Forward-Looking Information

          This report and the documents incorporated by reference into this report contain both historical and “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These statements appear in a number of places in this report and include statements regarding our intent, belief and current expectations with respect to, among other things, capital expenditures and technology initiatives, the ability to borrow funds under our credit facilities, the ability to successfully implement our operating strategies, including trends affecting our business, financial condition and results of operations. The words “anticipate”, “believe”, “expect”, “forecast”, “guidance”, “intend”, “may”, “plan”, “project”, “will” and other similar expressions generally identify forward-looking statements. While these forward-looking statements and the related assumptions are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. These statements are based upon a number of assumptions and estimates which are inherently subject to significant uncertainties and contingencies, many of which are beyond our control and reflect future business decisions which are subject to change. Some of these assumptions inevitably will not materialize, and unanticipated events will occur which will affect our results. Some important factors (but not necessarily all factors) that could negatively affect our revenues, growth strategies, future profitability and operating results, or that otherwise could cause actual results to differ materially from those expressed in or implied by any forward-looking statement, include the following:

• changes in business and economic conditions and other adverse conditions in our markets;

• unanticipated environmental damages;

• increased competition;

• increased labor and labor related (e.g., health and welfare and pension) costs and/or labor disruptions;

• reliance on third-party suppliers;

• our ability to successfully implement our marketing, renovation and expansion strategies; and

• natural disasters.

For a discussion of these factors, see Item 1 – Business – Factors Affecting Our Business and Prospects.

2

Part I

Item 1. Business.*

General

          Pathmark Stores, Inc. was incorporated in Delaware in 1987 and is the successor by merger to a business established in 1966. In October 1987, our predecessor companies were acquired in a leveraged buyout pursuant to which substantial indebtedness was incurred. While our core supermarket operations remained sound following this leveraged buyout, the additional indebtedness and associated interest expense ultimately led us and our then parent companies to file a prepackaged plan of reorganization in the U.S. Bankruptcy Court in Delaware on July 12, 2000. On September 7, 2000, the Court entered an order confirming our plan of reorganization, which became effective on September 19, 2000, at which time we formally exited Chapter 11. As part of the plan of reorganization, approximately $1 billion of our subordinated debt was cancelled, with the holders receiving 100% of our common stock. Our principal executive office is located at 200 Milik Street, Carteret, NJ 07008 (telephone: (732) 499-3000). Unless the context indicates otherwise, the terms “Company”, “Pathmark”, “we” and “our” as used in this report, mean Pathmark Stores, Inc. and its consolidated subsidiaries.

          We are a leading supermarket chain, operating as a single segment, in the densely populated New York – New Jersey and Philadelphia metropolitan areas, operating 143 stores. We pioneered the development of the large supermarket/drugstore format in the Northeast, opening our first store of this kind in 1977. Operating in the New York – New Jersey and Philadelphia metropolitan areas for over 38 years, we have successfully developed a leading supermarket franchise with strong brand name recognition and customer loyalty. We believe we are the largest supermarket chain operating under a single banner in our market area in terms of sales. We focus our operations on this market area, where we believe we can maintain and build upon our strong market presence and achieve additional operating economies. All of our stores are located within 100 miles of our corporate office in Carteret, New Jersey and of our company-operated and outsourced distribution facilities. Proximity of these distribution facilities to our stores assists us in in-stock conditions and distribution costs. Our market area includes some of the most densely populated regions of the United States, representing approximately 10% of the U.S. population and encompassing two of the five largest U.S. metropolitan areas by population, namely New York and Philadelphia. We believe that the high population density in our markets coupled with the geographic concentration of our stores provide substantial opportunities for economies of scale.

Yucaipa Investment

          On March 23, 2005, Pathmark and The Yucaipa Companies, LLC (“Yucaipa”), a Los Angeles based private equity firm, entered into a stock purchase agreement under which Yucaipa will invest $150 million in Pathmark and executed a five-year management agreement pursuant to which Yucaipa will provide consulting services following the closing on corporate strategy, marketing, operations, finance and retail development to Pathmark.

          Under the terms of the agreement, Yucaipa will purchase 20,000,000 newly-issued shares of our common stock, 10,060,000 Series A warrants, and 15,046,350 Series B warrants (collectively, the “Yucaipa Transaction”). The shares will represent approximately 40% of our outstanding common stock. The Series A warrants have an exercise price of $8.50 per share and a three-year term. The Series B warrants have an exercise price of $15.00 per share and a ten-year term, but will not become exercisable until certain conditions are satisfied. Upon closing, we expect our Board of Directors will be comprised of six current or new independent directors and five additional directors nominated by Yucaipa. The independent directors will have the right to nominate their successors.

          The transaction, which was unanimously approved by our Board of Directors, is subject to customary closing conditions and approval by our stockholders. The transaction is expected to close in the summer of fiscal 2005. The remainder of this Form 10-K does not include the effects nor consider the expectations from this proposed transaction.

3

Shared Purpose and Shared Values

          At Pathmark, our Shared Purpose is to win the respect and loyalty of our customers and the communities we serve by providing a superior shopping experience while striving to be a great place to work. As we strive to achieve our Shared Purpose, the Shared Values below define the way we conduct ourselves consistent with our operating strategy:

• Customers are number one.
• We value dedicated, loyal associates.
• We work as a team.
• We provide opportunities for our associates to grow.
• We listen with respect to each other.
• We are ethical and honest in our dealings with others.
• We look for better ways of doing things.
• Our actions reflect a strong sense of social responsibility.
• Pathmark is in it for the long term.

Stores

          Highly Productive, Modern-Format Store Base. Our stores are among the most productive in the industry. During fiscal 2004, we generated sales per store and sales per selling square foot of $28.1 million and $724, respectively, compared to industry averages of approximately $18.1 million and $483, respectively. Our stores average approximately 52,400 square feet in size and are approximately 19% larger than the average U.S. supermarket. We design our stores to provide customers with “one-stop” shopping with a wide assortment of foods and general merchandise, as well as a host of additional conveniences, including 130 in-store full-service pharmacies and a wide array of financial services offered by 83 in-store banks. We are a leading filler of prescriptions among our supermarket competitors in the New York – New Jersey and Philadelphia metropolitan areas and, through our agreements with Bank of America and New York Community Bank, we believe we are the leading provider of in-store banking services in our market area.

          Below is a summary of the range of our store sizes as of January 29, 2005:

          Prime Real Estate Locations. 114 of our stores are in the greater New York – New Jersey metropolitan area and 29 of our stores are in the greater Philadelphia metropolitan area. Our stores are generally well situated in high traffic urban and suburban locations where we have established a loyal customer base and where we believe we are well positioned against new competitive entrants, as our store portfolio would be difficult to replicate. Given the prime locations of our stores coupled with a format that offers our customers a convenient, “one-stop” shopping experience, our stores are among the most productive in our industry.

          Provide Superior Customer Service and Store-Level Execution. We believe we differentiate ourselves by, among other things, our focus on customer service. To ensure the implementation of our high customer service standards, we rely on a store evaluation program whereby “mystery shoppers” visit our stores and rate each store on a variety of customer service attributes. One of our top priorities is to continue our strong execution in the area of food safety, which, through our surveys, we have found to be one of the top criterion by which customers choose a supermarket. We intend to continue to develop and improve store-level execution through programs that emphasize proactive, interpersonal communication between store associates and customers.

4

          Reduce Operating Expenses. We consistently evaluate our business in an effort to reduce operating expenses without affecting our overall objective of providing a high level of customer service. Currently, we have a number of initiatives in place to accomplish this goal. We also have a program called “Best Ball”, which is designed to identify the best operating practices in use by certain stores and implement these best practices throughout our chain. These operating practices include maximizing efficient use of supplies and minimizing workers’ compensation and customer accident claims.

Merchandising

          Differentiated Merchandising. We believe that our merchandising and marketing programs allow us to differentiate our product and service offering to our customers. We also believe that our large stores and the experience of our category managers and store operators allow us to respond to the varying product demands of our customers with effective merchandising, which is important given the diverse cultural makeup of the communities in which we operate. In addition, we offer over 3,500 private label products under the “Pathmark” name. Given our leading position in our market area, our high customer count and our established marketing expertise, we are also able to offer vendors significant opportunities to market their products effectively in a desirable market area. As a result, we believe we are well-positioned to continue to realize purchasing and cooperative marketing benefits from vendors.

          Our merchandising strategy is designed to offer a “one-stop” shopping experience that leverages our large store format and strong category management skills to provide a differentiated product and service offering for our customers, while allowing us to merchandise our higher margin products more effectively. In addition, we believe our focus on perishables, micro merchandising and private label has increased customer loyalty, and will provide higher margins. We recently have begun implementing our brand repositioning initiative designed to align with the demands of today’s time-compressed consumers. By providing a shopping experience that respects and values the customers’ time, Pathmark will successfully differentiate itself from its competition.

          Perishables. We believe that the quality of perishable items, particularly produce, is an important factor for consumers when choosing where to shop. We continue to focus on produce by utilizing “Produce Pete”, a local television personality who appears on a television show on weekend mornings devoted to tips on shopping for fresh fruits and vegetables, as an integral part of our advertisements. In addition, we plan to enhance our deli department offerings by adding cold-prepared meats, custom sandwiches, and soup bars to many of our stores.

          Micro Merchandising. Being located in the New York – New Jersey and Philadelphia metropolitan areas, we serve a highly diverse customer base, very often within the neighborhood of a given store. We effectively vary our product offerings across our store base in order to satisfy the various food preferences of our diverse customer base. We believe that our large stores and the experience of our category managers and store operators allow us to respond to the varying product demands of our customers with effective merchandising, which is especially important given the diversity of the communities in which we operate.

          Private Label. We have a large variety of private label products under the “Pathmark” name, which we continuously update. Over 3,500 Pathmark private label products are currently available, which we believe provide substantial value to our customers and increase overall customer loyalty.

          Gross Profit. We intend to continue to focus on improving our profitability by capitalizing on our large store format, which affords us the flexibility to more effectively merchandise a broad array of products and services, including higher margin products. An integral part of our merchandising and marketing efforts is to promote increased customer traffic for our stores through our various convenience service departments, such as in-store pharmacies and banks. Furthermore, we plan to leverage the Pathmark Advantage Card loyalty program, which facilitates more effective category management and offers us the opportunity to more efficiently target sales promotions while strengthening our customer base. We also intend to increase our focus on, and merchandising for, our private label products. Gross profit improvement initiatives will also include a focus on inventory control, efficient ordering and shrink reduction.

5

Store Renovation and Expansion

          We continue to renovate and expand our store base since we believe that keeping our stores fresh and up-to-date is critically important. During fiscal 2004, we opened three new stores, one of which was formerly operated by a joint venture and was previously included in our store count, closed two stores, one of which was formerly operated by a joint venture, and completed 19 store renovations At the end of fiscal 2004, approximately 80% of our stores were either new or had been renovated over the last five years. In addition to continually renovating our stores, we intend to further strengthen our position in our market area by selectively increasing our store base. During fiscal 2005, we plan to open two new stores, close two stores and complete eight store renovations. One of the new stores is a replacement for one of the stores being closed. By opening stores in our existing trade area, we believe we can increase our already strong market presence and achieve additional operating economies.

          We continuously evaluate our stores for necessary renovations. A typical store renovation requires a capital expenditure of approximately $1.5 million to $2.5 million and generally increases customer traffic and sales, responds to customer demand, competes more effectively against existing and new competitors or updates a particular format to our current prototype. In certain circumstances, we may decide to replace a store instead of conducting a major renovation due to population shifts, availability of a more attractive site or cost considerations.

          We spent approximately $119 million on capital expenditures, including property acquired under capital leases and technology investments, in fiscal 2004. We expect to spend approximately $67 million on capital expenditures in fiscal 2005.

          The following table sets forth, for the periods indicated, our store development and renovation activities:

Advertising and Promotion

          As part of our marketing strategy, we emphasize value through competitive pricing and weekly sales and promotions, supported by extensive advertising. Our advertising expenditures are concentrated on print advertising, including advertisements and circulars in local and area newspapers, with an accent on radio and ad flyers distributed in stores.

