SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

COMMISSION FILE NUMBER 333-168065

TOPS HOLDING CORPORATION

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		26-1252536 (I.R.S. Employer Identification No.)
6363 Main Street, Williamsville, New York 14221		(716) 635-5000 (Telephone Number)
(Address of principal executive office, including zip code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No þ

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of November 22, 2010, 144,776 shares of common stock of the registrant were outstanding.

 

 

TOPS HOLDING CORPORATION

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION (Unaudited)
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of October 9, 2010 and January 2, 2010			1
Condensed Consolidated Statements of Operations for the 12-week and 40-week periods ended October 9, 2010 and October 3, 2009			2
Condensed Consolidated Statements of Cash Flows for the 40-week periods ended October 9, 2010 and October 3, 2009			3
Notes to Condensed Consolidated Financial Statements			4
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			34
ITEM 4. CONTROLS AND PROCEDURES			34
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS			34
ITEM 1A. RISK FACTORS			35
ITEM 6. EXHIBITS			35
SIGNATURES			35
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
Exhibit 99.1

PART I — FINANCIAL INFORMATION (Unaudited)

Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

TOPS HOLDING CORPORATION

(Dollars in thousands, except share and per share amounts)

(Unaudited)

		October 9, 2010				January 2, 2010
Assets
Current assets:
Cash and cash equivalents		$	16,601			$	19,722
Accounts receivable, net			57,098				49,457
Inventory, net			121,585				82,272
Prepaid expenses and other current assets			13,611				13,535
Income taxes refundable			598				760
Current deferred tax assets			5,601				5,986
Total current assets			215,094				171,732
Property and equipment, net			381,362				333,416
Intangible assets, net (Note 4)			81,601				76,356
Other assets (Note 5)			14,189				11,344
Total assets		$	692,246			$	592,848
Liabilities and Shareholders’ Deficit
Current liabilities:
Accounts payable		$	91,207			$	68,462
Accrued expenses and other current liabilities (Note 6)			90,513				68,334
Current portion of capital lease obligations			10,603				8,186
Current portion of long-term debt (Note 8)			396				362
Total current liabilities			192,719				145,344
Capital lease obligations			174,044				175,340
Long-term debt (Note 8)			350,278				288,194
Other long-term liabilities			19,428				16,785
Non-current deferred tax liabilities			5,601				5,986
Total liabilities			742,070				631,649
Shareholders’ deficit:
Common shares ($0.001 par value; 300,000 authorized shares at October 9, 2010, 200,000 authorized shares at January 2, 2010, 144,776 shares issued & outstanding at October 9, 2010, 100,000 shares issued & outstanding at January 2, 2010)			—				—
Paid-in capital			(2,936	)			(3,383	)
Accumulated deficit			(47,023	)			(35,553	)
Accumulated other comprehensive income, net of tax			135				135
Total shareholders’ deficit			(49,824	)			(38,801	)
Total liabilities and shareholders’ deficit		$	692,246			$	592,848

See notes to unaudited condensed consolidated financial statements.

TOPS HOLDING CORPORATION

(Dollars in thousands)

(Unaudited)

		12-week periods ended								40-week periods ended
		October 9, 2010				October 3, 2009				October 9, 2010				October 3, 2009
Net sales		$	519,859			$	373,216			$	1,726,707			$	1,271,161
Cost of goods sold (excluding distribution costs)			(362,206	)			(260,433	)			(1,201,152	)			(884,605	)
Distribution costs			(10,752	)			(7,449	)			(34,262	)			(25,462	)
Gross profit			146,901				105,334				491,293				361,094
Operating expenses:
Wages, salaries and benefits			(70,871	)			(50,083	)			(238,377	)			(170,569	)
Selling and general expenses			(24,381	)			(17,021	)			(80,188	)			(55,958	)
Administrative expenses (inclusive of stock-based compensation expense of $21, $153, $447 and $511)			(19,670	)			(13,352	)			(82,172	)			(47,322	)
Rent expense			(4,518	)			(2,997	)			(14,535	)			(9,731	)
Depreciation and amortization			(15,090	)			(11,955	)			(48,804	)			(39,688	)
Advertising			(5,923	)			(2,966	)			(18,278	)			(9,054	)
Total operating expenses			(140,453	)			(98,374	)			(482,354	)			(332,322	)
Operating income			6,448				6,960				8,939				28,772
Bargain purchase (Note 3)			—				—				16,716				—
(Loss) gain on debt extinguishment			(33	)			—				(1,041	)			505
Interest expense, net			(14,368	)			(8,992	)			(46,852	)			(31,966	)
Loss before income taxes			(7,953	)			(2,032	)			(22,238	)			(2,689	)
Income tax benefit			397				1,159				10,768				1,289
Net loss		$	(7,556	)		$	(873	)		$	(11,470	)		$	(1,400	)

See notes to unaudited condensed consolidated financial statements.

TOPS HOLDING CORPORATION

(Dollars in thousands)

(Unaudited)

		40-week periods ended
		October 9, 2010				October 3, 2009
Cash flows provided by operating activities:
Net loss		$	(11,470	)		$	(1,400	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization			59,752				49,003
Bargain purchase			(16,716	)			—
Deferred income taxes			(10,585	)			(1,289	)
Amortization of deferred financing costs			1,791				865
Loss (gain) on debt extinguishment			1,041				(505	)
Stock-based compensation expense			447				511
LIFO inventory valuation adjustment			383				578
Interest rate swap interest paid			—				3,143
Impact of interest rate swap on deferred tax assets			—				(582	)
Change in fair value of interest rate swap			—				(1,256	)
Other			223				—
Changes in operating assets and liabilities:
Increase in accounts receivable			(7,641	)			(7,278	)
Increase in inventories			(7,779	)			(1,772	)
Decrease (increase) in prepaid expenses and other current assets			2,278				(1,774	)
Decrease (increase) in income taxes refundable			162				(790	)
Increase in accounts payable			22,397				7,700
Increase (decrease) in accrued expenses and other current liabilities			9,265				(7,337	)
Increase in other long-term liabilities			2,390				4,368
Net cash provided by operating activities			45,938				42,185
Cash flows used in investing activities:
Acquisition of The Penn Traffic Company (Note 3)			(85,023	)			—
Cash paid for property and equipment			(34,280	)			(19,336	)
Proceeds from sale of assets			20,738				—
Interest rate swap interest paid			—				(3,143	)
Net cash used in investing activities			(98,565	)			(22,479	)
Cash flows provided by (used in) financing activities:
Proceeds from long-term debt borrowings			112,125				—
Repayment of long-term debt borrowings			(36,283	)			(23,651	)
Borrowings on ABL Facility			191,400				—
Repayments on ABL Facility			(205,400	)			—
Proceeds from issuance of common stock			30,000				—
Dividend to shareholders			(30,000	)			—
Principal payments on capital leases			(7,007	)			(5,518	)
Deferred financing costs incurred			(5,677	)			(437	)
Change in bank overdraft position			348				(169	)
Net cash provided by (used in) financing activities			49,506				(29,775	)
Net decrease in cash and cash equivalents			(3,121	)			(10,069	)
Cash and cash equivalents — beginning of period			19,722				30,319
Cash and cash equivalents — end of period		$	16,601			$	20,250

