UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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 29, 2011

Commission File Number: 000-25813

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 8019

305 Gregson Drive

Cary, North Carolina

27511

(Address of principal executive offices and zip code)

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

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 Global Select Market

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

NONE

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  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, a non-accelerated filer or a smaller reporting company. See the definitions of “accelerated filer and large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨		Accelerated filer   x
Non-accelerated filer      ¨	(Do not check if a smaller reporting company)	Smaller reporting company      ¨

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 31, 2011 was $333,796,636.

As of December 6, 2011, there were issued and outstanding 22,517,097 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 14, 2012	Part III

THE PANTRY, INC.

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

		Page
Part I
Item 1:	Business	1
Item 1A:	Risk Factors	10
Item 1B:	Unresolved Staff Comments	21
Item 2:	Properties	22
Item 3:	Legal Proceedings	22
Item 4:	(Removed and Reserved.)	231
Part II
Item 5:	Market for Our Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	24
Item 6:	Selected Financial Data	25
Item 7:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 7A:	Quantitative and Qualitative Disclosures About Market Risk	50
Item 8:	Consolidated Financial Statements and Supplementary Data	52
Item 9:	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	91
Item 9A:	Controls and Procedures	91
Item 9B:	Other Information	93
Part III
Item 10:	Directors, Executive Officers and Corporate Governance	94
Item 11:	Executive Compensation	94
Item 12:	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	94
Item 13:	Certain Relationships and Related Transactions, and Director Independence	94
Item 14:	Principal Accounting Fees and Services	94
Part IV
Item 15:	Exhibits and Financial Statement Schedule	95
	Signatures	104
	Schedule II—Valuation and Qualifying Accounts and Reserves	105

i

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 29, 2011, we operated 1,649 stores in 13 states under a number of selected banners including Kangaroo Express ®, our primary operating banner. Our stores offer a broad selection of merchandise, fuel 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 and marketing initiatives, sophisticated management of our fuel business, leveraging our geographic economies of scale, generating strong cash flows to reinvest in our business and reduce debt levels.

Our principal executive offices are located at 305 Gregson Drive, Cary, North Carolina 27511. Our telephone number is 919-774-6700. We were originally incorporated under the laws of Delaware on July 13, 1987.

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 2012” refer to our fiscal year which ends on September 27, 2012, references to “fiscal 2011” refer to our fiscal year which ended on September 29, 2011, references to “fiscal 2010” refer to our fiscal year which ended September 30, 2010, references to “fiscal 2009” refer to our fiscal year which ended September 24, 2009, references to “fiscal 2008” refer to our fiscal year which ended September 25, 2008, references to “fiscal 2007” refer to our fiscal year which ended September 27, 2007, and references to “fiscal 2005” refer to our fiscal year which ended September 29, 2005. All fiscal years presented included 52 weeks, except fiscal 2010, which included 53 weeks.

Operations

Merchandise Operations.   In fiscal 2011, our merchandise sales were 21.9% of our total revenues and gross profit from our merchandise sales was 70.1% of our total gross profit. The following table highlights certain information with respect to our merchandise sales for the last five fiscal years:

	2011	2010 (1)	2009	2008	2007
Merchandise sales (in millions)	$1,778.8	$1,797.9	$1,658.9	$1,636.7	$1,575.9
Average merchandise sales per store (in thousands)	$1,074.8	$1,088.3	$1,001.1	$991.3	$998.7
Average merchandise sales per store per week (in thousands)	$20.7	$20.5	$19.3	$19.1	$19.2
Comparable store merchandise sales increase (decrease) (%)	0.2%	5.6%	0.0%	(1.7%)	2.3%
Comparable store merchandise sales increase (decrease) (in thousands)	$2,908	$91,849	$327	$(25,209)	$29,443
Merchandise gross margins (after purchase rebates, markdowns, inventory spoilage, inventory shrink and LIFO reserve)	33.9%	33.8%	35.4%	36.4%	37.2%

(1) Fiscal 2010 included 53 weeks.

1

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:

	2011		2010		2009		2008		2007
Cigarettes	28.2	%	28.4	%	26.1	%	23.5	%	23.8	%
Grocery and other tobacco products	28.7		29.6		28.9		29.1		29.9
Packaged beverages	15.7		15.4		16.4		17.7		17.5
Beer and wine	14.9		15.0		16.0		16.3		15.5
Foodservice	9.3		8.6		9.2		9.9		9.8
Services	3.2		3.0		3.4		3.5		3.5
Total	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%

As of September 29, 2011, we operated 233 quick service restaurants within 229 of our locations. In 193 of these quick service restaurants, we offer products from nationally branded food franchises including Subway ®, Quiznos ®, Hardee’s ®, Krystal ®, Church’s ®, Dairy Queen ®, Baskin-Robbins® and Bojangles®. In addition, we offer a variety of proprietary food service programs in 40 quick service restaurants featuring breakfast biscuits, fried chicken, deli and other hot food offerings.

In fiscal 2011, we purchased over 55% 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 December 2014. We purchase the balance of our merchandise from approximately 600 distributors. 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 275 of our stores.

Fuel Operations.   We purchase our fuel from major oil companies and independent refiners. At our locations we offer a mix of branded and private branded fuel based on an evaluation of local market conditions. The majority of our private branded fuel is sold under our Kangaroo banner. Of our 1,633 stores that sold fuel as of September 29, 2011, 1,107, or 67.8%, were branded under the Marathon®, BP®, CITGO® , Chevron® , Shell® , Texaco®, ExxonMobil® and ConocoPhillips® brand names. We purchase our branded fuel and diesel fuel from major oil companies under supply agreements. We purchase the fuel at the stated rack price, or market 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 2012 to 2017 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”) and Marathon Petroleum Company, LLC (“Marathon”). There are approximately 60 fuel terminals in our operating areas, allowing us to choose from more than one distribution point for most of our stores. Our inventories of fuel (both branded and private branded) turn approximately every four days.

The following table highlights certain information regarding our fuel supply during fiscal 2011:

FuelSupply	2011	Contract Expiration Year
BP® Branded	24.5%	2012
BP® Unbranded	0.2	2012
Citgo® Branded	15.5	2013
Marathon® Branded	17.7	2013
Marathon® Unbranded	22.2	2017
Other	19.9	(1)
Total	100.0%

(1) We purchased fuel from various other suppliers including major oil companies and regional suppliers.

2

During the fourth quarter of fiscal 2011 and continuing into the first quarter of fiscal 2012, we debranded approximately 80 stores from BP® and converted their fuel supplier to Marathon®.

Our fuel 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, fuel 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, fuel suppliers have the right of first refusal to acquire assets used by us to sell their branded fuel.

In fiscal 2011, our fuel revenues were 78.1% of our total revenues and gross profit from our fuel revenues was 29.9% of our total gross profit. The following table highlights certain information regarding our retail fuel operations for the last five fiscal years:

			2011	2010 (1)	2009	2008	2007
	Retail
	Fuel sales (in millions)		$6,283.5	$5,413.5	$4,659.1	$7,150.4	$5,192.2
	Fuel gallons sold (in millions)		1,889.0	2,047.4	2,078.0	2,103.4	2,032.8
	Average gallons sold per store (in thousands)		1,151.8	1,255.3	1,268.6	1,288.8	1,306.4
	Average gallons sold per store per week (in thousands)		22.2	23.7	24.4	24.8	25.1
	Comparable store gallons (decrease) increase (%)		(7.4%)	(4.9%)	(3.3%)	(4.4%)	1.0%
	Comparable store gallons (decrease) increase (in thousands)		(147,239)	(102,629)	(68,480)	(80,368)	16,115
	Average price per gallon		$3.33	$2.64	$2.24	$3.40	$2.55
	Average gross profit per gallon		$0.135	$0.129	$0.149	$0.123	$0.109
	Locations selling fuel		1,633	1,620	1,655	1,635	1,623
	Branded  locations		1,107	1,088	1,141	1,119	1,093
	Private branded locations		526	532	514	516	530
	Fuel Gross Profit (in thousands)
	Retail fuel gross profit		$255,484	$263,209	$309,063	$259,740	$221,231
	Wholesale fuel gross profit		1,590	1,476	2,281	2,527	2,288
	Total fuel gross profit		$257,074	$264,685	$311,344	$262,267	$223,519
(1)		Fiscal 2010 included 53 weeks.

The decrease in comparable store fuel gallons sold in recent years was due primarily to continued economic deterioration, lower miles driven in our market areas and our focus on maximizing gross profit. Retail fuel prices were impacted by the volatile wholesale fuel markets, which resulted from significant fluctuations in the price of crude oil during fiscal 2011. Domestic crude oil prices began our fiscal year at approximately $82 per barrel, reaching a high of approximately $114 per barrel in April, before returning to approximately $82 per barrel to finish our fiscal year. We attempt to pass along wholesale fuel 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 fuel 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 fuel wholesale prices will not negatively affect fuel gross margins or demand for fuel within our markets in the future.

3

Store Locations.  Approximately 32% of our stores are strategically located in coastal/resort areas such as Jacksonville, Florida, Orlando, Florida/Disney World®, Myrtle Beach, South Carolina, Charleston, South Carolina, St. Augustine, Florida, Hilton Head, South Carolina and Gulfport/Biloxi, Mississippi that attract a large number of tourists who we believe value convenience shopping. Additionally, approximately 24% 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 2,800 square feet and provide ample customer parking.

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

			Number of Stores as of Fiscal Year Ended
State	Percentage of Total Stores at  September 29,  2011		2011	2010	2009	2008	2007
Florida	24.2	%	399	415	440	453	461
North Carolina	22.9		378	382	384	385	387
South Carolina	16.7		276	279	284	283	277
Georgia	7.8		128	131	132	133	136
Alabama	6.8		112	113	114	81	83
Tennessee	6.1		100	104	104	104	104
Mississippi	5.9		97	99	100	99	82
Virginia	3.0		50	50	50	50	50
Kansas	2.6		43	—	—	—	—
Kentucky	1.6		27	29	29	30	30
Louisiana	1.6		27	27	27	26	25
Indiana	0.6		9	9	9	9	9
Missouri	0.2		3	—	—	—	—
Total	100	%	1,649	1,638	1,673	1,653	1,644

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
	2011	2010	2009	2008	2007
Number of stores at beginning of period	1,638	1,673	1,653	1,644	1,493
Acquired or opened	48	—	44	32	162
Closed or sold	(37)	(35)	(24)	(23)	(11)
Number of stores at end of period	1,649	1,638	1,673	1,653	1,644

Acquisitions.  On October 28, 2010, we purchased one store in North Carolina and on December 2, 2010, we purchased 47 stores from Presto Convenience Stores, LLC (“Presto”) in Kansas (44) and Missouri (3). The 47 stores purchased separately from Presto operate under the Presto trade name. The Presto acquisition included the real estate underlying 36 of the stores. These acquisitions were funded using available cash on hand. We did not acquire any stores in fiscal 2010.

4

Improvement of Store Facilities and Equipment.   During fiscal 2010 we began an effort to improve the breakfast, lunch and snack experience at our stores. Stores will be highlighted by a repositioned and significantly improved Bean Street Coffee ® program. This effort includes a new inside re-modeling and outside re-imaging package at our core strategic stores as needed. During fiscal 2011, we spent approximately $19.6 million on store re-modeling under this program and have completed approximately 250 stores as of September 29, 2011. In addition we spent approximately $18.7 million on fuel re-imaging at over 350 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, store conditions 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. We have established a plan to divest under-performing assets by transitioning certain locations to dealer sites with fuel supply arrangements and closing or selling other properties. We closed or sold 37 and 35 stores in fiscal 2011 and 2010, respectively.

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, regional directors and district managers who, with our corporate management, evaluate store operations. District managers typically oversee an average of 11 stores each. We also monitor store conditions, maintenance and customer service through a regular store visitation program by district and region 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 during warm weather months in the southeastern United States, which fall within our third and fourth fiscal quarters.

Competition

The convenience store and retail fuel 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 store chains, independent convenience stores, supermarkets, drugstores, discount clubs, fuel service stations, 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, fuel brands, pricing, product and service selections, customer service, store appearance, cleanliness and safety. We believe our store base, strategic mix of locations, fuel offerings and use of competitive market data, combined with our management’s expertise, allow us to be an effective and significant competitor in our markets.

