10-Q

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 OCTOBER 8, 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	26-1252536 (I.R.S. Employer Identification No.)
incorporation or organization)
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	Smaller reporting company o
		(Do not check if a smaller reporting company)

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

As of November 21, 2011, 144,776 shares of common stock of the registrant were outstanding.

TOPS HOLDING CORPORATION

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION (Unaudited)
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of October 8, 2011 and January 1, 2011	1
Condensed Consolidated Statements of Operations for the 12-week and 40-week periods ended October 8, 2011 and October 9, 2010	2
Condensed Consolidated Statements of Cash Flows for the 40-week periods ended October 8, 2011 and October 9, 2010	3
Notes to Condensed Consolidated Financial Statements	4
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	29
ITEM 4. CONTROLS AND PROCEDURES	30
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS	30
ITEM 1A. RISK FACTORS	30
ITEM 6. EXHIBITS	31
SIGNATURE	31
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT

i

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)

	October 8, 2011			January 1, 2011
Assets
Current assets:
Cash and cash equivalents	$	19,357		$	17,419
Accounts receivable, net		57,304			57,044
Inventory, net		117,420			117,328
Prepaid expenses and other current assets		15,575			14,093
Assets held for sale		—			650
Income taxes refundable		195			200
Current deferred tax assets		2,265			2,265
Total current assets		212,116			208,999
Property and equipment, net		364,129			378,575
Intangible assets, net (Note 3)		72,678			79,072
Other assets		11,732			13,705
Total assets	$	660,655		$	680,351
Liabilities and Shareholders’ Deficit
Current liabilities:
Accounts payable	$	78,390		$	93,311
Accrued expenses and other current liabilities (Note 4)		81,484			79,123
Current portion of capital lease obligations		12,580			11,095
Current portion of long-term debt (Note 5)		427			402
Total current liabilities		172,881			183,931
Capital lease obligations		162,495			172,216
Long-term debt (Note 5)		360,224			365,262
Other long-term liabilities		20,732			21,099
Non-current deferred tax liabilities		4,313			3,354
Total liabilities		720,645			745,862
Shareholders’ deficit:
Common shares ($0.001 par value; 300,000 authorized shares, 144,776 shares issued & outstanding)		—			—
Paid-in capital		(1,792	)		(2,668	)
Accumulated deficit		(57,862	)		(62,507	)
Accumulated other comprehensive loss, net of tax		(336	)		(336	)
Total shareholders’ deficit		(59,990	)		(65,511	)
Total liabilities and shareholders’ deficit	$	660,655		$	680,351

See notes to unaudited condensed consolidated financial statements.

1

TOPS HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands)

(Unaudited)

	12-week periods ended						40-week periods ended
	October 8, 2011			October 9, 2010			October 8, 2011			October 9, 2010
Net sales	$	538,606		$	519,859		$	1,815,379		$	1,726,707
Cost of goods sold		(375,211	)		(362,206	)		(1,271,094	)		(1,201,152	)
Distribution costs		(10,470	)		(10,752	)		(34,026	)		(34,262	)
Gross profit		152,925			146,901			510,259			491,293
Operating expenses:
Wages, salaries and benefits		(69,691	)		(70,871	)		(245,029	)		(238,377	)
Selling and general expenses		(23,774	)		(24,381	)		(80,595	)		(80,188	)
Administrative expenses (inclusive of share-based compensation expense of $264, $21, $876 and $447)		(17,639	)		(19,670	)		(61,141	)		(82,172	)
Rent expense, net		(4,301	)		(4,518	)		(14,416	)		(14,535	)
Depreciation and amortization		(12,040	)		(15,090	)		(38,827	)		(48,804	)
Advertising		(3,838	)		(5,923	)		(14,240	)		(18,278	)
Impairment charges (Note 7)		(900	)		—			(2,791	)		—
Total operating expenses		(132,183	)		(140,453	)		(457,039	)		(482,354	)
Operating income		20,742			6,448			53,220			8,939
Bargain purchase		—			—			—			15,681
Loss on debt extinguishment		—			(33	)		—			(1,041	)
Interest expense, net		(13,997	)		(14,368	)		(47,585	)		(46,852	)
Income (loss) before income taxes		6,745			(7,953	)		5,635			(23,273	)
Income tax (expense) benefit (Note 6)		(305	)		397			(990	)		10,096
Net income (loss)	$	6,440		$	(7,556	)	$	4,645		$	(13,177	)

See notes to unaudited condensed consolidated financial statements.

2

TOPS HOLDING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

	40-week periods ended
	October 8, 2011			October 9, 2010
Cash flows provided by operating activities:
Net income (loss)	$	4,645		$	(13,177	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		51,454			59,752
Impairment charges		2,791			—
Amortization of deferred financing costs		2,030			1,791
LIFO inventory valuation adjustments		1,044			383
Deferred income taxes		959			(10,288	)
Share-based compensation expense		876			447
Bargain purchase		—			(15,681	)
Loss on debt extinguishment		—			1,041
Other		584			223
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable		232			(7,641	)
Increase in inventory, net		(1,678	)		(7,779	)
(Increase) decrease in prepaid expenses and other current assets		(1,482	)		2,278
Decrease in income taxes refundable		5			162
(Decrease) increase in accounts payable		(15,260	)		22,397
Increase in accrued expenses and other current liabilities		5,927			9,640
(Decrease) increase in other long-term liabilities		(670	)		2,390
Net cash provided by operating activities		51,457			45,938
Cash flows used in investing activities:
Cash paid for property and equipment		(37,348	)		(34,280	)
Proceeds from sale of assets		1,250			20,738
Proceeds from insurable loss recovery		50			—
Acquisition of Penn Traffic assets		—			(85,023	)
Net cash used in investing activities		(36,048	)		(98,565	)
Cash flows (used in) provided by financing activities:
Borrowings on ABL Facility		454,500			191,400
Repayments on ABL Facility		(459,500	)		(205,400	)
Principal payments on capital leases		(8,426	)		(7,007	)
Proceeds from long-term debt borrowings		—			112,125
Repayments of long-term debt borrowings		(327	)		(36,283	)
Change in bank overdraft position		339			348
Deferred financing costs incurred		(57	)		(5,677	)
Proceeds from issuance of common shares		—			30,000
Dividend to shareholders		—			(30,000	)
Net cash (used in) provided by financing activities		(13,471	)		49,506
Net increase (decrease) in cash and cash equivalents		1,938			(3,121	)
Cash and cash equivalents—beginning of period		17,419			19,722
Cash and cash equivalents—end of period	$	19,357		$	16,601

See notes to unaudited condensed consolidated financial statements.

3

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.

Tops employs approximately 12,600 associates. Approximately 91% of these associates are members of United Food and Commercial Workers (“UFCW”) District Union Local One (“Local One”) or two other UFCW unions that represented certain of the employees from the retained Penn Traffic supermarkets. All other Tops’ associates are non-union serving primarily in management, field support, or pharmacist roles. Tops was a party to five collective bargaining agreements with Local One that expired between April 2011 and July 2011. New agreements have been ratified by Local One that expire between April 2014 and July 2014. The two non-Local One UFCW collective bargaining agreements expire in March 2012 and April 2013.

On January 29, 2010, the Company completed the acquisition of substantially all assets and certain liabilities of The Penn Traffic Company (“Penn Traffic”) and its subsidiaries, including Penn Traffic’s 79 retail supermarkets, in exchange for cash consideration of $85.0 million. 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 during the 12-week period ended October 8, 2011. On September 27, 2011, as the divestiture trustee was unable to identify a potential buyer for three of the remaining supermarkets subject to the Final Order, control of these supermarkets reverted to the Company. The Company continues to operate two of these supermarkets, while the third supermarket was closed on October 15, 2011. Also on September 27, 2011, the FTC approved a 90-day extension for the divestiture trustee to market the remaining supermarket subject to the Final Order. During November 2011, a petition was filed by the divestiture trustee with the FTC for approval of a proposed divestiture of this remaining supermarket.

As of November 21, 2011, the Company operates 51 of the 79 acquired supermarkets. Excluding the two supermarkets control of which has reverted to the Company and which the Company continues to operate, net sales and operating loss for the supermarkets subject to the Final Order were $3.5 million and $0.4 million, respectively, during the 12-week period ended October 8, 2011, and $25.5 million and $2.0 million, respectively, during the 40-week period ended October 8, 2011. As of November 21, 2011, the Company operates 125 supermarkets with an additional 5 supermarkets operated by franchisees.

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 Company’s 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 Company’s condensed consolidated financial statements for the 12-week and 40-week periods ended October 8, 2011 and October 9, 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.

4

The allocation of the purchase price to the assets acquired and liabilities assumed from the Penn Traffic acquisition previously presented for the 40-week period ended October 9, 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 supermarkets with an additional 5 supermarkets operated by franchisees, which offer grocery, produce, frozen, dairy, meat, floral, seafood, health and beauty care, general merchandise, deli and bakery goods. As of October 8, 2011, 79 of the supermarkets offered pharmacy services and 40 fuel centers were in operation. Across all 125 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 Company’s retail operations, which represent substantially all of the Company’s consolidated sales, earnings and total assets, are its only reportable segment.

These 125 operating segments have been aggregated into one reportable segment because, in the Company’s judgment, the operating segments have similar historical economic characteristics and are expected to have similar economic characteristics and long-term financial performance in the future. The principal measures and factors considered in determining whether the economic characteristics are similar are gross margin percentage, capital expenditures, competitive risks and employee labor agreements. In addition, each operating segment has similar products and types of customers, similar methods of distribution and a similar regulatory environment.

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

	12-week periods ended										40-week periods ended
	October 8, 2011					October 9, 2010					October 8, 2011					October 9, 2010
			% of					% of					% of					% of
	Amount		Total			Amount		Total			Amount		Total			Amount		Total
Non-perishables(1)	$	306,687		56.9	%	$	301,209		57.9	%	$	1,024,900		56.5	%	$	996,726		57.7	%
Perishables(2)		141,048		26.2	%		137,610		26.5	%		485,099		26.7	%		467,757		27.1	%
Fuel		47,633		8.8	%		36,339		7.0	%		158,126		8.7	%		112,221		6.5	%
Pharmacy		39,590		7.4	%		41,368		8.0	%		134,894		7.4	%		138,721		8.0	%
Other(3)		3,648		0.7	%		3,333		0.6	%		12,360		0.7	%		11,282		0.7	%
	$	538,606		100.0	%	$	519,859		100.0	%	$	1,815,379		100.0	%	$	1,726,707		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 Company’s condensed consolidated financial statements and notes thereto. The most significant estimates used by management are related to the accounting for vendor allowances, valuation of long-lived assets including intangible assets, acquisition accounting, lease classification, self-insurance reserves, inventory valuation, and income taxes. Actual results could differ from these estimates.

Fair Value of Financial Instruments

The provisions of Financial Accounting Standards Board (“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 Company’s determination of assumptions that market participants would use in pricing the asset or liability. These inputs are developed based on the best information available, including the Company’s own data.

5

The carrying amount of the Company’s cash and cash equivalents at October 8, 2011 represents fair value as it includes cash on deposit with commercial banks.

The fair value of the Company’s senior secured notes is based on quoted market prices. At October 8, 2011, the fair value of total debt excluding capital leases was $399.5 million, compared to a carrying value of $360.7 million. At January 1, 2011, the fair value of total debt excluding capital leases was $408.4 million, compared to a carrying value of $365.7 million.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” ASU No. 2011-05 requires that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements, eliminating the option to present other comprehensive income in the statement of changes in equity. Under either choice, items that are reclassified from other comprehensive income to net income are required to be presented on the face of the financial statements where the components of net income and the components of other comprehensive income are presented. This amendment is effective for the Company beginning in the fiscal year ending December 29, 2012 and will be applied retrospectively. This amendment will change the manner in which the Company presents comprehensive income.