See notes to unaudited condensed consolidated financial statements.

TOPS HOLDING CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF THE COMPANY AND BASIS OF PRESENTATION

The Company

Tops Holding Corporation (“Holding” or “Company”) was incorporated on October 5, 2007 and commenced operations on December 1, 2007 with the sole purpose of owning and operating Tops Markets, LLC (“Tops Markets” or “Tops”), a wholly-owned subsidiary. Holding is owned by various funds affiliated with Morgan Stanley Private Equity, an affiliate of Morgan Stanley (“Morgan Stanley”), HSBC Private Equity Partners (“HSBC”), two minority investors and a Company employee. Tops operates as a food retailer in Upstate New York and Northern Pennsylvania under the banner Tops.

On January 29, 2010, the Company completed the acquisition (the “Acquisition”) of substantially all assets and certain liabilities of The Penn Traffic Company (“Penn Traffic”) and its subsidiaries, including Penn Traffic’s 79 retail supermarkets, in exchange for cash consideration of $85.0 million. These supermarkets currently operate under the banners of Tops, P&C and Quality Markets in Upstate New York and Northern Pennsylvania. As of November 22, 2010, the Company has retained 55 supermarkets. In August 2010, the Federal Trade Commission (“FTC”) issued a Proposed Order that would require Tops to sell seven of these retained supermarkets. The Proposed Order was subject to public comment until September 7, 2010. The Company is awaiting the approval of a Final Order by the FTC. The remaining 24 supermarkets have been closed, sold or liquidated. The Company currently operates 127 corporate retail supermarkets with an additional five franchise supermarkets.

Accounting Policies

The summary of significant accounting policies is included in Note 1 to the audited consolidated financial statements of Tops Holding Corporation for the fiscal year ended January 2, 2010.

Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements are unaudited and have been prepared by the Company’s management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and accounting policies are consistent, in all material respects, with those applied in preparing the Company’s audited consolidated financial statements for the fiscal year ended January 2, 2010. In the opinion of management, these interim financial statements reflect all adjustments, including normal recurring adjustments, management considers necessary for the fair presentation of the Company’s financial position, operating results and cash flows for the interim periods presented. All intercompany transactions have been eliminated. The condensed consolidated balance sheet as of January 2, 2010 has been derived from the audited consolidated balance sheet as of that date. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes. The accompanying condensed consolidated financial statements present results for the 12-week and 40-week periods ended October 9, 2010 and October 3, 2009. These results are not necessarily indicative of the results that may be achieved for the 52-week period ending January 1, 2011, or any other period. The Company has evaluated subsequent events for disclosure through the date of issuance of the accompanying unaudited condensed consolidated interim financial statements and there are no material subsequent events which require additional disclosure.

Segments

The Company operates 127 corporate retail supermarkets with an additional five franchise supermarkets, which offer grocery, produce, frozen, dairy, meat, floral, seafood, health and beauty care, general merchandise, deli and bakery goods. Across all 127 retail supermarkets, the Company operates one store format where each supermarket offers the same general mix of products with similar pricing to similar categories of customers. The Company has concluded that each individual supermarket is an operating segment. As of October 9, 2010, 80 of the supermarkets offer pharmacy services and 36 fuel centers were in operation, inclusive of the franchise locations. The Company’s retail operations, which represent substantially all of the Company’s consolidated sales, earnings and total assets, are its only reportable segment.

These 127 operating segments have been aggregated into one reportable segment because, in the Company’s judgment, the operating segments have similar historical economic characteristics and are expected to have similar economic characteristics and long-term financial performance in the future. The principal measures and factors considered in determining whether the economic characteristics are similar are gross margin percentage, capital expenditures, competitive risks and employee labor agreements. In addition, each operating segment has similar products and types of customers, similar methods of distribution and a similar regulatory environment.

The following table presents sales revenue by type of similar product (dollars in thousands):

		12-week periods ended																40-week periods ended
		October 9, 2010								October 3, 2009								October 9, 2010								October 3, 2009
						% of								% of								% of								% of
		Amount				Total				Amount				Total				Amount				Total				Amount				Total
Non-perishables(1)		$	301,209				57.9	%		$	209,833				56.2	%		$	996,726				57.7	%		$	722,604				56.8	%
Perishables(2)			137,610				26.5	%			95,108				25.5	%			467,757				27.1	%			332,745				26.2	%
Pharmacy			41,368				8.0	%			36,083				9.7	%			138,721				8.0	%			121,872				9.6	%
Fuel			36,339				7.0	%			29,142				7.8	%			112,221				6.5	%			83,650				6.6	%
Other(3)			3,333				0.6	%			3,050				0.8	%			11,282				0.7	%			10,290				0.8	%
		$	519,859				100.0	%		$	373,216				100.0	%		$	1,726,707				100.0	%		$	1,271,161				100.0	%

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s condensed consolidated financial statements and notes thereto. The most significant estimates used by management are related to the accounting for vendor allowances, valuation of long-lived assets, lease classification, self-insurance reserves, inventory valuation and income taxes. Actual results could differ from these estimates.

Fair Value of Financial Instruments

The provisions of Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures,” establish a framework for measuring fair value and a hierarchy that categorizes and prioritizes the sources to be used to estimate fair value as follows:

Level 1 — observable inputs such as quoted prices in active markets;

Level 2 — inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs); and

Level 3 — unobservable inputs that reflect the Company’s determination of assumptions that market participants would use in pricing the asset or liability. These inputs are developed based on the best information available, including the Company’s own data.

