SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED APRIL 21, 2012
OR
¨ | 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 | 26-1252536 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
6363 Main Street, Williamsville, New York 14221 |
(716) 635-5000 | |
(Address of principal executive office, including zip code) | (Telephone Number) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨.
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 x No ¨
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 | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | x (Do not check if a smaller reporting company) | 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 ¨ No x
As of June 4, 2012, 144,776 shares of common stock of the registrant were outstanding.
TOPS HOLDING CORPORATION
PART I FINANCIAL INFORMATION (Unaudited) |
||||||
ITEM 1. |
FINANCIAL STATEMENTS | |||||
Condensed Consolidated Balance Sheets as of April 21, 2012 and December 31, 2011 |
1 | |||||
2 | ||||||
3 | ||||||
4 | ||||||
ITEM 2. |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
15 | ||||
ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 20 | ||||
ITEM 4. |
CONTROLS AND PROCEDURES | 21 | ||||
PART II OTHER INFORMATION |
||||||
ITEM 1. |
LEGAL PROCEEDINGS | 21 | ||||
ITEM 1A. |
RISK FACTORS | 21 | ||||
ITEM 6. |
EXHIBITS | 22 | ||||
22 |
i
PART I FINANCIAL INFORMATION (Unaudited)
TOPS HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share amounts)
(Unaudited)
April 21, 2012 |
December 31, 2011 |
|||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 20,184 | $ | 19,181 | ||||
Accounts receivable, net |
48,125 | 55,987 | ||||||
Inventory, net |
114,606 | 115,309 | ||||||
Prepaid expenses and other current assets |
16,488 | 12,990 | ||||||
Income taxes refundable |
155 | 285 | ||||||
Current deferred tax assets |
1,971 | 1,971 | ||||||
|
|
|
|
|||||
Total current assets |
201,529 | 205,723 | ||||||
Property and equipment, net |
348,715 | 358,263 | ||||||
Intangible assets, net (Note 3) |
69,910 | 72,125 | ||||||
Other assets |
10,241 | 11,101 | ||||||
|
|
|
|
|||||
Total assets |
$ | 630,395 | $ | 647,212 | ||||
|
|
|
|
|||||
Liabilities and Shareholders Deficit |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 79,130 | $ | 75,608 | ||||
Accrued expenses and other current liabilities (Note 4) |
59,759 | 74,677 | ||||||
Current portion of capital lease obligations |
13,151 | 12,701 | ||||||
Current portion of long-term debt (Note 6) |
394 | 434 | ||||||
|
|
|
|
|||||
Total current liabilities |
152,434 | 163,420 | ||||||
Capital lease obligations |
155,974 | 159,814 | ||||||
Long-term debt (Note 6) |
350,286 | 355,240 | ||||||
Other long-term liabilities |
25,483 | 23,893 | ||||||
Non-current deferred tax liabilities |
4,679 | 4,309 | ||||||
|
|
|
|
|||||
Total liabilities |
688,856 | 706,676 | ||||||
|
|
|
|
|||||
Shareholders deficit: |
||||||||
Common shares ($0.001 par value; 300,000 authorized shares, 144,776 shares issued and outstanding as of April 21, 2012 and December 31, 2011) |
| | ||||||
Paid-in capital |
(1,176 | ) | (1,528 | ) | ||||
Accumulated deficit |
(56,024 | ) | (56,675 | ) | ||||
Accumulated other comprehensive loss, net of tax |
(1,261 | ) | (1,261 | ) | ||||
|
|
|
|
|||||
Total shareholders deficit |
(58,461 | ) | (59,464 | ) | ||||
|
|
|
|
|||||
Total liabilities and shareholders deficit |
$ | 630,395 | $ | 647,212 | ||||
|
|
|
|
See notes to condensed consolidated financial statements.
- 1 -
TOPS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands)
(Unaudited)
16-week periods ended | ||||||||
April 21, 2012 |
April 23, 2011 |
|||||||
Net sales |
$ | 704,380 | $ | 717,259 | ||||
Cost of goods sold |
(490,707 | ) | (500,744 | ) | ||||
Distribution costs |
(13,767 | ) | (14,163 | ) | ||||
|
|
|
|
|||||
Gross profit |
199,906 | 202,352 | ||||||
Operating expenses: |
||||||||
Wages, salaries and benefits |
(99,230 | ) | (98,982 | ) | ||||
Selling and general expenses |
(29,818 | ) | (33,383 | ) | ||||
Administrative expenses (inclusive of share-based compensation expense of $352 and $348) |
(23,870 | ) | (25,483 | ) | ||||
Rent expense, net |
(5,980 | ) | (5,903 | ) | ||||
Depreciation and amortization |
(16,029 | ) | (15,041 | ) | ||||
Advertising |
(5,646 | ) | (5,990 | ) | ||||
|
|
|
|
|||||
Total operating expenses |
(180,573 | ) | (184,782 | ) | ||||
Operating income |
19,333 | 17,570 | ||||||
Interest expense, net |
(18,312 | ) | (19,291 | ) | ||||
|
|
|
|
|||||
Income (loss) before income taxes |
1,021 | (1,721 | ) | |||||
Income tax expense |
(370 | ) | (367 | ) | ||||
|
|
|
|
|||||
Net income (loss) |
651 | (2,088 | ) | |||||
Other comprehensive income: |
||||||||
Retirement obligations adjustments |
| | ||||||
|
|
|
|
|||||
Comprehensive income (loss) |
$ | 651 | $ | (2,088 | ) | |||
|
|
|
|
See notes to condensed consolidated financial statements.