          We plan to continue to increase our focus on the Pathmark Advantage Card program to enhance our understanding of customer purchasing patterns and develop targeted sales promotions to our customer base. In addition, we have a website (www.pathmark.com) which offers promotional discounts and assorted on-line services.

          Given our leading position in our trade area, our large customer base and our established marketing expertise, we are able to offer vendors significant opportunities to feature their products effectively in a desirable market area. As a result, we are well-positioned to continue to realize purchasing and cooperative marketing benefits from our vendors.

6

Purchasing and Distribution

          We have outsourced a major portion of our distribution function and all of our trucking function. This approach allows us to focus on our customers and stores. We have a long-term agreement expiring in February 2013 with C&S Wholesale Grocers, Inc. (“C&S”), the nation’s second largest grocery wholesale company in terms of sales, to supply us with substantially all of our products other than general merchandise, pharmacy, health and beauty care and tobacco products as well as products delivered by vendors directly to our stores. This agreement may only be terminated for cause or certain events of bankruptcy by either party. Under our arrangement with C&S, we negotiate prices, discounts and promotions directly with vendors and pay C&S an agreed upon rate per case.

          AmeriSource-Bergen Corp., one of the nation’s leading pharmaceutical wholesalers, currently supplies all of our pharmacy products. In addition, we have an agreement with Grocery Haulers, Inc. (“GHI”), a third-party trucking company, to transport our products from our outsourced and internally operated warehouse and distribution facilities to our stores. Our general merchandise and health and beauty care products are self-distributed from our 290,000 square foot leased distribution center in Edison, New Jersey. We believe that our warehouse and distribution facilities contain sufficient capacity for the continued expansion of our store base for the foreseeable future. All of our stores are within 100 miles of these distribution facilities.

Management Information Systems

          Many of our various systems initiatives were incorporated as part of our International Business Machines Corporation (“IBM”) outsourcing agreement in April 2001. Pursuant to this agreement, IBM operates our data center operations and mainframe processing and information system functions and provides business applications and systems designed to enhance our efficiency and customer service. The charges under this agreement were based upon the services requested at predetermined rates. We believe that this arrangement allows us to focus our management resources on our customers and stores. In February 2005, we entered into a new seven-year outsourcing agreement with IBM that continues to provide substantially similar services.

          We implemented a new financial system in fiscal 2001 that enhanced our operational reporting and analytical tools. Similarly, our Wide Area Network was upgraded to take advantage of more reliable and faster frame relay technology that improved communications with stores. In fiscal 2002, we installed the latest point-of-sale technology from IBM in all our stores, which improved cashier productivity and customer service.

          Additionally, we installed “self-checkout” equipment in 75 stores, which we believe improves our customers’ shopping experience and lowers store-level operating costs. In fiscal 2003, we commenced a multi-year project to upgrade our current merchandising system, which we believe will maximize SKU level profitability, increase sales and improve in-store merchandising. During 2004 we completed the first phase of this project with the implementation of a new Direct Store Delivery System.

          In 2004 we embarked on a development effort to replace our Point-of-Sale (POS) software. In addition we also began a project to replace our Electronic Payments Switch that we use for processing Debit, Credit, Electronic Benefit Transfer, and Gift Card transactions.

Competition

          The supermarket business is highly competitive. Our earnings are primarily dependent on the maintenance of relatively high sales volume per supermarket, efficient product acquisition and distribution and cost-effective store operations. Principal competitive factors include price, store location, advertising and promotion, product mix, quality and service. We compete against national, regional and local supermarkets, club stores, drug stores, convenience stores, discount merchandisers and other local retailers in our market area. Our principal supermarket competitors include Acme, A&P (trading under several banners), Foodtown, King Kullen, ShopRite and Stop & Shop.

7

Trade Names, Service Marks and Trademarks

          We have registered a variety of trade names, service marks and trademarks with the U.S. Patent and Trademark Office, including “Pathmark.” We consider our Pathmark service marks to be of material importance to our business and actively defend and enforce such service marks.

Regulation

          Our business requires us to hold licenses and to register certain of our facilities with state and federal health, drug and alcoholic beverage regulatory agencies. By virtue of these licenses and registration requirements, we are obliged to observe certain rules and regulations, and a violation of such rules and regulations could result in a suspension of our licenses or registrations. In addition, most of our licenses require periodic renewals. We have experienced no material difficulties with respect to obtaining or retaining our licenses and registrations.

Pathmark in the Community

          We are recognized as a long-standing, important member of the communities which we serve. This recognition is based upon our associates’ involvement in important community outreach efforts, as well as our support, both financial and in kind, of numerous nonprofit charitable organizations. These include both large (e.g., American Cancer Society, Children’s Miracle Network and the March of Dimes) and small (e.g., local little leagues, scouts and religious institutions) charities, as well as Community Food Banks throughout our trade area.

Associates

          As of January 29, 2005, we employed approximately 25,000 people, of whom approximately 16,000 were employed on a part-time basis. Approximately 90% of our associates are covered by 14 collective bargaining agreements (typically having four-year terms) negotiated with 12 different local unions. During fiscal 2004, collective bargaining agreements covering approximately 2,500 associates were ratified. During fiscal 2005, one collective bargaining agreement, covering approximately 6,000 associates, has been settled, subject to ratification, and three others, covering approximately 2,000 associates, will come up for renewal.

Available Information

          We routinely file reports and other information with the Securities and Exchange Commission (the “SEC”), including Forms 8-K, 10-K, 10-Q and DEF 14A. The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The address of that website is www.sec.gov.

          We maintain an internet website on which we make available, free of charge, copies of 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 (the “Exchange Act”), as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. These materials may be accessed by going to our website at www.pathmark.com and selecting “Investor Relations.” Paper copies of these documents also may be obtained, free of charge, by writing to us at “Pathmark Stores, Inc., Office of Investor Relations, M-409, 200 Milik Street, Carteret, NJ 07008.”

Factors Affecting Our Business and Prospects

          Our industry is intensely competitive and the competition we encounter may have a negative impact on the prices we may charge for our products, our revenues and profitability. The supermarket business is highly competitive and is characterized by high inventory turnover and narrow profit margins. Results of operations are therefore sensitive to, and may be materially adversely impacted by, among other things, competitive pricing and promotional programs and competitor store openings. We compete with national and regional supermarkets, club stores, drug stores, convenience stores, discount merchandisers and other local retailers in the market areas we serve. Competition with these outlets is based on price, store location, advertising and promotion, product mix, quality and service. Some of these competitors may have greater financial resources, lower merchandise acquisition cost and lower operating expenses than we do, and we may be unable to compete successfully in the future.

8

          We are concentrated in the New York – New Jersey and Philadelphia metropolitan areas. We are vulnerable to economic downturns in that region, in addition to those that may affect the country as a whole, as well as natural and other catastrophic events that may impact that region. These events may adversely affect our sales which may lead to lower earnings, or losses, and may also adversely affect our future growth and expansion. Further, since we are concentrated in densely populated metropolitan areas, opportunities for future store expansion may be limited, which may adversely affect our business and results of operations.

          Our renovation and expansion plans may not be successful, which may adversely affect our business and financial condition. A key to our business strategy has been, and will continue to be, the renovation and expansion of total selling square footage. Although we expect cash flows generated from operations, supplemented by the unused borrowing capacity under our bank credit facility and the availability of capital lease financing, will be sufficient to fund our capital renovation and expansion programs, sufficient funds may not be available. In addition, the greater financial resources of some of our competitors for real estate sites could adversely affect our ability to open new stores. The inability to renovate our existing stores, add new stores or increase the selling area of existing stores could adversely affect our business, our results of operations and our ability to compete successfully.

          We rely on C&S for supply of a majority of our products. Pursuant to the terms of a long-term supply agreement, we rely on C&S for supply of substantially all of the products we sell other than direct store deliveries, general merchandise, pharmacy, health and beauty care and tobacco products. During fiscal 2004, the products supplied from C&S accounted for approximately 60% of all of our supermarket inventory purchases. Although we have not experienced difficulty in the supply of these products to date, supply interruptions by C&S may occur in the future. Any significant interruption in this supply stream, either as a result of disruptions at C&S or if the C&S agreement were terminated for any reason, could have a material adverse effect on our business and results of operations.

          We are affected by increasing labor and benefit costs and a competitive labor market and are subject to the risk of unionized labor disruptions. Our continued success depends on our ability to attract and retain qualified associates. We compete with other businesses within our markets with respect to attracting and retaining qualified associates. A shortage of qualified associates may require us to enhance our wage and benefits package in order to compete effectively in the hiring and retention of qualified associates. Our labor and benefit costs may continue to increase, and such increases may not be recovered. If we fail to attract and retain qualified associates, to control our labor and benefit costs or to recover increased labor and benefit costs through increased prices, our business and results of operations may be materially adversely affected. In addition, approximately 90% of our associates are covered by collective bargaining agreements with local labor unions. Although we do not anticipate any difficulty renegotiating these contracts as they expire, a labor-related work stoppage by these unionized associates could adversely affect our business and results of operations.

          We face the risk of being held liable for environmental damages that may occur. Our operations subject us to various laws and regulations relating to the protection of the environment, including those governing the management and disposal of hazardous materials and the cleanup of contaminated sites. Under some environmental laws, such as the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, also known as CERCLA or the Superfund law, and similar state statues, responsibility for the entire cost of cleanup of a contaminated site can be imposed upon any current or former site owners or operators, or upon any party who sent waste to the site, regardless of the lawfulness of the original activities that lead to the contamination. From time to time we have been named as one of many potentially responsible parties at Superfund sites, although our share of liability has typically been de minimis. We believe we are currently in substantial compliance with applicable environmental requirements. However, future developments such as more aggressive enforcement policies, new laws or discoveries of unknown conditions may require expenditures that may have a material adverse effect on our business and financial condition.

9

Item 2. Properties.*

          As of January 29, 2005, we operated 143 supermarkets located in New Jersey, New York, Pennsylvania and Delaware as follows:

          Our 143 supermarkets have total square footage of approximately 7.5 million square feet with an aggregate selling area of approximately 5.5 million square feet. Fifteen of these stores are owned and the remaining 128 are leased. These supermarkets are either freestanding stores or are located in shopping centers. Forty-nine leases will expire through fiscal 2009. There are options to renew 48 of these leases – the 49^th store was closed in February 2005.

          We lease our corporate headquarters in Carteret, New Jersey in premises totaling approximately 150,000 square feet in size. Our lease will expire in fiscal 2011. We have five five-year options remaining on this property.

          All of the facilities owned by us are subject to mortgages. We plan to acquire leasehold or fee interests in any property on which new stores or other facilities are opened and will consider entering into sale-leaseback or mortgage transactions with respect to owned properties if we believe such transactions are financially advantageous.

          We operate a 290,000 square foot leased general merchandise and health and beauty care products distribution center in Edison, New Jersey. Our lease will expire in fiscal 2009. We have two five-year options remaining on this property.

Item 3. Legal Proceedings.

          We are subject to claims and suits against us in the ordinary cause of our business. While the outcome of these claims cannot be predicted with certainty, we do not believe that the outcome of any of these legal matters will have a material adverse effect on our results of operations, financial position or cash flows.

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

          None.

10

Part II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters.

          Market for Common Stock. Common stock and warrants are currently trading on the Nasdaq National Market under the ticker symbols “PTMK” and “PTMKW”, respectively. The following table represents the high and low closing prices for our common stock for each quarter in the two fiscal years ended January 29, 2005, as reported by the Nasdaq National Market.

          Holders of Record. As of April 28, 2005, there were 46 holders of record of our common stock; however, over 99% of the Company’s outstanding common stock is held in “street name” by depositories or nominees on behalf of beneficial holders.

          Dividends. We paid no cash dividends to our stockholders and do not currently anticipate paying cash dividends during fiscal 2005. We are prohibited from paying cash dividends to holders of our common stock under terms of our amended and restated $250 million senior secured credit facility dated as of October 1, 2004 (the “Credit Agreement”) with a group of lenders led by Fleet Retail Group, a Bank of America company. We are restricted from paying cash dividends to holders of our common stock under the indenture governing our $350 million 8.75% Senior Subordinated Notes, due 2012 (the “Senior Subordinated Notes”).