The fair value of the Company’s Senior Notes is based on quoted market prices. At October 9, 2010, the fair value of total debt excluding capital leases was $378.2 million, compared to a carrying value of $350.7 million. At January 2, 2010, the fair value of total debt excluding capital leases was $300.2 million, compared to a carrying value of $288.6 million.

2. RECENT ACCOUNTING PRONOUNCEMENTS

There are currently no recent accounting pronouncements which had or are expected to have a material impact on the Company’s consolidated financial statements as of the date of this Quarterly Report on Form 10-Q (“10-Q”).

3. BUSINESS ACQUISITION

On January 29, 2010, the Company completed the Acquisition of substantially all assets and certain liabilities of Penn Traffic, including Penn Traffic’s 79 retail supermarkets. In addition to the cash consideration of $85.0 million paid to Penn Traffic, the Company incurred $6.2 million of transaction costs, of which $0.4 million and $5.1 million have been recorded in administrative expenses in the consolidated statements of operations for the 12-week and 40-week periods ended October 9, 2010, respectively. The remaining transaction costs were incurred in Fiscal 2009. The Acquisition is accounted for under the acquisition method of accounting in accordance with ASC 805, “Business Combinations.”

During the 40-week period ended October 9, 2010, the Company liquidated and closed 13 supermarkets and sold an additional 11 supermarkets and certain other acquired assets to third parties for $20.5 million, of which $3.8 million and $20.5 million was received during the 12-week and 40-week periods ended October 9, 2010, respectively.

The Company believes the Acquisition creates significant strategic value due to the complementary nature of our supermarket bases and those of Penn Traffic. The Acquisition presented a significant opportunity for us to acquire a large number of supermarkets in a single transaction with minimal incremental general and administrative expenses.

As a result of the preliminary allocation of the purchase price, the assets acquired and liabilities assumed from Penn Traffic were recorded at their respective fair values as of the acquisition date. Due to the size and timing of the Acquisition, the preliminary allocation of the purchase is based on management’s best estimates of fair value as of the acquisition date using information as of the date of this 10-Q and is subject to adjustments. The valuations will be finalized within 12 months of the closing of the Acquisition. As the valuations are finalized, any changes to the preliminary valuation of assets acquired or liabilities assumed may result in material adjustments to the fair value of property and equipment, inventory and identifiable intangible assets acquired and will be adjusted retrospectively.

The fair values of buildings, personal property and site improvements, all of which are included in property and equipment below, were determined using the cost approach. The fair value of land was determined using the market approach. The fair values of intangible assets were primarily determined using the income approach which, for the tradenames, is based upon a present value of the economic royalty savings associated with the tradenames and revenue projections attributed to the tradenames. For the customer relationships, the fair value is based upon an excess earnings approach which is equal to the present value of incremental after-tax cash flows. The amortization period is seven to nine years and eleven years for the tradenames and customer relationships, respectively. Tradenames are being amortized on an accelerated basis based upon a brand obsolescence assumption, while the customer relationships are being amortized on an accelerated basis based upon the level of expected attrition.

The following table summarizes the preliminary allocation of the purchase price to the assets acquired and liabilities assumed as of the transaction date, and adjustments made to the estimated fair values of these assets and liabilities (dollars in thousands):

		Initial								Revised
		Estimate				Adjustments				Estimate
Assets acquired:
Inventory		$	32,792			$	(875	)		$	31,917
Prepaid expenses			2,354				—				2,354
Property and equipment			63,878				(9,055	)			54,823
Favorable/unfavorable lease rights			6,589				777				7,366
Tradenames			4,200				—				4,200
Customer relationships			1,100				600				1,700
Assets held for sale			22,791				(810	)			21,981
Total assets acquired			133,704				(9,363	)			124,341
Liabilities assumed:
Accrued expenses and other current liabilities			5,891				443				6,334
Liabilities held for sale			1,585				(135	)			1,450
Deferred tax liability			13,717				(2,757	)			10,960
Other long-term liabilities			253				—				253
Capital lease obligations			6,314				(2,709	)			3,605
Total liabilities assumed			27,760				(5,158	)			22,602
Bargain purchase			(20,921	)			4,205				(16,716	)
Acquisition price		$	85,023			$	—			$	85,023

The preliminary difference between the book basis and tax basis of the net assets acquired resulted in a deferred tax liability of $11.0 million. The excess of net assets acquired over the purchase price of $16.7 million has been recognized as a gain in the condensed consolidated statement of operations for the 40-week period ended October 9, 2010. This bargain purchase was attributable to the distressed status of Penn Traffic due to its historical operating results, which led to a November 2009 bankruptcy filing.

Unaudited Pro Forma Financial Information

The following table summarizes the Company’s unaudited pro forma operating results for the 12-week period ended October 3, 2009 and the 40-week periods ended October 9, 2010 and October 3, 2009 (dollars in thousands):

		12-week period ended				40-week periods ended
		October 3, 2009				October 9, 2010				October 3, 2009
Net sales		$	516,498			$	1,736,097			$	1,707,106
Operating income			621				10,575				7,594
Net loss			(11,417	)			(41,573	)			(33,224	)

This pro forma financial information is not intended to represent or be indicative of what would have occurred if the transactions had taken place on the dates presented and should not be taken as representative of the Company’s future consolidated results of operations or financial position. This pro forma financial information does not contemplate the cost savings expected to be realized from the achievement of certain synergies, including, without limitation, purchasing savings by leveraging Tops’ relationships with its suppliers and the reduction of duplicative selling, general and administrative expenses. This financial information includes pro forma results to give effect to the Acquisition, including only the 55 supermarkets that have currently been retained by the Company, including the seven supermarkets under Proposed Order by the FTC, as well as the October 2009 and February 2010 refinancing activities, as if they had occurred on December 28, 2008. Net sales and operating income related to the retained Penn Traffic supermarkets was $133.3 million and $2.6 million during the 12-week period ended October 9, 2010, respectively, and $387.0 million and $8.1 million during the 40-week period ended October 9, 2010, respectively.