- 2 -
TOPS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
16-week periods ended | ||||||||
April 21, 2012 |
April 23, 2011 |
|||||||
Cash flows provided by operating activities: |
||||||||
Net income (loss) |
$ | 651 | $ | (2,088 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
20,850 | 20,318 | ||||||
LIFO inventory valuation adjustments |
2,176 | (663 | ) | |||||
Amortization of deferred financing costs |
860 | 803 | ||||||
Deferred income taxes |
370 | 347 | ||||||
Share-based compensation expense |
352 | 348 | ||||||
Other |
(526 | ) | 115 | |||||
Changes in operating assets and liabilities: |
||||||||
Decrease in accounts receivable |
7,862 | 164 | ||||||
Increase in inventories |
(1,473 | ) | (712 | ) | ||||
Increase in prepaid expenses and other current assets |
(3,498 | ) | (1,136 | ) | ||||
Decrease in income taxes refundable |
130 | 14 | ||||||
Increase in accounts payable |
3,704 | 20,044 | ||||||
Decrease in accrued expenses and other current liabilities |
(14,180 | ) | (15,776 | ) | ||||
Increase in other long-term liabilities |
1,563 | 525 | ||||||
|
|
|
|
|||||
Net cash provided by operating activities |
18,841 | 22,303 | ||||||
|
|
|
|
|||||
Cash flows used in investing activities: |
||||||||
Cash paid for property and equipment |
(9,442 | ) | (16,954 | ) | ||||
Proceeds from insurable loss recovery |
779 | | ||||||
Proceeds from sale of assets |
| 650 | ||||||
|
|
|
|
|||||
Net cash used in investing activities |
(8,663 | ) | (16,304 | ) | ||||
|
|
|
|
|||||
Cash flows (used in) provided by financing activities: |
||||||||
Borrowings on ABL Facility |
43,500 | 220,800 | ||||||
Repayments on ABL Facility |
(48,500 | ) | (215,800 | ) | ||||
Principal payments on capital leases |
(3,852 | ) | (3,233 | ) | ||||
Repayments of long-term debt borrowings |
(141 | ) | (126 | ) | ||||
Change in bank overdraft position |
(182 | ) | (290 | ) | ||||
Deferred financing costs incurred |
| (57 | ) | |||||
|
|
|
|
|||||
Net cash (used in) provided by financing activities |
(9,175 | ) | 1,294 | |||||
|
|
|
|
|||||
Net increase in cash and cash equivalents |
1,003 | 7,293 | ||||||
Cash and cash equivalents-beginning of period |
19,181 | 17,419 | ||||||
|
|
|
|
|||||
Cash and cash equivalents-end of period |
$ | 20,184 | $ | 24,712 | ||||
|
|
|
|
See notes to 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 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), Graycliff Partners (Graycliff) (formerly, HSBC Private Equity Partners), two minority investors and a company employee. Holding has no other business operations as its sole purpose is the ownership of Tops Markets. The Company operates as a food retailer in Upstate New York and Northern Pennsylvania under the banner Tops. As of April 21, 2012, the Company operated 124 supermarkets with an additional five 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 December 31, 2011, which appear in the Companys Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 29, 2012.
Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and the requirements for Form 10-Q, and do not include all disclosures normally required in annual consolidated financial statements prepared in accordance with GAAP. The condensed consolidated financial statements include the accounts of the Company and all of its subsidiaries. All intercompany transactions have been eliminated.
The Companys condensed consolidated financial statements for the 16-week periods ended April 21, 2012 and April 23, 2011 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.
Segments
As of April 21, 2012, the Company operated 124 supermarkets with an additional five supermarkets operated by franchisees. The supermarkets offer grocery, produce, frozen, dairy, meat, floral, seafood, health and beauty care, general merchandise, deli and bakery goods. The Company operates one supermarket format where each supermarket offers the same general mix of products with similar pricing to similar categories of customers. The Company has concluded that each individual supermarket is an operating segment. As of April 21, 2012, 79 of the supermarkets offer pharmacy services and 43 fuel centers were in operation, inclusive of the franchise locations. The Companys retail operations, which represent substantially all of the Companys consolidated sales, earnings and total assets, are its only reportable segment.
These operating segments have been aggregated into one reportable segment because, in the Companys judgment, the operating segments have similar historical economic characteristics and are expected to have similar economic characteristics and long-term financial performance in the future. The principal measures and factors considered in determining whether the economic characteristics are similar are gross profit percentages, 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.
- 4 -
The following table presents sales revenue by type of similar product (dollars in thousands):
16-week period ended April 21, 2012 |
16-week period ended April 23, 2011 |
|||||||||||||||
Amount | % of Total |
Amount | % of Total |
|||||||||||||
Non-perishables(1) |
$ | 398,406 | 56.6 | % | $ | 410,210 | 57.2 | % | ||||||||
Perishables(2) |
184,000 | 26.1 | % | 188,658 | 26.3 | % | ||||||||||
Fuel |
64,886 | 9.2 | % | 58,366 | 8.1 | % | ||||||||||
Pharmacy |
51,786 | 7.4 | % | 55,094 | 7.7 | % | ||||||||||
Other(3) |
5,302 | 0.7 | % | 4,931 | 0.7 | % | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 704,380 | 100.0 | % | $ | 717,259 | 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, such as lottery, money orders and money transfers. |
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Companys condensed consolidated financial statements and notes thereto. The most significant estimates used by management are related to the accounting for vendor allowances, valuation of long-lived assets including intangible assets, 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 (ASC) Topic 820, Fair Value Measurements and Disclosures establish a framework for measuring fair value and a hierarchy that categorizes and prioritizes the sources to be used to estimate fair value as follows:
Level 1 observable inputs such as quoted prices in active markets;
Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (interest rates, yield curves, etc.), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs); and
Level 3 unobservable inputs that reflect the Companys determination of assumptions that market participants would use in pricing the asset or liability. These inputs are developed based on the best information available, including the Companys own data.
The fair value of the Companys senior secured notes is based on quoted market prices, a Level 2 source. At April 21, 2012, the fair value of total debt excluding capital leases was $377.5 million, compared to a carrying value of $350.7 million. At December 31, 2011, the fair value of total debt excluding capital leases was $374.4 million, compared to a carrying value of $355.7 million.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2011, the FASB issued ASU No. 2011-05 Comprehensive Income (Topic 220): Presentation of Comprehensive Income. This ASU provides companies two choices for presenting net income and comprehensive income: in a single continuous statement, or in two separate, but consecutive, statements. Presenting comprehensive income in the statement of equity is no longer an option. ASU No. 2011-05 is effective for the Company beginning in fiscal year 2012. In December 2011, the FASB issued ASU No. 2011-12 Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, which delays the effective date of certain provisions of ASU No. 2011-05 related to the presentation of reclassification adjustments out of accumulated other comprehensive income. During the 16-week period ended April 21, 2012, the Company adopted the provisions of ASU No. 2011-05 that were effective for 2012 and has elected to present net income (loss) and comprehensive income (loss) in a single continuous statement.
- 5 -
3. INTANGIBLE ASSETS, NET
Intangible assets, net of accumulated amortization, consist of the following (dollars in thousands):
April 21, 2012 |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
Weighted Average Amortization Period |
||||||||||||
Tradename indefinite |
$ | 41,011 | $ | | $ | 41,011 | Indefinite life | |||||||||
Customer relationships |
28,591 | (20,629 | ) | 7,962 | 8.4 | |||||||||||
Favorable/unfavorable lease rights |
17,789 | (7,262 | ) | 10,527 | 9.3 | |||||||||||
Franchise agreements |
11,538 | (4,611 | ) | 6,927 | 11.0 | |||||||||||
Tradenames finite |
4,310 | (1,725 | ) | 2,585 | 8.5 | |||||||||||
Other |
1,178 | (280 | ) | 898 | 5.0 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 104,417 | $ | (34,507 | ) | $ | 69,910 | 9.1 | |||||||||
|
|
|
|
|
|
|
|
December 31, 2011 |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
|||||||||
Tradename indefinite |
$ | 41,011 | $ | | $ | 41,011 | ||||||
Customer relationships |
28,591 | (19,643 | ) | 8,948 | ||||||||
Favorable/unfavorable lease rights |
17,789 | (6,610 | ) | 11,179 | ||||||||
Franchise agreements |
11,538 | (4,288 | ) | 7,250 | ||||||||
Tradenames finite |
4,310 | (1,504 | ) | 2,806 | ||||||||
Other |
1,168 | (237 | ) | 931 | ||||||||
|
|
|
|
|
|
|||||||
$ | 104,407 | $ | (32,282 | ) | $ | 72,125 | ||||||
|
|
|
|
|
|
The Tops tradename is reviewed for impairment on December 1 or more frequently if impairment indicators arise. Based on the Companys assessment, no impairment was recorded during the 16-week periods ended April 21, 2012 and April 23, 2011.
