |  |      |        |   |      |   |        |      |  |   |        |  
|Total interest expense, net and loss on extinguishment of debt                 |  | $    | 74,411 |   |      | $ | 56,493 |      |  | $ | 54,314 |  
|                                                                               |  |      |        |   |      |   |        |      |  |   |        |  

The loss on extinguishment of debt of $2.2 million during the third quarter of fiscal 2007 and the
loss on extinguishment of debt of $1.8 million during the first quarter of fiscal 2006 represent write-offs of unamortized deferred financing costs associated with separate refinancings of our senior credit facility.

NOTE 11INCOME TAXES

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



|                                      |  |      |        |   |      |   |        |      |  |   |       
|------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------
|                                      |  | 2007 |        |   | 2006 |   |        | 2005
|Current:                              |  |      |        |   |      |   |        |      |  |   |       
|Federal                               |  | $    | 14,858 |   |      | $ | 49,712 |      |  | $ | 27,733
|State                                 |  |      | 2,704  |   |      |   | 8,682  |      |  |   | 5,372 
|                                      |  |      |        |   |      |   |        |      |  |   |       
|Current income tax expense            |  |      | 17,562 |   |      |   | 58,394 |      |  |   | 33,105
|                                      |  |      |        |   |      |   |        |      |  |   |       
|Deferred:                             |  |      |        |   |      |   |        |      |  |   |       
|Federal                               |  |      | (744   | ) |      |   | (1,288 | )    |  |   | 3,894 
|State                                 |  |      | 138    |   |      |   | 48     |      |  |   | 397   
|                                      |  |      |        |   |      |   |        |      |  |   |       
|Deferred income tax (benefit) expense |  |      | (606   | ) |      |   | (1,240 | )    |  |   | 4,291 
|                                      |  |      |        |   |      |   |        |      |  |   |       
|Net income tax expense                |  | $    | 16,956 |   |      | $ | 57,154 |      |  | $ | 37,396
|                                      |  |      |        |   |      |   |        |      |  |   |       



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As of September 27, 2007 and September 28, 2006, deferred income tax (liabilities) and
assets are comprised of the following (amounts in thousands):



|                                                      |  |      |          |   |      |   |          |  
|----------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | -
|                                                      |  | 2007 |          |   | 2006 |  
|Property and equipment                                |  | $    | (66,119  | ) |      | $ | (68,193  | )
|Inventories                                           |  |      | (4,093   | ) |      |   | (3,580   | )
|Goodwill and other intangibles                        |  |      | (44,881  | ) |      |   | (35,315  | )
|Environmental                                         |  |      | (420     | ) |      |   | (560     | )
|Prepaid expenses                                      |  |      | (2,106   | ) |      |   | (2,173   | )
|Other                                                 |  |      | (294     | ) |      |   | (872     | )
|                                                      |  |      |          |   |      |   |          |  
|Gross deferred income tax liabilities                 |  |      | (117,913 | ) |      |   | (110,693 | )
|                                                      |  |      |          |   |      |   |          |  
|Accrued insurance                                     |  |      | 12,220   |   |      |   | 10,972   |  
|Asset retirement obligations                          |  |      | 5,820    |   |      |   | 5,407    |  
|Deferred vendor rebates                               |  |      | 11,806   |   |      |   | 11,099   |  
|Reserve for closed stores                             |  |      | 2,950    |   |      |   | 3,697    |  
|Impairment of long-lived assets                       |  |      |         |   |      |   | 741      |  
|Lease finance obligations                             |  |      | 13,316   |   |      |   | 9,769    |  
|Stock-based compensation expenseNonqualified options |  |      | 1,359    |   |      |   | 613      |  
|Other                                                 |  |      | 5,510    |   |      |   | 3,332    |  
|                                                      |  |      |          |   |      |   |          |  
|Gross deferred income tax assets                      |  |      | 52,981   |   |      |   | 45,630   |  
|                                                      |  |      |          |   |      |   |          |  
|Net operating loss carryforwards                      |  |      | 724      |   |      |   | 840      |  
|State credits                                         |  |      | 135      |   |      |   | 136      |  
|                                                      |  |      |          |   |      |   |          |  
|Net deferred income tax liability                     |  | $    | (64,073  | ) |      | $ | (64,087  | )
|                                                      |  |      |          |   |      |   |          |  

As of September 27, 2007 and September 28, 2006, net current deferred income tax assets
totaled $10.6 million and $8.3 million, respectively, and net noncurrent deferred income tax liabilities totaled $74.7 million and $72.4 million, respectively.

The change in net deferred income tax liability also included an increase to goodwill in the amount of $1.2 million which related to the current year stock acquisition.

Reconciliations of income taxes at the federal statutory rate (35% in fiscal 2007, 2006 and 2005) to actual income tax expense for each of the periods
presented are as follows (amounts in thousands):



|                                              |  |      |        |   |      |   |        |  |   |       
|--------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ |  | - | ------
|                                              |  | 2007 |        |   | 2006 |   | 2005  
|Tax expense at Federal statutory rate         |  | $    | 15,291 |   |      | $ | 51,224 |  | $ | 33,322
|State tax expense, net of federal tax expense |  |      | 1,721  |   |      |   | 5,674  |  |   | 3,750 
|Permanent differences                         |  |      | (56    | ) |      |   | 256    |  |   | 324   
|                                              |  |      |        |   |      |   |        |  |   |       
|Net income tax expense                        |  | $    | 16,956 |   |      | $ | 57,154 |  | $ | 37,396
|                                              |  |      |        |   |      |   |        |  |   |       



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As of September 27, 2007, we had net operating loss carryforwards and state credits that can be
used to offset future state income taxes. The benefit of these carryforwards is recognized as a deferred income tax asset. Loss carryforwards as of September 27, 2007 have the following expiration dates (amounts in thousands):



|                        |  |               |       
|----------------------- |  | ------------- | ------
|Year of Expiration      |  | Carryforwards
|2016                    |  | $             | 2,057 
|2017                    |  |               | 2,788 
|2018                    |  |               | 3,515 
|2019                    |  |               | 2,470 
|2020                    |  |               | 2,751 
|2021                    |  |               | 678   
|2022                    |  |               | 321   
|                        |  |               |       
|Total loss carryforward |  | $             | 14,580
|                        |  |               |       

NOTE 12COMMITMENTS AND CONTINGENCIES

As of September 27, 2007, we were contingently liable for outstanding letters of credit in the amount of approximately $56.7 million primarily
related to several self-insurance programs, vendor contracts and regulatory requirements. The letters of credit are not to be drawn against unless we default on the timely payment of related liabilities.

As previously reported, on July 17, 2004 Constance Barton, Kimberly Clark, Wesley Clark, Tracie Hunt, Eleanor Walters, Karen Meredith, Gilbert Breeden,
LaCentia Thompson, and Mathesia Peterson, on behalf of themselves and on behalf of classes of those similarly situated, filed suit against The Pantry, Inc. seeking class action status and asserting claims on behalf of our North Carolina present and
former employees for unpaid wages under North Carolina Wage and Hour laws. The suit also seeks an injunction against any unlawful practices, damages, liquidated damages, costs and attorneys fees. We filed an Answer denying any wrongdoing or
liability to plaintiffs in any regard. The suit originally was filed in the Superior Court for Forsyth County, State of North Carolina. On August 17, 2004, the case was removed to the United States District Court for the Middle District of North
Carolina and on July 18, 2005, plaintiffs filed an Amended Complaint asserting certain additional claims under the federal Fair Labor Standards Act on behalf of all our present and former store employees. We filed a motion to dismiss parts of the
Amended Complaint and on May 17, 2006, the court granted in part and denied in part our motion. On January 16, 2007, plaintiffs filed a motion to file a Second Amended Complaint asserting on behalf of themselves and classes of those similarly
situated state law claims for alleged unpaid wages in all 11 states in which we do business. On February 8, 2007, we filed a motion opposing the filing of the Seconded Amended Complaint. The motion is pending before the court. While we deny
liability in this case, to avoid the burdens, expense and uncertainty of further litigation, on March 26, 2007, we reached a proposed settlement in principle with class counsel. The proposed settlement will establish a settlement fund of $1,000,000
from which payments will be made to settlement class members and class counsel. Additionally, the proposed settlement provides for us to bear all costs of sending notices, processing and preparing payments and other administrative costs of the
settlement. No other payments will be made to class members or class counsel. The proposed settlement is subject to court approvals. Final approval of the proposed settlement is expected to take several months and there can be no assurance that the
court will approve the proposed settlement. We incurred a one-time charge in the second quarter of fiscal 2007 of $1.25 million for the proposed settlement and associated costs.

Since the beginning of fiscal 2007, over 45 class action lawsuits have been filed in federal courts across the country against numerous companies in the
petroleum industry. Major petroleum companies and significant retailers in the industry have been named as defendants in these lawsuits. To date, we have been named as a



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defendant in seven cases: one in Florida (Cozza, et al. v. Murphy Oil USA, Inc. et al., S.D. Fla., No. 9:07-cv-80156-DMM, filed 2/16/07); one in
Delaware (Becker, et al. v. Marathon Petroleum Company LLC, et al., D. Del., No. 1:07-cv-00136, filed 3/7/07); one in North Carolina (Neese, et al. v. Abercrombie Oil Company, Inc., et al., E.D.N.C., No. 5:07-cv-00091-FL, filed 3/7/07);
one in Alabama (Snable, et al. v. Murphy Oil USA, Inc., et al., N.D. Ala., No. 7:07-cv-00535-LSC, filed 3/26/07); one in Georgia (Rutherford, et al. v. Murphy Oil USA, Inc., et al., No. 4:07-cv-00113-HLM, filed 6/5/07); and one in
Tennessee (Shields, et al. v. RaceTrac Petroleum, Inc., et al., No. 1:07-cv-00169, filed 7/13/07); and one in South Carolina (Korleski v. BP Corporation North America, Inc., et al., D.S.C., No 6:07-cv-03218-MDL, filed 9/24/07. Pursuant to an
Order entered by the Joint Panel on Multi-District Litigation, all of the cases, including the seven in which we are named, have been or will be transferred to the United States District Court for the District of Kansas where the cases will be
consolidated for all pre-trial proceedings. The plaintiffs in the lawsuits generally allege that they are retail purchasers who received less motor fuel than the defendants agreed to deliver because the defendants measured the amount of motor fuel
they delivered in non-temperature adjusted gallons which, at higher temperatures, contain less energy. These cases seek, among other relief, an order requiring the defendants to install temperature adjusting equipment on their retail motor fuel
dispensing devices. In certain of the cases, including some of the cases in which we are named, plaintiffs also have alleged that because defendants pay fuel taxes based on temperature adjusted 60 degree gallons, but allegedly collect taxes from
consumers in non-temperature adjusted gallons, defendants receive a greater amount of tax from consumers than they paid on the same gallon of fuel. The plaintiffs in these cases seek, among other relief, recovery of excess taxes paid and punitive
damages. Both types of cases seek compensatory damages, injunctive relief, attorneys fees and costs, and prejudgment interest. We believe that there are substantial factual and legal defenses to the theories alleged in these lawsuits. As the
cases are at a very early stage, we cannot at this time estimate our ultimate exposure to loss or liability, if any, related to these lawsuits.

On November 16, 2007, Arnesa Jones, Burdeen Smith, Patricia Taylor, and Sandra Holt, on behalf of themselves and on behalf of classes of those similarly situated, filed suit against us in the United States District Court for the
Northern District of Alabama (Jones, et al. v. The Pantry, Inc., No. CV-07-P-2097-S). The plaintiffs seek class action status and assert claims on behalf of our present and former employees for unpaid wages under the Fair Labor Standards Act. The
plaintiffs in this lawsuit generally allege that they were/are employed by us as store managers, but their managerial duties were non-existent or minimal compared to their nonmanagerial duties. The plaintiffs further allege that we required our
store managers to work over 40 hours per week for a salaried amount without overtime compensation. The suit seeks permission to give notice of this action to all of our employees during the three years immediately preceding the filing of this suit
and to all other potential plaintiffs who may be similarly situated. The plaintiffs also seek damages, liquidated damages, costs, pre-judgment interest and attorneys fees, and any injunctive and/or declaratory relief to which they may be
entitled. We believe that there are substantial factual and legal defenses to the plaintiffs allegations. As the case is at a very early stage, we cannot at this time estimate our ultimate exposure to loss or liability, if any, related to this
lawsuit.