4. INTANGIBLE ASSETS, NET

Intangible assets, net of accumulated amortization, consist of the following (dollars in thousands):

														Weighted
		Gross								Net				Average
		Carrying				Accumulated				Carrying				Amortization
October 9, 2010		Amount				Amortization				Amount				Period
Acquired Penn Traffic Intangible Assets:
Favorable/unfavorable lease rights		$	7,366			$	(784	)		$	6,582				7.4
Tradenames			4,200				(525	)			3,675				8.5
Customer relationships			1,700				(225	)			1,475				11.0
Other Intangible Assets:
Tradename			41,011				—				41,011			Indefinite life
Customer relationships			26,051				(13,775	)			12,276				8.0
Favorable/unfavorable lease rights			14,369				(6,515	)			7,854				9.3
Franchise agreements			11,538				(3,003	)			8,535				11.0
Other			407				(214	)			193				4.0
		$	106,642			$	(25,041	)		$	81,601				9.0

		Gross								Net
		Carrying				Accumulated				Carrying
January 2, 2010		Amount				Amortization				Amount
Tradename		$	41,011			$	—			$	41,011
Customer relationships			26,051				(9,880	)			16,171
Favorable/unfavorable lease rights			14,369				(4,800	)			9,569
Franchise agreements			11,538				(2,196	)			9,342
Other			407				(144	)			263
		$	93,376			$	(17,020	)		$	76,356

Indefinite-lived intangible assets are reviewed for impairment annually or more frequently if impairment indicators arise. Based on the Company’s assessment, no impairment indicators were present during the 40-week periods ended October 9, 2010 and October 3, 2009.

During the 12-week periods ended October 9, 2010 and October 3, 2009, amortization expense was $2.7 million and $1.7 million, respectively. During the 40-week periods ended October 9, 2010 and October 3, 2009, amortization expense was $8.0 million and $5.8 million, respectively. Such amortization is included in depreciation and amortization expense in the condensed consolidated statements of operations.

As of October 9, 2010, expected future amortization of intangible assets is as follows (dollars in thousands):

2010 (remaining period)		$	2,405
2011			8,711
2012			6,989
2013			6,145
2014			5,345
Thereafter			10,995

5. OTHER ASSETS

Effective October 9, 2009, the Company issued $275.0 million of 10.125% Senior Secured Notes (the “Senior Notes”) due in 2015, and entered into a $70.0 million asset based lending facility (the “ABL Facility”) (see Note 8). The proceeds from the Senior Notes and the ABL Facility were utilized to repay the outstanding debt related to the Company’s previous first lien credit agreement and warehouse mortgage, pay a dividend to the Company’s owners, settle the Company’s outstanding interest rate swap arrangement, and pay fees and expenses related to the financing transactions. Costs associated with the Senior Notes of $9.9 million were capitalized and are being amortized over the term of the agreement using the effective interest method. Costs associated with the ABL Facility of $1.8 million were capitalized and are being amortized on a straight-line basis over the term of the agreement.

On January 29, 2010, the Company entered into a $25.0 million bridge loan facility (the “Bridge Loan”) with Morgan Stanley Senior Funding, Inc., and Banc of America Bridge LLC. Additionally, the Company’s ABL Facility was amended on January 29, 2010 to increase its borrowing capacity by up to $41.0 million, consisting of an increase in the amount available under the revolving credit facility of $30.0 million and a new term loan facility (the “Term Loan”) of $11.0 million. Costs associated with the Bridge Loan and Term Loan of $0.7 million and $0.4 million, respectively, were initially capitalized and were being amortized over the terms of the agreements using the effective interest method. As the Bridge Loan and Term Loan were both repaid in full on February 12, 2010, unamortized costs of $0.7 million and $0.3 million, respectively, have been recorded as a loss on debt extinguishment in the condensed consolidated statement of operations for the 40-week period ended October 9, 2010. Costs associated with the $30.0 million increase in the revolving ABL Facility of $0.8 million were capitalized and are being amortized on a straight-line basis over the term of the agreement.

On February 12, 2010 the Company issued an additional $75.0 million of Senior Notes under the same terms of the October 9, 2009 issuance. Costs associated with the additional Senior Notes of $3.9 million were capitalized and are being amortized over the term of the agreement using the effective interest method.

Amortization of deferred financing costs is included in interest expense in the consolidated statements of operations and amounted to $0.6 million and $0.3 million for the 12-week periods ended October 9, 2010 and October 3, 2009, respectively. In the 40-week periods ended October 9, 2010 and October 3, 2009, amortization expense was approximately $1.8 million and $0.9 million, respectively. At October 9, 2010, other assets include deferred financing costs, net of accumulated amortization of $2.2 million, totaling $14.2 million. At January 2, 2010, other assets include deferred financing costs, net of accumulated amortization of $0.4 million, totaling $11.3 million.

6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following (dollars in thousands):

		October 9, 2010				January 2, 2010
Interest payable		$	17,281			$	6,936
Wages, taxes and benefits			16,312				15,813
Lottery			10,267				7,565
Property and equipment expenditures			8,434				2,349
Union medical, pension and 401(k)			5,540				3,029
Sales and use tax			4,479				1,117
Money orders			3,330				4,855
Professional and legal fees			3,250				1,741
Utilities			3,221				2,378
Vacation			2,744				4,873
Gift cards			2,287				3,685
Advertising			1,737				874
Repairs and maintenance			1,710				984
Real estate taxes			1,473				901
Self-insurance reserves			1,406				1,406
Retirement obligations			879				879
Financed insurance policies			—				2,220
Other			6,163				6,729
		$	90,513			$	68,334

7. LEASES

The Company has a number of leases in effect for supermarket properties and equipment. The initial lease terms generally range up to twenty-five years and will expire at various times through 2026, with options to renew for additional periods. The majority of the supermarket leases provide for base rental, plus real estate taxes, insurance, common area maintenance and other operating expenses applicable to the leased premises. Some leases contain escalation clauses for future rents and contingent rents based on sales volumes.

During the 12-week periods ended October 9, 2010 and October 3, 2009, the Company incurred rental expense related to operating leases recorded in rent expense of $5.7 million and $3.7 million, offset by sublease rental income of $1.2 million and $0.7 million, respectively. In addition, the Company incurred rental expense related to equipment rent recorded in selling and general expenses of $0.2 million during each of the 12-week periods ended October 9, 2010 and October 3, 2009, respectively, and equipment and office rent recorded in administrative expenses of $0.6 million and $0.4 million during the 12-week periods ended October 9, 2010 and October 3, 2009, respectively.