During the 16-week periods ended April 21, 2012 and April 23, 2011, amortization expense was $2.2 million and $2.7 million, respectively, and is included in administrative expenses in the condensed consolidated statements of operations and comprehensive income (loss).
As of April 21, 2012, expected future amortization of intangible assets is as follows (dollars in thousands):
2012 (remaining period) |
$ | 4,820 | ||
2013 |
6,303 | |||
2014 |
5,469 | |||
2015 |
4,163 | |||
2016 |
2,893 | |||
Thereafter |
4,789 |
4. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following (dollars in thousands):
April 21, 2012 |
December 31, 2011 |
|||||||
Wages, taxes and benefits |
$ | 12,486 | $ | 21,779 | ||||
Lottery |
11,093 | 10,124 | ||||||
Sales and use tax |
3,643 | 964 | ||||||
Self-insurance reserves |
3,468 | 3,468 | ||||||
Union medical, pension and 401(k) |
3,280 | 3,226 | ||||||
Gift cards |
2,827 | 4,517 | ||||||
Utilities |
2,360 | 2,192 | ||||||
Repairs and maintenance |
1,903 | 2,271 | ||||||
Money orders |
1,703 | 3,133 | ||||||
Professional and legal fees |
1,590 | 1,538 | ||||||
Property and equipment expenditures |
1,060 | 1,718 | ||||||
Interest payable |
762 | 7,846 | ||||||
Other |
13,584 | 11,901 | ||||||
|
|
|
|
|||||
$ | 59,759 | $ | 74,677 | |||||
|
|
|
|
- 6 -
5. CAPITAL LEASE OBLIGATIONS
The Company has a number of capital leases in effect for store properties and equipment. The initial lease terms generally range up to twenty-five years and will expire at various times through 2031, with options to renew for additional periods. The majority of the store leases provide for base rental, plus real estate taxes, insurance, common area maintenance and other operating expenses applicable to the leased premises. Some leases contain escalation clauses for future rents and contingent rents based on sales volume.
As of April 21, 2012, future minimum lease rental payments applicable to capital lease obligations follow (dollars in thousands):
2012 (remaining period) |
$ | 21,329 | ||
2013 |
29,992 | |||
2014 |
27,239 | |||
2015 |
24,293 | |||
2016 |
22,960 | |||
Thereafter |
85,333 | |||
|
|
|||
Total minimum lease payments |
211,146 | |||
Less amounts representing interest |
(90,851 | ) | ||
|
|
|||
Present value of net minimum lease payments |
120,295 | |||
Less current obligations |
(13,151 | ) | ||
|
|
|||
Long-term obligations |
$ | 107,144 | ||
|
|
The Company entered into sale-leaseback transactions in various years involving certain properties that did not qualify for sale-leaseback accounting as the lease agreements included various forms of continuing involvement. As a result, the transactions have been classified as financing transactions in accordance with FASB ASC Topic 840, Leases.
Under the financing method, the assets remain on the consolidated balance sheet and proceeds received by the Company from these transactions are recorded as capital lease obligations, allocated between land and building. Payments under these leases are applied as payments of imputed interest and deemed principal on the underlying building obligations, with no underlying cash payments deemed attributable to the land obligations. The related land assets are not depreciated, and at the end of the lease terms, the remaining capital lease obligations will equal the net book value of the land. The capital lease obligations as of April 21, 2012 and December 31, 2011 include $48.8 million of obligations related to land. At the expiration of the lease terms, or when the Companys continuing involvement under the lease agreements ends, the related land and obligations will be removed from the balance sheet, with no underlying cash payments.
6. DEBT
Long-term debt is comprised of the following (dollars in thousands):
April 21, 2012 |
December 31, 2011 |
|||||||
Senior Notes |
$ | 350,000 | $ | 350,000 | ||||
Discount on Senior Notes, net |
(2,348 | ) | (2,495 | ) | ||||
ABL Facility |
| 5,000 | ||||||
Other loans |
2,156 | 2,219 | ||||||
Mortgage note payable |
872 | 950 | ||||||
|
|
|
|
|||||
Total debt |
350,680 | 355,674 | ||||||
Current portion |
(394 | ) | (434 | ) | ||||
|
|
|
|
|||||
Total long-term debt |
$ | 350,286 | $ | 355,240 | ||||
|
|
|
|
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. On February 12, 2010, the Company issued an additional $75.0 million of Senior Notes on the same terms as the October 2009 issuance. The Company received proceeds of $76.1 million from this issuance, including a $1.1 million original issue premium. The Senior Notes mature October 15, 2015 and require semi-annual interest payments on April 15 and October 15. The Senior Notes are collateralized by (i) first-priority interests, subject to certain exceptions, in the Companys warehouse distribution facility in Lancaster, New York, certain owned real property acquired by the Company, Tops Markets and the guarantors, Tops PT, LLC and Tops Gift Card Company, LLC, following the issue date of the Senior Notes, intellectual property, equipment, stock of subsidiaries and substantially all other assets of the Company, Tops Markets and the guarantors (other than leasehold interests in real property), other than assets securing the Companys asset-based lending facility (the ABL Facility) on a first priority basis (collectively, the Notes Priority Collateral), and (ii) second-priority interests, subject to certain exceptions and permitted liens, in the assets of the Company, Tops Markets and the guarantors that secure the ABL Facility on a first-priority basis, including present and future receivables, inventory, prescription lists, deposit accounts and certain related rights and proceeds relating thereto (collectively, the ABL Priority Collateral).
- 7 -
Also effective October 9, 2009, the Company entered into a revolving asset-based facility (the 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 the amount available under the revolving credit facility by $30.0 million, subject to a borrowing base calculation. Based upon the borrowing base calculation as of April 21, 2012, the unused availability under the ABL Facility was $71.6 million, after giving effect to $14.8 million of letters of credit outstanding thereunder. As of December 31, 2011, $13.1 million of letters of credit were outstanding. Revolving loans under the ABL Facility will, at the Companys option, bear interest at either i) LIBOR plus a margin of 350 to 400 basis points, determined based on levels of borrowing availability, or ii) the prime rate plus a margin of 250 to 300 basis points, determined based on levels of borrowing availability. The ABL Facility is collateralized primarily by (i) first-priority interests, subject to certain exceptions, in the ABL Priority Collateral and (ii) second-priority interests, subject to certain exceptions, in the Notes Priority Collateral.
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.