In September 2011, the FASB issued ASU No. 2011-09, “Disclosure Requirements for Employers subject to Multiemployer Pension Plans.” ASU No. 2011-09 requires additional separate disclosures for multiemployer pension plans and multiemployer other postretirement benefit plans. For significant multiemployer plans in which an employer participates, the additional disclosures include the plan name and identifying number, contributions to the plan and whether such contributions represent 5% of the total contributions made to the plan by all employers, indication of funded status, minimum contribution requirements under collective-bargaining agreements and expirations of such agreements. For plans that do not have publicly available information other than employer financial statements, additional qualitative and quantitative disclosures are required including the description of the nature of the plan benefits, the extent to which the employer could be responsible for the obligations of the plan and, to the extent available, total plan assets, actuarial present value of accumulated plan benefits and total contributions received by the plan as of the most recent date available. This update is effective for the Company’s fiscal year ending December 31, 2011.

The Company has assessed other recent accounting pronouncements noting no material impact on the Company’s consolidated financial statements as of the date of this Quarterly Report on Form 10-Q.

3. INTANGIBLE ASSETS, NET

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

								Weighted
	Gross					Net		Average
	Carrying		Accumulated			Carrying		Amortization
October 8, 2011	Amount		Amortization			Amount		Period
Tradename — indefinite lived	$	41,011	$	—		$	41,011	Indefinite life
Customer relationships		27,751		(18,626	)		9,125		8.2
Favorable/unfavorable lease rights		21,392		(9,725	)		11,667		9.0
Franchise agreements		11,538		(4,049	)		7,489		11.0
Tradenames — definite lived		4,200		(1,315	)		2,885		8.5
Other		706		(205	)		501		4.0
	$	106,598	$	(33,920	)	$	72,678		9.0

	Gross					Net
	Carrying		Accumulated			Carrying
January 1, 2011	Amount		Amortization			Amount
Tradename — indefinite lived	$	41,011	$	—		$	41,011
Customer relationships		27,751		(15,231	)		12,520
Favorable/unfavorable lease rights		21,392		(7,902	)		13,490
Franchise agreements		11,538		(3,242	)		8,296
Tradenames — definite lived		4,200		(700	)		3,500
Other		497		(242	)		255
	$	106,389	$	(27,317	)	$	79,072

6

The Tops tradename is reviewed for impairment annually or more frequently if impairment indicators arise. Based on the Company’s assessment, no impairment indicators were present during the 40-week periods ended October 8, 2011 and October 9, 2010.

During the 12-week periods ended October 8, 2011 and October 9, 2010, amortization expense was $1.9 million and $2.7 million, respectively. During the 40-week periods ended October 8, 2011 and October 9, 2010, amortization expense was $6.6 million and $8.0 million, respectively. Such amortization is included in administrative expenses in the condensed consolidated statements of operations.

As of October 8, 2011, expected future amortization of intangible assets is as follows (dollars in thousands):

2011 (remaining period)	$	1,920
2012		6,917
2013		6,072
2014		5,272
2015		4,037
Thereafter		7,449

4. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

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

	October 8, 2011		January 1, 2011
Wages, taxes and benefits	$	18,865	$	18,918
Interest payable		17,167		8,318
Lottery		10,068		10,083
Union medical, pension and 401(k)		4,568		4,598
Utilities		4,090		2,980
Self-insurance reserves		4,013		1,406
Sales and use tax		3,243		2,101
Gift cards		2,634		4,271
Money orders		2,496		3,651
Property and equipment expenditures		2,466		6,107
Repairs and maintenance		2,154		2,054
Professional and legal fees		1,346		3,640
Other		8,374		10,996
	$	81,484	$	79,123

5. DEBT

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

	October 8, 2011			January 1, 2011
Senior Notes	$	350,000		$	350,000
Discount on Senior Notes, net		(2,600	)		(2,914	)
ABL Facility		10,000			15,000
Other loans		2,260			2,400
Mortgage note payable		991			1,178
Total debt		360,651			365,664
Current portion		(427	)		(402	)
Total long-term debt	$	360,224		$	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 issuance of the Senior Notes, net of a $4.5 million original issue discount, of $270.5 million. The Senior Notes mature October 15, 2015 and require semi-annual interest payments on April 15 and October 15. The Senior Notes are collateralized by (i) first-priority interests, subject to certain exceptions, in the Company’s warehouse distribution facility in Lancaster, New York, certain owned real property acquired by the Company, Tops Markets and the guarantors, Tops PT, LLC and Tops Gift Card Company, LLC, following the issue date of the Senior Notes, intellectual property, equipment, stock of subsidiaries and substantially all other assets of the Company, Tops Markets and the guarantors (other than leasehold interests in real property), other than assets securing the Company’s 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”).

7

Also effective October 9, 2009, the Company entered into the revolving ABL Facility, which 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 October 8, 2011, the unused availability under the ABL Facility was $60.2 million, after giving effect to $14.2 million of letters of credit outstanding thereunder. Revolving loans under the ABL Facility will, at the Company’s option, bear interest at either i) LIBOR plus a margin of 350 to 400 basis points, determined based on levels of borrowing availability, or ii) the prime rate plus a margin of 250 to 300 basis points, determined based on levels of borrowing availability. The ABL Facility is collateralized primarily by (i) first-priority interests, subject to certain exceptions, in the ABL Priority Collateral and (ii) second-priority interests, subject to certain exceptions, in the Notes Priority Collateral.

The proceeds from the Senior Notes and ABL Facility were utilized to repay the outstanding debt related to the Company’s previous senior secured credit facility and its warehouse mortgage, pay a $105.0 million dividend to the Company’s shareholders, settle the Company’s 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 instruments governing the Senior Notes and ABL Facility impose customary affirmative and negative covenants on the Company, 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 October 8, 2011 and January 1, 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					40-week periods ended
	October 8, 2011			October 9, 2010		October 8, 2011			October 9, 2010
Current	$	(11	)	$	397	$	(31	)	$	(192	)
Deferred		(294	)		—		(959	)		10,288
	$	(305	)	$	397	$	(990	)	$	10,096

The income tax expense for the 12-week period ended October 8, 2011 primarily reflects the establishment of additional valuation allowance against net deferred tax assets during the period. The overall effective tax rate was 4.5%. The effective tax rate would have been 35.6% without the impact of adjustments to the valuation allowance and discrete charges.

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

The income tax expense for the 40-week period ended October 8, 2011 primarily reflects the establishment of additional valuation allowance against net deferred tax assets during the period. The overall effective tax rate was 17.6%. The effective tax rate would have been 35.8% without the impact of adjustments to the valuation allowance and discrete charges.

The income tax benefit for the 40-week period ended October 9, 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 Penn Traffic acquisition. The timing of taxable income resulting from the amortization of the gain for tax purposes provides sufficient future taxable income to support the future deductibility of the Company’s deferred tax assets. The overall effective rate for the 40-week period ended October 9, 2010 was 43.4%. The effective tax rate would have been 40.0% without the impact of adjustments to the valuation allowance, the bargain purchase, and discrete charges.

8

7. IMPAIRMENT CHARGES

On June 30, 2011, the FTC approved an application by Tops to sell three supermarkets acquired as part of the Penn Traffic acquisition 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 40-week period ended October 8, 2011, representing the excess of the carrying value of assets over the sale price.

During November 2011, the Company executed an agreement to sell the remaining supermarket acquired from Penn Traffic subject to the Final Order from the FTC. As a result of the potential sale, the Company recorded a $0.9 million impairment within the condensed consolidated statements of operations for the 12-week and 40-week periods ended October 8, 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 executive’s relocation. During March 2010, the loan balance and related accrued interest was forgiven upon approval by the Company’s Board of Directors. Additionally, during July 2010, Tops reimbursed the executive for the personal tax impact of the loan forgiveness. This loan forgiveness and related tax reimbursement are included in administrative expenses in the condensed consolidated statement of operations for the 40-week period ended October 9, 2010.

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 October 8, 2011 and October 9, 2010, the Company paid $0.2 million related to this agreement. For each of the 40-week periods ended October 8, 2011 and October 9, 2010, the Company paid $0.7 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 October 8, 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-week and 40-week periods ended October 8, 2011 and October 9, 2010, and the related statements of cash flows for the 40-week periods ended October 8, 2011 and October 9, 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 IRS. However, for purposes of evaluating an entity’s ability to realize its tax attributes, the Company assesses whether it is more likely than not that those assets will be realized at the consolidated level. Any differences in the total of the income tax provision for Holding only, Tops Markets only and the Guarantor Subsidiaries, as calculated on the separate return method, and the consolidated income tax provision, are eliminated in consolidation.

9

TOPS HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
OCTOBER 8, 2011
(Dollars in thousands)

	Tops Holding						Guarantor
	Corporation			Tops Markets, LLC			Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—		$	18,488		$	869	$	—		$	19,357
Accounts receivable, net		—			45,106			12,198		—			57,304
Intercompany receivables		—			3,563			12,438		(16,001	)		—
Inventory, net		—			82,802			34,618		—			117,420
Prepaid expenses and other current assets		—			12,360			3,215		—			15,575
Income taxes refundable		—			195			—		—			195
Current deferred tax assets		—			1,657			—		608			2,265
Total current assets		—			164,171			63,338		(15,393	)		212,116
Property and equipment, net		—			288,568			75,561		—			364,129
Intangible assets, net		—			63,213			9,465		—			72,678
Other assets		—			11,732			3,041		(3,041	)		11,732
Investment in subsidiaries		(71,282	)		109,231			—		(37,949	)		—
Total assets	$	(71,282	)	$	636,915		$	151,405	$	(56,383	)	$	660,655
Liabilities and Shareholders’ (Deficit) Equity
Current liabilities:
Accounts payable	$	—		$	60,253		$	18,137	$	—		$	78,390
Intercompany payables		3,563			12,438			—		(16,001	)		—
Accrued expenses and other current liabilities		1,027			65,132			16,069		(744	)		81,484
Current portion of capital lease obligations		—			12,543			37		—			12,580
Current portion of long-term debt		—			427			—		—			427
Current deferred tax liabilities		—			—			11		(11	)		—
Total current liabilities		4,590			150,793			34,254		(16,756	)		172,881
Capital lease obligations		—			158,734			3,761		—			162,495
Long-term debt		—			363,265			—		(3,041	)		360,224
Other long-term liabilities		—			17,561			3,171		—			20,732
Non-current deferred tax liabilities		—			17,037			988		(13,712	)		4,313
Total liabilities		4,590			707,390			42,174		(33,509	)		720,645
Total shareholders’ (deficit) equity		(75,872	)		(70,475	)		109,231		(22,874	)		(59,990	)
Total liabilities and shareholders’ (deficit) equity	$	(71,282	)	$	636,915		$	151,405	$	(56,383	)	$	660,655

10

TOPS HOLDING CORPORATION
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 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 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

TOPS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE 12-WEEK PERIOD ENDED OCTOBER 8, 2011
(Dollars in thousands)

