The following discussion and analysis of our financial condition and results of operations is provided to increase the understanding of, and should be read in conjunction with, our Consolidated Financial Statements and the accompanying notes appearing elsewhere in this report. Additional discussion and analysis related to our Company is contained in our Annual Report on Form 10-K for the fiscal year ended September 25, 2003, as amended.

This report, including without limitation, statements under our discussion and analysis of our financial condition and results of operations, contains statements that we believe are "forward-looking statements" under the meaning of the Private Securities Litigation Reform Act of 1995 and are intended to enjoy protection of the safe harbor for forward-looking statements provided by that Act. These forward-looking statements generally can be identified by use of phrases such as "believe," "plan," "expect," "anticipate," "intend," "forecast" or other similar words or phrases. Descriptions of our objectives, goals, targets, plans, strategies, anticipated capital expenditures, costs and burdens of environmental remediation, anticipated gasoline suppliers and percentages of our requirements to be supplied by particular companies, anticipated store banners and percentages of our stores that we believe will operate under particular banners, expected cost savings and benefits and anticipated synergies from the Golden Gallon acquisition, anticipated costs of re-branding our stores, anticipated sharing of costs of conversion with our gasoline suppliers, and expectations regarding re-modeling, re-branding, re-imaging or otherwise converting our stores are also forward-looking statements. These forward-looking statements are based on our current plans and expectations and involve a number of risks and uncertainties that could cause actual results and events to vary materially from the results and events anticipated or implied by such forward looking statements, including:

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

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

• Unfavorable weather conditions;

• Political conditions in crude oil producing regions, including South America and the Middle East;

• Volatility in crude oil and wholesale petroleum costs;

• Wholesale cost increases of tobacco products;

• Consumer behavior, travel and tourism trends;

• Changes in state and federal environmental and other regulations;

• Dependence on one principal supplier for merchandise and two principal suppliers for gasoline;

• Financial leverage and debt covenants;

• Changes in the credit ratings assigned to our debt securities, credit facilities and trade credit;

• Inability to identify, acquire and integrate new stores;

• The interests of our largest stockholder;

• Dependence on senior management;

• Acts of war and terrorism; and

• Other unforeseen factors.

For a discussion of these and other risks and uncertainties, please refer to "Risk Factors" below. The list of factors that could affect future performance and the accuracy of forward-looking statements is illustrative but by no means exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty. The forward-looking statements included in this report are based on, and include, our

estimates as of August 5, 2004. We anticipate that subsequent events and market developments will cause our estimates to change. However, while we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if new information becomes available in the future.

Introduction

We are the leading independently operated convenience store chain in the southeastern United States and the third largest independently operated convenience store chain in the country based on store count with 1,367 stores in ten states as of June 24, 2004. Our stores offer a broad selection of merchandise, gasoline and ancillary products and services designed to appeal to the convenience needs of our customers. Our strategy is to continue to improve upon our position as the leading independently operated convenience store chain in the southeastern United States by generating profitable growth through merchandising initiatives, sophisticated management of our gasoline business, upgrading our stores, leveraging our geographic economies of scale, benefiting from the favorable demographics of our markets and continuing to selectively pursue acquisitions.

We had favorable results for our third quarter of fiscal 2004 and we believe this was a direct result of several recent operational and financial initiatives designed to enhance our profitability. In particular, we remain focused on our re-branding and re-imaging initiative and as of June 24, 2004 we have re-branded and re-imaged 425 locations, including 170 stores that have been converted or re-imaged to BP/Amoco, 144 stores that have received Citgo image upgrades and 111 stores that have been converted to our Kangaroo private brand format. Almost all of these stores have also been converted to Kangaroo ExpressSM branding for their merchandise operations. We believe this combined initiative allows us to leverage the cost of a complete facelift to most of our facilities, provides us with increased brand identity, and helps us in our efforts to optimize our gasoline gallon growth and gross profit dollars.