Technology and Store Automation

Collaboration between our information technology team and internal and external business partners allows us to continue to successfully advance our systems portfolio and technology infrastructure through the implementation of key operational, financial and merchandising initiatives.

Fiscal 2011 saw the rollout of the initial phases of both the fuel pricing and workforce management systems. Both provide our store and fuel operations teams with improved efficiencies, greater business control, and improved decision making opportunities. The fuel pricing system has provided new insights resulting in improved retail pricing decisions. The next phase of this project to be implemented during fiscal 2012 brings improvements in store level execution by pushing retail fuel price changes to our point of sale systems, fuel dispensers and electronic price signs. With the implementation of the task execution management and labor scheduling modules at store level we’ve been able to reduce non value-added activities and allow our store-level associates to focus on delivering a fast, friendly and clean shopping experience for our customers. Our next phase of workforce management, time and attendance, will get underway in fiscal 2012.

Our overall information technology efforts remain focused on four key strategic objectives:

• Consolidation of legacy point of sale (POS) systems

• Implementation of an enterprise data warehouse

5

• Replacing legacy applications including human resources/payroll and real estate lease management

• Completing the upgrades to our retail enterprise system; including the price book, merchandise inventory and store level daily reporting modules

We have reduced the number of POS software/hardware instances (platforms) in our company operated stores by 25% during fiscal 2011 and are on track to eliminate two more platforms in the first half of fiscal 2012. This was accomplished along with the addition of the Marathon fuel brand, requiring the development and implementation of its own POS software instance. We believe our point of sale system upgrades continue to enhance the customer experience, improve operating efficiencies, and allow us to take advantage of increased functionality such as capturing market basket data and facilitating merchandise promotional offers.

The initial implementation phase of a data warehouse solution was begun in fiscal 2011. In addition to the technology foundation components of this key system being put in place, the project is on schedule to replace our legacy daily and weekly flash reports. The next phase of this project, POS transaction log and market basket analysis, will begin in fiscal 2012.

Business requirements and vendor selections for replacement systems were completed this past year with our human resource and real estate business teams. We have decided, in both cases, to implement Software as a Service (SaaS) solutions to replace our human resources/payroll and lease management systems which we expect will provide added momentum to their implementation in fiscal 2012. With the implementation of these systems our legacy systems portfolio will be significantly reduced and provide enhanced functionality to the business.

Our store level, back office and accounting functions, including our merchandise price book, are supported by a fully integrated management information and financial accounting system from Professional Datasolutions, Inc. (PDI). During 2011 a robust project plan to upgrade the merchandise inventory and pricebook modules was created along with the start of the development and testing phases of this project. The establishment of merchandise pricing rules in fiscal 2012 and further POS integration with the daily reporting module will improve the efficiencies of our merchandising and operations teams including adding a greater number of pricing zones.

A go forward approach in fiscal 2012 of staying focused on the defined strategic IT objectives along with continued review of enhanced and new system opportunities that will help drive our business is key to being an effective and efficient convenience store operator while profitably growing sales.

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®, Cowboys®, Aunt M’s®, Quickstop SM, Petro Express ® and Presto. 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 Fuel.   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 periodically required to upgrade or replace underground storage tank systems.

6

Federal and state laws and 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 29, 2011, we maintained letters of credit in the aggregate amount of approximately $1.4 million in favor of state environmental agencies in North Carolina, South Carolina, Virginia, Georgia, Indiana, Tennessee, Kentucky, Kansas and Louisiana.

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 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 reimbursement coverage for the cleanup of certain environmental contamination caused by, and certain third-party liabilities arising from,  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 fuel 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, Alabama, Mississippi, Louisiana 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 Florida trust fund will not cover releases first reported after December 31, 1998. We obtained private insurance coverage related to certain remediation costs and third-party claims arising out of releases that occurred in Florida and were reported after December 31, 1998. We believe that this coverage complies with 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 related to certain remediation costs and third-party claims. We believe that this coverage complies with federal and Georgia financial responsibility regulations.

7

As of September 29, 2011, environmental reserves of approximately $5.9 million and $12.0 million are included in other accrued liabilities and other noncurrent liabilities, respectively. As of September 30, 2010, environmental reserves of approximately $5.4 million and $18.0 million are included in other accrued liabilities and other noncurrent liabilities, respectively. These environmental reserves represent our estimates for future expenditures for remediation and related litigation associated with 187 and 277 known contaminated sites as of September 29, 2011 and September 30, 2010, 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 $9.6 million of our environmental obligations will be funded by state trust funds and third-party insurance; as a result we estimate we will spend up to approximately $8.3 million for remediation and related litigation. The increase in our estimated expenditures for remediation and related litigation is primarily due to lower than expected coverage for certain known remediation costs. Also, as of September 29, 2011 and September 30, 2010, there were an additional 589 and 510 sites, respectively, that are known to be contaminated sites that are being remediated by third parties for which we have no obligations, 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.

Although we anticipate that we will be reimbursed for certain expenditures from state trust funds and private insurance, until such time as a claim for reimbursement has been formally accepted for coverage and payment, there is a risk of our reimbursement claims being rejected by a state trust fund or insurer. As of September 29, 2011, anticipated reimbursements of $11.0 million are recorded as other noncurrent assets and $7.4 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 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.

Financial Information

For information with respect to revenue and operating profitability, see the items referenced in Item 6. Selected Financial Data: Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations; and the Consolidated Statements of Operations.

8

Employees

As of September 29, 2011, we had 13,928 total employees (6,246 full-time and 7,682 part-time), with 13,097 employed in our stores and 831 in corporate and field management positions. 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
Edwin J. Holman	65	Interim Chief Executive Officer, Chairman of the Board
Mark R. Bierley	45	Senior Vice President and Chief Financial Officer
Keith S. Bell	48	Senior Vice President, Fuels
Thomas D. Carney	64	Senior Vice President, Legal Counsel and Secretary
John J. Fisher	48	Senior Vice President, Marketing
Paul  M. Lemerise	66	Senior Vice President, Chief Information Officer and Store Planning and Construction
Keith  A. Oreson	55	Senior Vice President, Human Resources

 Edwin J. Holman, Chairman of the Board of Directors, replaced Terrance M. Marks, former President and Chief Executive Officer, on October 5, 2011 and assumed the position of Interim Chief Executive Officer until such time as a successor has been retained.Mr. Holman was named Chairman of our Board on September 17, 2009. He has served on our Board since October 2005. From March 2010 to the present, Mr. Holman has served as the non-executive Chairman of RGIS International, which provides retail inventory solutions. Previously, Mr. Holman served as Chairman and CEO (2004-August 31, 2009) of Macy’s Central, a division of Macy’s Inc. that operates 217 department stores in the Midwest and Southern United States. He also served as President and CEO of Galyan’s Trading Company, a public company (2003-2004). Previously, Mr. Holman was the President and COO of Bloomingdale’s (2000-2003), a division of Federated Department Stores Inc.; President and COO of Rich’s/Lazarus/Goldsmiths divisions, a division of Federated Department Stores, Inc. (1999-2000); Chairman and CEO of Petrie Retail, Inc. (1996-1999); President and COO of Woodward & Lothrop (1994-1996); Vice Chairman and COO of The Carter Hawley Hale Stores; and a senior operating executive of The Neiman Marcus Group.

Mark R. Bierley joined us as our Senior Vice President and Chief Financial Officer on September 27, 2010. Prior to joining us, Mr. Bierley was with Borders Group, Inc., which filed for protection under Chapter 11 of the U.S. Bankruptcy Code in 2011, from 1996 until August 2010, serving as their Chief Operating Officer and Chief Financial Officer since June 2010, and Executive Vice President and Chief Financial Officer from January 2009 until June 2010. He served as Senior Vice President, Finance at Borders from 2003 through 2008. Prior to joining Borders, Mr. Bierley held positions in financial departments for Dunham’s Athleisure Corporation and Federal-Mogul Corporation. He began his career as an auditor for Price Waterhouse LLP.

Keith S. Bell joined us as our Senior Vice President, Fuels in July 2006. Prior to joining us, Mr. Bell spent 18 years with BP p.l.c. (“BP”) and Amoco Oil Company (“Amoco”), which was acquired by BP in 1998, where he most recently spent two years as Vice President of BP's US branded jobber business. During his career at BP and Amoco, Mr. Bell progressed through a variety of executive positions including two years as Vice President of Pricing and Supply for BP's US Fuels Northeast Region, two years as Eastern US Regional Vice President of BP’s branded jobber business, and three years as Performance Unit Leader – Southeast.

Thomas D. Carney joined us as Senior Vice President, General Counsel and Secretary in June 2011. Prior to joining us, Mr. Carney served as Vice President, General Counsel and Secretary for Borders Group, Inc., which filed for protection under Chapter 11 of the U.S. Bankruptcy Code in 2011, from December 1994 until January 2011. Prior to joining Borders Group, Inc. in 1994, Mr. Carney served as a partner at the Dickinson Wright law firm and as Vice President, General Counsel and Secretary of Hoover Universal, Inc.

9

John J. Fisher joined us as our Senior Vice President, Marketing in March 2010. Prior to joining us, Mr. Fisher ran Fisher Consulting from 2009 to 2010, specializing in foodservice marketing and operational execution. Previously he served as Executive Vice President of The Linebeck Group, a privately-held project and construction management firm specializing in complex facility design and project execution. Mr. Fisher was with The Linebeck Group from 2003 to 2008. Prior to The Linebeck Group, Mr. Fisher was with The Coca-Cola Company for 11 years, most recently as Senior Vice President of Marketing for North America Foodservice. Early in Mr. Fisher’s career, he held positions in manufacturing, engineering and brand management with Colgate Palmolive Company. 

Paul M. Lemerise began serving as a consultant to us in November 2009 in the role of our Chief Information Officer and joined us as our Senior Vice President and Chief Information Officer in March 2010. In August 2010 he assumed the duties of leading our store planning and construction departments. In June 2011, Mr. Lemerise assumed the responsibilities for our corporate procurement and facilities department. Prior to joining us, Mr. Lemerise was an Executive Services Partner with Tatum, LLC, a firm that provides management consulting services, from October 2001 until March 2010. In that capacity, Mr. Lemerise served as Chief Information Officer for numerous clients including Ventana Medical Systems, Inc., Pharmavite, LLC and Foster Farms. Prior to joining Tatum, Mr. Lemerise served as Executive Vice President, CIO for TruServe Corporation, Senior Vice President and CIO for Merisel, Inc., and Vice President of Information Systems for Carter Hawley Hale Corporation.

Keith A. Oreson joined us as our Senior Vice President, Human Resources on June 14, 2010. Prior to joining us, Mr. Oreson served as Senior Vice President of Human Resources for Advance Auto Parts from 2005 to 2010. He also served in senior human resource positions for Frank’s Nursery and Crafts for seven years from May 1998 to January 2005 and for ARAMARK Uniform Services for four years. His career also includes human resource positions with Pizza Hut and GTE.

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 business, financial condition or results of operations 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 and retail fuel industries are highly competitive and impacted by new entrants. Increased competition could result in lower margins.

The convenience store and retail fuel industries in the geographic areas in which we operate are highly competitive and marked by ease of entry and constant change in the number and type of retailers offering the products and services found in our stores. We compete with numerous other convenience store chains, independent convenience stores, supermarkets, drugstores, discount clubs, fuel service stations, mass merchants, fast food operations and other similar retail outlets. In recent years, several non-traditional retailers, including supermarkets, club stores and mass merchants, have begun to compete directly with convenience stores. These non-traditional fuel retailers have obtained a significant share of the fuel market and their market share is expected to grow, and these retailers may use promotional pricing or discounts, both at the fuel pump and in the store, to encourage in-store merchandise sales and fuel sales. Increased value consciousness among consumers has accelerated sales declines as consumers turn to dollar stores and big box stores to fulfill needs that were traditionally fulfilled by convenience stores. Additionally, major convenience store operators have announced intentions to enter or expand in markets we currently serve. 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. Principal competitive factors include, among others, location, ease of access, fuel 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 fuel may have a competitive advantage over us because, in certain regions of the country, the wholesale cost of ethanol-blended fuel may, at times, be less than pure fuel. Competitive pressures could materially impact our fuel and merchandise volume, sales and gross profit and overall customer traffic, which could in turn have a material adverse effect on our business, financial condition and results of operations.