          Securities Authorized for Issuance under Equity Compensation Plans. For information concerning securities authorized for issuance under equity compensation plans, please refer to Item 12, “Equity Compensation Plans”.

11

Item 6. Selected Financial Data.

Summary of Historical Financial and Other Data

          The following table presents selected historical financial and other data. The periods prior to our exit from bankruptcy have been designated “Predecessor Company” and the periods subsequent to that date have been designated “Successor Company.” The statement of operations data for the 52 weeks ended January 29, 2005, January 31, 2004 and February 1, 2003 and the balance sheet data as of January 29, 2005 and January 31, 2004 are derived from our audited financial statements included elsewhere in this report. The statement of operations data for the 52 weeks ended February 2, 2002, the 20 weeks ended February 3, 2001 and the 33 weeks ended September 16, 2000 and the balance sheet data as of February 1, 2003, February 2, 2002 and February 3, 2001 are derived from our audited financial statements not included in this report.

          The following table (in millions, except per share amounts) should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements included elsewhere in this report:

See notes on the following pages.

12

Summary of Historical Financial and Other Data – (Continued)

Notes to Summary of Historical Financial and Other Data

(a)

The Company completed its plan of reorganization (the “Plan of Reorganization”) and formally exited Chapter 11 on September 19, 2000 (the “Plan Effective Date”). Pursuant to the Plan of Reorganization, the Company's direct and indirect parent companies merged with the Company, which became the surviving entity. Such mergers are being accounted for in the historical financial statements at historical cost in a manner similar to pooling-of-interests accounting. As a result, we adopted fresh-start reporting in accordance with American Institute of Certified Public Accountants (“AICPA”) Statement of Position 90-7, “Financial Reporting By Entities in Reorganization Under the Bankruptcy Code” (“Fresh-Start Reporting”). In connection with the adoption of Fresh-Start Reporting, a new entity had been deemed created for financial reporting purposes. As a result of the implementation of Fresh-Start Reporting and the substantial debt reduction from the completion of the Plan of Reorganization, the Statement of Operations Data of the Successor Company and the Predecessor Company are not comparable.

(b)

Selling, general and administrative expenses (“SG&A) in fiscal 2004 are net of a $1.4 million credit to correct, on a cumulative basis, the accounting related to straight-line rent expense and long-term disability (see Management Discussion and Analysis of Financial Condition and Results of Operations - Summary of Operations) and a $1.5 million gain from the disposition of real estate. SG&A in fiscal 2003 included a $13.7 million gain from the disposition of real estate related to the assignment of two real estate leases and a $8.1 million charge related to our store labor buyout initiative and corporate headcount reduction program. Fiscal 2002 included a $2.0 million charge related to a store labor buyout program.

(c)	Depreciation and amortization in fiscal 2004 included a non-cash charge of $2.0 million to correct, on a cumulative basis, the amortization of certain leasehold improvements.

(d)

Goodwill of $798.0 million, resulting from Fresh-Start Reporting, was being amortized over three years. In accordance with the Financial Accounting Standards Board (the “FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”, the Company's goodwill balance is no longer being amortized for periods subsequent to fiscal 2001 but rather is being evaluated for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company adopted SFAS No. 142 effective with the beginning of fiscal 2002. Based on an independent evaluation of its fair value in fiscal 2002 and fiscal 2003, the Company concluded that there was no impairment of its goodwill.

13

Notes to Summary of Historical Financial and Other Data – (Continued)

Based on the Company's valuation of its goodwill and long-lived assets performed in the fourth quarter of fiscal 2004, the Company recorded a non-cash impairment charge of $309.0 million. The goodwill impairment of $293.8 million, which is not deductible for income tax purposes, represents the write down of the carrying value of the Company's goodwill to its implied fair value and is due to the Company's declining operating performance in fiscal 2004 and the reduced valuation multiples in the retail grocery industry. Such negative factors are reflected in the Company's stock price and market capitalization. The long-lived assets impairment of $15.2 million represents the write downs of under-performing stores to their fair market values.

(e)

The Successor Company's reorganization income of $7.4 million for the 20 weeks ended February 3, 2001 represented a gain related to the difference between the settled lessor claims for rejected leases and the liability previously recorded for such claims. In the 33 weeks ended September 16, 2000, the Predecessor Company's reorganization income of $359.4 million represented income from the cancellation of debt related to the exchange of bond indebtedness, accrued interest for common stock and warrants in accordance with the Plan of Reorganization and a gain related to the difference between the estimated lessor claims for rejected leases and the liabilities previously recorded for such leases; such income was reduced by the write off of deferred financing costs related to the former bank credit facility and bond indebtedness subject to change, and the cost of employee retention bonuses and professional fees related to legal, accounting and consulting services directly attributable to the Plan of Reorganization.

(f)

Interest expense in fiscal 2004 included a write-off of deferred financing costs of $1.7 million related to the refinancing and pay down of the Company's 2000 Credit Agreement. Interest expense in fiscal 2003 included a derivative settlement charge of $3.7 million related to the termination and settlement of our $150 million interest rate zero-cost collar and the write off of deferred financing costs of $2.1 million as a result of the repayment of $153 million of our term loan primarily from proceeds from the issuance of an additional $150 million ($100 million on September 19, 2003 and $50 million on December 18, 2003) aggregate principal amount of Senior Subordinated Notes. Interest expense in fiscal 2003 also included the write off of deferred financing costs of $0.5 million as a result of the repayment in the second quarter of fiscal 2003 of $18 million of our term loan. Interest expense in fiscal 2002 included the reversal of an accrued interest liability of $2.2 million related to the favorable resolution of certain tax issues.

(g)

The Company adopted, as of the beginning of fiscal 2002, Emerging Issues Task Force (“EITF”) Issue No. 02-16, “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor.” In adopting EITF Issue No. 02-16, vendor payments related to advertising reimbursements are recorded as a reduction of cost of goods sold when both the required advertising is performed and the inventory is sold; prior to this change, these reimbursements were recorded as a reduction of advertising expense when the required advertising was performed. As a result, the Company recorded a charge, as of the first quarter of fiscal 2002, of $0.6 million, net of an income tax benefit of $0.4 million, for the cumulative effect of an accounting change.

(h)

The weighted-average number of shares outstanding - basic were 30.1 million shares for fiscal 2004, for fiscal 2003 and for fiscal 2002 and 30.0 million shares for fiscal 2001 and for the 20 weeks ended February 3, 2001. The weighted-average number of shares outstanding - diluted were 30.1 million shares for fiscal 2004, 30.4 million shares for fiscal 2003 and for fiscal 2002 and 30.0 million shares for fiscal 2001 and for the 20 weeks ended February 3, 2001. For fiscal 2004, for fiscal 2001 and for the 20 weeks ended February 3, 2001, all stock options, warrants and restricted stock were excluded from the computation of weighted-average number of shares outstanding - diluted because their effect would have been anti-diluted. Data is not presented for the Predecessor Company due to the significant change in our capital structure.

14

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

General

          We are a leading supermarket chain in the densely populated New York - New Jersey and Philadelphia metropolitan areas, operating 143 supermarkets. These metropolitan areas contain over 10% of the population in the United States. All of our supermarkets are located within 100 miles of our corporate headquarters in Carteret, New Jersey and our Company-operated and outsourced distribution facilities. We design our stores to provide customers with “one-stop” shopping with a wide assortment of foods and general merchandise, as well as additional conveniences, including 130 in-store full-service pharmacies and a wide array of financial services offered by 83 in-store banks. We are a leading filler of prescriptions among our supermarket competitors in the New York - New Jersey and Philadelphia metropolitan areas and, through our agreements with Bank of America and New York Community Bank, we believe we are the leading provider of in-store banking services in our market area.

          Our sales are derived from the retail sale of products at our stores. Internally, we look to a variety of indicators to evaluate our sales and gross profit performance, including, among others: comparable store sales; sales per store; sales per selling square foot; percentage of total sales by department; shrink and department gross margins. We focus on increasing comparable store sales, sales per selling square foot and sales per store through programs focused on greater customer service and better store-level execution, promotional activities and merchandising, as well as a continued focus on our high sanitation standards.

          Our operating expenses are primarily incurred from selling, general and administrative costs. Over 70% of these costs are for labor and labor-related benefits. Internally, we focus on a variety of indicators to evaluate our expense performance, including, among others: labor costs, including labor hours and hourly labor rates and labor-related expenses such as welfare costs, pension costs, payroll taxes and workers' compensation costs. In fiscal 2003, we focused on controlling labor costs through a labor buyout initiative and implementation of a new time and attendance system. Selling, general and administrative expenses other than labor and labor-related costs include occupancy expenses, supplies and customer accident claims, among others. In fiscal 2004, we continued to focus on other expense control initiatives through our Best Ball and Focus Store programs in which best operating practices are implemented throughout our chain.

          Major initiatives currently in place or implemented during fiscal 2004 include:

• Implemented a comprehensive program involving merchandising, operations, distribution and vendors to improve our in-stock position.

• Implemented a health and beauty care pricing initiative to improve our pricing image.

• Implemented a home-office merchandise section, called Corporate Express, in ten of our stores.

• Maintained our "Best Ball" program to identify best operating practices and implement these throughout our chain.

• Maintained our "Focus Stores" program in which stores identified as having significant upside opportunities are mentored by members of senior management.

• Maintained our mystery shopper program to evaluate and improve customer service.

• Maintained our store-level audits of food safety and sanitation.

• Invested in technology, including a new back-door receiving system, a multi-year upgrade to our merchandising system and the continuing leverage of our existing systems for increased productivity.

          We believe these programs, together with overall operational improvements, resulted in increased sales metrics and improved productivity. These gains were largely offset by increases in pension and welfare costs.

15

          As has been our practice in the past, we will continue to evaluate the profitability, strategic positioning, impact of potential competition, and sales growth potential of all our stores on an ongoing basis. We may, from time to time, make decisions regarding acquisitions, closures, relocations or renovations in accordance with such evaluations. On February 20, 2004, we purchased the remaining 67% of the common stock of Community Supermarket Corporation (“CSC”) that we did not already own from the other shareholder for $4.5 million in cash (the “Acquisition”). As a result of the Acquisition, the Company owns 100% of CSC (now known as Bergen Street Pathmark, Inc.). CSC has been a tenant under a lease for a supermarket in Newark, New Jersey (the “Newark Store”). During fiscal 2004, we opened three new stores, including the Newark Store which was previously included in our store count, closed two stores, one of which was operated by a joint venture, and completed 19 store renovations. During fiscal 2005, we plan to open two new stores, close two stores and complete eight store renovations. One of the new stores is a replacement for one of the stores being closed.

Fiscal 2004 Compared to Fiscal 2003

          The following table sets forth selected consolidated statements of operations data (dollars in millions):

          Sales. The following table sets forth data related to sales for fiscal 2004 and fiscal 2003:

          Sales in fiscal 2004 were $3.98 billion compared to $3.99 billion in fiscal 2003, a decrease of 0.3%. The sales decrease in fiscal 2004 was due to a 0.8% decrease in same-store sales (stores open the entire year in both fiscal 2004 and fiscal 2003, including replacement stores and enlargements) and by a 0.6% decrease from closed stores, partially offset by a 1.1% increase from new stores. We believe sales in fiscal 2004 were affected by continuing weakness in consumer demand, which resulted in a decrease in our customer traffic, partially offset by an increase in our average order size. The change to an everyday low price concept in our health and beauty care category in February 2004 has not yet achieved the sales we expected, resulting in lower sales in this category, although our unit volume has increased. We operated 143 stores at the end of fiscal 2004 and fiscal 2003.

          Gross Profit. Gross profit represents the difference between sales and cost of goods sold, which includes the costs of inventory sold and the related purchase and distribution costs, net of vendor allowances and rebates. Gross profit in fiscal 2004 was $1.13 billion or 28.5% of sales compared to $1.14 billion or 28.5% of sales for fiscal 2003. The decrease in gross profit dollars in fiscal 2004 was primarily due to lower sales. The gross profit margin in fiscal 2004 was impacted by the inability to pass on the full cost of increases in wholesale prices earlier in the fiscal year, offset by improved margins in the fourth quarter of fiscal 2004.

