Attached files
file | filename |
---|---|
EXCEL - IDEA: XBRL DOCUMENT - Tops Holding LLC | Financial_Report.xls |
EX-31.1 - EXHIBIT 31.1 - Tops Holding LLC | c21807exv31w1.htm |
EX-32.2 - EXHIBIT 32.2 - Tops Holding LLC | c21807exv32w2.htm |
EX-31.2 - EXHIBIT 31.2 - Tops Holding LLC | c21807exv31w2.htm |
EX-32.1 - EXHIBIT 32.1 - Tops Holding LLC | c21807exv32w1.htm |
Table of Contents
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 |
FOR THE QUARTERLY PERIOD ENDED JULY 16, 2011
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
FOR THE TRANSITION PERIOD FROM ______ TO ______
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 (Address of principal executive office, including zip code) |
(716) 635-5000 (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
þ No o
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 (Do not check if a smaller reporting company) |
Smaller reporting company o |
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 August 29, 2011, 144,776 shares of common stock of the registrant were outstanding.
TOPS HOLDING CORPORATION
TABLE OF CONTENTS
i
Table of Contents
PART I FINANCIAL INFORMATION (Unaudited)
ITEM 1. | FINANCIAL STATEMENTS |
TOPS HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share amounts)
(Unaudited)
July 16, 2011 | January 1, 2011 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 18,636 | $ | 17,419 | ||||
Accounts receivable, net |
55,577 | 57,044 | ||||||
Inventory, net |
118,880 | 117,328 | ||||||
Prepaid expenses and other current assets |
9,686 | 14,093 | ||||||
Assets held for sale |
600 | 650 | ||||||
Income taxes refundable |
203 | 200 | ||||||
Current deferred tax assets |
2,265 | 2,265 | ||||||
Total current assets |
205,847 | 208,999 | ||||||
Property and equipment, net |
371,049 | 378,575 | ||||||
Intangible assets, net (Note 3) |
74,347 | 79,072 | ||||||
Other assets |
12,351 | 13,705 | ||||||
Total assets |
$ | 663,594 | $ | 680,351 | ||||
Liabilities and Shareholders Deficit |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 89,410 | $ | 93,311 | ||||
Accrued expenses and other current liabilities (Note 4) |
76,182 | 79,123 | ||||||
Current portion of capital lease obligations |
12,092 | 11,095 | ||||||
Current portion of long-term debt (Note 5) |
420 | 402 | ||||||
Total current liabilities |
178,104 | 183,931 | ||||||
Capital lease obligations |
165,571 | 172,216 | ||||||
Long-term debt (Note 5) |
362,731 | 365,262 | ||||||
Other long-term liabilities |
19,863 | 21,099 | ||||||
Non-current deferred tax liabilities |
4,019 | 3,354 | ||||||
Total liabilities |
730,288 | 745,862 | ||||||
Shareholders deficit: |
||||||||
Common shares ($0.001 par value; 300,000 authorized shares,
144,776 shares issued & outstanding) |
| | ||||||
Paid-in capital |
(2,056 | ) | (2,668 | ) | ||||
Accumulated deficit |
(64,302 | ) | (62,507 | ) | ||||
Accumulated other comprehensive loss, net of tax |
(336 | ) | (336 | ) | ||||
Total shareholders deficit |
(66,694 | ) | (65,511 | ) | ||||
Total liabilities and shareholders deficit |
$ | 663,594 | $ | 680,351 | ||||
See notes to unaudited condensed consolidated financial statements.
1
Table of Contents
TOPS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
(Unaudited)
12-week periods ended | 28-week periods ended | |||||||||||||||
July 16, 2011 | July 17, 2010 | July 16, 2011 | July 17, 2010 | |||||||||||||
Net sales |
$ | 559,514 | $ | 541,833 | $ | 1,276,773 | $ | 1,206,848 | ||||||||
Cost of goods sold |
(395,139 | ) | (380,778 | ) | (895,883 | ) | (838,946 | ) | ||||||||
Distribution costs |
(9,393 | ) | (10,422 | ) | (23,556 | ) | (23,510 | ) | ||||||||
Gross profit |
154,982 | 150,633 | 357,334 | 344,392 | ||||||||||||
Operating expenses: |
||||||||||||||||
Wages, salaries and benefits |
(76,356 | ) | (73,227 | ) | (175,338 | ) | (167,506 | ) | ||||||||
Selling and general expenses |
(23,438 | ) | (24,039 | ) | (56,821 | ) | (55,802 | ) | ||||||||
Administrative expenses (inclusive of
share-based compensation expense
of $264, $182, $612 and $426) |
(18,019 | ) | (22,528 | ) | (43,502 | ) | (62,507 | ) | ||||||||
Rent expense, net |
(4,212 | ) | (4,180 | ) | (10,115 | ) | (10,017 | ) | ||||||||
Depreciation and amortization |
(11,746 | ) | (14,984 | ) | (26,787 | ) | (33,714 | ) | ||||||||
Advertising |
(4,412 | ) | (6,302 | ) | (10,402 | ) | (12,355 | ) | ||||||||
Impairment (Note 7) |
(1,891 | ) | | (1,891 | ) | | ||||||||||
Total operating expenses |
(140,074 | ) | (145,260 | ) | (324,856 | ) | (341,901 | ) | ||||||||
Operating income |
14,908 | 5,373 | 32,478 | 2,491 | ||||||||||||
Bargain purchase |
| | | 15,681 | ||||||||||||
Loss on debt extinguishment |
| | | (1,008 | ) | |||||||||||
Interest expense, net |
(14,297 | ) | (14,074 | ) | (33,588 | ) | (32,484 | ) | ||||||||
Income (loss) before income taxes |
611 | (8,701 | ) | (1,110 | ) | (15,320 | ) | |||||||||
Income tax (expense) benefit (Note 6) |
(318 | ) | (214 | ) | (685 | ) | 9,699 | |||||||||
Net income (loss) |
$ | 293 | $ | (8,915 | ) | $ | (1,795 | ) | $ | (5,621 | ) | |||||
See notes to unaudited condensed consolidated financial statements.
2
Table of Contents
TOPS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
28-week periods ended | ||||||||
July 16, 2011 | July 17, 2010 | |||||||
Cash flows provided by operating activities: |
||||||||
Net loss |
$ | (1,795 | ) | $ | (5,621 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating
activities: |
||||||||
Depreciation and amortization |
35,729 | 40,710 | ||||||
LIFO inventory valuation adjustments |
2,161 | (84 | ) | |||||
Impairment |
1,891 | | ||||||
Amortization of deferred financing costs |
1,411 | 1,204 | ||||||
Deferred income taxes |
665 | (10,288 | ) | |||||
Share-based compensation expense |
612 | 426 | ||||||
Bargain purchase |
| (15,681 | ) | |||||
Loss on debt extinguishment |
| 1,008 | ||||||
Other |
255 | 499 | ||||||
Changes in operating assets and liabilities: |
||||||||
Decrease (increase) in accounts receivable |
1,467 | (6,347 | ) | |||||
Increase in inventory, net |
(3,713 | ) | (3,239 | ) | ||||
Decrease in prepaid expenses and other current assets |
4,407 | 3,722 | ||||||
(Increase) decrease in income taxes refundable |
(3 | ) | 214 | |||||
(Decrease) increase in accounts payable |
(3,909 | ) | 14,445 | |||||
(Decrease) increase in accrued expenses and other current liabilities |
(2,853 | ) | 1,890 | |||||
(Decrease) increase in other long-term liabilities |
(1,271 | ) | 2,427 | |||||
Net cash provided by operating activities |
35,054 | 25,285 | ||||||
Cash flows used in investing activities: |
||||||||
Cash paid for property and equipment |
(25,908 | ) | (19,059 | ) | ||||
Proceeds from sale of assets |
650 | 17,483 | ||||||
Acquisition of Penn Traffic assets |
| (85,023 | ) | |||||
Net cash used in investing activities |
(25,258 | ) | (86,599 | ) | ||||
Cash flows (used in) provided by financing activities: |
||||||||
Borrowings on ABL Facility |
356,300 | 58,100 | ||||||
Repayments on ABL Facility |
(358,800 | ) | (72,100 | ) | ||||
Principal payments on capital leases |
(5,803 | ) | (4,586 | ) | ||||
Proceeds from long-term debt borrowings |
| 112,125 | ||||||
Repayments of long-term debt borrowings |
(227 | ) | (36,199 | ) | ||||
Deferred financing costs incurred |
(57 | ) | (5,328 | ) | ||||
Change in bank overdraft position |
8 | 657 | ||||||
Proceeds from issuance of common shares |
| 30,000 | ||||||
Net cash (used in) provided by financing activities |
(8,579 | ) | 82,669 | |||||
Net increase in cash and cash equivalents |
1,217 | 21,355 | ||||||
Cash and cash equivalentsbeginning of period |
17,419 | 19,722 | ||||||
Cash and cash equivalentsend of period |
$ | 18,636 | $ | 41,077 | ||||
See notes to unaudited condensed consolidated financial statements.
3
Table of Contents
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 & Co., Incorporated (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 Traffics 79 retail supermarkets, in exchange for cash consideration of $85.0
million. Twenty-four of the acquired supermarkets were closed or sold during 2010. In August
2010, the Federal Trade Commission (FTC) issued a Proposed Order that would require Tops to sell
seven of the retained supermarkets. On June 30, 2011, the FTC approved a modified Final Order
requiring the sale of the seven supermarkets and the retention by the Company of a divestiture
trustee to market the supermarkets subject to the Final Order. Also on June 30, 2011, the FTC
approved the application by Tops to sell three of these supermarkets to Hometown Markets, LLC
(Hometown Markets). The sale of these supermarkets closed in late July and early August 2011.
As of August 29, 2011, the Company operates 52 of the 79 acquired supermarkets under the banners of
Tops, P&C and Quality Markets. Net sales and operating loss for the seven supermarkets subject to
the Final Order were $13.7 million and $1.6 million, respectively, during the 12-week period ended
July 16, 2011, and $30.9 million and $1.7 million, respectively, during the 28-week period ended
July 16, 2011. As of August 29, 2011, the Company operates 125 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, which
appear in the Companys Annual Report on Form 10-K filed with the Securities and Exchange
Commission (SEC) on March 31, 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) and the
requirements for Form 10-Q, and do not include all disclosures normally required in annual
consolidated financial statements prepared in accordance with GAAP. The condensed consolidated
financial statements include the accounts of the Company and all of its subsidiaries. All
intercompany transactions have been eliminated.