During the third quarter of fiscal 2004 we continued to enhance our merchandise offering in order to drive customer traffic while maximizing gross profit dollars. We expanded our Celeste beverage line to include a diet cola and a sugar free Red Celeste energy drink. We are continuing to broaden our private label program to items such as beef jerky and motor oil. We also introduced our "Low Carb Lane" in approximately 800 stores with an additional 200 stores expected by fiscal year end. This store rack is designed to appeal to a significant consumer population now following a low carbohydrate diet. During the third quarter of fiscal 2004 we expanded our quick service restaurant and proprietary food service offerings to 218 locations, including 62 Subway outlets. We believe that these initiatives allowed us to realize a 33.4% gross margin, while improving comparable store merchandise revenue 3.5%, our largest increase in seven quarters.

In the gasoline segment, we continued to benefit from our supply agreements we negotiated in February, 2003. Also, during the third quarter of fiscal 2004 we negotiated an expansion and extension of our gasoline supply agreement with BP Products, North America (BP ). As a result of this new agreement we expect our gasoline purchases from BP to grow to in excess of 400 million gallons annually and to exceed two billion gallons over the remaining term of the agreement which has been extended through December 2009. We believe this allows us to benefit from a greater branding consistency across our store base as well as preferred access to the BP supply channel.

During the third quarter of fiscal 2004 we continued to benefit from the Golden Gallon acquisition completed in October, 2003. This acquisition included 90 stores in Tennessee and 48 stores in northwest Georgia and enhanced our strong regional presence. The addition of these operations contributed to our 25% increase in operating income for the third quarter of fiscal 2004 compared to the third quarter of fiscal 2003.

We also realized a full quarter of benefits from our refinancing which was completed during the second quarter of fiscal 2004. Our new $415.0 million senior secured credit facility together with our new $250.0 million 10-year senior subordinated notes reduced our average borrowing rate by approximately 250 basis

points and enhanced our flexibility to pursue our growth strategy. Primarily as a result of this refinancing, our interest expense for the third quarter of fiscal 2004 declined $3.2 million from the third quarter of fiscal 2003.

Throughout the fourth quarter of fiscal 2004, we plan to remain focused on maximizing the benefits of our merchandise and gasoline initiatives as well as upgrading our network of stores. We will continue to selectively review acquisition opportunities to reinforce our market position. Since 1996, we have successfully completed more than 40 acquisitions, growing our store base from 379 to 1,367 stores. We believe there are significant acquisition opportunities to strengthen our position in existing markets and expand into contiguous markets. We believe our advantageous supply agreements and operating expertise make acquisitions an attractive way to grow our business.

Market and Industry Trends

During fiscal 2004 we have experienced rising wholesale gasoline costs as domestic crude oil prices have risen from approximately $28 per barrel in October 2003 to approximately $38 per barrel as of June 24, 2004. We attempt to pass along wholesale gasoline cost changes to our customers through retail price changes, however, we are not always able to do so, and the timing of the related increase in retail prices is affected by competitive conditions. As a result, we tend to experience tighter gasoline margins in periods of rising costs and higher margins in periods of decreasing wholesale costs. Since 1995, our gasoline margin per gallon has remained relatively stable and averaged more than 12 cents per gallon on an annual basis.

Increases in wholesale cigarette costs during 2004, as well as national and local campaigns to discourage smoking in the United States, have had an adverse effect on unit demand for cigarettes domestically. We have attempted to pass along cost increases to our customers and have not generally experienced a deterioration in cigarette gross margin or in average cartons sold per store week.

Results of Operations



The following table presents, for the periods indicated, selected items in the
consolidated statements of income as a percentage of our total revenue:



                                                              Three Months Ended                  Nine Months Ended
                                                          --------------------------          --------------------------
                                                          June 24,          June 26,          June 24,          June 26,
                                                            2004              2003              2004              2003
                                                          --------          --------          --------          --------
Total revenue                                                100.0 %           100.0 %           100.0 %           100.0 %
Gasoline revenue                                              66.8 %            62.0 %            65.1 %            62.6 %
Merchandise revenue                                           32.3 %            37.1 %            33.9 %            36.4 %
Commission income                                              0.9 %             0.9 %             1.0 %             1.0 %
Cost of sales                                                 83.6 %            81.0 %            82.8 %            81.6 %
                                                          -------- --       -------- --       -------- --       -------- --
Gross profit
Gasoline gross profit                                          4.7 %             5.6 %             4.8 %             5.3 %
Merchandise gross profit                                      10.8 %            12.4 %            11.5 %            12.1 %
Commission gross profit                                        0.9 %             0.9 %             1.0 %             1.0 %
Operating, general and administrative expenses                11.7 %            13.5 %            12.9 %            13.8 %
Depreciation and amortization                                  1.5 %             2.0 %             1.7 %             2.0 %
                                                          -------- --       -------- --       -------- --       -------- --
Income from operations                                         3.3 %             3.5 %             2.7 %             2.6 %
Loss on extinguishment of debt                                   -              (0.4 )%           (0.9 )%           (0.1 )%
Interest and miscellaneous expense                            (0.9 )%           (1.7 )%           (1.4 )%           (1.8 )%
                                                          -------- --       -------- --       -------- --       -------- --
Income before income taxes                                     2.4 %             1.4 %             0.3 %             0.7 %
Income tax expense                                            (0.9 )%           (0.5 )%           (0.1 )%           (0.3 )%
                                                          -------- --       -------- --       -------- --       -------- --
Net income before cumulative effect adjustment                 1.5 %             0.9 %             0.2 %             0.4 %
Cumulative effect adjustment, net of income tax                  -                 -                 -              (0.2 )%
                                                          -------- --       -------- --       -------- --       -------- --
Net income                                                     1.5 %             0.9 %             0.2 %             0.2 %
                                                          -------- --       -------- --       -------- --       -------- --

The table below provides a summary of our selected financial data for our three and nine months ended June 24, 2004 and June 26, 2003.

                                        Three Months Ended           Nine Months Ended
                                     ------------------------     -----------------------
                                      June 24,      June 26,      June 24,      June 26,
                                        2004          2003          2004          2003
                                     ----------     ---------     ---------     ---------
     Merchandise margin                    33.4 %        33.5 %        33.8 %        33.2 %
     Gasoline gallons (millions)          342.8         301.5         990.2         862.4
     Gasoline margin per gallon      $   0.1297     $  0.1328     $  0.1203     $  0.1257
     Gasoline retail per gallon      $     1.82     $    1.46     $    1.63     $    1.48

     Comparable store data:
     Merchandise sales %                    3.5 %         0.5 %         3.2 %         2.0 %
     Gasoline gallons %                     0.2 %         0.6 %         1.6 %        -0.2 %

     Number of stores:
     End of period                        1,367         1,271         1,367         1,271
     Weighted-average store count         1,371         1,272         1,370         1,278

Merchandise Revenue. Merchandise revenue for the third quarter of fiscal 2004 was $302.3 million compared to $263.9 million during the third quarter of fiscal 2003, an increase of $38.4 million or 14.6%. The increase is primarily attributable to merchandise revenue from the Golden Gallon acquisition of $33.7 million and a 3.5%, or $9.1 million, increase in comparable store merchandise revenue compared to the third quarter of fiscal 2003. These increases were partially offset by lost revenue from closed stores of approximately $4.7 million.

Gasoline Revenue and Gallons. Gasoline revenue for the third quarter of fiscal 2004 was $625.4 million compared to $441.1 million during the third quarter of fiscal 2003, an increase of $184.4 million or 41.8%. The increase in gasoline revenue is primarily attributable to gasoline revenue from the Golden Gallon acquisition of $79.6 million, an increase in comparable store gallons of
0.6 million, or 0.2%, and the 36 cent per gallon increase in the average gasoline retail price per gallon. The increase in the average gasoline retail price per gallon is a result of our passing along to customers the increases in wholesale fuel costs experienced in the third quarter of fiscal 2004. These increases were partially offset by lost revenue from closed stores of approximately $5.1 million.

In the third quarter of fiscal 2004, gasoline gallons sold were 342.8 million compared to 301.5 million during the third quarter of fiscal 2003, an increase of 41.3 million gallons, or 13.7%. The increase is primarily attributable to an increase in gallon volume of 44.1 million from the Golden Gallon acquisition and the comparable store gasoline gallon increase discussed above, partially offset by lost gallon volume from closed stores of approximately 4.0 million gallons.