	Tops Holding						Guarantor
	Corporation			Tops Markets, LLC			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	404,076		$	134,735		$	(205	)	$	538,606
Cost of goods sold		—			(284,998	)		(90,213	)		—			(375,211	)
Distribution costs		—			(7,507	)		(2,963	)		—			(10,470	)
Gross profit		—			111,571			41,559			(205	)		152,925
Operating expenses:
Wages, salaries and benefits		—			(49,694	)		(19,997	)		—			(69,691	)
Selling and general expenses		—			(16,658	)		(7,321	)		205			(23,774	)
Administrative expenses		(646	)		(12,519	)		(4,474	)		—			(17,639	)
Rent expense, net		—			(2,222	)		(2,079	)		—			(4,301	)
Depreciation and amortization		—			(9,108	)		(2,932	)		—			(12,040	)
Advertising		—			(2,703	)		(1,135	)		—			(3,838	)
Impairment charge		—			—			(900	)		—			(900	)
Total operating expenses		(646	)		(92,904	)		(38,838	)		205			(132,183	)
Operating (loss) income		(646	)		18,667			2,721			—			20,742
Interest expense, net		—			(13,951	)		(46	)		—			(13,997	)
Equity income from subsidiaries		6,027			1,616			—			(7,643	)		—
Income before income taxes		5,381			6,332			2,675			(7,643	)		6,745
Income tax expense		—			(305	)		(1,059	)		1,059			(305	)
Net income	$	5,381		$	6,027		$	1,616		$	(6,584	)	$	6,440

12

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

	Tops Holding						Guarantor
	Corporation			Tops Markets, LLC			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	386,600		$	133,444		$	(185	)	$	519,859
Cost of goods sold		—			(273,878	)		(88,328	)		—			(362,206	)
Distribution costs		—			(7,584	)		(3,168	)		—			(10,752	)
Gross profit		—			105,138			41,948			(185	)		146,901
Operating expenses:
Wages, salaries and benefits		—			(50,811	)		(20,060	)		—			(70,871	)
Selling and general expenses		—			(16,133	)		(8,433	)		185			(24,381	)
Administrative expenses		(293	)		(14,979	)		(4,398	)		—			(19,670	)
Rent expense, net		—			(2,355	)		(2,163	)		—			(4,518	)
Depreciation and amortization		—			(13,172	)		(1,918	)		—			(15,090	)
Advertising		—			(3,454	)		(2,469	)		—			(5,923	)
Total operating expenses		(293	)		(100,904	)		(39,441	)		185			(140,453	)
Operating (loss) income		(293	)		4,234			2,507			—			6,448
Loss on debt extinguishment		—			(33	)		—			—			(33	)
Interest expense, net		—			(14,284	)		(84	)		—			(14,368	)
Equity income from subsidiaries		2,065			1,463			—			(3,528	)		—
Income (loss) before income taxes		1,772			(8,620	)		2,423			(3,528	)		(7,953	)
Income tax benefit (expense)		—			10,685			(960	)		(9,328	)		397
Net income	$	1,772		$	2,065		$	1,463		$	(12,856	)	$	(7,556	)

13

TOPS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE 40-WEEK PERIOD ENDED OCTOBER 8, 2011
(Dollars in thousands)

	Tops Holding						Guarantor
	Corporation			Tops Markets, LLC			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	1,362,912		$	453,265		$	(798	)	$	1,815,379
Cost of goods sold		—			(968,236	)		(302,858	)		—			(1,271,094	)
Distribution costs		—			(24,307	)		(9,719	)		—			(34,026	)
Gross profit		—			370,369			140,688			(798	)		510,259
Operating expenses:
Wages, salaries and benefits		—			(175,680	)		(69,349	)		—			(245,029	)
Selling and general expenses		—			(56,339	)		(25,054	)		798			(80,595	)
Administrative expenses		(2,072	)		(43,660	)		(15,409	)		—			(61,141	)
Rent expense, net		—			(7,525	)		(6,891	)		—			(14,416	)
Depreciation and amortization		—			(29,466	)		(9,361	)		—			(38,827	)
Advertising		—			(9,929	)		(4,311	)		—			(14,240	)
Impairment charges		—			—			(2,791	)		—			(2,791	)
Total operating expenses		(2,072	)		(322,599	)		(133,166	)		798			(457,039	)
Operating (loss) income		(2,072	)		47,770			7,522			—			53,220
Interest expense, net		—			(47,400	)		(185	)		—			(47,585	)
Equity income from subsidiaries		3,812			4,432			—			(8,244	)		—
Income before income taxes		1,740			4,802			7,337			(8,244	)		5,635
Income tax expense		—			(990	)		(2,905	)		2,905			(990	)
Net income	$	1,740		$	3,812		$	4,432		$	(5,339	)	$	4,645

14

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

	Tops Holding						Guarantor
	Corporation			Tops Markets, LLC			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	1,306,007		$	421,394		$	(694	)	$	1,726,707
Cost of goods sold		—			(920,963	)		(280,189	)		—			(1,201,152	)
Distribution costs		—			(24,340	)		(9,922	)		—			(34,262	)
Gross profit		—			360,704			131,283			(694	)		491,293
Operating expenses:
Wages, salaries and benefits		—			(171,811	)		(66,566	)		—			(238,377	)
Selling and general expenses		—			(54,537	)		(26,345	)		694			(80,188	)
Administrative expenses		(1,558	)		(66,127	)		(14,487	)		—			(82,172	)
Rent expense, net		—			(7,380	)		(7,155	)		—			(14,535	)
Depreciation and amortization		—			(43,377	)		(5,427	)		—			(48,804	)
Advertising		—			(12,825	)		(5,453	)		—			(18,278	)
Total operating expenses		(1,558	)		(356,057	)		(125,433	)		694			(482,354	)
Operating (loss) income		(1,558	)		4,647			5,850			—			8,939
Bargain purchase		—			—			15,681			—			15,681
Loss on debt extinguishment		—			(1,041	)		—			—			(1,041	)
Interest (expense) income, net		—			(46,900	)		48			—			(46,852	)
Equity (loss) income from subsidiaries		(13,955	)		19,243			—			(5,288	)		—
(Loss) income before income taxes		(15,513	)		(24,051	)		21,579			(5,288	)		(23,273	)
Income tax benefit (expense)		—			10,096			(2,336	)		2,336			10,096
Net (loss) income	$	(15,513	)	$	(13,955	)	$	19,243		$	(2,952	)	$	(13,177	)

15

TOPS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE 40-WEEK PERIOD ENDED OCTOBER 8, 2011
(Dollars in thousands)

	Tops Holding						Guarantor
	Corporation			Tops Markets, LLC			Subsidiaries			Eliminations			Consolidated
Net cash (used in) provided by operating activities	$	(713	)	$	35,274		$	16,896		$	—		$	51,457
Cash flows used in investing activities:
Cash paid for property and equipment		—			(18,933	)		(18,415	)		—			(37,348	)
Proceeds from sale of assets		—			—			1,250			—			1,250
Proceeds from insurable loss recovery		—			—			50			—			50
Change in intercompany receivables position		—			(713	)		654			59			—
Net cash used in investing activities		—			(19,646	)		(16,461	)		59			(36,048	)
Cash flows provided by (used in) financing activities:
Borrowings on ABL Facility		—			454,500			—			—			454,500
Repayments on ABL Facility		—			(459,500	)		—			—			(459,500	)
Principal payments on capital leases		—			(8,130	)		(296	)		—			(8,426	)
Repayments of long-term debt borrowings		—			(327	)		—			—			(327	)
Change in bank overdraft position		—			339			—			—			339
Deferred financing costs incurred		—			(57	)		—			—			(57	)
Change in intercompany payables position		713			(654	)		—			(59	)		—
Net cash provided by (used in) financing activities		713			(13,829	)		(296	)		(59	)		(13,471	)
Net increase in cash and cash equivalents		—			1,799			139			—			1,938
Cash and cash equivalents— beginning of period		—			16,689			730			—			17,419
Cash and cash equivalents— end of period	$	—		$	18,488		$	869		$	—		$	19,357

16

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

	Tops Holding						Guarantor
	Corporation			Tops Markets, LLC			Subsidiaries			Eliminations			Consolidated
Net cash (used in) provided by operating activities	$	(713	)	$	37,812		$	8,839		$	—		$	45,938
Cash flows used in investing activities:
Acquisition of Penn Traffic assets		—			—			(85,023	)		—			(85,023	)
Proceeds from sale of assets		—			—			20,738			—			20,738
Cash paid for property and equipment		—			(21,585	)		(12,695	)		—			(34,280	)
Investment in subsidiaries		—			(85,023	)		—			85,023			—
Change in intercompany receivables position		—			(713	)		(16,018	)		16,731			—
Net cash used in investing activities		—			(107,321	)		(92,998	)		101,754			(98,565	)
Cash flows provided by financing activities:
Proceeds from long-term debt borrowings		—			112,125			—			—			112,125
Repayments of long-term debt borrowings		—			(36,283	)		—			—			(36,283	)
Borrowings on ABL Facility		—			191,400			—			—			191,400
Repayments on ABL Facility		—			(205,400	)		—			—			(205,400	)
Proceeds from issuance of common shares		30,000			30,000			—			(30,000	)		30,000
Dividend to shareholders		(30,000	)		(30,000	)		—			30,000			(30,000	)
Deferred financing costs incurred		—			(5,677	)		—			—			(5,677	)
Principal payments on capital leases		—			(6,787	)		(220	)		—			(7,007	)
Capital contribution		—			—			85,023			(85,023	)		—
Change in bank overdraft position		—			348			—			—			348
Change in intercompany payables position		713			16,018			—			(16,731	)		—
Net cash provided by financing activities		713			65,744			84,803			(101,754	)		49,506
Net (decrease) increase in cash and cash equivalents		—			(3,765	)		644			—			(3,121	)
Cash and cash equivalents— beginning of period		—			19,712			10			—			19,722
Cash and cash equivalents— end of period	$	—		$	15,947		$	654		$	—		$	16,601

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ITEM 2. MANAGEMENT’S 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. Approximately 91% of our associates are members of Local One or two other UFCW unions that represented certain of the employees from the retained Penn Traffic supermarkets. All other Tops’ associates are non-union serving primarily in management, field support, or pharmacist roles. We were a party to five collective bargaining agreements with Local One that expired between April 2011 and July 2011. New agreements have been ratified by Local One that expire between April 2014 and July 2014. The two non-Local One UFCW collective bargaining agreements expire in March 2012 and April 2013.

In this discussion, the terms “we,” “our,” “us” and the “Company” refer to Tops Holding Corporation and 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 Traffic’s 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 during the 12-week period ended October 8, 2011. On September 27, 2011, as the divestiture trustee was unable to identify a potential buyer for three of the remaining supermarkets subject to the Final Order, control of these supermarkets reverted to us. We continue to operate two of these supermarkets, while the third supermarket was closed on October 15, 2011. Also on September 27, 2011, the FTC approved a 90-day extension for the divestiture trustee to market the remaining supermarket subject to the Final Order. During November 2011, a petition was filed by the divestiture trustee with the FTC for approval of a proposed divestiture of this remaining supermarket.

As of November 21, 2011, we operate 51 of the 79 acquired supermarkets. Excluding the two supermarkets control of which has reverted to us and which we continue to operate, net sales and operating loss for the supermarkets subject to the Final Order were $3.5 million and $0.4 million, respectively, during the 12-week period ended October 8, 2011, and $25.5 million and $2.0 million, respectively, during the 40-week period ended October 8, 2011. As of November 21, 2011, we operate 125 supermarkets with an additional 5 supermarkets operated by franchisees.

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 Penn Traffic 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;

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• 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;

• 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 report.

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.