16

          SG&A. SG&A in fiscal 2004 was $984.9 million or 24.8% of sales compared to $953.9 million or 23.9% of sales in fiscal 2003. SG&A in fiscal 2004 is net of a $1.4 million credit to correct, on a cumulative basis, the accounting for our operating leases and long-term disability plan (see Note 1 – Significant Accounting Policies) and a $1.5 million gain from the disposition of real estate. SG&A in fiscal 2003 included a $13.7 million gain from the disposition of real estate related to the assignment of two real estate leases and a $8.1 million charge related to our store labor buyout initiative and corporate headcount reduction program, which was commenced and completed during the first six months of fiscal 2003 in order to reduce labor costs. Excluding the aforementioned items of $2.9 million and $5.6 million in fiscal 2004 and in fiscal 2003, respectively, SG&A in fiscal 2004 increased by $28.3 million, or 0.7% of sales, compared to fiscal 2003, primarily due to the following factors: (1) welfare, pension and medical expenses increased by 0.3% of sales, (2) store labor expenses increased by 0.2% of sales, due to the negative sales leverage, and (3) rent and real estate taxes increased by 0.1% of sales due to three new stores compared to fiscal 2003. The remaining increases were primarily due to professional fees associated with implementing the requirements of the Sarbanes-Oxley Act as well as system expenses and costs related to the Company's strategic alternative.

          Depreciation and Amortization. Depreciation and amortization of $89.4 million in fiscal 2004 was $5.4 million higher than the $84.0 million in fiscal 2003. The increase in depreciation and amortization expense in fiscal 2004 compared to fiscal 2003 was primarily due to an increase of $30.0 million in capital expenditures, including technology investment, in fiscal 2004, and a charge to depreciation and amortization expense of $2.0 million in fiscal 2004 related to leasehold improvements (see Summary of Operations below).

          Impairment of Goodwill and Long-Lived Assets. Based on our valuation of goodwill and long-lived assets performed in the fourth quarter of fiscal 2004, we recorded a non-cash impairment charge of $309.0 million. The goodwill impairment of $293.8 million, which is not deductible for income tax purposes, represents the write down of the carrying value of our goodwill to its implied fair value and is due to our declining operating performance in fiscal 2004 and the reduced valuation multiples in the retail grocery industry. Such negative factors are reflected in our stock price and market capitalization. The long-lived assets impairment of $15.2 million represents the write downs of under-performing stores to their fair market values.

          Operating Earnings (Loss). The operating loss was $250.9 million in fiscal 2004 compared to operating earnings of $100.8 million in fiscal 2003. The decrease in operating earnings in fiscal 2004 compared to fiscal 2003 was primarily due to the non-cash goodwill and long-lived assets impairment charge of $309.0 million and higher SG&A expenses.

          Interest Expense. Interest expense was $67.0 million in fiscal 2004 compared to $72.5 million in fiscal 2003. Interest expense in fiscal 2004 included a write off of deferred financing costs of $1.7 million related to the refinancing of our credit agreement dated September 19, 2000 (the “2000 Credit Agreement”). Interest expense in fiscal 2003 included a derivative settlement charge of $3.7 million related to the termination and settlement of $150 million of our interest rate zero-cost collar and the write off of deferred financing costs of $2.6 million resulting from the repayment of $171 million of our Term Loan primarily from proceeds of additional borrowings of $150 million under the Senior Subordinated Notes. Excluding these items, interest expense in fiscal 2004 decreased by $0.9 million compared to fiscal 2003. The decrease in interest expense in fiscal 2004 was primarily due to lower interest rates.

          Income Tax Benefit (Provision). The income tax benefit in fiscal 2004 was $9.3 million compared to an income tax provision in fiscal 2003 of $11.8 million. During fiscal 2004 and fiscal 2003, we made income tax payments of $3.9 million and $6.1 million, respectively. Refer to Note 17 of the consolidated financial statements for information related to our income taxes.

          Summary of Operations. The net loss in fiscal 2004 was $308.6 million compared to net earnings of $16.5 million in fiscal 2003. The decrease in net earnings in fiscal 2004 compared to fiscal 2003 was primarily due to the non-cash goodwill and long-lived assets impairment charge of $309.0 million in fiscal 2004.

17

          We reviewed our lease accounting practices following the Securities and Exchange Commission’s recent clarification to the American Institute of Certified Public Accountants of operating leases and leasehold improvement issues. Based on this review, we recorded in the fourth quarter of fiscal 2004 a credit of $4.4 million to correct, on a cumulative basis, the calculation of straight-line rent expense by reducing our deferred rent liability account. We also recorded in the fourth quarter of fiscal 2004 a charge of $2.0 million to correct, on a cumulative basis, the amortization of certain leasehold improvements.

          In addition, we reviewed the accounting for our long-term disability medical plan. Based on this review, we concluded that we had not correctly accounted for the plan on an accrual basis and recorded in the fourth quarter of fiscal 2004 a charge of $3.0 million to record a liability for such disability expenses. We also recorded in the fourth quarter of fiscal 2004 a credit of $1.3 million to correct, on a cumulative basis, certain book and tax basis differences by reducing our deferred income tax liability account.

A summary of the aforementioned charges (credits) are as follows (in millions):

          We did not restate our prior years’ financial statements for such adjustments since the impact was immaterial to our financial condition and results of operations for fiscal 2004, prior years or any interim periods. The impact is also not expected to have a material impact on our future financial condition or results of operations.

Fiscal 2003 Compared to Fiscal 2002

          The following table sets forth selected consolidated statements of operations data (dollars in millions):

     Sales.  The following table sets forth data related to sales for fiscal 2003 and fiscal 2002:

18

          Sales in fiscal 2003 were $3.99 billion compared to $3.94 billion in fiscal 2002, an increase of 1.4%. The sales increase in fiscal 2003 was primarily due to higher same-store sales (stores open the entire year in both fiscal 2003 and fiscal 2002, including replacement stores and enlargements) of 1.2% and new stores, partially offset by closed stores. We believe sales benefited from our successful marketing and operations initiatives, including the change in the start of our weekly ad at the beginning of fiscal 2003. Sales were also favorably impacted by increased customer shopping preceding several major snowstorms in the first quarter of fiscal 2003. During fiscal 2003, we opened two stores of which one was a replacement store, closed two stores and renovated 16 stores. We operated 143 and 144 stores at the end of fiscal 2003 and fiscal 2002, respectively.

          Gross Profit. Gross profit represents the difference between sales and cost of goods sold, which includes the costs of inventory sold and the related purchase and distribution costs, net of vendor allowances and rebates. Gross profit in fiscal 2003 was $1.14 billion or 28.5% of sales compared to $1.12 billion or 28.5% of sales for fiscal 2002. The increase in gross profit dollars for fiscal 2003 compared to fiscal 2002 was primarily due to higher sales.

          SG&A. SG&A in fiscal 2003 was $953.9 million or 23.9% of sales compared to $944.4 million or 24.0% of sales in fiscal 2002. SG&A in fiscal 2003 includes higher medical, workers’ compensation and pension expenses, as well as higher snow removal costs in the first quarter of fiscal 2003 and higher occupancy expenses, primarily associated with new stores, partially offset by lower payroll expenses resulting from the store labor buyout and corporate headcount reduction programs implemented in fiscal 2003. SG&A in fiscal 2003 also included an $8.1 million charge related to our aforementioned store labor buyout initiative and corporate headcount reduction program during the first and second quarters of fiscal 2003, and is net of a $13.7 million gain from the disposition of real estate related to the assignment of two real estate leases. Fiscal 2002 included a $2.0 million charge related to a labor buyout program.

          Depreciation and Amortization. Depreciation and amortization of $84.0 million in fiscal 2003 was $0.6 million lower than the $84.6 million in fiscal 2002. The decrease in depreciation and amortization expense in fiscal 2003 compared to fiscal 2002 was primarily due to a decrease in capital expenditures since fiscal 2001.

          Operating Earnings. Operating earnings were $100.8 million, or 2.5% of sales, in fiscal 2003 compared to $92.0 million, or 2.3% of sales, in fiscal 2002. The increase in operating earnings in fiscal 2003 compared to fiscal 2002 was primarily due to higher gross profit, partially offset by higher SG&A expenses.

          Interest Expense. Interest expense was $72.5 million in fiscal 2003 compared to $65.1 million in fiscal 2002. The increase in interest expense in fiscal 2003 compared to fiscal 2002 was primarily due to a derivative settlement charge of $3.7 million related to the termination and settlement of our $150 million interest rate zero-cost collar, the write off of deferred financing costs of $2.1 million as a result of the repayment of $153 million of our term loan primarily from proceeds from the issuance of an additional $150 million ($100 million on September 19, 2003 and $50 million on December 18, 2003) aggregate principal amount of Senior Subordinated Notes. Interest expense in fiscal 2003 also included the write off of deferred financing costs of $0.5 million as a result of the repayment in the second quarter of fiscal 2003 of $18 million of our term loan and an increased interest rate as a result of the January 28, 2003 amendment to our Credit Agreement. Fiscal 2002 included the reversal of an accrued interest liability of $2.2 million related to the favorable resolution of certain tax issues.

          Income Tax Provision. The income tax provision of $11.8 million in fiscal 2003 was based on an effective tax rate of 41.6% and the income tax provision of $13.0 million in fiscal 2002 was based on an effective income tax rate of 39.6%. During fiscal 2003, we made income tax payments of $6.1 million. During fiscal 2002, we made income tax payments of $4.1 million and received income tax refunds of $2.6 million. Refer to Note 17 of the consolidated financial statements for information related to our income taxes.

19

          Cumulative Effect of an Accounting Change. We adopted, as of the beginning of fiscal 2002, EITF Issue No. 02-16, “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor.” In adopting EITF Issue No. 02-16, vendor payments related to advertising reimbursements are recorded as a reduction of cost of goods sold when both the required advertising is performed and the inventory is sold; prior to this change, these reimbursements were recorded as a reduction of advertising expense when the required advertising was performed. As a result, we recorded a charge, as of the first quarter of fiscal 2002, of $0.6 million, net of an income tax benefit of $0.4 million, for the cumulative effect of an accounting change.

          Summary of Operations. Net earnings in fiscal 2003 were $16.5 million compared to $13.3 million in fiscal 2002. The increase in net earnings in fiscal 2003 compared to fiscal 2002 was primarily due to increased operating earnings, partially offset by higher interest expense.

Liquidity and Capital Resources

          Cash Flows. The following table sets forth certain consolidated statements of cash flow data (in millions):

          The increase in cash provided by operating activities in fiscal 2004 compared to fiscal 2003 was primarily due to higher cash generated by operating assets and liabilities due to the timing of certain disbursements, partially offset by lower cash provided by operating earnings. The increase in the cash balance from $8.9 million at January 31, 2004 to $42.6 million at January 29, 2005 was due to the transfer in fiscal 2004 of our depository accounts to a new financial institution. Since we no longer had the right of offset against our disbursing accounts, book overdrafts of $20.6 million were reflected as accounts payable at January 29, 2005 rather than being netted against cash. The decrease in cash provided by operating activities in fiscal 2003 compared to fiscal 2002 was primarily due to an increase in cash interest resulting from the derivative settlement charge related to the termination and settlement of our $150 million interest rate zero-cost collar, partially offset by higher net earnings and less cash used for operating assets and liabilities. The increase in cash used for investing activities in fiscal 2004 compared to fiscal 2003 was due higher capital expenditures, including technology investments, and the acquisition of CSC, partially offset by lower proceeds from the sale of real estate. The decrease in cash used for investing activities in fiscal 2003 compared to fiscal 2002 was primarily due to lower capital expenditures, including technology investments, partially offset by proceeds of $17.3 million from the disposition of real estate and lower lease financings. The increase in cash provided by financing activities in fiscal 2004 compared to fiscal 2003 was primarily due to net increased borrowings under the Working Capital Facility and the Term Loan (see Debt Service and Liquidity below); fiscal 2003 included a $171.5 million repayment of the Term Loan, primarily from proceeds of $153.9 million from additional issuances of Senior Subordinated Notes. The increase in cash used for financing activities in fiscal 2003 compared to fiscal 2002 was primarily due to the repayment of $171.5 million of our term loan and reduced borrowings under the working capital facility, partially offset by proceeds from additional issuances of Senior Subordinated Notes of $153.9 million.