We are party to various other legal actions in the ordinary course of our business. We believe these other actions are routine in
nature and incidental to the operation of our business. While the outcome of these actions cannot be predicted with certainty, managements present judgment is that the ultimate resolution of these matters will not have a material adverse
impact on our business, financial condition or prospects. If, however, our assessment of these actions is inaccurate, or there are any significant adverse developments in these actions, our financial condition and results of operations could be
adversely affected.

On July 28, 2005, we announced that we would restate earnings for the period from fiscal 2000 to fiscal 2005
arising from sale-leaseback accounting for certain transactions. Beginning in September 2005, we received



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requests from the SEC that we voluntarily provide certain information to the SEC Staff in connection with our sale-leaseback accounting, our decision to
restate our financial statements with respect to sale-leaseback accounting and other lease accounting matters. In November 2006, the SEC informed us that in connection with the inquiry it had issued a formal order of private investigation. We are
cooperating with the SEC in this ongoing investigation.

Our Board of Directors has adopted employment agreements for several of our
executives, which create certain liabilities in the event of the termination of these executives following a change of control. These agreements have one to three year terms and specify the executives current compensation, benefits and
perquisites, the executives entitlements upon termination of employment and other employment rights and responsibilities.

Unamortized Liabilities
Associated with Vendor Payments

In accordance with the terms of each service or supply agreement and in accordance with GAAP, service
and supply allowances are amortized over the life of each agreement in accordance with the specific terms. At September 27, 2007, other accrued liabilities and deferred vendor rebates include the unamortized liabilities associated with these
payments of $1.1 million and $23.6 million, respectively. At September 28, 2006, other accrued liabilities and deferred vendor rebates include the unamortized liabilities associated with these payments of $5.0 million and $23.9 million,
respectively.

McLane Company, Inc.we purchase over 50% of our general merchandise from a single wholesaler, McLane. Our arrangement
with McLane is governed by a five-year distribution service agreement which expires in April 2010. We receive annual service allowances based on the number of stores operating on each contract anniversary date. If we default under the contract or
terminate the distribution service agreement prior to April 2010, we must reimburse McLane the unearned, unamortized portion of the service allowance payments received to date. In accordance with the terms of the distribution service agreement and
in accordance with GAAP, the original service allowances received and all future service allowances are amortized and recognized as a reduction to merchandise cost of goods sold using the straight-line method over the life of the agreement.

Major Oil Companieswe have entered into product brand imaging agreements with numerous oil companies to buy gasoline at market
prices. These contracts range in length from three to ten years. In connection with these agreements, we may receive upfront vendor allowances, volume incentive payments and other vendor assistance payments. If we default under the terms of any
contract or terminate any supply agreement prior to the end of the initial term, we must reimburse the respective oil company for the unearned, unamortized portion of the payments received to date. In accordance with GAAP, these payments are
amortized and recognized as a reduction to gasoline 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 U.S. Environmental Protection Agency, or EPA, to establish a comprehensive regulatory program for the detection, prevention and cleanup of leaking
underground storage tanks (e.g., overfills, spills and underground storage tank releases).

Federal and state regulations require us to
provide and maintain evidence that we are taking financial responsibility for corrective action and compensating third parties in the event of a release from our underground storage tank systems. In order to comply with these requirements, as of
September 27, 2007, we maintain letters of credit in the aggregate amount of approximately $1.3 million in favor of state environmental agencies in North Carolina, South Carolina, Virginia, Georgia, Indiana, Tennessee, Kentucky and Louisiana.



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We also rely upon the reimbursement provisions of applicable state trust funds. In Florida, we meet
our financial responsibility requirements by state trust fund coverage for releases occurring through December 31, 1998 and meet such requirements for releases thereafter through private commercial liability insurance. In Georgia, we meet our
financial responsibility requirements by a combination of state trust fund coverage, private commercial liability insurance and a letter of credit.

Regulations enacted by the EPA in 1988 established requirements for:



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



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



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



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



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



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

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

All states in which we operate or have operated underground storage tank systems have established trust funds
for the sharing, recovering and reimbursing of certain cleanup costs and liabilities incurred as a result of releases from underground storage tank systems. These trust funds, which essentially provide insurance coverage for the cleanup of
environmental damages caused by the operation of underground storage tank systems, are funded by an underground storage tank registration fee and a tax on the wholesale purchase of motor fuels within each state. We have paid underground storage tank
registration fees and gasoline taxes to each state where we operate to participate in these trust fund programs. We have filed claims and received reimbursements in North Carolina, South Carolina, Kentucky, Indiana, Georgia, Florida, Tennessee,
Mississippi and Virginia. The coverage afforded by each state trust 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 zero dollars to $150 thousand per occurrence depending on the upgrade status of our
underground storage tank system, the date the release is



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THE PANTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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 that occurred in Florida and were 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, except for certain sites, including sites where our lease requires us to participate in the Georgia trust
fund. For all such sites where we have opted not to participate in the Georgia trust fund, we have obtained private insurance coverage for remediation and third-party claims. We believe that this coverage exceeds federal and Georgia financial
responsibility regulations.

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

Environmental reserves of $21.3 million and $18.4 million as of September 27, 2007 and September 28, 2006, respectively, represent our
estimates for future expenditures for remediation, tank removal and litigation associated with 285 and 269 known contaminated sites as of September 27, 2007 and September 28, 2006, 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 $19.6 million of our environmental obligations will be funded by state trust funds and
third-party insurance; as a result, we may spend up to $1.7 million for remediation, tank removal and litigation. Also, as of September 27, 2007 and September 28, 2006, there were an additional 557 and 534 sites, respectively, that are
known to be contaminated sites but are being remediated by third parties, and therefore, the costs to remediate such sites are not included in our environmental reserve. Remediation costs for known sites are expected to be incurred over the next one
to ten years. Environmental reserves have been established with remediation costs based on internal and external estimates for each site. Future remediation for which the timing of payments can be reasonably estimated is discounted at 8.0% to
determine the reserve. The undiscounted amount of future estimated payments for which we do not expect to be reimbursed for each of the five fiscal years and thereafter as of September 27, 2007 and other cost amounts covered by responsible
third parties are as follows (amounts in thousands):



|                                                        |  |                   |        |  
|------------------------------------------------------- |  | ----------------- | ------ | -
|Fiscal Year                                             |  | Expected Payments |       
|2008                                                    |  | $                 | 745    |  
|2009                                                    |  |                   | 745    |  
|2010                                                    |  |                   | 686    |  
|2011                                                    |  |                   | 234    |  
|2012                                                    |  |                   | 51     |  
|Thereafter                                              |  |                   | 85     |  
|                                                        |  |                   |        |  
|Total undiscounted amounts not covered by a third party |  |                   | 2,546  |  
|Other current cost amounts                              |  |                   | 23,206 |  
|Amount representing interest                            |  |                   | (4,468 | )
|                                                        |  |                   |        |  
|Environmental reserves                                  |  | $                 | 21,284 |  
|                                                        |  |                   |        |  

We anticipate that we will be reimbursed for expenditures from state trust funds and private
insurance. As of September 27, 2007, anticipated reimbursements of $19.7 million are recorded as other noncurrent assets and



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THE PANTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



$2.7 million are recorded as current receivables related to all sites. In Florida, remediation of such contamination reported before January 1, 1999
will be performed by the state (or state approved independent contractors) and substantially all of the remediation costs, less any applicable deductibles, will be paid by the state trust fund. We will perform remediation in other states through
independent contractor firms engaged by us. For certain sites, the trust fund does not cover a deductible or has a co-pay which may be less than the cost of such remediation. Although we are not aware of releases or contamination at other locations
where we currently operate or have operated stores, any such releases or contamination could require substantial remediation expenditures, some or all of which may not be eligible for reimbursement from state trust funds or private insurance.

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

Gasoline Contractual Contingencies

The Branded Jobber Contract between us and BP dated as of February 1, 2003, as subsequently amended, sets forth minimum volume requirements per year and
a minimum volume guarantee if such minimum volume requirements are not met.



| |  |  | Minimum VolumeOur obligation to purchase a minimum volume of BP® branded gasoline is subject to increase each year during the remaining term of the agreement and is measured over a one-year period. During fiscal 2007, we exceeded the requirement for the period ending September 30,
2007. The minimum requirement for the one-year period ending September 30, 2008 is approximately 485 million gallons of BP® branded product.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Minimum Volume GuaranteeSubject to certain adjustments, in any one-year period in which we fail to meet our
minimum volume purchase obligation, we have agreed to pay BP two cents per gallon times the difference between the actual volume of BP® branded product purchased and the minimum volume
requirement. Based on current forecasts, we anticipate meeting the minimum volume requirements.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 13BENEFIT PLANS

We sponsor a 401(k) Employee Retirement Savings Plan for eligible employees. Employees must be at least twenty-one years of age and
have one year of service with at least 1,000 hours worked to be eligible to participate in the plan. Employees may contribute up to 100% of their annual compensation, and contributions are matched by us on the basis of 50% of the first 5%
contributed. Matching contribution expense was $1.5 million, $891 thousand and $837 thousand for fiscal 2007, 2006 and 2005, respectively.

NOTE
14COMMON STOCK

During October 2004, we completed a secondary stock offering in which Freeman Spogli & Co. sold 3,850,000
shares of our common stock at a public offering price of $22.96 per share. In connection with this secondary stock offering, we sold 1,500,000 shares of our common stock under a forward equity sale agreement with Merrill Lynch International, an
affiliate of Merrill Lynch & Co., as forward purchaser, under which, at our request, Merrill Lynch International borrowed 1,500,000 shares of our common stock from stock lenders and sold such borrowed shares at a price of $21.8694 per share
to certain underwriters pursuant to a purchase agreement. In accordance with EITF 00-19, we accounted for the forward equity sale agreement as equity with an initial fair value of zero. We applied the treasury stock method of accounting to the
shares covered by the forward equity sale agreement in determining diluted shares outstanding.



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THE PANTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



In March 2005, Freeman Spogli & Co. sold the remaining 2,150,000 shares of our common stock
it had registered under an existing shelf registration statement bringing their ownership at the time to approximately 1,700,000 shares, or 8.4% of our outstanding shares. Subsequent to this offering, Freeman Spogli distributed its remaining shares
to its limited partners, and as of September 29, 2005, had no remaining ownership in the Company.

On April 20, 2005, we
partially settled the forward equity sale agreement by issuing and delivering 1,078,697 shares of our common stock, par value $.01 per share. In connection with the partial settlement, we received $23.7 million in proceeds. On August 17, 2005,
we settled the remaining shares subject to the forward equity sale agreement by issuing and delivering 421,303 shares of our common stock. In connection with the final settlement, we received $9.3 million in proceeds.

In November 2005 we issued warrants to purchase up to 2,993,000 shares of our common stock to an affiliate of Merrill Lynch in connection with the note
hedge and warrant transactions entered into at the time of our offering of convertible notes. See Note 6Long-Term Debt for details.

In August 2007, our Board of Directors approved a program under which we are authorized to repurchase up to $35 million of our common stock in each of fiscal 2007 and fiscal 2008, but not to exceed an aggregate of $50 million. The
repurchase program permits repurchases until September 25, 2008 in the open market or through private transactions, in accordance with regulations set forth by the Securities and Exchange Commission. For the quarter ended September 27,
2007, we purchased an aggregate of 692,844 shares of our common stock pursuant to the repurchase program. The total dollar value of the shares purchased was approximately $21.7 million. As of September 27, 2007, the total remaining
authorization under the repurchase program was approximately $28.3 million.

NOTE 15STOCK COMPENSATION PLANS

On January 1, 1998, we adopted the 1998 stock option plan, an incentive and non-qualified stock option plan. The 1998 stock option plan permitted us
to grant options to purchase up to 1,275,000 shares of our common stock to officers, key employees, consultants or any of our subsidiaries and certain members of our Board of Directors. On June 3, 1999, we adopted the 1999 stock option plan
with provisions similar to the 1998 stock option plan. The 1999 stock option plan permitted us to grant incentive stock options and non-qualified stock options to purchase up to 3,825,000 shares of our common stock to officers, Directors, employees
and consultants. Each plan is administered by our Board of Directors or a committee of our Board of Directors. Options under each plan were granted at prices determined by our 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 each plan, 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, our Board of Directors amended the 1999 stock option 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 stock option plan, which our Board of
Directors terminated (except for the purpose of continuing to govern options outstanding under that plan). As of September 27, 2007, no options remained outstanding under the 1998 stock option plan.