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Our condensed consolidated financial statements for the 12-week and 40-week periods ended October 8, 2011 and October 9, 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 Penn Traffic acquisition, including Penn Traffic’s 79 retail supermarkets. We have currently retained 51 of the acquired supermarkets. Three supermarkets were sold during late July and early August 2011, while one supermarket was closed in October 2011. The remaining 24 supermarkets were closed or sold during 2010. Net sales and operating loss for these 24 supermarkets were $33.9 million and $2.7 million, respectively, for the 40-week period ended October 9, 2010. Also included in our results during the 12-week and 40-week periods ended October 9, 2010 were integration costs of $4.6 million and $21.1 million, respectively, and one-time legal and professional fees related to the Penn Traffic acquisition of $0.4 million and $5.1 million, respectively. Additionally, we incurred $0.7 million and $2.1 million of legal expenses associated with the FTC’s review of the acquired supermarkets during the 40-week periods ended October 8, 2011 and October 9, 2010, respectively. Additional depreciation and amortization of $3.9 million was incurred during the 40-week period ended October 8, 2011, as compared to the 40-week period ended October 9, 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.

The excess of net assets acquired over the purchase price of $15.7 million was recognized as a bargain purchase in the condensed consolidated statement of operations for the 40-week period ended October 9, 2010. This bargain purchase was attributable to the distressed status of Penn Traffic due to 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 Senior Notes issued in October 2009. 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 Penn Traffic 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 40 weeks of this fiscal year, we experienced the effects of some of these economic factors.

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RESULTS OF OPERATIONS

12-Week Period Ended October 8, 2011 Compared with 12-Week Period Ended October 9, 2010

Executive Summary

The results of operations during the 12-week period ended October 8, 2011 when compared with the 12-week period ended October 9, 2010 were impacted primarily by a 2.1% increase in same store sales, combined with an improvement in the gross margin rate on inside sales. Additionally, we incurred $4.9 million of one-time acquisition and integration costs associated with the Penn Traffic acquisition during the 12-week period ended October 9, 2010.

Net Sales

The following table includes a comparison of the components of our net sales for the 12-week periods ended October 8, 2011 and October 9, 2010.

(Dollars in thousands)

	12-week periods ended
	October 8, 2011		October 9, 2010		$ Change		% Change
Inside sales	$	490,973	$	483,520	$	7,453		1.5	%
Gasoline sales		47,633		36,339		11,294		31.1	%
Net sales	$	538,606	$	519,859	$	18,747		3.6	%

Inside sales increased during the 12-week period ended October 8, 2011 compared with the 12-week period ended October 9, 2010 due to a 2.1% increase in same store sales, partially offset by a net decline in store count as a result of the three divested stores subject to the Final Order. Additionally, we continued to experience 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 October 8, 2011 compared with the 12-week period ended October 9, 2010 due to a 35.1% increase in the retail price per gallon, partially offset by a 3.0% decline in gallons sold attributable to the timing of promotional gas rewards redemption weeks.

Gross Profit

The following table includes a comparison of cost of goods sold, distribution costs and gross profit for the 12-week periods ended October 8, 2011 and October 9, 2010.

(Dollars in thousands)

	12-week						12-week
	period ended			% of			period ended			% of			$			%
	October 8, 2011			Net Sales			October 9, 2010			Net Sales			Change			Change
Cost of goods sold	$	(375,211	)		69.7	%	$	(362,206	)		69.7	%	$	13,005			3.6	%
Distribution costs		(10,470	)		1.9	%		(10,752	)		2.1	%		(282	)		(2.6	)%
Gross profit	$	152,925			28.4	%	$	146,901			28.3	%	$	6,024			4.1	%

As a percentage of net sales, cost of goods sold remained consistent during the 12-week period ended October 8, 2011 compared with the 12-week period ended October 9, 2010. We experienced a change in LIFO inventory valuation adjustments from expense of $0.5 million during the 12-week period ended October 9, 2010 to income of $1.1 million during the 12-week period ended October 8, 2011. The LIFO income during the 2011 period reflects the reduction of inventory unit levels, as well as the increased penetration of private label merchandise sales. Excluding the impact of non-cash LIFO adjustments, cost of goods sold as a percentage of net sales was 69.9% and 69.6% during the 12-week periods ended October 8, 2011 and October 9, 2010, respectively. This reflects the higher proportion of gasoline sales versus inside sales, as gasoline sales occur at higher cost of goods sold percentages. This was partially offset by a higher cost of goods sold percentage 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 the increased private label sales during the 2011 period.

Distribution costs remained consistent during the 12-week period ended October 8, 2011 compared with the 12-week period ended October 9, 2010. The decline in distribution costs as a percentage of net sales was primarily driven by the increase in the retail price per gallon on gasoline sales.

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Gross profit as a percentage of net sales increased due to the aforementioned factors.

Operating Expenses

The following table includes a comparison of operating expenses for the 12-week periods ended October 8, 2011 and October 9, 2010.

(Dollars in thousands)

	12-week					12-week
	period ended		% of			period ended		% of			$			%
	October 8, 2011		Net Sales			October 9, 2010		Net Sales			Change			Change
Wages, salaries and benefits	$	69,691		12.9	%	$	70,871		13.6	%	$	(1,180	)		(1.7	)%
Selling and general expenses		23,774		4.4	%		24,381		4.7	%		(607	)		(2.5	)%
Administrative expenses		17,639		3.3	%		19,670		3.8	%		(2,031	)		(10.3	)%
Rent expense, net		4,301		0.8	%		4,518		0.9	%		(217	)		(4.8	)%
Depreciation and amortization		12,040		2.2	%		15,090		2.9	%		(3,050	)		(20.2	)%
Advertising		3,838		0.7	%		5,923		1.1	%		(2,085	)		(35.2	)%
Impairment		900		0.2	%		—		N/A			900			N/A
Total	$	132,183		24.5	%	$	140,453		27.0	%	$	(8,270	)		(5.9	)%

Wages, Salaries and Benefits

As a percentage of net sales, the decrease in wages, salaries and benefits during the 12-week period ended October 8, 2011 compared with the 12-week period ended October 9, 2010 was largely attributable to the ratification of three union agreements by Local One during September 2011 for which predecessor agreements had expired earlier in the year. As part of these ratified agreements, certain employees are entitled to lump sum wage payments in lieu of hourly pay rate increases. These lump sum payments are recognized as expense on a pro-rata basis during the contract years to which they pertain. As a result of these agreed upon payments, we revised our estimated wage increase projections for the periods subsequent to the respective expiration dates of the five Local One agreements. These revised projections resulted in a $0.7 million reduction of wages expense during the 12-week period ended October 8, 2011 related to the first 28-weeks of fiscal 2011. Also as part of the Local One agreements ratified during September 2011, our 2011 health and welfare contribution rates were reduced to 2010 levels retroactive to the beginning of the year. With respect to these agreements, this contribution rate reduction resulted in a $1.7 million reduction of expense during the 12-week period ended October 8, 2011 related to the first 28-weeks of fiscal 2011. We expect a smaller incremental expense reduction during the last twelve weeks of 2011 reflecting the ratification of the remaining two Local One agreements. However, our 2012 health and welfare contributions are expected to increase by 10%. The decrease in wages, salaries and benefits as a percentage of net sales also reflects the higher proportion of gasoline sales versus inside sales, as gasoline sales require relatively less labor support.

Selling and General Expenses

As a percentage of net sales, the decrease in selling and general expenses during the 12-week period ended October 8, 2011 compared with the 12-week period ended October 9, 2010 was attributable to a $0.5 million decrease in utility costs due to lower electricity commodity costs. Additionally, $0.4 million of Penn Traffic integration costs were classified in selling and general expenses during the 12-week period ended October 8, 2010.

Administrative Expenses

The decrease in administrative expenses during the 12-week period ended October 8, 2011 compared with the 12-week period ended October 9, 2010 was primarily attributable to $1.6 million of Penn Traffic integration costs and one-time legal and professional fees related to the Penn Traffic acquisition during the 2010 period. Additionally, we experienced a $1.6 million decrease in IT costs, largely resulting from our renegotiated IT services contract. These items were partially offset by a $0.4 million increase in bonus expense due to improved performance against bonus metrics, as well as a $0.4 million increase in share-based compensation expense due to stock option forfeitures during the 2010 period.

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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 October 8, 2011 compared with the 12-week period ended October 9, 2010.

Depreciation and Amortization

The decrease in depreciation and amortization during the 12-week period ended October 8, 2011 compared with the 12-week period ended October 9, 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.

Advertising

The decrease in advertising during the 12-week period ended October 8, 2011 compared with the 12-week period ended October 9, 2010 was due to $3.0 million in costs associated with the communication of the Penn Traffic acquisition to customers and the promotion of the grand re-openings related to the rebannered supermarkets during the 12-week period ended October 9, 2010, partially offset by investments in additional advertising initiatives during the 12-week period ended October 8, 2011.

Impairment

During November 2011, we executed an agreement to sell the remaining supermarket acquired from Penn Traffic subject to the Final Order from the FTC. As a result of the potential sale, we recorded a $0.9 million impairment within the condensed consolidated statement of operations for the 12-week period ended October 8, 2011, representing the excess of the carrying value of assets over the sale price.

Interest Expense, Net

Interest expense of $14.0 million during the 12-week period ended October 8, 2011 was relatively consistent with interest expense of $14.4 million during the 12-week period ended October 9, 2010.

Income Tax Expense

The income tax expense for the 12-week period ended October 8, 2011 primarily reflects the establishment of additional valuation allowance against net deferred tax assets during the period. The overall effective tax rate was 4.5%. The effective tax rate would have been 35.6% without the impact of adjustments to the valuation allowance and discrete charges.

The income tax benefit for the 12-week period ended October 9, 2010 reflects a $0.4 million reduction in the Company’s liability related to unrecognized tax benefits based upon the finalization of the examination of the Company’s U.S. federal income tax returns for tax years 2007 and 2008 by the IRS. The overall effective tax rate for the 12-week period ended October 9, 2010 was 5.0%. The effective tax rate would have been 39.8% without the impact of adjustments to the valuation allowance and discrete charges.

Net Income (Loss)

Our net income (loss) improved to net income of $6.4 million during the 12-week period ended October 8, 2011 compared with net loss of $7.6 million during the 12-week period ended October 9, 2010. The change in net income (loss) was attributable to the factors discussed above.

40-Week Period Ended October 8, 2011 Compared with 40-Week Period Ended October 9, 2010

Executive Summary

The results of operations during the 40-week period ended October 8, 2011 when compared with the 40-week period ended October 9, 2010 were impacted primarily by a 1.6% increase in same store sales, the additional four weeks of operating results for the supermarkets acquired in the Penn Traffic acquisition during the 40-week period ended October 8, 2011, as well as one-time acquisition and integration costs of $26.2 million associated with the Penn Traffic acquisition incurred during the 40-week period ended October 9, 2010.

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Net Sales

The following table includes a comparison of the components of our net sales for the 40-week periods ended October 8, 2011 and October 9, 2010.

(Dollars in thousands)

	40-week periods ended
	October 8, 2011		October 9, 2010		$ Change		% Change
Inside sales	$	1,657,253	$	1,614,486	$	42,767		2.6	%
Gasoline sales		158,126		112,221		45,905		40.9	%
Net sales	$	1,815,379	$	1,726,707	$	88,672		5.1	%

Inside sales increased during the 40-week period ended October 8, 2011 compared with the 40-week period ended October 9, 2010 due to a 1.6% increase in same store sales, the operation of the acquired Penn Traffic supermarkets for four additional weeks, as well as the incremental inside sales associated with new stores, net of reductions related to divested stores subject to the Final Order.

Gasoline sales increased during the 40-week period ended October 8, 2011 compared with the 40-week period ended October 9, 2010 due to a 30.7% increase in the retail price per gallon. Additionally, the number of gallons sold increased 7.8%, primarily due to the addition of six 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 40-week periods ended October 8, 2011 and October 9, 2010.