          Debt Service and Liquidity. On October 1, 2004, we entered into the Credit Agreement with a group of lenders led by Fleet Retail Group, a Bank of America company. The term of the Credit Agreement is five years and consists of a $180 million revolving working capital facility (the “Working Capital Facility”) (including a maximum of $125 million in letters of credit) and a $70 million term loan (the “Term Loan”). Under the Term Loan, we are required to make a balloon payment of $70 million on October 1, 2009. The proceeds from the Credit Agreement were used to completely repay the outstanding balance under the 2000 Credit Agreement. As of January 29, 2005, borrowings under the Term Loan and the Working Capital Facility were $70.0 million and $34.4 million, respectively, outstanding letters of credit were $61.5 million and borrowing availability under the Working Capital Facility was $84.1 million.

20

          Pursuant to the Credit Agreement, among other things, the maximum permitted leverage ratio, the minimum consolidated interest and rental expense coverage ratio, the minimum fixed-charge ratio and the maximum consolidated capital expenditures covenants were all eliminated and replaced with three financial covenants: minimum annual consolidated EBITDA of $135 million, minimum inventory of $150 million and maximum annual cash capital expenditures of $110 million. In addition, the Credit Agreement contains certain covenants which, among other things, place limits on the incurrence of additional indebtedness, issuance of cash-pay preferred stock, repurchase of Company stock, incurrence of liens, sale-leaseback transactions, hedging activities, sale or discount of receivables, investments, loans, advances, guarantees with affiliates, asset sales, acquisitions, mergers and consolidations, changing lines of business, repayments of other indebtedness, amendments to organizational documents and other matters customarily restricted in such agreements. Also, the Credit Agreement prohibits the payment of cash dividends. The Credit Agreement contains customary events of default, including without limitation, payment defaults, material breaches of representations, warranties and covenants, certain events of bankruptcy and insolvency, and a change of control. There are no credit agency ratings-related triggers in either the Credit Agreement or in the indenture related to the Senior Subordinated Notes (the “Indenture”) that would adversely impact the cost of borrowings, annual amortization of principal or related debt maturities. We were in compliance with all Credit Agreement covenants as of January 29, 2005.

          Borrowings under the Credit Agreement bear interest at floating rates equal to LIBOR plus a premium that ranges between 1.5% to 2.25%, depending on the average remaining availability under the Credit Agreement, and at January 29, 2005 was at LIBOR plus 2.0%. The weighted-average interest rate in effect on all borrowings under the Term Loan was 5.2% during fiscal 2004.

          All of the obligations under the Credit Agreement are guaranteed by the Company’s 100% owned subsidiaries, except our nonguarantor subsidiaries, which are comprised of four 100% owned and consolidated single-purpose entities. Each of these single-purpose entities owns the real estate on which a supermarket leased to Pathmark is located. The obligations under the Credit Agreement and those of the subsidiaries guaranteeing the Credit Agreement are secured by substantially all of our tangible and intangible assets including, without limitation, intellectual property, real property, including leasehold interests, and the capital stock in each of these subsidiaries.

          We believe that cash flows generated from operations, supplemented by the unused borrowing capacity under the Credit Agreement and the availability of capital lease financing will be sufficient to provide for our debt service requirements, working capital needs and capital expenditure program. However, in the event that cash flows from operations are lower in fiscal 2005 and beyond, we may need to adjust our future cash capital expenditure program.

          We have outstanding $350 million aggregate principal amount of Senior Subordinated Notes which pay cash interest semi-annually on February 1 and August 1. The Indenture contains a number of restrictive covenants, including a restriction on our ability to declare cash dividends on our common stock. We were in compliance with all Senior Subordinated Notes covenants as of January 29, 2005.

21

          Contractual Obligations and Commitments. We enter into a variety of legally binding obligations and commitments in the normal course of our business. The table below presents our long-term contractual obligations and commitments which represent known future cash payments that we will be required to make under existing contractual arrangements. Some amounts are based on management’s estimates and assumptions and amounts actually paid may vary from those reflected below. The following table presents contractual obligations as of January 29, 2005 (in millions):

(2)	Operating lease obligations, net of sublease income of $57.7 million, are $459.0 million.

(3)

In addition to the purchase obligations reflected in the table above, we enter into supply contracts to purchase products for resale in the ordinary course of business. This category of contracts covers a broad spectrum of products and sometimes includes specific merchandising obligations relative to those products. These supply contracts typically include either a volume commitment or a fixed expiration date; pricing terms based on the vendor’s published list price; termination provisions; and other standard contractual considerations. Our obligation related to these contracts is typically limited to return of unearned allowances and therefore no amounts have been included above. Purchase obligations shown above relate to the outsourcing of a major portion of our distribution, trucking and information systems functions through long-term agreements, as noted below.

• We have a supply agreement with C&S, expiring in January 2013, pursuant to which C&S supplies substantially all of our grocery, frozen and perishable merchandise requirements. Under our arrangement with C&S, we negotiate prices, discounts and promotions with vendors. We pay C&S a per case upcharge, and have annual minimum case commitments. The table above reflects this minimum upcharge. During fiscal 2004, the products supplied from C&S accounted for approximately 60% of all of our supermarket inventory purchases. This agreement may only be terminated for cause or certain events of bankruptcy by either party.

• In February 2005, we entered into a seven-year outsourcing agreement with IBM to continue to provide a wide range of information systems services, which commenced in 1991. Under the agreement, IBM provides data center operations, mainframe processing, business applications and systems development to enhance our customer service and efficiency. The charges under this agreement are based upon the services requested at predetermined rates. We may terminate this agreement with a payment of a specified termination charge.

22

• We also have an agreement, expiring in January 2014, with GHI, a local trucking company, to provide us with trucking services. Under this arrangement, there is an annual fixed fee in addition to transportation charges. The fixed fee is reflected in the table above. We may terminate this agreement with a payment of a specified termination charge. In addition, in connection with the sale of the trucking business to GHI in 1997, GHI agreed to continue making (and continues to make) contributions to the Local 863 Pension Fund (the “Fund”), a multi-employer pension plan. The Company agreed in the sale agreement that in the event GHI were to withdraw (as defined by the Employee Retirement Income Security Act of 1974 (“ERISA”)) from the Fund, to indemnify GHI under certain circumstances against all liabilities it would have arising from such a withdrawal (“Fund Withdrawal Liability”) and to provide a letter of credit in the full amount of the Fund Withdrawal Liability to secure the potential indemnification obligation. We delivered in 1997 letters of credit in the aggregate amount of approximately $3 million in favor of GHI and the Fund. Subsequent to fiscal year end, we agreed to deliver an additional $7 million letter of credit in favor of GHI, and to adjust said letter of credit up or down annually beginning in 2006 to reflect any change in the maximum amount of the Fund Withdrawal Liability estimated for a complete withdrawal by GHI from the Fund. We have also agreed with GHI that any annual increase in said letter of credit would not exceed $5 million; provided, however, that in the event of certain change of control transactions involving the Company (excluding the Yucaipa Transaction), a failure to provide an annual increase in the letter of credit when due, or a material adverse change in our financial condition, we would be required to furnish a letter of credit in the full amount of the Fund Withdrawal Liability (currently estimated to be approximately $31 million), less any outstanding letters of credit in favor of GHI and/or the Fund.

(4)	Other liabilities include estimated self-insured obligations, estimated unfunded pension liabilities and estimated post-retirement and post-employment obligations.

          We had outstanding letters of credit of $61.5 million as of January 29, 2005, of which $60.5 million were standby letters of credit covering primarily self-insured or performance obligations. The remaining $1.0 million were commercial letters of credit supporting purchases of imported products.

          Off-Balance Sheet Arrangements. In the normal course of business, we have assigned to third parties various leases related to former businesses that we sold as well as former operating Pathmark supermarkets (the “Assigned Leases”). When the Assigned Leases were assigned, we generally remained secondarily liable with respect to these lease obligations. As such, if any of the assignees were to become unable to continue making rental payments under the Assigned Leases, under certain circumstances we could be required to assume the lease obligation. As of January 29, 2005, 66 Assigned Leases remain in place. Assuming that each respective assignee became unable to continue to make rental payments under an Assigned Lease, an event we believe to be remote, management estimates our maximum potential obligation with respect to the Assigned Leases to be approximately $109 million, which could be partially or totally offset by reassigning or subletting such leases. We have recognized a liability on our consolidated balance sheet as of January 29, 2005 of $2.7 million, which represents certain guarantees attributable to our secondary liability in connection with Assigned Leases assigned after December 31, 2002. Additionally, during 1997, the Company sold its distribution operation to C&S and its trucking operation to GHI. In each case, C&S and GHI agreed to continue making (and continue to make) contributions to the applicable multi-employer pension plan. In connection with each sale, the Company agreed that, in the event of a withdrawal from the plan by the applicable acquiring party, it would, under certain circumstances and to a limited extent with respect to C&S, indemnify each of the acquirers with respect to such contingent withdrawal liability. The Company is also a party to a variety of contracts under which it may be obligated to indemnify the other party for certain matters. These contracts primarily relate to the Company’s commercial contracts, purchase and sale agreements, leases, financial agreements and various other agreements. Under these contracts, the Company may provide routine indemnification relating to representations and warranties, or personal injury matters. The terms of these indemnifications range in duration and may not be explicitly defined. Historically, the Company has not made a significant payment for these indemnifications.

          Capital Expenditures. Capital expenditures, including property acquired under capital leases, technology investments and the Acquisition, were $119.0 million in fiscal 2004 compared to $79.3 million in fiscal 2003 and $121.1 million in fiscal 2002. Capital expenditures included $23.5 million, $20.7 million and $36.5 million in technology spending in fiscal 2004, fiscal 2003 and fiscal 2002, respectively. During fiscal 2004, we opened three new stores, one of which was formerly operated by joint venture and was previously included in our store count, closed two stores, one of which was formerly operated by a joint venture, and completed 19 store renovations. During fiscal 2003, we opened two new stores, closed three stores and renovated 16 stores. One of the new stores is a replacement for one of the stores being closed. In fiscal 2005, our capital expenditure plan is to invest approximately $67 million in new stores, major store renovations and technology investments. During fiscal 2005, we plan to open two new stores, close two stores and complete eight store renovations. One of the new stores is a replacement for one of the stores being closed.

23

          Contingencies. We are a party to a number of legal proceedings in the ordinary course of business. Management believes that the ultimate resolution of these proceedings will not, in the aggregate, have a material adverse effect on the our financial statements taken as a whole. We have taken certain tax positions, which may be challenged, and have reserved for such tax positions in noncurrent liabilities as payment, if any, is not expected within one year. While the ultimate resolution of these positions cannot be determined with any degree of certainty, we believe that the aggregate contingencies, if any, when compared to the amounts reserved, will not have a material effect on our financial statements taken as a whole.

Critical Accounting Policies

          Our discussion of results of operations and financial condition relies on our financial statements that are prepared based on certain critical accounting policies that require management to make judgments and estimates that are subject to varying degrees of uncertainty. We believe that investors need to be aware of these policies and how they impact our financial statements as a whole, as well as our related discussion and analysis presented herein. While we believe that these accounting policies are based on sound measurement criteria, actual future events can and often do result in outcomes that can be materially different from these estimates or forecasts. The accounting policies and related risk described in this report are those that depend most heavily on these judgments and estimates.

          Impairment of Long-Lived Assets. It is our accounting policy to assess the carrying value of our long-lived assets for possible impairment on an individual store basis to determine if the carrying value of such assets are recoverable from their related undiscounted cash flows. In fiscal 2004, we estimated future cash flows based on economic and business assumptions and concluded that there was an impairment of $15.2 million. Since our estimates project cash flow several years into the future, they could be affected by variable factors such as inflation and economic conditions. In fiscal 2003 and fiscal 2002, there was no impairment of our long-lived assets.