10

Volatility in oil and wholesale fuel costs could impact our operating results.

Over the past three fiscal years, our fuel revenue accounted for approximately 76.0% of total revenues and our fuel gross profit accounted for approximately 31.7% of total gross profit. Oil and domestic wholesale fuel markets are volatile. General political conditions, acts of war or terrorism, instability in oil producing regions, particularly in the Middle East and South America, and the value of the U.S. dollar could significantly impact oil supplies and wholesale fuel costs. In addition, the supply of fuel 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, sustained increase in global demand, or the fact that our fuel contracts do not guarantee an uninterrupted, unlimited supply of fuel. Significant increases and volatility in wholesale fuel costs have resulted, and could in the future result, in significant increases in the retail price of fuel products and in lower fuel gross margin per gallon. 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 oil prices squeeze retail fuel margin because fuel costs typically increase faster than retailers are able to pass them along to customers. A significant change in any of these factors could materially impact our fuel and merchandise volume, fuel gross profit and overall customer traffic, which in turn could have a material adverse effect on our business, financial condition and results of operations.

Changes in credit card expenses could tighten profit margin, especially on fuel.

A significant portion of our fuel sales involve payment using credit cards. We are assessed credit card fees as a percentage of transaction amounts and not as a fixed dollar amount or percentage of our margins. Higher fuel prices trigger higher credit card expenses, and an increase in credit card use or an increase in credit card fees would have a similar effect. Therefore, credit card fees charged on fuel purchases that are more expensive as a result of higher fuel prices are not necessarily accompanied by higher profit margins. In fact, such fees may cause lower profit margins. Lower profit margins on fuel sales caused by higher credit card fees may decrease our overall profit margin and could have a material adverse effect on our business, financial condition and results of operations.

On July 21, 2010, the Federal Reserve issued the final ruling on Section 1075 of the Dodd-Frank Act (commonly referred to as the “Durbin Amendment”). These rules, among other things, place certain restrictions on the interchange transaction fees that a card issuer or payment card network can charge for an electronic debit transaction and also places various exclusivity prohibitions and routing restrictions on such transactions. These rules took effect on October 1, 2011 and indicate that there will be a reduction in fees that a card issuer or payment card network can charge for an electronic debit transaction. However, we have no assurance that we will be impacted by this legislation because the majority of our credit card payments are processed through fuel brands which may not pass the savings on to us and because of the competitive nature of fuel pricing.

Changes in economic conditions, 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. In particular, weakening economic conditions may result in decreases in miles driven and discretionary consumer spending and travel, which impact spending on fuel and convenience items. In addition, changes in the types of products and services demanded by consumers may adversely affect our merchandise sales and gross profit. Additionally, negative publicity or perception surrounding fuel suppliers could adversely affect their reputation and brand image which may negatively affect our fuel sales and gross profit. Similarly, advanced technology and increased use of "green" automobiles (i.e., those automobiles that do not use petroleum-based fuel or that run on hybrid fuel sources) could drive down demand for fuel. Our success depends on our ability to anticipate and respond in a timely manner to changing consumer demands and preferences while continuing to sell products and services that will positively impact overall merchandise gross profit.

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, such as those currently impacting the United States. If the number of visitors to coastal/resort or tourist locations decreases 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.

11

Market turmoil and uncertain economic conditions, including increases in food and fuel prices, changes in the credit and housing markets leading to the financial and credit crisis, actual and potential job losses among many sectors of the economy, significant declines in the stock market resulting in large losses in consumer retirement and investment accounts and uncertainty regarding future federal tax and economic policies have resulted in reduced consumer confidence, curtailed retail spending and decreases in miles driven. There can be no assurances that government responses to the disruptions in the financial markets will restore consumer confidence. We have experienced periodic per store sales declines in both fuel and merchandise as a result of these economic conditions. If these economic conditions persist or deteriorate further, we may continue to experience sales declines in both fuel and merchandise, which could have a material adverse effect on our business, financial condition and results of operations.

Legal, technological, political and scientific developments regarding climate change may decrease demand for fuel.

Developments regarding climate change and the effects of greenhouse gas emissions on climate change and the environment may decrease the demand for our major product, petroleum-based fuel. Attitudes toward our product and its relationship to the environment and the “green movement” may significantly affect our sales and ability to market our product. New technologies developed to steer the public toward non-fuel dependant means of transportation may create an environment with negative attitudes toward fuel, thus affecting the public’s attitude toward our major product and potentially having a material adverse effect on our business, financial condition and results of operations. Further, new technologies developed to improve fuel efficiency or governmental mandates to improve fuel efficiency may result in decreased demand for petroleum-based fuel, which could have a material adverse effect on our business, financial condition and results of operations.

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

Sales of tobacco products accounted for approximately 7.8% of total revenues over the past three fiscal years, and our tobacco gross profit accounted for approximately 13.1% 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 the use of tobacco products, may have an adverse effect on demand for cigarettes and other tobacco products. Although the states in which we operate have historically imposed relatively low taxes on tobacco products, each year one or more of these states consider increasing the tax rate for tobacco products, either to raise revenues or deter the use of tobacco. Any increase in federal or state taxes on our tobacco products 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.

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.

Federal regulation of tobacco products could adversely impact our operating results.

In June 2009, Congress gave the Food and Drug Administration (“FDA”), broad authority to regulate tobacco products through passage of the Family Smoking Prevention and Tobacco Control Act (“FSPTCA”). The FSPTCA:

• sets national performance standards for tobacco products;

• requires manufacturers, with certain exceptions, to obtain FDA clearance or approval for cigarette and smokeless tobacco products commercially launched, or to be launched, after February 15, 2007;

• requires new and larger warning labels on tobacco products; and

• requires FDA approval for the use of terms such as “light” or “low tar.”

12

Under the FSPTCA, the FDA has passed regulations that:

• prohibit the sale of cigarettes or smokeless tobacco to anyone under the age of 18 years (state laws are permitted to set a higher minimum age);

• prohibit the sale of single cigarettes or packs with less than 20 cigarettes;

• prohibit the sale or distribution of non-tobacco items such as hats and t-shirts with tobacco brands, names or logos;

• prohibits the sale of cigarettes and smokeless tobacco in vending machines, self-service displays, or other impersonal modes of sales, except in very limited situations;

• prohibits free samples of cigarettes and limits distribution of smokeless tobacco products;

• prohibits tobacco brand name sponsorship of any athletic, musical, or other social or cultural event, or any team or entry in those events;

• prohibits gifts or other items in exchange for buying cigarettes or smokeless tobacco products; and

• requires that audio ads use only words with no music or sound effects.

Governmental actions and regulations, such as those noted above, as well as statewide smoking bans in restaurants and other public places, combined with the diminishing social acceptance of smoking, declines in the number of smokers in the general population and private actions to restrict smoking, have resulted in reduced industry volume, and we expect that such actions will continue to reduce consumption levels. These governmental actions 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.

Risks Related to Our Business

Unfavorable weather conditions, the impact of climate change 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, tornadoes, 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 stores. 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.

Approximately 32% of our stores are located in coastal/resort or tourist destinations. Our coastal locations may be particularly susceptible to natural disasters or adverse localized effects of climate change, such as sea-level rise and increased storm frequency or intensity. To the extent broad environmental factors, triggered by climate change or otherwise, lead to localized physical effects, disruption in our business or unexpected relocation costs, the performance of stores in these locations could be adversely impacted.

13

Besides these more obvious consequences of severe weather to our coastal/resort stores, our ability to insure these locations, and the related cost of such insurance, may also impact our business, financial condition and results of operations. Many insurers already have plans in place to address the increased risks that may arise as a result of climate change, with many reducing their near-term catastrophic exposure in both reinsurance and primary insurance coverage along the gulf coast and the eastern seaboard.

Our indebtedness could negatively impact our financial health.

As of September 29, 2011, we had consolidated debt, including lease finance obligations, of approximately $1.2 billion. As of September 29, 2011, the availability under our revolving credit facility for borrowing was approximately $120.8 million (approximately $55.8 million of which was available for issuance of letters of credit).

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 we have 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 (“subordinated notes”) contain financial and other restrictive covenants that 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 subordinated notes permit us to incur additional indebtedness under certain circumstances. The indenture governing our senior subordinated convertible notes (“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 additional indebtedness (assuming certain financial conditions are met at the time) beyond the amounts available under our revolving credit facility. If we incur additional indebtedness, the related risks that we now face could increase.

14

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 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.

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 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 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, the indenture governing our subordinated notes or the indenture governing our 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.

If future circumstances indicate that goodwill or indefinite lived intangible assets are impaired, there could be a requirement to write down amounts of goodwill and indefinite lived intangible assets and record impairment charges.

Goodwill and indefinite lived intangible assets are initially recorded at fair value and are not amortized, but are reviewed for impairment at least annually or more frequently if impairment indicators are present. In assessing the recoverability of goodwill and indefinite lived intangible assets, we make estimates and assumptions about sales, operating margin, growth rates, consumer spending levels, general economic conditions and the market prices for our common stock. There are inherent uncertainties related to these factors and management's judgment in applying these factors. We could be required to evaluate the recoverability of goodwill and indefinite lived intangible assets prior to the annual assessment if we experience, among others, disruptions to the business, unexpected significant declines in our operating results, divestiture of a significant component of our business, changes in operating strategy or sustained market capitalization declines. These types of events

15

and the resulting analyses could result in goodwill and indefinite lived intangible asset impairment charges in the future. Impairment charges could substantially affect our financial results in the periods of such charges. In addition, impairment charges could negatively impact our financial ratios and could limit our ability to obtain financing on favorable terms, or at all, in the future.

We are subject to state and federal environmental laws and other regulations. Failure to comply with these laws and 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, 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 and regulations 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 business, 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 business, financial condition and results of operations.

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.

16

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.

Further, the federal government, including the U.S. Congress, has focused extensively on health care reform legislation and has begun efforts to reform the U.S. health care system. A comprehensive health care reform law was recently enacted. At this point, we are still evaluating what effect, if any, the reform may have on our business, but a requirement to provide additional health insurance benefits to our employees, or health insurance coverage to additional employees, would likely increase our costs and expenses, and such increases could be significant enough to materially impact our business, financial position, results of operations and cash flows.

Legislative and regulatory initiatives regarding climate change and greenhouse gas (“GHG”) emissions have accelerated recently in the United States. GHGs are certain gases, including carbon dioxide, that may be contributing to global warming and other climatic changes. For example, in December 2009, the EPA issued an endangerment finding that GHGs endanger public health and welfare and that GHG emissions from motor vehicles contribute to the threat of climate change. Although EPA’s endangerment finding does not itself impose any requirements, it does allow EPA to proceed with, among other things, proposed rules regulating GHG emissions from motor vehicles. The EPA’s endangerment finding is being challenged in federal court. If these or other governmental climate change or GHG reduction initiatives are enacted, they could have a material adverse impact on our business, financial condition and results of operations by increasing our regulatory compliance expenses, increasing our fuel costs and/or decreasing customer demand for fuel sold at our locations.

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 approximately 55% of our general merchandise, including most tobacco products and grocery items, from a single wholesale grocer, McLane. We have a contract with McLane through December 31, 2014, 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 three principal suppliers for the majority of our fuel. A disruption in supply or a change in our relationship could have a material adverse effect on our business.

During fiscal 2011, Marathon®, BP® and CITGO® supplied approximately 80% of our fuel purchases. Our contract with Marathon® for unbranded fuel and distillate expires on December 31, 2017, and our contract with Marathon® for branded fuel and distillate expires on June 30, 2013, with an option for the Company to renew until December 31, 2017. Our contract with CITGO® expires August 31, 2013 and our contract with BP® expires September 30, 2012.

At this time, we cannot provide assurance that our contract with CITGO® will automatically renew, or that we will be able to renew our BP® or Marathon contracts 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 business, 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 fuel to us and could have a material adverse effect on our business, financial condition and results of operations.