7. INCOME TAXES
Income tax expense was as follows (dollars in thousands):
16-week periods ended | ||||||||
April 21, 2012 |
April 23, 2011 |
|||||||
Current |
$ | | $ | (20 | ) | |||
Deferred |
(370 | ) | (347 | ) | ||||
|
|
|
|
|||||
Total income tax expense |
$ | (370 | ) | $ | (367 | ) | ||
|
|
|
|
The income tax expense for the 16-week period ended April 21, 2012 primarily reflects the recognition of additional valuation allowance associated with the Companys indefinite-lived tradename deferred tax liability. The overall effective tax rate was 36.2%. The effective tax rate would have been 39.4% without the impact of federal tax credits and adjustments to the valuation allowance.
The income tax expense for the 16-week period ended April 23, 2011 reflects the establishment of additional valuation allowance against net deferred tax assets resulting from the pre-tax loss during the period. The overall effective tax rate was (21.3)%. The effective tax rate would have been 34.5% without the impact of the additional valuation allowance and discrete charges.
8. RELATED PARTY TRANSACTIONS
Effective November 30, 2007, the Company entered into a Transaction and Monitoring Fee Agreement with Morgan Stanley and Graycliff. In consideration of services provided, the Company pays an annual monitoring fee of $0.8 million to Morgan Stanley and $0.2 million to Graycliff, on a quarterly basis. During each of the 16-week periods ended April 21, 2012 and April 23, 2011, monitoring fees of $0.2 million were paid. These fees are included in administrative expenses in the condensed consolidated statements of operations and comprehensive income (loss).
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 (Guarantor Subsidiaries), both of which are 100% 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 Senior Notes and is wholly-owned by Holding. Separate financial statements of Holding, Tops Markets and of the Guarantor Subsidiaries are not presented as the guarantees are full and unconditional and the Guarantor Subsidiaries are jointly and severally liable.
The following supplemental financial information sets forth, on a condensed consolidating basis, balance sheets as of April 21, 2012 and December 31, 2011 for Holding and Tops Markets, the Guarantor Subsidiaries, and for the Company, and statements of operations and comprehensive income (loss) and statements of cash flows for the 16-week periods ended April 21, 2012 and April 23, 2011. Within such condensed consolidated financial statements, the Company has corrected the 2011 presentation to reflect an income tax allocation for Tops Markets.
- 8 -
TOPS HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
APRIL 21, 2012
(Dollars in thousands)
Tops Holding Corporation |
Tops Markets, LLC | Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Assets |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 19,364 | $ | 820 | $ | | $ | 20,184 | ||||||||||
Accounts receivable, net |
| 39,075 | 9,050 | | 48,125 | |||||||||||||||
Intercompany receivables |
| 4,092 | 23,004 | (27,096 | ) | | ||||||||||||||
Inventory, net |
| 79,994 | 34,612 | | 114,606 | |||||||||||||||
Prepaid expenses and other current assets |
| 13,538 | 2,950 | | 16,488 | |||||||||||||||
Income taxes refundable |
| 155 | | | 155 | |||||||||||||||
Current deferred tax assets |
| 1,363 | | 608 | 1,971 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
| 157,581 | 70,436 | (26,488 | ) | 201,529 | ||||||||||||||
Property and equipment, net |
| 273,774 | 74,941 | | 348,715 | |||||||||||||||
Intangible assets, net |
| 61,514 | 8,396 | | 69,910 | |||||||||||||||
Other assets |
| 28,765 | 3,041 | (21,565 | ) | 10,241 | ||||||||||||||
Investment in subsidiaries |
(53,005 | ) | 113,263 | | (60,258 | ) | | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | (53,005 | ) | $ | 634,897 | $ | 156,814 | $ | (108,311 | ) | $ | 630,395 | ||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Liabilities and Shareholders (Deficit) Equity |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable |
$ | | $ | 61,099 | $ | 18,031 | $ | | $ | 79,130 | ||||||||||
Intercompany payables |
4,092 | 23,004 | | (27,096 | ) | | ||||||||||||||
Accrued expenses and other current liabilities |
1,364 | 45,080 | 14,059 | (744 | ) | 59,759 | ||||||||||||||
Current portion of capital lease obligations |
| 12,782 | 369 | | 13,151 | |||||||||||||||
Current portion of long-term debt |
| 394 | | | 394 | |||||||||||||||
Current deferred tax liabilities |
| | 11 | (11 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
5,456 | 142,359 | 32,470 | (27,851 | ) | 152,434 | ||||||||||||||
Capital lease obligations |
| 152,698 | 3,276 | | 155,974 | |||||||||||||||
Long-term debt |
| 353,327 | | (3,041 | ) | 350,286 | ||||||||||||||
Other long-term liabilities |
| 21,309 | 4,174 | | 25,483 | |||||||||||||||
Non-current deferred tax liabilities |
| 17,402 | 3,631 | (16,354 | ) | 4,679 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities |
5,456 | 687,095 | 43,551 | (47,246 | ) | 688,856 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total shareholders (deficit) equity |
(58,461 | ) | (52,198 | ) | 113,263 | (61,065 | ) | (58,461 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities and shareholders (deficit) equity |
$ | (53,005 | ) | $ | 634,897 | $ | 156,814 | $ | (108,311 | ) | $ | 630,395 | ||||||||
|
|
|
|
|
|
|
|
|
|
- 9 -
TOPS HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2011
(Dollars in thousands)
Tops Holding Corporation |
Tops Markets, LLC | Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Assets |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | | $ | 18,351 | $ | 830 | $ | | $ | 19,181 | ||||||||||
Accounts receivable, net |
| 44,809 | 11,178 | | 55,987 | |||||||||||||||
Intercompany receivables |
| 3,800 | 15,556 | (19,356 | ) | | ||||||||||||||
Inventory, net |
| 79,972 | 35,337 | | 115,309 | |||||||||||||||
Prepaid expenses and other current assets |
| 10,654 | 2,336 | | 12,990 | |||||||||||||||
Income taxes refundable |
| 285 | | | 285 | |||||||||||||||
Current deferred tax assets |
| 1,363 | | 608 | 1,971 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
| 159,234 | 65,237 | (18,748 | ) | 205,723 | ||||||||||||||
Property and equipment, net |
| 282,207 | 76,056 | | 358,263 | |||||||||||||||
Intangible assets, net |
| 63,146 | 8,979 | | 72,125 | |||||||||||||||
Other assets |
| 27,687 | 3,041 | (19,627 | ) | 11,101 | ||||||||||||||
Investment in subsidiaries |
(54,493 | ) | 110,306 | | (55,813 | ) | | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | (54,493 | ) | $ | 642,580 | $ | 153,313 | $ | (94,188 | ) | $ | 647,212 | ||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Liabilities and Shareholders (Deficit) Equity |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable |
$ | | $ | 58,359 | $ | 17,249 | $ | | $ | 75,608 | ||||||||||
Intercompany payables |
3,800 | 15,556 | | (19,356 | ) | | ||||||||||||||