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THE PANTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



On January 12, 2007, upon the recommendation of the Compensation and Organization committee of
our Board of Directors, our Board of Directors approved The Pantry, Inc. 2007 Omnibus Plan (the Omnibus Plan), and on March 29, 2007, the Omnibus Plan was approved by our shareholders. The Omnibus Plan permits the award of cash
incentives and equity incentive grants covering 2.4 million shares of our common stock, plus shares subject to outstanding options under our 1999 Stock Option Plan that are forfeited or that otherwise cease to be outstanding after
March 29, 2007 other than by reason of their having been exercised for, or settled in, vested and nonforfeitable shares. Awards made under the Omnibus Plan may take the form of stock options (including both incentive stock options and
nonqualified options), stock appreciation rights, restricted stock and restricted stock units, performance shares and performance units, annual incentive awards, cash-based awards and other stock-based awards. The Omnibus Plan is administered by the
Compensation and Organization committee of our Board of Directors.

Prior to September 30, 2005, we accounted for our equity-based
compensation plans under the recognition and measurement provision of APB Opinion No. 25, and related interpretations, as permitted by SFAS No. 123, Accounting for Stock-Based Compensation. We did not recognize stock-based
compensation cost in our Consolidated Statements of Operations prior to September 30, 2005, as all options granted under our equity-based compensation plans had an exercise price equal to the market value of the underlying common stock on the
date of grant. Effective September 30, 2005, we adopted the fair value recognition provisions of SFAS No. 123R, Share-Based Payment,using the modified-prospective-transition method. Under this transition method, compensation costs
recognized include compensation costs for all share-based payments granted prior to, but not yet vested as of, September 29, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, and
compensation cost for all share-based payments granted subsequent to September 29, 2005, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123R. Results for prior periods have not been restated. The
Omnibus Plan, which is shareholder approved, permits the grant of equity awards for up to 3.2 million shares of common stock. We recognize compensation expense on a straight-line basis over the requisite service period. A summary of the status
of stock options under our plans and changes during fiscal 2005, 2006 and 2007 is presented in the table below:



|                                        |  |          |   |  |                                |       |                                          |     |                                        |   |    
|--------------------------------------- |  | -------- | - |  | ------------------------------ | ----- | ---------------------------------------- | --- | -------------------------------------- | - | ---
|                                        |  | Shares   |   |  | Weighted-average exerciseprice |       | Weighted-average contractualterm (years) |     | Aggregateintrinsic value(in thousands)
|Options outstanding, September 30, 2004 |  | 936,753  |   |  | $                              | 7.90  |                                          |     |                                        |   |    
|Granted                                 |  | 395,000  |   |  |                                | 27.11 |                                          |     |                                        |   |    
|Exercised                               |  | (544,682 | ) |  |                                | 7.12  |                                          |     |                                        |   |    
|Forfeited                               |  |         |   |  |                                |      |                                          |     |                                        |   |    
|                                        |  |          |   |  |                                |       |                                          |     |                                        |   |    
|Options outstanding, September 29, 2005 |  | 787,071  |   |  | $                              | 18.08 |                                          |     |                                        |   |    
|Granted                                 |  | 411,500  |   |  |                                | 40.40 |                                          |     |                                        |   |    
|Exercised                               |  | (370,801 | ) |  |                                | 11.82 |                                          |     |                                        |   |    
|Forfeited                               |  | (39,166  | ) |  |                                | 27.40 |                                          |     |                                        |   |    
|                                        |  |          |   |  |                                |       |                                          |     |                                        |   |    
|Options outstanding, September 28, 2006 |  | 788,604  |   |  | $                              | 32.21 |                                          |     |                                        |   |    
|Granted                                 |  | 333,000  |   |  |                                | 49.77 |                                          |     |                                        |   |    
|Exercised                               |  | (199,553 | ) |  |                                | 25.60 |                                          |     |                                        |   |    
|Forfeited                               |  | (46,333  | ) |  |                                | 35.88 |                                          |     |                                        |   |    
|                                        |  |          |   |  |                                |       |                                          |     |                                        |   |    
|Options outstanding, September 27, 2007 |  | 875,718  |   |  | $                              | 40.20 |                                          | 5.3 |                                        | $ | 605
|Options exercisable, September 27, 2007 |  | 197,385  |   |  | $                              | 30.85 |                                          | 4.4 |                                        | $ | 585



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THE PANTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



We have excluded 671,502 outstanding options and 90,502 vested options from our intrinsic value
calculations, which have an exercise price greater than our closing stock price on September 27, 2007 of $26.96. We expect that approximately 650,000 of the remaining unvested options will vest according to the terms of the grants.

The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option pricing model, which uses the assumptions
noted in the following table. Expected volatility is based on the historical volatility of our common stock price. We use historical data to estimate option exercises and employee terminations used in the model. The expected term of options granted
is based on historical experience and represents the period of time that options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in
effect at the time of grant. As of September 27, 2007, remaining compensation expense to be recognized on these options through September 2010 is approximately $5.0 million.

The fair value of each option grant was determined using the Black-Scholes-Merton option pricing model with weighted-average assumptions used for options
issued in fiscal 2007, 2006 and 2005 as follows:



|                                        |  |                   |       |   |                   |   |       |                   |  |   |      |  
|--------------------------------------- |  | ----------------- | ----- | - | ----------------- | - | ----- | ----------------- |  | - | ---- | -
|                                        |  | Year Ended        |      
|                                        |  | September 27,2007 |       |   | September 28,2006 |   |       | September 29,2005 | 
|Weighted-average grant fair value       |  | $                 | 13.90 |   |                   | $ | 11.74 |                   |  | $ | 9.50 |  
|Weighted-average expected lives (years) |  |                   | 2.55  |   |                   |   | 2.00  |                   |  |   | 2.00 |  
|Risk-free interest rate                 |  |                   | 4.8   | % |                   |   | 4.5   | %                 |  |   | 3.0  | %
|Expected volatility                     |  |                   | 37.1  | % |                   |   | 47.0  | %                 |  |   | 60.0 | %
|Dividend yield                          |  |                   | 0.0   | % |                   |   | 0.0   | %                 |  |   | 0.0  | %

The aggregate grant-date fair value of options granted during fiscal 2007, 2006 and 2005 was
approximately $4.6 million, $4.8 million, and $3.8 million, respectively. The total intrinsic value of options exercised during fiscal 2007, 2006 and 2005 was approximately $4.5 million, $15.9 million, and $14.1 million, respectively. Cash received
from options exercised totaled approximately $5.1 million, $4.4 million, and $3.9 million, during fiscal 2007, 2006 and 2005 respectively. The total fair value of options that vested during fiscal 2007, 2006 and 2005 was approximately $3.2 million,
$1.8 million and $700 thousand, respectively.

We recorded $3.7 million and $2.8 million in stock compensation expense and related tax
benefits of $2.2 million and $1.1 million in fiscal 2007 and fiscal 2006, respectively.



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THE PANTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The following table illustrates the effect on net income and earnings per share if we had applied the
fair value recognition provisions of SFAS No. 123 to options granted under our stock option plans for fiscal 2005. For purposes of this pro forma disclosure, the value of the options is estimated using the Black-Scholes-Merton option pricing
model and amortized to expense over the options requisite service period.



|                                                                                                                   |  |                   |        |  
|------------------------------------------------------------------------------------------------------------------ |  | ----------------- | ------ | -
|                                                                                                                   |  | September 29,2005 |       
|Net income (amounts in thousands, except per share data):                                                          |  |                   |        |  
|As reported                                                                                                        |  | $                 | 57,810 |  
|DeductTotal stock-based compensation expense determined under fair value method for all awards, net of income tax |  |                   | (992   | )
|                                                                                                                   |  |                   |        |  
|Pro forma                                                                                                          |  | $                 | 56,818 |  
|                                                                                                                   |  |                   |        |  
|Basic earnings per share:                                                                                          |  |                   |        |  
|As reported                                                                                                        |  | $                 | 2.74   |  
|Pro forma                                                                                                          |  | $                 | 2.69   |  
|Diluted earnings per share:                                                                                        |  |                   |        |  
|As reported                                                                                                        |  | $                 | 2.64   |  
|Pro forma                                                                                                          |  | $                 | 2.59   |  

The following table summarizes information about stock options outstanding at September 27,
2007:



|             |  |                 |  |                                       |  |                            |  |                              
|------------ |  | --------------- |  | ------------------------------------- |  | -------------------------- |  | -----------------------------
|Date Granted |  | Exercise Prices |  | Number Outstanding September 27, 2007 |  | Remaining Contractual Life |  | Number of Options Exercisable
|11/26/01     |  | $5.12           |  | 1,334                                 |  | 1 years                    |  | 1,334                        
|3/25/03      |  | 4.50            |  | 5,000                                 |  | 2 years                    |  | 5,000                        
|7/23/03      |  | 8.09            |  | 3,334                                 |  | 3 years                    |  | 3,334                        
|10/22/03     |  | 14.80           |  | 24,691                                |  | 3 years                    |  | 24,691                       
|3/31/04      |  | 19.95           |  | 10,000                                |  | 4 years                    |  | 10,000                       
|11/19/04     |  | 26.77           |  | 159,857                               |  | 4 years                    |  | 62,524                       
|12/15/04     |  | 27.89           |  | 6,667                                 |  | 4 years                    |  | 3,334                        
|3/29/05      |  | 30.48           |  | 15,000                                |  | 5 years                    |  | 10,000                       
|10/26/05     |  | 35.76           |  | 231,835                               |  | 5 years                    |  | 45,502                       
|01/24/06     |  | 58.31           |  | 10,000                                |  | 5 years                    |  | 3,333                        
|03/01/06     |  | 58.79           |  | 10,000                                |  | 5 years                    |  | 3,333                        
|03/30/06     |  | 62.03           |  | 30,000                                |  | 6 years                    |  | 10,000                       
|07/05/06     |  | 56.61           |  | 20,000                                |  | 6 years                    |  | 6,667                        
|08/02/06     |  | 45.74           |  | 25,000                                |  | 6 years                    |  | 8,333                        
|11/06/06     |  | 52.04           |  | 20,000                                |  | 6 years                    |  |                             
|11/09/06     |  | 50.99           |  | 223,000                               |  | 6 years                    |  |                             
|05/09/07     |  | 45.05           |  | 50,000                                |  | 7 years                    |  |                             
|07/02/07     |  | 46.62           |  | 30,000                                |  | 7 years                    |  |                             
|             |  |                 |  |                                       |  |                            |  |                              
|             |  | Total           |  | 875,718                               |  |                            |  | 197,385                      
|             |  |                 |  |                                       |  |                            |  |                              

As of September 27, 2007 we have approximately 2.4 million shares available for stock
option grants.



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THE PANTRY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



NOTE 16EARNINGS PER SHARE

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

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



|                                                                  |  |      |        |      |   |        |  |   |       
|----------------------------------------------------------------- |  | ---- | ------ | ---- | - | ------ |  | - | ------
|                                                                  |  | 2007 |        | 2006 |   | 2005  
|Net income                                                        |  | $    | 26,732 |      | $ | 89,198 |  | $ | 57,810
|                                                                  |  |      |        |      |   |        |  |   |       
|Earnings per sharebasic:                                         |  |      |        |      |   |        |  |   |       
|Weighted-average shares outstanding                               |  |      | 22,776 |      |   | 22,559 |  |   | 21,100
|                                                                  |  |      |        |      |   |        |  |   |       
|Earnings per sharebasic                                          |  | $    | 1.17   |      | $ | 3.95   |  | $ | 2.74  
|                                                                  |  |      |        |      |   |        |  |   |       
|Earnings per sharediluted:                                       |  |      |        |      |   |        |  |   |       
|Weighted-average shares outstanding                               |  |      | 22,776 |      |   | 22,559 |  |   | 21,100
|Dilutive impact of options and convertible notes outstanding      |  |      | 135    |      |   | 428    |  |   | 830   
|                                                                  |  |      |        |      |   |        |  |   |       
|Weighted-average shares and potential dilutive shares outstanding |  |      | 22,911 |      |   | 22,987 |  |   | 21,930
|                                                                  |  |      |        |      |   |        |  |   |       
|Earnings per sharediluted                                        |  | $    | 1.17   |      | $ | 3.88   |  | $ | 2.64  
|                                                                  |  |      |        |      |   |        |  |   |       

Options 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 418 thousand for fiscal 2007 and 95 thousand for fiscal 2006. There were no options to purchase shares of common stock that were not included in the computation
of diluted earnings per share for fiscal 2005.