We could be adversely affected if we are not able to attract and retain a strong management team.

We are dependent on our ability to attract and retain a strong management team. Effective October 5, 2011, Mr. Marks resigned as Chief Executive Officer. In accordance with the succession plan previously approved by the Board of Directors, Edwin J. Holman, Chairman of the Board, assumed the position of interim Chief

17

Executive Officer until such time as a successor has been retained. We are conducting a search for a new chief executive officer and there can be no assurance that we will be able to identify and employ a qualified candidate in a timely manner. If, for any reason, we are not able to attract and retain qualified senior personnel, our business, financial condition, results of operations and cash flows could be adversely affected. We do not maintain key personnel life insurance on our senior executives and other key employees. We also are dependent on our ability to recruit qualified store and field managers. If we fail to attract and retain these individuals at reasonable compensation levels, our operating results may be adversely affected.

Pending or future litigation could adversely affect our financial condition, results of operations and cash flows.

We are from time to time party to various legal actions in the course of our business and an adverse outcome in such litigation could adversely affect or business, financial condition and results of operations.

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 environmental concerns or operating issues stemming from one or more locations. Lack of fresh food handling experience among our workforce increases the risk of food borne illness resulting in litigation and reputational damage. Adverse publicity about these allegations may negatively affect us, regardless of whether the allegations are true, by discouraging customers from purchasing fuel, merchandise or food 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. Even if we are successful in defending such litigation, our litigation costs could be significant, and the litigation may divert time and money away from our operations and adversely affect our performance.

Pending SEC matters could adversely affect us.

In fiscal 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 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. 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 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 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, rules and regulations 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

18

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.

The dangers inherent in the storage of fuel could cause disruptions and could expose us to potentially significant losses, costs or liabilities.

We store fuel in storage tanks at our retail locations. Our operations are subject to significant hazards and risks inherent in storing fuel. These hazards and risks include, but are not limited to, fires, explosions, spills, discharges and other releases, any of which could result in distribution difficulties and disruptions, environmental pollution, governmentally-imposed fines or clean-up obligations, personal injury or wrongful death claims and other damage to our properties and the properties of others. Any such event could have a material adverse effect on our business, financial condition and results of operations.

We rely on information technology systems to manage numerous aspects of our business, and a disruption of these systems could adversely affect our business.

We depend on information technology systems (“IT systems”) to manage numerous aspects of our business transactions and provide information to management. Our IT systems are an essential component of our business and growth strategies, and a serious disruption to our IT systems could significantly limit our ability to manage and operate our business efficiently. These systems are vulnerable to, among other things, damage and interruption from power loss or natural disasters, computer system and network failures, loss of telecommunications services, physical and electronic loss of data, security breaches, computer viruses and laws and regulations necessitating mandatory upgrades and timelines with which we may not be able to comply. Any serious disruption could cause our business and competitive position to suffer and adversely affect our operating results.

Our business and our reputation could be adversely affected by the failure to protect sensitive customer, employee or vendor data or to comply with applicable regulations relating to data security and privacy

In the normal course of our business as a fuel and merchandise retailer, we obtain large amounts of personal data, including credit and debit card information from our customers. While we have invested significant amounts in the protection of our information technology and maintain what we believe are adequate security controls over individually identifiable customer, employee and vendor data provided to us, a breakdown or a breach in our systems that results in the unauthorized release of individually identifiable customer or other sensitive data could nonetheless occur and have a material adverse effect on our reputation, operating results and financial condition. Such a breakdown or breach could also materially increase the costs we incur to protect against such risks. Also, a material failure on our part to comply with regulations relating to our obligation to protect such sensitive data or to the privacy rights of our customers, employees and others could subject us to fines or other regulatory sanctions and potentially to lawsuits.

We may not be successful in our efforts to divest non-core stores and may have on-going liabilities with respect to divested or dealer operated properties.

We periodically review our store portfolio to identify those stores that, due to their performance, location or other characteristics, merit investment on an on-going basis. We attempt to divest the remaining stores and other non-strategic assets through a variety of means, including asset sales, leases and subleases of property and dealer arrangements. There can be no assurance that we will be able to identify acceptable parties to purchase or lease the assets or operate the stores that we desire to divest. In addition, we may remain liable or contingently liable for obligations relating to the divested or dealer operated properties, and there can be no assurance that the other party to a transaction will be able to satisfy its indemnification or other obligations to us.

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 December 6, 2011, there were 22,517,097 shares

19

of 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, during any three-month period our affiliates can resell up to the greater of (a) 1.0% 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 of common stock 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. Generally, 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;

• 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.

20

The market price of our common stock will also be impacted by our quarterly operating results and quarterly comparable store sales growth, which may 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.

Item 1B.   Unresolved Staff Comments.

None.

21

Item 2.   Properties.

As of September 29, 2011, we own the real property at 422 of our stores and lease the real property at 1,227 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 2011 for operating leases and leases accounted for as lease finance obligations was $73.3 million and $49.2 million, respectively. The following table lists our leases by calendar year of expiration, excluding renewal options:

Lease Expiration	With Renewal Options	Without Renewal Options	Total Leased
2011-2015	469	36	505
2016-2020	310	14	324
2021-2025	378	5	383
2026-2030	13	—	13
2031-2035	—	2	2
Total	1,170	57	1,227

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 a two story, 62,000 square foot office building in Cary, North Carolina that functions as our corporate headquarters. We also own a three story, 51,000 square foot corporate support building in Sanford, North Carolina, and lease our corporate annex buildings in Jacksonville, Florida and Sanford, North Carolina. We believe that we will continue to have adequate office space for the foreseeable future.

Item 3.   Legal Proceedings.

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. Initially, we were named as a defendant in eight of these cases, three of which have recently been dismissed without prejudice. We remain as a defendant in five cases: 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  (Cook,et al. v. Chevron USA, Inc., et al., N.D. Ala., No. 2:07-cv-750-WKW-CSC, filed 8/22/07); one in Georgia (Rutherford, et al. v. Murphy Oil USA, Inc., et al., No. 4:07-cv-00113-HLM, filed 6/5/07); 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 those in which we are named, have been transferred to the United States District Court for the District of Kansas and 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 on non-temperature adjusted gallons, defendants receive a greater amount of tax from consumers than they paid on the same gallon of fuel. The

22

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. The defendants filed motions to dismiss all cases for failure to state a claim, which were denied by the court on February 21, 2008. A number of the defendants, including the Company, subsequently moved to dismiss for lack of subject matter jurisdiction or, in the alternative, for summary judgment on the grounds that plaintiffs’ claims constitute non-justiciable “political questions.”  The Court denied the defendants’ motion to dismiss on political question grounds on December 3, 2009, and defendants request to appeal that decision to the United States Court of Appeals for the Tenth Circuit was denied on August 31, 2010. In May 2010, in a lawsuit in which we are not a party, the Court granted class certification to Kansas fuel purchasers seeking implementation of automated temperature controls and/or certain disclosures, but deferred ruling on any class for damages. Defendants sought permission to appeal that decision to the Tenth Circuit in June 2010, and that request was denied on August 31, 2010. At this stage of proceedings, we cannot estimate our ultimate loss or liability, if any, related to these lawsuits because there are a number of unknown facts and unresolved legal issues that will impact the amount of any potential liability, including, without limitation: (i) whether defendants are required, or even permitted under state law, to sell temperature adjusted gallons of motor fuel; (ii) the amounts and actual temperature of fuel purchased by plaintiffs; and (iii) whether or not class certification is proper in cases to which the Company is a party. An adverse outcome in this litigation could have a material adverse affect on our business, financial condition, results of operations and cash flows.

On October 19, 2009, Patrick Amason, on behalf of himself and a putative class of similarly situated individuals, filed suit against The Pantry in the United States District Court for the Northern District of Alabama, Western Division (Patrick Amason v. Kangaroo Express and The Pantry, Inc. No. CV-09-P-2117-W). On September 9, 2010, a first amended complaint was filed adding Enger McConnell on behalf of herself and a putative class of similarly situated individuals. The plaintiffs seek class action status and allege that The Pantry included more information than is permitted on electronically printed credit and debit card receipts in willful violation of the Fair and Accurate Credit Transactions Act, codified at 15 U.S.C. § 1681c(g). The amended complaint alleges that: (i) plaintiff Patrick Amason seeks to represent a subclass of those class members as to whom the Company printed receipts containing the first four and last four digits of their credit and/or debit card numbers; and (ii) Plaintiff Enger McConnell seeks to represent a subclass of those class members as to whom the Company printed receipts containing all digits of their credit and/or debit card numbers. The plaintiffs seek an award of statutory damages of $100 to $1,000 for each alleged willful violation of the statute, as well as attorneys' fees, costs, punitive damages and a permanent injunction against the alleged unlawful practice. On July 25, 2011, the court denied plaintiffs’ initial motion for class certification but granted the plaintiffs the right to file an amended motion. On October 3, 2011, Plaintiff filed an amended motion for class certification seeking to certify two classes. The first purported  class, represented by Mr. Amason,  consists of (A) all natural persons whose credit and/or debit card was used at an in-store point of sale owned or operated by the Company from June 4, 2009 through the date of the final judgment in the action, (B) where the transaction was in a Company store located in the State of Alabama; and (C) in connection with the transaction, a receipt was printed by Retalix software containing the first four and last four digits of the credit/debit card number on the receipt provided to the customer. The second purported class, represented by Ms. McConnell, consists of (A) all natural persons whose credit and/or debit card was used at an in-store point of sale owned or operated by the Company from June 1, 2009 through the date of the final judgment in the action, and (B) in connection with the transaction, a receipt was printed containing all of the digits of the credit/debit card numbers on the receipt provided to the customer. The Company is opposing the motion for class certification, and also has made a motion to dismiss the plaintiffs’ claims on the basis that the plaintiffs lack standing or alternatively to stay the case until the Supreme Court of the United States rules in First American Financial Corp. v. Edwards, another case involving a standing issue. At this stage of the proceedings, we cannot reasonably estimate our ultimate loss or liability, if any, related to this lawsuit because there are a number of unknown facts and unresolved legal issues that will impact the amount of our potential liability, including, without limitation: (i) whether the plaintiffs have standing to assert their claims; (ii) whether a class or classes will be certified; (iii) if a class or classes are certified, the identity and number of the putative class members; and (iv) if a class or classes are certified, the resolution of certain unresolved statutory interpretation issues that may impact the size of the putative class(es) and whether or not the plaintiffs are entitled to statutory damages. An adverse outcome in this litigation could have a material adverse affect on our business, financial condition, results of operations and cash flows.

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, results of operations and cash flows. If, however, our assessment of these actions is inaccurate, or there are any significant adverse developments in these actions, our business, financial condition, results of operations and cash could be materially adversely affected.

Item 4.                      (Removed and Reserved.)

23

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 22,923,829 shares of common stock issued and outstanding as of September 29, 2011. 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.

	2011				2010
Quarter	High		Low		High		Low
First	$	24.43	$	17.10	$	16.58	$	12.52
Second	$	20.52	$	13.29	$	14.00	$	12.26
Third	$	19.47	$	14.43	$	16.69	$	12.00
Fourth	$	19.42	$	10.54	$	24.44	$	13.77

As of December 6, 2011, there were 147 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 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.”

There were no sales of unregistered securities during the fourth quarter of fiscal 2011.

The following table lists all repurchases during the fourth quarter of fiscal 2011 of any of our securities registered under Section 12 of the Exchange Act by or on behalf of us or any affiliated purchaser.

Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased(1)	Average Price Paid per Share(2)	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2011 – July 28, 2011	—	$ —	—	$ —
July 29, 2011 – September 1, 2011	53	17.01	—	—
September 2, 2011 – September 29, 2011	1,772	13.00	—	—
Total	1,825	$13.12	—	$ —

(1)	Represents shares repurchased in connection with tax withholding obligations under the Omnibus Plan.
(2)	Represents the average price paid per share for the shares repurchased in connection with tax withholding obligations under the Omnibus Plan.

