Part I. Financial Information

Item 1. Financial Statements

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

See notes to financial statements (unaudited).

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

See notes to financial statements (unaudited).

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

See notes to financial statements (unaudited).

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Pathmark Stores, Inc.
Notes to Financial Statements (Unaudited)

Note 1. Significant Accounting Policies

          Business. Pathmark Stores, Inc. (the "Company" or "Pathmark") operated 142 supermarkets as of April 30, 2005, primarily in the New York-New Jersey and Philadelphia metropolitan areas.

          Basis of Presentation. The unaudited consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of management, the consolidated financial statements included herein reflect all adjustments which are of a normal and recurring nature and are necessary to present fairly the results of operations and financial position of the Company. This report should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended January 29, 2005.

          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.

Note 2. Stock-Based Compensation

          The Company accounts for stock-based compensation plans using the intrinsic value recognition and measurement principles of Accounting Principles Board (“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 proforma disclosure illustrates the effect on the net loss and net loss per share as if the Company had applied the fair value recognition provisions of the Financial Accounting Standards Board (the “FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 123, as amended by SFAS No. 148 (in millions, except per share amounts):

          For purposes of the proforma 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 the first quarter reporting period ending April 29, 2006 (see New Accounting Pronouncement in Item 2).

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

Note 3. Long-Term Debt

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

          The Company has outstanding $350 million aggregate principal amount of 8.75% Senior Subordinated Notes, due 2012 (the “Senior Subordinated Notes”), including $150 million issued at a premium, which pay cash interest semi-annually on February 1 and August 1. The indenture relating 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 related covenants as of April 30, 2005.

          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 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”). 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”). Interest on 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 availability under the Credit Agreement, and at April 30, 2005, was at LIBOR plus 2.0%. Pursuant to the Credit Agreement, there are three financial covenants: minimum annual consolidated EBITDA of $135 million, minimum inventory of $150 million and maximum annual cash capital expenditures of $110 million. The Company was in compliance with all Credit Agreement covenants as of April 30, 2005.

          There are no credit agency ratings-related triggers in either the Indenture or the Credit Agreement that would adversely impact the cost of borrowings, annual amortization of principal or related debt maturities.

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

Note 4. Interest Expense

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

Note 5. Guarantees

          In the normal course of business, the Company has assigned to third parties various leases related to former businesses that the Company sold as well as former operating Pathmark supermarkets (the “Assigned Leases”). When the Assigned Leases were assigned, the Company generally remained secondarily liable with respect to these lease obligations. As such, if any of the assignees were to become unable to continue making payments under the Assigned Leases, the Company could be required to assume the lease obligation. As of April 30, 2005, 65 Assigned Leases remain in place. Assuming that each respective assignee became unable to continue to make payments under an Assigned Lease, an event the Company believes to be remote, management estimates its maximum potential obligation with respect to the Assigned Leases to be approximately $106 million, which could be partially or totally offset by reassigning or subletting such leases. The Company has recognized a liability on its consolidated balance sheet as of April 30, 2005 of $2.6 million, which represents certain guarantees attributable to the Company’s secondary liability in connection with Assigned Leases.

Note 6. Benefits

          The Company sponsors a tax-qualified pension plan which covers substantially all non-union and certain union associates and several nonqualified pension plans for certain of its associates as well as retiree health and life insurance benefits, primarily for union groups and retired non-union associates. The components of net periodic benefit cost (cost reduction) are as follows (in millions):

          Pension Benefits:

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

Note 6. Benefits – (Continued)

          Other Postretirement Benefits:

Note 7. Yucaipa Investment

As disclosed in our Annual Report on Form 10-K for the year ended January 29, 2005, Pathmark and certain investment funds affiliated with 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 the Company’s common stock, representing approximately 40.0% of the Company’s outstanding common stock, 10,060,000 Series A warrants to purchase a further 9.9% of the Company’s common stock, and 15,046,350 Series B warrants to purchase a further 10.0% of the Company’s 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, the Company’s Board of Directors is expected to 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 the Company’s Board of Directors, is subject to customary closing conditions and stockholder approval. The transaction is expected to close in June 2005.

          Approximately $1.7 million of costs directly attributable to the proposed issuance of the Company’s common stock to Yucaipa have been deferred and recorded in noncurrent assets. Such costs will be netted against the proceeds from the common stock issuance.

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

Note 8. Consolidating Financial Information

          The following represents the consolidating financial statements of Pathmark and its 100% owned guarantor and non-guarantor subsidiaries. The guarantor subsidiaries are comprised of six 100% owned entities, including Pathmark’s distribution subsidiary, and guarantee on a full and unconditional and joint and several basis, the Senior Subordinated Notes. The non-guarantor subsidiaries are comprised of four 100% owned single-purpose entities. Each of those entities owns the real estate on which a supermarket leased to Pathmark is located.