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

None.

Item 9A.    Controls and Procedures

DISCLOSURE CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)) under the Exchange Act that are designed to provide
reasonable assurance that the information that we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms,
and such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. It should be noted that, because of
inherent limitations, our disclosure controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the disclosure controls and procedures are met.

As required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and our Chief Financial Officer have
evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive
Officer and our Chief Financial Officer have concluded, as of the end of the period covered by this report, that our disclosure controls and procedures were effective to ensure that the information that we are required to disclose in the reports we
file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and such information is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

MANAGEMENTS REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting
as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process that is designed under the supervision of our Chief Executive Officer and Chief Financial Officer, and effected by our
Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally
accepted in the United States of America. Our internal control over financial reporting includes those policies and procedures that:



|i. | Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------



|ii. | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in
the United States of America, and that receipts and expenditures recorded by us are being made only in accordance with authorizations of our management and Board of Directors; and
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|iii. | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our
financial statements.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that



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controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Management has conducted its evaluation of the effectiveness of internal control over financial reporting as of September 27, 2007
based on the framework inInternal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Managements assessment included an evaluation of the design of our internal control
over financial reporting and testing the operational effectiveness of our internal control over financial reporting. Management reviewed the results of the assessment with the Audit Committee of the Board of Directors. Based on its assessment,
management determined that, at September 27, 2007, we maintained effective internal control over financial reporting.

Our independent
registered public accounting firm, Deloitte & Touche LLP, has audited our managements assessment of the effectiveness of our internal control over financial reporting as of September 27, 2007, as stated in their report, which is
included herein.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There have been no changes in our internal control over financial reporting during the fourth quarter of fiscal 2007 that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.

From time to time, we make changes to our internal control over financial reporting that are intended to enhance
its effectiveness and which do not have a material effect on our overall internal control over financial reporting. We will continue to evaluate the effectiveness of our disclosure controls and procedures and internal control over financial
reporting on an ongoing basis and will take action as appropriate.



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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 managements assessment, included in the accompanying Managements Report on Internal Control Over Financial Reporting, that The Pantry, Inc. and subsidiaries (the Company) maintained effective internal
control over financial reporting as of September 27, 2007, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Companys
management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on managements
assessment and an opinion on the effectiveness of the Companys internal control over financial reporting based on our audit.

We conducted our audit
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 effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating managements assessment, testing and evaluating the design and operating effectiveness of
internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A companys internal control over financial reporting is a process designed by, or under the supervision of, the companys principal executive and principal financial officers, or persons performing similar
functions, and effected by the companys Board of Directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and Directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, managements assessment that the Company maintained
effective internal control over financial reporting as of September 27, 2007, is fairly stated, in all material respects, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 27, 2007, based on the criteria established in
Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in
accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the fiscal year ended September 27, 2007 of the Company and our
report dated November 26, 2007 expressed an unqualified opinion on those consolidated financial statements and financial statement schedule.

/s/    Deloitte & Touche LLP

Charlotte, North Carolina

November 26, 2007



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Item 9B.    Other Information.

On November 20, 2007, we entered into amended
and restated employment agreements with each of (i) Melissa H. Anderson, our Senior Vice President, Human Resources, (ii) Keith S. Bell, our Senior Vice President, Fuels, (iii) Steven J. Ferreira, our Senior Vice President,
Administration, (iv) Frank G. Paci, our Sr. Vice President, Finance, and Chief Financial Officer and (v) David M. Zaborski, our Senior Vice President, Operations.

The amendments to the agreements include (i) technical changes to the definition of Good Reason and changes to the manner and timing of
the severance arrangements with our executive officers, in order to ensure that the payments under the agreements are either exempt from, or constitute permissible payments under, newly enacted regulations under Section 409A of the Internal
Revenue Code of 1986, as amended; (ii) changes to the stated annual salary of each executive officer to reflect his or her current salary (except for Mr. Paci, whose salary has not changed since he entered into his original employment
agreement on June 12, 2007); (iii) a requirement that we provide continuing health coverage for 12 months to any executive officer who is terminated without Cause prior to a Change in Control (both as defined in the relevant agreement);
(iv) a revision to the definition of Change in Control such that a Change in Control will be deemed to occur if during any period of 24 consecutive months a majority of the board of directors is replaced by directors who
are not elected or recommended for election by our board of directors; and (v) a requirement that we pay any executive officer his or her target annual bonus if he or she is terminated in certain circumstances following a Change in Control.

The foregoing description of the revisions contained in the amended and restated agreements does not purport to be complete and is
qualified in its entirety by reference to the amended and restated agreements, copies of which are filed hereto as Exhibits 10.40 (Ms. Anderson), 10.42 (Mr. Bell), 10.44 (Mr. Ferreira), 10.46 (Mr. Paci), 10.48 (Mr. Zaborski), respectively, and are
incorporated into this Item 9B by reference.



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PART III

Item 10.    Directors, Executive Officers and Corporate Governance

Information
concerning our executive officers is included in the section entitled Executive Officers of the Registrant on page 10 of this report. Information concerning our directors and the filing of certain reports of beneficial ownership is
incorporated by reference from the sections entitled Proposal 1: Election of Directors and Section 16(a) Beneficial Ownership Reporting Compliance in our definitive proxy statement to be filed with respect to the Annual
Meeting of Stockholders to be held March 27, 2008. Information about our code of ethics is incorporated by reference from the section entitled Information About Our Board of DirectorsCode of Ethics in our definitive proxy
statement to be filed with respect to the Annual Meeting of Stockholders to be held March 27, 2008. Information concerning the audit committee of our board of directors is incorporated by reference from the section entitled Information
About Our Board of DirectorsBoard CommitteesAudit Committee in our definitive proxy statement to be filed with respect to the Annual Meeting of Stockholders to be held March 27, 2008. There have been no material changes to the
procedures by which security holders may recommend nominees to our board of directors since the date of our proxy statement for the Annual Meeting of Stockholders held March 29, 2007.

Item 11.    Executive Compensation.

This information is incorporated by reference
from the sections entitled Compensation, CompensationCompensation Committee Interlocks and Insider Participation and CompensationCompensation Committee Report in our definitive proxy statement to be
filed with respect to the Annual Meeting of Stockholders to be held March 27, 2008.

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

This information is incorporated by reference from the sections entitled Principal Stockholders and CompensationEquity Compensation Plan Information in our definitive proxy statement to
be filed with respect to the Annual Meeting of Stockholders to be held March 27, 2008.

Item 13.    Certain Relationships and Related Transactions, and Director Independence.

This information is incorporated by reference from the sections entitled Principal Stockholders and Transactions with Affiliates in our definitive proxy statement to be filed with respect to the Annual Meeting of
Stockholders to be held March 27, 2008.

Item 14.    Principal Accounting Fees and Services.

This information is incorporated
by reference from the section entitled Proposal 2: Ratification of Appointment of Independent Public AccountantsPrincipal Accountant Fees and Services in our definitive proxy statement to be filed with respect to the Annual Meeting
of Stockholders to be held March 27, 2008.



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PART IV

Item 15.    Exhibits and Financial Statement Schedule.



|(a) | Financial Statements, Financial Statement Schedule and ExhibitsThe following documents are filed as part of this Annual Report on Form 10-K for the year ended
September 27, 2007:
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (i) | Consolidated Financial StatementsSee index on page 55 of this Annual Report on Form 10-K for the year ended September 27, 2007.
| | --- | --------------------------------------------------------------------------------------------------------------------------------



| | (ii) | Financial Statement ScheduleSee index on page 55 of this Annual Report on Form 10-K for the year ended September 27, 2007.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------



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



|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|2.1         |  | Asset Purchase Agreement dated January 5, 2007 between The Pantry, Inc. (The Pantry) and Petro Express, Inc. (incorporated by reference to Exhibit 2.1 to The Pantrys
Quarterly Report on Form 10-Q for the quarterly period ended March 29, 2007)*                                                                                                                                                                                                                                                                                                                                                                                            
|3.1         |  | Amended and Restated Certificate of Incorporation of The Pantry (incorporated by reference to Exhibit 3.3 to The Pantrys Registration Statement on Form S-1, as amended (Registration No.
333-74221))                                                                                                                                                                                                                                                                                                                                                                                                                                            
|3.2         |  | Amended and Restated Bylaws of The Pantry (incorporated by reference to Exhibit 3.4 to The Pantrys Registration Statement on Form S-1, as amended (Registration No.
333-74221))                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|4.1         |  | Indenture dated November 22, 2005 by and among The Pantry, Kangaroo, Inc. and R. & H. Maxxon, Inc., subsidiaries of The Pantry, as guarantors, and Wachovia Bank, National
Association (Wachovia), as Trustee, with respect to the 3% Senior Subordinated Convertible Notes Due 2012 (incorporated by reference to Exhibit 10.8 to The Pantrys Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 22, 2005)                                                                                                                                                                                              
|4.2         |  | Form of 3% Senior Subordinated Convertible Notes Due 2012 (included in Exhibit 4.1) (incorporated by reference to Exhibit 10.8 to The Pantrys Current Report on Form 8-K filed with the
Securities and Exchange Commission on November 22, 2005)                                                                                                                                                                                                                                                                                                                                                                                                 
|4.3         |  | Indenture dated February 19, 2004 among The Pantry, R&H Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, as Guarantors, and Wachovia, as Trustee, with respect to the 7.75% Senior
Subordinated Notes due 2014 (incorporated by reference to Exhibit 4.5 to The Pantrys Registration Statement on Form S-4, as amended (Registration No. 333-115060))                                                                                                                                                                                                                                                                                
|4.4         |  | Form of 7.75% Senior Subordinated Note due 2014 (included in Exhibit 4.3) (incorporated by reference to Exhibit 4.5 to The Pantrys Registration Statement on Form S-4, as amended
(Registration No. 333-115060))                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.1        |  | Second Amended and Restated Credit Agreement dated December 29, 2005 among The Pantry, as borrower, R. & H. Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, as guarantors,
Wachovia, as administrative agent and lender, Regions Bank and Wells Fargo Bank, National Association, as co-syndication agents and lenders, Harris N.A. and Rabobank International as co-documentation agents and lenders, and the other financial
institutions signatory thereto, as lenders (incorporated by reference to Exhibit 10.1 to The Pantrys Current Report on Form 8-K filed with the Securities and Exchange Commission on January 3, 2006)
|10.2        |  | Second Amended and Restated Pledge Agreement dated December 29, 2005 between The Pantry and R. & H. Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, all as pledgors, and
Wachovia, as administrative agent (incorporated by reference to Exhibit 10.2 to The Pantrys Current Report on Form 8-K filed with the Securities and Exchange Commission on January 3, 2006)                                                                                                                                                                                                                                                               