24

Comparison of 5-year cumulative total return*

* $100 invested on 9/28/06 in stock or 9/30/06 in index, including reinvestment of dividends. Fiscal year ending September 29, 2011.
	9/28/06	9/27/07	9/25/08	9/24/09	9/30/10	9/29/11
The Pantry, Inc.	$100.00	$49.09	$33.99	$29.26	$43.90	$23.34
Russell 2000	$100.00	$112.34	$96.07	$86.90	$98.50	$95.02
NASDAQ Retail Trade	$100.00	$125.13	$107.45	$114.64	$155.99	$193.90
Old Peer Group	$100.00	$126.24	$130.22	$136.71	$191.69	$208.99
New Peer Group	$100.00	$126.24	$123.62	$123.86	$169.19	$192.56

The above graph compares the cumulative total stockholder return on our common stock from September 28, 2006 through September 29, 2011, with the cumulative total return for the same period on the Russell 2000 Index, the NASDAQ Retail Trade Index and a peer group consisting of Casey’s General Stores, Inc and Susser Holdings Corporation. Susser Holdings Corporation was added to our peer group in fiscal 2011.

The graph assumes that, at the beginning of the period indicated, $100 was invested in our common stock, the stock of our peer group companies and the companies comprising the Russell 2000 Index and the NASDAQ Retail trade Index and that all dividends were reinvested.

The stockholder return shown on the graph above is not necessarily indicative of future performance, and we do not make or endorse any predictions as to future stockholder returns.

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.” Our fiscal year ended September 30, 2010 included 53 weeks, all remaining periods presented included 52 weeks.

25

(Dollars are in millions, except per share, per store and per gallon data and as otherwise indicated)	2011	2010		2009		2008	2007
Statement of Operations Data:
Revenues:
Merchandise revenue	$1,778.8	$1,797.9		$1,658.9		$1,636.7	$1,575.9
Fuel revenue	6,359.7	5,467.4		4,731.2		7,358.9	5,335.2
Total revenues	8,138.5	7,265.3		6,390.1		8,995.6	6,911.1
Costs and operating expenses:
Merchandise cost of goods sold	1,175.6	1,190.4		1,071.8		1,041.6	989.9
Fuel cost of goods sold	6,102.6	5,202.7		4,419.9		7,096.6	5,111.7
Store operating and general and administrative	628.6	632.3		614.9		604.8	592.6
Goodwill impairment and other impairment charges	12.6	267.1	(a)	2.1		3.2	1.5
Depreciation and amortization	117.0	120.6		108.7		108.3	95.9
Income (loss) from operations	102.1	(147.8)		172.7		141.1	119.5
Gain/(loss) on extinguishment of debt	—	(0.8)	(b)	4.0	(c)	—	(2.2)	(d)
Interest expense, net	(87.5)	(88.3)		(91.5)		(95.0)	(78.4)
Net income (loss)	$9.8	$(165.6)		$54.1		$28.6	$23.8
Earnings (loss) per share:
Basic	$0.44	$(7.42)		$2.43		$1.29	$1.04
Diluted	$0.44	$(7.42)		$2.42		$1.29	$1.04
Weighted-average shares outstanding:
Basic	22,465	22,333		22,233		22,205	22,776
Diluted	22,529	22,333		22,346		22,236	22,911
Other Financial Data:
Adjusted EBITDA(h)	$231.7	$239.8		$283.5		$252.6	$216.9
Cash provided by (used in):
Operating activities	$178.7	$154.8		$169.4		$157.5	$140.6
Investing activities(e)	(140.3)	(97.5)		(166.0)		(115.5)	(528.7)
Financing activities	(25.3)	(26.5)		(50.7)		103.7	339.2
Gross capital expenditures	100.7	101.1		122.7		109.5	146.4
Store Operating Data:
Number of stores (end of period)	1,649	1,638		1,673		1,653	1,644
Average sales per store:
Merchandise revenue (in thousands)	$1,074.8	$1,088.3		$1,001.1		$991.3	$998.7
Fuel gallons (in thousands)—Retail	1,151.8	1,255.3		1,268.6		1,288.8	1,306.4
Average sales per store per week:
Merchandise revenue (in thousands)	$20.7	$20.5		$19.3		$19.1	$19.2
Fuel gallons (in thousands)—Retail	22.2	23.7		24.4		24.8	25.1
Comparable store sales(f):
Merchandise sales (decrease) increase (%)	0.2%	5.6%		0.0%		(1.7%)	2.3%
Merchandise sales (decrease) increase (in thousands)	$2,908	$91,849		$327		$(25,209)	$29,443
Fuel gallons (decrease) increase (%)	(7.4%)	(4.9%)		(3.3%)		(4.4%)	1.0%
Fuel gallons (decrease) increase (in thousands)	(147,239)	(102,629)		(68,481)		(80,368)	16,115
Operating Data:
Merchandise gross margin	33.9%	33.8%		35.4%		36.4%	37.2%
Retail fuel gallons sold (in millions)	1,889.1	2,047.4		2,078.0		2,103.4	2,032.8
Average retail fuel price per gallon	$3.33	$2.64		$2.24		$3.40	$2.55
Average retail fuel gross margin per gallon(g)	$0.135	$0.129		$0.149		$0.123	$0.109
Balance Sheet Data (end of period):
Cash and cash equivalents	$213.8	$200.6		$169.9		$217.2	$71.5
Working capital	173.3	185.3		158.2		183.8	33.9
Total assets	1,934.3	1,896.5		2,154.2		2,167.9	2,028.5
Senior secured debt	406.5	413.8		419.1		446.2	250.0
Unsecured debt, other	340.6	345.6		354.8		372.5	467.1
Lease financing obligations	457.5	457.3		465.0		465.0	457.9
Total debt and lease finance obligations	1,204.6	1,216.7		1,238.9		1,283.7	1,175.0
Shareholders’ equity	322.3	308.1		467.2		406.4	373.5

(footnotes on following pages)

26

(a) During fiscal 2010, we determined that the carrying value of our goodwill exceeded its implied fair value and we recorded a non-cash pre-tax impairment charge of approximately $230.8 million.

(b) During fiscal 2010, we recorded a loss on extinguishment of debt of $791 thousand related to the buyback of approximately $16.2 million in principal amount of our convertible notes. The loss is due to the write-off of the unamortized debt discount and unamortized deferred financing costs.

(c) During fiscal 2009, we recorded a gain on extinguishment of debt of $4.0 million related to the buyback of approximately $24.0 million in principal amount of our convertible notes and $3.0 million in principal amount of our subordinated notes. We recognized a gain of $3.7 million and $705 thousand related to the repurchase of our convertible notes and our subordinated notes, respectively, partially offset by the write-off of $438 thousand of unamortized deferred financing costs.

(d) 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.

(e) Investing activities include expenditures for acquisitions.

(f)

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.

(g)

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

(h) We define Adjusted EBITDA as net income (loss) before interest expense, net, gain/loss on extinguishment of debt, income taxes, impairment charges and depreciation and amortization. Adjusted EBITDA is not a measure of operating performance or liquidity under accounting principles generally accepted in the United States of America (“GAAP”) and should not be considered as a substitute for net income, cash flows from operating activities or other income or cash flow statement data. We have included information concerning 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 Adjusted EBITDA to review the performance of our business directly resulting from our retail operations and for budgeting and field operations compensation targets.

Any measure that excludes interest expense, loss on extinguishment of debt, depreciation and amortization, impairment charges or income taxes has material limitations because we use debt and lease financing in order to finance 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 Adjusted EBITDA only in addition to and in conjunction with results and cash flows 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. Adjusted EBITDA does not include impairment of long-lived assets and other charges. We excluded the effect of impairment losses because we believe that including them in Adjusted EBITDA is not consistent with reflecting the ongoing performance of our remaining assets. Adjusted EDITDA does not include gain/loss on extinguishment of debt because it represents financing activities and is not indicative of the ongoing performance of our remaining stores.

27

Because non-GAAP financial measures are not standardized, 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 Adjusted EBITDA with non-GAAP financial measures having the same or similar names used by other companies.

The following table contains a reconciliation of Adjusted EBITDA to net income (loss):

	(Dollars are in thousands)	2011	2010 (1)	2009	2008	2007
	Adjusted EBITDA	$231,728	$239,848	$283,541	$252,573	$216,858
	Impairment charges	(12,555)	(267,079)	(2,084)	(3,175)	(1,468)
	Gain/(loss) on extinguishment of debt	(15)	(791)	4,007	—	(2,212)
	Interest expense, net	(87,491)	(88,256)	(91,483)	(95,001)	(78,413)
	Depreciation and amortization	(117,025)	(120,605)	(108,712)	(108,326)	(95,887)
	Income tax benefit (expense)	(4,827)	71,268	(31,178)	(17,492)	(15,087)
	Net income (loss)	$9,815	$(165,615)	$54,091	$28,579	$23,791
(1)   Fiscal 2010 included 53 weeks.

The following table contains a reconciliation of Adjusted EBITDA to net cash provided by operating activities:

	(Dollars are in thousands)	2011	2010 (1)	2009	2008	2007
	Adjusted EBITDA	$231,728	$239,848	$283,541	$252,573	$216,858
	Gain/(loss) on extinguishment of debt	(15)	(791)	4,007	—	(2,212)
	Interest expense, net	(87,491)	(88,256)	(91,483)	(95,001)	(78,413)
	Income tax benefit (expense)	(4,827)	71,268	(31,178)	(17,492)	(15,087)
	Stock-based compensation expense	2,153	3,478	6,367	3,321	3,657
	Changes in operating assets and liabilities	6,621	(13,593)	(18,050)	(6,410)	6,335
	Other	30,541	(57,129)	16,232	20,513	9,498
	Net cash provided by operating activities	$178,710	$154,825	$169,436	$157,504	$140,636
	Net cash used in investing activities	$(140,324)	$(97,521)	$(166,012)	$(115,513)	$(528,723)
	Net cash (used in) provided by financing activities	$(25,255)	$(26,547)	$(50,732)	$103,694	$339,196
(1)  Fiscal 2010 included 53 weeks.

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

The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the results of operations and financial condition of The Pantry, Inc. MD&A is provided as a supplement to, and 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.”

28

References to “fiscal 2012” refer to our fiscal year which ends on September 27, 2012, references to “fiscal 2011” refer to our fiscal year which ended on September 29, 2011, references to “fiscal 2010” refer to our fiscal year which ended September 30, 2010, references to “fiscal 2009” refer to our fiscal year which ended September 24, 2009. All fiscal years presented included 52 weeks, except fiscal 2010, which included 53 weeks.

Safe Harbor Discussion

This report, including, without limitation, our MD&A, 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 the use of phrases such as “believe,” “plan,” “expect,” “anticipate,” “intend,” “forecast,” “goal,” “guidance” or other similar words or phrases. Descriptions of our objectives, goals, targets, plans, strategies, anticipated financial performance, projected costs and burdens of environmental remediation, anticipated capital expenditures, expected cost savings and benefits and anticipated synergies from acquisitions, and expectations regarding remodeling, re-branding, re-imaging or otherwise converting our stores are forward-looking statements, as are our statements relating to our anticipated liquidity and debt reduction, our pricing strategies and their anticipated impact and our expectations relating to the costs and benefits of our merchandising and marketing initiatives. 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, fuel stations and other non-traditional retailers located in our markets;

• volatility in oil and wholesale fuel costs;

• political conditions in oil producing regions and global demand;

• changes in credit card expenses;

• changes in economic conditions generally and in the markets we serve;

• consumer behavior, travel and tourism trends;

• legal, technological, political and scientific developments regarding climate change;

• wholesale cost increases of, tax increases on and campaigns to discourage the use of tobacco products;

• federal and state regulation of tobacco products;

• unfavorable weather conditions, the impact of climate change  or other trends or developments in the southeastern United States;

• inability to identify, acquire and integrate new stores or to divest our non-core stores to qualified buyers or operators on acceptable terms;

• financial leverage and debt covenants, including increases in interest rates;

• federal and state environmental, tobacco and other laws and regulations;

• dependence on one principal supplier for merchandise and three principal suppliers for fuel;

• dependence on senior management;

• litigation risks, including with respect to food quality, health and other related issues;

29

• inability to maintain an effective system of internal control over financial reporting;

• disruption of our IT systems or a failure to protect sensitive customer, employee or vendor data; and

• other unforeseen factors.