          Goodwill Impairment. We performed the annual evaluation of our goodwill in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” in fiscal 2004 and, based on such evaluation of fair value, concluded that there was a $293.8 million impairment of our goodwill. Since such impairment analysis is based on economic and business assumptions, the goodwill impairment analysis in the future could be affected by changes in these business and economic conditions, changes in consumer spending, the competitive environment in which we operate and other risks detailed elsewhere in this report. In fiscal 2003 and fiscal 2002, we concluded there was no impairment of our goodwill.

          Pension Plans. Pension income for all our pension plans was $4.1 million, $4.3 million (net of a $2.1 million retirement incentive program charge) and $9.0 million for fiscal 2004, fiscal 2003 and fiscal 2002, respectively, and was calculated based upon a number of actuarial assumptions. The expected return on assets of our qualified pension plan (the “Qualified Plan”) represents the weighted-average of expected returns for each asset category, which have been developed using information from a number of third-party consultants and long-term historical data on returns for different asset categories and inflation. We also considered the Qualified Plan’s historical 10-year and 20-year compounded returns of 12.9% and 13.1%, respectively, which have exceeded broad market returns over comparable periods, indicating a significant premium has been gained through active management of plan assets. Based on these factors and the asset allocation discussed below, we elected to use a 9.00% expected return on plan assets in determining pension income for fiscal 2004. This was consistent with fiscal 2003, but represented a 0.5% decrease from the expected returns on plan assets used in determining pension income for fiscal 2002. Both assumptions were net of expected plan expenses payable from the trust fund, which are less than 0.5% of plan assets.

24

          The expected long-term rate of return on our Qualified Plan assets is based on an asset allocation assumption of 70% with equity managers, with an expected long-term rate of return of 10.5%, and 30% with fixed income managers, with an expected long-term rate of return of 5.5%. Because of market fluctuation, our actual asset allocation as of December 31, 2004 was 74% with equity managers and 26% with fixed income managers. We believe, however, that our long-term asset allocation on average will approximate 70% with equity managers and 30% with fixed income managers. We regularly review our actual asset allocation and periodically rebalance our investments to our targeted allocation when considered appropriate. An additional 0.5% reduction in our expected long-term rate of return on Qualified Plan assets, holding all other factors constant, would have reduced our pension income during fiscal 2004 by approximately $1.2 million.

          We base our determination of pension expense or income, in part, on a market-related valuation of assets that reduces year-to-year volatility. This market-related valuation recognizes investment gains or losses over a three-year period from the year in which they occur. Investment gains or losses for this purpose are the difference between the expected return calculated using the market-related value of assets and the actual return based on the market value of assets. As of January 29, 2005, we had cumulative net actuarial gains of approximately $3.9 million, due to the differences between expected and actual return on plan assets, which remain to be recognized in the calculation of the market-related value of assets. These unrecognized net actuarial gains may result in increases in our future pension income depending on several factors, including future asset gains and losses and whether such gains and losses, as recognized at each measurement date, together with other actuarial experience recognized, exceed the corridor in which gains and losses are not amortized, in accordance with SFAS No. 87, “Employers’ Accounting for Pensions.”

          The discount rate that we used for determining future pension obligations was based on a review of long-term bonds that receive one of the two highest ratings given by a recognized rating agency at the end of the calendar year. The discount rate determined on this basis has decreased from 6.00% as of January 31, 2004 to 5.75% as of January 29, 2005. Pension income is sensitive to the discount rate and salary increase assumptions used. A 0.25% decrease in the discount rate and salary increase assumptions used would have decreased pension income during fiscal 2004 by approximately $0.1 million.

          Based on an expected return on plan assets assumption of 9.00%, a discount rate of 5.75% and our various other relevant current assumptions, we estimate that our pension income for all pension plans combined will approximate $2.6 million for fiscal 2005, $4.6 million for fiscal 2006 and $5.9 million for fiscal 2007. Actual pension income in the future will depend on future investment performance, changes in discount rates and various other factors related to the populations participating in our pension plans.

          The value of our Qualified Plan assets has increased from $250.7 million at December 31, 2003 to $262.8 million at December 31, 2004. Accruing benefits, changes in economic assumptions and unfavorable actuarial experience have lowered the overfunded status of our Qualified Plan, net of benefit obligations, from $79.6 million at December 31, 2003 to $72.5 million at December 31, 2004. We believe that, based on our actuarial assumptions and due to the overfunded status of our Qualified Plan, we will not be required to make any cash contributions to our Qualified Plan for at least the next three years.

          Self-Insured Claims Liabilities and Postemployment Benefits. We are self insured for claims relating to customer, associate and vehicle accidents, as well as certain associate medical and disability benefits, and we maintain third-party excess insurance coverage for such claims. It is our accounting policy to record a self-insured liability, as determined actuarially on a consistent basis, based on the facts and circumstances of each individual claim filed and an estimate of claims incurred but not yet reported discounted at a risk-free interest rate. All claims and their related liabilities are reviewed and monitored on an ongoing basis. Any actuarial projection of losses concerning such claims is subject to variability primarily due to external factors affecting future inflation rates, litigation trends, benefit levels and claim settlement patterns. At January 29, 2005, liabilities for self-insured claims and benefits were $60.7 million and for postemployment benefits were $7.1 million.

25

New Accounting Pronouncements

          In December 2003, the FASB issued SFAS No. 132 (revised 2003), “Employers’ Disclosure about Pensions and Other Postretirement Benefit, an amendment of SFAS No. 87, 88 and 106.” This statement revises employers’ disclosures about pension plans and other postretirement benefit plans. It requires additional disclosures to those in the original SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits”, which it replaces, about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. Effective with fiscal 2003 year-end reporting, the required information was provided separately for pension plans and for other postretirement benefit plans. Effective with fiscal 2004 quarterly reporting, the required information was provided separately for pension plans and for other postretirement benefit plans. The adoption of SFAS No. 132 (revised 2003) did not have an impact on our financial position or results of operations.

          In May 2004, the staff of the FASB issued FASB Staff Position (“FSP”) No. FAS 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” which superseded FSP No. FAS 106-1. This FSP provides guidance on the accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”). FSP No. FAS 106-1 allowed companies to either assess the effect of the Act on their retirement-related benefit costs and obligations or to defer accounting for the effects of the Act until authoritative guidance was issued. We elected to defer any accounting for the effects of the Act pursuant to FSP No. FAS 106-1 and made that election in our fiscal quarter ended May 1, 2004, the first period in which the plan’s accounting for the effects of the Act normally would have been reflected in our financial statements. We and our actuarial advisors determined that benefits provided by one of the prescription drug plans we sponsor for a collective bargaining group as of the date of enactment were at least actuarially equivalent to Medicare Part D, and, accordingly, we will be entitled to the federal subsidy for that plan. We and our actuarial advisors based this determination on a comparison of the value of the prescription drug benefit for the bargaining group (net of retiree contributions) to the value of Medicare Part D (net of retiree premiums), using an actuarial model of prescription drug expenses for employer-sponsored medical plans. We elected to early adopt the provisions of this FSP for the second fiscal quarter ended July 31, 2004, and incorporated the required disclosure provisions into our financial statements. We performed a measurement of the effects of the Act on our expense for the year beginning January 1, 2004 and on our accumulated postretirement benefit obligation (“APBO”) as of January 1, 2004, the date that followed the enactment of the Act. The expense for 2004 decreased by approximately $0.7 million as a result of the Act. Our APBO as of the beginning of this fiscal year decreased by approximately $4.5 million as a result of the Act. This change in the APBO due to the Act is considered an actuarial gain. In measuring the $4.5 million APBO impact of the Act, we projected that our prescription drug per capita plan costs would, effective on January 1, 2006, decrease by 20% on average for members of one of our collective-bargaining units as a result of the federal subsidy and that we would use the federal subsidy to offset Company costs for the plan and assumes there would be no change in participation rates. The effect of applying this FSP had no cumulative effect on our retained earnings as of January 31, 2004. Accordingly, in applying the guidance in SFAS No. 3, we reported a reduction in net periodic benefit costs of $0.7 million in fiscal 2004.

26

          In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment.” This statement is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”. This statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. This statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award—the requisite service period (usually the vesting period). The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those instruments. This statement eliminates the alternative to use APB Opinion No. 25’s intrinsic value method of accounting that was provided in SFAS No. 123 as originally issued. This statement was originally effective as of the beginning of the first interim or annual reporting period that began after June 15, 2005. On April 14, 2005, the Securities and Exchange Commission amended the compliance date to permit companies to implement this statement at the beginning of their fiscal year that begins after June 15, 2005, i.e., for our first quarter reporting period ending April 29, 2006. This statement applies to all awards granted after the required effective date and to awards modified, repurchased, or cancelled after that date. The cumulative effect of initially applying this statement, if any, is recognized as of the required effective date. Under the transition method, compensation cost is recognized on or after the required effective date for the portion of outstanding awards for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under SFAS No. 123 for either recognition or pro forma disclosures. For periods before the required effective date, a company may elect to apply a modified version of retrospective application under which financial statement for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods by SFAS No. 123. We are in the process of evaluating the use of certain option-pricing models as well as the assumptions to be used in such models. When the evaluation is complete, we will select a transition method.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

          Our financial results are subject to risk from interest rate fluctuations on debt which carries variable interest rates. Variable rate debt outstanding under our Term Loan was $70.0 million on January 29, 2005. During fiscal 2004, the average interest rates in effect on borrowings under our Term Loan and our Working Capital Facility were 5.2% and 5.3%, respectively. A 1% change in interest rates applied to the $70.0 million balance of floating-rate Term Loan debt and to the $34.4 million balance of floating-rate Working Capital Facility debt would affect pre-tax annual results of operations by approximately $1.0 million. Our Senior Subordinated Notes bear interest at a fixed rate of 8.75%, and are, therefore, not subject to risk from interest rate fluctuations. The principal objective of our treasury management activities is to maintain acceptable levels of interest rate and liquidity risk to facilitate our funding needs. As part of our risk management, we may use derivative financial products such as interest rate hedges and interest rate swaps in the future.

27

Item 8. Financial Statements.

Pathmark Stores, Inc.
Consolidated Statements of Operations
(in millions, except per share data)

See notes to financial statements.

28

Pathmark Stores, Inc.
Consolidated Balance Sheets
(in millions, except share and per share amounts)

See notes to financial statements.

29

Pathmark Stores, Inc.
Consolidated Statements of Cash Flows
(in millions)

See notes to financial statements.

30

Pathmark Stores, Inc.
Consolidated Statements of Stockholders’ Equity
(in millions)

See notes to financial statements.

31

Pathmark Stores, Inc.

Notes to Financial Statements

Note 1. Significant Accounting Policies

          Business. Pathmark Stores, Inc. (the “Company” or “Pathmark”) operated 143 supermarkets as of January 29, 2005, primarily in the New York-New Jersey and Philadelphia metropolitan areas.

          Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are 100% owned. All intercompany transactions have been eliminated in consolidation. The Company owns a 50% interest in a joint venture, established in 1978, which owns real property and has leased a supermarket to the Company. This investment, which is not material to the Company’s financial statements, is accounted for under the equity method. No debt incurred by this entity is recourse to the Company as of January 29, 2005.

          Segment Reporting. The Company has one reportable retail grocery segment, operates in one geographical area in the United States, and has no major customers representing 10% or more of sales.

          Use of Estimates. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

          Fiscal Year. The Company’s fiscal year ends on the Saturday nearest to January 31 of the following calendar year. The Company’s fiscal 2004 consisted of the 52-week period ended January 29, 2005, fiscal 2003 consisted of the 52-week period ended January 31, 2004 and fiscal 2002 consisted of the 52-week period ended February 1, 2003. Normally, each fiscal year consists of 52 weeks, but every five or six years the fiscal year consists of 53 weeks.

          Cash. Bank accounts at the same financial institution are combined for purposes of evaluating whether a net book overdraft exists. Net book overdrafts are reclassified to accounts payable. At January 29, 2005, net book overdrafts of $20.6 million were reclassified to accounts payable.

          Merchandise Inventories. Merchandise inventories are valued at the lower of cost or market. Cost for substantially all merchandise inventories is determined on a last-in, first out (“LIFO”) basis.