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|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.3        |  | Second Amended and Restated Security Agreement dated December 29, 2005 between The Pantry and R. & H. Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, all as obligors, and
Wachovia, as administrative agent (incorporated by reference to Exhibit 10.3 to The Pantrys Current Report on Form 8-K filed with the Securities and Exchange Commission on January 3, 2006)                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.4        |  | First Amendment to Second Amended and Restated Credit Agreement dated April 4, 2007 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, JPMorgan Chase Bank, National Association, as syndication agent and lender, and Harris N.A., as documentation agent and lender (incorporated by reference to Exhibit 10.1 to The
Pantrys Current Report on Form 8-K filed with the Securities and Exchange Commission on April 5, 2007)                                                                                                                                                                                                                                                                          
|10.5        |  | Third Amended and Restated Credit Agreement dated as of May 15, 2007 among The Pantry, certain domestic subsidiaries of The Pantry party thereto, Wachovia, as administrative agent and lender,
J.P. Morgan Securities Inc. and Wachovia Capital Markets, LLC, as joint lead arrangers and joint bookrunners, JPMorgan Chase Bank, N.A., as co-syndication agent and lender, BMO Capital Markets, as co-syndication agent, Cooperative Centrale
Raiffeisen-Boerenleenbank B.A. Rabobank Nederland, New York Branch and Wells Fargo Bank, National Association, as co-documentation agents, and the several other banks and financial institutions signatory thereto (incorporated by
reference to Exhibit 10.1 to The Pantrys Current Report on Form 8-K filed with the Securities and Exchange Commission on May 17, 2007)
|10.6        |  | Third Amended and Restated Pledge Agreement dated as of May 15, 2007 by and among The Pantry and certain domestic subsidiaries of The Pantry party thereto, all as pledgors, and Wachovia, as
administrative agent (incorporated by reference to Exhibit 10.2 to The Pantrys Current Report on Form 8-K filed with the Securities and Exchange Commission on May 17, 2007)                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.7        |  | Third Amended and Restated Security Agreement dated as of May 15, 2007 among The Pantry and certain domestic subsidiaries of The Pantry parties thereto, all as obligors, and Wachovia, as
administrative agent (incorporated by reference to Exhibit 10.3 to The Pantrys Current Report on Form 8-K filed with the Securities and Exchange Commission on May 17, 2007)                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.8        |  | Purchase Agreement dated November 16, 2005 by and among The Pantry, Kangaroo, Inc. and R. & H. Maxxon, Inc., subsidiaries of The Pantry, as guarantors, and Merrill Lynch, Pierce, Fenner
& Smith Incorporated, relating to the 3% Senior Subordinated Convertible Notes due 2012 (incorporated by reference to Exhibit 10.1 to The Pantrys Current Report on Form 8-K filed with the Securities and Exchange Commission on November 22,
2005)                                                                                                                                                                                                                                                                                                                                                                               
|10.9        |  | Registration Rights Agreement dated November 22, 2005 by and among The Pantry, Kangaroo, Inc. and R.&H. Maxxon, Inc., subsidiaries of The Pantry, as Guarantors, and Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Wachovia Capital Markets, LLC as the initial purchasers, relating to the 3% Senior Subordinated Convertible Notes due 2012 (incorporated by reference to Exhibit 10.2 to The Pantrys Current Report on Form 8-K
filed with the Securities and Exchange Commission on November 22, 2005)                                                                                                                                                                                                                                                                                                          
|10.10       |  | Confirmation of OTC Warrant Transaction dated November 16, 2005 between The Pantry and Merrill Lynch International (incorporated by reference to Exhibit 10.5 to The Pantrys Current Report
on Form 8-K filed with the Securities and Exchange Commission on November 22, 2005)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.11       |  | Confirmation of OTC Convertible Note Hedge dated November 16, 2005 between The Pantry and Merrill Lynch International (incorporated by reference to Exhibit 10.3 to The Pantrys Current
Report on Form 8-K filed with the Securities and Exchange Commission on November 22, 2005)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.12       |  | Confirmation of OTC Warrant Transaction dated November 21, 2005 between The Pantry and Merrill Lynch International (incorporated by reference to Exhibit 10.6 to The Pantrys Current
Report on Form 8-K filed with the Securities and Exchange Commission on November 22, 2005)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              



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|            |  |                                                                                                                                                                                                                                                                                                                                                                                         
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                 
|10.13       |  | Confirmation of OTC Convertible Note Hedge dated November 21, 2005 between The Pantry and Merrill Lynch International (incorporated by reference to Exhibit 10.4 to The Pantrys Current
Report on Form 8-K filed with the Securities and Exchange Commission on November 22, 2005)                                                                                                     
|10.14       |  | Registration Rights Agreement dated February 13, 2004 by and among The Pantry, Credit Suisse First Boston LLC and Wachovia Capital Markets, LLC, as the Initial Purchasers (incorporated by
reference to Exhibit 4.8 to The Pantrys Registration Statement on Form S-4, as amended (Registration No. 333-115060))                                                                      
|10.15       |  | Form of Amended and Restated Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing (North Carolina) dated October 23, 1997 by and from The Pantry to David R.
Cannon, as Trustee, and First Union, as Agent (incorporated by reference to Exhibit 10.18 to The Pantrys Registration Statement on Form S-4, as amended (Registration No. 333-42811))     
|10.16       |  | Form of Amended and Restated Mortgage, Security Agreement, Assignment of Rents and Leases And Fixture Filing (South Carolina) dated October 23, 1997 by and from The Pantry to First Union, as
Agent (incorporated by reference to Exhibit 10.19 to The Pantrys Registration Statement on Form S-4, as amended (Registration No. 333-42811))                                           
|10.17       |  | Form of Amended and Restated Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Tennessee) dated October 23, 1997 by and from The Pantry to David R. Cannon, as
Trustee, and First Union, as Agent (incorporated by reference to Exhibit 10.20 to The Pantrys Registration Statement on Form S-4, as amended (Registration No. 333-42811))          
|10.18       |  | Form of Amended and Restated Mortgage, Security Agreement, Assignment of Rents and Leases (Kentucky) dated October 23, 1997 by and from The Pantry to First Union, as Agent (incorporated by
reference to Exhibit 10.21 to The Pantrys Registration Statement on Form S-4, as amended (Registration No. 333-42811))                                                                    
|10.19       |  | Form of Amended and Restated Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Indiana) dated October 23, 1997 by and from The Pantry to First Union, as Agent
(incorporated by reference to Exhibit 10.22 to The Pantrys Registration Statement on Form S-4, as amended (Registration No. 333-42811))                                                  
|10.20       |  | Form of Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Florida) dated October 23, 1997 by and from Lil Champ Food Stores, Inc. (Lil
Champ) to First Union, as Agent (incorporated by reference to Exhibit 10.23 to The Pantrys Registration Statement on Form S-4, as amended (Registration No. 333-42811))                                      
|10.21       |  | Form of Deed to Secure Debt, Security Agreement, and Assignment of Rents (Georgia) dated October 23, 1997 by and from Lil Champ to First Union, as Agent (incorporated by reference to
Exhibit 10.24 to The Pantrys Registration Statement on Form S-4, as amended (Registration No. 333-42811))                                                                                      
|10.22       |  | Form of Lease Agreement between The Pantry and certain parties to the 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 (incorporated by reference to Exhibit 2.5 to The Pantrys Current Report on Form 8-K, as amended, filed with the Securities and Exchange Commission on October 31, 2003))
|10.23       |  | Form of Lease Agreement between The Pantry and National Retail Properties, LP (incorporated by reference to Exhibit 10.2 to The Pantrys Current Report on Form 8-K filed with the Securities
and Exchange Commission on April 5, 2007)                                                                                                                                                 
|10.24       |  | Independent Director Compensation Program, Second Amendment February 2006 (incorporated by reference to Exhibit 10.1 to The Pantrys Current Report on Form 8-K filed with the Securities and
Exchange Commission on February 21, 2006)**                                                                                                                                               
|10.25       |  | The Pantry, Inc. Incentive Compensation Plan (incorporated by reference to Exhibit 10.2 to The Pantrys Quarterly Report on Form 10-Q for the quarterly period ended March 29,
2007)**                                                                                                                                                                                                  



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|            |  |                                                                                                                                                                                                                                                                         
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                 
|10.26       |  | The Pantry, Inc. 1999 Stock Option Plan, as amended and restated as of August 2, 2006 (incorporated by reference to Exhibit 10.1 to The Pantrys Current Report on Form 8-K filed with the
Securities and Exchange Commission on August 7, 2006)**                      
|10.27       |  | The Pantry, Inc. 1999 Stock Option Plan, as amended and restated as of October 17, 2007**                                                                                                                                                                               
|10.28       |  | Form of Incentive Stock Option Agreement to The Pantry, Inc. 1999 Stock Option Plan (incorporated by reference to Exhibit 10.2 to The Pantrys Current Report on Form 8-K filed with the
Securities and Exchange Commission on September 28, 2004)**                    
|10.29       |  | The Pantry, Inc. 2007 Omnibus Plan (incorporated by reference to Exhibit 10.1 to The Pantrys Current Report on Form 8-K filed with the Securities and Exchange Commission on April 3,
2007)**                                                                          
|10.30       |  | Form of Award Agreement (Awarding Incentive Stock Option to Employee) for The Pantry, Inc. 2007 Omnibus Plan (incorporated by reference to Exhibit 10.1 to The Pantrys Current Report on
Form 8-K filed with the Securities and Exchange Commission on June 22, 2007)**
|10.31       |  | Form of Award Agreement (Awarding Nonqualified Stock Option to Non-Employee Director) for The Pantry, Inc. 2007 Omnibus Plan (incorporated by reference to Exhibit 10.4 to The Pantrys
Quarterly Report on Form 10-Q for the quarterly period ended March 29, 2007)**  
|10.32       |  | Form of Indemnification Agreement (incorporated by reference to Exhibit 10.29 to The Pantrys Registration Statement on Form S-1, as amended (Registration No. 333-74221))
**                                                                                           
|10.33       |  | Employment Agreement dated October 1, 1997 between Peter J. Sodini and The Pantry (incorporated by reference to Exhibit 10.11 to The Pantrys Registration Statement on Form S-4, as amended
(Registration No. 333-42811))**                                            
|10.34       |  | Amendment No. 1 to Employment Agreement by and between The Pantry and Peter J. Sodini (incorporated by reference to Exhibit 10.34 to The Pantrys Quarterly Report on Form 10-Q, as amended,
for the quarterly period ended June 24, 1999)**                            
|10.35       |  | Amendment No. 2 to Employment Agreement by and between The Pantry and Peter J. Sodini (incorporated by reference to Exhibit 10.19 to The Pantrys Annual Report on Form 10-K, as amended, for
the year ended September 27, 2001)**                                      
|10.36       |  | Amendment No. 3 to Employment Agreement by and between The Pantry and Peter J. Sodini (incorporated by reference to Exhibit 10.1 to The Pantrys Quarterly Report on Form 10-Q for the
quarterly period ended December 26, 2002)**                                      
|10.37       |  | Amendment No. 4 to Employment Agreement by and between The Pantry and Peter J. Sodini (incorporated by reference to Exhibit 10.45 to The Pantrys Annual Report on Form 10-K, as amended, for
the year ended September 25, 2003)**                                      
|10.38       |  | Amendment No. 5 to Employment Agreement by and between The Pantry and Peter J. Sodini (incorporated by reference to Exhibit 10.7 to The Pantrys Current Report on Form 8-K filed with the
Securities and Exchange Commission on November 22, 2005)**                   
|10.39       |  | Employment Agreement dated October 11, 2006 by and between Melissa H. Anderson and The Pantry (incorporated by reference to Exhibit 10.48 to The Pantrys Annual Report on Form 10-K for the
year ended September 28, 2006)**                                           
|10.40       |  | Amended and Restated Employment Agreement dated November 20, 2007 by and between Melissa H. Anderson and The Pantry**                                                                                                                                                   
|10.41       |  | Employment Agreement dated July 21, 2006 by and between Keith S. Bell and The Pantry (incorporated by reference to Exhibit 10.47 to The Pantrys Annual Report on Form 10-K for the year
ended September 28, 2006)**                                                    
|10.42       |  | Amended and Restated Employment Agreement dated November 20, 2007 by and between Keith S. Bell and The Pantry**                                                                                                                                                         
|10.43       |  | Employment Agreement dated May 1, 2003 by and between Steven J. Ferreira and The Pantry (incorporated by reference to Exhibit 10.2 to The Pantrys Quarterly Report on Form 10-Q for the
quarterly period ended June 26, 2003)**                                        
|10.44       |  | Amended and Restated Employment Agreement dated November 20, 2007 by and between Steven J. Ferreira and The Pantry**                                                                                                                                                    