(Dollars in thousands)

	40-week						40-week
	period ended			% of			period ended			% of			$			%
	October 8, 2011			Net Sales			October 9, 2010			Net Sales			Change			Change
Cost of goods sold	$	(1,271,094	)		70.0	%	$	(1,201,152	)		69.6	%	$	69,942			5.8	%
Distribution costs		(34,026	)		1.9	%		(34,262	)		2.0	%		(236	)		(0.7	)%
Gross profit	$	510,259			28.1	%	$	491,293			28.5	%	$	18,966			3.9	%

As a percentage of net sales, cost of goods sold increased during the 40-week period ended October 8, 2011 compared with the 40-week period ended October 9, 2010 due to the higher proportion of gasoline sales versus inside sales, as gasoline sales occur at higher cost of goods sold percentages. Additionally, we experienced an increase in LIFO inventory valuation expense from $0.4 million during the 40-week period ended October 9, 2010 to $1.0 million during the 40-week period ended October 8, 2011, reflecting higher commodity cost increases during 2011. These factors were partially offset by a higher cost of goods sold percentage 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.

Distribution costs remained consistent during the 40-week period ended October 8, 2011 compared with the 40-week period ended October 9, 2010. The decline in distribution costs as a percentage of net sales was primarily driven by the increase in the retail price per gallon on gasoline sales.

Gross profit as a percentage of net sales increased due to the aforementioned factors.

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Operating Expenses

The following table includes a comparison of operating expenses for the 40-week periods ended October 8, 2011 and October 9, 2010.

(Dollars in thousands)

	40-week					40-week
	period ended		% of			period ended		% of			$			%
	October 8, 2011		Net Sales			October 9, 2010		Net Sales			Change			Change
Wages, salaries and benefits	$	245,029		13.5	%	$	238,377		13.8	%	$	6,652			2.8	%
Selling and general expenses		80,595		4.4	%		80,188		4.6	%		407			0.5	%
Administrative expenses		61,141		3.4	%		82,172		4.8	%		(21,031	)		(25.6	)%
Rent expense, net		14,416		0.8	%		14,535		0.8	%		(119	)		(0.8	)%
Depreciation and amortization		38,827		2.1	%		48,804		2.8	%		(9,977	)		(20.4	)%
Advertising		14,240		0.8	%		18,278		1.1	%		(4,038	)		(22.1	)%
Impairment charges		2,791		0.2	%		—		N/A			2,791			N/A
Total	$	457,039		25.2	%	$	482,354		27.9	%	$	(25,315	)		(5.2	)%

Wages, Salaries and Benefits

As a percentage of net sales, the decrease in wages, salaries and benefits during the 40-week period ended October 8, 2011 compared with the 40-week period ended October 9, 2010 was largely attributable to the more effective utilization of labor, particularly in the acquired and retained Penn Traffic supermarkets as a result of significant increases in sales levels in these stores. The decrease also reflects the higher proportion of gasoline sales versus inside sales, as gasoline sales require relatively less labor support. These factors were partially offset by lower vacation expense of $4.9 million during the 2010 period related to a policy change for union associates that modified the period over which vacation time is earned.

Selling and General Expenses

As a percentage of net sales, the decrease in selling and general expenses during the 40-week period ended October 8, 2011 compared with the 40-week period ended October 9, 2010 was largely due to a $1.6 million decrease in utility costs due to lower electricity commodity costs. Additionally, $0.7 million of Penn Traffic integration costs were classified in selling and general expenses during the 40-week period ended October 9, 2010. We have also benefitted from the renegotiation of certain cleaning contracts during 2011. These positive factors were largely offset by a $1.3 million increase in repairs and maintenance expense, and a $1.4 million increase in credit and debit card transaction fees due to increases in usage and fee rates.

Administrative Expenses

The decrease in administrative expenses during the 40-week period ended October 8, 2011 compared with the 40-week period ended October 9, 2010 was primarily attributable to a combined $21.7 million of Penn Traffic integration costs, one-time legal and professional fees related to the Penn Traffic acquisition and higher legal expenses associated with the FTC’s review of the acquired supermarkets recorded in the 40-week period ended October 9, 2010. Additionally, we experienced a $4.2 million decrease in IT costs, largely resulting from our renegotiated IT services contract. These items were partially offset by a $1.1 million increase in depreciation related to recent IT equipment capital expenditures, a $0.5 million increase in bonus expense due to improved performance against bonus metrics, a $0.5 million increase in share-based compensation expense due to stock option forfeitures during the 2010 period, 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 leases, net of income we receive from various entities that rent space in our supermarkets under subleases. Rent expense remained relatively consistent during the 40-week period ended October 8, 2011 compared with the 40-week period ended October 9, 2010.

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Depreciation and Amortization

The decrease in depreciation and amortization during the 40-week period ended October 8, 2011 compared with the 40-week period ended October 9, 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 Penn Traffic acquisition and 2010 and 2011 capital expenditure activity.

Advertising

The decrease in advertising during the 40-week period ended October 8, 2011 compared with the 40-week period ended October 9, 2010 was due to $4.5 million in costs associated with the communication of the Penn Traffic acquisition to our customers and the promotion of the grand re-openings related to the rebannered supermarkets during the 40-week period ended October 9, 2010. This was partially offset by investments in additional advertising initiatives during the 40-week period ended October 8, 2011.

Impairment Charges

On June 30, 2011, the FTC approved our application to sell three supermarkets acquired as part of the Penn Traffic acqusition 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 statement of operations for the 40-week period ended October 8, 2011, representing the excess of the carrying value of assets over the sale price.

During November 2011, we executed an agreement to sell the remaining supermarket acquired from Penn Traffic subject to the Final Order from the FTC. As a result of the potential sale, we recorded a $0.9 million impairment within the condensed consolidated statement of operations for the 40-week period ended October 8, 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 40-week period ended October 9, 2010. The allocation of the purchase price to the assets acquired and liabilities assumed from the Penn Traffic acquisition previously presented for the 40-week period ended October 9, 2010 has been retrospectively adjusted to reflect final acquisition accounting adjustments made during the fiscal year ended January 1, 2011. 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.

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 40-week period ended October 9, 2010.

Interest Expense, Net

The $0.7 million increase in interest expense during the 40-week period ended October 8, 2011 compared with the 40-week period ended October 9, 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 40-week period ended October 9, 2010.

Income Tax (Expense) Benefit

The income tax expense for the 40-week period ended October 8, 2011 primarily reflects the establishment of additional valuation allowance against net deferred tax assets during the period. The overall effective tax rate was 17.6%. The effective tax rate would have been 35.8% without the impact of adjustments to the valuation allowance and discrete charges.

The income tax benefit for the 40-week period ended October 9, 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 Penn Traffic acquisition. The timing of taxable income resulting from the amortization of the gain for tax purposes provides sufficient future taxable income to support the future deductibility of the Company’s deferred tax assets. The overall effective rate for the 40-week period ended October 9, 2010 was 43.4%. The effective tax rate would have been 40.0% without the impact of adjustments to the valuation allowance, the bargain purchase, and discrete charges.

26

Net Income (Loss)

Our net income (loss) improved to net income of $4.6 million during the 40-week period ended October 8, 2011 compared with net loss of $13.2 million during the 40-week period ended October 9, 2010. The change in net income (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 issuance of the Senior Notes, 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 October 8, 2011, the unused availability under the ABL Facility was $60.2 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 Traffic’s 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 FTC’s 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.

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 Penn Traffic 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 October 8, 2011 and January 1, 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 12 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.

27

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)

	40-week periods ended
	October 8, 2011			October 9, 2010
Cash provided by (used in):
Operating activities	$	51,457		$	45,938
Investing activities		(36,048	)		(98,565	)
Financing activities		(13,471	)		49,506

Cash provided by operating activities during the 40-week period ended October 8, 2011 increased $5.5 million compared with the 40-week period ended October 9, 2010 due to a $39.9 million increase in earnings, adjusted for non-cash income and expenses. Operating cash flows for the 40-week period ended October 9, 2010 included $28.8 million of integration costs and one-time legal and professional fee cash expenditures related to the Penn Traffic acquisition. Changes in operating assets and liabilities represented a use of cash from operating activities of $12.9 million during the 2011 period, compared to a source of cash of $21.4 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 40-week period ended October 8, 2011 decreased $62.5 million compared with the 40-week period ended October 9, 2010, primarily due to cash consideration paid in connection with the Penn Traffic acquisition during the 40-week period ended October 9, 2010, net of proceeds from the subsequent divestiture of certain acquired assets. Cash paid for property and equipment totaled $37.3 million and $34.3 million during the 2011 and 2010 periods, respectively. We expect to invest $40 million to $50 million in capital expenditures during the next 12 months.

Cash (used in) provided by financing activities changed $63.0 million during the 40-week period ended October 8, 2011 compared with the 40-week period ended October 9, 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 40-week period ended October 9, 2010. This was partially offset by a $30.0 million dividend paid to our shareholders during the 40-week period ended October 9, 2010, the change in net borrowings and repayments related to our ABL Facility, as well as $5.7 million of deferred financing costs incurred during the 2010 period.

Multiemployer Pension Plans

We contribute to the United Food and Commercial Workers District Union 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 40-week periods ended October 8, 2011 and October 9, 2010, we made contributions of $6.9 million and $6.4 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 plan’s 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 under “Risk Factors” in the Company’s 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&S’s 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.

28

Off-Balance Sheet Arrangements

Other than operating leases and the 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 Pronouncements—Not Yet Adopted

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” ASU No. 2011-05 requires that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements, eliminating the option to present other comprehensive income in the statement of changes in equity. Under either choice, items that are reclassified from other comprehensive income to net income are required to be presented on the face of the financial statements where the components of net income and the components of other comprehensive income are presented. This amendment is effective for us beginning in the fiscal year ending December 29, 2012 and will be applied retrospectively. This amendment will change the manner in which we present comprehensive income.

In September 2011, the FASB issued ASU No. 2011-09, “Disclosure Requirements for Employers subject to Multiemployer Pension Plans.” ASU No. 2011-09 requires additional separate disclosures for multiemployer pension plans and multiemployer other postretirement benefit plans. For significant multiemployer plans in which an employer participates, the additional disclosures include the plan name and identifying number, contributions to the plan and whether such contributions represent 5% of the total contributions made to the plan by all employers, indication of funded status, minimum contribution requirements under collective-bargaining agreements and expirations of such agreements. For plans which do not have publicly available information other than employer financial statements, additional qualitative and quantitative disclosures are required including the description of the nature of the plan benefits, the extent to which the employer could be responsible for the obligations of the plan and, to the extent available, total plan assets, actuarial present value of accumulated plan benefits and total contributions received by the plan as of the most recent date available. This update is effective for our fiscal year ending December 31, 2011.

The Company has assessed other recent accounting pronouncements noting no material impact on the Company’s consolidated financial statements as of the date of this Quarterly Report on Form 10-Q.

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 October 8, 2011, we did not have any outstanding interest rate swaps designated as fair value or cash flow hedges.

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The table below provides information about our outstanding debt obligations. The amounts shown for each year represent the contractual maturities of long-term debt, excluding capital leases, as of October 8, 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 October 8, 2011. The Fair Value column includes the fair value of our debt instruments as of October 8, 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	$	77		$	434		$	2,295		$	280		$	350,165		$	—	$	389,530
Average interest rate		7.1	%		7.1	%		3.5	%		7.1	%		10.1	%		N/A
Variable rate	$	—		$	—		$	10,000		$	—		$	—		$	—	$	10,000
Average interest rate		N/A			N/A			4.6	%		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 October 8, 2011, the Chief Executive Officer and the Chief Financial Officer, together with certain designated members of the finance and accounting organization, evaluated the Company’s disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of October 8, 2011.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred during the 40-week period ended October 8, 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 Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2011.