          Property and Equipment. Property and equipment are stated at cost. Depreciation and amortization expense on owned property and equipment is computed on the straight-line method over the following useful lives: buildings, 40 years; fixtures and equipment, 3 to 10 years; and leasehold improvements, 8 to 15 years or lease term, whichever is shorter. Capital leases are recorded at the present value of minimum lease payments or fair market value of the related property, whichever is less. Amortization of property under capital leases is computed on the straight-line method over the term of the lease or the leased property’s estimated useful life. Certain of the Company’s operating leases contain rent holidays. For these leases, the Company recognizes the related rent expense on a straight-line basis at the earlier of the first rent payment or the date of possession of the leased property. The difference between the amounts charged to expense and the rent paid is recorded as deferred rent and amortized over the lease term.

          Long-Lived Assets. In accordance with the Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company assesses the carrying value of its long-lived assets for possible impairment on an individual store basis to determine if the carrying value of such assets are recoverable from their related undiscounted cash flows. If the estimated future cash flows are less than the carrying value of the asset, an impairment loss is recognized to the extent the carrying value exceeds the fair value, which approximates the net realizable value, of the asset. The Company recorded a non-cash impairment charge of $15.2 million in fiscal 2004, which was included as a component of impairment of goodwill and long-lived assets (see Impairment of Goodwill and Long-Lived Assets in this note). The Company did not record an impairment charge in fiscal 2003 or in fiscal 2002.

32

Pathmark Stores, Inc.
Notes to Financial Statements – (Continued)

          Goodwill. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, the Company’s goodwill account is evaluated for impairment annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company performs its annual evaluation of goodwill in the fourth quarter of each fiscal year. The first step of this evaluation is to determine whether the carrying value of the Company exceeds its fair value, which is based on the Company’s recent enterprise value. Since the fair value of the Company was less than its carrying value, the Company measured its impairment by comparing the implied fair value of goodwill, determined in the same manner as in a business combination, with the carrying value of the goodwill. Based on such evaluation of its fair value, the Company recorded in the fourth quarter of fiscal 2004 a non-cash goodwill impairment charge of $293.8 million. This charge was included as a component of impairment of goodwill and long-lived assets (see Impairment of Goodwill and Long-Lived Assets in this note). In fiscal 2003 and fiscal 2002, the Company concluded that there was no impairment of its goodwill.

          On February 20, 2004, the Company purchased the remaining 67% of the common stock of Community Supermarket Corporation (“CSC”) that it did not already own from the other shareholder for $4.5 million in cash (the “Acquisition”). As a result of the Acquisition, the Company owns 100% of CSC (now known as Bergen Street Pathmark, Inc.). CSC has been a tenant under a lease for a supermarket in Newark, New Jersey (the “Newark Store”) and prior to the acquisition, had retained the Company to manage the supermarket for it. The Acquisition was accounted for utilizing the purchase method, in which the purchase price was allocated to the fair value of assets acquired and liabilities assumed, and resulted in additional goodwill of $4.5 million. The results of operations of CSC are included in the Company’s financial statements subsequent to the acquisition date.

          Impairment of Goodwill and Long-Lived Assets. In the fourth quarter of fiscal 2004, the Company recorded a non-cash charge of $309.0 million, comprised of impairments of goodwill of $293.8 million and long-lived assets of $15.2 million. The goodwill impairment, which is not deductible for income tax purposes, represents the write down of the carrying value of the Company’s goodwill to its implied fair value and is due to the Company’s declining operating performance in fiscal 2004 and the reduced valuation multiples in the retail grocery industry. Such negative factors are reflected in the Company’s stock price and market capitalization. The long-lived assets impairment represents the write-downs of under-performing stores to their fair market values.

          Software. Internally developed software, which creates a new system or adds identifiable functionality to an existing system, and externally purchased software are capitalized and amortized on a straight-line method over 3 to 5 years; such amortization is classified in depreciation and amortization.

          Unearned Vendor Allowances and Rebates. The Company receives vendor allowances and rebates under vendor contracts which require the Company to purchase the vendor’s product based on either a volume or specified time period commitment or require the Company to perform a specific activity such as promote and/or advertise the vendor’s product. When payment is received prior to fulfillment of the contractual terms, our accounting policy is to record such amounts as unearned vendor allowances and rebates on our consolidated balance sheet; such unearned vendor allowances and rebates are earned through a reduction in cost of goods sold when the required contractual terms are completed and when the inventory is sold. Current unearned vendor allowances and rebates are based on the amount projected to be earned in fiscal 2005, whereas noncurrent unearned vendor allowance and rebates are based on amounts projected to be earned subsequent to fiscal 2005.

33

Pathmark Stores, Inc.
Notes to Financial Statements – (Continued)

Note 1. Significant Accounting Policies – (Continued)

          Self-Insured Claims Liabilities. The Company is self insured for claims relating to customer, associate and vehicle accidents, as well as certain associate medical and disability benefits, and maintains third-party excess insurance coverage for such claims. It is the Company’s accounting policy to record a self-insured liability, as determined actuarially on a consistent basis, based on the facts and circumstances of each individual claim filed and an estimate of claims incurred but not yet reported. Such self-insured claims liabilities are recorded at present value utilizing a 4% risk-free interest rate based on the projected payout of these claims. All claims and their related liabilities are reviewed and monitored on an ongoing basis. Any actuarial projection of losses concerning such claims is subject to variability primarily due to external factors affecting future inflation rates, litigation trends, benefit levels and claim settlement patterns.

          Fair Value of Financial Instruments. The fair value of the publicly-traded 8.75% Senior Subordinated Notes, due 2012 (the “Senior Subordinated Notes”) was based on the quoted market price as of January 29, 2005 and January 31, 2004, respectively. The fair values of the term loan (the “Term Loan”) and the working capital facility (the “Working Capital Facility”) were based on quoted market prices as of January 29, 2005 and January 31, 2004. The fair values of the mortgages and industrial revenue bonds were based on market interest rates as of January 29, 2005 and January 31, 2004. As of January 29, 2005 and January 31, 2004, the carrying values of accounts receivable, due from suppliers, accounts payable, and accrued expenses and other current liabilities approximated their fair values due to the short-term maturities of these accounts. However, considerable judgment is required in developing estimates of fair value. Accordingly, the estimates presented in Note 10 are not necessarily indicative of the amounts that the Company could settle in a current market exchange. The use of different market assumptions or methodologies could affect the estimated fair value.

          Income Taxes. The Company recognized deferred tax assets and liabilities based on differences between the financial reporting and tax basis of assets and liabilities, applying enacted statutory rates in effect for the year in which differences are expected to reverse. The effect on deferred taxes for a change in tax rates is recognized in income in the period that includes the enactment date. The Company provides a valuation allowance against deferred tax assets for which it does not consider the realization of such assets to be more likely than not.

          Revenue Recognition. Revenue is recognized at the point of sale to the customer. Discounts provided to customers through Pathmark coupons are recorded as a reduction of sales. From time-to-time the Company initiates customer loyalty programs which allow customers to earn points for each purchase completed during a specific time period. Points earned enable customers to receive a certificate that may be redeemed on future purchases. The Company accounts for its customer loyalty programs in accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-22, “Accounting for “Points” and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to Be Delivered in the Future”. The value of points earned by our loyalty program customers is included as a liability and a reduction of revenue at the time the points are earned based on the percentage of points that are projected to be redeemed.

          Cost of Goods Sold. Cost of goods sold includes the costs of inventory sold and the related purchase and distribution costs. Vendor allowances and rebates are adjusted through a reduction in cost of goods sold when the required contractual terms are completed and when the inventory is sold. Cost of goods sold excludes depreciation and amortization shown separately in the consolidated statements of operations.

          The Company adopted, as of the beginning of fiscal 2002, EITF Issue No. 02-16, “Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor.” In adopting EITF Issue No. 02-16, vendor payments related to advertising reimbursements are recorded as a reduction of cost of goods sold when both the required advertising is performed and the inventory is sold; prior to this change, these reimbursements were recorded as a reduction of advertising expense when the required advertising was performed. As a result, the Company recorded a charge, as of the first quarter of fiscal 2002, of $0.6 million, net of an income tax benefit of $0.4 million, for the cumulative effect of an accounting change.

34

Pathmark Stores, Inc.
Notes to Financial Statements – (Continued)

Note 1. Significant Accounting Policies – (Continued)

          Advertising Costs. Advertising costs, included in selling, general and administrative expenses, are expensed as incurred and were $41.1 million during fiscal 2004, $41.3 million during fiscal 2003 and $41.0 million during fiscal 2002.

          Store Preopening and Closing Costs. Store preopening costs are expensed as incurred. The Company records a liability for store closing costs such as future rent and real estate taxes, net of expected sublease recovery, from the date of closure discounted using a risk-adjusted rate of interest.

          Shares Outstanding. The weighted-average number of shares outstanding – basic were 30.1 million shares for fiscal 2004, for fiscal 2003 and for fiscal 2002. The weighted-average number of shares outstanding – diluted were 30.1 million shares for fiscal 2004, and 30.4 million shares for fiscal 2003 and for fiscal 2002. For fiscal 2004, all stock options and warrants were excluded from the computation of weighted-average number of shares outstanding – diluted because their effect would have been anti-dilutive.

          Derivative and Hedging Activities. In accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended, the Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objectives and strategies for undertaking various hedging transactions. The Company also assesses, both at the inception of a hedge and on an on-going basis, whether the derivative designated as a hedge is highly effective in offsetting changes in fair value of the item being hedged. Should it be determined that a derivative is not highly effective as a hedge, the Company will discontinue hedge accounting prospectively. The Company terminated and settled its three-year interest rate zero-cost collar in December 2003.

          Minimum Pension Liability. The Company maintains several unfunded pension plans for certain current and retired executives. The minimum pension liability for these plans is recorded in other noncurrent liabilities and the related unrealized loss, net of tax, is included in accumulated other comprehensive loss in stockholders’ equity on the consolidated balance sheets.

          Accounting Adjustments. The Company reviewed its lease accounting practices following the Securities and Exchange Commission’s recent clarification to the American Institute of Certified Public Accountants of operating leases and leasehold improvement issues. Based on this review, the Company recorded in the fourth quarter of fiscal 2004 a credit of $4.4 million to correct, on a cumulative basis, the calculation of straight-line rent expense by reducing its deferred rent liability account. The Company also recorded in the fourth quarter of fiscal 2004 a charge of $2.0 million to correct, on a cumulative basis, the amortization of certain leasehold improvements.

          In addition, the Company reviewed the accounting for its long-term disability medical plan. Based on this review, the Company concluded that it had not correctly accounted for the plan on an accrual basis and recorded in the fourth quarter of fiscal 2004 a charge of $3.0 million to record a liability for such disability expenses. The Company also recorded in the fourth quarter of fiscal 2004 a credit of $1.3 million to correct, on a cumulative basis, certain book and tax basis differences by reducing its deferred income tax liability account.

          A summary of the aforementioned charges (credits) are as follows (in millions):

35

Pathmark Stores, Inc.
Notes to Financial Statements – (Continued)

Note 1. Significant Accounting Policies – (Continued)

          The Company did not restate its prior years’ financial statements for such adjustments since the impact was immaterial to the Company’s financial condition and results of operations for fiscal 2004, prior years or any interim periods. The impact is also not expected to have a material impact on the Company’s future financial condition or results of operations.

          New Accounting Pronouncements. In December 2003, the FASB issued SFAS No. 132 (revised 2003), “Employers’ Disclosure about Pensions and Other Postretirement Benefits, an amendment of SFAS No. 87, 88 and 106.” This statement revises employers’ disclosures about pension plans and other postretirement benefit plans. It requires additional disclosures to those in the original SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits”, which it replaces, about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. Effective with fiscal 2003 year-end reporting, the required information was provided separately for pension plans and for other postretirement benefit plans. Effective with fiscal 2004 quarterly reporting, the required information was provided separately for pension plans and for other postretirement benefit plans. The adoption of SFAS No. 132 (revised 2003) did not have an impact on the Company’s financial position or results of operations.