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|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.45       |  | Employment Agreement dated June 12, 2007 by and between Frank G. Paci and The Pantry (incorporated by reference to Exhibit 10.1 to The Pantrys Current Report on Form 8-K filed with the
Securities and Exchange Commission on June 15, 2007)**                                                                                                                                                                                                                                                                                                                                                                               
|10.46       |  | Amended and Restated Employment Agreement dated November 20, 2007 by and between Frank G. Paci and The Pantry**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.47       |  | Employment Agreement dated May 6, 2003 by and between David M. Zaborski and The Pantry (incorporated by reference to Exhibit 10.4 to The Pantrys Quarterly Report on Form 10-Q for the
quarterly period ended June 26, 2003)**                                                                                                                                                                                                                                                                                                                                                                                                
|10.48       |  | Amended and Restated Employment Agreement dated November 20, 2007 by and between David M. Zaborski and The Pantry**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.49       |  | Employment Agreement dated May 2, 2003 by and between Daniel J. Kelly and The Pantry (incorporated by reference to Exhibit 10.1 to The Pantrys Quarterly Report on Form 10-Q for the
quarterly period ended June 26, 2003)**                                                                                                                                                                                                                                                                                                                                                                                                  
|10.50       |  | Amended and Restated Employment Agreement dated April 13, 2007 by and between Daniel J. Kelly and The Pantry (incorporated by reference to Exhibit 10.1 to The Pantrys Current Report on
Form 8-K filed with the Securities and Exchange Commission on April 13, 2007)**                                                                                                                                                                                                                                                                                                                                                      
|10.51       |  | Amendment to Amended and Restated Employment Agreement dated October 8, 2007 by and between Daniel J. Kelly and The Pantry (incorporated by reference to Exhibit 10.1 to The Pantrys Current
Report on Form 8-K filed with the Securities and Exchange Commission on October 12, 2007)**                                                                                                                                                                                                                                                                                                                                      
|10.52       |  | Distribution Service Agreement dated October 10, 1999 by and between The Pantry, Lil Champ and McLane Company, Inc. (McLane), as amended by the First Amendment to Distribution
Service Agreement dated June 28, 2001 and the Second Amendment to Distribution Service Agreement dated September 8, 2001 (asterisks located within the exhibit denote information which has been deleted pursuant to a confidential treatment filing with
the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.39 to The Pantrys Annual Report on Form 10-K, as amended, for the year ended September 27, 2001)
|10.53       |  | Third Amendment to Distribution Service Agreement by and between The Pantry, Lil Champ and McLane dated October 5, 2002 (asterisks located within the exhibit denote information which has
been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.39 to The Pantrys Annual Report on Form 10-K for the year ended September 26, 2002)                                                                                                                                                                                                
|10.54       |  | Fourth Amendment to Distribution Service Agreement dated October 16, 2003 by and between The Pantry and McLane (asterisks located within the exhibit denote information which has been deleted
pursuant to a confidential treatment filing with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.35 to The Pantrys Annual Report on Form 10-K, as amended, for the year ended September 25, 2003)                                                                                                                                                                                             
|10.55       |  | Fifth Amendment to Distribution Service Agreement dated April 1, 2004 by and between The Pantry and McLane (asterisks located within the exhibit denote information which has been deleted
pursuant to a confidential treatment filing with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.1 to The Pantrys Quarterly Report on Form 10-Q, as amended, for the quarterly period ended March 31,
2005)                                                                                                                                                                                       
|10.56       |  | Sixth Amendment to Distribution Service Agreement dated April 21, 2005 by and between The Pantry and McLane (asterisks located within the exhibit denote information which has been deleted
pursuant to a confidential treatment filing with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.1 to The Pantrys Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2005)                                                                                                                                                                                                    
|10.57       |  | Seventh Amendment to Distribution Service Agreement dated May 11, 2006 between The Pantry and McLane (asterisks located within the exhibit denote information which has been deleted pursuant
to a confidential treatment filing with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.1 to The Pantrys Quarterly Report on Form 10-Q for the quarterly period ended June 29, 2006)                                                                                                                                                                                                           



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|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.58       |  | Eighth Amendment to Distribution Service Agreement dated March 17, 2007 between The Pantry and McLane (asterisks located within the exhibit denote information which has been deleted
pursuant to a confidential treatment filing with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.1 to The Pantrys Quarterly Report on Form 10-Q for the quarterly period ended March 29, 2007)                                                                                          
|10.59       |  | Distributor Franchise Agreement between The Pantry and CITGO Petroleum Corporation dated August 2000, including Amended and Restated Addendum dated February 11, 2003 (asterisks located within
the exhibit denote information which has been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.2 to The Pantrys Quarterly Report on Form 10-Q for the
quarterly period ended March 27, 2003)                          
|10.60       |  | Letter Amendment to the Amended and Restated Addendum dated July 7, 2004 to the Distributor Franchise Agreement between The Pantry and CITGO Petroleum Corporation, dated August 2000, as amended
by Amended and Restated Addendum to Distributor Franchise Agreement dated February 11, 2003 (incorporated by reference to Exhibit 10.2 to The Pantrys Quarterly Report on Form 10-Q, as amended, for the quarterly period ended June 24,
2004)                                                               
|10.61       |  | First Amendment to Amended and Restated Addendum to Distributor Franchise Agreement by and between CITGO Petroleum Corporation and The Pantry dated March 31, 2005 (asterisks located within
the exhibit denote information which has been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.3 to The Pantrys Quarterly Report on Form 10-Q, as amended,
for the quarterly period ended March 31, 2005)                
|10.62       |  | Second Amendment to Amended and Restated Addendum to Distributor Franchise Agreement dated October 17, 2005 between CITGO Petroleum Corporation and The Pantry (asterisks located within the
exhibit denote information which has been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.1 to The Pantrys Quarterly Report on Form 10-Q for the
quarterly period ended December 29, 2005)                              
|10.63       |  | Third Amendment to Amended and Restated Addendum to Distributor Franchise Agreement dated March 18, 2006 between CITGO Petroleum Corporation and The Pantry (incorporated by reference to Exhibit
10.7 to The Pantrys Quarterly Report on Form 10-Q, as amended, for the quarterly period ended March 30, 2006)                                                                                                                                                                                                
|10.64       |  | Fourth Amendment to Amended and Restated Addendum to Distributor Franchise Agreement dated December 18, 2006 between CITGO Petroleum Corporation and The Pantry (asterisks located within the
exhibit denote information which has been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.2 to The Pantrys Quarterly Report on Form 10-Q for the
quarterly period ended December 28, 2006)                             
|10.65       |  | Branded Jobber Contract by and between The Pantry and BP Products North America Inc. dated February 1, 2003, as amended by the Amendment to the Branded Jobber Contract dated February 14,
2003 (asterisks located within the exhibit denote information which has been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.1 to The Pantrys Quarterly
Report on Form 10-Q for the quarterly period ended March 27, 2003)
|10.66       |  | Second Amendment to the Branded Jobber Contract between The Pantry and BP Products North America Inc. dated June 11, 2004 (asterisks located within the exhibit denote information which has been
deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.1 to The Pantrys Current Report on Form 8-K filed with the Securities and Exchange Commission on June 29,
2004)                                                    



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|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.67       |  | Third Amendment to the Branded Jobber Contract by and between The Pantry and BP Products North America Inc. dated July 18, 2006 (asterisks located within the exhibit denote information
which has been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.64 to The Pantrys Annual Report on Form 10-K for the year ended September 28,
2006)                                                                                               
|10.68       |  | Fourth Amendment to the Branded Jobber Contract by and between The Pantry and BP Products North America Inc. dated July 30, 2007                                                                                                                                                                                                                                                                                                                                                                                                     
|12.1        |  | Statement regarding Computation of Earnings to Fixed Charges Ratio                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|21.1        |  | Subsidiaries of The Pantry                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|23.1        |  | Consent of Deloitte & Touche LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|31.1        |  | Certification by Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002                                                                                                                                                                                                                                                                                                                                
|31.2        |  | Certification by Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002                                                                                                                                                                                                                                                                                                                                
|32.1        |  | Certification by Chief Executive Officer 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 by Chief Financial Officer 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.]



|* | Pursuant to Regulation S-K, Item 601(b)(2), the Exhibits and Schedules have not been filed. The Pantry agrees to furnish supplementally a copy of any omitted Exhibit or
Schedule to the Securities and Exchange Commission upon request; provided, however, that The Pantry may request confidential treatment of omitted items.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|** | Represents a management contract or compensatory plan or arrangement
|-- | --------------------------------------------------------------------



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



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



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SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this 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. SodiniPresident and Chief Executive OfficerDate: November 26, 2007


Pursuant to the requirements of the Securities Exchange Act of 1934, this 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.
SODINI Peter J. Sodini                   |  | President, Chief Executive Officer and Director (Principal Executive Officer)                    |  | November 26, 2007
|                                                         |  |                                                                                                 
|/s/    FRANK G.
PACI Frank G. Paci                       |  | Sr. Vice President, Finance, Chief Financial Officer and Secretary (Principal Financial Officer) |  | November 26, 2007
|                                                         |  |                                                                                                 
|/s/    BERRY L.
EPLEY Berry L. Epley                     |  | Corporate Controller, Assistant Secretary (Principal Accounting Officer)                         |  | November 26, 2007
|                                                         |  |                                                                                                 
|/s/    ROBERT F.
BERNSTOCK Robert F. Bernstock           |  | Director                                                                                         |  | November 26, 2007
|                                                         |  |                                                                                                 
|/s/    PAUL L.
BRUNSWICK Paul L. Brunswick               |  | Director                                                                                         |  | November 26, 2007
|                                                         |  |                                                                                                 
|/s/    WILFRED A.
FINNEGAN Wilfred A. Finnegan           |  | Director                                                                                         |  | November 26, 2007
|                                                         |  |                                                                                                 
|/s/    EDWIN J.
HOLMAN Edwin J. Holman                   |  | Director                                                                                         |  | November 26, 2007
|                                                         |  |                                                                                                 
|/s/    TERRY L.
MCELROY Terry L. McElroy                 |  | Director                                                                                         |  | November 26, 2007
|                                                         |  |                                                                                                 
|/s/    MARK D.
MILES Mark D. Miles                       |  | Director                                                                                         |  | November 26, 2007
|                                                         |  |                                                                                                 
|/s/    BRYAN E.
MONKHOUSE Bryan E. Monkhouse             |  | Director                                                                                         |  | November 26, 2007
|                                                         |  |                                                                                                 
|/s/    THOMAS M.
MURNANE Thomas M. Murnane               |  | Director                                                                                         |  | November 26, 2007
|                                                         |  |                                                                                                 
|/s/    MARIA DEL CARMEN
RICHTER Maria Del Carmen Richter |  | Director                                                                                         |  | November 26, 2007



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SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS AND RESERVES

(Dollars in thousands)



|                                 |  |                              |        |                                      |   |                                    |  |   |                        |   |  |   |       
|-------------------------------- |  | ---------------------------- | ------ | ------------------------------------ | - | ---------------------------------- |  | - | ---------------------- | - |  | - | ------
|                                 |  | Balance atbeginningof period |        | Additionscharged tocosts andexpenses |   | Deductionsforpayments orwrite-offs |  |   | Balanceat end ofperiod
|Year ended September 27, 2007    |  |                              |        |                                      |   |                                    |  |   |                        |   |  |   |       
|Allowance for doubtful accounts  |  | $                            | 262    |                                      | $ |                                   |  | $ | (152                   | ) |  | $ | 110   
|Reserve for environmental issues |  |                              | 18,358 |                                      |   | 4,158                              |  |   | (1,232                 | ) |  |   | 21,284
|Reserve for closed stores        |  |                              | 7,089  |                                      |   | 1,035                              |  |   | (1,919                 | ) |  |   | 6,205 
|                                 |  |                              |        |                                      |   |                                    |  |   |                        |   |  |   |       
|                                 |  | $                            | 25,709 |                                      | $ | 5,193                              |  | $ | (3,303                 | ) |  | $ | 27,599
|                                 |  |                              |        |                                      |   |                                    |  |   |                        |   |  |   |       
|Year ended September 28, 2006    |  |                              |        |                                      |   |                                    |  |   |                        |   |  |   |       
|Allowance for doubtful accounts  |  | $                            | 546    |                                      | $ |                                   |  | $ | (284                   | ) |  | $ | 262   
|Reserve for environmental issues |  |                              | 16,320 |                                      |   | 3,097                              |  |   | (1,059                 | ) |  |   | 18,358
|Reserve for closed stores        |  |                              | 7,946  |                                      |   | 498                                |  |   | (1,355                 | ) |  |   | 7,089 
|                                 |  |                              |        |                                      |   |                                    |  |   |                        |   |  |   |       
|                                 |  | $                            | 24,812 |                                      | $ | 3,595                              |  | $ | (2,698                 | ) |  | $ | 25,709
|                                 |  |                              |        |                                      |   |                                    |  |   |                        |   |  |   |       
|Year ended September 29, 2005    |  |                              |        |                                      |   |                                    |  |   |                        |   |  |   |       
|Allowance for doubtful accounts  |  | $                            | 417    |                                      | $ | 219                                |  | $ | (90                    | ) |  | $ | 546   
|Reserve for environmental issues |  |                              | 14,051 |                                      |   | 3,259                              |  |   | (990                   | ) |  |   | 16,320
|Reserve for closed stores        |  |                              | 3,029  |                                      |   | 5,558                              |  |   | (641                   | ) |  |   | 7,946 
|                                 |  |                              |        |                                      |   |                                    |  |   |                        |   |  |   |       
|                                 |  | $                            | 17,497 |                                      | $ | 9,036                              |  | $ | (1,721                 | ) |  | $ | 24,812
|                                 |  |                              |        |                                      |   |                                    |  |   |                        |   |  |   |       