Accrued expenses and other current liabilities |
1,171 | 57,537 | 16,713 | (744 | ) | 74,677 | ||||||||||||||
Current portion of capital lease obligations |
| 12,348 | 353 | | 12,701 | |||||||||||||||
Current portion of long-term debt |
| 434 | | | 434 | |||||||||||||||
Current deferred tax liabilities |
| | 11 | (11 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
4,971 | 144,234 | 34,326 | (20,111 | ) | 163,420 | ||||||||||||||
Capital lease obligations |
| 156,456 | 3,358 | | 159,814 | |||||||||||||||
Long-term debt |
| 358,281 | | (3,041 | ) | 355,240 | ||||||||||||||
Other long-term liabilities |
| 20,262 | 3,631 | | 23,893 | |||||||||||||||
Non-current deferred tax liabilities |
| 17,033 | 1,692 | (14,416 | ) | 4,309 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities |
4,971 | 696,266 | 43,007 | (37,568 | ) | 706,676 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total shareholders (deficit) equity |
(59,464 | ) | (53,686 | ) | 110,306 | (56,620 | ) | (59,464 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities and shareholders (deficit) equity |
$ | (54,493 | ) | $ | 642,580 | $ | 153,313 | $ | (94,188 | ) | $ | 647,212 | ||||||||
|
|
|
|
|
|
|
|
|
|
- 10 -
TOPS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
AND COMPREHENSIVE INCOME
FOR THE 16-WEEK PERIOD ENDED APRIL 21, 2012
(Dollars in thousands)
Tops Holding Corporation |
Tops Markets, LLC | Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | | $ | 537,648 | $ | 167,094 | $ | (362 | ) | $ | 704,380 | |||||||||
Cost of goods sold |
| (381,084 | ) | (109,623 | ) | | (490,707 | ) | ||||||||||||
Distribution costs |
| (10,001 | ) | (3,766 | ) | | (13,767 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
| 146,563 | 53,705 | (362 | ) | 199,906 | ||||||||||||||
Operating expenses: |
||||||||||||||||||||
Wages, salaries and benefits |
| (72,187 | ) | (27,043 | ) | | (99,230 | ) | ||||||||||||
Selling and general expenses |
| (22,517 | ) | (7,663 | ) | 362 | (29,818 | ) | ||||||||||||
Administrative expenses |
(837 | ) | (17,238 | ) | (5,795 | ) | | (23,870 | ) | |||||||||||
Rent expense, net |
| (3,258 | ) | (2,722 | ) | | (5,980 | ) | ||||||||||||
Depreciation and amortization |
| (11,964 | ) | (4,065 | ) | | (16,029 | ) | ||||||||||||
Advertising |
| (4,185 | ) | (1,461 | ) | | (5,646 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating expenses |
(837 | ) | (131,349 | ) | (48,749 | ) | 362 | (180,573 | ) | |||||||||||
Operating (loss) income |
(837 | ) | 15,214 | 4,956 | | 19,333 | ||||||||||||||
Interest expense, net |
| (18,251 | ) | (61 | ) | | (18,312 | ) | ||||||||||||
Equity income from subsidiaries |
1,488 | 2,957 | | (4,445 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income (loss) before income taxes |
651 | (80 | ) | 4,895 | (4,445 | ) | 1,021 | |||||||||||||
Income tax benefit (expense) |
| 1,568 | (1,938 | ) | | (370 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
651 | 1,488 | 2,957 | (4,445 | ) | 651 | ||||||||||||||
Other comprehensive income: |
||||||||||||||||||||
Retirement obligations adjustments |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income |
$ | 651 | $ | 1,488 | $ | 2,957 | $ | (4,445 | ) | $ | 651 | |||||||||
|
|
|
|
|
|
|
|
|
|
- 11 -
TOPS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
AND COMPREHENSIVE (LOSS) INCOME
FOR THE 16-WEEK PERIOD ENDED APRIL 23, 2011
(Dollars in thousands)
Tops Holding Corporation |
Tops Markets, LLC | Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Net sales |
$ | | $ | 540,933 | $ | 176,690 | $ | (364 | ) | $ | 717,259 | |||||||||
Cost of goods sold |
| (382,718 | ) | (118,026 | ) | | (500,744 | ) | ||||||||||||
Distribution costs |
| (10,181 | ) | (3,982 | ) | | (14,163 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Gross profit |
| 148,034 | 54,682 | (364 | ) | 202,352 | ||||||||||||||
Operating expenses: |
||||||||||||||||||||
Wages, salaries and benefits |
| (71,285 | ) | (27,697 | ) | | (98,982 | ) | ||||||||||||
Selling and general expenses |
| (23,324 | ) | (10,423 | ) | 364 | (33,383 | ) | ||||||||||||
Administrative expenses |
(780 | ) | (18,395 | ) | (6,308 | ) | | (25,483 | ) | |||||||||||
Rent expense, net |
| (3,146 | ) | (2,757 | ) | | (5,903 | ) | ||||||||||||
Depreciation and amortization |
| (11,428 | ) | (3,613 | ) | | (15,041 | ) | ||||||||||||
Advertising |
| (4,154 | ) | (1,836 | ) | | (5,990 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total operating expenses |
(780 | ) | (131,732 | ) | (52,634 | ) | 364 | (184,782 | ) | |||||||||||
Operating (loss) income |
(780 | ) | 16,302 | 2,048 | | 17,570 | ||||||||||||||
Interest expense, net |
| (19,200 | ) | (91 | ) | | (19,291 | ) | ||||||||||||
Equity (loss) income from subsidiaries |
(1,308 | ) | 1,182 | | 126 | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
(Loss) income before income taxes |
(2,088 | ) | (1,716 | ) | 1,957 | 126 | (1,721 | ) | ||||||||||||
Income tax benefit (expense) |
| 408 | (775 | ) | | (367 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net (loss) income |
(2,088 | ) | (1,308 | ) | 1,182 | 126 | (2,088 | ) | ||||||||||||
Other comprehensive income: |
||||||||||||||||||||
Retirement obligations adjustments |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive (loss) income |
$ | (2,088 | ) | $ | (1,308 | ) | $ | 1,182 | $ | 126 | $ | (2,088 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
- 12 -
TOPS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE 16-WEEK PERIOD ENDED APRIL 21, 2012
(Dollars in thousands)
Tops Holding Corporation |
Tops Markets, LLC | Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Net cash (used in) provided by operating activities |
$ | (292 | ) | $ | 11,180 | $ | 7,953 | $ | | $ | 18,841 | |||||||||
Cash flows used in investing activities: |
||||||||||||||||||||
Cash paid for property and equipment |
| (8,253 | ) | (1,189 | ) | | (9,442 | ) | ||||||||||||
Proceeds from insurable loss recovery |
| | 779 | | 779 | |||||||||||||||
Change in intercompany receivables position |
| (292 | ) | (7,448 | ) | 7,740 | | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash used in investing activities |
| (8,545 | ) | (7,858 | ) | 7,740 | (8,663 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows provided by (used in) financing activities: |
||||||||||||||||||||
Borrowings on ABL Facility |
| 43,500 | | | 43,500 | |||||||||||||||
Repayments on ABL Facility |
| (48,500 | ) | | | (48,500 | ) | |||||||||||||
Principal payments on capital leases |
| (3,747 | ) | (105 | ) | | (3,852 | ) | ||||||||||||
Change in intercompany payables position |
292 | 7,448 | | (7,740 | ) | | ||||||||||||||
Change in bank overdraft position |
| (182 | ) | | | (182 | ) | |||||||||||||
Repayments of long- term debt borrowings |
| (141 | ) | | | (141 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by (used in) financing activities |
292 | (1,622 | ) | (105 | ) | (7,740 | ) | (9,175 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net increase (decrease) in cash and cash equivalents |