The Companys condensed consolidated financial statements for the 12 and 28-week periods ended July
16, 2011 and July 17, 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 28-week period ended July 17, 2010 has been
retrospectively adjusted to reflect final acquisition accounting adjustments made during the fiscal
year ended January 1, 2011. 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 125 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. As of July 16, 2011, 79 of
the supermarkets offered pharmacy
services and 38 fuel centers were in operation. Across all 125 corporate 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. The Companys retail operations, which represent
substantially all of the Companys consolidated sales, earnings and total assets, are its only
reportable segment.
4
Table of Contents
These 125 operating segments have been aggregated into one reportable segment because, in the
Companys 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 | 28-week periods ended | |||||||||||||||||||||||||||||||
July 16, 2011 | July 17, 2010 | July 16, 2011 | July 17, 2010 | |||||||||||||||||||||||||||||
% of | % of | % of | % of | |||||||||||||||||||||||||||||
Amount | Total | Amount | Total | Amount | Total | Amount | Total | |||||||||||||||||||||||||
Non-perishables(1) |
$ | 308,003 | 55.0 | % | $ | 307,903 | 56.8 | % | $ | 718,213 | 56.2 | % | $ | 695,517 | 57.6 | % | ||||||||||||||||
Perishables(2) |
155,393 | 27.8 | % | 154,236 | 28.5 | % | 344,051 | 26.9 | % | 330,147 | 27.4 | % | ||||||||||||||||||||
Fuel |
52,127 | 9.3 | % | 34,834 | 6.4 | % | 110,493 | 8.7 | % | 75,882 | 6.3 | % | ||||||||||||||||||||
Pharmacy |
40,211 | 7.2 | % | 41,338 | 7.6 | % | 95,305 | 7.5 | % | 97,353 | 8.1 | % | ||||||||||||||||||||
Other(3) |
3,780 | 0.7 | % | 3,522 | 0.7 | % | 8,711 | 0.7 | % | 7,949 | 0.6 | % | ||||||||||||||||||||
$ | 559,514 | 100.0 | % | $ | 541,833 | 100.0 | % | $ | 1,276,773 | 100.0 | % | $ | 1,206,848 | 100.0 | % | |||||||||||||||||
(1) | Non-perishables consist of grocery, dairy, frozen, general merchandise, health and
beauty care and other non-perishable related products. |
|
(2) | Perishables consist of produce, meat, seafood, bakery, deli, floral, prepared foods and
other perishable related products. |
|
(3) | Other primarily consists of franchise income and service commission income, including
lottery, money orders and money transfers. |
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 Companys
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 FASB Accounting Standards Codification Topic 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 Companys 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 Companys own data.
The carrying amount of the Companys cash and cash equivalents at July 16, 2011 represents fair
value as it includes cash on deposit with commercial banks.
The fair value of the Companys senior secured notes is based on quoted market prices. At July 16,
2011, the fair value of total debt excluding capital leases was $407.6 million, compared to a
carrying value of $363.2 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
In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income (Topic
220): Presentation of Comprehensive Income (ASU No. 2011-05). ASU No. 2011-05 provides
companies two choices for presenting net income and comprehensive income: in a single continuous
statement, or in two separate, but consecutive statements. Presenting comprehensive income in the
statement of equity is no longer an option. ASU No. 2011-05 is effective for the company beginning in the fiscal year ending December 29, 2012 and is not expected
to have a material impact on the Companys consolidated financial statements as it only changes the
disclosures surrounding comprehensive income.
5
Table of Contents
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 | |||||||||||||
July 16, 2011 | Amount | Amortization | Amount | Period | ||||||||||||
Acquired Penn Traffic intangible assets: |
||||||||||||||||
Favorable/unfavorable lease rights |
$ | 7,023 | $ | (1,451 | ) | $ | 5,572 | 7.9 | ||||||||
Tradenames |
4,200 | (1,131 | ) | 3,069 | 8.5 | |||||||||||
Customer relationships |
1,700 | (461 | ) | 1,239 | 11.0 | |||||||||||
Other intangible assets: |
||||||||||||||||
Tradename |
41,011 | | 41,011 | Indefinite life | ||||||||||||
Customer relationships |
26,051 | (17,146 | ) | 8,905 | 8.0 | |||||||||||
Favorable/unfavorable lease rights |
14,369 | (7,768 | ) | 6,601 | 9.3 | |||||||||||
Franchise agreements |
11,538 | (3,807 | ) | 7,731 | 11.0 | |||||||||||
Other |
406 | (187 | ) | 219 | 4.0 | |||||||||||
$ | 106,298 | $ | (31,951 | ) | $ | 74,347 | 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 Companys assessment, no impairment was recorded during the 28-week
periods ended July 16, 2011 and July 17, 2010.
During the 12-week periods ended July 16, 2011 and July 17, 2010, amortization expense was $2.0
million and $2.4 million, respectively. During the 28-week periods ended July 16, 2011 and July
17, 2010, amortization expense was $4.7 million and $5.4 million, respectively. Such amortization
is included in administrative expenses in the condensed consolidated statements of operations.
As of July 16, 2011, expected future amortization of intangible assets is as follows (dollars in
thousands):
2011 (remaining period) |
$ | 3,875 | ||
2012 |
6,857 | |||
2013 |
6,012 | |||
2014 |
5,212 | |||
2015 |
3,977 | |||
Thereafter |
7,403 |
6
Table of Contents
4. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following (dollars in thousands):
July 16, 2011 | January 1, 2011 | |||||||
Wages, taxes and benefits |
$ | 17,039 | $ | 18,918 | ||||
Lottery |
9,674 | 10,083 | ||||||
Interest payable |
9,111 | 8,318 | ||||||
Property and equipment expenditures |
6,018 | 6,107 | ||||||
Sales and use tax |
4,950 | 2,101 | ||||||
Self-insurance reserves |
4,013 | 1,406 | ||||||
Utilities |
3,617 | 2,980 | ||||||
Money orders |
3,029 | 3,651 | ||||||
Gift cards |
2,508 | 4,271 | ||||||
Union medical, pension and 401(k) |
2,454 | 4,598 | ||||||
Repairs and maintenance |
2,125 | 2,054 | ||||||
Vacation |
1,925 | 1,110 | ||||||
Professional and legal fees |
1,531 | 3,640 | ||||||
Advertising |
702 | 1,920 | ||||||
Other |
7,486 | 7,966 | ||||||
$ | 76,182 | $ | 79,123 | |||||
5. DEBT
Long-term debt is comprised of the following (dollars in thousands):
July 16, 2011 | January 1, 2011 | |||||||
Senior Notes |
$ | 350,000 | $ | 350,000 | ||||
Discount on Senior Notes, net |
(2,700 | ) | (2,914 | ) | ||||
ABL Facility |
12,500 | 15,000 | ||||||
Other loans |
2,302 | 2,400 | ||||||
Mortgage note payable |
1,049 | 1,178 | ||||||
Total debt |
363,151 | 365,664 | ||||||
Current portion |
(420 | ) | (402 | ) | ||||
Total long-term debt |
$ | 362,731 | $ | 365,262 | ||||
On October 9, 2009, the Company issued $275.0 million of senior secured notes, bearing
interest of 10.125% (the Senior Notes). 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 Companys 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 Companys
asset-based lending facility (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
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 July 16, 2011, the unused commitment under the ABL Facility was $60.3 million,
after giving effect to $14.2 million of letters of credit outstanding thereunder. Revolving loans
under the ABL Facility will, at the Companys 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.
7
Table of Contents
The proceeds from the Senior Notes and ABL Facility were utilized to repay the outstanding debt
related to the Companys previous senior secured credit facility and its warehouse mortgage, pay a
$105.0 million dividend to the Companys shareholders, settle the Companys outstanding interest
rate swap arrangement, and pay fees and expenses related to the financing transactions.
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 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, and change in control. Failure
to meet any of these covenants would be an event of default. As of July 16, 2011, the Company was
in compliance with all such covenants.
6. INCOME TAXES
Income tax (expense) benefit was as follows (dollars in thousands):
12-week periods ended | 28-week periods ended | |||||||||||||||
July 16, 2011 | July 17, 2010 | July 16, 2011 | July 17, 2010 | |||||||||||||
Current |
$ | | $ | (214 | ) | $ | (20 | ) | $ | (589 | ) | |||||
Deferred |
(318 | ) | | (665 | ) | 10,288 | ||||||||||
$ | (318 | ) | $ | (214 | ) | $ | (685 | ) | $ | 9,699 | ||||||
The income tax expense for the 12-week period ended July 16, 2011 reflects the establishment
of additional valuation allowance against net deferred tax assets during the period. The overall
effective tax rate was 52.0%. The effective tax rate would have been 35.6% without the impact of
the additional valuation allowance and discrete charges.
The income tax expense for the 12-week period ended July 17, 2010 reflects the establishment of
additional valuation allowance against net deferred tax assets during the period. The overall
effective tax rate was (2.5)%. The effective tax rate would have been 40.1% without the impact of
the additional valuation allowance and discrete charges.
The income tax expense for the 28-week period ended July 16, 2011 reflects the establishment of
additional valuation allowance against net deferred tax assets during the period. The overall
effective tax rate was (61.7)%. The effective tax rate would have been 33.9% without the impact of
the additional valuation allowance and discrete charges.
The income tax benefit for the 28-week period ended July 17, 2010 was primarily attributable to the
reversal of $10.3 million of the valuation allowance established in the fiscal year ended January
2, 2010. The reversal of the valuation allowance was the result of recording 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 Companys deferred tax assets.
The overall effective rate for the 28-week period ended July 17, 2010 was 63.3%. The effective tax
rate would have been 40.1% without the impact of adjustments to the valuation allowance, the
bargain purchase, and discrete charges.
7. IMPAIRMENT
On June 30, 2011, the FTC approved an application by Tops to sell three supermarkets to Hometown
Markets. The sale of these supermarkets closed in late July and early August 2011.
