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  • 1. Big K STRENGTH THROUGH STRATEGIC ACQUISITIONS ODepot Food StoresETNAThe Pantry, Inc. Express StopFood ChiefHandy WayKangarooL i l C hconvenience (k amp e en veny ns), n. 1. anything that saves orsimplifies work or adds to ones ease or comfort. 2. advantageor accommodation. adj. 3. easy to obtain, use or reach. Mini MartOn The WayThe PantryQuick StopSprintSmokers ExpressWicker MartANNUAL REPORT 2OOO OZip Mart

2. Region of Operations strategic developments The Pantry, Inc. currently operates 1,313 stores throughout 2000 in the Southeastern United States. However, as the Company continues to gain strength through strategic acquisitions, it will The Pantry undertook an extensive capital further extend its presence in principal markets and growing expenditure program aimed at upgrading itsstore facilities and gasoline operations. contiguous markets.The Company invested approximately$24.5 million on these enhancements,which it views as integral to its abilityto provide customers with the greatestconvenience in its stores and at its pumps.The Pantry focused on implementing strategic merchandising initiatives that wouldallow it to better serve its customerswhile also driving sales. In doing so, theCompany closely monitored merchandise mix and inventory levels and focused onenhancing its promotional displays.In fiscal 2000, The Pantrys ancillary services, which include ATMs, lottery, moneyorders, public phones and car washes,had a substantial impact on the bottomline as the Company continued to expand its service offerings in targetedlocations throughout the Southeast. Over the past year, the Company significantlybroadened its fresh food offering andquick service restaurant locations. Today,1 Financial HighlightsThe Pantry is operating 154 nationally2 Letter to Our Shareholdersbranded food franchises in addition to agrowing selection of proprietary food4 Strength Through Strategic Acquisitionsservice programs including coffee, freshly9 Selected Financial Data ground and brewed, throughout its stores.11 Managements Discussion and Analysis 20 Consolidated Balance Sheets 21 Consolidated Statements of Operations 22 Consolidated Statements of Shareholders Equity (Deficit)In fiscal 2000, The Pantry continued to 23 Consolidated Statements of Cash Flows expand its presence in existing markets 24 Notes to Consolidated Financial Statementsand moved into growing borderingregions. For the year, the Company 37 Independent Auditors Reportcompleted 18 acquisitions in six 37 Market Datastates, adding 143 new locations toits store network. 38 Corporate Information 3. The Pantry, Inc. is the leading convenience store operator in the southeastern United States and the second largest independently operated convenience store chain in the country. The Company currently operates 1,313 stores in suburban areas of rapidly growing markets, coastal/resort areas and smaller towns located in Florida, North Carolina, South Carolina, Georgia, Kentucky, Indiana, Tennessee, Virginia and Mississippi. The Pantrys stores offer a broad selection of merchandise; gasoline and ancillary services designed to appeal to the convenience needs of its customers. Headquartered in Sanford, North Carolina, The Pantry, Inc. became a publicly traded company in June of 1999. Its common stock trades on the Nasdaq Stock Market under the symbol PTRY.our companyfinancial highlightsRevenuesNet Income (loss) EBITDA$2,500$16 $150 12 2,000 120 8 1,500904 1,000600 50030 4 080 96 97 98 99 00 96 97 98 99 0096 97 98 99 00in millionsin millions in millionsFiscal YearFiscal Year Fiscal Year 1999 19982000 (Dollars in Thousands, except for per share information)Total revenues $1,678,870 $984,884 $2,432,260 Gross profit370,828233,351471,879 Depreciation and amortization42,798 27,642 56,062 Income from operations 65,178 31,843 76,031 Interest expense 41,280 28,946 52,329 Net income (loss)10,416 (3,325) 13,996 Earnings per share: Basic$ 0.45 $ (0.64) $ 0.77 Diluted0.41 (0.57) 0.74 Comparable store sales growth: Merchandise 9.6% 5.3%7.5% Gasoline gallons5.9% 4.8% (2.4%) EBITDA(1) $ 132,093 $ 107,976 $ 60,501 Store count, end of year1,2159541,313(1) Before merger integration costs of $1,016 in 1998. 