Commission Income. Commission income for the third quarter of fiscal 2004 was $8.2 million compared to $6.5 million during the third quarter of fiscal 2003, an increase of $1.7 million, or 26.0%. The increase is primarily due to an increase in commission income of $1.1 million from the Golden Gallon acquisition and comparable store increases in lottery income. During the second quarter of fiscal 2004, the State of Tennessee introduced its lottery, and sales of Tennessee lottery tickets contributed approximately $0.4 million to commission income in the third quarter of fiscal 2004.

Merchandise Gross Profit and Margin. Merchandise gross profit was $101.1 million for the third quarter of fiscal 2004 compared to $88.5 million for the third quarter of fiscal 2003, an increase of $12.6 million, or 14.2%. This increase is primarily attributable to the merchandise gross profit contribution of $10.8 million from stores acquired in the Golden Gallon acquisition and increased merchandise revenue discussed above. Merchandise margin of 33.4% for the third quarter of fiscal 2004 was consistent with the 33.5% reported for the third quarter of fiscal 2003. Our merchandise gross margin has been positively impacted by the introduction of private label products and increased quick service restaurant volume.

Gasoline Gross Profit and Per Gallon Margin. Gasoline gross profit was $44.5 million for the third quarter of fiscal 2004 compared to $40.0 million for the third quarter of fiscal 2003, an increase of $4.4 million or 11.0%. The increase is primarily attributable to the gasoline gross profit contribution of $5.7 million from stores acquired in the Golden Gallonacquisition and the comparable store gallon increase discussed above. These increases were partially offset by a decline in our gross profit per gallon to 13.0 cents for the third quarter of fiscal 2004 from 13.3 cents in the third quarter of fiscal 2003. We present gasoline gross profit per gallon inclusive of credit card processing fees and repairs and maintenance on gasoline equipment. These expenses totaled 3.2 cents per gallon and 2.7 cents per gallon for the three months ended June 24, 2004 and June 26, 2003, respectively. The increase in these fees was primarily due to higher credit card fees as a result of a 25% increase in retail gasoline prices.

Operating, General and Administrative Expenses. Operating, general and administrative expenses for the third quarter of fiscal 2004 totaled $109.3 million compared to $95.9 million for the third quarter of fiscal 2003, an increase of $13.3 million or 13.9%. This increase is primarily due to operating, general and administrative expenses of approximately $10.9 million associated with stores acquired in the Golden Gallon acquisition and comparable store increases in labor and other variable expenses. As a percentage of total revenue, operating, general and administrative expenses were 11.7% in the third quarter of fiscal 2004, and adjusted for the impact of gasoline inflation were 11.7% in the third quarter of fiscal 2003.

Income from Operations. Income from operations totaled $30.9 million for the third quarter of fiscal 2004 compared to $24.8 million for the third quarter of fiscal 2003, an increase of $6.1 million, or 24.7%. The increase is primarily attributable to the increases in gasoline and merchandise gross profit discussed above, partially offset by the increase in operating, general and administrative expenses also discussed above.

EBITDA. EBITDA is defined by us as net income before interest expense, income taxes, depreciation and amortization and cumulative effect of change in accounting principle. EBITDA for the third quarter of fiscal 2004 totaled $44.9 million compared to EBITDA of $39.5 million during the third quarter of fiscal 2003, an increase of $5.5 million, or 13.9%. The increase is attributable to the increase in income from operations discussed above.

EBITDA is not a measure of performance under accounting principles generally accepted in the United States of America, and should not be considered as a substitute for net income, cash flows from operating activities and other income or cash flow statement data. We have included information concerning EBITDA as one measure of our cash flow and historical ability to service debt and because we believe investors find this information useful because it reflects the resources available for strategic opportunities including, among others, to invest in the business, make strategic acquisitions and to service debt. EBITDA as defined by us may not be comparable to similarly titled measures reported by other companies.