As a result of the sale, the Company recorded a $1.9 million impairment within the condensed consolidated statements of operations
for the 12 and 28-week periods ended July 16, 2011, representing the excess of the
carrying value of assets over the sale price.
8. RELATED PARTY TRANSACTIONS
Tops Markets made a five-year loan to an executive for $0.2 million in connection with the
executives relocation. During March 2010, the loan balance and related accrued interest was
forgiven upon approval by the Companys 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 28-week period ended July 17, 2010, while the tax
reimbursement is included in administrative expenses in the condensed consolidated statement of
operations for the 12-week period ended July 17, 2010.
8
Table of Contents
On January 29, 2010, the Company entered into a $25.0 million bridge loan with Morgan Stanley
Senior Funding, Inc. (an affiliate of Morgan Stanley) and Banc of America Bridge LLC. Also on January 29, 2010, the Company received $30.0 million from the issuance of
common shares to related parties.
Effective November 30, 2007, Holding entered into a Transaction and Monitoring Fee Agreement with
Morgan Stanley and HSBC Bank. In consideration of certain services provided to Holding, the
Company pays an annual monitoring fee of $0.8 million to Morgan Stanley and $0.2 million to HSBC,
payable on a quarterly basis. During each of the 12-week periods ended July 16, 2011 and July 17,
2010, the Company paid $0.3 million related to this agreement. For each of the 28-week periods
ended July 16, 2011 and July 17, 2010, the Company paid $0.5 million related to this agreement.
These fees are included in administrative expenses in the condensed consolidated statements of
operations.
9. GUARANTOR FINANCIAL STATEMENTS
The obligations of Holding and Tops Markets under the Senior 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 July 16, 2011 and January 1, 2011 for Holding and Tops Markets, the Guarantor
Subsidiaries, and for the Company on a consolidated basis, the related statements of operations for
the 12 and 28-week periods ended July 16, 2011 and July 17, 2010, and the related statements of
cash flows for the 28-week periods ended July 16, 2011 and July 17, 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 entitys 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.
9
Table of Contents
TOPS HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
JULY 16, 2011
(Dollars in thousands)
CONDENSED CONSOLIDATED BALANCE SHEET
JULY 16, 2011
(Dollars in thousands)
Tops Holding | Guarantor | |||||||||||||||||||
Corporation | Tops Markets, LLC | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Assets |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 17,849 | $ | 787 | $ | | $ | 18,636 | ||||||||||
Accounts receivable, net |
| 43,747 | 11,830 | | 55,577 | |||||||||||||||
Intercompany receivables |
| 3,326 | 9,296 | (12,622 | ) | | ||||||||||||||
Inventory, net |
| 80,730 | 38,150 | | 118,880 | |||||||||||||||
Prepaid expenses and
other current assets |
| 7,848 | 1,838 | | 9,686 | |||||||||||||||
Assets held for sale |
| | 600 | | 600 | |||||||||||||||
Income taxes refundable |
| 203 | | | 203 | |||||||||||||||
Current deferred tax assets |
| 1,657 | | 608 | 2,265 | |||||||||||||||
Total current assets |
| 155,360 | 62,501 | (12,014 | ) | 205,847 | ||||||||||||||
Property and equipment, net |
| 294,749 | 76,300 | | 371,049 | |||||||||||||||
Intangible assets, net |
| 64,467 | 9,880 | | 74,347 | |||||||||||||||
Other assets |
| 12,351 | 3,041 | (3,041 | ) | 12,351 | ||||||||||||||
Investment in subsidiaries |
(77,309 | ) | 107,615 | | (30,306 | ) | | |||||||||||||
Total assets |
$ | (77,309 | ) | $ | 634,542 | $ | 151,722 | $ | (45,361 | ) | $ | 663,594 | ||||||||
Liabilities and Shareholders
(Deficit) Equity |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable |
$ | | $ | 67,519 | $ | 21,891 | $ | | $ | 89,410 | ||||||||||
Intercompany payables |
3,326 | 9,296 | | (12,622 | ) | | ||||||||||||||
Accrued expenses and
other current liabilities |
882 | 60,795 | 15,249 | (744 | ) | 76,182 | ||||||||||||||
Current portion of capital
lease obligations |
| 11,759 | 333 | | 12,092 | |||||||||||||||
Current portion of long-term debt |
| 420 | | | 420 | |||||||||||||||
Current deferred tax liabilities |
| | 11 | (11 | ) | | ||||||||||||||
Total current liabilities |
4,208 | 149,789 | 37,484 | (13,377 | ) | 178,104 | ||||||||||||||
Capital lease obligations |
| 162,033 | 3,538 | | 165,571 | |||||||||||||||
Long-term debt |
| 365,772 | | (3,041 | ) | 362,731 | ||||||||||||||
Other long-term liabilities |
| 16,707 | 3,156 | | 19,863 | |||||||||||||||
Non-current deferred tax
liabilities |
| 16,743 | (71 | ) | (12,653 | ) | 4,019 | |||||||||||||
Total liabilities |
4,208 | 711,044 | 44,107 | (29,071 | ) | 730,288 | ||||||||||||||
Total shareholders (deficit) equity |
(81,517 | ) | (76,502 | ) | 107,615 | (16,290 | ) | (66,694 | ) | |||||||||||
Total liabilities and shareholders
(deficit) equity |
$ | (77,309 | ) | $ | 634,542 | $ | 151,722 | $ | (45,361 | ) | $ | 663,594 | ||||||||
10
Table of Contents
TOPS HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
JANUARY 1, 2011
(Dollars in thousands)
CONDENSED CONSOLIDATED BALANCE SHEET
JANUARY 1, 2011
(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 | 11,024 | | 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 | ||||||||
11
Table of Contents
TOPS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE 12-WEEK PERIOD ENDED JULY 16, 2011
(Dollars in thousands)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE 12-WEEK PERIOD ENDED JULY 16, 2011
(Dollars in thousands)
Tops Holding | Guarantor | |||||||||||||||||||
Corporation | Tops Markets, LLC | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | | $ | 417,903 | $ | 141,840 | $ | (229 | ) | $ | 559,514 | |||||||||
Cost of goods sold |
| (300,520 | ) | (94,619 | ) | | (395,139 | ) | ||||||||||||
Distribution costs |
| (6,619 | ) | (2,774 | ) | | (9,393 | ) | ||||||||||||
Gross profit |
| 110,764 | 44,447 | (229 | ) | 154,982 | ||||||||||||||
Operating expenses: |
||||||||||||||||||||
Wages, salaries and benefits |
| (54,701 | ) | (21,655 | ) | | (76,356 | ) | ||||||||||||
Selling and general expenses |
| (16,357 | ) | (7,310 | ) | 229 | (23,438 | ) | ||||||||||||
Administrative expenses |
(646 | ) | (12,746 | ) | (4,627 | ) | | (18,019 | ) | |||||||||||
Rent expense, net |
| (2,157 | ) | (2,055 | ) | | (4,212 | ) | ||||||||||||
Depreciation and amortization |
| (8,930 | ) | (2,816 | ) | | (11,746 | ) | ||||||||||||
Advertising |
| (3,072 | ) | (1,340 | ) | | (4,412 | ) | ||||||||||||
Impairment |
| (1,891 | ) | | (1,891 | ) | ||||||||||||||
Total operating expenses |
(646 | ) | (97,963 | ) | (41,694 | ) | 229 | (140,074 | ) | |||||||||||
Operating (loss) income |
(646 | ) | 12,801 | 2,753 | | 14,908 | ||||||||||||||
Interest expense, net |
| (14,249 | ) | (48 | ) | | (14,297 | ) | ||||||||||||
Equity (loss) income from
subsidiaries |
(132 | ) | 1,634 | | (1,502 | ) | | |||||||||||||
(Loss) income before
income taxes |
(778 | ) | 186 | 2,705 | (1,502 | ) | 611 | |||||||||||||
Income tax expense |
| (318 | ) | (1,071 | ) | 1,071 | (318 | ) | ||||||||||||
Net (loss) income |
$ | (778 | ) | $ | (132 | ) | $ | 1,634 | $ | (431 | ) | $ | 293 | |||||||
12
Table of Contents
TOPS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE 12-WEEK PERIOD ENDED JULY 17, 2010
(Dollars in thousands)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE 12-WEEK PERIOD ENDED JULY 17, 2010
(Dollars in thousands)
Tops Holding | Guarantor | |||||||||||||||||||
Corporation | Tops Markets, LLC | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | | $ | 403,964 | $ | 138,069 | $ | (200 | ) | $ | 541,833 | |||||||||
Cost of goods sold |
| (286,525 | ) | (94,253 | ) | | (380,778 | ) | ||||||||||||
Distribution costs |
| (7,166 | ) | (3,256 | ) | | (10,422 | ) | ||||||||||||
Gross profit |
| 110,273 | 40,560 | (200 | ) | 150,633 | ||||||||||||||
Operating expenses: |
||||||||||||||||||||
Wages, salaries and benefits |
| (52,139 | ) | (21,088 | ) | | (73,227 | ) | ||||||||||||
Selling and general expenses |
| (15,862 | ) | (8,377 | ) | 200 | (24,039 | ) | ||||||||||||
Administrative expenses |
(783 | ) | (16,724 | ) | (5,021 | ) | | (22,528 | ) | |||||||||||
Rent expense, net |
| (1,598 | ) | (2,582 | ) | | (4,180 | ) | ||||||||||||
Depreciation and amortization |
| (13,476 | ) | (1,508 | ) | | (14,984 | ) | ||||||||||||
Advertising |
| (4,498 | ) | (1,804 | ) | | (6,302 | ) | ||||||||||||
Total operating expenses |
(783 | ) | (104,297 | ) | (40,380 | ) | 200 | (145,260 | ) | |||||||||||
Operating (loss) income |
(783 | ) | 5,976 | 180 | | 5,373 | ||||||||||||||
Interest (expense) income, net |
| (14,311 | ) | 237 | | (14,074 | ) | |||||||||||||
Equity (loss) income from
subsidiaries |
(8,297 | ) | 252 | | 8,045 | | ||||||||||||||