1 4. letter to our shareholders Dear Shareholders:Fiscal 2000 was another year of record financial results for The Pantry. We are particularly proud of ourperformance in light of the challenging environment in which we operated during the past year. By allaccounts, fiscal 2000 was among the most difficult years faced by the convenience store industry. Unprece-dented increases in the wholesale price of gasoline created significant volatility in the gasoline market and,as a result, greatly impacted gasoline demand, a major growth driver in our business. Nevertheless, wemaintained a focused approach to managing these conditions and worked diligently to achieve strategicgrowth throughout our business as we leveraged our growing retail network to enhance our performanceand continued to strengthen our presence in the Southeastern United States. In fiscal 2000, we: Reported record revenues and net income, which grew 44.9% and 34.4%, respectively, over the previous year. Achieved a 33.3% increase in gasoline gross profits over last year, despite considerably higher wholesale coststhroughout fiscal 2000. Added 145 new stores, reinforcing our leadership position throughout the Southeastern U.S. Expanded our reach into Mississippi through the acquisition of 37 convenience stores in that market. Completed the two-year rollout of our new corporate and store level accounting and management reporting systems,which have enhanced our ability to manage our business and immediately bring newly acquired locations online. We are confident that these achievements, and the initiatives we have taken throughout the year, will allowus to continue to deliver record results as we implement our core strategy of expanding our retail networkthroughout the Southeast and gaining even greater Strength Through Strategic Acquisitions. Financial PerformanceTotal revenues for 2000 increased by 44.9% to $2.4 billion from $1.7 billion in 1999. Earnings beforeinterest, taxes, depreciation and amortization (EBITDA) increased by 22.3% to $132.1 million versus $108.1million in 1999. Net income for the year ended September 28, 2000 increased 34.4% to $14 million compared to $10.4 millionin fiscal 1999, which included a $3.6 million extraordinary loss related to a debt restructuring. Earnings perdiluted share for fiscal 2000 were $0.74 versus $0.41 in 1999. Fiscal 2000 contained 52 weeks of operatingresults compared with 53 weeks in fiscal 1999. Our record results continue to reflect our focused approach to merchandising and our ongoing efforts tomanage the balance between gasoline gross profit and gallon volume. Merchandise gross profit marginincreased to 33.6% in fiscal 2000 from 33.1% in 1999. Merchandise sales rose 24.0% to $907.6 million, withmerchandise comparable-store sales up 7.5% for the year. Gasoline sales increased by 62.1% to $1.5 billionand gasoline gross profit rose 33.3% to $139.9 million despite substantially higher wholesale gasoline costs.There was, however, a modest decline of 2.4% in comparable-store gallon sales, resulting from instabilityand dramatic price increases in the gasoline market throughout the year. Executing Our StrategyIn fiscal 2000, we executed an aggressive growth strategy aimed at expanding our presence in our existingmarkets and extending our reach into contiguous markets in the Southeast. During the year, our selectiveacquisition strategy continued to drive our growth and further allowed us to capitalize on ongoing consoli-dation in the convenience store industry. Throughout the year, we focused on identifying stores located indesirable areas with proven track records of high-volume sales. As a result, we successfully completed 18acquisitions that added 143 stores to our retail network. These acquisitions strongly enhanced our presencein our existing markets, particularly in North Carolina, South Carolina, Virginia, Florida and Georgia. Amongthese were the addition of 49 Kangaroo stores in Georgia and 14 MiniMart stores in South Carolina. In addi-tion, the acquisition of 19 Big K stores and 17 Metro Petroleum stores allowed us to enter and establish astrong foothold in the Mississippi market. The success of our acquisition program lies in our continued abilityto quickly and effectively integrate new locations into our profitable network of stores. In fiscal 2000, weleveraged our recently rolled-out corporate and management reporting system to integrate all new storesinto our system on the first day of the acquisition.2 5. We are confident that these achievements, and theinitiatives we have taken throughout the year, will allow us to continue to deliver record results as we implementour core strategy of expanding our retail network throughoutthe Southeast and gaining even greater Strength ThroughStrategic Acquisitions.Throughout the year, The Pantry also focused on increasing sales and enhancing profitability in our existing stores. To this end, we offered our customers the broadest rangeof competitively priced merchandise of any convenience store chain in the Southeast, further improved our ability to track inventory levels and adopted a morefocused approach to merchandise item selections for store-specific locations. We are pleased with the results of these programs and confident that we will increaseour same-store sales as we go forward. We have alsoincreased our fresh food offerings, quick-serve restaurantsand car wash locations in selected markets. These value-added services, along with our broad selection of other ancil- Peter J. Sodinilary services, including ATMs, pay telephones and money orderscontinue to help drive store traffic and enhance the bottom line. Upgrading our stores was another priority in fiscal 2000. We spent approximately $24.5