During the 40-week periods ended October 9, 2010 and October 3, 2009, the Company incurred rental expense related to operating leases recorded in rent expense of $18.9 million and $12.3 million, offset by sublease rental income of $4.4 and $2.6 million, respectively. In addition, the Company incurred rental expense related to equipment rent recorded in selling and general expenses of $0.5 million during each of the 40-week periods ended October 9, 2010 and October 3, 2009 and equipment and office rent recorded in administrative expenses of $1.6 million and $1.3 million during the 40-week periods ended October 9, 2010 and October 3, 2009, respectively.

8. DEBT

Long-term debt consists of the following (dollars in thousands):

		October 9, 2010				January 2, 2010
Senior Secured Notes		$	350,000			$	275,000
Discount on Senior Secured Notes, net			(2,998	)			(4,399	)
ABL Facility			—				14,000
Other loans			2,438				2,565
Mortgage note payable			1,234				1,390
Total debt			350,674				288,556
Current portion			(396	)			(362	)
Total long-term debt		$	350,278			$	288,194

On October 9, 2009, the Company issued $275.0 million of Senior Notes, bearing interest of 10.125%. The Company received proceeds from the Senior Notes issuance, net of a $4.5 million original issue discount, of $270.5 million. The Senior Notes mature October 15, 2015 and require semi-annual interest payments beginning April 15, 2010. The Senior Notes are collateralized by (i) first-priority interests, subject to certain exceptions, in the Company’s warehouse distribution facility in Lancaster, New York, certain owned real property acquired by the Company, Tops Markets and the guarantors, Tops PT, LLC and Tops Gift Card Company, LLC, following the issue date of the Senior Notes, intellectual property, equipment, stock of subsidiaries and substantially all other assets of the Company, Tops Markets and the guarantors (other than leasehold interests in real property), other than assets securing the ABL Facility (as defined below) on a first priority basis (collectively, the “Notes Priority Collateral”), and (ii) second-priority interests, subject to certain exceptions and permitted liens, in the assets of the Company, Tops Markets and the guarantors that secure the ABL Facility on a first-priority basis, including present and future receivables, inventory, prescription lists, deposit accounts and certain related rights and proceeds relating thereto (collectively, the “ABL Priority Collateral”).

Also effective October 9, 2009, the Company entered into a revolving ABL Facility that expires on October 9, 2013. The ABL Facility allowed a maximum borrowing capacity of $70.0 million, including a sub-limit for the issuance of letters of credit, subject to a borrowing base calculation. The Company’s ABL Facility was amended on January 29, 2010 to increase its borrowing capacity by up to $41.0 million, consisting of an increase in the amount available under the revolving credit facility of $30.0 million and a Term Loan of $11.0 million, in each case subject to a borrowing base calculation. The Term Loan was repaid in full with the proceeds from the $75.0 million of Senior Notes issued on February 12, 2010. Based upon the borrowing base calculation as of October 9, 2010, the unused commitment under the ABL Facility was $79.2 million, after giving effect to $12.8 million of letters of credit outstanding thereunder. Revolving loans under the ABL Facility will, at the Company’s option, bear interest at either i) LIBOR plus a margin of 350 to 400 basis points, determined based on levels of borrowing availability, or ii) the prime rate plus a margin of 250 to 300 basis points, determined based on levels of borrowing availability. The ABL Facility is collateralized primarily by (i) first-priority interests, subject to certain exceptions, in the ABL Priority Collateral and (ii) second-priority interests, subject to certain exceptions, in the Notes Priority Collateral.

On January 29, 2010, the Company entered into a $25.0 million Bridge Loan with Morgan Stanley Senior Funding, Inc. and Banc of America Bridge LLC. The Bridge Loan was repaid in full with the proceeds from the $75.0 million of Senior Notes issued on February 12, 2010.

On February 12, 2010, the Company issued an additional $75.0 million of Senior Notes on the same terms as the October 2009 issuance. The Company received proceeds of $76.1 million from the additional Senior Notes issuance, including a $1.1 million original issue premium. The Company has incurred $4.7 million of financing costs, primarily related to the additional Senior Notes issuance, which are capitalized in other assets in the Company’s consolidated balance sheet.

The Senior Notes and ABL Facility contain customary affirmative and negative covenants, including restrictions on indebtedness, liens, type of business, acquisitions, investments, sale or transfer of assets, payment of dividends, transactions involving affiliates, change in control and other matters customarily restricted in such agreements. Failure to meet any of these covenants would be an event of default. As of October 9, 2010, the Company was in compliance with all such covenants.

9. DERIVATIVE INSTRUMENTS

In order to reduce the Company’s exposure to fluctuations in interest rates, Holding entered into an interest rate swap agreement effective December 28, 2007. This agreement was intended to convert a portion of the Company’s floating-rate debt to fixed-rate debt. Such agreement involved the exchange of fixed-rate and floating-rate payments over the life of the agreement without the exchange of the underlying principal amounts.

In accordance with the provisions of ASC 815, “Derivatives and Hedging,” through November 16, 2008, the Company had designated and accounted for its interest rate swap agreement as a cash flow hedge. On November 17, 2008, the Company calculated its effectiveness test and determined that the interest rate swap was no longer highly effective. As a result, the Company discontinued the use of hedge accounting. Subsequent to the discontinuance of hedge accounting, this agreement was marked-to-market and the change in the fair value of the interest rate swap subsequent to November 17, 2008 was recorded within interest expense in the Company’s consolidated statements of operations. The interest rate swap was settled on October 9, 2009.

During the 12-week period ended October 3, 2009, the increase in the negative fair value of the interest rate swap of $1.1 million was recorded within interest expense. The pre-tax amount previously recognized in accumulated other comprehensive income (“AOCI”), totaling $5.2 million at November 17, 2008, was amortized as an increase to interest expense over the remaining term of the interest rate swap agreement. Such amortization recognized during the 12-week period ended October 3, 2009 was $0.6 million.

During the 40-week period ended October 3, 2009, the decrease in the negative fair value of the interest rate swap of $1.3 million was recorded within interest expense. The amortization of the pre-tax amount previously recognized in AOCI during the 40-week period ended October 3, 2009 was $1.7 million.

