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).

4

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 October 30, 2004, 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 31, 2004.

     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 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 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):

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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):

     On October 1, 2004, the Company entered into the 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, currently at LIBOR plus 2.0%. 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. The Company was in compliance with all Credit Agreement covenants as of October 30, 2004.

     The Company has outstanding $350 million aggregate principal amount of 8.75% Senior Subordinated Notes, due 2012 (the “Senior Subordinated Notes”) 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 October 30, 2004.

     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.

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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):

     Interest expense in the third quarter and the first nine months of fiscal 2004 includes the write off of deferred financing costs of $1.5 million related to the early extinguishment of the Company’s 2000 Credit Agreement. Interest expense in the third quarter and the first nine months of fiscal 2003 included a derivative settlement charge of $2.8 million related to the termination and settlement of $100 million of the Company’s interest rate zero-cost collar and the write off of deferred financing costs of $1.4 million related to the repayment of $102 million of the Term Loan from the proceeds of additional borrowings under the Senior Subordinated Notes. Interest expense in the first nine months of fiscal 2003 also included the write off of deferred financing costs of $0.5 million related to the repayment of $18 million of the Term Loan in the second quarter of fiscal 2003.

Note 5. Comprehensive Earnings (Loss)

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

Note 6. 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 October 30, 2004, 66 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 $113.3 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 October 30, 2004 of $2.7 million, which represents certain guarantees attributable to the Company’s secondary liability in connection with Assigned Leases assigned after December 31, 2002.

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

Note 7. 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:

     Other Postretirement Benefits:

     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 its 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 the Company’s financial statements. The Company and its actuarial advisors determined that benefits provided by one of the prescription drug plans the Company 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

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

Note 7. Benefits - (Continued)

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 its collective-bargaining units as a result of the federal subsidy and that the Company would use the federal subsidy to offset plan costs in order to establish retiree contributions, and 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 $0.5 million for the first nine months of fiscal 2004 representing three quarters of the $0.7 million annual reduction under the Act.

Note 8. 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.

Note 9. Insurance Claim

     From August 1, 2004 through September 2, 2004, the Company was forced to close its store in Upper Darby, Pennsylvania because of extensive damage when a nearby creek overflowed and flooded the store during torrential rains. The Company has insurance coverage, which the Company expects will fully reimburse it for all property damage, product loss, business interruption and incremental expenses incurred during the store closure, less the policy’s $0.1 million deductible. The total insurance claim is estimated to be $7.3 million. During the third quarter of fiscal 2004, the Company was advanced $2.5 million related to the insurance claim. As of October 30, 2004, an insurance claim receivable of $3.0 million was included in Other Current Assets on the Company’s Consolidated Balance Sheet which the Company expects to collect in the fourth quarter of fiscal 2004. In addition, the Company expects to settle its insurance claim in the fourth quarter of fiscal 2004 and record a gain equal to the difference between the replacement value and net book value of the damaged property and collect the insurance proceeds related to business interruption.

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

Note 10. Consolidating Financial Information

     The following represents the consolidating financial statements of Pathmark and its 100% owned guarantor and nonguarantor 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 nonguarantor 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.