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 December 13, 2011. 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 1,649 stores in 13 states as of September 29, 2011. Our stores operate under a number of select banners, with 1,562 of our stores operating under either the Kangaroo Express ® or Kangaroo ® banners, which are our primary operating banners. We derive our revenue from the sale of merchandise, fuel 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:

• Strengthening our merchandising and marketing initiatives to improve sales;

• sophisticated management of our fuel business;

• leveraging our geographic economies of scale;

• strong cash flow generation to reinvest in our business and reduce debt levels;

• divesting of under-performing store assets and non-productive surplus properties.

Executive Summary

Our net income for fiscal 2011 was $9.8 million, or $0.44 per diluted share, and adjusted EBITDA for fiscal 2011 $231.7 million. Our total revenue for the year increased 12.0% to $8.1 billion primarily driven by higher retail fuel prices which rose from an average of $2.64 a gallon in fiscal 2010 to an average of $3.33 a gallon in fiscal 2011. We believe that the significant increase in our average fuel retail price per gallon negatively impacted our retail fuel gallon volume during fiscal 2011.

During fiscal 2011, we completed the rollout of our Fresh initiative to the Charlotte, NC, Birmingham, AL and Gulf Coast Mississippi markets. This initiative is focused on each of our core food and beverage offerings including coffee, hot dogs, fountain and frozen beverages, sandwiches and bakery. As of September 29, 2011 we have converted approximately 250 stores. We anticipate having approximately 340 stores converted by the end of our first quarter of fiscal 2012. We will continue to study the results generated by the Fresh initiative and potential areas for improvement in the program before deciding on future rollout plans.

During fiscal 2011, we reduced our long-term debt, net of cash and increased liquidity. Our outstanding long-term debt, net of cash decreased $25.3 million from fiscal 2010 to $533.4 million. Our liquidity, including cash on hand and borrowing availability under our revolving credit facility increased $28.2 million from fiscal 2010 to $334.6 million at the end of fiscal 2011. We were able to achieve these improvements by generating cash flow from operations of $178.9 million in fiscal 2011 compared to $154.8 million in fiscal 2010.

Our plans for fiscal 2012 will focus on:

·   Achieving a better balance between sales levels and margin contribution in order to enhance our competitiveness in the marketplace.

·   Product assortment and other marketing and merchandising initiatives to improve the productivity of our stores.

30

·   Investing capital as needed in stores that we have identified as core operating properties to provide a platform for future growth through our merchandising and marketing initiatives.

·   Reducing our corporate general and administrative expenses and our store operating expenses and improving our working capital position. We have launched initiatives to drive down these expenses which include renegotiating lease payments and bank fees as well as engaging a third party to supplement our non-merchandise procurement team for renegotiations and renewals.

·   Continuing to reduce leverage through payments on the senior credit facility and purchasing notes on the open market. Our excess cash flow, as defined in the senior credit facility, will require us to make a mandatory prepayment of approximately $27.6 million in the first quarter of fiscal 2012. Additionally, our current plan is to retire our outstanding convertible notes at or before maturity in November, 2012 using available cash on hand.

Market and Industry Outlook

There is currently a trend in the convenience store industry of companies concentrating on increasing and improving in-store food service offerings, including fresh foods, quick service restaurants or proprietary food offerings. Should this trend continue, we believe consumers may become more likely to patronize convenience stores that include such offerings, which may also lead to increased inside merchandise sales or gasoline sales for such stores. We are attempting to capitalize on this trend by improving our in-store food offerings. Currently, 233 of our convenience stores offer quick service restaurants, and we have launched a company-wide Fresh initiative to improve breakfast, lunch and snack experiences in our stores. We launched the program in fiscal 2010 and approximately 250 of our stores had the program implemented at the end of fiscal year 2011.

While the U.S. and global economies have shown signs of recovery, unemployment, underemployment and declining home prices remain above normal in the markets where a vast majority of our stores are located. The following table illustrates the unemployment trends in our primary markets over the last five years:

	2011(1)	2010	2009	2008	2007
North Carolina	10.5%	10.6%	10.8%	6.2%	4.7%
South Carolina	10.9%	11.2%	11.3%	6.8%	5.6%
Florida	10.6%	11.5%	10.2%	6.2%	4.0%
United States	9.1%	9.6%	9.3%	5.8%	4.6%

(1) Data as of September 2011.

Our business has been proven to be highly congruent with the economic well being of the construction business, and new housing permits in our markets have continued to decline. We believe high consumer credit levels, a continued unstable housing market and depressed consumer confidence levels, especially in our markets, have resulted in decreased recreational travel and consumer spending, which resulted in lower demand for our fuel and merchandise. We believe that in challenging economic conditions our success will depend on our ability to anticipate and respond in a timely manner to changing consumer demands and preferences while continuing to sell products and services that will positively impact overall merchandise gross profit.

Wholesale fuel prices were volatile during fiscal 2011, fiscal 2010 and fiscal 2009, and we expect that they will remain volatile into the foreseeable future. During fiscal 2011, wholesale crude oil prices began the year at approximately $82 per barrel, reaching a high of approximately $114 per barrel in April, before returning to approximately $82 per barrel to finish our fiscal year. We attempt to pass along wholesale fuel 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 fuel margins in periods of rising wholesale costs and higher margins in periods of decreasing wholesale costs.

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 MD&A 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 2011, fiscal 2010 and fiscal 2009, each of which contained 52 weeks, except fiscal 2010 which included 53 weeks:

31

(Dollars in thousands, except per gallon data)	2011	2010	2009
Selected financial data:
Merchandise revenue	$1,778,819	$1,797,860	$1,658,926
Merchandise gross profit[1]	$603,189	$607,464	$587,084
Merchandise margin	33.9%	33.8%	35.4%
Retail fuel data:
Gallons (in millions)	1,889.1	2,047.4	2,078.0
Margin per gallon	$0.135	$0.129	$0.149
Retail price per gallon	$3.33	$2.64	$2.24
Total fuel gross profit[1] [2]	$257,074	$264,685	$311,344
Comparable store data:
Merchandise sales increase (decrease) (%)	0.2%	5.6%	0.0%
Merchandise sales increase (decrease)	$2,908	$91,849	$327
Fuel gallons (decrease) increase (%)	(7.4%)	(4.9%)	(3.3%)
Fuel gallons (decrease) increase  (in thousands)	(147,239)	(102,629)	(68,481)
Number of stores:
End of period	1,649	1,638	1,673
Weighted-average store count	1,655	1,652	1,657

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

[2] We present fuel gross profit per gallon inclusive of credit card processing fees and cost of repairs and maintenance on fuel equipment.

The table below provides a summary of the estimated impact of the 53rd week on revenue, gross profit, expenses and gallons sold for fiscal 2010:

	September 30, 2010
(Dollars in thousands, except gallon data)	As reported	Impact of 53rd week	As adjusted
Revenue:
Merchandise	$1,797,860	$(33,462)	$1,764,398
Fuel	5,467,402	(99,200)	5,368,202
Total revenues	$7,265,262	$(132,662)	$7,132,600
Gross profit:
Merchandise	$607,464	$(11,312)	$596,152
Fuel	264,685	(3,872)	260,813
Total gross profit	$872,149	$(15,184)	$856,965
Retail fuel gallons sold (in millions)	2,047.4	(37.3)	2,010.1
Store operating expenses	$536,618	$(8,067)	$528,551
General and administrative	$95,683	$(2,170)	$93,513
Depreciation and amortization	$120,605	$(2,112)	$118,493
Interest expense, net	$88,256	$(819)	$87,437

32

Fiscal 2011 Compared to Fiscal 2010

Merchandise Revenue and Gross Profit.   Merchandise revenue for fiscal 2011 increased $14.4 million, or 0.8%, from fiscal 2010, excluding the estimated impact of the 53rd week. The increase is primarily attributable to revenue from acquired stores and comparable store sales growth, partially offset by lost revenue from closed stores. The increase in merchandise revenue of $31.1 million from stores acquired since the beginning of fiscal 2010 outpaced lost revenue of $22.7 from stores closed since the beginning of fiscal 2010. The increase in merchandise revenue of $2.9 million from comparable store sales growth was primarily attributable to growth in our service revenue.

Merchandise gross profit for fiscal 2011 increased $4.3 million, or 1.2%, from fiscal 2010, excluding the estimated impact of the 53rd week. This increase is primarily attributable to the $14.4 million increase in merchandise revenue discussed above and the 10 basis point increase in merchandise margin from 33.8% for fiscal 2010 to 33.9% for fiscal 2011. We compute gross profit exclusive of depreciation and allocation of store operating and general and administrative expenses.

Fuel Revenue, Gallons, and Gross Profit.   Fuel revenue for fiscal 2011 increased $991.5 million, or 18.5%, from fiscal 2010, excluding the estimated impact of the 53rd week. This increase is primarily attributable to a 26.1% increase in the average retail fuel price per gallon from $2.64 for fiscal 2010 to $3.33 for fiscal 2011, partially offset by a decrease in retail fuel gallons sold of 120.6 million gallons, or 6.0%. The increase in our average retail price per gallon was primarily due to rising domestic crude oil prices, which resulted in higher wholesale and retail fuel costs. In fiscal 2010, domestic crude oil prices began at approximately $66 per barrel, reaching a high of approximately $87 per barrel in the third quarter, and ended the year at $80 per barrel. In fiscal 2011, domestic crude oil prices began at approximately $80 per barrel, reaching a high of approximately $114 per barrel in the third quarter, and ended the year at approximately $82 per barrel. The decrease in retail fuel gallons sold for fiscal 2011 is primarily attributable to a decrease in comparable store gallons sold and lost gallons sold from closed stores, partially offset by gallons sold from acquired stores. The decrease in comparable store retail fuel gallons sold of 147.2 million gallons, or 7.4%, is primarily due to the significant year-over-year increase in retail prices, which negatively impacted miles driven in our markets. Our efforts to focus on fuel margin dollars also negatively impacted our retail fuel volumes. The increase in retail fuel volume of 45.7 million gallons sold from stores acquired since the beginning of fiscal 2010 outpaced lost retail fuel volume of 16.2 million gallons sold from stores closed since the beginning of fiscal 2010.

Fuel gross profit for fiscal 2011 decreased $3.7 million, or 1.4%, from fiscal 2010, excluding the estimated impact of the 53rd week. This decrease was primarily due to the decline in gallon volume discussed above, partially offset by a 0.6 cent increase in retail margin per gallon from 12.9 cents in fiscal 2010 to 13.5 cents for fiscal 2011. The increase in retail margin per gallon is partially attributable to our efforts to maximize gross profit contribution which did result in some added pressure to our retail fuel volume. We compute gross profit exclusive of depreciation and allocation of store operating and general and administrative expenses. We present fuel margin per gallon inclusive of credit card processing fees and repairs and maintenance on fuel equipment. These fees and costs totaled $0.066 per gallon and $0.055 per gallon for fiscal 2011 and fiscal 2010, respectively. The increase in these fees was primarily due to higher average retail fuel prices.

Store Operating.  Store operating expenses for fiscal 2011 decreased $4.2 million or 0.8% from fiscal 2010, excluding the estimated impact of the 53rd week. The improvement is primarily due to lower labor costs driven by our continued efforts to better match employee staffing with expected customer traffic, favorable trends in medical costs and our efforts to reduce facility related costs. These reductions were partially offset by increased advertising associated with our promotional activity.

General and Administrative.   General and administrative expenses for fiscal 2011 increased $10.7 million, or 11.4%, from fiscal 2010, excluding the estimated impact of the 53rd week. The increase is primarily due to additional personnel investments in marketing and information technology, increased advertising expenses and expenses associated with the acquisition of 47 stores from Presto in the first quarter of fiscal 2011, plus the impact of real estate gains recognized in fiscal 2010. We continue to launch initiatives to drive down our general and administrative costs which include renegotiating lease payments, renegotiating bank fees and engaging a third party to supplement our non-merchandise procurement team for renegotiations and renewals.

Depreciation and Amortization.   Depreciation and amortization expenses for fiscal 2011 decreased $1.5 million, or 1.2%, from fiscal 2010, excluding the estimated impact of the 53rd week. The decrease is primarily due to accelerating depreciable lives of certain assets in fiscal 2010 related to re-imaging of several of our Chevron® branded locations and assets that were part of our new in-store initiative projects.