(Loss) income before
income taxes |
(9,080 | ) | (8,083 | ) | 417 | 8,045 | (8,701 | ) | ||||||||||||
Income tax expense |
| (214 | ) | (165 | ) | 165 | (214 | ) | ||||||||||||
Net (loss) income |
$ | (9,080 | ) | $ | (8,297 | ) | $ | 252 | $ | 8,210 | $ | (8,915 | ) | |||||||
13
Table of Contents
TOPS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE 28-WEEK PERIOD ENDED JULY 16, 2011
(Dollars in thousands)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE 28-WEEK PERIOD ENDED JULY 16, 2011
(Dollars in thousands)
Tops Holding | Guarantor | |||||||||||||||||||
Corporation | Tops Markets, LLC | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | | $ | 958,836 | $ | 318,530 | $ | (593 | ) | $ | 1,276,773 | |||||||||
Cost of goods sold |
| (683,238 | ) | (212,645 | ) | | (895,883 | ) | ||||||||||||
Distribution costs |
| (16,800 | ) | (6,756 | ) | | (23,556 | ) | ||||||||||||
Gross profit |
| 258,798 | 99,129 | (593 | ) | 357,334 | ||||||||||||||
Operating expenses: |
||||||||||||||||||||
Wages, salaries and benefits |
| (125,986 | ) | (49,352 | ) | | (175,338 | ) | ||||||||||||
Selling and general expenses |
| (39,681 | ) | (17,733 | ) | 593 | (56,821 | ) | ||||||||||||
Administrative expenses |
(1,426 | ) | (31,141 | ) | (10,935 | ) | | (43,502 | ) | |||||||||||
Rent expense, net |
| (5,303 | ) | (4,812 | ) | | (10,115 | ) | ||||||||||||
Depreciation and amortization |
| (20,358 | ) | (6,429 | ) | | (26,787 | ) | ||||||||||||
Advertising |
| (7,226 | ) | (3,176 | ) | | (10,402 | ) | ||||||||||||
Impairment |
| | (1,891 | ) | | (1,891 | ) | |||||||||||||
Total operating expenses |
(1,426 | ) | (229,695 | ) | (94,328 | ) | 593 | (324,856 | ) | |||||||||||
Operating (loss) income |
(1,426 | ) | 29,103 | 4,801 | | 32,478 | ||||||||||||||
Interest expense, net |
| (33,449 | ) | (139 | ) | | (33,588 | ) | ||||||||||||
Equity (loss) income from
subsidiaries |
(2,215 | ) | 2,816 | | (601 | ) | | |||||||||||||
(Loss) income before
income taxes |
(3,641 | ) | (1,530 | ) | 4,662 | (601 | ) | (1,110 | ) | |||||||||||
Income tax expense |
| (685 | ) | (1,846 | ) | 1,846 | (685 | ) | ||||||||||||
Net (loss) income |
$ | (3,641 | ) | $ | (2,215 | ) | $ | 2,816 | $ | 1,245 | $ | (1,795 | ) | |||||||
14
Table of Contents
TOPS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE 28-WEEK PERIOD ENDED JULY 17, 2010
(Dollars in thousands)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE 28-WEEK PERIOD ENDED JULY 17, 2010
(Dollars in thousands)
Tops Holding | Guarantor | |||||||||||||||||||
Corporation | Tops Markets, LLC | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | | $ | 919,407 | $ | 287,950 | $ | (509 | ) | $ | 1,206,848 | |||||||||
Cost of goods sold |
| (647,085 | ) | (191,861 | ) | | (838,946 | ) | ||||||||||||
Distribution costs |
| (16,756 | ) | (6,754 | ) | | (23,510 | ) | ||||||||||||
Gross profit |
| 255,566 | 89,335 | (509 | ) | 344,392 | ||||||||||||||
Operating expenses: |
||||||||||||||||||||
Wages, salaries and benefits |
| (121,000 | ) | (46,506 | ) | | (167,506 | ) | ||||||||||||
Selling and general expenses |
| (38,400 | ) | (17,911 | ) | 509 | (55,802 | ) | ||||||||||||
Administrative expenses |
(1,265 | ) | (51,153 | ) | (10,089 | ) | | (62,507 | ) | |||||||||||
Rent expense, net |
| (5,025 | ) | (4,992 | ) | | (10,017 | ) | ||||||||||||
Depreciation and amortization |
| (30,205 | ) | (3,509 | ) | | (33,714 | ) | ||||||||||||
Advertising |
| (9,371 | ) | (2,984 | ) | | (12,355 | ) | ||||||||||||
Total operating expenses |
(1,265 | ) | (255,154 | ) | (85,991 | ) | 509 | (341,901 | ) | |||||||||||
Operating (loss) income |
(1,265 | ) | 412 | 3,344 | | 2,491 | ||||||||||||||
Bargain purchase |
| | 15,681 | | 15,681 | |||||||||||||||
Loss on debt extinguishment |
| (1,008 | ) | | | (1,008 | ) | |||||||||||||
Interest (expense) income, net |
| (32,616 | ) | 132 | | (32,484 | ) | |||||||||||||
Equity (loss) income from
subsidiaries |
(16,020 | ) | 17,781 | | (1,761 | ) | | |||||||||||||
(Loss) income before
income taxes |
(17,285 | ) | (15,431 | ) | 19,157 | (1,761 | ) | (15,320 | ) | |||||||||||
Income tax expense |
| (589 | ) | (1,376 | ) | 11,664 | 9,699 | |||||||||||||
Net (loss) income |
$ | (17,285 | ) | $ | (16,020 | ) | $ | 17,781 | $ | 9,903 | $ | (5,621 | ) | |||||||
15
Table of Contents
TOPS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE 28-WEEK PERIOD ENDED JULY 16, 2011
(Dollars in thousands)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE 28-WEEK PERIOD ENDED JULY 16, 2011
(Dollars in thousands)
Tops Holding | Guarantor | |||||||||||||||||||
Corporation | Tops Markets, LLC | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net cash (used in) provided by
operating activities |
$ | (476 | ) | $ | 24,304 | $ | 11,226 | $ | | $ | 35,054 | |||||||||
Cash flows used in investing
activities: |
||||||||||||||||||||
Cash paid for property and
equipment |
| (10,516 | ) | (15,392 | ) | | (25,908 | ) | ||||||||||||
Proceeds from sale of assets |
| | 650 | | 650 | |||||||||||||||
Change in intercompany
receivables position |
| (476 | ) | 3,796 | (3,320 | ) | | |||||||||||||
Net cash used in investing
activities |
| (10,992 | ) | (10,946 | ) | (3,320 | ) | (25,258 | ) | |||||||||||
Cash flows provided by (used in)
financing activities: |
||||||||||||||||||||
Borrowings on ABL Facility |
| 356,300 | | | 356,300 | |||||||||||||||
Repayments on ABL Facility |
| (358,800 | ) | | | (358,800 | ) | |||||||||||||
Principal payments on
capital leases |
| (5,580 | ) | (223 | ) | | (5,803 | ) | ||||||||||||
Repayments of long-term
debt borrowings |
| (227 | ) | | | (227 | ) | |||||||||||||
Deferred financing costs
incurred |
| (57 | ) | | | (57 | ) | |||||||||||||
Change in bank overdraft
position |
| 8 | | | 8 | |||||||||||||||
Change in intercompany
payables position |
476 | (3,796 | ) | | 3,320 | | ||||||||||||||
Net cash provided by (used
in) financing activities |
476 | (12,152 | ) | (223 | ) | 3,320 | (8,579 | ) | ||||||||||||
Net increase in cash and cash
equivalents |
| 1,160 | 57 | | 1,217 | |||||||||||||||
Cash and cash equivalentsbeginning of period |
| 16,689 | 730 | | 17,419 | |||||||||||||||
Cash and cash equivalentsend of period |
$ | | $ | 17,849 | $ | 787 | $ | | $ | 18,636 | ||||||||||
16
Table of Contents
TOPS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE 28-WEEK PERIOD ENDED JULY 17, 2010
(Dollars in thousands)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE 28-WEEK PERIOD ENDED JULY 17, 2010
(Dollars in thousands)
Tops Holding | Guarantor | |||||||||||||||||||
Corporation | Tops Markets, LLC | Subsidiaries | Eliminations | Consolidated | ||||||||||||||||
Net cash (used in) provided by
operating activities |
$ | (475 | ) | $ | 20,209 | $ | 5,551 | $ | | $ | 25,285 | |||||||||
Cash flows used in investing
activities: |
||||||||||||||||||||
Acquisition of Penn Traffic
assets |
| | (85,023 | ) | | (85,023 | ) | |||||||||||||
Proceeds from sale of assets |
| | 17,483 | | 17,483 | |||||||||||||||
Cash paid for property and
equipment |
| (14,130 | ) | (4,929 | ) | | (19,059 | ) | ||||||||||||
Investment in subsidiaries |
(30,000 | ) | (85,023 | ) | | 115,023 | | |||||||||||||
Change in intercompany
receivables position |
| (475 | ) | (17,260 | ) | 17,735 | | |||||||||||||
Net cash used in investing
activities |
(30,000 | ) | (99,628 | ) | (89,729 | ) | 132,758 | (86,599 | ) | |||||||||||
Cash flows provided by
financing activities: |
||||||||||||||||||||
Proceeds from long-term
debt borrowings |
| 112,125 | | | 112,125 | |||||||||||||||
Repayments of long-term
debt borrowings |
| (36,199 | ) | | | (36,199 | ) | |||||||||||||
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 |
| (5,328 | ) | | | (5,328 | ) | |||||||||||||
Principal payments on
capital leases |
| (4,405 | ) | (181 | ) | | (4,586 | ) | ||||||||||||
Capital contribution |
| | 85,023 | (85,023 | ) | | ||||||||||||||
Change in bank overdraft
position |
| 657 | | | 657 | |||||||||||||||
Change in intercompany
payables position |
475 | 17,260 | | (17,735 | ) | | ||||||||||||||
Net cash provided by
financing activities |
30,475 | 100,110 | 84,842 | (132,758 | ) | 82,669 | ||||||||||||||
Net increase in cash and
cash equivalents |
| 20,691 | 664 | | 21,355 | |||||||||||||||
Cash and cash equivalentsbeginning of period |
| 19,712 | 10 | | 19,722 | |||||||||||||||
Cash and cash equivalentsend of period |
$ | | $ | 40,403 | $ | 674 | $ | | $ | 41,077 | ||||||||||
17
Table of Contents
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS |
The following discussion should be read in conjunction with our unaudited condensed consolidated
financial statements and related notes and other financial information appearing elsewhere in this
report. This report contains forward-looking statements that involve risks and uncertainties. Our
actual results may differ from those indicated in the forward-looking statements. See
Forward-Looking Statements below.