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Exhibit Index



|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|2.1         |  | Asset Purchase Agreement dated January 5, 2007 between The Pantry, Inc. (The Pantry) and Petro Express, Inc. (incorporated by reference to Exhibit 2.1 to The Pantrys
Quarterly Report on Form 10-Q for the quarterly period ended March 29, 2007)*                                                                                                                                                                                                                                                                                                                                                                                            
|3.1         |  | Amended and Restated Certificate of Incorporation of The Pantry (incorporated by reference to Exhibit 3.3 to The Pantrys Registration Statement on Form S-1, as amended (Registration No.
333-74221))                                                                                                                                                                                                                                                                                                                                                                                                                                            
|3.2         |  | Amended and Restated Bylaws of The Pantry (incorporated by reference to Exhibit 3.4 to The Pantrys Registration Statement on Form S-1, as amended (Registration No.
333-74221))                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|4.1         |  | Indenture dated November 22, 2005 by and among The Pantry, Kangaroo, Inc. and R. & H. Maxxon, Inc., subsidiaries of The Pantry, as guarantors, and Wachovia Bank, National
Association (Wachovia), as Trustee, with respect to the 3% Senior Subordinated Convertible Notes Due 2012 (incorporated by reference to Exhibit 10.8 to The Pantrys Current Report on Form 8-K filed with the Securities and Exchange
Commission on November 22, 2005)                                                                                                                                                                                              
|4.2         |  | Form of 3% Senior Subordinated Convertible Notes Due 2012 (included in Exhibit 4.1) (incorporated by reference to Exhibit 10.8 to The Pantrys Current Report on Form 8-K filed with the
Securities and Exchange Commission on November 22, 2005)                                                                                                                                                                                                                                                                                                                                                                                                 
|4.3         |  | Indenture dated February 19, 2004 among The Pantry, R&H Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, as Guarantors, and Wachovia, as Trustee, with respect to the 7.75% Senior
Subordinated Notes due 2014 (incorporated by reference to Exhibit 4.5 to The Pantrys Registration Statement on Form S-4, as amended (Registration No. 333-115060))                                                                                                                                                                                                                                                                                
|4.4         |  | Form of 7.75% Senior Subordinated Note due 2014 (included in Exhibit 4.3) (incorporated by reference to Exhibit 4.5 to The Pantrys Registration Statement on Form S-4, as amended
(Registration No. 333-115060))                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.1        |  | Second Amended and Restated Credit Agreement dated December 29, 2005 among The Pantry, as borrower, R. & H. Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, as guarantors,
Wachovia, as administrative agent and lender, Regions Bank and Wells Fargo Bank, National Association, as co-syndication agents and lenders, Harris N.A. and Rabobank International as co-documentation agents and lenders, and the other financial
institutions signatory thereto, as lenders (incorporated by reference to Exhibit 10.1 to The Pantrys Current Report on Form 8-K filed with the Securities and Exchange Commission on January 3, 2006)
|10.2        |  | Second Amended and Restated Pledge Agreement dated December 29, 2005 between The Pantry and R. & H. Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, all as pledgors, and
Wachovia, as administrative agent (incorporated by reference to Exhibit 10.2 to The Pantrys Current Report on Form 8-K filed with the Securities and Exchange Commission on January 3, 2006)                                                                                                                                                                                                                                                               
|10.3        |  | Second Amended and Restated Security Agreement dated December 29, 2005 between The Pantry and R. & H. Maxxon, Inc. and Kangaroo, Inc., subsidiaries of The Pantry, all as obligors, and
Wachovia, as administrative agent (incorporated by reference to Exhibit 10.3 to The Pantrys Current Report on Form 8-K filed with the Securities and Exchange Commission on January 3, 2006)                                                                                                                                                                                                                                                             
|10.4        |  | First Amendment to Second Amended and Restated Credit Agreement dated April 4, 2007 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, JPMorgan Chase Bank, National Association, as syndication agent and lender, and Harris N.A., as documentation agent and lender (incorporated by reference to Exhibit 10.1 to The
Pantrys Current Report on Form 8-K filed with the Securities and Exchange Commission on April 5, 2007)                                                                                              



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##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.5        |  | Third Amended and Restated Credit Agreement dated as of May 15, 2007 among The Pantry, certain domestic subsidiaries of The Pantry party thereto, Wachovia, as administrative agent and lender,
J.P. Morgan Securities Inc. and Wachovia Capital Markets, LLC, as joint lead arrangers and joint bookrunners, JPMorgan Chase Bank, N.A., as co-syndication agent and lender, BMO Capital Markets, as co-syndication agent, Cooperative Centrale
Raiffeisen-Boerenleenbank B.A. Rabobank Nederland, New York Branch and Wells Fargo Bank, National Association, as co-documentation agents, and the several other banks and financial institutions signatory thereto (incorporated by
reference to Exhibit 10.1 to The Pantrys Current Report on Form 8-K filed with the Securities and Exchange Commission on May 17, 2007)
|10.6        |  | Third Amended and Restated Pledge Agreement dated as of May 15, 2007 by and among The Pantry and certain domestic subsidiaries of The Pantry party thereto, all as pledgors, and Wachovia, as
administrative agent (incorporated by reference to Exhibit 10.2 to The Pantrys Current Report on Form 8-K filed with the Securities and Exchange Commission on May 17, 2007)                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.7        |  | Third Amended and Restated Security Agreement dated as of May 15, 2007 among The Pantry and certain domestic subsidiaries of The Pantry parties thereto, all as obligors, and Wachovia, as
administrative agent (incorporated by reference to Exhibit 10.3 to The Pantrys Current Report on Form 8-K filed with the Securities and Exchange Commission on May 17, 2007)                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.8        |  | Purchase Agreement dated November 16, 2005 by and among The Pantry, Kangaroo, Inc. and R. & H. Maxxon, Inc., subsidiaries of The Pantry, as guarantors, and Merrill Lynch, Pierce, Fenner
& Smith Incorporated, relating to the 3% Senior Subordinated Convertible Notes due 2012 (incorporated by reference to Exhibit 10.1 to The Pantrys Current Report on Form 8-K filed with the Securities and Exchange Commission on November 22,
2005)                                                                                                                                                                                                                                                                                                                                                                               
|10.9        |  | Registration Rights Agreement dated November 22, 2005 by and among The Pantry, Kangaroo, Inc. and R.&H. Maxxon, Inc., subsidiaries of The Pantry, as Guarantors, and Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Wachovia Capital Markets, LLC as the initial purchasers, relating to the 3% Senior Subordinated Convertible Notes due 2012 (incorporated by reference to Exhibit 10.2 to The Pantrys Current Report on Form 8-K
filed with the Securities and Exchange Commission on November 22, 2005)                                                                                                                                                                                                                                                                                                          
|10.10       |  | Confirmation of OTC Warrant Transaction dated November 16, 2005 between The Pantry and Merrill Lynch International (incorporated by reference to Exhibit 10.5 to The Pantrys Current Report
on Form 8-K filed with the Securities and Exchange Commission on November 22, 2005)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.11       |  | Confirmation of OTC Convertible Note Hedge dated November 16, 2005 between The Pantry and Merrill Lynch International (incorporated by reference to Exhibit 10.3 to The Pantrys Current
Report on Form 8-K filed with the Securities and Exchange Commission on November 22, 2005)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.12       |  | Confirmation of OTC Warrant Transaction dated November 21, 2005 between The Pantry and Merrill Lynch International (incorporated by reference to Exhibit 10.6 to The Pantrys Current
Report on Form 8-K filed with the Securities and Exchange Commission on November 22, 2005)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.13       |  | Confirmation of OTC Convertible Note Hedge dated November 21, 2005 between The Pantry and Merrill Lynch International (incorporated by reference to Exhibit 10.4 to The Pantrys Current
Report on Form 8-K filed with the Securities and Exchange Commission on November 22, 2005)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.14       |  | Registration Rights Agreement dated February 13, 2004 by and among The Pantry, Credit Suisse First Boston LLC and Wachovia Capital Markets, LLC, as the Initial Purchasers (incorporated by
reference to Exhibit 4.8 to The Pantrys Registration Statement on Form S-4, as amended (Registration No. 333-115060))                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.15       |  | Form of Amended and Restated Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing (North Carolina) dated October 23, 1997 by and from The Pantry to David R.
Cannon, as Trustee, and First Union, as Agent (incorporated by reference to Exhibit 10.18 to The Pantrys Registration Statement on Form S-4, as amended (Registration No. 333-42811))                                                                                                                                                                                                                                                                                                                                                                                                                                           



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##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                                                                         
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                 
|10.16       |  | Form of Amended and Restated Mortgage, Security Agreement, Assignment of Rents and Leases And Fixture Filing (South Carolina) dated October 23, 1997 by and from The Pantry to First Union, as
Agent (incorporated by reference to Exhibit 10.19 to The Pantrys Registration Statement on Form S-4, as amended (Registration No. 333-42811))                                           
|10.17       |  | Form of Amended and Restated Deed of Trust, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Tennessee) dated October 23, 1997 by and from The Pantry to David R. Cannon, as
Trustee, and First Union, as Agent (incorporated by reference to Exhibit 10.20 to The Pantrys Registration Statement on Form S-4, as amended (Registration No. 333-42811))          
|10.18       |  | Form of Amended and Restated Mortgage, Security Agreement, Assignment of Rents and Leases (Kentucky) dated October 23, 1997 by and from The Pantry to First Union, as Agent (incorporated by
reference to Exhibit 10.21 to The Pantrys Registration Statement on Form S-4, as amended (Registration No. 333-42811))                                                                    
|10.19       |  | Form of Amended and Restated Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Indiana) dated October 23, 1997 by and from The Pantry to First Union, as Agent
(incorporated by reference to Exhibit 10.22 to The Pantrys Registration Statement on Form S-4, as amended (Registration No. 333-42811))                                                  
|10.20       |  | Form of Mortgage, Security Agreement, Assignment of Rents and Leases and Fixture Filing (Florida) dated October 23, 1997 by and from Lil Champ Food Stores, Inc. (Lil
Champ) to First Union, as Agent (incorporated by reference to Exhibit 10.23 to The Pantrys Registration Statement on Form S-4, as amended (Registration No. 333-42811))                                      
|10.21       |  | Form of Deed to Secure Debt, Security Agreement, and Assignment of Rents (Georgia) dated October 23, 1997 by and from Lil Champ to First Union, as Agent (incorporated by reference to
Exhibit 10.24 to The Pantrys Registration Statement on Form S-4, as amended (Registration No. 333-42811))                                                                                      
|10.22       |  | Form of Lease Agreement between The Pantry and certain parties to the 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 (incorporated by reference to Exhibit 2.5 to The Pantrys Current Report on Form 8-K, as amended, filed with the Securities and Exchange Commission on October 31, 2003))
|10.23       |  | Form of Lease Agreement between The Pantry and National Retail Properties, LP (incorporated by reference to Exhibit 10.2 to The Pantrys Current Report on Form 8-K filed with the Securities
and Exchange Commission on April 5, 2007)                                                                                                                                                 
|10.24       |  | Independent Director Compensation Program, Second Amendment February 2006 (incorporated by reference to Exhibit 10.1 to The Pantrys Current Report on Form 8-K filed with the Securities and
Exchange Commission on February 21, 2006)**                                                                                                                                               
|10.25       |  | The Pantry, Inc. Incentive Compensation Plan (incorporated by reference to Exhibit 10.2 to The Pantrys Quarterly Report on Form 10-Q for the quarterly period ended March 29,
2007)**                                                                                                                                                                                                  
|10.26       |  | The Pantry, Inc. 1999 Stock Option Plan, as amended and restated as of August 2, 2006 (incorporated by reference to Exhibit 10.1 to The Pantrys Current Report on Form 8-K filed with the
Securities and Exchange Commission on August 7, 2006)**                                                                                                                                      
|10.27       |  | The Pantry, Inc. 1999 Stock Option Plan, as amended and restated as of October 17, 2007**                                                                                                                                                                                                                                                                                               
|10.28       |  | Form of Incentive Stock Option Agreement to The Pantry, Inc. 1999 Stock Option Plan (incorporated by reference to Exhibit 10.2 to The Pantrys Current Report on Form 8-K filed with the
Securities and Exchange Commission on September 28, 2004)**                                                                                                                                    
|10.29       |  | The Pantry, Inc. 2007 Omnibus Plan (incorporated by reference to Exhibit 10.1 to The Pantrys Current Report on Form 8-K filed with the Securities and Exchange Commission on April 3,
2007)**                                                                                                                                                                                          
|10.30       |  | Form of Award Agreement (Awarding Incentive Stock Option to Employee) for The Pantry, Inc. 2007 Omnibus Plan (incorporated by reference to Exhibit 10.1 to The Pantrys Current Report on
Form 8-K filed with the Securities and Exchange Commission on June 22, 2007)**                                                                                                                
|10.31       |  | Form of Award Agreement (Awarding Nonqualified Stock Option to Non-Employee Director) for The Pantry, Inc. 2007 Omnibus Plan (incorporated by reference to Exhibit 10.4 to The Pantrys
Quarterly Report on Form 10-Q for the quarterly period ended March 29, 2007)**                                                                                                                  



