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

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 þ No o.

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 June 6, 2011, 144,776 shares of common stock of the registrant were outstanding.

 

 

TOPS HOLDING CORPORATION

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION (Unaudited)
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of April 23, 2011 and January 1, 2011			1
Condensed Consolidated Statements of Operations for the 16-week periods ended April 23, 2011 and April 24, 2010			2
Condensed Consolidated Statements of Cash Flows for the 16-week periods ended April 23, 2011 and April 24, 2010			3
Notes to Condensed Consolidated Financial Statements			4
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			23
ITEM 4. CONTROLS AND PROCEDURES			24
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS			24
ITEM 1A. RISK FACTORS			25
ITEM 6. EXHIBITS			25
SIGNATURE			25
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I — FINANCIAL INFORMATION (Unaudited)

ITEM 1.		CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

TOPS HOLDING CORPORATION

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

(Unaudited)

		April 23, 2011				January 1, 2011
Assets
Current assets:
Cash and cash equivalents		$	24,712			$	17,419
Accounts receivable, net			56,880				57,044
Inventory, net			118,703				117,328
Prepaid expenses and other current assets			15,229				14,093
Assets held for sale			—				650
Income taxes refundable			186				200
Current deferred tax assets			2,265				2,265
Total current assets			217,975				208,999
Property and equipment, net			376,005				378,575
Intangible assets, net (Note 3)			76,343				79,072
Other assets			12,959				13,705
Total assets		$	683,282			$	680,351
Liabilities and Shareholders’ Deficit
Current liabilities:
Accounts payable		$	113,065			$	93,311
Accrued expenses and other current liabilities (Note 4)			61,324				79,123
Current portion of capital lease obligations			11,649				11,095
Current portion of long-term debt (Note 5)			407				402
Total current liabilities			186,445				183,931
Capital lease obligations			168,488				172,216
Long-term debt (Note 5)			370,250				365,262
Other long-term liabilities			21,649				21,099
Non-current deferred tax liabilities			3,701				3,354
Total liabilities			750,533				745,862
Shareholders’ deficit:
Common shares ($0.001 par value; 300,000 authorized shares, 144,776 shares issued & outstanding)			—				—
Paid-in capital			(2,320	)			(2,668	)
Accumulated deficit			(64,595	)			(62,507	)
Accumulated other comprehensive loss, net of tax			(336	)			(336	)
Total shareholders’ deficit			(67,251	)			(65,511	)
Total liabilities and shareholders’ deficit		$	683,282			$	680,351

See notes to unaudited condensed consolidated financial statements.

TOPS HOLDING CORPORATION

(Dollars in thousands)

(Unaudited)

		16-week periods ended
		April 23, 2011				April 24, 2010
Net sales		$	717,259			$	665,015
Cost of goods sold			(500,744	)			(458,168	)
Distribution costs			(14,163	)			(13,088	)
Gross profit			202,352				193,759
Operating expenses:
Wages, salaries and benefits			(98,982	)			(94,279	)
Selling and general expenses			(33,383	)			(31,763	)
Administrative expenses (inclusive of stock-based compensation expense of $348 and $244)			(25,483	)			(39,979	)
Rent expense, net			(5,903	)			(5,837	)
Depreciation and amortization			(15,041	)			(18,730	)
Advertising			(5,990	)			(6,053	)
Total operating expenses			(184,782	)			(196,641	)
Operating income (loss)			17,570				(2,882	)
Bargain purchase			—				15,681
Loss on debt extinguishment			—				(1,008	)
Interest expense, net			(19,291	)			(18,410	)
Loss before income taxes			(1,721	)			(6,619	)
Income tax (expense) benefit			(367	)			9,913
Net (loss) income		$	(2,088	)		$	3,294

See notes to unaudited condensed consolidated financial statements.

TOPS HOLDING CORPORATION

(Dollars in thousands)

(Unaudited)