10. INCOME TAXES

The income tax benefit for the 12-week and 40-week periods ended October 9, 2010 and October 3, 2009 consisted of the following (dollars in thousands):

		12-week periods ended								40-week periods ended
		October 9, 2010				October 3, 2009				October 9, 2010				October 3, 2009
Current		$	397			$	—			$	183			$	—
Deferred			—				1,159				10,585				1,289

The income tax benefit for the 12-week period ended October 9, 2010 reflects a $0.4 million reduction in the Company’s liability related to unrecognized tax benefits based upon the finalization of the examination of the Company’s U.S. federal income tax returns for tax years 2007 and 2008 by the Internal Revenue Service (“IRS”). The overall effective tax rate for the 12-week period ended October 9, 2010 was 5.0%. The effective tax rate would have been 39.8% without the impact of adjustments to the valuation allowance and discrete charges. The income tax benefit for the 12-week period ended October 3, 2009 was primarily attributable to the pre-tax loss and the impact of permanent tax items. The overall effective rate for the 12-week period ended October 3, 2009 was 57.0%.

The income tax benefit for the 40-week period ended October 9, 2010 primarily reflects net valuation allowance adjustments representing an $11.0 million reversal of valuation allowance that was established in Fiscal 2009 as a result of the recognition of a deferred tax liability that resulted from the bargain purchase associated with the Acquisition. The timing of taxable income resulting from the amortization of the gain for tax purposes provides sufficient future taxable income to support the future deductibility of the Company’s deferred tax assets. Additionally, the income tax benefit reflects a $0.4 million reduction in the Company’s liability related to unrecognized tax benefits based upon the finalization of the examination of the Company’s U.S. federal income tax returns for tax years 2007 and 2008 by the IRS. The overall effective rate for the 40-week period ended October 9, 2010 was 48.4%. The effective tax rate would have been 40.0% without the impact of adjustments to the valuation allowance, bargain purchase and discrete charges. The income tax benefit for the 40-week period ended October 3, 2009 was primarily attributable to the pre-tax loss and the impact of permanent tax items. The overall effective rate for the 40-week period ended October 3, 2009 was 47.9%.

The Company files U.S. federal income tax returns and income tax returns in various state jurisdictions. The Company’s U.S. federal income tax return for tax year 2009 remains subject to examination by the IRS. State returns remain subject to examination for tax years 2007 and beyond depending on each state’s statute of limitation.

11. SHAREHOLDERS’ DEFICIT

Effective January 27, 2010, Holding’s Board of Directors increased the number of common stock shares that Holding has the authority to issue from 200,000 shares to 300,000 shares. On January 29, 2010, the Company received $30.0 million of proceeds from the issuance of 44,776 shares of common stock to certain shareholders of Holding. On July 26, 2010, the Company paid a dividend to its shareholders totaling $30.0 million, or $207.22 per share of common stock outstanding.

On October 5, 2010, the Board of Directors of the Company approved an amendment to the Company’s 2007 Stock Incentive Plan, which increased the number of shares of common stock of the Company reserved for issuance under the Plan to 13,600 shares.

Comprehensive loss, net of related tax effects, consists of the following (dollars in thousands):

		12-week periods ended								40-week periods ended
		October 9, 2010				October 3, 2009				October 9, 2010				October 3, 2009
Net loss		$	(7,556	)		$	(873	)		$	(11,470	)		$	(1,400	)
Other comprehensive income:
Reclassification adjustment on interest rate swap			—				354				—				1,043
Total other comprehensive income			—				354				—				1,043
Total comprehensive loss		$	(7,556	)		$	(519	)		$	(11,470	)		$	(357	)

12. RETIREMENT PLANS

The Company contributes to various multi-employer pension plans under collective bargaining agreements and provides certain health care benefits to eligible retirees and their dependents. For each of the 12-week periods ended October 9, 2010 and October 3, 2009, the Company made contributions to multi-employer pension plans of $1.3 million. During the 40-week periods ended October 9, 2010 and October 3, 2009, the Company made contributions to multi-employer pension plans of $5.8 million and $4.3 million, respectively. Contributions for the 12-week and 40-week periods ended October 9, 2010 included $0.4 million and $1.2 million, respectively, attributable to employees of the acquired Penn Traffic supermarkets.

13. COMMITMENTS

In November 2009, the Company entered into a supply contract with C&S Wholesale Grocers, Inc. (“C&S”) whereby C&S provides warehousing, logistics, procurement and purchasing services in support of the majority of the Company’s supply chain. The agreement expires on September 24, 2016. The agreement provides that the actual costs of performing the services shall be reimbursed to C&S on an “open-book” or “cost-plus” basis, whereby the parties will negotiate annual budgets that will be reconciled against actual costs on a periodic basis. The parties will also annually negotiate services specifications and performance standards that will govern warehouse operations. The agreement defines the parties’ respective responsibilities for the procurement and purchase of merchandise intended for use or resale at the Company’s supermarkets, as well as the parties’ respective remuneration for warehousing and procurement/purchasing activities. In consideration for the services it provides under the agreement, C&S is paid an annual fee and has incentive income opportunities based upon Tops’ cost savings and increases in retail sales volume.

In February 2008, the Company entered into a three-year supply contract with McKesson Corporation (“McKesson”) for the supply of substantially all prescription drugs and other health and beauty care products requirements. The Company is required to purchase a minimum of $360.0 million of product during the contract term. Tops purchased approximately $34.7 million and $34.0 million of product from McKesson during the 12-week periods ended October 9, 2010 and October 3, 2009, respectively. Tops purchased approximately $116.1 million and $104.4 million of products from McKesson during the 40-week periods ended October 9, 2010 and October 3, 2009, respectively.

Effective July 24, 2010, Tops extended its existing IT outsourcing agreement with HP Enterprise Services, LLC (“HP”) (formerly known as Electronic Data Systems, LLC) through December 31, 2017 to provide a wide range of information systems services. Under the agreement, HP provides data center operations, mainframe processing, business applications and systems development to enhance the Company’s customer service and efficiency. The charges under this agreement are based upon the services requested at predetermined rates. The costs of these future purchase commitments are not reflected in the Company’s condensed consolidated balance sheets.