30

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 October 8, 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
	November 21, 2011

31

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

Certification

I, Frank Curci, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Tops Holding Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4.	The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: November 21, 2011

/s/ Frank Curci Frank Curci

President, Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

Certification

I, William R. Mills, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Tops Holding Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4.	The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

a)	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

a)	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: November 21, 2011

/s/ William R. Mills William R. Mills

Senior Vice President, Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The certification set forth below is being submitted in connection with the Quarterly Report on Form 10-Q of Tops Holding Corporation (the “Company”) for the 40-week period ended October 8, 2011 (the “Report”) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

I, Frank Curci, President, Chief Executive Officer of the Company, certify, to the best of my knowledge, that on the date hereof:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Frank Curci Frank Curci

President, Chief Executive Officer

November 21, 2011

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The certification set forth below is being submitted in connection with the Quarterly Report on Form 10-Q of Tops Holding Corporation (the “Company”) for the 40-week period ended October 8, 2011 (the “Report”) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

I, William R. Mills, Senior Vice President, Chief Financial Officer of the Company, certify, to the best of my knowledge, that on the date hereof:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ William R. Mills William R. Mills

Senior Vice President, Chief Financial Officer

November 21, 2011

XML

Intangible Assets, Net

9 Months Ended

Oct. 08, 2011

Intangible Assets, Net [Abstract]

INTANGIBLE ASSETS, NET

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
October 8, 2011	Amount		Amortization			Amount		Period
Tradename — indefinite lived	$	41,011	$	—		$	41,011	Indefinite life
Customer relationships		27,751		(18,626	)		9,125		8.2
Favorable/unfavorable lease rights		21,392		(9,725	)		11,667		9.0
Franchise agreements		11,538		(4,049	)		7,489		11.0
Tradenames — definite lived		4,200		(1,315	)		2,885		8.5
Other		706		(205	)		501		4.0
	$	106,598	$	(33,920	)	$	72,678		9.0

	Gross					Net
	Carrying		Accumulated			Carrying
January 1, 2011	Amount		Amortization			Amount
Tradename — indefinite lived	$	41,011	$	—		$	41,011
Customer relationships		27,751		(15,231	)		12,520
Favorable/unfavorable lease rights		21,392		(7,902	)		13,490
Franchise agreements		11,538		(3,242	)		8,296
Tradenames — definite lived		4,200		(700	)		3,500
Other		497		(242	)		255
	$	106,389	$	(27,317	)	$	79,072

The Tops tradename is reviewed for impairment annually or more frequently if impairment indicators arise. Based on the Company’s assessment, no impairment indicators were present during the 40-week periods ended October 8, 2011 and October 9, 2010.

During the 12-week periods ended October 8, 2011 and October 9, 2010, amortization expense was $1.9 million and $2.7 million, respectively. During the 40-week periods ended October 8, 2011 and October 9, 2010, amortization expense was $6.6 million and $8.0 million, respectively. Such amortization is included in administrative expenses in the condensed consolidated statements of operations.

As of October 8, 2011, expected future amortization of intangible assets is as follows (dollars in thousands):

2011 (remaining period)	$	1,920
2012		6,917
2013		6,072
2014		5,272
2015		4,037
Thereafter		7,449

XML

Recent Accounting Pronouncements

9 Months Ended

Oct. 08, 2011

Recent Accounting Pronouncements [Abstract]

RECENT ACCOUNTING PRONOUNCEMENTS

2. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income.” ASU No. 2011-05 requires that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements, eliminating the option to present other comprehensive income in the statement of changes in equity. Under either choice, items that are reclassified from other comprehensive income to net income are required to be presented on the face of the financial statements where the components of net income and the components of other comprehensive income are presented. This amendment is effective for the Company beginning in the fiscal year ending December 29, 2012 and will be applied retrospectively. This amendment will change the manner in which the Company presents comprehensive income.

In September 2011, the FASB issued ASU No. 2011-09, “Disclosure Requirements for Employers subject to Multiemployer Pension Plans.” ASU No. 2011-09 requires additional separate disclosures for multiemployer pension plans and multiemployer other postretirement benefit plans. For significant multiemployer plans in which an employer participates, the additional disclosures include the plan name and identifying number, contributions to the plan and whether such contributions represent 5% of the total contributions made to the plan by all employers, indication of funded status, minimum contribution requirements under collective-bargaining agreements and expirations of such agreements. For plans that do not have publicly available information other than employer financial statements, additional qualitative and quantitative disclosures are required including the description of the nature of the plan benefits, the extent to which the employer could be responsible for the obligations of the plan and, to the extent available, total plan assets, actuarial present value of accumulated plan benefits and total contributions received by the plan as of the most recent date available. This update is effective for the Company’s fiscal year ending December 31, 2011.

The Company has assessed other recent accounting pronouncements noting no material impact on the Company’s consolidated financial statements as of the date of this Quarterly Report on Form 10-Q.

XML

Condensed Consolidated Balance Sheets (Unaudited) (USD $) In Thousands	Oct. 08, 2011	Jan. 01, 2011
Current assets:
Cash and cash equivalents	$ 19,357	$ 17,419
Accounts receivable, net	57,304	57,044
Inventory, net	117,420	117,328
Prepaid expenses and other current assets	15,575	14,093
Assets held for sale	0	650
Income taxes refundable	195	200
Current deferred tax assets	2,265	2,265
Total current assets	212,116	208,999
Property and equipment, net	364,129	378,575
Intangible assets, net (Note 3)	72,678	79,072
Other assets	11,732	13,705
Total assets	660,655	680,351
Current liabilities:
Accounts payable	78,390	93,311
Accrued expenses and other current liabilities (Note 4)	81,484	79,123
Current portion of capital lease obligations	12,580	11,095
Current portion of long-term debt (Note 5)	427	402
Total current liabilities	172,881	183,931
Capital lease obligations	162,495	172,216
Long-term debt (Note 5)	360,224	365,262
Other long-term liabilities	20,732	21,099
Non-current deferred tax liabilities	4,313	3,354
Total liabilities	720,645	745,862
Shareholders' deficit:
Common shares ($0.001 par value; 300,000 authorized shares, 144,776 shares issued & outstanding)
Paid-in capital	(1,792)	(2,668)
Accumulated deficit	(57,862)	(62,507)
Accumulated other comprehensive loss, net of tax	(336)	(336)
Total shareholders' deficit	(59,990)	(65,511)
Total liabilities and shareholders' deficit	$ 660,655	$ 680,351

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands	9 Months Ended
	Oct. 08, 2011	Oct. 09, 2010
Cash flows provided by operating activities:
Net income (loss)	$ 4,645	$ (13,177)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	51,454	59,752
Impairment charges	2,791
Amortization of deferred financing costs	2,030	1,791
LIFO inventory valuation adjustments	1,044	383
Deferred income taxes	959	(10,288)
Share-based compensation expense	876	447
Bargain purchase		(15,681)
Loss on debt extinguishment		1,041
Other	584	223
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable	232	(7,641)
Increase in inventory, net	(1,678)	(7,779)
(Increase) decrease in prepaid expenses and other current assets	(1,482)	2,278
Decrease in income taxes refundable	5	162
(Decrease) increase in accounts payable	(15,260)	22,397
Increase in accrued expenses and other current liabilities	5,927	9,640
(Decrease) increase in other long-term liabilities	(670)	2,390
Net cash provided by operating activities	51,457	45,938
Cash flows used in investing activities:
Cash paid for property and equipment	(37,348)	(34,280)
Proceeds from sale of assets	1,250	20,738
Proceeds from insurable loss recovery	50
Acquisition of Penn Traffic assets		(85,023)
Net cash used in investing activities	(36,048)	(98,565)
Cash flows (used in) provided by financing activities:
Borrowings on ABL Facility	454,500	191,400
Repayments on ABL Facility	(459,500)	(205,400)
Principal payments on capital leases	(8,426)	(7,007)
Proceeds from long-term debt borrowings		112,125
Repayments of long-term debt borrowings	(327)	(36,283)
Change in bank overdraft position	339	348
Deferred financing costs incurred	(57)	(5,677)
Proceeds from issuance of common shares		30,000
Dividend to shareholders		(30,000)
Net cash (used in) provided by financing activities	(13,471)	49,506
Net increase (decrease) in cash and cash equivalents	1,938	(3,121)
Cash and cash equivalents--beginning of period	17,419	19,722
Cash and cash equivalents--end of period	$ 19,357	$ 16,601

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Description of the Company and Basis of Presentation

9 Months Ended

Oct. 08, 2011

Description of the Company and Basis of Presentation [Abstract]

DESCRIPTION OF THE COMPANY AND BASIS OF PRESENTATION

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.

Tops employs approximately 12,600 associates. Approximately 91% of these associates are members of United Food and Commercial Workers (“UFCW”) District Union Local One (“Local One”) or two other UFCW unions that represented certain of the employees from the retained Penn Traffic supermarkets. All other Tops’ associates are non-union serving primarily in management, field support, or pharmacist roles. Tops was a party to five collective bargaining agreements with Local One that expired between April 2011 and July 2011. New agreements have been ratified by Local One that expire between April 2014 and July 2014. The two non-Local One UFCW collective bargaining agreements expire in March 2012 and April 2013.

On January 29, 2010, the Company completed the acquisition of substantially all assets and certain liabilities of The Penn Traffic Company (“Penn Traffic”) and its subsidiaries, including Penn Traffic’s 79 retail supermarkets, in exchange for cash consideration of $85.0 million. 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 during the 12-week period ended October 8, 2011. On September 27, 2011, as the divestiture trustee was unable to identify a potential buyer for three of the remaining supermarkets subject to the Final Order, control of these supermarkets reverted to the Company. The Company continues to operate two of these supermarkets, while the third supermarket was closed on October 15, 2011. Also on September 27, 2011, the FTC approved a 90-day extension for the divestiture trustee to market the remaining supermarket subject to the Final Order. During November 2011, a petition was filed by the divestiture trustee with the FTC for approval of a proposed divestiture of this remaining supermarket.

As of November 21, 2011, the Company operates 51 of the 79 acquired supermarkets. Excluding the two supermarkets control of which has reverted to the Company and which the Company continues to operate, net sales and operating loss for the supermarkets subject to the Final Order were $3.5 million and $0.4 million, respectively, during the 12-week period ended October 8, 2011, and $25.5 million and $2.0 million, respectively, during the 40-week period ended October 8, 2011. As of November 21, 2011, the Company operates 125 supermarkets with an additional 5 supermarkets operated by franchisees.

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 Company’s 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 Company’s condensed consolidated financial statements for the 12-week and 40-week periods ended October 8, 2011 and October 9, 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 Penn Traffic acquisition previously presented for the 40-week period ended October 9, 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 supermarkets with an additional 5 supermarkets operated by franchisees, which offer grocery, produce, frozen, dairy, meat, floral, seafood, health and beauty care, general merchandise, deli and bakery goods. As of October 8, 2011, 79 of the supermarkets offered pharmacy services and 40 fuel centers were in operation. Across all 125 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 Company’s retail operations, which represent substantially all of the Company’s consolidated sales, earnings and total assets, are its only reportable segment.

These 125 operating segments have been aggregated into one reportable segment because, in the Company’s judgment, the operating segments have similar historical economic characteristics and are expected to have similar economic characteristics and long-term financial performance in the future. The principal measures and factors considered in determining whether the economic characteristics are similar are gross margin percentage, capital expenditures, competitive risks and employee labor agreements. In addition, each operating segment has similar products and types of customers, similar methods of distribution and a similar regulatory environment.