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

                                                                          Three Months Ended
                                                                      --------------------------
                                                                      June 24,         June 26,
                                                                        2004             2003
                                                                      ---------        ---------
EBITDA                                                                $  44,940        $  39,468
Interest expense and loss on extinguishment of debt                      (9,128 )        (15,260 )
Adjustments to reconcile net income to net cash provided by
operating activities (other than depreciation and amortization,
provision for deferred income taxes and cumulative effect of
change in accounting principle)                                            (711 )          3,490
Changes in operating assets and liabilities, net:
Assets                                                                   (3,614 )          5,051
Liabilities                                                              24,972              235
                                                                      -- ------ -      - ------- -
Net cash provided by operating activities                             $  56,459        $  32,984
Net cash used in investing activities                                 $  (5,378 )      $  (2,405 )
Net cash provided by (used in) financing activities                   $   1,292        $  (1,318 )

Loss on Extinguishment of Debt. During the third quarter of fiscal 2003, we incurred $2.9 million in debt extinguishment costs related to the refinancing of our outstanding senior credit facility. These costs represented the write-off of unamortized deferred financing costs.

Interest Expense. Interest expense is primarily comprised of interest on borrowings under our senior credit facility and senior subordinated notes. Interest expense for the third quarter of fiscal 2004 was $9.1 million compared to $12.4 million for the third quarter of fiscal 2003. The decrease of $3.2 million is primarily the result of the benefits of our refinancing which was completed in March, 2004, which reduced our effective borrowing rate by approximately 250 basis points. Interest expense associated with the $80.0 million increase in our outstanding borrowings as a result of the Golden Gallon acquisition was approximately $0.9 million for the third quarter of fiscal 2004.

Net Income. Net income for the third quarter of fiscal 2004 was $13.7 million compared to net income of $6.1 million for the third quarter of fiscal 2003. The increase is primarily attributable to the reduced interest expense discussed above, coupled with the increased income from operations discussed above.

Nine Months Ended June 24, 2004 Compared to the Nine Months Ended June 26, 2003

Merchandise Revenue. Merchandise revenue for the first nine months of fiscal 2004 was $842.1 million compared to $741.1 million for the first nine months of fiscal 2003, an increase of $101.0 million or 13.6%. The increase is primarily attributable to merchandise revenue from the Golden Gallon acquisition of $88.8 million and a 3.2%, or $23.0 million, increase in comparable store merchandise revenue compared to the first nine months of fiscal 2003. These increases were partially offset by lost revenue from closed stores of approximately $11.8 million.

Gasoline Revenue and Gallons. Gasoline revenue for the first nine months of fiscal 2004 was $1,616.0 million compared to $1,274.7 million during the first nine months of fiscal 2003, an increase of $341.3 million, or 26.8%. The increase in gasoline revenue is primarily attributable to gasoline revenue of $197.5 million from the Golden Gallonacquisition, an increase in comparable store gallons of 13.2 million, or 1.6%, and the 15 cent per gallon increase in the average gasoline retail price per gallon. The increase in the average gasoline retail price per gallon is a result of our passing along to customers the increases in wholesale fuel costs experienced in fiscal 2004. These increases were partially offset by lost revenue from closed stores of approximately $13.5 million.

For the first nine months of fiscal 2004, gasoline gallons sold were 990.2 million compared to 862.4 million during the first nine months of fiscal 2003, an increase of 127.8 million gallons, or 14.8%. The increase is primarily attributable to an increase in gallon volume of 122.8 million from the Golden Gallon acquisition and the comparable store gasoline gallon increase discussed above, partially offset by lost gallon volume from closed stores of approximately 10.9 million gallons.

Commission Income. Commission income for the first nine months of fiscal 2004 was $23.5 million compared to $20.0 million during the first nine months of fiscal 2003, an increase of $3.5 million, or 17.4%. The increase is primarily due to an increase in commission income of $2.6 million from the Golden Gallon acquisition. During the second quarter of fiscal 2004, the State of Tennessee introduced its lottery, and sales of Tennessee lottery tickets contributed approximately $0.7 million to commission income in the first nine months of fiscal 2004.

Merchandise Gross Profit and Margin. Merchandise gross profit was $284.4 million for the first nine months of fiscal 2004 compared to $245.8 million for the first nine months of fiscal 2003, an increase of $38.7 million, or 15.7%. This increase is primarily attributable to the merchandise gross profit contribution of $28.9 million from stores acquired in the Golden Gallon . . .