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##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                          
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                  
|10.32       |  | Form of Indemnification Agreement (incorporated by reference to Exhibit 10.29 to The Pantrys Registration Statement on Form S-1, as amended (Registration No. 333-74221))
**                                                                                            
|10.33       |  | Employment Agreement dated October 1, 1997 between Peter J. Sodini and The Pantry (incorporated by reference to Exhibit 10.11 to The Pantrys Registration Statement on Form S-4, as amended
(Registration No. 333-42811))**                                             
|10.34       |  | Amendment No. 1 to Employment Agreement by and between The Pantry and Peter J. Sodini (incorporated by reference to Exhibit 10.34 to The Pantrys Quarterly Report on Form 10-Q, as amended,
for the quarterly period ended June 24, 1999)**                             
|10.35       |  | Amendment No. 2 to Employment Agreement by and between The Pantry and Peter J. Sodini (incorporated by reference to Exhibit 10.19 to The Pantrys Annual Report on Form 10-K, as amended, for
the year ended September 27, 2001)**                                       
|10.36       |  | Amendment No. 3 to Employment Agreement by and between The Pantry and Peter J. Sodini (incorporated by reference to Exhibit 10.1 to The Pantrys Quarterly Report on Form 10-Q for the
quarterly period ended December 26, 2002)**                                       
|10.37       |  | Amendment No. 4 to Employment Agreement by and between The Pantry and Peter J. Sodini (incorporated by reference to Exhibit 10.45 to The Pantrys Annual Report on Form 10-K, as amended, for
the year ended September 25, 2003)**                                       
|10.38       |  | Amendment No. 5 to Employment Agreement by and between The Pantry and Peter J. Sodini (incorporated by reference to Exhibit 10.7 to The Pantrys Current Report on Form 8-K filed with the
Securities and Exchange Commission on November 22, 2005)**                    
|10.39       |  | Employment Agreement dated October 11, 2006 by and between Melissa H. Anderson and The Pantry (incorporated by reference to Exhibit 10.48 to The Pantrys Annual Report on Form 10-K for the
year ended September 28, 2006)**                                            
|10.40       |  | Amended and Restated Employment Agreement dated November 20, 2007 by and between Melissa H. Anderson and The Pantry**                                                                                                                                                    
|10.41       |  | Employment Agreement dated July 21, 2006 by and between Keith S. Bell and The Pantry (incorporated by reference to Exhibit 10.47 to The Pantrys Annual Report on Form 10-K for the year
ended September 28, 2006)**                                                     
|10.42       |  | Amended and Restated Employment Agreement dated November 20, 2007 by and between Keith S. Bell and The Pantry**                                                                                                                                                          
|10.43       |  | Employment Agreement dated May 1, 2003 by and between Steven J. Ferreira and The Pantry (incorporated by reference to Exhibit 10.2 to The Pantrys Quarterly Report on Form 10-Q for the
quarterly period ended June 26, 2003)**                                         
|10.44       |  | Amended and Restated Employment Agreement dated November 20, 2007 by and between Steven J. Ferreira and The Pantry**                                                                                                                                                     
|10.45       |  | Employment Agreement dated June 12, 2007 by and between Frank G. Paci and The Pantry (incorporated by reference to Exhibit 10.1 to The Pantrys Current Report on Form 8-K filed with the
Securities and Exchange Commission on June 15, 2007)**                         
|10.46       |  | Amended and Restated Employment Agreement dated November 20, 2007 by and between Frank G. Paci and The Pantry**                                                                                                                                                          
|10.47       |  | Employment Agreement dated May 6, 2003 by and between David M. Zaborski and The Pantry (incorporated by reference to Exhibit 10.4 to The Pantrys Quarterly Report on Form 10-Q for the
quarterly period ended June 26, 2003)**                                          
|10.48       |  | Amended and Restated Employment Agreement dated November 20, 2007 by and between David M. Zaborski and The Pantry**                                                                                                                                                      
|10.49       |  | Employment Agreement dated May 2, 2003 by and between Daniel J. Kelly and The Pantry (incorporated by reference to Exhibit 10.1 to The Pantrys Quarterly Report on Form 10-Q for the
quarterly period ended June 26, 2003)**                                            
|10.50       |  | Amended and Restated Employment Agreement dated April 13, 2007 by and between Daniel J. Kelly and The Pantry (incorporated by reference to Exhibit 10.1 to The Pantrys Current Report on
Form 8-K filed with the Securities and Exchange Commission on April 13, 2007)**



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##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.51       |  | Amendment to Amended and Restated Employment Agreement dated October 8, 2007 by and between Daniel J. Kelly and The Pantry (incorporated by reference to Exhibit 10.1 to The Pantrys Current
Report on Form 8-K filed with the Securities and Exchange Commission on October 12, 2007)**                                                                                                                                                                                                                                                                                                                                      
|10.52       |  | Distribution Service Agreement dated October 10, 1999 by and between The Pantry, Lil Champ and McLane Company, Inc. (McLane), as amended by the First Amendment to Distribution
Service Agreement dated June 28, 2001 and the Second Amendment to Distribution Service Agreement dated September 8, 2001 (asterisks located within the exhibit denote information which has been deleted pursuant to a confidential treatment filing with
the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.39 to The Pantrys Annual Report on Form 10-K, as amended, for the year ended September 27, 2001)
|10.53       |  | Third Amendment to Distribution Service Agreement by and between The Pantry, Lil Champ and McLane dated October 5, 2002 (asterisks located within the exhibit denote information which has
been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.39 to The Pantrys Annual Report on Form 10-K for the year ended September 26, 2002)                                                                                                                                                                                                
|10.54       |  | Fourth Amendment to Distribution Service Agreement dated October 16, 2003 by and between The Pantry and McLane (asterisks located within the exhibit denote information which has been deleted
pursuant to a confidential treatment filing with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.35 to The Pantrys Annual Report on Form 10-K, as amended, for the year ended September 25, 2003)                                                                                                                                                                                             
|10.55       |  | Fifth Amendment to Distribution Service Agreement dated April 1, 2004 by and between The Pantry and McLane (asterisks located within the exhibit denote information which has been deleted
pursuant to a confidential treatment filing with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.1 to The Pantrys Quarterly Report on Form 10-Q, as amended, for the quarterly period ended March 31,
2005)                                                                                                                                                                                       
|10.56       |  | Sixth Amendment to Distribution Service Agreement dated April 21, 2005 by and between The Pantry and McLane (asterisks located within the exhibit denote information which has been deleted
pursuant to a confidential treatment filing with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.1 to The Pantrys Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2005)                                                                                                                                                                                                    
|10.57       |  | Seventh Amendment to Distribution Service Agreement dated May 11, 2006 between The Pantry and McLane (asterisks located within the exhibit denote information which has been deleted pursuant
to a confidential treatment filing with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.1 to The Pantrys Quarterly Report on Form 10-Q for the quarterly period ended June 29, 2006)                                                                                                                                                                                                           
|10.58       |  | Eighth Amendment to Distribution Service Agreement dated March 17, 2007 between The Pantry and McLane (asterisks located within the exhibit denote information which has been deleted
pursuant to a confidential treatment filing with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.1 to The Pantrys Quarterly Report on Form 10-Q for the quarterly period ended March 29, 2007)                                                                                                                                                                                                         
|10.59       |  | Distributor Franchise Agreement between The Pantry and CITGO Petroleum Corporation dated August 2000, including Amended and Restated Addendum dated February 11, 2003 (asterisks located within
the exhibit denote information which has been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.2 to The Pantrys Quarterly Report on Form 10-Q for the
quarterly period ended March 27, 2003)                                                                                                                                         
|10.60       |  | Letter Amendment to the Amended and Restated Addendum dated July 7, 2004 to the Distributor Franchise Agreement between The Pantry and CITGO Petroleum Corporation, dated August 2000, as amended
by Amended and Restated Addendum to Distributor Franchise Agreement dated February 11, 2003 (incorporated by reference to Exhibit 10.2 to The Pantrys Quarterly Report on Form 10-Q, as amended, for the quarterly period ended June 24,
2004)                                                                                                                                                                              



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##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.61       |  | First Amendment to Amended and Restated Addendum to Distributor Franchise Agreement by and between CITGO Petroleum Corporation and The Pantry dated March 31, 2005 (asterisks located within
the exhibit denote information which has been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.3 to The Pantrys Quarterly Report on Form 10-Q, as amended,
for the quarterly period ended March 31, 2005)                                     
|10.62       |  | Second Amendment to Amended and Restated Addendum to Distributor Franchise Agreement dated October 17, 2005 between CITGO Petroleum Corporation and The Pantry (asterisks located within the
exhibit denote information which has been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.1 to The Pantrys Quarterly Report on Form 10-Q for the
quarterly period ended December 29, 2005)                                                   
|10.63       |  | Third Amendment to Amended and Restated Addendum to Distributor Franchise Agreement dated March 18, 2006 between CITGO Petroleum Corporation and The Pantry (incorporated by reference to Exhibit
10.7 to The Pantrys Quarterly Report on Form 10-Q, as amended, for the quarterly period ended March 30, 2006)                                                                                                                                                                                                                     
|10.64       |  | Fourth Amendment to Amended and Restated Addendum to Distributor Franchise Agreement dated December 18, 2006 between CITGO Petroleum Corporation and The Pantry (asterisks located within the
exhibit denote information which has been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.2 to The Pantrys Quarterly Report on Form 10-Q for the
quarterly period ended December 28, 2006)                                                  
|10.65       |  | Branded Jobber Contract by and between The Pantry and BP Products North America Inc. dated February 1, 2003, as amended by the Amendment to the Branded Jobber Contract dated February 14,
2003 (asterisks located within the exhibit denote information which has been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.1 to The Pantrys Quarterly
Report on Form 10-Q for the quarterly period ended March 27, 2003)                     
|10.66       |  | Second Amendment to the Branded Jobber Contract between The Pantry and BP Products North America Inc. dated June 11, 2004 (asterisks located within the exhibit denote information which has been
deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.1 to The Pantrys Current Report on Form 8-K filed with the Securities and Exchange Commission on June 29,
2004)                                                                         
|10.67       |  | Third Amendment to the Branded Jobber Contract by and between The Pantry and BP Products North America Inc. dated July 18, 2006 (asterisks located within the exhibit denote information
which has been deleted pursuant to a confidential treatment filing with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.64 to The Pantrys Annual Report on Form 10-K for the year ended September 28,
2006)                                                                                               
|10.68       |  | Fourth Amendment to the Branded Jobber Contract by and between The Pantry and BP Products North America Inc. dated July 30, 2007                                                                                                                                                                                                                                                                                                                                                                                                     
|12.1        |  | Statement regarding Computation of Earnings to Fixed Charges Ratio                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|21.1        |  | Subsidiaries of The Pantry                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|23.1        |  | Consent of Deloitte & Touche LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|31.1        |  | Certification by Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002                                                                                                                                                                                                                                                                                                                                
|31.2        |  | Certification by Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002                                                                                                                                                                                                                                                                                                                                
|32.1        |  | Certification by Chief Executive Officer 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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##### Table of Contents

|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Document                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|32.2        |  | Certification by Chief Financial Officer 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.]



|* | Pursuant to Regulation S-K, Item 601(b)(2), the Exhibits and Schedules have not been filed. The Pantry agrees to furnish supplementally a copy of any omitted Exhibit or
Schedule to the Securities and Exchange Commission upon request; provided, however, that The Pantry may request confidential treatment of omitted items.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|** | Represents a management contract or compensatory plan or arrangement
|-- | --------------------------------------------------------------------



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



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