14. RELATED PARTY TRANSACTIONS

Effective November 30, 2007, Holding entered into a Transaction and Monitoring Fee Agreement with an affiliate of Morgan Stanley and HSBC. In consideration of certain services provided to Holding under this agreement, Holding pays an annual monitoring fee of $0.8 million to Morgan Stanley’s parent and $0.2 million to HSBC, payable on a quarterly basis. During each of the 12-week periods ended October 9, 2010 and October 3, 2009, the Company paid $0.2 million and $0.3 million, respectively, related to this agreement. For each of the 40-week periods ended October 9, 2010 and October 3, 2009, the Company paid $0.7 million related to this agreement. These fees are included in administrative expenses in the condensed consolidated statements of operations.

During the 40-week period ended October 9, 2010, the Company entered into a $25.0 million Bridge Loan and received a $30.0 million equity infusion from related parties, as discussed in Notes 8 and 11, respectively.

Tops Markets made a five-year loan to an executive for $0.2 million in connection with the executive’s relocation. During March 2010, the loan balance and related accrued interest was forgiven upon approval by the Company’s Board of Directors. Additionally, during July 2010, Tops reimbursed the executive for the personal tax impact of the loan forgiveness. This loan forgiveness and related tax reimbursement are included in administrative expenses in the condensed consolidated statement of operations for the 40-week period ended October 9, 2010.

15. GUARANTOR FINANCIAL STATEMENTS

The obligations of Holding and Tops Markets under the Senior Notes (the “Guaranteed Notes”) are jointly and severally, fully and unconditionally guaranteed by Tops Gift Card Company, LLC as of January 2, 2010 and both Tops Gift Card Company, LLC and Tops PT, LLC (“Guarantor Subsidiaries”), as of October 9, 2010, both of which are wholly-owned subsidiaries of Tops Markets. Tops Gift Card Company, LLC was established in October 2008, while Tops PT, LLC was established in January 2010. Tops Markets is a joint issuer of the notes and 100% owned by Holding. Separate financial statements of Holding, Tops Markets and of the Guarantor Subsidiaries are not presented as the guarantees are full and unconditional and the Guarantor Subsidiaries are jointly and severally liable. The Company believes that separate financial statements and other disclosures concerning the Guarantor Subsidiaries would not be material to investors.

The following supplemental financial information sets forth on a condensed consolidating basis, balance sheets as of October 9, 2010 and January 2, 2010 for Holding and Tops Markets, the Guarantor Subsidiaries and for the Company, the related statements of operations for the 12-week and 40-week periods ended October 9, 2010 and October 3, 2009 and statements of cash flows for the 40-week periods ended October 9, 2010 and October 3, 2009.

For purposes of the guarantor financial statements, the Company and its subsidiaries determine the applicable tax provision for each entity generally using the separate return method. Under this method, current and deferred taxes are allocated to each reporting entity as if it were to file a separate tax return. The rules followed by the reporting entity in computing its tax obligation or refund, including the effects of the alternative minimum tax, would be the same as those followed in filing a separate return with the Internal Revenue Service. However, for purposes of evaluating an entity’s ability to realize its tax attributes, the Company assesses whether it is more likely than not that those assets will be realized at the consolidated level. Any differences in the total of the income tax provision for Holding only and the Guarantor Subsidiaries, as calculated on the separate return method, and the consolidated income tax provision are eliminated in consolidation.

TOPS HOLDING CORPORATION

(Dollars in thousands)

		Tops Holding								Guarantor
		Corporation				Tops Markets, LLC				Subsidiaries				Eliminations				Consolidated
Assets
Current assets:
Cash and cash equivalents		$	—			$	15,947			$	654			$	—			$	16,601
Accounts receivable, net			—				43,760				13,338				—				57,098
Intercompany receivables			—				2,613				18,324				(20,937	)			—
Inventory, net			—				82,865				38,720				—				121,585
Prepaid expenses and other current assets			—				11,026				2,585				—				13,611
Income taxes refundable			—				598				—				—				598
Current deferred tax assets			15,680				—				—				(10,079	)			5,601
Total current assets			15,680				156,809				73,621				(31,016	)			215,094
Property and equipment, net			—				318,790				62,572				—				381,362
Intangible assets, net			—				69,869				11,732				—				81,601
Other assets			—				14,189				3,041				(3,041	)			14,189
Investment in subsidiaries			(62,492	)			104,814				—				(42,322	)			—
Total assets		$	(46,812	)		$	664,471			$	150,966			$	(76,379	)		$	692,246
Liabilities and Shareholders’ (Deficit) Equity
Current liabilities:
Accounts payable		$	—			$	67,198			$	24,009			$	—			$	91,207
Intercompany payables			2,613				18,324				—				(20,937	)			—
Accrued expenses and other current liabilities			399				75,002				15,857				(745	)			90,513
Current portion of capital lease obligations			—				10,289				314				—				10,603
Current portion of long-term debt			—				396				—				—				396
Current deferred tax liabilities			—				9,327				—				(9,327	)			—
Total current liabilities			3,012				180,536				40,180				(31,009	)			192,719
Capital lease obligations			—				170,810				3,234				—				174,044
Long-term debt			—				353,319				—				(3,041	)			350,278
Other long-term liabilities			—				16,690				2,738				—				19,428
Non-current deferred tax liabilities			—				5,601				—				—				5,601
Total liabilities			3,012				726,956				46,152				(34,050	)			742,070
Total shareholders’ (deficit) equity			(49,824	)			(62,485	)			104,814				(42,329	)			(49,824	)
Total liabilities and shareholders’ (deficit) equity		$	(46,812	)		$	664,471			$	150,966			$	(76,379	)		$	692,246

TOPS HOLDING CORPORATION

(Dollars in thousands)