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

Note 8. Consolidating Financial Information – (Continued)

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

Note 8. Consolidating Financial Information – (Continued)

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Results of Operations

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

          Sales. Sales in the first quarter of fiscal 2005 were $1,002.5 million, up 1.3% from $990.1 million in the first quarter of fiscal 2004. The sales increase in the first quarter of fiscal 2005 was due to a 1.7% increase from new stores and a 0.1% increase in same-store sales (stores open the entire first quarter in both fiscal 2005 and fiscal 2004, including replacement stores), partially offset by a 0.5% decrease from closed stores. Sales in the first quarter of fiscal 2005 benefited from new stores and by an increase in average order size, but continued to be negatively affected by the weakness in consumer demand and a decrease in customer traffic. The Company operated 142 stores at the end of the first quarters of fiscal 2005 and fiscal 2004.

          Gross Profit. Gross profit represents the difference between sales and cost of goods sold, which includes the cost of inventory sold and the related purchase and distribution costs, net of vendor allowances and rebates. Gross profit in the first quarter of fiscal 2005 was $285.0 million or 28.4% of sales compared to $279.4 million or 28.2% of sales in the first quarter of fiscal 2004. The increase in gross profit dollars in the first quarter of fiscal 2005 was primarily due to higher sales and lower inventory shrink. The gross profit margin in the first quarter of fiscal 2005 increased by 0.2% over the first quarter of fiscal 2004 due to lower inventory shrink.

          Selling, General and Administrative Expenses (“SG&A”). SG&A in the first quarter of fiscal 2005 was $250.9 million or 25.0% of sales compared to $244.6 million or 24.7% of sales in the first quarter of fiscal 2004. SG&A in the first quarter of fiscal 2005 included $0.9 million in expenses related to our review of strategic alternatives, while SG&A in the first quarter of fiscal 2004 included a $1.2 million gain from the sale of real estate. Excluding the aforementioned items, SG&A in the first quarter of fiscal 2005 would have been $250.0 million compared to $245.8 million in the first quarter of fiscal 2004, an increase of $4.2 million primarily due to higher store labor expenses resulting from contractual increases, higher supply and utility charges resulting from higher oil prices and higher rent and real estate taxes and an increase of 0.1% as a percentage of sales primarily due to higher supply and utility charges.

          Depreciation and Amortization. Depreciation and amortization in the first quarter of fiscal 2005 were $22.2 million compared to $21.5 million in the first quarter of fiscal 2004. The increase in depreciation and amortization in the first quarter of fiscal 2005 was primarily due to an increase in related property and equipment.

          Operating Earnings. Operating earnings in the first quarter of fiscal 2005 were $11.9 million compared to $13.3 million in the first quarter of fiscal 2004. The decrease in operating earnings in the first quarter of fiscal 2005 was primarily due to higher SG&A.

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          Interest Expense. Interest expense was $16.3 million in the first quarter of fiscal 2005 compared to $16.5 million in the first quarter of fiscal 2004. The decrease in interest expense in the first quarter of fiscal 2005 was primarily due to lower interest rates.

          Income Tax Benefit. The income tax benefit was $2.3 million in the first quarter of fiscal 2005 compared to $1.4 million in the first quarter of fiscal 2004 and was based on an effective tax rate of 52.3% in the first quarter of fiscal 2005 compared to 43.5% in the first quarter of fiscal 2004. The higher effective tax rate in the first quarter of fiscal 2005 was primarily due to the Work Opportunity Tax Credit (“WOTC”), which increased the tax benefit. The effective tax rate in the first quarter of fiscal 2004 did not include the WOTC due to its expiration on December 31, 2003. The WOTC was reinstated in September 2004, retroactive to January 1, 2004.

          Summary of Operations. The net loss was $2.1 million in the first quarter of fiscal 2005 compared to $1.8 million in the first quarter of fiscal 2004. The increase in the net loss in the first quarter of fiscal 2005 was primarily due to lower operating earnings and lower income tax benefits, partially offset by lower interest expenses.

Liquidity and Capital Resources

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

          The decrease in cash provided by operating activities in fiscal 2005 compared to fiscal 2004 was primarily due to lower cash provided by operating assets and liabilities. The decrease in cash used for investing activities in fiscal 2005 compared to fiscal 2004 was due to lower capital expenditures, partially offset by lower proceeds from the sale of real estate. The decrease in cash provided by financing activities in fiscal 2005 compared to fiscal 2004 was primarily due to lower net borrowings under the Working Capital Facility (see Debt Service and Liquidity below).