		16-week periods ended
		April 23, 2011				April 24, 2010
Cash flows provided by (used in) operating activities:
Net (loss) income		$	(2,088	)		$	3,294
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Depreciation and amortization			20,318				22,567
Amortization of deferred financing costs			803				679
LIFO inventory valuation adjustments			(663	)			(1,106	)
Stock-based compensation expense			348				244
Deferred income taxes			347				(10,288	)
Bargain purchase			—				(15,681	)
Loss on debt extinguishment			—				1,008
Other			115				314
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable			164				(1,364	)
Increase in inventory, net			(712	)			(1,028	)
Increase in prepaid expenses and other current assets			(1,136	)			(601	)
Decrease in income taxes refundable			14				—
Increase in accounts payable			20,044				1,428
Decrease in accrued expenses and other current liabilities			(15,776	)			(3,463	)
Increase in other long-term liabilities			525				411
Net cash provided by (used in) operating activities			22,303				(3,586	)
Cash flows used in investing activities:
Cash paid for property and equipment			(16,954	)			(8,779	)
Proceeds from sale of assets			650				14,919
Acquisition of Penn Traffic assets			—				(85,023	)
Net cash used in investing activities			(16,304	)			(78,883	)
Cash flows provided by financing activities:
Borrowings on ABL Facility			220,800				58,100
Repayments on ABL Facility			(215,800	)			(72,100	)
Principal payments on capital leases			(3,233	)			(2,670	)
Proceeds from long-term debt borrowings			—				112,125
Repayments of long-term debt borrowings			(126	)			(36,113	)
Change in bank overdraft position			(290	)			323
Deferred financing costs incurred			(57	)			(4,782	)
Proceeds from issuance of common stock			—				30,000
Net cash provided by financing activities			1,294				84,883
Net increase in cash and cash equivalents			7,293				2,414
Cash and cash equivalents—beginning of period			17,419				19,722
Cash and cash equivalents—end of period		$	24,712			$	22,136

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”) is the parent of Tops Markets, LLC (“Tops” or “Tops Markets”). Holding was incorporated on October 5, 2007 and commenced operations on December 1, 2007. 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. Holding has no other business operations as its sole purpose is the ownership of Tops Markets. 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. The Company has retained 55 of the acquired supermarkets, which currently operate under the banners of Tops, P&C and Quality Markets in Upstate New York and Northern Pennsylvania. In August 2010, the Federal Trade Commission (“FTC”) issued a Proposed Order that would require Tops to sell seven of these retained supermarkets. In May 2011, Tops petitioned the FTC to approve an agreement to sell three of these supermarkets, which is subject to a 30-day comment period ending June 6, 2011. The Company is currently unable to determine the likelihood that the FTC will approve this agreement. As part of a Final Order from the FTC, the Company will be required to retain a divestiture trustee to market the supermarkets subject to the Proposed Order that have not otherwise been sold. Net sales and operating loss for these seven supermarkets were $17.2 million and $0.1 million, respectively, for the 16-week period ended April 23, 2011. The remaining 24 acquired supermarkets have been closed or sold. As of April 23, 2011, the Company operated 128 corporate retail supermarkets with an additional 5 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 1, 2011.

Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The condensed consolidated financial statements include the accounts of the Company and all of its subsidiaries. All intercompany transactions have been eliminated.

The Company’s condensed consolidated financial statements for the 16-week periods ended April 23, 2011 and April 24, 2010 are unaudited, and, in the opinion of management, contain all adjustments that are of a normal and recurring nature necessary for a fair statement of financial position and results of operations for such periods.

The allocation of the purchase price to the assets acquired and liabilities assumed from the Acquisition previously presented for the 16-week period ended April 24, 2010 has been retrospectively adjusted to reflect final acquisition accounting adjustments made during Fiscal 2010. See Note 2 to the audited consolidated financial statements of Tops Holding Corporation for the fiscal year ended January 1, 2011 for a summary of the final purchase price allocation.

Segments

The Company operates 128 corporate retail supermarkets with an additional 5 franchise supermarkets, which offer grocery, produce, frozen, dairy, meat, floral, seafood, health and beauty care, general merchandise, deli and bakery goods. Across all 128 retail supermarkets, the Company operates one 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 April 23, 2011, 79 of the supermarkets offer pharmacy services and 38 fuel centers were in operation, including 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 128 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):

		16-week period ended April 23, 2011								16-week period ended April 24, 2010
		Amount				% of Total				Amount				% of Total
Non-perishables(1)		$	410,210				57.2	%		$	387,614				58.3	%
Perishables(2)			188,658				26.3	%			175,911				26.5	%
Fuel			58,366				8.1	%			41,048				6.2	%
Pharmacy			55,094				7.7	%			56,015				8.4	%
Other(3)			4,931				0.7	%			4,427				0.6	%
		$	717,259				100.0	%		$	665,015				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 including intangible assets, acquisition accounting, 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 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 carrying amount of the Company’s cash and cash equivalents at April 23, 2011 represents fair value as it includes cash on deposit with commercial banks.