33

Impairment Charges.   During our fiscal 2011 annual impairment testing of goodwill we determined in step one of the test that fair value exceeded book value by a significant amount.Subsequent to the date of our annual impairment test, we experienced a decline in our market capitalization to less than our book value for a short period of time. However, we are unaware of any specific events or changes in circumstances precipitating the decline in market capitalization that would represent an indicator of impairment. As a result, no impairment charges related to goodwill were recognized for fiscal 2011. During our fiscal 2010 impairment testing of goodwill we concluded that the carrying value of our goodwill exceeded its implied fair value. As a result we recorded a non-cash pre-tax impairment charge of $230.8 million. See Note 5—Goodwill and Other Intangible Assets and Note 6—Asset Impairments in “Part II Item 8. Financial Statements—Notes to Consolidated Financial Statements”.

There were no intangible asset impairments for fiscal year 2011. During fiscal 2010, we performed interim impairment testing of our Petro Express® trade name due to events and changes in circumstances that resulted in a change to the estimate of the remaining useful life from indefinite to finite-lived. As a result of the impairment test, we recorded an impairment charge to write-off the carrying value of the trade name of approximately $21.3 million. See Note 6—Asset Impairments and Note 19—Fair Value Measurements in “Part II.—Item 8. Financial Statements—Notes to Consolidated Financial Statements”.

In April 2011, management made a strategic decision to market certain surplus properties and operating stores for sale. As a result, we recorded impairment charges related to surplus properties of approximately $7.3 million and operating stores of $5.2 million during fiscal year 2011. In December 2009, management made a decision not to develop stores on certain surplus properties. As a result, we recorded impairment charges related to surplus properties of approximately $7.8 million and operating stores of $7.2 million during fiscal 2010. See Note 6—Asset Impairments and Note 19—Fair Value Measurements in “Part II.—Item 8. Financial Statements—Notes to Consolidated Financial Statements”.

We test our operating stores for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Cash flows vary for each store year to year and as a result, we have identified and recorded impairment charges of approximately $5.2 million and $7.2 million during the fiscal year ended September 29, 2011 and September 30, 2010, respectively primarily due to changes in market demographics, traffic patterns, competition and other factors have impacted the overall operations of certain of our individual store locations. See Note 6—Asset Impairments and Note 19—Fair Value Measurements in “Part II.—Item 8. Financial Statements—Notes to Consolidated Financial Statements”.

Gain(Loss) on Extinguishment of Debt.    The loss on extinguishment of debt of $15 thousand during fiscal 2011 relates to the repurchase of $10 million in principal amount of our subordinated notes, partially offset by the write-off of $65 thousand of unamortized deferred financing costs. The loss on extinguishment of debt of $791 thousand during fiscal 2010 relates to the repurchase of approximately $16.2 million in principal amount of our convertible notes.

Interest Expense, Net.   Interest expense, net is primarily comprised of interest on our long-term debt and lease finance obligations, net of an insignificant amount of interest income. Interest expense, net for fiscal 2011 was consistent with fiscal 2010, excluding the impact of the 53rd week.

Income Tax Expense (Benefit).   Our effective tax rate for fiscal 2011 was 33.0% compared to 30.1% for fiscal 2010. The increase in our effective rate is primarily the result of the impact of the goodwill impairment charge in fiscal 2010.

Adjusted EBITDA.   We define Adjusted EBITDA as net income (loss) before interest expense, net, gain/loss on extinguishment of debt, income taxes, impairment charges and depreciation and amortization. Adjusted EBITDA for fiscal 2011 was $231.7 million, which was a decrease of $8.1 million, or 3.4%, from fiscal 2010. This decrease is primarily attributable to the variances discussed above.

Adjusted EBITDA is not a measure of operating performance or liquidity under GAAP and should not be considered as a substitute for net income, cash flows from operating activities or other income or cash flow statement data. Historically, we have included lease payments the Company makes under lease finance obligations as a reductions to EBITDA. We are no longer adjusting EBITDA for payments made for lease finance obligations in order to provide a measure that management believes is more comparable to similarly titled measures used by other companies. We have included information concerning 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 Adjusted EBITDA to review the performance of our business directly resulting from our retail operations and for budgeting and field operations compensation targets.

Any measure that excludes interest expense, loss on extinguishment of debt, depreciation and amortization, impairment charges or income taxes has material limitations because we use debt and lease financing in order to finance our operations and acquisitions, we use capital and intangible assets in our business and the

34

payment of income taxes is a necessary element of our operations. Due to these limitations, we use Adjusted EBITDA only in addition to and in conjunction with results and cash flows 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. Adjusted EBITDA does not include impairment of long-lived assets and other charges. We excluded the effect of impairment losses because we believe that including them in Adjusted EBITDA is not consistent with reflecting the ongoing performance of our remaining assets.

Because non-GAAP financial measures are not standardized, 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 Adjusted EBITDA with non-GAAP financial measures having the same or similar names used by other companies.

The following table contains a reconciliation of Adjusted EBITDA to net income (loss):

	(Dollars in thousands)	2011	2010 (1)
	Adjusted EBITDA	$231,728	$239,848
	Impairment charges	(12,555)	(267,079)
	Loss on extinguishment of debt	(15)	(791)
	Interest expense, net	(87,491)	(88,256)
	Depreciation and amortization	(117,025)	(120,605)
	Income tax benefit (expense)	(4,827)	71,268
	Net income (loss)	$9,815	$(165,615)
(1)   Fiscal 2010 included 53 weeks.

The following table contains a reconciliation of Adjusted EBITDA to net cash provided by operating activities:

	(Dollars in thousands)	2011	2010 (1)
	Adjusted EBITDA	$231,728	$239,848
	Loss on extinguishment of debt	(15)	(791)
	Interest expense, net	(87,491)	(88,256)
	Income tax benefit (expense)	(4,827)	71,268
	Stock-based compensation expense	2,153	3,478
	Changes in operating assets and liabilities	6,621	(13,593)
	Other	30,541	(57,129)
	Net cash provided by operating activities	$178,710	$154,825
	Net cash used in investing activities	$(140,324)	$(97,521)
	Net cash used in financing activities	$(25,255)	$(26,547)
(1)   Fiscal 2010 included 53 weeks.

Fiscal 2010 Compared to Fiscal 2009

Merchandise Revenue and Gross Profit.   Merchandise revenue for fiscal 2010 increased $105.5 million or 6.4%, from fiscal 2009, excluding the estimated impact of the 53rd week. The increase is primarily attributable to comparable store sales growth and revenue from acquired stores, partially offset by lost revenue from

35

closed stores. Comparable store sales growth of 5.6% accounted for a $91.8 million increase in merchandise revenue. Although the sluggish economy has decreased merchandise unit sales, the increase in comparable store merchandise revenue was primarily attributed to increased retail prices resulting from the recent increases in federal and state excise cigarette taxes. The increase in merchandise revenue of $33.8 million from stores acquired and constructed since the beginning of fiscal 2009 outpaced lost revenue of $17.8 million from stores closed since the beginning of fiscal 2009.

Merchandise gross profit for fiscal 2010 increased $9.1 million, or 1.5%, from fiscal 2009, excluding the estimated impact of the 53rd week. This increase is primarily attributable to the $105.5 million increase in merchandise revenue discussed above, partially offset by the 160 basis point decrease in merchandise gross margin to 33.8% for fiscal 2010 from 35.4% for fiscal 2009. The decrease in merchandise gross margin is primarily due to the continued impact of increased state and federal excise taxes in the cigarette category. We saw large increases in federal excise taxes during fiscal year 2009, including an increase of $0.62 per pack on April 1, 2009. Additionally, Florida increased state excise taxes $1.00 per pack effective July 1, 2009, which impacted approximately 26% of our stores. While we attempted to pass on the increased cost to our customers, the tax increase resulted in lower unit volumes and reduced merchandise margins. Our increased promotional activity to support our Fresh program also contributed to the decrease in our merchandise gross margin in the form of increased markdowns. Our Fresh program is designed to improve comparable store sales and merchandise gross margin with focus on coffee, meals and snacks. We compute gross profit exclusive of depreciation and allocation of store operating and general and administrative expenses.

Fuel Revenue, Gallons, and Gross Profit.   Fuel revenue for fiscal 2010 increased $637.0 million, or 13.5%, from fiscal 2009, excluding the estimated impact of the 53rd week. This increase is primarily attributable to a 17.9% increase in the average retail fuel price per gallon from $2.24 for fiscal 2009 to $2.64 for fiscal 2010, partially offset by a decrease in retail fuel gallons sold of 67.9 million gallons, or 3.3%, excluding the estimated impact of the 53rd week. The increase in our average retail price per gallon was primarily due to rising domestic crude oil prices, which resulted in higher wholesale and retail fuel costs. In fiscal 2010, domestic crude oil prices began at approximately $66 per barrel, reaching a high of approximately $87 per barrel in the third quarter, and ended the year at $80 per barrel. The decrease in retail fuel gallons sold for fiscal 2010 is primarily attributable a decrease in comparable store gallons sold and lost gallons sold from closed stores, partially offset by gallons sold from acquired stores. The decrease in comparable store retail fuel gallons sold of 102.6 million gallons, or 4.9%, is primarily due to the significant year-over-year increase in retail prices, which negatively impacted miles driven in our markets. Our efforts to focus on fuel margin dollars also added pressure to our retail fuel volumes. The increase in retail fuel volume of 44.2 million gallons sold from stores acquired since the beginning of fiscal 2009 outpaced lost retail fuel volume of 11.7 million gallons sold from stores closed since the beginning of fiscal 2009.

Fuel gross profit for fiscal 2010 decreased $50.5 million, or 16.2%, from fiscal 2009, excluding the estimated impact of the 53rd week. This decrease was primarily due to our retail gross profit per gallon declining from $0.149 in fiscal 2009 to $0.129 for fiscal 2010 and by the decline in gallon volume discussed above. The decrease in retail gross profit per gallon is partially attributable to an unusually high fuel margin of $0.26 cents per gallon in the first quarter of fiscal 2009. As a result of a continued global economic recession which impacted oil demand, we experienced a sharp decline in oil and fuel prices in our first quarter of fiscal 2009, which favorably impacted our fuel margins. Our margin per gallon of $0.129 for fiscal 2010 was consistent with our historical averages. We compute gross profit exclusive of depreciation and allocation of store operating and general and administrative expenses. We present fuel margin per gallon inclusive of credit card processing fees and repairs and maintenance on fuel equipment. These fees and costs totaled $0.055 per gallon and $0.047 per gallon for fiscal 2010 and fiscal 2009, respectively. The increase in these fees was primarily due to higher average retail fuel prices.

Store Operating.  Store operating expenses for fiscal 2010 increased $12.9 million or 2.5% from fiscal 2009, excluding the estimated impact of the 53rd week. The increase in store operating expenses is primarily due to costs associated with the remodeling and re-imaging of many of our stores, an expanded store employee training program, increased store advertising and other costs associated with the promotion of our Fresh program.

General and Administrative.   General and administrative expenses for fiscal 2010 decreased $5.7 million, or 5.8%, from fiscal 2009, excluding the estimated impact of the 53rd week. The decrease in general and administrative expenses is primarily due to significant costs for accelerated vesting of stock-based compensation and CEO transition costs that were incurred in fiscal 2009 but not in fiscal 2010.

Depreciation and Amortization.   Depreciation and amortization expenses for fiscal 2010 increased $9.8 million, or 9.0%, from fiscal 2009, excluding the estimated impact of the 53rd week. The increase is primarily due to accelerating depreciable lives of certain assets in fiscal 2010 related to re-imaging of several of our Chevron® branded locations and assets that were part of our new in-store initiative projects.

36

Impairment Charges.   During our fiscal 2010 impairment testing of goodwill we concluded that the carrying value of our goodwill exceeded its implied fair value. As a result we recorded a non-cash pre-tax impairment charge of $230.8 million. There were no goodwill impairment charges for fiscal 2009. See Note 5—Goodwill and Other Intangible Assets and Note 6—Asset Impairments in “Part II Item 8. Financial Statements—Notes to Consolidated Financial Statements”.