| 1,013 | (10 | ) | | 1,003 | ||||||||||||||
Cash and cash equivalents-beginning of period |
| 18,351 | 830 | | 19,181 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents-end of period |
$ | | $ | 19,364 | $ | 820 | $ | | $ | 20,184 | ||||||||||
|
|
|
|
|
|
|
|
|
|
- 13 -
TOPS HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE 16-WEEK PERIOD ENDED APRIL 23, 2011
(Dollars in thousands)
Tops Holding Corporation |
Tops Markets, LLC | Guarantor Subsidiaries |
Eliminations | Consolidated | ||||||||||||||||
Net cash (used in) provided by operating activities |
$ | (238 | ) | $ | 12,919 | $ | 9,622 | $ | | $ | 22,303 | |||||||||
Cash flows used in investing activities: |
||||||||||||||||||||
Cash paid for property and equipment |
| (7,263 | ) | (9,691 | ) | | (16,954 | ) | ||||||||||||
Proceeds from sale of assets |
| | 650 | | 650 | |||||||||||||||
Change in intercompany receivables position |
| (238 | ) | (449 | ) | 687 | | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash used in investing activities |
| (7,501 | ) | (9,490 | ) | 687 | (16,304 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash flows provided by (used in) financing activities: |
||||||||||||||||||||
Borrowings on ABL Facility |
| 220,800 | | | 220,800 | |||||||||||||||
Repayments on ABL Facility |
| (215,800 | ) | | | (215,800 | ) | |||||||||||||
Principal payments on capital leases |
| (3,107 | ) | (126 | ) | | (3,233 | ) | ||||||||||||
Repayments of long- term debt borrowings |
| (126 | ) | | | (126 | ) | |||||||||||||
Change in bank overdraft position |
| (290 | ) | | | (290 | ) | |||||||||||||
Deferred financing costs incurred |
| (57 | ) | | | (57 | ) | |||||||||||||
Change in intercompany payables position |
238 | 449 | | (687 | ) | | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net cash provided by (used in) financing activities |
238 | 1,869 | (126 | ) | (687 | ) | 1,294 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net increase in cash and cash equivalents |
| 7,287 | 6 | | 7,293 | |||||||||||||||
Cash and cash equivalents-beginning of period |
| 16,689 | 730 | | 17,419 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and cash equivalents-end of period |
$ | | $ | 23,976 | $ | 736 | $ | | $ | 24,712 | ||||||||||
|
|
|
|
|
|
|
|
|
|
- 14 -
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes and other financial information appearing elsewhere in this report. This report contains forward-looking statements that involve risks and uncertainties. Our actual results may differ from those indicated in the forward-looking statements. See Forward-Looking Statements below.
COMPANY OVERVIEW
We are a leading supermarket retailer in our Upstate New York and Northern Pennsylvania markets. Introduced in 1962, our Tops brand is widely recognized as a strong retail supermarket brand name in our markets supported by strong customer loyalty and attractive supermarket locations. We are headquartered in Williamsville, New York and have approximately 12,100 associates.
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; |
| 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; |
- 15 -
| 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 December 31, 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.
Our condensed consolidated financial statements for the 16-week periods ended April 21, 2012 and April 23, 2011 are unaudited, and, in the opinion of management, contain all adjustments that are of a normal and recurring nature necessary for a fair condensed consolidated statement of financial position and results of operations for such periods.
RECENT 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, which involved the acquisition of substantially all of the assets of The Penn Traffic Company out of bankruptcy, including Penn Traffics 79 retail supermarkets. We have retained 50 of the acquired supermarkets. Three supermarkets were sold during late July and early August 2011, one supermarket was closed in October 2011, and one supermarket was sold in January 2012. Net sales and operating income for these five supermarkets were $12.3 million and $0.1 million, respectively, for the 16-week period ended April 23, 2011. The supermarket that was sold in January 2012 had a nominal impact to our condensed consolidated financial statements for the 16-week period ended April 21, 2012.
RESULTS OF OPERATIONS
16-Week Period Ended April 21, 2012 Compared with 16-Week Period Ended April 23, 2011
Summary
The results of operations during the 16-week period ended April 21, 2012 when compared with the 16-week period ended April 23, 2011 were primarily impacted by a $4.2 million reduction in operating expenses, largely attributable to a $2.3 million decline in utility costs and the impact of our cost containment initiatives. This was partially offset by a $2.4 million decrease in gross profit, which was impacted by a $2.9 million unfavorable change in year-over-year non-cash LIFO adjustments.
- 16 -
Net Sales
The following table includes a comparison of the components of our net sales for the 16-week periods ended April 21, 2012 and April 23, 2011.
(Dollars in thousands)
16-week periods ended | ||||||||||||||||
April 21, 2012 | April 23, 2011 | $ Change | % Change | |||||||||||||
Inside sales |
$ | 639,494 | $ | 658,893 | $ | (19,399 | ) | (2.9 | )% | |||||||
Gasoline sales |
64,886 | 58,366 | 6,520 | 11.2 | % | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net sales |
$ | 704,380 | $ | 717,259 | $ | (12,879 | ) | (1.8 | )% | |||||||
|
|
|
|
|
|
|
|
Inside sales decreased during the 16-week period ended April 21, 2012 compared with the 16-week period ended April 23, 2011 due to a 2.0% decrease in same store sales, combined with the impact of a reduction in year-over-year store count. The decrease in same store sales was attributable to the timing of the Easter holiday and our Monopoly® promotion. The week following Easter, historically a very poor sales week, occurred during the 2012 period, versus the week subsequent to the end of the 2011 period. In 2012, there was a change in the timing of our Monopoly® promotion, which will run from April through July, compared with January through April 2011. The store count reduction resulted from the five acquired Penn Traffic supermarkets that were sold or closed between July 2011 and January 2012. These supermarkets generated inside sales of $12.3 million during the 16-week period ended April 23, 2011. This impact was partially offset by the openings of two new supermarkets in March and September 2011, respectively.
Gasoline sales increased during the 16-week period ended April 21, 2012 compared with the 16-week period ended April 23, 2011 due to an 8.4% increase in the retail price per gallon. Additionally, the number of gallons sold increased 2.6%, primarily due to the addition of four new fuel stations since July 2011.