The fair value of the Company’s senior secured notes is based on quoted market prices. At April 23, 2011, the fair value of total debt excluding capital leases was $417.2 million, compared to a carrying value of $370.7 million. At January 1, 2011, the fair value of total debt excluding capital leases was $408.4 million, compared to a carrying value of $365.7 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. INTANGIBLE ASSETS, NET

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

														Weighted
		Gross								Net				Average
		Carrying				Accumulated				Carrying				Amortization
April 23, 2011		Amount				Amortization				Amount				Period
Acquired Penn Traffic intangible assets:
Favorable/unfavorable lease rights		$	7,023			$	(1,222	)		$	5,801				7.9
Tradenames			4,200				(944	)			3,256				8.5
Customer relationships			1,700				(389	)			1,311				11.0
Other intangible assets:
Tradename			41,011				—				41,011			Indefinite life
Customer relationships			26,051				(16,196	)			9,855				8.0
Favorable/unfavorable lease rights			14,369				(7,468	)			6,901				9.3
Franchise agreements			11,538				(3,565	)			7,973				11.0
Other			403				(168	)			235				4.0
		$	106,295			$	(29,952	)		$	76,343				9.0

		Gross								Net
		Carrying				Accumulated				Carrying
January 1, 2011		Amount				Amortization				Amount
Acquired Penn Traffic intangible assets:
Favorable/unfavorable lease rights		$	7,023			$	(899	)		$	6,124
Tradenames			4,200				(700	)			3,500
Customer relationships			1,700				(300	)			1,400
Other intangible assets:
Tradename			41,011				—				41,011
Customer relationships			26,051				(14,931	)			11,120
Favorable/unfavorable lease rights			14,369				(7,003	)			7,366
Franchise agreements			11,538				(3,242	)			8,296
Other			497				(242	)			255
		$	106,389			$	(27,317	)		$	79,072

The Tops tradename is reviewed for impairment annually or more frequently if impairment indicators arise. Based on the Company’s assessment, no impairment was recorded during the 16-week periods ended April 23, 2011 and April 24, 2010.

During the 16-week periods ended April 23, 2011 and April 24, 2010, amortization expense was $2.7 million and $3.0 million, respectively, and is included in administrative expenses in the consolidated statements of operations.

As of April 23, 2011, expected future amortization of intangible assets is as follows (dollars in thousands):

2011 (remaining period)		$	5,847
2012			6,863
2013			6,018
2014			5,218
2015			3,983
Thereafter			7,403

4. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

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

		April 23, 2011				January 1, 2011
Wages, taxes and benefits		$	14,187			$	18,918
Lottery			10,436				10,083
Property and equipment expenditures			4,083				6,107
Sales and use tax			3,750				2,101
Union medical, pension and 401(k)			3,508				4,598
Gift cards			2,788				4,271
Utilities			2,787				2,980
Money orders			2,762				3,651
Vacation			2,283				1,110
Repairs and maintenance			2,024				2,054
Professional and legal fees			1,549				3,640
Self-insurance reserves			1,406				1,406
Advertising			1,262				1,920
Interest payable			1,030				8,318
Other			7,469				7,966
		$	61,324			$	79,123

5. DEBT

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

		April 23, 2011				January 1, 2011
Senior Notes		$	350,000			$	350,000
Discount on Senior Notes, net			(2,795	)			(2,914	)
ABL Facility			20,000				15,000
Other loans			2,344				2,400
Mortgage note payable			1,108				1,178
Total debt			370,657				365,664
Current portion			(407	)			(402	)
Total long-term debt		$	370,250			$	365,262

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 on April 15 and October 15. 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 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, as further described below. Based upon the borrowing base calculation as of April 23, 2011, the unused commitment under the ABL Facility was $54.3 million, after giving effect to $14.2 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.

The proceeds from the Senior Notes and ABL Facility were utilized to repay the outstanding debt related to the Company’s previous senior secured credit facility and warehouse mortgage, pay a $105.0 million 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.

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 the 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 this issuance, including a $1.1 million original issue premium. The Company 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 April 23, 2011, the Company was in compliance with all such covenants.

6. INCOME TAXES

Income tax (expense) benefit was as follows (dollars in thousands):

		16-week periods ended
		April 23, 2011				April 24, 2010
Current		$	(20	)		$	(375	)
Deferred			(347	)			10,288
		$	(367	)		$	9,913

The income tax expense for the 16-week period ended April 23, 2011 reflects the establishment of additional valuation allowance against net deferred tax assets resulting from the pre-tax loss during the period. The overall effective tax rate was (21.3)%. The effective tax rate would have been 34.5% without the impact of the additional valuation allowance and discrete charges.