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

	12-week periods ended										40-week periods ended
	October 8, 2011					October 9, 2010					October 8, 2011					October 9, 2010
			% of					% of					% of					% of
	Amount		Total			Amount		Total			Amount		Total			Amount		Total
Non-perishables(1)	$	306,687		56.9	%	$	301,209		57.9	%	$	1,024,900		56.5	%	$	996,726		57.7	%
Perishables(2)		141,048		26.2	%		137,610		26.5	%		485,099		26.7	%		467,757		27.1	%
Fuel		47,633		8.8	%		36,339		7.0	%		158,126		8.7	%		112,221		6.5	%
Pharmacy		39,590		7.4	%		41,368		8.0	%		134,894		7.4	%		138,721		8.0	%
Other(3)		3,648		0.7	%		3,333		0.6	%		12,360		0.7	%		11,282		0.7	%
	$	538,606		100.0	%	$	519,859		100.0	%	$	1,815,379		100.0	%	$	1,726,707		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 Company’s condensed consolidated financial statements and notes thereto. The most significant estimates used by management are related to the accounting for vendor allowances, valuation of long-lived assets including intangible assets, acquisition accounting, lease classification, self-insurance reserves, inventory valuation, and income taxes. Actual results could differ from these estimates.

Fair Value of Financial Instruments

The provisions of Financial Accounting Standards Board (“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 Company’s determination of assumptions that market participants would use in pricing the asset or liability. These inputs are developed based on the best information available, including the Company’s own data.

The carrying amount of the Company’s cash and cash equivalents at October 8, 2011 represents fair value as it includes cash on deposit with commercial banks.

The fair value of the Company’s senior secured notes is based on quoted market prices. At October 8, 2011, the fair value of total debt excluding capital leases was $399.5 million, compared to a carrying value of $360.7 million. At January 1, 2011, the fair value of total debt excluding capital leases was $408.4 million, compared to a carrying value of $365.7 million.

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Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)	Oct. 08, 2011	Jan. 01, 2011
Shareholders' deficit:
Common shares, par value	$ 0.001	$ 0.001
Common shares, authorized	300,000	300,000
Common shares, issued	144,776	144,776
Common shares, outstanding	144,776	144,776

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Document and Entity Information	9 Months Ended
	Oct. 08, 2011	Nov. 21, 2011
Document and Entity Information [Abstract]
Entity Registrant Name	Tops Holding Corp
Entity Central Index Key	0001483173
Document Type	10-Q
Document Period End Date	Oct. 08, 2011
Amendment Flag	false
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	Yes
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		144,776

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Condensed Consolidated Statements of Operations (Unaudited) (USD $) In Thousands	3 Months Ended		9 Months Ended
	Oct. 08, 2011	Oct. 09, 2010	Oct. 08, 2011	Oct. 09, 2010
Condensed Consolidated Statements of Operations [Abstract]
Net sales	$ 538,606	$ 519,859	$ 1,815,379	$ 1,726,707
Cost of goods sold	(375,211)	(362,206)	(1,271,094)	(1,201,152)
Distribution costs	(10,470)	(10,752)	(34,026)	(34,262)
Gross profit	152,925	146,901	510,259	491,293
Operating expenses:
Wages, salaries and benefits	(69,691)	(70,871)	(245,029)	(238,377)
Selling and general expenses	(23,774)	(24,381)	(80,595)	(80,188)
Administrative expenses (inclusive of share-based compensation expense of $264, $21, $876 and $447)	(17,639)	(19,670)	(61,141)	(82,172)
Rent expense, net	(4,301)	(4,518)	(14,416)	(14,535)
Depreciation and amortization	(12,040)	(15,090)	(38,827)	(48,804)
Advertising	(3,838)	(5,923)	(14,240)	(18,278)
Impairment charges (Note 7)	(900)		(2,791)
Total operating expenses	(132,183)	(140,453)	(457,039)	(482,354)
Operating income	20,742	6,448	53,220	8,939
Bargain purchase				15,681
Loss on debt extinguishment		(33)		(1,041)
Interest expense, net	(13,997)	(14,368)	(47,585)	(46,852)
Income (loss) before income taxes	6,745	(7,953)	5,635	(23,273)
Income tax (expense) benefit (Note 6)	(305)	397	(990)	10,096
Net income (loss)	$ 6,440	$ (7,556)	$ 4,645	$ (13,177)

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Income Taxes

9 Months Ended

Oct. 08, 2011

Income Taxes [Abstract]

INCOME TAXES

6. INCOME TAXES

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

	12-week periods ended					40-week periods ended
	October 8, 2011			October 9, 2010		October 8, 2011			October 9, 2010
Current	$	(11	)	$	397	$	(31	)	$	(192	)
Deferred		(294	)		—		(959	)		10,288
	$	(305	)	$	397	$	(990	)	$	10,096

The income tax expense for the 12-week period ended October 8, 2011 primarily reflects the establishment of additional valuation allowance against net deferred tax assets during the period. The overall effective tax rate was 4.5%. The effective tax rate would have been 35.6% without the impact of adjustments to the valuation allowance and discrete charges.

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

The income tax expense for the 40-week period ended October 8, 2011 primarily reflects the establishment of additional valuation allowance against net deferred tax assets during the period. The overall effective tax rate was 17.6%. The effective tax rate would have been 35.8% without the impact of adjustments to the valuation allowance and discrete charges.

The income tax benefit for the 40-week period ended October 9, 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 Penn Traffic acquisition. The timing of taxable income resulting from the amortization of the gain for tax purposes provides sufficient future taxable income to support the future deductibility of the Company’s deferred tax assets. The overall effective rate for the 40-week period ended October 9, 2010 was 43.4%. The effective tax rate would have been 40.0% without the impact of adjustments to the valuation allowance, the bargain purchase, and discrete charges.

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Debt

9 Months Ended

Oct. 08, 2011

Debt [Abstract]

DEBT

5. DEBT

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

	October 8, 2011			January 1, 2011
Senior Notes	$	350,000		$	350,000
Discount on Senior Notes, net		(2,600	)		(2,914	)
ABL Facility		10,000			15,000
Other loans		2,260			2,400
Mortgage note payable		991			1,178
Total debt		360,651			365,664
Current portion		(427	)		(402	)
Total long-term debt	$	360,224		$	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 issuance of the Senior Notes, net of a $4.5 million original issue discount, of $270.5 million. The Senior Notes mature October 15, 2015 and require semi-annual interest payments on April 15 and October 15. The Senior Notes are collateralized by (i) first-priority interests, subject to certain exceptions, in the Company’s warehouse distribution facility in Lancaster, New York, certain owned real property acquired by the Company, Tops Markets and the guarantors, Tops PT, LLC and Tops Gift Card Company, LLC, following the issue date of the Senior Notes, intellectual property, equipment, stock of subsidiaries and substantially all other assets of the Company, Tops Markets and the guarantors (other than leasehold interests in real property), other than assets securing the Company’s 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 the revolving ABL Facility, which 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 October 8, 2011, the unused availability under the ABL Facility was $60.2 million, after giving effect to $14.2 million of letters of credit outstanding thereunder. Revolving loans under the ABL Facility will, at the Company’s option, bear interest at either i) LIBOR plus a margin of 350 to 400 basis points, determined based on levels of borrowing availability, or ii) the prime rate plus a margin of 250 to 300 basis points, determined based on levels of borrowing availability. The ABL Facility is collateralized primarily by (i) first-priority interests, subject to certain exceptions, in the ABL Priority Collateral and (ii) second-priority interests, subject to certain exceptions, in the Notes Priority Collateral.

The proceeds from the Senior Notes and ABL Facility were utilized to repay the outstanding debt related to the Company’s previous senior secured credit facility and its warehouse mortgage, pay a $105.0 million dividend to the Company’s shareholders, settle the Company’s 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 instruments governing the Senior Notes and ABL Facility impose customary affirmative and negative covenants on the Company, 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 October 8, 2011 and January 1, 2011, the Company was in compliance with all such covenants.

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Guarantor Financial Statements

9 Months Ended

Oct. 08, 2011

Guarantor Financial Statements [Abstract]

GUARANTOR FINANCIAL STATEMENTS

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 October 8, 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-week and 40-week periods ended October 8, 2011 and October 9, 2010, and the related statements of cash flows for the 40-week periods ended October 8, 2011 and October 9, 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 IRS. However, for purposes of evaluating an entity’s ability to realize its tax attributes, the Company assesses whether it is more likely than not that those assets will be realized at the consolidated level. Any differences in the total of the income tax provision for Holding only, Tops Markets only and the Guarantor Subsidiaries, as calculated on the separate return method, and the consolidated income tax provision, are eliminated in consolidation.

CONDENSED CONSOLIDATED BALANCE SHEET
OCTOBER 8, 2011
(Dollars in thousands)

	Tops Holding						Guarantor
	Corporation			Tops Markets, LLC			Subsidiaries		Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—		$	18,488		$	869	$	—		$	19,357
Accounts receivable, net		—			45,106			12,198		—			57,304
Intercompany receivables		—			3,563			12,438		(16,001	)		—
Inventory, net		—			82,802			34,618		—			117,420
Prepaid expenses and other current assets		—			12,360			3,215		—			15,575
Income taxes refundable		—			195			—		—			195
Current deferred tax assets		—			1,657			—		608			2,265
Total current assets		—			164,171			63,338		(15,393	)		212,116
Property and equipment, net		—			288,568			75,561		—			364,129
Intangible assets, net		—			63,213			9,465		—			72,678
Other assets		—			11,732			3,041		(3,041	)		11,732
Investment in subsidiaries		(71,282	)		109,231			—		(37,949	)		—
Total assets	$	(71,282	)	$	636,915		$	151,405	$	(56,383	)	$	660,655
Liabilities and Shareholders’ (Deficit) Equity
Current liabilities:
Accounts payable	$	—		$	60,253		$	18,137	$	—		$	78,390
Intercompany payables		3,563			12,438			—		(16,001	)		—
Accrued expenses and other current liabilities		1,027			65,132			16,069		(744	)		81,484
Current portion of capital lease obligations		—			12,543			37		—			12,580
Current portion of long-term debt		—			427			—		—			427
Current deferred tax liabilities		—			—			11		(11	)		—
Total current liabilities		4,590			150,793			34,254		(16,756	)		172,881
Capital lease obligations		—			158,734			3,761		—			162,495
Long-term debt		—			363,265			—		(3,041	)		360,224
Other long-term liabilities		—			17,561			3,171		—			20,732
Non-current deferred tax liabilities		—			17,037			988		(13,712	)		4,313
Total liabilities		4,590			707,390			42,174		(33,509	)		720,645
Total shareholders’ (deficit) equity		(75,872	)		(70,475	)		109,231		(22,874	)		(59,990	)
Total liabilities and shareholders’ (deficit) equity	$	(71,282	)	$	636,915		$	151,405	$	(56,383	)	$	660,655

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 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 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

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE 12-WEEK PERIOD ENDED OCTOBER 8, 2011
(Dollars in thousands)