Gross Profit
The following table includes a comparison of cost of goods sold, distribution costs and gross profit for the 16-week periods ended April 21, 2012 and April 23, 2011.
(Dollars in thousands)
16-week period ended April 21, 2012 |
% of Net Sales |
16-week period ended April 23, 2011 |
% of Net Sales |
$ Change | % Change | |||||||||||||||||||
Cost of goods sold |
$ | (490,707 | ) | 69.7 | % | $ | (500,744 | ) | 69.8 | % | $ | (10,037 | ) | (2.0 | )% | |||||||||
Distribution costs |
(13,767 | ) | 2.0 | % | (14,163 | ) | 2.0 | % | (396 | ) | (2.8 | )% | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
$ | 199,906 | 28.4 | % | $ | 202,352 | 28.2 | % | $ | (2,446 | ) | (1.2 | )% | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of net sales, cost of goods sold remained relatively consistent during the 16-week period ended April 21, 2012 compared with the 16-week period ended April 23, 2011. We experienced a change in LIFO inventory valuation adjustments from income of $0.7 million during the 16-week period ended April 23, 2011 to expense of $2.2 million during the 16-week period ended April 21, 2012. Excluding the impact of non-cash LIFO adjustments, cost of goods sold as a percentage of net sales was 69.4% and 69.9% during the 16-week periods ended April 21, 2012 and April 23, 2011, respectively. This improvement was a result of a continuation of pricing improvements made in 2011, promotional spending charges, as well as cost deflation in dairy commodities experienced during the 16-week period ended April 21, 2012. These factors were partially offset by the higher proportion of gasoline sales versus inside sales, as gasoline sales occur at higher cost of goods sold percentages.
Distribution costs remained consistent during the 16-week period ended April 21, 2012 compared with the 16-week period ended April 23, 2011.
- 17 -
Operating Expenses
The following table includes a comparison of operating expenses for the 16-week periods ended April 21, 2012 and April 23, 2011.
(Dollars in thousands)
16-week period ended April 21, 2012 |
% of Net Sales |
16-week period ended April 23, 2011 |
% of Net Sales |
$ Change | % Change | |||||||||||||||||||
Wages, salaries and benefits |
$ | 99,230 | 14.1 | % | $ | 98,982 | 13.8 | % | $ | 248 | 0.3 | % | ||||||||||||
Selling and general expenses |
29,818 | 4.2 | % | 33,383 | 4.7 | % | (3,565 | ) | (10.7 | )% | ||||||||||||||
Administrative expenses |
23,870 | 3.4 | % | 25,483 | 3.6 | % | (1,613 | ) | (6.3 | )% | ||||||||||||||
Rent expense |
5,980 | 0.8 | % | 5,903 | 0.8 | % | 77 | 1.3 | % | |||||||||||||||
Depreciation and amortization |
16,029 | 2.3 | % | 15,041 | 2.1 | % | 988 | 6.6 | % | |||||||||||||||
Advertising |
5,646 | 0.8 | % | 5,990 | 0.8 | % | (344 | ) | (5.7 | )% | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 180,573 | 25.6 | % | $ | 184,782 | 25.8 | % | $ | (4,209 | ) | (2.3 | )% | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Wages, Salaries and Benefits
As a percentage of net sales, the increase in wages, salaries and benefits during the 16-week period ended April 21, 2012 compared with the 16-week period ended April 23, 2011 was largely attributable to lower vacation expense of $0.7 million during the 2011 period related to a policy change for union associates that modified the period over which vacation time is earned. Additionally, we experienced a $0.6 million increase in holiday pay due to the New Years holiday falling within the 2012 period, which began January 1, 2012, versus the 2011 period, which began January 2, 2011.
Selling and General Expenses
As a percentage of net sales, the decrease in selling and general expenses during the 16-week period ended April 21, 2012 compared with the 16-week period ended April 23, 2011 was largely due to a $2.3 million decrease in utility costs, primarily attributable to lower commodity costs for electricity. Additionally, we recognized a $0.8 million gain related to an insurable flood loss recovery that was recorded within selling and general expenses during the 16-week period ended April 21, 2012. We also benefitted from the renegotiation of certain cleaning contracts that resulted in a $0.4 million reduction in expense during the 16-week period ended April 21, 2012.
Administrative Expenses
The decrease in administrative expenses during the 16-week period ended April 21, 2012 compared with the 16-week period ended April 23, 2011 was primarily attributable to a $0.6 million reduction in IT outside professional fees and software maintenance expenses, combined with $0.5 million of severance expense related to corporate headcount reductions during the 16-week period ended April 23, 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 16-week period ended April 21, 2012 compared with the 16-week period ended April 23, 2011.
Depreciation and Amortization
The increase in depreciation and amortization during the 16-week period ended April 21, 2012 compared with the 16-week period ended April 23, 2011 was largely attributable to incremental depreciation and amortization associated with 2011 and 2012 capital expenditure activity.
- 18 -
Advertising
Advertising remained consistent during the 16-week period ended April 21, 2012 compared with the 16-week period ended April 23, 2011.
Interest Expense, Net
The $1.0 million decrease in interest expense during the 16-week period ended April 21, 2012 compared with the 16-week period ended April 23, 2011 was primarily attributable to a $0.6 million reduction in capital lease interest expense resulting from the decrease in outstanding principle obligation balances, as well as reduced borrowings under our ABL Facility during the 16-week period ended April 21, 2012.
Income Tax Expense
The income tax expense for the 16-week period ended April 21, 2012 primarily reflects the recognition of additional valuation allowance associated with our indefinite-lived tradename deferred tax liability. The overall effective tax rate was 36.2%. The effective tax rate would have been 39.4% without the impact of federal tax credits and adjustments to the valuation allowance.
The income tax expense for the 16-week period ended April 23, 2011 reflects the establishment of additional valuation allowance against net deferred tax assets resulting from the pre-tax loss during the period. The overall effective tax rate was (21.3)%. The effective tax rate would have been 34.5% without the impact of the additional valuation allowance and discrete charges.
Net Income (Loss)
Our net income (loss) improved to net income of $0.7 million during the 16-week period ended April 21, 2012 compared with net loss of $2.1 million during the 16-week period ended April 23, 2011.
LIQUIDITY AND CAPITAL RESOURCES
See Note 6 to our condensed consolidated financial statements for a description of our credit facilities.
Our primary sources of cash are cash flows generated from our operations and borrowings under our ABL Facility. We believe that these sources will be sufficient to meet working capital requirements, anticipated capital expenditures and scheduled debt payments for at least the next twelve months. Our ability to satisfy debt service obligations, to fund planned capital expenditures and to make acquisitions will depend upon our future operating performance, which will be affected by prevailing economic conditions in the grocery industry and financial, business, and other factors, some of which are beyond our control.