The income tax benefit for the 16-week period ended April 24, 2010 was primarily attributable to the reversal of $10.3 million of the valuation allowance established in Fiscal 2009. The reversal of the valuation allowance was the result of recording a deferred tax liability that resulted from the bargain purchase associated with the Penn Traffic 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. The overall effective rate for the 16-week period ended April 24, 2010 was 149.8%. The effective tax rate would have been 27.2% without the impact of adjustments to the valuation allowance, the bargain purchase, and discrete charges.

7. RELATED PARTY TRANSACTIONS

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. This loan forgiveness is included in administrative expenses in the condensed consolidated statement of operations for the 16-week period ended April 24, 2010.

On January 29, 2010, the Company entered into a $25.0 million Bridge Loan with Morgan Stanley Senior Funding, Inc. (an affiliate of MSPE) and Banc of America Bridge LLC, as discussed in Note 5. Also on January 29, 2010, the Company received $30.0 million from the issuance of common stock to related parties.

Effective November 30, 2007, Holding entered into a Transaction and Monitoring Fee Agreement with MSPE and HSBC. In consideration of certain services provided to Holding, the Company pays an annual monitoring fee of $0.8 million to MSPE and $0.2 million to HSBC, payable on a quarterly basis. During each of the 16-week periods ended April 23, 2011 and April 24, 2010, the Company paid $0.2 million related to this agreement. These fees are included in administrative expenses in the condensed consolidated statements of operations.

8. 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 and Tops PT, LLC (the “Guarantor Subsidiaries”), 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 is 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 following supplemental financial information sets forth, on a condensed consolidating basis, balance sheets as of April 23, 2011 and January 1, 2011 for Holding and Tops Markets, the Guarantor Subsidiaries, and for the Company, and the related statements of operations and statements of cash flows for the 16-week periods ended April 23, 2011 and April 24, 2010.

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		$	—			$	23,976			$	736			$	—			$	24,712
Accounts receivable, net			—				45,484				11,396				—				56,880
Intercompany receivables			—				3,088				13,541				(16,629	)			—
Inventory, net			—				80,766				37,937				—				118,703
Prepaid expenses and other current assets			—				12,506				2,723				—				15,229
Income taxes refundable			—				186				—				—				186
Current deferred tax assets			—				1,657				—				608				2,265
Total current assets			—				167,663				66,333				(16,021	)			217,975
Property and equipment, net			—				300,593				75,412				—				376,005
Intangible assets, net			—				65,894				10,449				—				76,343
Other assets			—				12,959				3,041				(3,041	)			12,959
Investment in subsidiaries			(77,177	)			105,981				—				(28,804	)			—
Total assets		$	(77,177	)		$	653,090			$	155,235			$	(47,866	)		$	683,282
Liabilities and Shareholders’ (Deficit) Equity
Current liabilities:
Accounts payable		$	—			$	84,910			$	28,155			$	—			$	113,065
Intercompany payables			3,088				13,541				—				(16,629	)			—
Accrued expenses and other current liabilities			737				46,743				14,588				(744	)			61,324
Current portion of capital lease obligations			—				11,372				277				—				11,649
Current portion of long-term debt			—				407				—				—				407
Current deferred tax liabilities			—				—				11				(11	)			—
Total current liabilities			3,825				156,973				43,031				(17,384	)			186,445
Capital lease obligations			—				164,546				3,942				—				168,488
Long-term debt			—				373,291				—				(3,041	)			370,250
Other long-term liabilities			—				18,225				3,424				—				21,649
Non-current deferred tax liabilities			—				16,425				(1,143	)			(11,581	)			3,701
Total liabilities			3,825				729,460				49,254				(32,006	)			750,533
Total shareholders’ (deficit) equity			(81,002	)			(76,370	)			105,981				(15,860	)			(67,251	)
Total liabilities and shareholders’ (deficit) equity		$	(77,177	)		$	653,090			$	155,235			$	(47,866	)		$	683,282

TOPS HOLDING CORPORATION

(Dollars in thousands)