	Tops Holding						Guarantor
	Corporation			Tops Markets, LLC			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	404,076		$	134,735		$	(205	)	$	538,606
Cost of goods sold		—			(284,998	)		(90,213	)		—			(375,211	)
Distribution costs		—			(7,507	)		(2,963	)		—			(10,470	)
Gross profit		—			111,571			41,559			(205	)		152,925
Operating expenses:
Wages, salaries and benefits		—			(49,694	)		(19,997	)		—			(69,691	)
Selling and general expenses		—			(16,658	)		(7,321	)		205			(23,774	)
Administrative expenses		(646	)		(12,519	)		(4,474	)		—			(17,639	)
Rent expense, net		—			(2,222	)		(2,079	)		—			(4,301	)
Depreciation and amortization		—			(9,108	)		(2,932	)		—			(12,040	)
Advertising		—			(2,703	)		(1,135	)		—			(3,838	)
Impairment charge		—			—			(900	)		—			(900	)
Total operating expenses		(646	)		(92,904	)		(38,838	)		205			(132,183	)
Operating (loss) income		(646	)		18,667			2,721			—			20,742
Interest expense, net		—			(13,951	)		(46	)		—			(13,997	)
Equity income from subsidiaries		6,027			1,616			—			(7,643	)		—
Income before income taxes		5,381			6,332			2,675			(7,643	)		6,745
Income tax expense		—			(305	)		(1,059	)		1,059			(305	)
Net income	$	5,381		$	6,027		$	1,616		$	(6,584	)	$	6,440

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

	Tops Holding						Guarantor
	Corporation			Tops Markets, LLC			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	386,600		$	133,444		$	(185	)	$	519,859
Cost of goods sold		—			(273,878	)		(88,328	)		—			(362,206	)
Distribution costs		—			(7,584	)		(3,168	)		—			(10,752	)
Gross profit		—			105,138			41,948			(185	)		146,901
Operating expenses:
Wages, salaries and benefits		—			(50,811	)		(20,060	)		—			(70,871	)
Selling and general expenses		—			(16,133	)		(8,433	)		185			(24,381	)
Administrative expenses		(293	)		(14,979	)		(4,398	)		—			(19,670	)
Rent expense, net		—			(2,355	)		(2,163	)		—			(4,518	)
Depreciation and amortization		—			(13,172	)		(1,918	)		—			(15,090	)
Advertising		—			(3,454	)		(2,469	)		—			(5,923	)
Total operating expenses		(293	)		(100,904	)		(39,441	)		185			(140,453	)
Operating (loss) income		(293	)		4,234			2,507			—			6,448
Loss on debt extinguishment		—			(33	)		—			—			(33	)
Interest expense, net		—			(14,284	)		(84	)		—			(14,368	)
Equity income from subsidiaries		2,065			1,463			—			(3,528	)		—
Income (loss) before income taxes		1,772			(8,620	)		2,423			(3,528	)		(7,953	)
Income tax benefit (expense)		—			10,685			(960	)		(9,328	)		397
Net income	$	1,772		$	2,065		$	1,463		$	(12,856	)	$	(7,556	)

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE 40-WEEK PERIOD ENDED OCTOBER 8, 2011
(Dollars in thousands)

	Tops Holding						Guarantor
	Corporation			Tops Markets, LLC			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	1,362,912		$	453,265		$	(798	)	$	1,815,379
Cost of goods sold		—			(968,236	)		(302,858	)		—			(1,271,094	)
Distribution costs		—			(24,307	)		(9,719	)		—			(34,026	)
Gross profit		—			370,369			140,688			(798	)		510,259
Operating expenses:
Wages, salaries and benefits		—			(175,680	)		(69,349	)		—			(245,029	)
Selling and general expenses		—			(56,339	)		(25,054	)		798			(80,595	)
Administrative expenses		(2,072	)		(43,660	)		(15,409	)		—			(61,141	)
Rent expense, net		—			(7,525	)		(6,891	)		—			(14,416	)
Depreciation and amortization		—			(29,466	)		(9,361	)		—			(38,827	)
Advertising		—			(9,929	)		(4,311	)		—			(14,240	)
Impairment charges		—			—			(2,791	)		—			(2,791	)
Total operating expenses		(2,072	)		(322,599	)		(133,166	)		798			(457,039	)
Operating (loss) income		(2,072	)		47,770			7,522			—			53,220
Interest expense, net		—			(47,400	)		(185	)		—			(47,585	)
Equity income from subsidiaries		3,812			4,432			—			(8,244	)		—
Income before income taxes		1,740			4,802			7,337			(8,244	)		5,635
Income tax expense		—			(990	)		(2,905	)		2,905			(990	)
Net income	$	1,740		$	3,812		$	4,432		$	(5,339	)	$	4,645

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

	Tops Holding						Guarantor
	Corporation			Tops Markets, LLC			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	1,306,007		$	421,394		$	(694	)	$	1,726,707
Cost of goods sold		—			(920,963	)		(280,189	)		—			(1,201,152	)
Distribution costs		—			(24,340	)		(9,922	)		—			(34,262	)
Gross profit		—			360,704			131,283			(694	)		491,293
Operating expenses:
Wages, salaries and benefits		—			(171,811	)		(66,566	)		—			(238,377	)
Selling and general expenses		—			(54,537	)		(26,345	)		694			(80,188	)
Administrative expenses		(1,558	)		(66,127	)		(14,487	)		—			(82,172	)
Rent expense, net		—			(7,380	)		(7,155	)		—			(14,535	)
Depreciation and amortization		—			(43,377	)		(5,427	)		—			(48,804	)
Advertising		—			(12,825	)		(5,453	)		—			(18,278	)
Total operating expenses		(1,558	)		(356,057	)		(125,433	)		694			(482,354	)
Operating (loss) income		(1,558	)		4,647			5,850			—			8,939
Bargain purchase		—			—			15,681			—			15,681
Loss on debt extinguishment		—			(1,041	)		—			—			(1,041	)
Interest (expense) income, net		—			(46,900	)		48			—			(46,852	)
Equity (loss) income from subsidiaries		(13,955	)		19,243			—			(5,288	)		—
(Loss) income before income taxes		(15,513	)		(24,051	)		21,579			(5,288	)		(23,273	)
Income tax benefit (expense)		—			10,096			(2,336	)		2,336			10,096
Net (loss) income	$	(15,513	)	$	(13,955	)	$	19,243		$	(2,952	)	$	(13,177	)

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE 40-WEEK PERIOD ENDED OCTOBER 8, 2011
(Dollars in thousands)

	Tops Holding						Guarantor
	Corporation			Tops Markets, LLC			Subsidiaries			Eliminations			Consolidated
Net cash (used in) provided by operating activities	$	(713	)	$	35,274		$	16,896		$	—		$	51,457
Cash flows used in investing activities:
Cash paid for property and equipment		—			(18,933	)		(18,415	)		—			(37,348	)
Proceeds from sale of assets		—			—			1,250			—			1,250
Proceeds from insurable loss recovery		—			—			50			—			50
Change in intercompany receivables position		—			(713	)		654			59			—
Net cash used in investing activities		—			(19,646	)		(16,461	)		59			(36,048	)
Cash flows provided by (used in) financing activities:
Borrowings on ABL Facility		—			454,500			—			—			454,500
Repayments on ABL Facility		—			(459,500	)		—			—			(459,500	)
Principal payments on capital leases		—			(8,130	)		(296	)		—			(8,426	)
Repayments of long-term debt borrowings		—			(327	)		—			—			(327	)
Change in bank overdraft position		—			339			—			—			339
Deferred financing costs incurred		—			(57	)		—			—			(57	)
Change in intercompany payables position		713			(654	)		—			(59	)		—
Net cash provided by (used in) financing activities		713			(13,829	)		(296	)		(59	)		(13,471	)
Net increase in cash and cash equivalents		—			1,799			139			—			1,938
Cash and cash equivalents— beginning of period		—			16,689			730			—			17,419
Cash and cash equivalents— end of period	$	—		$	18,488		$	869		$	—		$	19,357

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE 40-WEEK PERIOD ENDED OCTOBER 9, 2010
(Dollars in thousands)

	Tops Holding						Guarantor
	Corporation			Tops Markets, LLC			Subsidiaries			Eliminations			Consolidated
Net cash (used in) provided by operating activities	$	(713	)	$	37,812		$	8,839		$	—		$	45,938
Cash flows used in investing activities:
Acquisition of Penn Traffic assets		—			—			(85,023	)		—			(85,023	)
Proceeds from sale of assets		—			—			20,738			—			20,738
Cash paid for property and equipment		—			(21,585	)		(12,695	)		—			(34,280	)
Investment in subsidiaries		—			(85,023	)		—			85,023			—
Change in intercompany receivables position		—			(713	)		(16,018	)		16,731			—
Net cash used in investing activities		—			(107,321	)		(92,998	)		101,754			(98,565	)
Cash flows provided by financing activities:
Proceeds from long-term debt borrowings		—			112,125			—			—			112,125
Repayments of long-term debt borrowings		—			(36,283	)		—			—			(36,283	)
Borrowings on ABL Facility		—			191,400			—			—			191,400
Repayments on ABL Facility		—			(205,400	)		—			—			(205,400	)
Proceeds from issuance of common shares		30,000			30,000			—			(30,000	)		30,000
Dividend to shareholders		(30,000	)		(30,000	)		—			30,000			(30,000	)
Deferred financing costs incurred		—			(5,677	)		—			—			(5,677	)
Principal payments on capital leases		—			(6,787	)		(220	)		—			(7,007	)
Capital contribution		—			—			85,023			(85,023	)		—
Change in bank overdraft position		—			348			—			—			348
Change in intercompany payables position		713			16,018			—			(16,731	)		—
Net cash provided by financing activities		713			65,744			84,803			(101,754	)		49,506
Net (decrease) increase in cash and cash equivalents		—			(3,765	)		644			—			(3,121	)
Cash and cash equivalents— beginning of period		—			19,712			10			—			19,722
Cash and cash equivalents— end of period	$	—		$	15,947		$	654		$	—		$	16,601

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Impairment Charges

9 Months Ended

Oct. 08, 2011

Impairment Charges [Abstract]

IMPAIRMENT CHARGES

7. IMPAIRMENT CHARGES

On June 30, 2011, the FTC approved an application by Tops to sell three supermarkets acquired as part of the Penn Traffic acquisition 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 40-week period ended October 8, 2011, representing the excess of the carrying value of assets over the sale price.

During November 2011, the Company executed an agreement to sell the remaining supermarket acquired from Penn Traffic subject to the Final Order from the FTC. As a result of the potential sale, the Company recorded a $0.9 million impairment within the condensed consolidated statements of operations for the 12-week and 40-week periods ended October 8, 2011, representing the excess of the carrying value of assets over the sale price.

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Related Party Transactions

9 Months Ended

Oct. 08, 2011

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

8. RELATED PARTY TRANSACTIONS

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

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 October 8, 2011 and October 9, 2010, the Company paid $0.2 million related to this agreement. For each of the 40-week periods ended October 8, 2011 and October 9, 2010, the Company paid $0.7 million related to this agreement. These fees are included in administrative expenses in the condensed consolidated statements of operations.

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Condensed Consolidated Statements of Operations (Unaudited) (Parenthetical) (USD $) In Thousands	3 Months Ended		9 Months Ended
	Oct. 08, 2011	Oct. 09, 2010	Oct. 08, 2011	Oct. 09, 2010
Operating expenses:
Stock-based compensation expense included in administrative expenses	$ 264	$ 21	$ 876	$ 447

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Accrued Expenses and Other Current Liabilities

9 Months Ended

Oct. 08, 2011

Accrued Expenses and Other Current Liabilities [Abstract]

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

4. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

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

	October 8, 2011		January 1, 2011
Wages, taxes and benefits	$	18,865	$	18,918
Interest payable		17,167		8,318
Lottery		10,068		10,083
Union medical, pension and 401(k)		4,568		4,598
Utilities		4,090		2,980
Self-insurance reserves		4,013		1,406
Sales and use tax		3,243		2,101
Gift cards		2,634		4,271
Money orders		2,496		3,651
Property and equipment expenditures		2,466		6,107
Repairs and maintenance		2,154		2,054
Professional and legal fees		1,346		3,640
Other		8,374		10,996
	$	81,484	$	79,123