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)
16-week periods ended | ||||||||
April 21, 2012 | April 23, 2011 | |||||||
Cash provided by (used in): |
||||||||
Operating activities |
$ | 18,841 | $ | 22,303 | ||||
Investing activities |
(8,663 | ) | (16,304 | ) | ||||
Financing activities |
(9,175 | ) | 1,294 |
Cash provided by operating activities during the 16-week period ended April 21, 2012 decreased $3.5 million compared with the 16-week period ended April 23, 2011 due to changes in operating assets and liabilities which represented a use of cash of $5.9 million during the 16-week period ended April 21, 2012, compared to a source of cash of $3.1 million during the 16-week period ended April 23, 2011. 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. This decrease was partially offset by a $5.6 million increase in earnings, adjusted for non-cash income and expenses.
Cash used in investing activities during the 16-week period ended April 21, 2012 decreased $7.6 million compared with the 16-week period ended April 23, 2011, primarily due to the timing of capital expenditure activities. We expect to invest $35 million to $40 million in capital expenditures during the next 12 months.
- 19 -
Cash (used in) provided by financing activities decreased $10.5 million during the 16-week period ended April 21, 2012 compared with the 16-week period ended April 23, 2011 as a result of the change in net borrowings and repayments related to our ABL Facility.
Multiemployer Pension Plans
We contribute to the United Food and Commercial Workers District Union Local One (Local One) plan, a defined benefit multiemployer pension plan, under our collective bargaining agreements with Local One. The Local One plan generally provides retirement benefits to participants based on their service to contributing employers. During the 16-week periods ended April 21, 2012 and April 23, 2011, we made contributions of $2.9 million and $3.0 million, respectively, to this plan.
We will be required to increase our annual contributions to the Local One plan pursuant to our collective bargaining agreements and the Local One plans rehabilitation plan. We are also contingently liable for withdrawal liability in the event that we withdraw from the Local One plan. In accordance with applicable accounting rules, our contingent withdrawal liability is not included in our condensed consolidated financial statements. We have no intention to withdraw from the Local One plan.
In addition, at the time we entered into our supply arrangement with C&S Wholesale Grocers, Inc. (C&S), which supplies approximately 60% of our products, 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 other multiemployer pension plans, we have certain contractual indemnification obligations for withdrawal liability that may arise in the event of C&Ss withdrawal from such plans, or upon termination of the supply agreement.
Off-Balance Sheet Arrangements
Other than our operating leases, contingent multiemployer pension liabilities previously discussed, and letters of credit, 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 condensed consolidated 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 December 31, 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, leases, self-insurance programs and income taxes.
Recent Accounting Pronouncements
Recent Accounting Pronouncements are included in Note 2 to the condensed consolidated financial statements in Item 1 of Part I of this report.
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. We do not enter into derivative financial instruments for trading purposes. 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. The interest rate derivatives we use are straightforward instruments with liquid markets.
- 20 -
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 April 21, 2012, we did not have any outstanding interest rate swaps designated as fair value or cash flow hedges.
The table below provides information about our outstanding debt as of April 21, 2012. The amounts shown for each year represent the contractual maturities of long-term debt, excluding capital leases. 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 April 21, 2012. The Fair-Value column includes the fair-value of our debt instruments as of April 21, 2012. Refer to Note 1 of our condensed consolidated financial statements in Item 1 of Part I of this report for information about our accounting policy for financial instruments.
(Dollars in thousands)
Expected Fiscal Year of Maturity | ||||||||||||||||||||||||||||
Remainder of 2012 |
2013 | 2014 | 2015 | 2016 | Thereafter | Fair Value | ||||||||||||||||||||||
Debt |
||||||||||||||||||||||||||||
Fixed rate |
$ | 293 | $ | 2,290 | $ | 280 | $ | 350,165 | $ | | $ | | $ | 377,528 | ||||||||||||||
Average interest rate |
7.1 | % | 3.5 | % | 7.1 | % | 10.1 | % | N/A | N/A | ||||||||||||||||||
Variable rate |
$ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||||
Average interest rate |
N/A | N/A | N/A | 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 that are not considered predictable or within our control.
ITEM 4. | CONTROLS AND PROCEDURES |
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of April 21, 2012, the Chief Executive Officer and the Chief Financial Officer, together with certain designated members of the finance and accounting organization, evaluated the Companys disclosure controls and procedures. Based on that evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that those disclosure controls and procedures were effective as of April 21, 2012.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There was no change in the Companys internal control over financial reporting during the 16-week period ended April 21, 2012 that has materially affected, or is reasonably likely to materially affect, the Companys 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 results of operations, financial position or cash flows.
ITEM 1A. | RISK FACTORS |
There are no material changes from risk factors for the Company disclosed in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2011.
- 21 -
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 16-week period ended April 21, 2012, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations and Comprehensive Income (loss), (ii) Condensed Consolidated Balance Sheets, (iii) Condensed Consolidated Statements of Cash Flows, and (iv) Notes to the Condensed Consolidated Financial Statements. |
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 and Chief Financial Officer | ||
June 4, 2012 |
- 22 -
Exhibit 31.1
CERTIFICATIONS PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
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 Companys 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 Companys 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 Companys internal control over financial reporting that occurred during the Companys most recent fiscal quarter (the Companys fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting. |
5. | The Companys other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Companys auditors and the audit committee of the Companys 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 Companys 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 Companys internal control over financial reporting. |
Date: June 4, 2012 |
/s/ Frank Curci |
Frank Curci |
Chief Executive Officer |
Exhibit 31.2
CERTIFICATIONS PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
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 Companys 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: |
c. | 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; |
d. | 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; |
e. | evaluated the effectiveness of the Companys 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 |
f. | disclosed in this report any change in the Companys internal control over financial reporting that occurred during the Companys most recent fiscal quarter (the Companys fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting. |
5. | The Companys other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Companys auditors and the audit committee of the Companys board of directors (or persons performing the equivalent functions): |
g. | 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 Companys ability to record, process, summarize and report financial information; and |
h. | any fraud, whether or not material, that involves management or other employees who have a significant role in the Companys internal control over financial reporting. |
Date: June 4, 2012 |
/s/ William R. Mills |
William R. Mills |
Chief Financial Officer |
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 16-week period ended April 21, 2012 (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, 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 |
Chief Executive Officer |
June 4, 2012 |
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 16-week period ended April 21, 2012 (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, 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 |
Chief Financial Officer |
June 4, 2012 |
Intangible Assets, Net
|
4 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Apr. 21, 2012
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible Assets, Net [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INTANGIBLE ASSETS, NET |
3. INTANGIBLE ASSETS, NET Intangible assets, net of accumulated amortization, consist of the following (dollars in thousands):
The Tops tradename is reviewed for impairment on December 1 or more frequently if impairment indicators arise. Based on the Company’s assessment, no impairment was recorded during the 16-week periods ended April 21, 2012 and April 23, 2011. During the 16-week periods ended April 21, 2012 and April 23, 2011, amortization expense was $2.2 million and $2.7 million, respectively, and is included in administrative expenses in the condensed consolidated statements of operations and comprehensive income (loss). As of April 21, 2012, expected future amortization of intangible assets is as follows (dollars in thousands):
|