COMPANY OVERVIEW
We are a leading supermarket retailer in our Upstate New York and Northern Pennsylvania markets.
Introduced in 1962, our Tops brand is widely recognized as a strong retail supermarket brand name
in our markets supported by strong customer loyalty and attractive supermarket locations. We are
headquartered in Williamsville, New York and have approximately 12,600 associates.
In this discussion, the terms we, our, us and the Company refer to Tops Holding Corporation
and each of its consolidated subsidiaries, including its wholly-owned subsidiary Tops Markets, LLC.
On January 29, 2010, we completed the Acquisition of substantially all assets and certain
liabilities of Penn Traffic and its subsidiaries, including Penn Traffics 79 retail supermarkets,
in exchange for cash consideration of $85.0 million. Twenty-four of the acquired supermarkets were
closed or sold during 2010. In August 2010, the FTC issued a Proposed Order that would require us
to sell seven of the retained supermarkets. On June 30, 2011, the FTC approved a modified Final
Order requiring the sale of the seven supermarkets and the retention of a divestiture trustee to
market the supermarkets subject to the Final Order. Also on June 30, 2011, the FTC approved our
application to sell three of these supermarkets to Hometown Markets. The sale of these
supermarkets closed in late July and early August 2011. As of August 29, 2011, we operate 52 of
the 79 acquired supermarkets under the banners of Tops, P&C and Quality Markets. Net sales and
operating loss for the seven supermarkets subject to the Final Order were $13.7 million and
$1.6 million, respectively, during the 12-week period ended July 16, 2011, and $30.9 million and
$1.7 million, respectively, during the 28-week period ended July 16, 2011. As of August 29, 2011,
we operate 125 corporate retail supermarkets with an additional 5 franchise supermarkets.
FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements, which are generally statements about future
events, plans, objectives and performance. Generally, the words believe, expect, intend,
estimate, anticipate, project, will and similar expressions identify forward-looking
statements. Forward-looking statements reflect our current expectations, based on currently
available information, and are not guarantees. Although we believe that the expectations reflected
in such forward-looking statements are reasonable, these expectations could prove inaccurate as
such statements involve risks and uncertainties, many of which are beyond our ability to control or
predict. Should one or more of these risks or uncertainties, or other risks or uncertainties not
currently known to us or that we currently deem to be immaterial, materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those anticipated, estimated
or projected. Important factors relating to these risks and uncertainties include, but are not
limited to the following:
| risks of claims relating to the Acquisition that may not have been properly discharged
in the bankruptcy process; |
| the severity of current economic conditions and the impact on consumer demand and
spending and our pricing strategy; |
| pricing and market strategies, the expansion, consolidation and other activities of
competitors, and our ability to respond to the promotional practices of competitors; |
| our ability to effectively increase or maintain our profit margins; |
| the success of our expansion and renovation plans; |
| fluctuations in utility, fuel and commodity prices which could impact consumer spending
and buying habits and the cost of doing business; |
| risks inherent in our motor fuel operations; |
| our exposure to local economies and other adverse conditions due to our geographic
concentration;
|
18
Table of Contents
| risks of natural disasters and severe weather conditions; |
| supply problems with our suppliers and vendors; |
| our relationships with unions and unionized employees, and the terms of future
collective bargaining agreements or labor strikes; |
| increased operating costs resulting from rising employee benefit costs or pension
funding obligations; |
| changes in, or the failure or inability to comply with, laws and governmental
regulations applicable to the operation of our pharmacy and other businesses; |
| the adequacy of our insurance coverage against claims of our customers in connection
with our pharmacy services; |
| estimates of the amount and timing of payments under our self-insurance policies; |
| risks of liability under environmental laws and regulations; |
| our ability to maintain and improve our information technology systems; |
| events that give rise to actual or potential food contamination, drug contamination or
food-borne illness or any adverse publicity relating to these types of concerns, whether or
not valid; |
| threats or potential threats to security; |
| our ability to retain key personnel; |
| risks of data security breaches or losses of confidential customer information; |
| risks relating to our substantial indebtedness; |
| claims or legal proceedings against us; |
| decisions by our controlling shareholders that may conflict with the interests of the
holders of our debt; and |
| other factors discussed under Risk Factors in our Annual Report on Form 10-K for the
year ended January 1, 2011 and elsewhere in this 10-Q. |
We caution that one should not place undue reliance on forward-looking statements, which speak only
as of the date on which they are made. We disclaim any intention, obligation or duty to update or
revise any forward-looking statements, whether as a result of new information, future events or
otherwise, except as required by law.
BASIS OF PRESENTATION
We operate on a 52/53 week fiscal year ending on the Saturday closest to December 31. Our fiscal
years include 13 four-week reporting periods, with an additional week in the thirteenth reporting
period for 53-week fiscal years. Our first quarter of each fiscal year includes four reporting
periods, while the remaining quarters include three reporting periods.
Our condensed consolidated financial statements for the 12 and 28-week periods ended July 16, 2011
and July 17, 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.
RECENT AND FUTURE EVENTS AFFECTING OUR RESULTS OF OPERATIONS AND THE COMPARABILITY OF REPORTED
RESULTS OF OPERATIONS
Acquisition of Penn Traffic
On January 29, 2010, we completed the Acquisition, including Penn Traffics 79 retail supermarkets.
We have currently retained 52 of the acquired supermarkets. Three supermarkets were sold during
late July and early August 2011. The remaining 24 supermarkets were closed or sold during 2010. Net
sales and operating loss for these 24 supermarkets were $0.9 million and $2.1 million, respectively, for the 12-week period ended July 17, 2010, and $33.9 million and
$2.3 million, respectively, for the 28-week period ended July 17, 2010. Also included in our
results during the 12 and 28-week periods ended July 17, 2010 were integration costs of $5.6
million and $16.5 million, respectively, and one-time legal and professional fees related to the
Acquisition of $0.3 million and $4.7 million, respectively. Additionally, we incurred $0.5 million
and $2.1 million of legal expenses associated with the FTCs review of the acquired supermarkets
during the 28-week periods ended July 16, 2011 and July 17, 2010, respectively. Additional
depreciation and amortization of $3.0 million was incurred during the 28-week period ended July 16,
2011, as compared to the 28-week period ended July 17, 2010, associated with acquired property,
equipment and intangible assets as a result of operating the acquired supermarkets for four
additional weeks during the 2011 period.
19
Table of Contents
The excess of net assets acquired over the purchase price of $15.7 million has been recognized as a
bargain purchase in the condensed consolidated statement of operations for the 28-week period ended
July 17, 2010. This bargain purchase was attributable to the distressed status of Penn Traffic due
to poor historical operating results, which led to its November 2009 bankruptcy filing.
Debt Refinancing
On February 12, 2010, we issued an additional $75.0 million of Senior Notes under the same terms as
the October 2009 issuance. We received proceeds of $76.1 million from this issuance, including a
$1.1 million original issue premium. The proceeds were used, in part, to repay in full short-term
borrowings that were entered into in order to finance the Acquisition.
Issuance of Common Stock
On January 29, 2010, we received $30.0 million of proceeds from the issuance of 44,776 shares of
common stock to certain shareholders of Holding.
Dividend
On July 26, 2010, we paid a dividend to our shareholders totaling $30.0 million, or $207.22 per
share of common stock outstanding.
General Economic Conditions
The United States economy and financial markets have declined and experienced volatility due to
uncertainties related to energy prices, availability of credit, inflation in food prices,
difficulties in the banking and financial services sectors, the decline in the housing market,
falling consumer confidence and high unemployment rates. As a result, consumers are more cautious,
possibly leading to additional reductions in consumer spending, to consumers trading down to a less
expensive mix of products, or to consumers trading down to discounts for grocery items, all of
which may affect our financial condition and results of operations.
Furthermore, because of economic conditions, we may experience reductions in traffic in our
supermarkets or limitations on the prices we can charge for our products, either of which may
reduce our sales and profit margins and have a material adverse affect on our financial condition
and results of operations. Other economic factors such as inflation, energy costs, increased
transportation costs, higher costs of labor, insurance and healthcare, and changes in laws and
regulations may increase our costs of goods sold and operating expenses, and otherwise adversely
affect our financial condition and results of operations. During the fiscal year ended January 1,
2011 and the first 28 weeks of this year, we experienced the effects of some of these economic
factors.
RESULTS OF OPERATIONS
12-Week Period Ended July 16, 2011 Compared with 12-Week Period Ended July 17, 2010
Executive Summary
The results of operations during the 12-week period ended July 16, 2011 when compared with the
12-week period ended July 17, 2010 were impacted primarily by the one-time acquisition and
integration costs associated with the Acquisition incurred during the 12-week period ended July 17,
2010.
20
Table of Contents
Net Sales
The following table includes a comparison of the components of our net sales for the 12-week
periods ended July 16, 2011 and July 17, 2010.
(Dollars in thousands)
12-week periods ended | ||||||||||||||||
July 16, 2011 | July 17, 2010 | $ Change | % Change | |||||||||||||
Inside sales |
$ | 507,387 | $ | 506,999 | $ | 388 | 0.1 | % | ||||||||
Gasoline sales |
52,127 | 34,834 | 17,293 | 49.6 | % | |||||||||||
Net sales |
$ | 559,514 | $ | 541,833 | $ | 17,681 | 3.3 | % | ||||||||
Inside sales increased during the 12-week period ended July 16, 2011 compared with the 12-week
period ended July 17, 2010 due to the inside sales contribution of $6.5 million related to new
supermarkets opened since August 2010. This contribution was largely offset by a 1.0% decrease in
same store sales, which was largely attributable to the timing of the Easter holiday. The week
following Easter, historically a very poor sales week, occurred during the first week of the 2011
period, versus the week prior to the beginning of the 2010 period. Additionally, we experienced an
increased trend of customers trading down to lower-priced merchandise, including private label
products, during the 2011 period.