During fiscal 2010, we performed interim impairment testing of our Petro Express® trade name due to events and changes in circumstances that resulted in a change to the estimate of the remaining useful life from indefinite to finite-lived. As a result of the impairment test, we recorded an impairment charge to write-off the carrying value of the trade name of approximately $21.3 million. During fiscal 2009, we recorded an impairment charge to write down the carrying value of the Golden Gallon® trade name of $900 thousand. See Note 6—Asset Impairments and Note 19—Fair Value Measurements in “Part II.—Item 8. Financial Statements—Notes to Consolidated Financial Statements”.

In December 2009, management made a decision not to develop stores on certain surplus properties. As a result, we recorded impairment charges related to surplus properties of approximately $7.8 million during fiscal 2010. There were no surplus properties impaired during fiscal 2009. See Note 6—Asset Impairments and Note 19—Fair Value Measurements in “Part II.—Item 8. Financial Statements—Notes to Consolidated Financial Statements”.

We test our operating stores for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Cash flows vary for each store year to year and as a result, we have identified and recorded impairment charges of approximately $7.2 million and $1.2 million during the fiscal year ended September 30, 2010 and September 24, 2009, respectively primarily due to changes in market demographics, traffic patterns, competition and other factors have impacted the overall operations of certain of our individual store locations. See Note 6—Asset Impairments and Note 19—Fair Value Measurements in “Part II.—Item 8. Financial Statements—Notes to Consolidated Financial Statements”.

Gain(Loss) on Extinguishment of Debt.   The loss on extinguishment of debt of $791 thousand during fiscal 2010 represents a loss on the repurchase of approximately $16.2 million in principal amount of our convertible notes. The loss is due to the write-off of the unamortized debt discount and unamortized deferred financing costs. The gain on extinguishment of debt of $4.0 million during fiscal 2009 represents a gain on the buyback of approximately $24.0 million of our convertible notes and $3.0 million of our subordinated notes. We recognized a gain of $3.7 million and $705 thousand related to the repurchase of our convertible notes and our subordinated notes, respectively, partially offset by the write-off of $438 thousand of unamortized deferred financing costs.

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 2010 decreased $4.0 million, or 4.4%, from fiscal 2009, excluding the impact of the 53rd week. The decrease is primarily a result of declining interest rates and lower average outstanding borrowings.

Income Tax Expense (Benefit).   Our effective tax rate for fiscal 2010 was 30.1% compared to 36.6% for fiscal 2009. The decrease in our effective rate is primarily the result of the impact of the goodwill impairment charge in fiscal 2010.

Adjusted EBITDA.   Adjusted EBITDA for fiscal 2010 was $239.8 million, which was a decrease of $43.7 million, or 15.4%, from fiscal 2009. This decrease is primarily attributable to the variances discussed above.

The following table contains a reconciliation of Adjusted EBITDA to net income:

	(Dollars in thousands)	2010 (1)	2009
	Adjusted EBITDA	$239,848	$283,541
	Impairment charges	(267,079)	(2,084)
	Gain (loss) on extinguishment of debt	(791)	4,007
	Interest expense, net	(88,256)	(91,483)
	Depreciation and amortization	(120,605)	(108,712)
	Income tax benefit (expense)	71,268	(31,178)
	Net income (loss)	$(165,615)	$54,091
(1)   Fiscal 2010 included 53 weeks.

37

The following table contains a reconciliation of Adjusted EBITDA to net cash provided by operating activities:

	(Dollars in thousands)	2010 (1)	2009
	Adjusted EBITDA	$239,848	$283,541
	Gain (loss) on extinguishment of debt	(791)	4,007
	Interest expense, net	(88,256)	(91,483)
	Income tax benefit (expense)	71,268	(31,178)
	Stock-based compensation expense	3,478	6,367
	Changes in operating assets and liabilities	(13,593)	(18,050)
	Other	(57,129)	16,232
	Net cash provided by operating activities	$154,825	$169,436
	Net cash used in investing activities	$(97,521)	$(166,012)
	Net cash used in financing activities	$(26,547)	$(50,732)
(1)   Fiscal 2010 included 53 weeks.

Liquidity and Capital Resources

(Dollars in thousands)	2011	2010 (2)	2009
Cash and Cash Equivalents at beginning of year	$200,637	$169,880	$217,188
Cash Flows from Operating Activities	178,710	154,825	169,436
Cash Flows from Investing Activities	(140,324)	(97,521)	(166,012)
Cash Flows from Financing Activities	(25,255)	(26,547)	(50,732)
Cash and Cash Equivalents at end of year	$213,768	$200,637	$169,880
Working capital	$173,346	$185,286	$158,158
Consolidated total adjusted leverage ratio (1)	5.25	5.20	4.52

(1)	As defined by the senior credit facility agreement.
(2)	Fiscal 2010 included 53 weeks.

We believe that anticipated cash flows from operations, funds available from our existing revolving credit facility, together with cash on hand will provide sufficient funds to finance our operations  for at least the next 12 months. As of September 29, 2011, we had approximately $213.8 million in cash and cash equivalents and approximately $120.8 million in available borrowing capacity under our revolving credit facility, approximately $55.8 million of which was available for the issuances of letters of credit. We generated excess cash flow as defined in the senior credit facility of approximately $55.2 million in fiscal 2011 which will require us to make a mandatory prepayment of approximately $27.6 million in the first quarter of fiscal 2012. Our convertible notes mature in November, 2012 and we currently anticipate retiring those notes on or before the maturity date with available cash on hand.

38

We may from time to time seek to purchase or otherwise retire some or all of our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may have a material effect on our liquidity, financial condition and results of operations. During fiscal 2011, we purchased $10.0 million in principal amount of our subordinated notes on the open market. During fiscal 2010, we purchased approximately $16.2 million in principal amount of our convertible notes on the open market.

Due to the nature of our business, substantially all sales are for cash and credit cards which are converted to cash shortly after the transaction. Cash provided by operating activities 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 on our debt and fund capital expenditures. 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.

Cash Flows from Operating Activities.  Net cash provided by operating activities for fiscal 2011 totaled $178.7 million compared to $154.8 million in fiscal 2010 and $169.4 million in fiscal 2009. The $23.9 million increase in cash flow from operations in fiscal 2011 compared to fiscal 2010 is primarily due to increased fuel vendor reimbursements and changes in working capital. We received $13.0 million in fuel vendor allowances in fiscal 2011 compared to $247 thousand in fiscal 2010 which are recorded in deferred vendor rebates and amortized through fuel cost of goods sold.  The change in working capital is due to a higher level of accounts payable and lower inventories offset by an increase in receivables. The increase in accounts payable and lower inventory levels is attributable to our efforts to better manage our net working capital position. The increase in receivables is primarily due to higher credit card receivables as a result of increased gasoline retail prices and increased income tax receivables.

Cash Flows from Investing Activities.  Net cash used in investing activities was $140.3 million in fiscal 2011 compared to $97.5 million in fiscal 2010. The increase of $42.8 million was primarily due to an increase in acquisition activity in fiscal 2011 compared to fiscal 2010. During fiscal 2011, we purchased 48 stores using available cash on hand. Total consideration paid, net of cash acquired was $47.6 million. There were no acquisitions during fiscal 2010.

Capital expenditures (excluding all acquisitions) for fiscal 2011 were $100.7 million compared to $101.1 million in fiscal 2010. Our capital expenditures are primarily expenditures for store improvements, fuel imaging, store equipment, 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. During fiscal 2011 and 2010, we received $13.0 million and $247 thousand, respectively, in vendor reimbursements related to fuel.

We anticipate that capital expenditures for fiscal 2012 will be approximately $90.0 million to $100.0 million, assuming no material cost for fuel rebranding.

Cash Flows from Financing Activities.   For fiscal 2011, net cash used in financing activities was $25.3 million. The net cash used in financing activities is primarily the result of scheduled repayments of long-term debt of $7.2 million, purchasing $10.0 million in principal amount of our subordinated notes and repayments of lease finance obligations of $7.4 million. The amounts and components of cash flows from financing activities were consistent with the prior year.

Senior Credit Facility.   The credit agreement which defines the terms of our senior credit facility includes (i) a $225.0 million revolving credit facility, (ii) a $350.0 million initial term loan facility and (iii) a $100.0 million delayed draw term loan facility. 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. At September 29, 2011 we had $406.5 million in term loans outstanding under our senior credit facility. As of September 29, 2011, we had no borrowings outstanding under the revolving credit facility and approximately $104.2 million of standby letters of credit had been issued. Therefore, we had approximately $120.8 million in available borrowing capacity under the revolving credit facility (approximately $55.8 million of which was available for issuances of letters of credit).

39

On August 8, 2011, we amended our credit agreement to increase the letter of credit limit under our revolving credit facility to $160.0 million from $120.0 million. The amendment also allows for amounts not used under our allowed restricted junior payments to be carried over to subsequent fiscal years and increases our ability to make asset sales in any four quarter period. Costs incurred to complete the amendment were not material and will be amortized over the remaining life of the agreement. 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 or buying back certain of our existing indebtedness and issuing commercial and standby letters of credit. A maximum of $160.0 million of the revolving credit facility is available as a letter of credit sub-facility and up to $15.0 million of the revolving credit facility is available for swingline loans. The revolving credit facility matures in May 2013, and the term loan facility and delayed draw term loan facility mature in May 2014.

Our borrowings under the term loans bear interest, at our option, at either the base rate (generally the applicable prime lending rate of Wells Fargo & Company as successor to Wachovia Bank (“Wachovia Bank”), as announced from time to time) plus 0.50% or LIBOR plus 1.75%. If our consolidated total leverage ratio (as defined in our credit agreement) is less than  4.00 to 1.00, the applicable margins on the borrowings under the term loans are decreased by 0.25%. Changes, if any, to the applicable margins are effective five business days after we deliver to our lenders the financial information for the previous fiscal quarter that is required under the terms of our credit agreement.

Our borrowings under the revolving credit facility bear interest, 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%. If our consolidated total leverage ratio (as defined in our credit agreement) is greater than or equal to 4.00 to 1.00, the applicable margins on borrowings under the revolving credit facility are 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 are decreased by 0.25%. Changes, if any, to the applicable margins are effective five business days after we deliver to our lenders the financial information for the previous fiscal quarter that is required under the terms of our credit agreement.

We are permitted to prepay principal amounts outstanding or reduce revolving credit facility 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.

As a result of our excess cash flow during fiscal 2010, we made a mandatory prepayment of approximately $4.0 million of outstanding amounts under our senior credit facility in the second quarter of fiscal 2011. Operations for fiscal 2011 will result in a mandatory prepayment of approximately $27.6 million to be paid in the first quarter of fiscal 2012.

40

The credit agreement governing our senior credit facility contains customary affirmative and negative covenants for financings of its type (subject to customary exceptions). As of September 29, 2011, we were in compliance with these covenants and restrictions and the financial covenants include:

• maximum total adjusted leverage ratio (as defined in the credit agreement) of less than or equal to 6.25 to 1.00; and

• minimum interest coverage ratio (as defined in the credit agreement) of greater than or equal to 2.25 to 1.00.

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.

41

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;

• 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).

Senior Subordinated Notes.   We have outstanding $237.0 million of our subordinated notes. Interest on the subordinated notes is due on February 15 and August 15 of each year. We incurred approximately $6.6 million in financing costs associated with the notes, which were deferred and will be amortized over the life of the subordinated notes.

The indenture governing our 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  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.

42

We can incur debt under the indenture governing our 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;

• 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  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 subordinated 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 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 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 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 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).As of September 29, 2011, we may redeem the subordinated notes in whole or in part at a redemption price that is 101.292% and decreases to 100.0% after February 15, 2012. As of September 29, 2011, we were in compliance with these covenants and restrictions.

Senior Subordinated Convertible Notes.   We have outstanding $109.8 million of our convertible notes, which 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. If, upon the occurrence of certain events, the holders of the convertible notes exercise the conversion provisions of the convertible notes, we would 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 upon occurrence of these events. This evaluation of the classification of amounts outstanding associated with the convertible notes will occur every calendar quarter.

43

Simultaneously with the sale of the convertible notes we incurred 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.