          In May 2004, the staff of the FASB issued FASB Staff Position (“FSP”) No. FAS 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” which superseded FSP No. FAS 106-1. This FSP provides guidance on the accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”). FSP No. FAS 106-1 allowed companies to either assess the effect of the Act on their retirement-related benefit costs and obligations or to defer accounting for the effects of the Act until authoritative guidance was issued. The Company elected to defer any accounting for the effects of the Act pursuant to FSP No. FAS 106-1 and made that election in the fiscal quarter ended May 1, 2004, the first period in which the plan’s accounting for the effects of the Act normally would have been reflected in its financial statements. The Company and its actuarial advisors determined that benefits provided by one of the prescription drug plans it sponsors for a collective bargaining group as of the date of enactment were at least actuarially equivalent to Medicare Part D, and, accordingly, the Company will be entitled to the federal subsidy for that plan. The Company and its actuarial advisors based this determination on a comparison of the value of the prescription drug benefit for the bargaining group (net of retiree contributions) to the value of Medicare Part D (net of retiree premiums), using an actuarial model of prescription drug expenses for employer-sponsored medical plans. The Company elected to early adopt the provisions of this FSP for the second fiscal quarter ended July 31, 2004, and incorporated the required disclosure provisions into its financial statements. The Company performed a measurement of the effects of the Act on its expense for the year beginning January 1, 2004 and on its accumulated postretirement benefit obligation (“APBO”) as of January 1, 2004, the date that followed the enactment of the Act. The expense for 2004 decreased by approximately $0.7 million as a result of the Act. The Company’s APBO as of the beginning of this fiscal year decreased by approximately $4.5 million as a result of the Act. This change in the APBO due to the Act is considered an actuarial gain. In measuring the $4.5 million APBO impact of the Act, the Company projected that its prescription drug per capita plan costs would, effective on January 1, 2006, decrease by 20% on average for members of one of their collective-bargaining units as a result of the federal subsidy and that it would use the federal subsidy to offset Company costs for the plan and assumes there would be no change in participation rates. The effect of applying this FSP had no cumulative effect on the Company’s retained earnings as of January 31, 2004. Accordingly, in applying the guidance in SFAS No. 3, the Company reported a reduction in net periodic benefit costs of $0.7 million in fiscal 2004.

36

Pathmark Stores, Inc.
Notes to Financial Statements – (Continued)

Note 1. Significant Accounting Policies – (Continued)

          In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment.” This statement is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”. This statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. This statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. This statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award—the requisite service period (usually the vesting period). The grant-date fair value of employee share options and similar instruments will be estimated using option-pricing models adjusted for the unique characteristics of those instruments. This statement eliminates the alternative to use APB Opinion No. 25’s intrinsic value method of accounting that was provided in SFAS No. 123 as originally issued. This statement was originally effective as of the beginning of the first interim or annual reporting period that began after June 15, 2005. On April 14, 2005, the Securities and Exchange Commission amended the compliance date to permit companies to implement this statement at the beginning of their fiscal year that begins after June 15, 2005, i.e., for the Company’s first quarter reporting period ending April 29, 2006. This statement applies to all awards granted after the required effective date and to awards modified, repurchased, or cancelled after that date. The cumulative effect of initially applying this statement, if any, is recognized as of the required effective date. Under the transition method, compensation cost is recognized on or after the required effective date for the portion of outstanding awards for which the requisite service has not yet been rendered, based on the grant-date fair value of those awards calculated under SFAS No. 123 for either recognition or pro forma disclosures. For periods before the required effective date, a company may elect to apply a modified version of retrospective application under which financial statement for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods by SFAS No. 123. The Company is in the process of evaluating the use of certain option-pricing models as well as the assumptions to be used in such models. When the evaluation is complete, the Company will select a transition method.

Note 2. Stock-Based Compensation

          The Company currently accounts for stock-based compensation plans using the intrinsic value recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees.” Since the exercise price of all stock options granted under the Company’s stock-based compensation plans was equal to the market price of the underlying common stock on the grant date, no stock-based compensation expense is recognized in the Company’s operating results.

          The following pro forma disclosure illustrates the effect on net earnings (loss) and net earnings (loss) per share as if the Company had applied the fair value recognition provisions of SFAS No. 123, as amended by SFAS No. 148 (in millions, except per share amounts):

37

Pathmark Stores, Inc.
Notes to Financial Statements – (Continued)

Note 2. Stock-Based Compensation – (Continued)

          For purposes of the pro forma disclosures, the estimated fair value of the options issued is assumed to be expensed over the options’ vesting period. The Company will adopt SFAS No. 123 (revised 2004), “Share-Based Payment,” effective with its first quarter reporting period ending April 29, 2006 (see New Accounting Pronouncements in Note 1).

Note 3. Accounts Receivable, Net

          Accounts receivable, net are comprised of the following (in millions):

Note 4. Merchandise Inventories

          Merchandise inventories are comprised of the following (in millions):

Note 5. Other Current Assets

          Other current assets are comprised of the following (in millions):

38

Pathmark Stores, Inc.
Notes to Financial Statements – (Continued)

Note 6. Property and Equipment, Net

          Property and equipment, net are comprised of the following (in millions):

Note 7. Other Noncurrent Assets

          Other noncurrent assets are comprised of the following (in millions):

Note 8. Accrued Expenses and Other Current Liabilities

          Accrued expenses and other current liabilities are comprised of the following (in millions):

39

Pathmark Stores, Inc.
Notes to Financial Statements – (Continued)

Note 9. Long-Term Debt

          Long-term debt is comprised of the following (in millions):

          Scheduled Maturities of Debt. The amount of principal payments required each fiscal year on outstanding debt as of January 29, 2005 are as follows (in millions):

          Senior Subordinated Notes. The Company has outstanding $350 million aggregate principal amount of Senior Subordinated Notes, including $150 million issued at a premium, which pay cash interest semi-annually on February 1 and August 1. The indenture related to the Senior Subordinated Notes (the “Indenture”) contains a number of restrictive covenants, including a restriction on our ability to declare cash dividends on our common stock. The Company was in compliance with all Senior Subordinated Notes covenants as of January 29, 2005.

          Bank Credit Facility. On October 1, 2004, the Company entered into an amended and restated $250 million senior secured credit facility (the “Credit Agreement”) with a group of lenders led by Fleet Retail Group, a Bank of America company. The term of the Credit Agreement is five years and consists of the $180 million Working Capital Facility (including a maximum of $125 million in letters of credit) and the $70 million Term Loan. Under the Term Loan, the Company is required to make a balloon payment of $70 million on October 1, 2009. The proceeds from the Credit Agreement were used to completely repay the outstanding balance under the Company’s credit agreement dated September 19, 2000 (the “2000 Credit Agreement”). As of January 29, 2005, borrowings under the Term Loan and the Working Capital Facility were $70.0 million and $34.4 million, respectively, outstanding letters of credit were $61.5 million and borrowing availability under the Working Capital Facility was $84.1 million.

40

Pathmark Stores, Inc.
Notes to Financial Statements – (Continued)

Note 9. Long-Term Debt – (Continued)

          Pursuant to the Credit Agreement, among other things, the maximum permitted leverage ratio, the minimum consolidated interest and rental expense coverage ratio, the minimum fixed-charge ratio and the maximum consolidated capital expenditures covenants were all eliminated and replaced with three financial covenants: minimum annual consolidated EBITDA of $135 million, minimum inventory of $150 million and maximum annual cash capital expenditures of $110 million. In addition, the Credit Agreement contains certain covenants which, among other things, place limits on the incurrence of additional indebtedness, issuance of cash-pay preferred stock, repurchase of Company stock, incurrence of liens, sale-leaseback transactions, hedging activities, sale or discount of receivables, investments, loans, advances, guarantees with affiliates, asset sales, acquisitions, mergers and consolidations, changing lines of business, repayments of other indebtedness, amendments to organizational documents and other matters customarily restricted in such agreements. Also, the Credit Agreement prohibits the payment of cash dividends. The Credit Agreement contains customary events of default, including without limitation, payment defaults, material breaches of representations, warranties and covenants, certain events of bankruptcy and insolvency, and a change of control. There are no credit agency ratings-related triggers in either the Credit Agreement or in the Indenture that would adversely impact the cost of borrowings, annual amortization of principal or related debt maturities. The Company was in compliance with all Credit Agreement covenants as of January 29, 2005.

          Borrowings under the Credit Agreement bear interest at floating rates equal to LIBOR plus a premium that ranges between 1.5% to 2.25%, depending on the average remaining availability under the Credit Agreement, and at January 29, 2005 was at LIBOR plus 2.0%. During fiscal 2004, the average interest rates in effect on borrowings under the Term Loan and the Working Capital Facility were 5.2% and 5.3%, respectively. The Company pays a quarterly commitment fee of 0.375% on the unused portion of the Working Capital Facility; in addition, the Company currently pays fees of 2.0% for each standby letter of credit and 1.0% for each import letter of credit issued under the Working Capital Facility.

          All of the obligations under the Credit Agreement are guaranteed by the Company’s 100% owned subsidiaries, except its nonguarantor subsidiaries, which are comprised of four 100% owned and consolidated single-purpose entities. Each of these single-purpose entities owns the real estate on which a supermarket leased to Pathmark is located. The obligations under the Credit Agreement and those of the subsidiaries guaranteeing the Credit Agreement are secured by substantially all of the Company’s tangible and intangible assets including, without limitation, intellectual property, real property, including leasehold interests, and the capital stock in each of these subsidiaries.

          The Company believes that cash flows generated from operations, supplemented by the unused borrowing capacity under the Credit Agreement and the availability of capital lease financing, will be sufficient to provide for its debt service requirements, working capital needs and capital expenditure program. However, in the event that cash flows from operations are lower in fiscal 2005 and beyond, the Company may need to adjust its future cash capital expenditure program.

          Mortgages. The outstanding mortgages of $21.0 million are payable in installments ending in fiscal 2008 with interest at 7.32% and include a scheduled final payment of $18.9 million. These mortgages are secured by property and equipment having a net book value of $20.9 million on January 29, 2005.

          Industrial Revenue Bonds. The outstanding industrial revenue bonds of $1.3 million are payable in installments ending in fiscal 2008 and in fiscal 2018 and have interest rates ranging from 5% to 7%.

41

Pathmark Stores, Inc.
Notes to Financial Statements – (Continued)

Note 10. Fair Value of Financial Instruments

          The carrying amounts and fair values of the Company’s financial instruments are as follows (in millions):

Note 11. Comprehensive Earnings (Loss)

          Comprehensive earnings (loss) is comprised of the following (in millions):

Note 12. Selling, General and Administrative Expenses (“SG&A”)

          SG&A in fiscal 2004 is net of a $1.4 million credit to correct, on a cumulative basis, the accounting for the Company’s operating leases and long-term disability plan (see Note 1 – Significant Accounting Policies) and a $1.5 million gain from the disposition of real estate. SG&A in fiscal 2003 included a $8.1 million charge related to the Company’s store labor buyout initiative and corporate headcount reduction program, net of a $13.7 million gain from the disposition of real estate related to the assignment of two real estate leases. Fiscal 2002 included a $2.0 million charge related to a store labor buyout program.

42

Pathmark Stores, Inc.
Notes to Financial Statements – (Continued)

Note 13. Interest Expense

          Interest expense is comprised of the following (in millions):

          Interest expense in fiscal 2004 included a write off of deferred financing costs of $1.7 million related to the refinancing and paydown of the Company’s 2000 Credit Agreement. Interest expense in fiscal 2003 included a derivative settlement charge of $3.7 million related to the termination and settlement of $150 million of the Company’s Collar and the write off of deferred financing costs of $2.6 million resulting from the repayment of $171 million of the Company’s Term Loan primarily from proceeds of additional borrowings of $150 million under the Senior Subordinated Notes. Interest expense in fiscal 2002 included the reversal of an accrued interest liability of $2.2 million related to the favorable resolution of certain tax issues.

Note 14. Lease Obligations

          Future minimum rental payments for noncancellable leases as of January 29, 2005 are as follows (in millions):

43

Pathmark Stores, Inc.
Notes to Financial Statements – (Continued)

Note 14. Lease Obligations – (Continued)

          Rent expense, under all operating leases having noncancellable terms of more than one year, is summarized as follows (in millions):

Note 15. Other Noncurrent Liabilities

          Other noncurrent liabilities are comprised of the following (in millions):