Gasoline sales increased during the 12-week period ended July 16, 2011 compared with the 12-week
period ended July 17, 2010 due to a 35.4% increase in the retail price per gallon. Additionally,
the number of gallons sold increased 10.5%, primarily due to the addition of three new fuel
stations since June 2010.
Gross Profit
The following table includes a comparison of cost of goods sold, distribution costs and gross
profit for the 12-week periods ended July 16, 2011 and July 17, 2010.
(Dollars in thousands)
12-week | 12-week | |||||||||||||||||||||||
period ended | % of | period ended | % of | $ | % | |||||||||||||||||||
July 16, 2011 | Net Sales | July 17, 2010 | Net Sales | Change | Change | |||||||||||||||||||
Cost of goods sold |
$ | (395,139 | ) | 70.6 | % | $ | (380,778 | ) | 70.3 | % | $ | 14,361 | 3.8 | % | ||||||||||
Distribution costs |
(9,393 | ) | 1.7 | % | (10,422 | ) | 1.9 | % | (1,029 | ) | (9.9 | )% | ||||||||||||
Gross profit |
$ | 154,982 | 27.7 | % | $ | 150,633 | 27.8 | % | $ | 4,349 | 2.9 | % | ||||||||||||
As a percentage of net sales, cost of goods sold increased during the 12-week period ended
July 16, 2011 compared with the 12-week period ended July 17, 2010 due to an increase in LIFO
expense from $1.0 million during the 12-week period ended July 17, 2010 to $2.8 million during the
12-week period ended July 16, 2011, resulting from continuing commodity cost inflation experienced
during the 2011 period. Excluding the impact of non-cash LIFO expense, cost of goods sold as a
percentage of net sales was relatively consistent year-over-year. This reflects a lower margin
rate on inside sales during the 2010 period due to promotional activities associated with the
rebannering and grand re-openings of the retained Penn Traffic supermarkets, as well as an
increased penetration of private label merchandise sales during the 2011 period. This was offset by the higher
proportion of gasoline sales versus inside sales, as gasoline sales occur at lower margin rates.
As a percentage of net sales, distribution costs decreased during the 12-week period ended July 16,
2011 compared with the 12-week period ended July 17, 2010 due to a $0.9 million benefit from the
open book supply agreement with C&S Wholesale Grocers (C&S) related to favorable gross margin,
largely due to commodity forward buy activities. Additionally, we experienced a $0.4 million
decrease in workers compensation costs resulting from an unfavorable claim adjustment related to
C&S under the open book supply agreement during the 12-week period ended July 17, 2010. These
factors were partially offset by the increase in period-over-period fuel costs.
Gross profit as a percentage of net sales decreased due to the aforementioned factors.
21
Table of Contents
Operating Expenses
The following table includes a comparison of operating expenses for the 12-week periods ended July
16, 2011 and July 17, 2010.
(Dollars in thousands)
12-week | 12-week | |||||||||||||||||||||||
period ended | % of | period ended | % of | $ | % | |||||||||||||||||||
July 16, 2011 | Net Sales | July 17, 2010 | Net Sales | Change | Change | |||||||||||||||||||
Wages, salaries and
benefits |
$ | 76,356 | 13.6 | % | $ | 73,227 | 13.5 | % | $ | 3,129 | 4.3 | % | ||||||||||||
Selling and general
expenses |
23,438 | 4.2 | % | 24,039 | 4.4 | % | (601 | ) | (2.5 | )% | ||||||||||||||
Administrative expenses |
18,019 | 3.2 | % | 22,528 | 4.1 | % | (4,509 | ) | (20.0 | )% | ||||||||||||||
Rent expense, net |
4,212 | 0.8 | % | 4,180 | 0.8 | % | 32 | 0.8 | % | |||||||||||||||
Depreciation and
amortization |
11,746 | 2.1 | % | 14,984 | 2.8 | % | (3,238 | ) | (21.6 | )% | ||||||||||||||
Advertising |
4,412 | 0.8 | % | 6,302 | 1.2 | % | (1,890 | ) | (30.0 | )% | ||||||||||||||
Impairment |
1,891 | 3.4 | % | | N/A | 1,891 | N/A | |||||||||||||||||
Total |
$ | 140,074 | 25.0 | % | $ | 145,260 | 26.8 | % | $ | (5,186 | ) | (3.6 | )% | |||||||||||
Wages, Salaries and Benefits
As a percentage of net sales, the increase in wages, salaries and benefits during the 12-week
period ended July 16, 2011 compared with the 12-week period ended July 17, 2010 was largely
attributable to lower vacation expense of $1.5 million during the 2010 period due to the benefit related to a policy change for union associates that modified the period over which vacation
time is earned. Additionally, we have experienced a $0.6 million increase in union health and
welfare costs, as well as the impact of normal wage rate increases. These items were largely
offset by increased labor efficiencies.
Selling and General Expenses
As a percentage of net sales, the decrease in selling and general expenses during the 12-week
period ended July 16, 2011 compared with the 12-week period ended July 17, 2010 was attributable to
a $0.7 million decrease in utility costs due to lower electricity consumption given cooler
temperatures during the late spring and early summer of 2011. Additionally, $0.3 million of Penn
Traffic integration costs were classified in selling and general expenses during the 12-week period
ended July 17, 2010. We have also benefitted from the renegotiation of certain cleaning and
maintenance contracts during 2011. These positive factors were partially offset by a $0.5 million
increase in credit and debit card transaction fees due to increases in usage and fee rates, as well
as a $0.4 million decrease in recyclable bottles handling income resulting from lower redemption
volumes.
Administrative Expenses
The decrease in administrative expenses during the 12-week period ended July 16, 2011 compared with
the 12-week period ended July 17, 2010 was primarily attributable to $4.1 million of Penn Traffic
integration costs and one-time legal and professional fees related to the Acquisition during the
2010 period. Additionally, we experienced a $1.5 million decrease in IT costs, largely
resulting from our renegotiated IT services contract. These items were partially offset by normal
wage rate increases.
Rent Expense, Net
Rent expense reflects our rental expense for supermarkets under operating lease arrangements, net
of income we receive from various entities that rent space in our supermarkets under subleasing
arrangements. Rent expense remained relatively consistent during the 12-week period ended July 16,
2011 compared with the 12-week period ended July 17, 2010.
Depreciation and Amortization
The decrease in depreciation and amortization during the 12-week period ended July 16, 2011
compared with the 12-week period ended July 17, 2010 was largely attributable to a significant
amount of assets that became fully depreciated near the conclusion of the fiscal year ended January
1, 2011.
22
Table of Contents
Advertising
The decrease in advertising during the 12-week period ended July 16, 2011 compared with the 12-week
period ended July 17, 2010 was due to $1.5 million in costs associated with the communication of
the Acquisition to our customers and the promotion of the grand re-openings related to the
rebannered supermarkets during the 12-week period ended July 17, 2010. Additionally, we incurred
incremental costs of $0.2 million due to duplicative circulars produced under the P&C, Quality
Markets and Bi-Lo banners subsequent to the Acquisition during this same 2010 period.
Impairment
On June 30, 2011, the FTC
approved our application to sell three supermarkets to Hometown Markets.
The sale of these supermarkets closed in late July and early
August 2011. As a result of the sale, we recorded a $1.9 million
impairment within the condensed consolidated statements of operations for the 12-week period
ended July 16, 2011, representing the excess of the carrying value of assets over the sale
price.
Interest Expense, Net
Interest expense of $14.3 million during the 12-week period ended July 16, 2011 was relatively
consistent with interest expense of $14.1 million during the 12-week period ended July 17, 2010.
Income Tax Expense
The income tax expense for the 12-week period ended July 16, 2011 reflects the establishment of
additional valuation allowance against net deferred tax assets during the period. The overall
effective tax rate was 52.0%. The effective tax rate would have been 35.6% without the impact of
the additional valuation allowance and discrete charges.
The income tax expense for the 12-week period ended July 17, 2010 reflects the establishment of
additional valuation allowance against net deferred tax assets during the period. The overall
effective tax rate was (2.5)%. The effective tax rate would have been 40.1% without the impact of
adjustments to the valuation allowance and discrete charges.
Net Income (Loss)
Our net income (loss) improved to net income of $0.3 million during the 12-week period ended July
16, 2011 compared with net loss of $8.9 million during the 12-week period ended July 17, 2010. The
change in net income (loss) was attributable to the factors discussed above.
28-Week Period Ended July 16, 2011 Compared with 28-Week Period Ended July 17, 2010
Executive Summary
The results of operations during the 28-week period ended July 16, 2011 when compared with the
28-week period ended July 17, 2010 were impacted primarily by the additional four weeks of
operating results for the supermarkets acquired in the Acquisition and improved sales during the
28-week period ended July 16, 2011, as well as one-time acquisition and integration costs
associated with the Acquisition incurred during the 28-week period ended July 17, 2010.
Net Sales
The following table includes a comparison of the components of our net sales for the 28-week
periods ended July 16, 2011 and July 17, 2010.
(Dollars in thousands)
28-week periods ended | ||||||||||||||||
July 16, 2011 | July 17, 2010 | $ Change | % Change | |||||||||||||
Inside sales |
$ | 1,166,280 | $ | 1,130,966 | $ | 35,314 | 3.1 | % | ||||||||
Gasoline sales |
110,493 | 75,882 | 34,611 | 45.6 | % | |||||||||||
Net sales |
$ | 1,276,773 | $ | 1,206,848 | $ | 69,925 | 5.8 | % | ||||||||
Inside sales increased during the 28-week period ended July 16, 2011 compared with the 28-week
period ended July 17, 2010 due to a 1.4% increase in same store sales, the operation of the
acquired Penn Traffic supermarkets for four additional weeks, as well as the contribution of $13.2
million related to new supermarkets opened since August 2010.
23
Table of Contents
Gasoline sales increased during the 28-week period ended July 16, 2011 compared with the 28-week
period ended July 17, 2010 due to a 28.8% increase in the retail price per gallon. Additionally,
the number of gallons sold increased 13.1%, primarily due to the addition of four new fuel stations
since April 2010.