		Tops Holding								Guarantor
		Corporation				Tops Markets, LLC				Subsidiaries				Eliminations				Consolidated
Assets
Current assets:
Cash and cash equivalents		$	—			$	16,689			$	730			$	—			$	17,419
Accounts receivable, net			—				43,696				13,348				—				57,044
Intercompany receivables			—				2,850				13,091				(15,941	)			—
Inventory, net			—				80,060				37,268				—				117,328
Prepaid expenses and other current assets			—				11,445				2,648				—				14,093
Assets held for sale			—				—				650				—				650
Income taxes refundable			—				200				—				—				200
Current deferred tax assets			—				1,657				—				608				2,265
Total current assets			—				156,597				67,735				(15,333	)			208,999
Property and equipment, net			—				309,856				68,719				—				378,575
Intangible assets, net			—				68,048				11,054				—				79,072
Other assets			—				13,705				3,041				(3,041	)			13,705
Investment in subsidiaries			(75,094	)			104,799				—				(29,705	)			—
Total assets		$	(75,094	)		$	653,005			$	150,519			$	(48,079	)		$	680,351
Liabilities and Shareholders’ (Deficit) Equity
Current liabilities:
Accounts payable		$	—			$	69,881			$	23,430			$	—			$	93,311
Intercompany payables			2,850				13,091				—				(15,941	)			—
Accrued expenses and other current liabilities			544				62,099				17,224				(744	)			79,123
Current portion of capital lease obligations			—				10,754				341				—				11,095
Current portion of long-term debt			—				402				—				—				402
Current deferred tax liabilities			—				—				11				(11	)			—
Total current liabilities			3,394				156,227				41,006				(16,696	)			183,931
Capital lease obligations			—				168,743				3,473				—				172,216
Long-term debt			—				368,303				—				(3,041	)			365,262
Other long-term liabilities			—				17,941				3,158				—				21,099
Non-current deferred tax liabilities			—				16,078				(1,917	)			(10,807	)			3,354
Total liabilities			3,394				727,292				45,720				(30,544	)			745,862
Total shareholders’ (deficit) equity			(78,488	)			(74,287	)			104,799				(17,535	)			(65,511	)
Total liabilities and shareholders’ (deficit) equity		$	(75,094	)		$	653,005			$	150,519			$	(48,079	)		$	680,351

TOPS HOLDING CORPORATION

(Dollars in thousands)

		Tops Holding								Guarantor
		Corporation				Tops Markets, LLC				Subsidiaries				Eliminations				Consolidated
Net sales		$	—			$	540,933			$	176,690			$	(364	)		$	717,259
Cost of goods sold			—				(382,718	)			(118,026	)			—				(500,744	)
Distribution costs			—				(10,181	)			(3,982	)			—				(14,163	)
Gross profit			—				148,034				54,682				(364	)			202,352
Operating expenses:
Wages, salaries and benefits			—				(71,285	)			(27,697	)			—				(98,982	)
Selling and general expenses			—				(23,324	)			(10,423	)			364				(33,383	)
Administrative expenses			(780	)			(18,395	)			(6,308	)			—				(25,483	)
Rent expense, net			—				(3,146	)			(2,757	)			—				(5,903	)
Depreciation and amortization			—				(11,428	)			(3,613	)			—				(15,041	)
Advertising			—				(4,154	)			(1,836	)			—				(5,990	)
Total operating expenses			(780	)			(131,732	)			(52,634	)			364				(184,782	)
Operating (loss) income			(780	)			16,302				2,048				—				17,570
Interest expense, net			—				(19,200	)			(91	)			—				(19,291	)
Equity (loss) income from subsidiaries			(2,083	)			1,182				—				901				—
(Loss) income before income taxes			(2,863	)			(1,716	)			1,957				901				(1,721	)
Income tax expense			—				(367	)			(775	)			775				(367	)
Net (loss) income		$	(2,863	)		$	(2,083	)		$	1,182			$	1,676			$	(2,088	)

TOPS HOLDING CORPORATION

(Dollars in thousands)