		Tops Holding								Guarantor
		Corporation				Tops Markets, LLC				Subsidiary				Eliminations				Consolidated
Assets
Current assets:
Cash and cash equivalents		$	—			$	19,712			$	10			$	—			$	19,722
Accounts receivable, net			—				49,457				—				—				49,457
Intercompany receivables			—				1,900				2,306				(4,206	)			—
Inventory, net			—				82,272				—				—				82,272
Prepaid expenses			—				13,535				—				—				13,535
Income taxes refundable			—				760				—				—				760
Current deferred tax assets			751				5,805				—				(570	)			5,986
Total current assets			751				173,441				2,316				(4,776	)			171,732
Property and equipment, net			—				333,416				—				—				333,416
Intangible assets, net			—				76,356				—				—				76,356
Other assets			—				11,344				3,041				(3,041	)			11,344
Investment in subsidiaries			(37,652	)			1,145				—				36,507				—
Total assets		$	(36,901	)		$	595,702			$	5,357			$	28,690			$	592,848
Liabilities and Shareholders’ (Deficit) Equity
Current liabilities:
Accounts payable		$	—			$	68,462			$	—			$	—			$	68,462
Intercompany payables			1,900				2,306				—				(4,206	)			—
Accrued expenses and other current liabilities			—				64,866				4,212				(744	)			68,334
Current portion of capital lease obligations			—				8,186				—				—				8,186
Current portion of long-term debt			—				362				—				—				362
Total current liabilities			1,900				144,182				4,212				(4,950	)			145,344
Capital lease obligations			—				175,340				—				—				175,340
Long-term debt			—				291,235				—				(3,041	)			288,194
Other long-term liabilities			—				16,785				—				—				16,785
Noncurrent deferred tax liabilities			—				5,986				—				—				5,986
Total liabilities			1,900				633,528				4,212				(7,991	)			631,649
Total shareholders’ (deficit) equity			(38,801	)			(37,826	)			1,145				36,681				(38,801	)
Total liabilities and shareholders’ (deficit) equity		$	(36,901	)		$	595,702			$	5,357			$	28,690			$	592,848

TOPS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE 12-WEEK PERIOD ENDED OCTOBER 9, 2010
(Dollars in thousands)

		Tops Holding								Guarantor
		Corporation				Tops Markets, LLC				Subsidiaries				Eliminations				Consolidated
Net sales		$	—			$	386,600			$	133,444			$	(185	)		$	519,859
Cost of goods sold (excluding distribution costs)			—				(273,878	)			(88,328	)			—				(362,206	)
Distribution costs			—				(7,584	)			(3,168	)			—				(10,752	)
Gross profit			—				105,138				41,948				(185	)			146,901
Operating expenses:
Wages, salaries and benefits			—				(50,811	)			(20,060	)			—				(70,871	)
Selling and general expenses			—				(16,133	)			(8,433	)			185				(24,381	)
Administrative expenses			(293	)			(14,979	)			(4,398	)			—				(19,670	)
Rent expense			—				(2,355	)			(2,163	)			—				(4,518	)
Depreciation and amortization			—				(13,172	)			(1,918	)			—				(15,090	)
Advertising			—				(3,454	)			(2,469	)			—				(5,923	)
Total operating expenses			(293	)			(100,904	)			(39,441	)			185				(140,453	)
Operating (loss) income			(293	)			4,234				2,507				—				6,448
Loss on debt extinguishment			—				(33	)			—				—				(33	)
Interest expense, net			—				(14,284	)			(84	)			—				(14,368	)
Earnings from equity method investees			(7,263	)			2,423				—				4,840				—
(Loss) income before income taxes			(7,556	)			(7,660	)			2,423				4,840				(7,953	)
Income tax benefit			—				397				—				—				397
Net (loss) income		$	(7,556	)		$	(7,263	)		$	2,423			$	4,840			$	(7,556	)

TOPS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE 12-WEEK PERIOD ENDED OCTOBER 3, 2009
(Dollars in thousands)

		Tops Holding								Guarantor
		Corporation				Tops Markets, LLC				Subsidiary				Eliminations				Consolidated
Net sales		$	—			$	373,278			$	58			$	(120	)		$	373,216
Cost of goods sold (excluding distribution costs)			—				(260,433	)			—				—				(260,433	)
Distribution costs			—				(7,449	)			—				—				(7,449	)
Gross profit			—				105,396				58				(120	)			105,334
Operating expenses:
Wages, salaries and benefits			—				(50,083	)			—				—				(50,083	)
Selling and general expenses			—				(17,115	)			(26	)			120				(17,021	)
Administrative expenses			(391	)			(12,948	)			(13	)			—				(13,352	)
Rent expense			—				(2,997	)			—				—				(2,997	)
Depreciation and amortization			—				(11,955	)			—				—				(11,955	)
Advertising			—				(2,966	)			—				—				(2,966	)
Total operating expenses			(391	)			(98,064	)			(39	)			120				(98,374	)
Operating (loss) income			(391	)			7,332				19				—				6,960
Interest (expense) income, net			—				(9,049	)			57				—				(8,992	)
Earnings from equity method investees			(576	)			46				—				530				—
(Loss) income before income taxes			(967	)			(1,671	)			76				530				(2,032	)
Income tax benefit (expense)			94				1,095				(30	)			—				1,159
Net (loss) income		$	(873	)		$	(576	)		$	46			$	530			$	(873	)

TOPS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE 40-WEEK PERIOD ENDED OCTOBER 9, 2010
(Dollars in thousands)

		Tops Holding								Guarantor
		Corporation				Tops Markets, LLC				Subsidiaries				Eliminations				Consolidated
Net sales		$	—			$	1,306,007			$	421,394			$	(694	)		$	1,726,707
Cost of goods sold (excluding distribution costs)			—				(920,963	)			(280,189	)			—				(1,201,152	)
Distribution costs			—				(24,340	)			(9,922	)			—				(34,262	)
Gross profit			—				360,704				131,283				(694	)			491,293
Operating expenses:
Wages, salaries and benefits			—				(171,811	)			(66,566	)			—				(238,377	)
Selling and general expenses			—				(54,537	)			(26,345	)			694				(80,188	)
Administrative expenses			(1,558	)			(66,127	)			(14,487	)			—				(82,172	)
Rent expense			—				(7,380	)			(7,155	)			—				(14,535	)
Depreciation and amortization			—				(43,377	)			(5,427	)			—				(48,804	)
Advertising			—				(12,825	)			(5,453	)			—				(18,278	)
Total operating expenses			(1,558	)			(356,057	)			(125,433	)			694				(482,354	)
Operating (loss) income			(1,558	)			4,647				5,850				—				8,939
Bargain purchase			—				—				16,716				—				16,716
Loss on debt extinguishment			—				(1,041	)			—				—				(1,041	)
Interest (expense) income, net			—				(46,900	)			48				—				(46,852	)
Earnings from equity method investees			(24,840	)			18,646				—				6,194				—
(Loss) income before income taxes			(26,398	)			(24,648	)			22,614				6,194				(22,238	)
Income tax benefit (expense)			14,928				(192	)			(3,968	)			—				10,768
Net (loss) income		$	(11,470	)		$	(24,840	)		$	18,646			$	6,194			$	(11,470	)