Gross Profit
The following table includes a comparison of cost of goods sold, distribution costs and gross
profit for the 28-week periods ended July 16, 2011 and July 17, 2010.
(Dollars in thousands)
28-week | 28-week | |||||||||||||||||||||||
period ended | % of | period ended | % of | $ | % | |||||||||||||||||||
July 16, 2011 | Net Sales | July 17, 2010 | Net Sales | Change | Change | |||||||||||||||||||
Cost of goods sold |
$ | (895,883 | ) | 70.2 | % | $ | (838,946 | ) | 69.5 | % | $ | 56,937 | 6.8 | % | ||||||||||
Distribution costs |
(23,556 | ) | 1.8 | % | (23,510 | ) | 1.9 | % | 46 | 0.2 | % | |||||||||||||
Gross profit |
$ | 357,334 | 28.0 | % | $ | 344,392 | 28.5 | % | $ | 12,942 | 3.8 | % | ||||||||||||
As a percentage of net sales, cost of goods sold increased during the 28-week period ended
July 16, 2011 compared with the 28-week period ended July 17, 2010 due to the change in LIFO
adjustments from income $0.1 million during the 28-week period ended July 17, 2010 to expense of
$2.2 million during the 28-week period ended July 16, 2011. Excluding the impact of non-cash LIFO
adjustments, cost of goods sold as a percentage of net sales was 70.0% and 69.5% during the 2011
and 2010 periods, respectively. This reflects the higher proportion of gasoline sales versus
inside sales, as gasoline sales occur at lower margin rates.
As a percentage of net sales, distribution costs decreased during the 28-week period ended July 16,
2011 compared with the 28-week period ended July 17, 2010 due to a $0.9 million benefit from the
open book supply agreement with C&S related to favorable gross margin, largely due to commodity
forward buy activities. Additionally, we experienced a $0.4 million decrease in workers
compensation costs resulting from an unfavorable claim adjustment related to C&S under the open
book supply agreement during the 28-week period ended July 17, 2010. These factors were partially
offset by the increase in period-over-period fuel costs.
Gross profit as a percentage of net sales decreased due to the aforementioned change in non-cash
LIFO adjustments and change in sales mix.
Operating Expenses
The following table includes a comparison of operating expenses for the 28-week periods ended July
16, 2011 and July 17, 2010.
(Dollars in thousands)
28-week | 28-week | |||||||||||||||||||||||
period ended | % of | period ended | % of | $ | % | |||||||||||||||||||
July 16, 2011 | Net Sales | July 17, 2010 | Net Sales | Change | Change | |||||||||||||||||||
Wages, salaries and
benefits |
$ | 175,338 | 13.7 | % | $ | 167,506 | 13.9 | % | $ | 7,832 | 4.7 | % | ||||||||||||
Selling and general
expenses |
56,821 | 4.5 | % | 55,802 | 4.6 | % | 1,019 | 1.8 | % | |||||||||||||||
Administrative expenses |
43,502 | 3.4 | % | 62,507 | 5.2 | % | (19,005 | ) | (30.4 | )% | ||||||||||||||
Rent expense, net |
10,115 | 0.8 | % | 10,017 | 0.8 | % | 98 | 1.0 | % | |||||||||||||||
Depreciation and
amortization |
26,787 | 2.1 | % | 33,714 | 2.8 | % | (6,927 | ) | (20.5 | )% | ||||||||||||||
Advertising |
10,402 | 0.8 | % | 12,355 | 1.0 | % | (1,953 | ) | (15.8 | )% | ||||||||||||||
Impairment |
1,891 | 0.1 | % | | N/A | 1,891 | N/A | |||||||||||||||||
Total |
$ | 324,856 | 25.4 | % | $ | 341,901 | 28.3 | % | $ | (17,045 | ) | (5.0 | )% | |||||||||||
24
Table of Contents
Wages, Salaries and Benefits
As a percentage of net sales, the decrease in wages, salaries and benefits during the 28-week
period ended July 16, 2011 compared with the 28-week period ended July 17, 2010 was largely
attributable to the more effective utilization of labor in the acquired and retained Penn Traffic
supermarkets as a result of significant increases in sales levels in these stores. This was
partially offset by vacation expense of $3.5 million during the 2010 period due to the benefit related to a policy change for union associates that modified the period over which vacation
time is earned. Additionally, we experienced a $0.7 million increase in union health and welfare
costs, as well as the impact of normal wage rate increases.
Selling and General Expenses
As a percentage of net sales, selling and general expenses remained consistent during the 28-week
period ended July 16, 2011 compared with the 28-week period ended July 17, 2010.
Administrative Expenses
The decrease in administrative expenses during the 28-week period ended July 16, 2011 compared with
the 28-week period ended July 17, 2010 was primarily attributable to a combined $20.2 million of
Penn Traffic integration costs, one-time legal and professional fees related to the Acquisition and
higher legal expenses associated with the FTCs review of the acquired supermarkets recorded in
administrative expenses during the 28-week period ended July 17, 2010. Additionally, we
experienced a $2.7 million decrease in IT costs, largely resulting from our renegotiated IT
services contract. These items were partially offset by normal wage rate increases and severance
expense related to corporate headcount reductions during early 2011.
Rent Expense, Net
Rent expense reflects our rental expense for our supermarkets under operating lease arrangements,
net of income we receive from various entities that rent space in our supermarkets under subleasing
arrangements. Rent expense remained relatively consistent during the 28-week period ended July 16,
2011 compared with the 28-week period ended July 17, 2010.
Depreciation and Amortization
The decrease in depreciation and amortization during the 28-week period ended July 16, 2011
compared with the 28-week period ended July 17, 2010 was largely attributable to a significant
amount of assets that became fully depreciated near the conclusion of the fiscal year ended January
1, 2011, partially offset by incremental depreciation and amortization associated with assets
acquired as part of the Acquisition and 2010 and 2011 capital expenditure activity.
Advertising
The decrease in advertising during the 28-week period ended July 16, 2011 compared with the 28-week
period ended July 17, 2010 was due to $1.5 million in costs associated with the communication of the
Acquisition to our customers and the promotion of the grand re-openings related to the rebannered
supermarkets during the 12-week period ended July 17, 2010. Additionally, we incurred incremental
costs of $0.5 million due to duplicative circulars produced under the P&C, Quality Markets and
Bi-Lo banners subsequent to the Acquisition during this same 2010 period.
Impairment
On June 30, 2011, the FTC
approved our application to sell three supermarkets to Hometown Markets.
The sale of these supermarkets closed in late July and early August 2011. As a result
of the sale, we recorded a $1.9 million impairment within the condensed consolidated
statements of operations for the 28-week period ended July 16, 2011, representing
the excess of the carrying value of assets over the sale price.
Bargain Purchase
The excess of $15.7 million of the estimated fair value of Penn Traffic net assets acquired over
the purchase price has been recognized as a gain in the condensed consolidated statement of
operations for the 28-week period ended July 17, 2010. The allocation of the purchase price to the
assets acquired and liabilities assumed from the Acquisition previously presented for the 28-week
period ended July 17, 2010 has been retrospectively adjusted to reflect final acquisition
accounting adjustments made during Fiscal 2010. This bargain purchase was attributable to the
distressed status of Penn Traffic due to poor historical operating results, which led to its
November 2009 bankruptcy filing.
25
Table of Contents
Loss on Debt Extinguishment
On January 29, 2010, we entered into a $25.0 million bridge loan and an $11.0 million term loan,
and capitalized related financing costs. As both the bridge loan and term loan were repaid in full
on February 12, 2010 with the proceeds from the issuance of the additional $75.0 million of Senior
Notes, unamortized costs of $0.7 and $0.3 million, respectively, were recorded as a loss on debt
extinguishment in our condensed consolidated statement of operations for the 28-week period ended
July 17, 2010.
Interest Expense, Net
The $1.1 million increase in interest expense during the 28-week period ended July 16, 2011
compared with the 28-week period ended July 17, 2010 was primarily attributable to incremental
interest expense related to the $75.0 million Senior Notes issued on February 12, 2010 that were
outstanding for only a portion of the 28-week period ended July 17, 2010.
Income Tax (Expense) Benefit
The income tax expense for the 28-week period ended July 16, 2011 reflects the establishment of
additional valuation allowance against net deferred tax assets during the period. The overall
effective tax rate was (61.7)%. The effective tax rate would have been 33.9% without the impact of
the additional valuation allowance and discrete charges.
The income tax benefit for the 28-week period ended July 17, 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 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 our deferred tax assets. The overall effective tax rate was 63.3%. The
effective tax rate would have been 40.1% without the impact of adjustments to the valuation
allowance, the bargain purchase, and discrete charges.
Net Loss
Our net loss improved to $1.8 million during the 28-week period ended July 16, 2011 compared with
$5.6 million during the 28-week period ended July 17, 2010. The change in net loss was
attributable to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
On October 9, 2009, we issued $275.0 million of Senior Notes, bearing annual interest of
10.125%. We 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 our warehouse
distribution facility in Lancaster, New York, certain owned real property acquired by us following
the issue date of the Senior Notes, intellectual property, equipment, stock of subsidiaries
and substantially all of our other assets (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 our assets 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, we entered into the 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 ABL Facility was amended on January 29, 2010 to increase the maximum borrowing
capacity to $100.0 million. As of July 16, 2011, the unused commitment under the ABL Facility was
$60.3 million, after giving effect to $14.2 million of letters of credit outstanding thereunder.
Revolving loans under the ABL Facility will, at our 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, we completed the acquisition of substantially all assets and certain
liabilities of Penn Traffic and its subsidiaries, including Penn Traffics 79 retail supermarkets.
In addition to cash consideration of $85.0 million paid to Penn Traffic, we recorded $23.3 million
of integration costs and $2.1 million of legal expenses associated with the FTCs review of the
acquired supermarkets during the fiscal year ended January 1, 2011, and $5.3 million and $1.1 million of transaction costs
during the fiscal years ended January 1, 2011 and January 2, 2010, respectively. We sold certain of the acquired assets for
$20.8 million during the fiscal year ended January 1, 2011.