		Tops Holding								Guarantor
		Corporation				Tops Markets, LLC				Subsidiary				Eliminations				Consolidated
Net sales		$	—			$	515,443			$	149,881			$	(309	)		$	665,015
Cost of goods sold			—				(360,560	)			(97,608	)			—				(458,168	)
Distribution costs			—				(9,590	)			(3,498	)			—				(13,088	)
Gross profit							145,293				48,775				(309	)			193,759
Operating expenses:
Wages, salaries and benefits			—				(68,861	)			(25,418	)			—				(94,279	)
Selling and general expenses			—				(22,538	)			(9,534	)			309				(31,763	)
Administrative expenses			(482	)			(34,429	)			(5,068	)			—				(39,979	)
Rent expense, net			—				(3,427	)			(2,410	)			—				(5,837	)
Depreciation and amortization			—				(16,729	)			(2,001	)			—				(18,730	)
Advertising			—				(4,873	)			(1,180	)			—				(6,053	)
Total operating expenses			(482	)			(150,857	)			(45,611	)			309				(196,641	)
Operating (loss) income			(482	)			(5,564	)			3,164				—				(2,882	)
Bargain purchase			—				—				15,681				—				15,681
Loss on debt extinguishment			—				(1,008	)			—				—				(1,008	)
Interest expense, net			—				(18,305	)			(105	)			—				(18,410	)
Equity (loss) income from subsidiaries			(7,723	)			17,529				—				(9,806	)			—
(Loss) income before income taxes			(8,205	)			(7,348	)			18,740				(9,806	)			(6,619	)
Income tax expense			—				(375	)			(1,211	)			11,499				9,913
Net (loss) income		$	(8,205	)		$	(7,723	)		$	17,529			$	1,693			$	3,294

TOPS HOLDING CORPORATION

(Dollars in thousands)

		Tops Holding								Guarantor
		Corporation				Tops Markets, LLC				Subsidiaries				Eliminations				Consolidated
Net cash (used in) provided by operating activities		$	(238	)		$	12,919			$	9,622			$	—			$	22,303
Cash flows used in investing activities:
Cash paid for property and equipment			—				(7,263	)			(9,691	)			—				(16,954	)
Proceeds from sale of assets			—				—				650				—				650
Change in intercompany receivables position			—				(238	)			(449	)			687				—
Net cash used in investing activities			—				(7,501	)			(9,490	)			687				(16,304	)
Cash flows provided by (used in) financing activities:
Borrowings on ABL Facility			—				220,800				—				—				220,800
Repayments on ABL Facility			—				(215,800	)			—				—				(215,800	)
Principal payments on capital leases			—				(3,107	)			(126	)			—				(3,233	)
Repayments of long-term debt borrowings			—				(126	)			—				—				(126	)
Change in bank overdraft position			—				(290	)			—				—				(290	)
Deferred financing costs incurred			—				(57	)			—				—				(57	)
Change in intercompany payables position			238				449				—				(687	)			—
Net cash provided by (used in) financing activities			238				1,869				(126	)			(687	)			1,294
Net increase in cash and cash equivalents			—				7,287				6				—				7,293
Cash and cash equivalents—beginning of period			—				16,689				730				—				17,419
Cash and cash equivalents—end of period		$	—			$	23,976			$	736			$	—			$	24,712

TOPS HOLDING CORPORATION

(Dollars in thousands)

		Tops Holding								Guarantor
		Corporation				Tops Markets, LLC				Subsidiary				Eliminations				Consolidated
Net cash (used in) provided by operating activities		$	(238	)		$	(16,124	)		$	12,776			$	—			$	(3,586	)
Cash flows used in investing activities:
Acquisition of Penn Traffic assets			—				—				(85,023	)			—				(85,023	)
Proceeds from sale of assets			—				—				14,919				—				14,419
Cash paid for property and equipment			—				(7,987	)			(792	)			—				(8,779	)
Investment in subsidiaries			—				(85,023	)			—				85,023				—
Change in intercompany receivables position			—				(238	)			(26,148	)			26,386				—
Net cash used in investing activities			—				(93,248	)			(97,044	)			111,409				(78,883	)
Cash flows provided by financing activities:
Proceeds from long-term debt borrowings			—				112,125				—				—				112,125
Repayments of long-term debt borrowings			—				(36,113	)			—				—				(36,113	)
Borrowings on ABL Facility			—				58,100				—				—				58,100
Repayments on ABL Facility			—				(72,100	)			—				—				(72,100	)
Proceeds from issuance of common stock			30,000				30,000				—				(30,000	)			30,000
Deferred financing costs incurred			—				(4,782	)			—				—				(4,782	)
Principal payments on capital leases			—				(2,568	)			(102	)			—				(2,670	)
Capital contribution			—				—				85,023				(85,023	)			—
Change in bank overdraft position			—				323				—				—				323
Change in intercompany payables position			238				26,148				—				(26,386	)			—
Net cash provided by financing activities			30,238				111,133				84,921				(141,409	)			84,883
Net increase in cash and cash equivalents			—				1,761				653				—				2,414
Cash and cash equivalents—beginning of period			—				19,712				10				—				19,722
Cash and cash equivalents—end of period		$	—			$	21,473			$	663			$	—			$	22,136