          Debt Service and Liquidity. On October 1, 2004, we entered into the Credit Agreement which amended and restated the 2000 Credit Agreement. The proceeds from the Credit Agreement were used to completely repay the outstanding balance under the 2000 Credit Agreement. As of April 30, 2005, borrowings under the Term Loan and the Working Capital Facility were $70.0 million and $32.6 million, respectively, and outstanding letters of credit were $67.3 million with borrowing availability under the Credit Agreement at $80.1 million. As of June 2, 2005, borrowings under the Term Loan and the Working Capital Facility were $70.0 million and $23.0 million, respectively, and outstanding letters of credit were $81.2 million with borrowing availability under the Credit Agreement at $75.8 million. Pursuant to the Credit Agreement, there are 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, capital expenditures, 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.

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          We were in compliance with all Credit Agreement covenants as of April 30, 2005. 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.

          There are no credit agency ratings-related triggers in either the Credit Agreement or in the Indenture relating to the Senior Subordinated Notes that would adversely impact the cost of borrowings, annual amortization of principal or related debt maturities.

          Borrowings under the Working Capital Facility and the Term Loan 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. Our interest rate on borrowings under the Credit Agreement is currently at LIBOR plus 2.0%. Under the Term Loan, we are required to make a balloon payment of $70 million on October 1, 2009. The Working Capital Facility also expires on October 1, 2009. The weighted-average interest rate in effect on all borrowings under the Term Loan was 4.8% during the first quarter of fiscal 2005.

          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 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.

          We have 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 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 April 30, 2005.

          Capital Expenditures. Capital expenditures in the first quarter of fiscal 2005, including technology investments, were $6.7 million compared to $35.4 million in the first quarter of fiscal 2004. During the first quarter of fiscal 2005, we renovated one store and closed one store. During the remainder of fiscal 2005, we expect to open two new stores, close one store and complete seven store renovations. One of the new stores is a replacement for the store being closed. Capital expenditures for fiscal 2005, including property acquired under capital leases and technology investments, are expected to be approximately $67 million.

Critical Accounting Policies

          Our discussion of results of operations and financial condition relies on our consolidated 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 our Annual Report on Form 10-K for the year ended January 29, 2005 are those that depend most heavily on these judgments and estimates. As of April 30, 2005, there have been no material changes to any of the critical accounting policies contained therein.

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New Accounting Pronouncement

          In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment,” which replaced SFAS No. 123, “Accounting for Stock-Based Compensation,” and superseded APB Opinion No. 25, “Accounting for Stock Issued to Employees.” This statement requires compensation costs relating to share-based payment transactions, including grants of employee stock options, be recognized in the financial statements based on their fair values. The proforma disclosure previously permitted under SFAS No. 123 will no longer be an acceptable alternative to recognition of expenses in the financial statements. The effective date of this statement was deferred until the beginning of the annual reporting period that begins after June 15, 2005, i.e., for the Company’s first quarterly reporting period ending April 29, 2006. As a result, the Company will adopt this statement in fiscal 2006. The Company currently measures compensation costs related to share-based payments under APB No. 25, as allowed by SFAS No. 123, and provides the required disclosure in the notes to financial statements. This statement provides for two transition alternatives: modified-prospective transition or modified-retrospective transition. The Company is currently evaluating the transition alternatives and the impact on the Company’s financial statements.

Forward-Looking Information

          This report contains 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 facility, 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 operating, marketing, renovation and expansion strategies; and
• natural disasters.

          For a discussion of these factors, see Item 1 – Business – Factors Affecting Our Business and Prospects in our Annual Report on Form 10-K for the year ended January 29, 2005.

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Item 3. 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 April 30, 2005. The interest rate in effect on all borrowings under our Term Loan was 4.8% during the first quarter of fiscal 2005. A 1% change in interest rates applied to the $70.0 million balance of floating-rate Term Loan debt would affect pre-tax annual results of operations by approximately $0.7 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 investment 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.

Item 4. Controls and Procedures.

     The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(b) of the Exchange Act as of April 30, 2005. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of April 30, 2005, the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company’s Exchange Act reports.

     In the first quarter of fiscal 2005, the Company remediated a material weakness in internal controls over financial reporting, which was reported in the Company’s Annual Report on Form 10-K for the year ended January 29, 2005, by implementing a more extensive analysis and review over the accounting for book overdrafts.

     There has been no other change during the Company’s fiscal quarter ended April 30, 2005 in the Company’s internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financing reporting.

Part II. Other Information

Item 6. Exhibits.

31.1	Form of CEO Certification, filed herewith.

31.2	Form of CFO Certification, filed herewith.

32.1	Certification of Eileen R. Scott, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

32.2	Certification of Frank G. Vitrano, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

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Signatures

          Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: June 8, 2005

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