26
Table of Contents
On
February 12, 2010, we issued an additional $75.0 million of
Senior Notes on the same
terms as the October 2009 issuance. We received proceeds of $76.1 million from this issuance,
including a $1.1 million original issue premium. The proceeds were used, in part, to repay in full
short-term borrowings that were entered into in order to finance the Acquisition. We incurred $4.7
million of financing costs related to the additional Senior Notes issuance, which were
capitalized in other assets in our consolidated balance sheet during
the fiscal year ended January 1, 2011.
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 July 16, 2011, we were in compliance with all such covenants.
On January 29, 2010, we 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, we paid a dividend to our shareholders totaling $30.0 million, or $207.22 per
share of common stock outstanding.
Our primary sources of cash are cash flows generated from our operations and borrowings under our
ABL Facility. We believe that these sources will be sufficient to meet working capital
requirements, anticipated capital expenditures and scheduled debt payments for at least the next
twelve months. Our ability to satisfy debt service obligations, to fund planned capital
expenditures and to make acquisitions will depend upon our future operating performance, which will
be affected by prevailing economic conditions in the grocery industry and financial, business, and
other factors, some of which are beyond our control. Several of the factors affecting our future
financial performance are discussed below and in the Risk Factors section of our Annual Report on
Form 10-K for the year ended January 1, 2011.
Cash Flows Information
The following is a summary of cash provided by or used in each of the indicated types of
activities:
(Dollars in thousands)
28-week periods ended | ||||||||
July 16, 2011 | July 17, 2010 | |||||||
Cash provided by (used in): |
||||||||
Operating activities |
$ | 35,054 | $ | 25,285 | ||||
Investing activities |
(25,258 | ) | (86,599 | ) | ||||
Financing activities |
(8,579 | ) | 82,669 |
Cash provided by operating activities during the 28-week period ended July 16, 2011 increased
$9.8 million compared with the 28-week period ended July 17, 2010 due to a $28.8 million increase
in earnings, adjusted for non-cash income and expenses. Operating cash flows for the 28-week
period ended July 17, 2010 included $21.0 million of integration costs and one-time legal and
professional fee cash expenditures related to the Acquisition. Changes in operating assets and
liabilities represented a use of cash from operating activities of $5.9 million during the 2011
period, compared to a source of cash of $13.1 million during the 2010 period. This
period-over-period change was primarily attributable to the timing of vendor payments and the
resulting changes in accounts payable during the respective periods.
Cash used in investing activities during the 28-week period ended July 16, 2011 decreased $61.3
million compared with the 28-week period ended July 17, 2010, primarily due to cash consideration
paid in connection with the Acquisition during the 28-week period ended July 17, 2010, net of
proceeds from the subsequent divestiture of certain acquired assets. Cash paid for property and
equipment totaled $25.9 million and $19.1 million during the 2011 and 2010 periods, respectively.
We expect to invest approximately $40 million in capital expenditures during the next twelve
months.
Cash (used in) provided by financing activities changed $91.2 million during the 28-week period
ended July 16, 2011 compared with the 28-week period ended July 17, 2010 as a result of the
issuance of an additional $75.0 million of Senior Notes and the proceeds of $30.0 million from the
issuance of additional common shares during the 28-week period ended July 17, 2010. This was
partially offset by the change in net borrowings and repayments related to the ABL Facility, as
well as $5.3 million of deferred financing costs incurred during the 2010 period.
27
Table of Contents
Multiemployer Pension Plans
We contribute to the United Food and Commercial Workers District Union Local One (Local One)
Plan, a defined benefit multiemployer pension plan, under our collective bargaining agreements with
Local One. The Local One Plan generally provides retirement benefits to participants based on
their service to contributing employers. During the 28-week periods ended July 16, 2011 and July 17, 2010, we made contributions of $4.9 million and $4.5
million, respectively, to the Local One Plan.
We are required to increase our annual contributions to the Local One Plan pursuant to our
collective bargaining agreements and the Local One Plans rehabilitation plan. We are also
contingently liable for withdrawal liability in the event that we withdraw from the Local One Plan.
In accordance with applicable accounting rules, our contingent withdrawal liability is not
included in our condensed consolidated financial statements. We have no present intention to
withdraw from the Local One Plan. For more information on future increases in our annual
contribution rates and our contingent withdrawal liability, see the discussion of risk factors in
Part I, Item 1A of the Companys Annual Report on Form 10-K for the fiscal year ended January 1,
2011.
In addition, at the time our supply arrangement was entered into with C&S, certain of our warehouse
personnel became employees of C&S, with C&S assuming our obligations under several multiemployer
pension plans. Although we are not a sponsoring employer of, and make no contribution payments to
any of these multiemployer pension plans, we have certain contractual indemnification obligations
for withdrawal liability that may arise in the event of C&Ss withdrawal from such plans.
According to estimates of the actuary for the multiemployer plan for which we indemnify C&S, the
withdrawal liability for a withdrawal from such plans in 2011 would be $130.6 million.
Off-Balance Sheet Arrangements
Other than the operating leases and multiemployer pension liabilities previously discussed, we are
not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a
current or future material effect on our financial condition, net sales, expenses, results of
operations, liquidity, capital expenditures or capital resources.
Inflation
Product cost inflation could vary from our estimates due to general economic conditions, weather,
availability of raw materials and ingredients in the products that we sell and their packaging, and
other factors beyond our control.
CRITICAL ACCOUNTING POLICIES
Our financial statements are prepared in accordance with GAAP, which requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and the reported amounts
of revenues and expenses during the reported periods. Our audited consolidated financial
statements as of January 1, 2011 include a description of certain critical accounting policies,
including those related to vendor allowances, inventory valuation, valuation of tradename,
valuation of long-lived assets, acquisition accounting, leases, self-insurance programs and income
taxes.
Recent Accounting PronouncementsNot Yet Adopted
In June 2011, the FASB issued ASU No. 2011-05. ASU No. 2011-05 provides companies two choices for
presenting net income and comprehensive income: in a single continuous statement, or in two
separate, but consecutive statements. Presenting comprehensive income in the statement of equity
is no longer an option. ASU No. 2011-05 is effective for us beginning in the fiscal year ending
December 29, 2012 and is not expected to have a material impact on our consolidated financial
statements as it only changes the disclosures surrounding comprehensive income.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We do not utilize financial instruments for trading or other speculative purposes, nor do we
utilize leveraged financial instruments.
We use derivative financial instruments from time to time primarily to manage our exposure to
fluctuations in interest rates and, to a lesser extent, adverse fluctuations in commodity prices
and other market risks. As a matter of policy, all of our derivative positions are intended to
reduce risk by hedging an underlying economic exposure. Because of the high correlation between
the hedging instrument and the underlying exposure, fluctuations in the value of the instruments
generally are offset by reciprocal changes in the value of the underlying exposure.
At times, we manage our exposure to interest rates and changes in the fair value of our debt
instruments primarily through the strategic use of variable and fixed rate debt, and interest rate
swaps. As of July 16, 2011, we did not have any outstanding interest rate swaps designated as fair
value or cash flow hedges.
28
Table of Contents
The table below provides information about our underlying debt portfolio. The amounts shown for
each year represent the contractual maturities of long-term debt, excluding capital leases, as of
July 16, 2011. Interest rates reflect the weighted average rate for the outstanding instruments. The variable component of each variable rate debt
instrument is based on the weighted average of LIBOR using the forward yield curve and the prime
rate as of July 16, 2011. The Fair Value column includes the fair value of our debt instruments as
of July 16, 2011. For more information, refer to Note 1 of our condensed consolidated financial
statements.
(Dollars in thousands)
Expected Fiscal Year of Maturity | ||||||||||||||||||||||||||||
Remainder | ||||||||||||||||||||||||||||
of 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Fair Value | ||||||||||||||||||||||
Debt: |
||||||||||||||||||||||||||||
Fixed rate |
$ | 177 | $ | 434 | $ | 2,295 | $ | 280 | $ | 350,165 | $ | | $ | 395,094 | ||||||||||||||
Average interest
rate |
7.1 | % | 7.1 | % | 3.5 | % | 7.1 | % | 10.1 | % | N/A | |||||||||||||||||
Variable rate |
$ | | $ | | $ | 12,500 | $ | | $ | | $ | | $ | 12,500 | ||||||||||||||
Average interest
rate |
N/A | N/A | 4.79 | % | N/A | N/A | N/A |
COMMODITY PRICE RISK
We purchase products that are impacted by commodity prices and are therefore subject to price
volatility caused by weather, market conditions and other factors, which are not considered
predictable or within our control.
ITEM 4. | CONTROLS AND PROCEDURES |
As of July 16, 2011, the Chief Executive Officer and the Chief Financial Officer, together with
certain designated members of the finance and accounting organization, evaluated the Companys
disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Companys disclosure controls and procedures were
effective as of July 16, 2011.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting occurred during the 28-week period ended
July 16, 2011 that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
The Company is subject to various legal proceedings and claims, either asserted or unasserted,
which arise in the ordinary course of business. The Company is also subject to certain
environmental claims. While the outcome of these claims cannot be predicted with certainty,
management does not believe that the outcome of any of these legal matters will have a material
adverse effect on our consolidated results of operations, financial position or cash flows.
ITEM 1A. | RISK FACTORS |
There are no material changes from risk factors for the Company disclosed in the Companys Annual
Report on Form 10-K for the fiscal year ended January 1, 2011.
29
Table of Contents
ITEM 6. | EXHIBITS |
Exhibit No. | ||||
31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|||
31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|||
32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
|||
32.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. |
|||
101 | The following financial information from the quarterly report on Form 10-Q of Tops Holding
Corporation
for the quarter ended July 16, 2011, formatted in XBRL (Extensible Business Reporting Language): |
|||
(i) Condensed Consolidated Statements of Operations, (ii) Condensed Consolidated Balance Sheets, (iii) Condensed Consolidated Statements of Cash Flows, and (iv) Notes to the Condensed Consolidated Financial Statements. |
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TOPS HOLDING CORPORATION
By:
|
/s/ William R. Mills
|
|||
William R. Mills | ||||
Senior Vice President, Chief Financial Officer | ||||
August 29, 2011 |
30